A tariff investigation in South Africa is meant to take six months. Donald MacKay, whose XA Global Trade Advisors released its latest import duty report this week, told Alec Hogg the average had stretched to 40 months, and that the oldest open case was old enough to start school. He explained why the International Trade Administration Commission was only part of the problem, how a groundnut processor gave up waiting and shut its factory, and why ArcelorMittal had become the most protected company in the country while the businesses downstream paid for it. He was also unusually calm about losing AGOA, called Washington's demands badly delivered but not irrational, and warned that secret deals attached to tariff decisions created exactly the conditions where corruption could take root, though he stressed he had no evidence it had..Listen here.Edited transcript of the interview.Alec Hogg (00:01): Donald MacKay of XA Global Trade Advisors has been counting the cost of a trade system that can't make decisions. He released a blockbuster report this week. He wrote the report himself so that any blowback lands on him, not on his staff. Donald, good to have you back. You've been at our conferences, you've said some very interesting things. In fact, next week we've got a debate, haven't we, with the chief of naamsa [and] the CEO of Toyota, where we're going to talk about those subsidies.Donald MacKay (00:34): Yes, indeed, I look forward to it.Alec Hogg (00:37): I do too. And I think there'll be quite a lot of questions that need to be asked and presumably will be answered. But this one is a state body that actually looks after the tough things like tariffs, dumping. And this state body, if you take it from a consumer's perspective, is a very important organisation, because when our exporters or our traders, importers get charged more, that lands up on the shelves. So we pay for it. And the research that you've done and the presentation that you gave this week suggests that this body called ITAC is pretty dysfunctional.Donald MacKay (01:22): Yeah, it's become that way. It certainly wasn't always. I mean, this is one of these government bodies which has a material effect on your life, but which you have no idea about. So they're called the International Trade Administration Commission. They do sit under the DTIC, but they have their own legislation and they are independent in the same way that the Competition Commission would be. And so their job is essentially to do one big and very important job, and that is to determine what the tariffs are that you need to pay on a product that you import, whether they be anti-dumping duties or any other kind of tariff. And the second thing is to help manage import and export control. So if I'm going to import a particularly dangerous chemical, you wouldn't simply want that to come in without any oversight. And so they do these two very important jobs and they have a material impact on the economy, but most people are unaware of them.And the dysfunction that manifests, I think it would be unfair to place all of the blame on ITAC, although of course they have to shoulder some of that blame. But much of the problem here starts arising when Minister Patel takes over the newly merged DTI and Economic Development departments, which becomes the DTIC. And that is when the really poor performance begins, and it's never recovered.Alec Hogg (03:00): When did that happen, and how much better was it previously?Donald MacKay (03:04): Yep. So a tariff investigation, according to ITAC themselves, and you can check this on their own website, should take around six months. Now, we accept you could have a big and very complicated investigation that may take longer, but six months is their own benchmark. So it's not us deciding that that is correct. And for most of ITAC's existence, before 2019, the average was sort of in that space, six months, sometimes twelve months, seldom much longer than that. In fact, in the early days of ITAC, they changed that benchmark from 12 months to six months because they said, look, we've got to do these things quicker. Now the average is 40 months.Alec Hogg (03:49): Forty. Six to forty.Donald MacKay: Yeah, six to forty is a fairly big jump. And then we have the oldest open investigation, which is now 76 months old. So if this was a child, they'd be going to school. It's six years.Alec Hogg (04:06): Six years old. What investigation is that? Why has it taken so long?Donald MacKay: Well, the why is a question I simply cannot answer, and it perhaps would be a very good question to pose to ITAC themselves and let them answer the question. I don't know why it is that old. And there are a number of them that are kind of in the four, five, six-year range. So it's not one anomaly. I mean, one is at the extreme end, but there are others rapidly heading in the same direction.Alec Hogg (04:40): Well, there's this wonderful saying about [a fish rotting] from the head. And perhaps, I don't know if there's anything to do with this, but we know when [Cyril Ramaphosa] was in business, he was famous for never being able to make a decision. Those who sat on boards with him said, this