This month, Zimbabwe’s Minister of Industry and Commerce Mike Bimha gazetted the ill-famed((NewsDay Zimbabwe – Import ‘ban’ triggers chaos)) Statutory Instrument 64 of 2016.
Statutory Instrument 64 of 2016 (SI 64/2014) is an amendment notice which legally adds a list of imported goods to the already existing schedule of restricted imports as contained in notice SI 08 of 1996 which seeks to control the importation of certain goods. This is legally permissible in the domestic setting under the Control of Goods (Import and Export) (Commerce) Regulations of 1974.
The effect of SI 64/2016 is not to ban the importation of the said goods but to limit their importation through licensing. To some in business and certainly in public talk this distinction is largely immaterial.
While discussion and debate has virtually been inward-looking and centered around the domestic implications of the SI 64/2016, there has generally been no consideration of the international impact of the Statutory Instrument.
This in my view ignoring the wider consequences of this latest policy is high-risk and injudicious.
Finance Minister Patrick Chinamasa was recently reported to have “reiterated government’s determination to continue engaging with the international community”.((
The Daily News – West welcome, Chinamas says))
SI 64/2016 hardly sends that kind of message to the international community.
I find too many problems associated with what the Minister has done. There is a cause for concern that not only do his actions infringe rules of international trade but also put the country heavily at risk of costly retaliation from regional and global trading partners.
Zimbabwe, GATT 1994 and WTO Membership
In order to understand the possibly far reaching consequences of SI 64/2016, we first must get an appreciation of Zimbabwe’s present commitments at the international level.
Zimbabwe has been a member of the 165 member World Trade Organisation (WTO) since 1995. Only governments can be members. The WTO is a key intergovernmental organisation whose main purpose is to maintain orderly international commerce through trade by negotiating and maintaining a variety of trade agreements.
The WTO also has a highly utilized neutral dispute settlement system which member countries fall back on when things go wrong as they do in global trade.
By virtue of its WTO membership, Zimbabwe is also party to one of the most important multilateral trade agreements within the WTO namely the General Agreement on Tariffs and Trade (GATT) which it first became a contracting party as Rhodesia on 11 July 1948. It later signed the updated GATT commonly known as GATT 1994 in 1994 as an independent country.
SI 64/2016 is targeted at imported goods only and therefore excludes services. GATT has been the key pillar governing the trade of goods internationally among contracting parties since the late 40s and after its update in 1994.
Zimbabwe being a member of the WTO, WTO agreements remain the context in which to examine the credibility of government’s recent actions.
Justification of SI 64/2016 in international trade
Under GATT provisions, members are justified to take measures to protect domestic industries from serious injury caused by increased imports of certain goods. The injury need not have occurred already but even when increased imports threaten to cause injury, governments are within their right to take action. This is however not a blank cheque.
The reasons cited and widely reported to have led to the action of restricting of imports have been to do with the believed negative effects excessive imports are causing on local industry. This, in WTO language, is remedied using safeguards. In addition, the action taken by Minister Bimha through SI 64/2016 confirms that the Minister had safeguards in mind.
Simply put, safeguards literally safeguard or shield the local industry from damage induced by excessive imports.
While dumping has been mentioned from time to time, government’s response through SI 64/2016 is not consistent with typical remedies against dumping. Dumping is when imports are sold locally below their cost price in the exporting country. Anti-dumping actions, for example, would focus more on increasing import duty on the targeted products to bring them to normal value in the importing market.
Moreover, Zimbabwe has not instituted any anti-dumping investigations nor opened any known anti-dumping cases in respect of the products in question against any country at the WTO which is a common practice when dumping occurs.
These leaves Zimbabwe’s SI 64/2016 remedy to be a case of safeguards.
The logic behind measures such as safeguards is that a country with a damaged industry, apart from local job losses, also looses its capacity to reciprocally trade with others and therefore looses its standing in international commerce. If this is allowed to happen at a large enough scale, the international system of trade itself which supports modern societies’, prosperity, peace and security becomes dangerously threatened.
Safeguards are to be restrictive measures through licensing, for example, but not total bans. This explains why Minister Bimha refuted earlier media reports that his actions were equal to a ban.((Govt clarifies new import law))
This clarification by the Minister properly aligns safeguards definition with the accepted definition of safeguards in the context of the WTO’s Agreement on Safeguards.
