WTO levels playing fields for South African IDZs

Ed Richardson
THE PLAYING fields for South Africa’s new export processing zones - branded here as Industrial Development Zones (IDZs) - are being levelled.
Export subsidies granted by developing countries to lure investors to export zones are supposed to be a thing of the past, according to the United Nations Conference for Trade and Development (Unctad).
In recent years South Africa has seen major investments lured away by neighbouring states and other developing nations through subsidies and special concessions. Government, and in particular the department of finance, has come under criticism for failing to offer the same incentives.
January 1 was the deadline for developing countries to give up a common policy for attracting export-oriented foreign direct investment (FDI): the granting of export subsidies, according to Unctad.
Developing country members of WTO agreed during the Uruguay Round to eliminate their export subsidies by 1 January 2003. A number of countries have, however, been granted extensions.
The prohibition has applied to developed countries since 1960.
Prohibited subsidies include provision by governments of goods and services for use in the production of goods for exports on terms more favourable than those available for use in the production of goods for domestic consumption; full and partial remission or deferral of direct taxes (e.g. income and property taxes) and social welfare charges, specifically related to exports; government-mandated internal transport and freight charge for exports on terms more favourable than those available for domestic shipments; and government-provided export credit guarantees or insurance pursuant to loss-making programmes.
Export zones may, however, continue to exempt their companies’ exports from indirect taxes (such as sales taxes), border taxes (e.g. consular fees) and import charges. Duty drawbacks and duty exemptions on inputs “consumed in the production process” (i.e., inputs that are physically incorporated into the exported product, and energy fuel and catalysts used in the production process) are permissible.
This forms the basis of the attractions for South Africa’s IDZs - all of which will be customs-free zones attached to an international gateway.