is the guy [where] someone else will make the decision. Now we've seen during his time leading the country, he struggles to make a decision. Is this a little bit of that maybe in ITAC, in that they seem to not be making decisions, certainly if it's taking that long?Donald MacKay (05:13): Well, there are three decision makers here. So before we apportion blame just to ITAC, there's the Minister of Trade, Industry and Competition. So what ITAC does is they wrap up their investigation, they send a recommendation to the minister. He has a look at it. In the era before Minister Patel, Minister Rob Davies would sign off on those fairly quickly, and the reason for that is ITAC's done the investigation. Then the Minister of Finance is the final person to sign off, and it would then be implemented and the change would happen, whatever that might be. So we don't know where in that chain the hold-up is sitting. My assumption is, when you're at six years old, ITAC has probably actually moved it off their desk and it's probably sitting with one of the ministers.But at the same time, before we entirely let ITAC off the hook, we must remember that the client, the company who approaches ITAC and says, "I need duty protection," or "You should take these duties off my raw material," whatever the case might be, only deals with one body. And so you have some kind of obligation to, at the very least, manage the expectations of people. So ITAC, for example, hasn't updated their benchmark to say, well, expect it to take forty months for a decision. They've instead left it at six months. So now you've got this disconnect, Alec, which I think is a really big problem.Alec Hogg (06:57): So why should we care about this? It sounds arcane. It sounds like some more bureaucratic red tape, treacle that just bedevils the country, and we know there's a lot of that. Why should we care particularly in this matter?Donald MacKay (07:13): So I think there is an element of that here, but I think we should care about it because there are jobs at stake. So, for example, we have a groundnut processor who applies for increased duty protection. Now, I'm not debating if it's a good or bad idea to increase the duties, but they apply for it, and then 50 months passes, and eventually they say, "Okay, we're closing down the factory and we are withdrawing our application. We can't any longer wait." Now, that's an implication of not taking a decision, and there are many other examples of that. There's a court case where papers have already been served, because the company is saying, "You took so long to make a decision. How can this decision still be rational?" So even though you might be unaware of that groundnut case specifically, the people that work in that factory would be incredibly aware of the delay and what its effect was.Alec Hogg (08:19): So, for people who don't understand much about trade, you get dumping, which perhaps you need to explain to us, where dumping comes from. And then in this groundnut company's example, presumably there was dumping from some part of the world, and they said, "You've got to stop this dumping, or at least charge something to these guys." And it took more than four years for them to get an answer, by which time they were gone. They were out of the business. I mean, that's how I read it. Is that accurate?Donald MacKay (08:52): No, it isn't, actually. So dumping is quite a different thing to what we're dealing with here. So in the tariff space, governments have a certain amount of autonomy to change their tariffs under the WTO rules. Dumping deals with a prohibited practice under the WTO. And so that's still managed by ITAC, but it's a completely different part of ITAC who look at things like dumping. Now, the dumping instrument, Alec, has its own set of problems, but they're very different problems to here, because unlike with the normal tariff case, an anti-dumping duty by law has to be completed in eighteen months. And so because there's a deadline, it drives the process a lot harder than if there isn't.Alec Hogg (09:44): Got it. So in this case, it's a self-imposed deadline of six months, which is not being adhered to, and it's just gone longer and longer. But how many cases are actually open, or how many companies might be hurt by this?Donald MacKay (10:03): Yeah, so it gets quite complicated there, because sometimes you've got the same company applying for tariffs on different products. You know, they may have a range of products, or they're asking for duty reductions on a range. But if I had to estimate, Alec, I would say thirty or forty companies. And some of them are sectors, so it's not just one company, it could be a consortium of companies who are having a particular problem. And importantly, this is an equal-opportunity offender. It doesn't matter if you're asking for more tariffs or fewer tariffs, your delays are kind of evenly spread.Alec Hogg (10:45): Okay, so the treacle is not looking at one side or the other. But what about special situations? I did see in your report that you mentioned ArcelorMittal seemed to have been favourably treated.Donald MacKay (10:59): Yes, they have been. So, I