Safeguards are temporary
The context in which the WTO operates is that it seeks to encourage more international commerce and not less. Key principles surrounding the use of safeguards from a WTO perspective are that they are emergency measures and therefore must be temporary. In this regard, SI 64/2016 is silent.
It appears there has not been any public statement or clarification from the Minister on how long the measures can be expected to last, only preferring to say “this support is not forever”. ((Bulawayo 24 News – Industry protection not forever: Bimha))
In my reading of the situation the measures appear to be open ended in a similar fashion as SI 08 of 1996 which this latest statutory instrument is seeking to amend.
This already raises eyebrows among other WTO members that have trade interests with Zimbabwe let alone investors.
The problem is that there is no real game plan that has worked on how to revive the local industry. No one has projections or credible estimates of exactly when real life can be expected to come around in our local industry. No one can say with certainty whether we need two years or 10 years to revive our industry.
Under WTO disciplines, the maximum safeguard measures can go before a permissible extension preceded by a fresh thorough investigation is four years. Even then, Zimbabwe has an obligation to begin progressively liberalizing imports of the goods in question at certain intervals.
The Minister seems to be aware of this hmself as he was quoted by the ZBC saying
The government will in the near future review importation of some goods within the statutory instrument((Govt clarifies new import law))
Safeguards cannot be selective nor arbitrary
Safeguard measures cannot be taken arbitrarily nor can they be applied selectively by favoring the imports from one WTO member country over another.
For example, Zimbabwe cannot restrict imports from South Africa and at the same time allow similar imports from Botswana or Brazil. This is the jealously guarded and watched Most Favoured Nation (MFN) principle in international commerce. Few countries are prepared to run the risk of costly retaliation by ignoring MFN. MFN is responsible for some nasty international trade spats.((WTO – India etc versus US: ‘shrimp-turtle’))
In keeping with this principle, SI 64/2016 is silent on the origin of affected imports implying that the notice applies to all exports destined for the Zimbabwean market regardless of origin.
The outcry and reported riots ((NewsDay Zimbabwe – Import ‘ban’ triggers chaos)) that followed after the gazetting of SI 64/2016 bear the hallmarks of an arbitrary measure. It appears some of the most important players were caught unawares. These include a dozen plus local distributors of South African and European brands of baked beans, potato chips, cheese, and cereal brands to mention but a few.
A manager at one such distribution said the whole industry is on the edge and confused as 90% of their stockholding consists of South African brands.
Under WTO rules, Zimbabwe was expected to carry out a thorough investigation that links the targeted imports to industry injury prior to the implementation of the measures. Causal link is crucial, if it cannot be established or if there are other factors involved then safeguards cannot be justified. There is debate as to what has caused injury to our industry. Is it imports alone or a combination of factors?
Many agree that a cocktail of issues some of them not related at all to imports have brought our industry to its knees. It is up to the affected parties to contest the notion put forward by industry itself and supported by the Minister that imports harmed and are harming local industry. It is also a viable basis for exporters into the Zimbabwean market to dispute safeguard actions taken by the Ministry if they can disprove or at least successfully muddy the premise.
The Minister was also under obligation to seek the views of the affected parties before implementing the measures. On the subject of investigations the WTO states that
Investigating authorities are required to hold public hearings or provide other appropriate means for interested parties (importer, exporters, producers, etc.) to present their views and to respond to the views of others with respect to the matters being investigated. Among the topics on which parties’ views are required to be sought is whether or not a safeguard measure would be in the public interest.((WTO – Technical Information on Safeguard Measures))
It is not clear if this was done, to what extent and what those views were. What is apparent is that the main voice that has been heard and which agreed with the Minister and government in general is that of the industry groupings and their individual members.
The public itself has complained through social media, for example, and other fora about the measures disregarding their product preferences as not all local products are up to standard. This speaks to SI 64/2016 violating consumer rights. The Consumer Council of Zimbabwe (CCZ)((CCZ – Do you know that you have Rights as a Consumer?)) would perhaps be better placed to make the required public interest representation.
Over and above this, government was also to submit a notification to the WTO informing of the measures taken. My research at the WTO website in respect of any notifications from Zimbabwe drew a blank.
Compensation payment
At least on paper, safeguard measures require that the WTO “member imposing them must pay compensation to the members whose trade is affected”.((WTO – Technical Information on Safeguard Measures)) Of all of Zimbabwe’s trading partners, South Africa would get the biggest nugget.
