South Africa: Obstacles to trade in South Africa

South Africa has come a long way in removing the obstacles that prevent foreign players from having easy access to its market. Some obstacles remain and foreign players should be aware of them.

1. IMPORT DUTIES

Import duties are levied on imported goods in terms of the Customs and Excise Act 91 of 1964 ("the Customs Act"). Schedule 1 Part 1 of the Customs Act prescribes the rate of duty payable on imported products.

In the past, South Africa was characterised as protectionist and local producers could protect themselves with ad hoc applications for increased duties.

In December 1994, the last round of multilateral negotiations under the General Agreement on Tariffs and Trade ("the GATT"), the Uruguay Round, was finalised and South Africa became a member of The World Trade Organisation ("the WTO"), previously the GATT. In accordance with its Uruguay Round obligations, South Africa committed itself to lowering its import duties on industrial products in five equal stages. The last of the five stages coming into effect on 1 January 1999. Longer adjustment periods for the reduction of duties were granted to "sensitive industries" such as the textile, clothing and motor industries, which are typically labour intensive and have been traditionally protected by very high duties.

South Africa has in fact accelerated the reduction of duties to exceed its WTO commitments.

In terms of section 3 of the Board on Tariffs and Trade Act 107 of 1986 ("the Board Act"), the Board on Tariffs and Trade ("the Board") is authorised to conduct "investigations into any matter which affects or may affect the trade and industry of the Republic or the common customs area of the Southern African Customs Union". In terms of this section, the Board, inter alia, conducts investigations initiated by applications for increases and decreases in import duties brought about by local producers and importers.

Notice of such applications are published in the Government Gazette and interested parties are invited to comment. It is, therefore, imperative for both importers and local producers to be aware of such applications and to object to such applications if such proposed increase or decrease in duty will affect them to their detriment.

Although applications for increases in duty are considered by the Board, the Board cannot recommend an increase in duty which will conflict with South Africa's WTO obligations.

2. ANTI-DUMPING

With the phasing out of import controls and surcharges and the reduction of import duties in terms of South Africa's WTO obligations, local producers increasingly rely on anti-dumping measures to protect their products.

An anti-dumping duty is an additional duty imposed in terms of the Customs Act on goods which have, in terms of the Board Act, been found to have been dumped and caused material injury to the local industry concerned. "Dumping" is defined in the Board Act as the introduction of goods into the commerce of the Republic or the common customs area of the Southern African Customs Union at an export price which is the less than the normal value of the goods.

Anti-dumping investigations are initiated by the Board subsequent to a petition brought by a local producer or producers.

Our anti-dumping legislation is still undeveloped which creates much uncertainty for the parties involved and gives the Board a great deal of discretion. The Board has indicated that it is in the process of restructuring the anti-dumping legislation and that draft legislation should be published later this year.

Notice of anti-dumping investigations are published in the Government Gazette and interested parties are given 30 days to comment. Letters are also sent by the Board to known interested parties.

Anti-dumping measures should not be used to give local producers an unfair advantage in the market and to compensate local producers for the lowering of import duties. Anti-dumping measures should only be used where the exporter is obtaining an unfair advantage by selling its goods in the export market at a price which is lower than the price at which it sells the same goods in its domestic market, thereby causing material injury to the local industry.

It is important for South African importers and foreign exporters to be aware of the risk of anti-dumping investigations when entering the South African market and when structuring their activities, as it is very expensive and time consuming for an importer or exporter to defend an anti-dumping action. The imposition of an anti-dumping duty may make an exporter and importer uncompetitive in the local market. It may even have the result of forcing an importer out of business.

3. WORK PERMITS

When entering a foreign market companies are concerned with placing qualified and experienced individuals in key positions in the foreign operation.

The provisions of the Aliens Control Act 96 of 1991, as amended, complicate this matter. In terms of section 26(2)(a), applications for first work permits must be made while the applicant is still outside the Republic and the applicant will not be allowed to enter South Africa until a valid permit has been issued.

In light of South Africa's high rate of unemployment, applications for work permits are scrutinised carefully by the Department of Home Affairs. In cases where an individual is not seconded to South Africa from an overseas operation to the local operation, it may take up to two months for the application to be considered. The Department of Home Affairs also requires the South African company to show that it has taken steps to find a suitable South African candidate before employing a foreigner by either advertising the position locally, or contacting employment agencies or the Department of Labour.

4. EXCHANGE CONTROL REGULATIONS

Despite the recent relaxations in exchange control regulations, exchange control regulations still remain an impediment to trade. For example, loans by non-residents to South African residents require exchange control approval and the ability of South African companies which are subsidiaries of foreign companies to obtain financial assistance in the domestic market is subject to restrictions. Payment of royalties and licence fees by South African residents to non-residents under royalty, technology and licence agreements requires exchange control approval. Such agreements involving the local manufacture of goods must first be referred to the Department of Trade and Industry which then makes a recommendation to the exchange control authorities.

5. OTHER RESTRICTIONS

In addition to the above obstacles, foreign investors may also find a whole host of approvals, standards, controls and regulations which may affect their business. It is beyond the scope of this article to deal with all of them and the obstacles encountered will often depend on the kind of business in which the company or individual is involved.

For further information, please contact us.

The material contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. We accept no responsibility for any loss or damage, which may arise from reliance on information contained in this article.

© Copyright Webber Wentzel Bowens 1999. All Rights reserved.