The state of duty protection in South Africa

14th August 2015

  

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By: Taapano Paradza

The tough economic environment in South Africa over the past few years has served as a catalyst for protectionist pressures. Increasing import competition has further flamed calls for protection from various industries. According to the press, steelmaker ArcelorMittal recently lodged a normal customs duty increase application with the International Trade Administration Commission (Itac), alleging injury as a result of increasing steel imports from China.

While normal customs duty increases are the main tool of protection in South Africa, it is important for industries to understand other available instruments of protection. These may be more effective, depending on circumstances. These instruments are antidumping actions, countervailing actions and safeguard actions. Antidumping duties offset the impact of dumping, which occurs when a foreign manufacturer exports goods at a price lower than it is sold in its home market. The dumping must be causing injury to the domestic industry.

Countervailing duties are imposed to offset the effect of government subsidies. This instrument is not commonly used in South Africa. In fact, there is currently no industry protected through countervailing duties, despite the subsidisation of some products entering South Africa. We believe this is largely due to government stating that it will not impose countervailing duties against imports from China, which is the largest culprit in the State subsidy space. No countervailing actions have been initiated in the past seven years.

The safeguard instrument is an extreme protection measure used when there is a surge in imports that threaten the survival of the domestic industry. An advantage of these three instruments is that the duty is determined by the extent of dumping, subsidisation or the extent of the surge in imports respectively. In contrast, normal customs duty increases can only be increased up to a certain maximum level, known as the bound rate. The bound rates were agreed in 1994, when South Africa became a World Trade Organisation member State.

The pattern of use of these protection instruments is uneven, particularly over the past seven years. Nevertheless, what stands out is that the number of industries seeking protection has increased. During the period 2008 to 2014, duty increases were requested on 226 tariff lines covering a wide range of products. Of the 226 requests, 190 resulted in duty increases. Twenty-five new antidumping actions were initiated,14 of which resulted in antidumping duties. Twenty-nine sunset review investigations were initiated during the period. In over 95% of the sunset review investigations, protection was maintained and in a few cases increased, but was rarely removed. This suggests that once an antidumping duty is imposed its removal after five years is unlikely.

Duty protection was not evenly spread across industries. Clothing and textiles received the most protection (61.95%) in the past seven years. The effectiveness of these increases can be questioned, though, partly because South Africa is often not a competitive producer in this space, but also because of the illicit clothing and textiles import activities in this industry, which undermine the duties that are in place. The second-largest protection was on base metals and articles of base metals (9.27%).

Duties were also increased on quite a wide range of agricultural products, which accounted for 8.29% of duty protection implemented. This has the effect of further increasing food inflation, which is already at a worryingly high level. In the near future, we are likely going to see more duty increases and other forms of protection in the agriculture sector. Prepared foodstuffs accounted for 6.34% of duty protection implemented. This will likely further fuel food inflation. This is often offset against food security concerns, so it will be interesting to see how this pattern plays out.

Sectors that accounted for a small share of duty protection include minerals, plastics and plastic products, glass products, and other manufactured items, which accounted for 0.98% each. Paper and paper products accounted for 4.88%, chemicals 2.93%, machinery and mechanical products 1.95%, while vehicle components accounted for 0.49%. That said, we are likely to see more industries applying for duty protection in the next few years.

  • Paradza is a consultant at XA International Trade Advirsors - taapano@xa.co.za

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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