Smoke and mirrors’ is a metaphor for deception, diversion or insubstantial explanation. The expression’s origin is attributable to magicians’ illusions, where they make objects appear or disappear by extending or retracting mirrors amid a dis- tracting burst of smoke.

But this does not explain ‘water in the tariff’ or ‘smoke in the water’, or does it?

Let us quickly rewind. In recent weeks, the financial media has been abuzz with the challenges that the iron and steel industry is experiencing. Business Day, for example, reported on September 10 that ArcelorMittal South Africa (AMSA) CEO Paul O’Flaherty had informed the newspaper that the steelmaking company would be asking government for tariff protection on all its products and that it would seek specific trade remedies for some products, such as antidumping duties, safeguard duties and countervailing duties. According to the article, it was the biggest request for protection by an industry in more than 20 years. AMSA would seek ‘bound rates’ on all products, and antidumping and countervailing duties on some. The article concludes by stating that the tariff application lodged with the International Trade Administration Commission of South Africa (Itac) is for a maximum rate of customs duty of 10% ad valorem.

So, what did you observe in all this? You need to read between the lines. (The expression to ‘read between the lines’ is said to have originated from messages actually hidden in disappearing ink or otherwise concealed between the lines of text. This means that you need to find meaning in a text that is not obvious on cursory examination.)

An application for ‘tariff protection’ implies that the applicant will be seeking an increase in the rate of customs duty – the ‘general’ rate of customs duty. It excludes an increase in the rate of customs duty on imports from European Union (EU), European Free Trade Association (EFTA) or Southern African Development Community (SADC) member countries. The current rate of the ‘ordinary’ customs duty is known as the prevailing rate, or the ‘applied rate’. The Business Day article makes reference to the ‘maximum rate of customs duty’, which is known as the ‘bound rate’ (or ‘ceiling’ rate) of the ‘ordinary’ customs duty that may be imposed.

The ‘bound rate’ is the product-specific (read tariff subheading) rate that a country negotiated with World Trade Organisation (WTO) member countries during the Uruguay Round, which culminated in the establishment of the WTO.

The difference between the ‘bound rate’ of the ‘ordinary’ customs duty and the ‘applied rate’ of the ‘ordinary’ customs duty is referred to as the ‘water in the tariff’. The ‘water’ is also known as the ‘binding overhang’ or ‘policy space’.

This implies that, if the ‘water’ (or ‘tariff water’) exists, then the relevant authorities in a country could increase the ‘ordinary’ rate of customs duty from the ‘applied rate’ to the ‘bound rate’ while fully complying with its WTO obligations.

Rather than being excited at the prospect of increasing the ‘ordinary’ rate of customs duty to the ‘applied rate’, one should ask why there is ‘water in the tariff’ in the first place? Quite simply, the South African government reduced the ‘general’ rate of customs duty on various tariff subheadings to levels that exceeded its WTO commitments. You might recall the immortal words of Leslie Boyd, of Anglo American, who famously remarked that the South African government was “holier than GATT (the General Agreement on Tariffs and Trade)” in reducing the rate of ‘ordinary’ customs duty at a rate faster than it negotiated with the WTO.

Reducing the rate has also impacted on the rates of customs duty for imports from the EU, the EFTA and the SADC.

What the South African government wanted to achieve through its ‘holier than GATT’ practice is anyone’s guess. Arguably, South Africa’s deindustrialisation could in part or in totality be attributed to this course of action. The added concern with the creation of the ‘water in the tariff’ is that, in future WTO tariff negotiations, WTO member countries could engage one another from the ‘applied rate’. It would be interesting to know the nature and the extent of the water in the South African tariff.

So, one could conclude that this was the reason why Itac was considering increasing the rate of ‘ordinary’ customs duty to the ‘bound rate’. This would explain why AMSA is also contemplating trade remedy applications. There are two types of trade remedies: unfair trade remedies and fair trade remedies. (To clarify, it is not the remedy that is fair or unfair, but the nature of the practice that it intends to remedy.) Dumping and countervailing (antisubsidy) duties are considered to be unfair trade remedies, while safeguard duties are considered to be fair trade remedies. In the case of trade remedies, the rate is dependent on the trade remedy margin and not subject to WTO negotiations.

Following on from the concept of ‘water in the tariff’, there is a concept which considers the extent of the ‘tariff water’ – its depth, if you will. This is called the ‘smoke in the water’. The calculation essentially considers the Most Favoured Nation, or MFN, rate of the ‘ordinary’ rate of customs duty, also known as the ‘applied rate’ of the ‘ordinary’ customs duty, and compares it with the ‘bound rate’ of the ‘ordinary’ customs duty in order to derive the ‘water in the tariff’, which is then compared with other countries – the ‘smoke in the water’.

Wheelbarrows Definitive Antidumping Duties
On September 4, the South African Revenue Service (Sars) informed of the imposition of definitive antidumping duties on wheelbarrows originating in or imported from the People’s Republic of China. The notice states that the imposition of the antidumping duties is with retrospective effect from March 6. This means that the provisional antidumping duties were imposed on this date.

Tariff Amendments – Comment Due
Sars, on September 10, published draft tariff amendments for chips or French fries as well as consequential safeguard duties on which comment is due by September 25.

Aluminium Plate Tariff
On September 11, Itac invited comment on Hulamin Operations’ application for an increase in the ‘general’ rate of customs duty on certain aluminium plates, sheets, strips and foil products classifiable under tariff headings 7606 and 7607 from free of customs duty to the WTO ‘bound rate’ of customs duty to 15% ad valorem. Comment is due by October 9.