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Country Commercial Guides for FY 2000: South Africa Report prepared by Embassy Pretoria, released July 1999 Note*

VI. TRADE REGULATIONS AND STANDARDS

South Africa is a member of the World Trade Organization (WTO) and follows the Harmonized System (HS) of import classification. Beginning in 1994, South African shipments to the U.S. have received Generalized Schedule of Preferences (GSP) treatment. There is free and virtually unimpeded exchange of goods between South Africa and the other four countries (Botswana, Lesotho, Namibia, and Swaziland) comprising the Southern African Customs Union (SACU). U.S. shipments to South Africa qualify for MFN (Most Favored Nation) rates.

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 goods such as: fish and dairy products (health concerns), petroleum products (strategic concerns), Montreal Protocol chemicals (international obligations), pneumatic tires (quality specifications), footwear (monitoring in respect of WTO quotas), as well as firearms and ammunition (safety concerns). Nonetheless, the South African government remains committed to the simplification and reduction of tariffs within the WTO framework, and maintains active discussions with the Organization.

The opening of the South African economy necessitated many changes to the country's trade and industrial policies. In terms of the agreement concluded in 1994 with the WTO, the South African Government committed itself to reducing and restructuring import tariffs, removing import surcharges and phasing out the General Export Incentive Scheme (GEIS). Since 1994, on a weighted-average basis, trade tariffs have been lowered by approximately 8 percent. GEIS was terminated in July 1997 and replaced by a number of so-called supply-side measures. The government introduced the " Export Marketing and Investment Assistance Scheme"(EMIA) in August 1997 to assist exporters with meaningful international market research. Special emphasis is being placed on supporting small and medium-sized enterprises and business ventures in the previously disadvantaged communities.

As a result of the growing openness of the South African economy, the ratio of trade in goods and services to gross domestic product increased from 45.3 percent in the period 1980-1985 to 53.9 percent in the 1990s. This ratio has risen from 53.6 percent in 1994, when the country held its first fully democratic elections, to 64.8 percent in 1997.

1. Trade Barriers

Under its market access offer for the Uruguay Round, South Africa will:

Rationalize 10,000 tariff lines down to 5,000 - 6,000 by the end of the five-year adjustment period following 1995

Bind 98 percent of its tariff lines over that period, well up from the 16 percent that existed prior to the offer1

Replace all remaining quantitative control and formula duties with ad valorem duties; and

Cut back tariff lines from the 80 different levels of the past into six levels: 0 percent, 5 percent, 10 percent, 15 percent, 20 percent, and 30 percent.

Two exceptions exist: clothing and textiles will comply with WTO schedules over twelve years instead of five, and maximum tariffs will fall only to 45 percent (note: clothing only) 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. These levels represent binding commitments and are not part of South Africa's phase-down program.

Traders are subject to exchange control approval, administered by the South African Reserve Bank. The Ministry of Trade and Industry is empowered to regulate, prohibit or ration imports to South Africa in the national interest and most goods may be imported into South Africa without restrictions. Import permits are required only for specific categories of goods and are obtainable from the Director of Import and Export. Importers must possess an import permit prior to the date of shipment. Failure to produce a required permit could result in the imposition of penalties. In recent years the list of restricted goods requiring import permits has been reduced. In a move applauded by the international business community, the South African government eliminated the much-maligned import surcharge on all goods effective October 1995, in accordance with WTO commitments.

The South African government and banking system recognize the need to turn the country from an inward-looking, import-substitution regime to a competitive, export-focused market-economy. Progress towards the goal of changing the focus of the economy from import substitution to export promotion requires improving the competitiveness of heavily protected industries. Since the lifting of sanctions, companies from around the world have been introducing their products to South African distributors and consumers. But perhaps even more important, since the lifting of sanctions, domestic firms have been forced to face up to increased foreign competition by new foreign entrants to the market, as well as increasing expectations of enlightened price- and quality-conscious customers, thereby encouraging greater efficiency and productivity.

2. Tariffs and Import Taxes

2.1 Tariffs. In keeping with its WTO commitments, the South African Government has sought to reform a complex tariff structure inherited from Apartheid-era governments. Over the last several years, the government has been quite successful in simplifying and reducing its overall tariff code such that the average tariff rate has fallen from a level in excess of 20 percent to just over 12 percent in just under three years. Nonetheless, as the Department of Trade and Industry pushes ahead with liberalizing policies, many industries previously protected by non-tariff barriers have sought to increase tariffs in their industry to GATT-binding levels. The government, however, has refused the majority of these tariff increase applications in favor of more WTO-friendly supply-side measures.