mean, [ArcelorMittal] is currently the single most protected company in the country, without a shadow of a doubt. They've used every instrument you can possibly think of. So it's been duty increases, it's been anti-dumping actions, safeguard actions, everything you can think of has been piled on top of each other. So I want to say the steel sector is the most protected, but in fact the bulk of the steel sector sits downstream from [ArcelorMittal]. So the primary producer is the most protected company, and everyone downstream from there is taking a material amount of pain.Alec Hogg (11:46): But they want to sell that business now to the IDC. So if you had an outside party that was successful in getting all of this protection, can you just imagine if the government takes over how much more that protection would go up? And by your information, the people down the chain will be paying higher prices throughout. And I guess that adds a lot of inflation to the economy.Donald MacKay (12:14): Well, yeah, the inflation is one part of it, but it gets far worse than that. So ninety percent or thereabouts of the employment in the steel industry is downstream. So the fabricator, the guy who makes your metal fence or whatever it might be. The problem when you raise the cost of a key raw material is everything downstream from there becomes more expensive. You're no longer competitive in export markets. Your product becomes too expensive. So instead of the person replacing whatever the widget is after five years, they push it out to six or seven years. There are all sorts of downstream decisions which get taken, and the impact on those businesses is particularly severe.Alec Hogg (13:04): Okay, but let's just get back to the whole ITAC story and the possibility that we're going to have an even bigger problem for them to deal with, which is with AGOA and the fight that's going on with the United States. The stakes seem to be very high there. Is ITAC involved at all? Or should we be worried, if they seem to be so slow, that Trump is going to do something and we might take years to retaliate?Donald MacKay (13:36): Yeah, so ITAC in fact is not particularly involved there. It's largely a political discussion, so Minister Parks Tau is involved. Regarding the AGOA thing, I think we massively overstate the negative impact of losing AGOA. You know, I'd like us to have access to AGOA, but the reality, Alec, is that before President Trump went a little crazy last year with his Liberation Day tariffs, etc., the benefit to importers in the US under AGOA was two billion rand a year. Now, in my life, in your life, that is a lot of money. In our total trade, that is truly a rounding error. And almost all of that benefit flowed to a very small number of companies, seven, eight companies, [took] most of that benefit.So if we were to lose AGOA, I mean, it wouldn't be good. The agricultural sector, particularly products like wine, table grapes, would feel some pain. But the reality is the problem we have with the US is the unpredictability of its president and its trade policy. You know, the average benefit under AGOA was 3.5%, but we now have a tariff on cars of 25%. So I think AGOA is a storm in a teacup.Alec Hogg (15:07): Except for the wine farmers and the table grape growers, etcetera, who are pretty much Trump supporters, if you listen to the different politicians. So they're going to get hurt by the guy they admire.Donald MacKay (15:23): Well, they are being hurt by the guy they admire, and they should perhaps call into question their admiration. But the reality is the other problems with the US are far bigger. And South Africa cannot set its trade policy based on one sector. We've got to look at the whole economy. You know, the job of government can't be to look after a particular wine farmer or grape producer, whatever the case might be. We've got to say, overall, are we better off or worse off as a country? And at this point, I increasingly think the relationship with the US, the unpredictability and the aggression, is harmful to South Africa.Alec Hogg (16:05): [Cyril Ramaphosa] said earlier this week that we need to prepare for basically leaving AGOA, so he seems to have accepted it. You're not panicking?Donald MacKay (16:17): Not even a little bit, no. I mean, let me ask you if you can recall something. Do you remember the moment when we had that great economic boom under AGOA? Because I don't. And it's much the same. I don't think it'll make a difference.Alec Hogg (16:32): So why is there so much fuss about it?Donald MacKay (16:36): Well, it's political, and it always was. The point of AGOA was never to care particularly about Africa and its growth and all the rest of it, except in the most academic sense. The reality is it's a very powerful political tool for the US. AGOA costs the US very close to nothing, and it's created a perception of great value. And in some African states, it is a big deal. If you're in Lesotho, this is a very important agreement. But for a country like South Africa, it just isn't. So it allowed the US to wield a big stick on all sorts of issues that have nothing to do with trade, and it was therefore powerful.Alec