The International Trade Administration Commission of South Africa (Itac) issued a media release dated 19 February, titled “Import Tariff Support”. It reads: Under tough global economic conditions and increasing cost pressures to domestic manufacturing, the International Trade Administration Commission of South Africa, over the last six months, considered a number of import tariff applications and made recommendations to the Minister of Trade and Industry by way of an increase in import tariffs and in one instance also by way of tariff relief in the form of a rebate of duty on imported intermediate inputs not manufactured domestically. An increase in customs duties is considered for the purpose of granting tariff support to domestic producers that are experiencing threatening import pressures, particularly those firms that are important from an employment or value-addition perspective. The support should allow such producers to adjust and restructure so that in the medium- to long-term they can become internationally competitive without support in the form of customs duty protection. This is made possible by the fact that there is a difference between the General applied rates and the WTO bound rates. The WTO bound rates act as a ceiling beyond which customs duty increases cannot go. The tariff support is tied to conditions related to economic performance including: production, investment and employment over time and is subject to review after a specified period. Linked to customs duties are duty rebate or refund provisions. The primary aim of these provisions is to provide a customs duty waiver and therefore an availability at world competitive prices of products that attract duties but are not produced or insufficiently produced domestically as an industrial or agricultural input for certain critical applications, as a capital item, or as an agricultural product for consumption. Rebates and drawbacks form a key pillar of certain industrial development programmes, such as that for the motor vehicle and component industry. In response to the economic downturn, the Commission revised its timeframes for the completion of investigations from 12 to 6 months for ordinary import tariff investigations. The vast majority of applications for tariff support are in response to relatively low-priced imports from emerging economies. Against this background, the following recommended tariff amendments were implemented: Frozen half-shell mussels The general rate of duty on frozen half-shell mussels was increased from free of duty to 25 per cent ad valorem. The application was received from Ocean Mussels (Pty) Ltd, supported by the Saldanha Mussel and Oyster Farmers Forum, the Food and Allied Workers Union (FAWU). The South African Association of Seafood Importers and Exporters (SAASIE), Ocean Basket Wholesalers and the Federated Hospitality Association of Southern Africa (Fedhasa), objected to it. In arriving at its recommendation, the Commission took into account that the aquaculture industry had been identified as a priority sector in the Government’s Industrial Policy Action Plan 2 for its capacity to contribute to employment-generating economic growth. The Commission found that an increase in the rate of duty on mussels would enhance the price-competitive position of a domestic industry in its early stages of development, in the face of low-priced competition from abroad. The support should lead to improved utilisation of existing production capacity and to further investment and employment in the industry to achieve economies of scale.The Commission decided that the duty be reviewed after a period of three years, to determine its impact on the industry’s further development, investment performance, and on the full mussel production value chain. Pasta The general rate of duty on uncooked pasta was increased from 30 per cent ad valorem to 40 per cent ad valorem. The application was received from Pioneer Foods (Pty) Ltd, trading as Sasko Pasta.The domestic pasta manufacturers, especially Tiger Brands (Pty) Ltd, Pasta Nova (Pty) Ltd, and La Pasta Delizia cc, supported the application, while importers and retailers of the product objected to it. In reaching its findings and taking into account that the WTO-bound rate on pasta is 54% ad valorem, the Commission on the one hand took the domestic industry’s competitive position into consideration and on the other, the possible cost–raising impact of a higher duty on an important source of nutrition. The Commission found that the majority of dry pasta imports originate from the European Union, in particular from Italy, dutiable at free of duty in terms of the SA-EU Agreement, but that low-priced imports from Turkey had reached appreciable levels. The Commission concluded that an increase in the rate of duty on pasta would improve the price-competitive position of the domestic industry in the face of fierce foreign competition. The support should lead to better utilisation of existing production capacity and further investment in this industry in a market that is growing significantly.The Commission decided that the duty be reviewed after a period of three years to determine its impact on the industry’s competitive position, further