USTR - 1996 National Trade Estimate-South Africa
Office of the United States Trade Representative

 

1996 National Trade Estimate-South Africa

In 1995, the United States trade surplus with South Africa was $541 million, $398 million greater than that in 1994. U.S. merchandise exports to South Africa were $2.8 billion, $578 million more than exports in 1994. South Africa was the United States' thirty-fifth largest export market in 1995. U.S. imports from South Africa were $2.2 billion in 1995, 8.8 percent greater than those in 1994.

The stock of U.S. foreign direct investment in South Africa was more than $1 billion in 1994, 15.6 percent greater than it was in 1993. U.S. direct investment in South Africa is largely concentrated in manufacturing and wholesale.

IMPORT POLICIES

Import permits

Under the terms of the Import and Export Control Act of 1963, South Africa's Minister of Trade and Industry may act in the national interest to prohibit, ration, or otherwise regulate imports. In recent years, the list of restricted goods requiring import permits has been reduced, but still includes such goods as foodstuffs, clothing, fabrics, footwear, wood and paper products, refined petroleum products and chemicals. Import permits must be obtained from the director of import and exports prior to the date of shipment. Failure to produce a required permit could result in the imposition of penalties.

Although the South African Department of Trade and Industry (DTI) appears committed to eliminating the import permit requirement, in favor of a tariff regime in line with their WTO commitments, many previously privileged industrial sectors have vigorously opposed the scrapping of import permit requirements on the grounds that domestic industries will lose market share and in turn cost hundreds of South African jobs. This opposition has led the Government of National Unity (GNU) to undertake "investigations" of designated industries to determine the potential negative implication on the sectors involved and possible implementation of offsetting supply-side measures.

This trend has appeared most recently in the automotive tire industry, where domestic suppliers have forced a six-month extension of the import permit regime on automotive tires -- previously slated for elimination on January 1, 1996, pending an investigation of the effects of dumped imports on the domestic industry. Local importers have decried the extension, claiming that the South African tire market is "one of the mostprotected in the world", with South African consumers paying up to 40 percent more for tires. As the GNU searches for the proper balance between meeting their WTO commitments and spurring the economic growth necessary to meet their awesome developmental needs, it is likely that we will see more of these temporary extensions to permit "additional investigation" of local industry.

Dual-use nuclear technology

The revised Nuclear Energy Act and the Non-Proliferation of Weapons of Mass Destruction Act of 1993

control and regulate the import and export of dual-use nuclear technology. Responsibility for administering controls on dual-use nuclear technology items covered under part one of the Nuclear Energy Act rests with the Atomic Energy Corporation (AEC), overseen by the Minister of Minerals and Energy Affairs. Responsibility for items covered in part two of the Nuclear Energy Act resides within the Non-Proliferation Council (NPC) under the oversight of the Minister of Trade and Industry.

Import surcharges

The South African Government eliminated the much-maligned import surcharge on all goods effective October 1, 1995, in conformance with its WTO commitments.

Tariffs

The South African Government maintains a complex tariff structure. Despite public commitments to the simplification and eventual reduction of tariffs within the WTO framework, the South African Government plan has led, nonetheless, to an increase in some tariffs, including hikes of up to 180 percent on certain steel products. The combination of several previously distinct listings has also caused tariff increases in top- loading washing machines, soda ash, cosmetics, and paper products. While many goods enter duty-free and those subject to duty normally pay rates between 5 and 25 percent, some rates of tariff protection (especially luxury items and automobiles) persist in excess of 60 percent. To be sure, the Government remains publicly committed to its WTO obligations and simplification of the tariff structure has yielded some success in reducing tariff barriers. One such case is that of import duties on computer components which was lowered from 11.5 to 6.9 percent in September 1995.

Any South African producer may petition the Board of Tariffs and Trade (BOTT) for tariff protection. In practice, approval of such petitions is more likely in cases where the producer has a major share of the domestic market and can show that foreign competition is eroding market dominance. Although public commentary on tariff protection requests is normally open for a four-week period, the South AfricanGovernment introduced a three-week public comment provision for emergency situations. In both cases, however, the Government can deliberate for an undefined period before rendering a decision.

Recently, South African domestic telephone equipment suppliers petitioned the BOTT for an increase in the ad valorem duty on telephone handsets and telephone equipment from 5 percent to 20 percent, and from 0 percent to 20 percent, respectively. Although such an increase to the upper limit of GATT binding levels is permissible under the WTO framework, the move clearly violates the spirit of its tariff-reduction objectives. It is likely that we will see additional efforts such as these from domestic suppliers, who, fearing a "flood" of foreign equipment into previously protected markets as a result of South Africa's WTO commitments, move to protect their markets to the full extent permitted under international accord.

WTO Commitments

Under its market access commitments in the Uruguay Round, South Africa will:

  • rationalize 10,000 tariff lines down to 5,0000 to 6,000 by the end of the five-year adjustment period following 1995;
  • bind 98 percent of its tariff lines over that period, up from the 55 percent that existed prior to that offer;
  • replace all remaining quantitative control and formula duties with ad valorem duties; and
  • cut back tariff lines from the 80 difference levels of the past into six levels: 0 percent, 5 percent, 10 percent 15 percent, 20 percent, and 30 percent.

