In a globalising world, one is increasingly likely to be prosecuted at home for crimes committed abroad. Sexual tourists, for example, may find themselves in huge trouble once they have returned home for offences committed while on holiday. Likewise, soldiers of fortune may face prosecution at home for their activities, for example, as hired guns in Iraq.
These are examples of criminal sanction.
In trade, companies that fall foul of international conventions, such as those of the World Trade Organisation (WTO), can find civil penalties imposed for their activities far from home.
If a company sells products in a foreign market cheaper than at home, the foreign country can impose duties on such imports into that country. The idea is that selling more cheaply offshore than at home means that home users are subsidising the cost of exports.
This is called dumping. Most importing countries are extremely wary of such subsidies as they give imported products an unfair advantage. If subsidised prices are allowed to continue over time, whole industries can be decimated. Import-parity pricing raises the domestic price and has the same effect as dumping.
WTO rules allow for the importing country to impose an import duty on dumped products — a countervailing duty — equivalent to the difference between the domestic and exported price. This neutralises the subsidy, contributing to fairer and freer international trade.
The government is threatening to implement a set of measures to curb the practice of import-parity pricing. This is where a dominant supplier is able to charge in excess of international prices by adding the cost of shipping, insurance and related costs to the selling price in an offshore market.
You may be sourcing your steel (from Mittal Steel or chemicals from Sasol) just down the road in Gauteng, but it is charged to you as though it was bought in Hong Kong, shipped across the Indian Ocean, off-loaded in Durban and trucked to Johannesburg.
South African manufacturers have found to their dismay that the South African product is often sold much more cheaply in markets in the East, for example, than it can be bought at home because of import-parity pricing.
This is the case even though it has to be trucked from Gauteng to Durban, loaded on a ship and transported across the Indian Ocean.
Where South African exporters do this they run the risk of having anti-dumping duties imposed on them.
Getting away with dumping can be thought of in the same way as committing an infringement in rugby without the referee noticing. “Hey, they bought our excess stuff and we didn’t have to pay extra duties.”
But all you’re really doing as a country is exporting growth and jobs. The competition gets inputs such as steel and chemicals more cheaply than your own manufacturing industry does. It is like throwing the ball to the opposing team.
This kind of practice looks great on the profit line but doesn’t help make a dent in the unemployment statistics.
The government has been vocal on the need for reforms to curb import- parity pricing, but has been a lot less clear about how it will go about this.
The companies that are throwing the ball to the opposition are, after all, privately owned. Shareholders want their managements to maximise returns.
If this means they should price their products as though they came by ship from afar, were offloaded after queuing at Durban and then sent by toll road on a flatbed truck, this is what the shareholders want. And if it means that foreigners are supplied more cheaply than customers at home even though they actually have to transport product vast distances at considerable cost, so be it.
The government is in protracted discussions with the serial offenders in these pricing activities, but is yet to show its hand as to what it will actually do to help ensure that manufacturing input costs are more competitively priced.
One mooted idea in the case of steel, which seems obvious, is to scrap a 5% import surcharge which still inexplicably protects South African steel producers.
Another suggestion is that the competition authorities will be brought in.
A solution may be simply to internally impose a levy equivalent to the difference between the foreign and local price. It would be the equivalent of an anti-dumping duty, but imposed in the local market.
It would help ensure that local manufacturers pay no more than their foreign competitors for South Africa-produced materials such as steel and chemicals.