development and the full value chain. Geosynthetic clay liner The general rate of duty on textile fabric inter-layered or otherwise combined with bentonite clay, known as geosynthetic clay liner (GCL), was increased from free of duty to 25 per cent ad valorem. [GCL is an assembled structure of geosynthetic materials and low hydraulic conductivity earth materials (clay or bentonite) in the form of a manufactured sheet, used in contact with soil or rock or other geotechnical material in civil engineering applications such as power station infrastructure and waste management, typically liquid and gas landfill containment barriers for environmental protection]. The application was brought by Kaymac (Pty) Ltd and its competitors, namely Geotextiles Africa, Fibertex and GundleGeosynthetics, objected to it. The Commission found that the duty would serve to eliminate the price disadvantage experienced against emerging South and East Asian producers of GCL. However, the bulk of GCL imports originate from the EU. Nevertheless there are indications that the emerging South and East Asian economies have rich bentonite clay deposits and are attracting investments for the manufacture of GCLs. The Commission found that the domestic competitors of the sole domestic manufacturer of GCL currently source their GCL requirements from producers in the EU and that an increase in the general rate of duty would not have an immediate adverse impact on these producers as in terms of the SA – EU Agreement, the applicable duty on CFL is zero. The Commission concluded that an increase in the rate of duty on GCL would improve the price-competitive position of a domestic industry in its early stages of development and in the face of stiff foreign competition. The support would enable the domestic industry to increase the domestic demand for its products; to fully utilise its underutilised production capacity; and achieve economies of scale with a reduction in the marginal cost of production. It was recommended that the duty be reviewed after a period of three years to determine its impact on the industry value chain. Set top boxes (STBs) On balance, the Commission found adequate justification for an increase in the general rate of customs duty on STBs from free of duty to 15% ad valorem. The increase in the rate of customs duties on STBs was supported by a number of TV manufacturers and prospective STB manufacturers, namely, Anyview Technologies (Pty) Ltd, Tellumat (Pty) Ltd and Vertronix (Pty) Ltd. Objections to the application were received from the National Association of Broadcasters and MultiChoice South Africa (Pty) Ltd. Digital decoder STBs for satellite reception are already domestically designed, manufactured and exported. In addition, differentSTBs will soon be required to convert the free-to-air digital to analogue signal for television sets which do not have digital satellite television (“Dstv”) reception or a built-in digital converter. The duty increase covers both STBs for satellite and terrestrial signal transmission.The objectives of theIndustrial Policy Action Plan 2012/13 – 2014/15and theSet-Top-Box Manufacturing Sector Development Strategy for South Africa are to create a favourable environment for the development of a STB manufacturing industry in South Africa that will supply both domestic and foreign markets. The domestic electronics industry has been under strain over the last decade and has been shrinking significantly. A key intervention is to diversify the industry by promoting the domestic manufacture of STBs to stimulate the electronics sector. Although the WTO bound rate is 30% ad valorem, the Commission sought to balance the interest and further development of the domestic STB manufacturing industry against the possible cost-raising impact downstream on the providers of commercial subscription broadcast services. An STB is a critical component and key input into these operations. It therefore decided on a duty of 15% ad valorem to offset the price disadvantage experienced by the domestic STB manufacturing industry. The domestic industry, not producing at full capacity, is in a position to meet the full SACU market requirement. The duty of 15% ad valorem, would improve the price-competitive position of a developing domestic industry in the face of fierce foreign competition, especially from East Asia. The support would enable the domestic industry to increase the domestic demand for its products; to fully utilise its production capacity; and achieve economies of scale with a reduction in the marginal cost of production. TheCommission also recommended that the duty be reviewed after 3 years effective from the date of implementation to determine its impact on the industry value chain. In tandem with the duty increase, a rebate of the duty provision was introduced to allow the STB manufacturers access to intermediate inputs, not manufactured locally, at world-competitive prices. The domestic STB manufacturers have invested in highly automated capital intensive production lines for the placement or population of electronic components on printed circuit boards. These electronic components are not manufactured domestically and have to be imported. Laminated