Two exceptions remain: clothing and textiles will comply with the WTO schedules over 12 years instead of five, and maximum tariffs will fall to only 45 percent instead of 30 percent. Motor industry manufacturers have a maximum of eight years to adjust instead of five, and will have to reach a terminal maximum tariff of no more than 50 percent.

Customs Valuation

The dutiable value of goods imported into South Africa and the Southern African Customs Union (SACU) is calculated on the f.o.b. price in the country of export, in accordance with the WTO Customs Valuation Code.

According to Section 66 of the South African Customs and Excise Act, the value for customs duty purposes is the transaction value, the price actually paid or payable. In cases where the transaction value cannot be ascertained, the price actually paid for similar goods, adjusted for differences in cost and charges based on distance and mode of transport, is regarded as the transaction value. If more than one transaction value is ascertained, the lowest value applies. Alternatively, a computed value may be used based on production costs of the imported goods.

In the case of related buyers and sellers, the transaction value will be accepted if, in the opinion of the Commissioner for Customs and Excise, the relationship does not influence the price, or if the importer shows that the transaction value approximates to the value of identical or similar goods imported at or about the same time.

STANDARDS, TESTING, LICENSING AND CERTIFICATION

The Customs and Excise Administration (CEA) employs several testing standards to determine the applicability of tariff and customs duties on imported products. Although most tests have been described as fair and transparent, charges of a lack of transparency and discrimination have been levied with regard to the testing regimes of agricultural products and top-loading washing machines. In this latter case, Lead Laundry Equipment, an importer of Speed Queen washing machines has maintained that the CEA unfairly re-classified their product as a "rotary drum washer" and therefore, subject to a 30 percent ad valorem duty. When Lead protested, it was offered the opportunity to undergo a testing procedure conducted by the South African board of Standards (SABS) in order to be re-classified back to a zero tariff category. Although the washing machine had passed a virtually identical test in Australia, it failed the test conducted by SABS. Nonetheless, the South African Department of Trade and Industry has promised to examine Lead's case, and SABS is revising its test to conform more closely to international practices.

Local importers of U.S. poultry products also have experienced problems with the re-classification of seasoned poultry by the CEA in 1995, when implementation of a re-classification order was inexplicably delayed nine months. As a result, the shipment of one U.S. exporter, caught unaware of the higher tariff, was subject to high duties at the port of entry. The South African Government and the United States have undertaken through the Vice President Gore-Deputy President Mbecki Binational Commission (BNC), the discussion of agricultural issues through a BNC Agriculture Committee.

GOVERNMENT PROCUREMENT

Government procurement is a significant component of the South African economy. Nearly all such purchasing is done through competitive bidding on invitations published in state publications and local newspapers. Although the purchasing procedures of the central government and parastatal institutions favor products of local manufacture, an overseas firm is not precluded from bidding if the firm has an agent in South Africa to act on its behalf. As a general practice, payment is made to the local agent.

The South African Government's buying procedures are highly centralized. The chief directorate of the procurement administration in Pretoria and nine regional offices perform the administrative work of the State Tender Board, which has responsibility for procurement for over forty governmental departments.

Purchases are by competitive tender for project, supply and other contracts. Bidders generally need not pre- qualify, but the ability of bidders to supply goods or render a service is usually examined. Foreign firms can bid through a local agency, who will then be so examined. As part of the government's policy of encouraging local industry, a price preference schedule, based on the percentage of local content in relation to the tendered price is employed to compare tenders. The price preference is computed as follows:

Percent of Local Content Price Preference

Not more than 5      1
5-10          2
10-20       3
20-30         4
30-40       5
40-50       6
50-60       7
60-70       8
70-80       9
Over 80       10

Parastatals, local authorities and private buyers such as the mining houses follow practices similar to those of the central government. Most parastatal procurement is guided by and bound to the schedule of local content preference. Local government purchases, including that of the nine new provincial governments, are increasingly significant and also involve overseas bidding.

Offsets and RDP concerns

It should be noted that many South African Government tenders include an "offset requirement," a compensatory package which "offsets" the government purchase with the promise of a development package funded by the recipient company. Successful offset packages include worker training provisions and infrastructural development, which are defined by and directly related to the GNU's Reconstruction and Development Program.

It is also notable that the South African Government's practice of vetting large tenders through several government ministries and contradictory valuations of the relative worth of a tender and its offset package by competing ministries have contributed to recent charges of a lack of transparency in the tender process. Most recently, Boeing Aircraft, awarded a contract worth over a billion dollars to supply ten airframes, was left in a state of confusion when the tender and offset were suddenly re-examined by the South African Ministry of Public Enterprises and the Department of Trade and Industry (DTI). Perhaps more unsettling were DTI's attempts to gain further offset contributions from Boeing and the rumors of last minute lobbying by Airbus Industries, Boeing's competitor for the contract, after the tender was reportedly closed. Although the entire contract was formally signed with Boeing nearly two weeks after the originally designated January 19 date, Boeing reportedly felt compelled to make modest revisions of its offset package in response to pressure from DTI.

