CRITERIA FOR ASSESSING TARIFF ADJUSTMENT REQUESTS
The Competition and Tariff Commission plays a pivotal role in shaping industrial and trade policies by administering the trade tariff mandate outlined in the Competition Act [Chapter 14:28]. Through its Tariffs Investigations Unit, the Commission conducts investigations into tariff (customs duty) charges to assist and protect local industries facing competitiveness challenges from import competition. It reviews tariff adjustment applications from local industry and makes recommendations to the Ministry of Industry and Commerce, which subsequently forwards these to the Ministry of Finance, Economic Development and Investment Promotion, for a final decision. Recommendations therefrom influence implementation of measures by Government designed to shield domestic industries from import competition, with significant implications on industrial development and economic growth.
Types of Tariff Adjustments
The Commission oversees two types of tariff adjustments:-
- Increases in Ordinary Customs Duties – This measure is employed to protect domestic producers from threatening import pressures. By raising customs duties, the Commission allows local industries time to adjust and restructure, aiming for long-term international competitiveness. The duty increase is capped by World Trade Organization (WTO) bound rates, ensuring that duty rates do not exceed internationally agreed limits. These increases are also governed by trade agreements that Zimbabwe is signatory to namely the Common Market for Eastern and Southern Africa (“COMESA”), SADC and iEPA.
- Reductions in Ordinary Customs Duties- Reductions are considered when goods are not produced locally or when domestic production is unlikely to meet future demand. Lowering customs duties reduces prices for raw materials, intermediate or capital goods, fostering a more competitive market and promoting industrial growth.
The following assessment criteria are used in the analysis of requests/applications submitted by industry, forming the basis for recommendations made by the Commission: –
- Product and Product Classification
- The product’s description and tariff code should be identified using the World Customs Organization (WCO) Harmonized System (HS) of classification. Applicants must specify both the current applicable duty rate to the product and the new duty rate being requested.
- Challenges Being Faced and Justification for Assistance
- Applicant should clearly outline challenges being faced and provide justification for the assistance being sought.
- Local Production of the Product
- A key consideration is whether the product is manufactured locally. If the product is a raw material or intermediate product not produced locally, the general rule is to reduce duty, as a high duty increases costs for local industries, making them less competitive. Conversely, if the product is produced locally and is threatened by an imported equivalent, an increase in duty may be warranted. The imported product may also be a substitute for the local product, necessitating a duty increase to protect domestic producers.
- Method of Production and Value Addition Estimation
- The Commission operates within the framework of Zimbabwe’s Industrial Development and Trade policies, which prioritize job creation. Tariffs can protect high-value-added and labour-intensive industries, retaining and creating new jobs. Therefore, it is essential to establish whether the applicant employs labour or capital-intensive production methods and to measure the value addition of the product in question.
- Market and Trade Analysis
- For upward duty applications, the volume and rate of imports over a specified period (usually three years) must be determined to assess the industry’s potential injury. The market share held by the applicant is compared to that of imports to evaluate, and whether imports are eroding the local market. Other factors considered include capacity utilization, export volumes and values, and employment figures.
- Competitiveness
- Assessing competitiveness of the industry is critical in deciding whether to grant a tariff adjustment. Key factors include price disadvantages against imports and productivity. A price disadvantage can indicate whether domestic industries are being undercut by imports and help determine the appropriate duty level. Productivity, measured by the ratio of output to production costs, indicates how efficiently the firm uses its resources to produce quality products.
- Effective Rate of Protection
- Calculating the effective rate of protection(ERP), which considers value addition, is essential to determine the actual level of protection to be granted to the applicant. This goes beyond the nominal rate of duty applied to the imported product.
These criterion ensures a comprehensive evaluation of tariff adjustment requests, balancing industry protection with broader economic considerations.
Conditions for Customs Duty Support
Customs duty adjustments, whether in the form of increases, or reductions, are contingent upon the beneficiaries’ commitment to meeting government-set policy objectives. Reciprocity commitments must be submitted to the Commission at the time of application. Industries receiving tariff support must demonstrate progress in several key areas, including: –
- Economic Performance: Beneficiaries are required to show measurable improvements in economic indicators such as production efficiency, competitiveness, and overall financial health.
- Job Creation and Retention: One of the primary objectives of tariff support is to safeguard and create jobs. Beneficiaries must meet targets related to employment growth and job sustainability.
- Adherence to Policy Goals: Support is aligned with broader government policy goals, such as fostering industrial growth, enhancing technological innovation, and improving global competitiveness.
Review and Adjustment
The aim of tariff support, in the form of increased duty, is to provide local industry with the opportunity to adjust their processes, enhance efficiency and become globally competitive. Consequently, industry must develop and implement a clear development plan and strategy to achieve these objectives. This plan should outline how the industry will adjust and improve its competitiveness. Over time, protective duties are reviewed to ensure they are no longer needed once the industry has achieved the desired level of competitiveness. The review process involves:-
- Performance Evaluation: Regular assessments are conducted to evaluate how well beneficiaries are meeting set objectives. This includes analyzing economic performance, job creation metrics and other relevant indicators.
- Conditional Adjustments: Based on performance reviews, tariff support may be adjusted. If beneficiaries do not meet the agreed-upon conditions, the support may be reduced or withdrawn. Conversely, successful performance may lead to extended or enhanced support.
For any further clarification please contact the undersigned.
The Director
Competition and Tariff Commission
23 Broadlands Road
Emerald Hill
Harare
Tel: +263-242-853127-31
E-mail: director@competition.co.zw
Twitter: @CTCZimbabwe
WhatsApp: +263715905651
Website: www.competition.co.zw