safety glass (windscreens) The commission recommended an increase in the general rate of customs duty on laminated safety glass (windscreens) for motor vehicles, from 15% ad valorem to the WTO bound rate of 30% ad valorem, following an application lodged jointly by four local manufacturers - National Auto Glass (Pty) Ltd (NAG), FGW Safety Glass (Pty) Ltd (FGW), Shatterprufe (a division of PG Group (Pty) Ltd), and USG Autoglass cc (USG). The major importers of automotive safety glass include Grandmark International, Wholesale Motor Glass, Windscreen Distributors and Yi Fa Auto Glass (Pty) Ltd, trading as Best Safety Glass. Support for the application was received from the National Association of Automotive Component and Allied Manufacturers, while objections were received from a number of local importers and Original Equipment Manufacturers (OEMs) The Commission considered that the SACU automotive glass industry invested a considerable amount of capital to establish world-class production facilities to supply original equipment manufacturers and a wide range of models in the automotive replacement glass market and that consistently high production volumes are required to achieve cost-competitiveness. The Commission took into account that the SACU industry nevertheless developed flexible manufacturing capabilities to cater for the short-run manufacturing requirements of the SACU market. The Commission found that the domestic industry experienced considerable price disadvantages, especially vis-à-vis East Asian manufacturers of safety glass. It concluded that additional tariff support would significantly improve the competitive position of the domestic industry in the face of low-priced competition from abroad that has eroded its market share. The support should enable the industry to fully utilise its existing production capacity, achieving economies of scale through longer production runs, with a reduction in the marginal cost of production. Conical steel drums The general rate of customs duty on conical steel drums with a capacity of 235 litres or more was increased from free of duty to the WTO-bound ceiling rate of 15% ad valorem.The application was brought by the sole domestic manufacturer of conical steel drums, Peninsula Drums cc. No objections to the application were received. The conical steel drums are intended for storage and transportation of liquids and hazardous materials. The flexibility of the structure and dimensions of the conical steel drum makes it more attractive for safe transportation and storage purposes. The Commission found that price disadvantages vis-à-vis foreign competitors are experienced by the domestic industry and that tariff support would significantly improve the price competitive position of an emerging domestic industry in its early stages of development. The tariff support should enable the domestic industry to fully utilise its existing production capacity and achieve economies of scale. Television antennas The general rate of duty on outdoor television antennas was increased from free of duty to 20% ad valorem. The application was received from Ellies Holdings Ltd, supported by Altech UEC (Pty) Ltd and Tedelex (Pty) Ltd. Several importers objected to the application, as did the National Association of Broadcasters. The Commission considered the competitive position of the domestic industry in the face of stiff foreign competition, especially from East Asia, and found that the industry was experiencing significant price disadvantages vis-à-vis foreign manufacturers. The tariff support should enable the industry to significantly improve its price competitive position; and fully utilise its existing production capacity to achieve economies of scale and a reduction in the marginal cost of production.The Commission will monitor the future performance of the industry. Lawn mower blades The general rate of duty on lawn mower blades was increased from free of duty to 20% advalorem. The Commission found that appreciable price disadvantages were experienced by the domestic industry and that support for the industry, which has demonstrated the ability to manufacture a wide range of lawn mower blades, would lead to a substantive improvement in its price-competitive position in the face of fierce low-priced competition from East Asian manufacturers. As in the other cases mentioned above, the support should enable the industry to fully utilise its existing production capacity with a reduction in the unit cost of production. The application was made by Collier Tool and Die cc, supported by other domestic manufacturers, as well as the Lawn Mower Association of South Africa. Some importers objected to the application. Following the tariff support, the Commission will monitor the future performance of the industry. In conclusion, if one looks at the trend of import tariff increases from the past years to the current period, there has been a moderate rise, which is also explained by the flexibility that is needed during tough economic times in order to retain and create jobs. If you are interested in learning more about any of the articles in this week’s column, please send us an email with the headline of the article in the title.