EXPORT SUBSIDIES

The primary subsidy regime of the South African Government is the General Export Incentive Scheme (GEIS) through which South African exporting companies receive direct, non-discriminatory cash subsidies based on the value of exports, the degree of beneficiation or processing, and the local content of the exported product. The GEIS was recently downsized in early 1995 and is expected to be eliminated by the South African Government at the end of 1997. Under this most recent revision, subsidies for fully manufactured products were lowered from 25 percent to 14 percent of export value on April 1, 1995; to 12 percent on April 1, 1996; and to 10 percent on April 1, 1997. Subsidies for partially manufactured products dropped from 12.5 percent to three percent on April 1, 1995; to two percent on April 1, 1996; and eliminated on April 1, 1997. Subsidies on raw materials and beneficiated raw materials were eliminated on April 1, 1955. In addition, categorization of the various goods eligible for GEIS subsidies were re-defined such that many goods previously defined as "partially manufactured" were downgraded to "beneficiated," and so lost eligibility for subsidies.

Another export incentive of the South African government is the Export Marketing Assistance Scheme (EMA) which offers financial assistance for the development of new export markets through financing for trade missions and market research. Other subsidies include electricity and transport rebates for business located in designated development corridors. Provisions of the Income Tax Act also permit accelerated write-offs of certain building and machinery associated with beneficiation processes carried on for export and deductions for the use of an export agent outside South Africa.

LACK OF INTELLECTUAL PROPERTY PROTECTION

Despite the existence of a comprehensive legal framework protecting intellectual property rights (IPR) and membership in international protocols like the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Artistic and Literary Works, and the World Intellectual Property Rights Organization (WIPO), South Africa has been the target of persistent complaints from business and the International Anticounterfeiting Coalition concerning the intentional misappropriation by South Africans of internationally recognized trademarks. Such consistent misappropriation of internationally-known U.S. trademarks led the U.S. Government to place South Africa on the Special 301 "watch list" as a country that denies adequate and effective IPR protection. An out-of-cycle review of South Africa's IPR protection, originally scheduled ro be completed in September 1995, was recently delayed in order to continue monitoring developments by South Africa to address several outstanding U.S. trademark concerns pending in south African courts.

In May 1995, the new Trademarks Act of 1993 replaced the Trademarks Act of 1963, improving protection of internationally-known trademarks. Parliament also passed the Designs Act of 1993 which introduced a registration system providing protection for design proprietors for 10 years from the date of registration or issue, whichever is earlier. In addition, the Patent Act of 1978 was most recently amended in 1988 to provided patent protection of inventions and innovations for a period of two years from the date of filing, without extension. Other South African IPR laws include the Plant Breeder's Rights Act of 1976 and the Copyright Act of 1978 (amended in 1992).

Despite the volume of legal statutes protecting IPR, foreign firms continue to complain of trademark and other IPR infringements. In 1994 and 1995, several internationally-known U.S. companies complained of trademark infringements, most notably in the retail store, franchise foods, and apparel sectors. Some of these complaints focused on the problem of street vendors who pirate the trademarks of internationally-known concerns. When a complaint has been lodged, the South African Government has enforced its laws by conducting raids on suspected pirates. A more endemic problem, however, exists where South Africans registered well-known foreign marks during the period of international sanctions, when foreign firms were prohibited from investing in South Africa.

To date, those U.S. firms seeking redress through the South African legal system have not fared well. In one well publicized trademark dispute, a South African judge found the U.S. firm lacking in intent to use the trademark -- in part because he determined the U.S. firms could not have intended to do so because sanction precluded such investment -- and expunged its mark at the request of the South African contending for its use. The U.S. firms has appealed the case, and the South African Government has committed to a review of its legislation on well-known marks. The South African Government has stated its strong support for and commitment to implement fully its TRIPs obligations under the WTO.

Another IPR concern is the extent of computer software piracy in South Africa. The Business Software Alliance (BSA), a global body with active anti-piracy programs in over 50 countries, estimates that as much as 70 percent of South Africa's software is pirated, resulting in a net loss of over 56 million dollars in revenue to computer firms. The South African Government assistance to the BSA has caused 14 South African companies and organizations to pay damages. Awareness of the problem's severity has prompted a number of organizations to conduct self-audits to identify violations of the copyright act and take corrective measures.

SERVICES BARRIERS

Telecommunications

With a market controlled and regulated by a single parastatal, Telkom, the South African telecommunications market does not presently permit foreign firms access to the local loop or long-distance network for the provision of either enhanced or basic telecom services. Nonetheless, in an effort to address its pressing information technology needs, the Government of South Africa has moved to undertake widespread telecom reform through a draft white paper to be presented to Parliament in early 1996. Although the bill is presently being drafted, the white paper process indicates that the bill will mandate the creation of a regulatory authority by year-end and complete competition in the long-distance market and licensing of a second full-service carrier with seven years.

Audiovisual

In August 1995, the newly created Independent Broadcasting Authority issued a report containing broadcasting guidelines, including a 59 percent local content quota for public broadcasters and 30 percent quota for private broadcasters.

 
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