Quotas for Chinese imports will take the clothing off the backs of the poor

Last week Friday the Minister of Trade and Industry, Mandisi Mpahlwa, announced that South Africa would begin to restrict the quantity of clothing and textile imports originating from China. The restrictions will begin on 28 September this year and will continue until 31 December 2008.

The details of the trade restrictions were set out in a document released by the Department of Trade and Industry acting under the auspices of the International Trade Administration Commission (ITAC) of South Africa. ITAC has invited comments on the proposal by the end of the week, a mere seven days after the initial Government Gazette was released.

It is proposed that previous importers of Chinese goods will be required to possess a Special Import Permit Certificate (SIPC), which will be issued by ITAC. The certificate stipulates which goods will be allowed access into South Africa and in what quantities. More specifically, the government notice specifies the maximum quantity of goods to be imported, ranging from underwear to suits to babies garments and even curtains. In total, the quotas will affect over 200 different items. New entrants wishing to begin importing from China will not be allowed to do so in 2006. They will need to apply before 1 December 2006 for a SIPC and will be required to vie for a predetermined allocation for the 2007 and 2008 calendar years.

The quotas, affectionately known as safeguards, are meant to give South African manufacturers of clothing and textiles a window period in which to become more competitive against the relatively more efficient Chinese manufacturers. However, evidence shows that protected industries never become more efficient. Indeed, they have no incentive to do so, and persistently appeal for extensions of protection. In the interim, poor consumers at the low end of the market, the ones that have typically benefited from cheaper imports, have to pay for the inefficiencies of South African manufacturers.

While the vast majority of South Africans benefit from being able to buy good quality Chinese goods at low prices, it is not only the poor that benefit. Over the past decade or so imports from China have saved American consumers more than $600 billion dollars according to Morgan Stanley. The introduction of quotas on clothing and textile imports from China will serve to reduce the quality of life of all South Africans but especially the poorest consumers.

Quotas are a particularly damaging form of intervention. Governments arbitrarily decide the level that they deem necessary to protect local manufacturers. The restrictions open the door for corruption because customs officials are given the power to decide which importer’s goods will be allowed entry and the quantities each will be entitled to import. Quotas will be worth millions of rands and the temptation to bribe and be bribed will be substantial. The result is that certain influential importers are given preference over others. Furthermore, quotas are set without any scope for adjustment to future changes in demand. So, some importers realising the potential to fill a gap in the market may resort to smuggling to accommodate the increased levels of demand.

If the government really wishes to help South African manufacturers of clothing and textiles it should make the environment in which they operate more conducive to doing business. This could be achieved by substantially reducing the taxes it imposes on the ailing industries and reducing the costs of doing business in South Africa. For instance, the Small Business Project found that it costs formal sector companies in South Africa R105,175 a year, on average, to comply with regulations. The organisation notes that compliance costs are pure red tape costs – the costs that accumulate because forms have to be understood, filled in, and submitted. This compliance cost does not include the efficiency costs of regulation, nor the payment of taxes, levies, or rates.

Subsidies and artificial barriers such as tariffs and quotas only serve to harm the majority of South African citizens. Under protectionist regimes, government officials decide which industries are to receive protection and to what extent they are to be protected, a task that no one can have the necessary information to perform without causing harm to the economy. When trade is open, domestic and foreign consumers decide which industries will prosper and the increased competition leads to greater efficiency overall. If government has the interests of all its citizens at heart, especially the poorest, it should reconsider this measure, which cannot fail to do considerable harm.

Author: Jasson Urbach is an economist with the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author's and are not necessarily shared by the members of the Free Market Foundation.

FMF Feature Article/ 05 September 2006