Compensation has previously taken the form of reductions of tariff duties on certain products from the affected countries. Overall, this is a complex and involving process that would call for smart international trade lawyers. I am doubtful of our government’s capacity to navigate these issues against highly resourced complainants.
Compensation payment also serves to make the cost of safeguards steep so that they are only used when it is really necessary and for a just and proven cause. This also shows that safeguards are an exception and not the norm in international trade.
Overall, in the last few years Zimbabwe has acted as these measures are the norm through repeated duty and tariff reviews and increases and other import controls.
As to whether Zimbabwe will actually get around compensating anyone is another matter, apart from damaging our international reputation in trading circles, it provides a legal basis for those affected to take it up using the dispute settlement system of the WTO or worse still retaliation.
Where does this leave the current measures?
The foregoing analysis has intentionally not covered WTO disciplines pertaining licensing which Zimbabwe must uphold. Evidence abounds that the measures are already flawed. This current examination shows that the measures under SI 64/2016 carry the hallmarks of safeguards and that they are largely against the spirit of international trade and its rules in respect of how they are conceived and implemented.
Comments by Finance Minister Patrick Chinamasa further confuse the situation by suggesting that the instrument was employed for other reasons other than to shield local industry.
He was quoted by the The Zimbabwe Independent of 24 June saying:
The Statutory Instrument merely removes goods from the general import licence. For you to import those goods you now have to apply for the licence. Part of our challenge is the import deficit. We are importing more than we are exporting. We are operating in an over liberalised foreign currency economy so we want to limit the use of foreign currency and these are some of the measures we are taking to address the import bill. We have been supporting local firms so we know what can be locally produced. Let’s support Zimbabwe((The Independent – Importers slate govt over licence gaffe))
According to this statement, the Minister appears to be citing different reasons from those cited by Industry and Commerce to justify the introduction of the safeguard measures.
It is a well known fact that Zimbabwe is suffering a severe liquidity crisis and government is virtually throwing any measures conceivable to douse the fires. As explained, under WTO rules, safeguards are to protect local industries and not to resolve currency problems and trade deficits per se as suggested by the Minister.
Risk of retaliation
WTO members that do their best to play the trade game by the rules cannot be expected to be carefree about these latest developments in Harare. Zimbabwe has been incrementally and heedlessly goading important trading partners through these kinds of measures. At some point things will give in. Indeed, in 2014 South Africa’s Minister of Industry and Trade was reported to have raised these issues with Minister Bimha himself threatening retaliation.
Minister Bimha was quoted back then saying;-
I managed to have a discussion with South African Minister of Industry and Trade, and he said manufacturers were not happy that Zimbabwe was closing its borders against South African goods. He said they have asked their government to implement similar measures against our own products((NewZimbabwe – Import restrictions: SA threatens to shut down Zim goods in retaliation))
Obviously South Africa is most hurt because it is our biggest trading partner. Other trading partners such as the EU which have been exporting a wide range of products such as cheese to Zimbabwe will be watching keenly.
The EU already has an upper hand, anyway, should it decide to retaliate using the subsisting interim Economic Partnership Agreement (iEPA) with Zimbabwe which however is not under the ambit of the WTO.((EU Delegation – Zimbabwe and the EU – Trade)) The United States did something similar with South Africa by threatening to kick it out of AGOA on a trade dispute outside AGOA involving American chicken imports.
Chairman of the Oil Expressers Association in Zimbabwe was quoted in a news report giving his opinion on Statutory Instrument 64 of 2016 saying
No imports are necessary as all cooking oil requirements can be met by local producers. As our capacity exceeds local demand, we are now looking at exports as a way to increase capacity utilisation ((The Sunday Mail – Local is lekker…Basic commodity suppliers meet local demand))
Strangely, some industrialists in Zimbabwe are hoping that the imports restriction brought about by SI 64/2016 will allow them to export to other markets as usual. There appears to be little or no appreciation nor concern that this same action they are currently supporting and celebrating can easily be used against them in a typical retaliatory fashion by countries they have in mind to export to.
What is clear is that if any retaliation should follow, which I think at this rate it eventually will because warning shots have been fired already, Zimbabwe’s economy will be once and for all buried as our economic recovery plan including ending the current crippling cash crisis is rooted in more exports and not less.
We should take less pleasure in twisting the rules the way we have done it with SI 64/2016 and other actions before it. Many of us should begin to realize that our medium to long term export success is equally dependent on how we treat others who are interested in exporting into our market.
Minister Mike Bimha Image Credit: NewsDay Zimbabwe