Hogg (17:26): So if you were advising government, what would you be saying today to Parks Tau, specifically about ITAC on the one hand and about AGOA on the other?Donald MacKay (17:38): Yeah. So on the ITAC front, I've already spoken to Minister Tau. I wrote him a letter raising my concerns about a year ago already, saying this has got to be dealt with. That same letter went to the Chief Commissioner at ITAC and the Director-General of the DTIC. So they're very aware of my views. I meet with them regularly. It's not been addressed. And I mean, there's only so much as a private citizen you can really do about these things.Regarding AGOA, I would say it's a distraction. We've got to look more deeply, objectively, at what the US is asking for, before we decide that, because it comes from the US and we don't like the US and most people have a problem with Trump, the requests are utterly irrational. But if you think about it, condemning, for example, the Kill the Boer song doesn't appear to me to be a really big step to take. You know, the idea that, even if the court found it to be acceptable, there's not a social condemnation of calling for the deaths of a particular group of people, you know, that would appear to be a really easy comment to make without political consequence. So I think the requests made by the US government have been poorly framed and badly delivered, but they're not utterly irrational requests. And I think that is the bit that we should be looking at: how do we find a way to do this without forfeiting all of our dignity? Because I don't think the requests in and of themselves are crazy.Alec Hogg (19:22): What's the upside, though, if those requests are to be fulfilled?Donald MacKay (19:28): Yeah, well, we don't entirely know that, of course. And the worrying part of all of this is we don't know because President Trump makes a promise today and breaks it tomorrow. So we have absolutely no idea. It may just be an embarrassing moment. But ultimately the job of the politician is not to spend a career being unembarrassed, but to deal with South Africa to achieve the best outcomes for the population of South Africa. And the US is important. It's not our most important trading partner, not by a long way, but they're not unimportant in our lives. And we've got to also decide what our ask would be. I mean, these things go in two directions. As President Trump likes to say, we do hold some cards. So we do have all sorts of critical minerals that the US wants. What deal can we strike that economically gives us some advantages? I don't know the answer to that, Alec, but the answer can't be, "We're just not going to do anything and President Trump is being unreasonable."Alec Hogg (20:40): Donald, just getting back to ITAC, to close it off. When I was thinking about this interview beforehand, I thought, you know, if you had an inside track to ITAC and you're a company, and you either got tariff protection if you're a producer in this country, or a reduction if you're an importer, that it could be a very useful way for you to boost your profits. And as a result, there could be great potential for corruption within the ITAC organisation. Is that the wrong line of thought? Or maybe during the state capture era, is there any evidence of people using this body?Donald MacKay (21:32): So if there is any evidence, I'm not aware of it. I've no reason to think ITAC is corrupt. I've worked with ITAC for over 20 years. I've never had an indication of that. Having said that, though, they've recently introduced, not that recently I guess, a couple of years ago, this idea of a reciprocal agreement, which is: if you want your duty increased or decreased, you have to make certain commitments. And I think that opens the door, or at least creates an environment where corruption suddenly becomes appealing. Because if you can lock in monopoly rents because you've removed your import competition, that could be worth an enormous amount of money to you. So you can quickly imagine that the agreement could become currency. You could say, "Well, I tell you what, I will create another twenty jobs if you give me this protection, or if you don't remove this protection."Now, I have no evidence that has ever happened. I'm certainly not making that as an allegation. But the problem is you have to have systems that don't plan for angels to occupy these roles. And the challenge at the moment is all of these agreements are secret, Alec. So we have no idea what the promises are. We don't know if there's a bidding war of promises. You know, "I promise you this," and the other guy says, "Well, I tell you what, if you give me what I want, I will offer more." The secrecy is what concerns me even more than the agreement itself.Alec Hogg (23:10): Let's shine a searchlight onto the agreements, and we'll discover that light is the best disinfectant, certainly against corruption. Donald MacKay is with XA Global Trade Advisors, and this has been your BizNews Edge on a subject that is so relevant. Customs paid last year [R]68 billion. And if that is not being properly managed, well, you and I get to pay for it. I'm Alec Hogg with BizNews Edge.