NEWS

The Future Was Already Written in the Data

Safeguard protection is granted whenever an industry is suffering from serious financial injury, caused by an increase in imports, which was because of unforeseen developments stemming out of the 1994 GATT negotiations, to which South Africa was a signatory.

Safeguard measures are enacted to ensure enough breathing room for the domestic manufacturing industry in distress to adjust and become more competitive, usually within a period of 3-6 years.

For this remedial protection to be effective, these safeguard duties need to be monitored and enforced across the board. However, as part of the Safeguard Agreement, the Safeguard Regulations creates an “Exempted Countries” list. This exemption has shown to provide a safeguard duty-free roue for imports from countries which are developing in nature and from where imports did not originate prior to the imposition of the safeguard duties.

The” circumvention” becomes a problem when the bigger importers switch their sources from imports from the traditional exporting countries like China and Russia, to smaller, developing nations, like Taiwan and Indonesia, effectively bypassing the Safeguard duties in their entirety.
Other WTO member countries would normally act quickly against these changes by removing these “developing nations” quickly once its import volume exceeds the established threshold. No further investigation is required.

In South Africa, the remedial action linked to the imposition of safeguard measures are failing because the officer in charge of this administrative action, the Minister of Trade, Industry and Competition, Minister Dave Patel, fails in his duty to authorise these exempted country removals immediately, or at all in some cases. Imports that reduced because of the imposition of the safeguard duties, with a resultant uptick in local production, regained lost ground within a year of the duties being imposed, rendering the safeguard protection completely impotent.

Below is an import chart, providing insight on how imports of Hexagon Nuts, a product protected by safeguard duties have climbed to almost pre-safeguard levels, because of a lack of action by the government to curb imports from developing nations.

In May 2010, President Obama stood on the factory floor of Solyndra, a solar panel manufacturer in Fremont, California, backed by a $535 million federal loan guarantee, and told the assembled workers that the future was here. The company was planning to hire a thousand more people. Sixteen months later, in September 2011, Solyndra shut its doors overnight and laid off 1,100 of them. Two other American solar manufacturers, Evergreen Solar and SpectraWatt, had already collapsed the month before. The formal trade case against the subsidized Chinese imports that helped cause the crash was not even filed until October, after all three companies were already gone. Nobody involved lacked information. What was missing was someone reading, early and consistently, what the trade data had been saying for three years.

That data told a plain story. Chinese solar panel prices fell from roughly $3.30 a watt in 2008 to $1.20 a watt by late 2011, a collapse driven by a wave of state-backed manufacturing capacity that Beijing poured into the sector and that flooded straight into the American market. Tracked quarter by quarter, that price line and the import volumes behind it were the clearest early-warning signal a market can produce. It sat there for three years while the companies it would eventually kill kept building product lines around prices that no longer existed. By the time Commerce finally issued its final antidumping and countervailing duty determinations at the end of 2012, more than a year after the first bankruptcy, the American manufacturing base the case was meant to protect had already been gutted.

South Africa lived a version of the same story a few years later. European Union chicken accounted for well under ten percent of South African consumption when the crisis broke into public view, a small number that concealed how fast it was moving and how far below cost it was landing. By the time government imposed a safeguard tariff in December 2016, industry groups were already reporting 4,000 to 5,000 jobs lost and warning that a further 110,000 jobs in poultry and 20,000 in feed supply were at risk. RCL Foods cut 1,350 jobs, a fifth of its own workforce, in a single month that January, and began selling off farms. Formal anti-dumping duties on EU bone-in chicken took years longer still to fully land, moving through provisional measures, suspensions and reviews well into the following decade. None of the volume growth behind any of it was hidden. It sat in SARS import records the entire time, reconcilable by anyone willing to do the work, long before the first plant closure made a headline.

Run the counterfactual on either case and the value of reading the data early stops being abstract. Push the clock back even eighteen months, to when the trend was already visible but the injury had not yet compounded, and an industry walks into its trade remedy application with evidence in hand rather than a crisis to explain. Fewer jobs are already gone by the time the safeguard or the duty finally lands, because the application itself lands sooner. The legal process cannot be rushed once it starts. From application to a definitive duty typically runs well over a year, sometimes close to two, and verification, disclosure and comment periods exist for good reason and will not shorten because an industry waited too long to begin. The only variable actually within an industry's control is when the clock starts, and that is entirely a function of whether someone was reading the trade data as it came in, rather than after the layoffs had already happened.

The old line about planting a tree needs almost no adjustment to fit here. The best time to start reading your trade data properly was several years before the surge became a crisis. The next best time is today, while whatever trend is currently building in your own numbers is still just a trend, and while a full range of responses is still on the table.

We spend a good deal of our time doing exactly this kind of reading: reconciling customs data properly and tracking what it actually says about where a market is heading, for clients pursuing trade remedy cases and for those simply trying to see their industry clearly before someone else does. If a shift in your own import numbers has been nagging at you, we are glad to take a proper look.

-Misha de Lange