Abstract
M. Comm.
The aim of this dissertation was to investigate the current tariff structure applicable to the South African clothing industry and use this information to formulate recommendations on the tariff and trade policy that would best benefit the industry and the economy. Chapter 1 provided an introduction to the analysis of the tariffs applicable to the clothing industry by defining the problem statement, the relevance of the study and the method of research. Analysis of the tariff structure is important to both the government and the private sector. The government needs this type of information to assist in their policy formulation as regards tariffs and trade and the private sector needs to be aware of the implications of government policy on their profits and performance. Chapter 2 provided a literature study of tariff theory and an international comparison, particularly as regards clothing tariffs. Chapter 3 provided background information on the South African clothing industry. Chapter 4 represented the body of the analysis and provided a detailed investigation into the current tariff structure applicable to the South African clothing industry. The aim of Chapter 2 was to outline theory relevant to tariff protection, particularly as regards the clothing industry. In order to achieve this, various aspects of tariff theory, the implications of protection, and the relationship between protection and trade policy were discussed. Prerequisites for successful tariff protection include the existence of effective domestic rivalry, the potential for a favourable 'diamond' (strategy, structure and rivalry; demand conditions; related and supporting industries; and factor conditions) and that the protection is limited in duration. The effective tariff rate (or effective rate of protection) expresses the tariff as a percentage of the value added by the exporting industry in question. Effective tariff rates are very important as the nominal tariff can be deceptive. Most industrial nations have a cascading tariff structure with low nominal tariffs on raw materials and higher rates the greater the
degree of processing. Thus, exports like clothing which use partially processed materials (textiles or fabrics) can face substantially different effective tariff rates in comparison to their nominal tariff rates (in the case of clothing in South Africa, the effective rate is about three times higher than the nominal rate). Theory shows that positive effects of tariff protection include protecting employment, changing the distribution of income (this could be positive or negative, depending on who
benefits), protection of infant industries or young economies, protection of strategic industries, providing income for governments (from a source that is less controversial than most income taxes) and protection from dumping. Dumping protection is a questionable point and is seen by many economists as an excuse for higher protection to make more
profit, rather than as a legitimate effort to prevent a negative activity. Most of the positive effects of protection are accompanied by negative effects or may not achieve their desired outcome. Negative results of tariff protection include that protection often fails to stimulate exports and domestic output, protection tends to promote inefficient firm scale and entry, protection may be anti-competitive and it may encourage corruption. The most important of the negative factors is the promotion of inefficient firm scale and entry, the promotion of anti-competitive behaviour and the encouragement of corruption both on the part of tariff officials at points of entry, and politicians. All of these negative effects encourage businesses to behave in a complacent and inefficient manner. The impact of protection on the cost position of the clothing and textile industries in South Africa was discussed.