2.2 World Trade Organization (WTO) Commitments. As a result of both its market access commitments in the Uruguay Round and the government's attempts to reform its tariff structure, South Africa:

Has rationalized 9,580 tariff lines down to 7,182

Will bind 98 percent of its tariff lines to WTO binding levels by 2000, up from the 16 percent currently bound

Replace all remaining quantitative controls with ad valorem duties and make formula duties WTO-consistent

Cut back tariff lines from the 80 different levels of the past into six levels (with a few exceptions): 0 percent, 5 percent, 10 percent, 15 percent, 20 percent, and 30 percent

However, clothing and textiles will comply with the WTO schedules over seven years, ending in 2002, instead of the twelve years negotiated under the WTO, and maximum tariffs will in several categories fall to levels below WTO binding levels. According to the plan, South Africa's tariffs in textiles will fall to the following five levels:

Table 11. South African and WTO Tariff Levels - Textiles

Product				South Africa Plan		WTO Binding Level

Clothing			40 percent			   45 percent
Made-up Textiles		30 percent			   30 percent
Fabrics				22 percent			   25 percent
Yarn				15 percent			 17.5 percent
Fibers			       7.5 percent		  	   10 percent

The range of tariff rates for which the South African government is aiming (and the WTO is expecting) are as follows: 0 - 10 percent for primary and semi-primary products; 0 - 10 percent for capital products; 10 - 15 percent for components; and 15 - 30 percent for consumer products.

In the case of the automotive and textile industries, which the government considers sensitive, the process of gradual tariff reductions is on a longer schedule in order to give uncompetitive domestic producers a grace period in which to increase efficiency. Tariffs applied to original equipment components have been given eight years to fall from 100 percent to 30 percent. The target tariff for passenger and light commercial vehicles is 40 percent in 2002. Further subsequent phase-downs are also being considered. The tariffs for medium and heavy commercial vehicles will reach 20 percent by the year 2000. Textile tariffs will proceed over seven years from 100 percent to 45 percent on clothing, from 50 percent to 25 percent on fabrics, from 35 percent to 17.5 percent on yarn, from 15 percent to 10 percent on fibers, and from 60 percent to 30 percent on household textiles.

Although the government seems intent on conforming to the standards of the WTO, the legacy of an import-substitution policy supported by high tariffs and import permits has left South African industry largely uncompetitive on the world market. Due to this lack of competitiveness coupled with the high unemployment rate in South Africa, the government has vigorously explored WTO-permissible supply-side measures designed to facilitate worker retraining and technological innovation.

The Board on Tariffs and Trade is a statutory body that advises the Government on tariffs. The Board considers applications for both tariff relief and tariff protection and makes recommendations to the Minister of Trade and Industry. Applications are normally published for a period of six weeks for comments and consultation. The general trend has been for tariffs to be reduced to encourage industries to become more competitive and also to reduce cost structures. Although industries can still apply for tariff protection, such applications will be subject to rigorous analysis and evaluation in the context of industrial and agricultural policies.

Additional information on import policy and tariffs can be obtained from the Department of Trade and Industry.

Department of Trade and Industry
Board on Tariffs and Trade
Private Bag X753
Pretoria 0001
Tel: (27 12) 310-9500; Fax: (27 12) 320-2085
Mr. D. J. Jordaan (Director)

2.3 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 GATT 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.

Dutiable weight for the assessment of specific duties is the legal weight of the merchandise, plus the weight of the immediate container in which the product is sold, unless specified otherwise in the tariff.

2.4 Import Surcharge. The South African Government, on October 1, 1995, eliminated all import surcharges as committed to the WTO. 2.5 Value-Added Tax. The value-added tax (VAT) is 14 percent. VAT is payable on nearly all imports. However, goods imported for use in manufacturing or resale by registered traders may be exempt from VAT. The valuation of imported goods for VAT is based on the f.o.b. value plus 14 percent of that value, plus any non-rebated customs duty (tariff plus import surcharge).

2.6 Excise Tax. Specific excise duties are levied on alcoholic and nonalcoholic beverages, tobacco and tobacco products, mineral waters, some petroleum products, and motor vehicles. Ad valorem excise duties are levied on office machinery, photographic film, and luxury consumer goods such as cosmetics, home entertainment products, and motorcycles.

2.7 Tariff Rebates. Various provisions for rebate of duty exist for specific materials used in domestic manufacturing, mostly in cases where such material or a specific type of grade thereof is not produced in the customs union area. The importer must consult the relevant schedules to the Customs and Excise Act. (Note: Not the Import Control Act) to determine whether the potential imports are eligible for rebate of duty.

3. U.S. Export Controls

U.S. nationals may engage in the full range of trade activities in South Africa. The United Nations repealed its arms embargo in May 1994 and the United States Government followed suit one month later. In February 1998 the U.S. suspended the debarment of several South African firms, including ARMSCOR, Denel, and Fuchs, thus normalizing defense trade relations. As a result, the Department of State can again consider requests for licenses for the export of items on the U.S. Munitions List to South Africa. Exporters should call the Bureau of Export Administration at telephone 202-482-4830 (www.bxa.doc.gov) for an update on " dual use" export controls.

4. South African Export Controls

A number of products are subject to export control and licenses, including strategic goods (exhaustible resources), metal waste and scrap. Diamonds for export must be registered with the Diamond Board. No price-controlled petroleum product produced at local synfuel plants may be exported.

Metal scrap is subject to an export permit, which is issued 5 days after the application is made, thus giving time and opportunity to local users to negotiate for the purchase price thereof.

Only ostriches and their fertilized eggs are subject to complete export prohibition. Export prohibitions on any product, however, are difficult to enforce.