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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