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Trade Law Chambers | What's On

South Africa to introduce carbon tax

Yesterday Finance Minister Pravin Gordhan announced that South Africa will introduce a carbon tax on 1 January 2015. The introduction of the carbon tax is in line with South Africa's approach to adopt a low-carbon economy, which includes mobilisation of its renewable energy potential, as outlined in the National Development Plan. South Africa is one of the biggest carbon dioxide emitters in the world, although its emissions are much less than compared to the emissions of the USA, EU and some of our fellow BRICS members.

It was proposed that carbon should be taxed at a rate of R120 per ton of CO2 equivalent. It was further proposed that any adverse impact may be softened by introducing a tax-free exemption threshold of 60 per cent, with some additional allowances for emission intensive and trade-exposed industries.

However, the proposed tax rate and possible exemptions are mere proposals and as such business needs to keep an eye out for further developments and engage government hereon. Minister Gordhan did indicate that an updated carbon tax policy paper will be published for further consideration by the end of March 2013.

Rian Geldenhuys
© Trade Law Chambers 2013

Expropriation of foreign investors in South Africa

Last year we reported that the Department of Trade and Industry would refrain from entering into any future bilateral investment treaties (?BITs?) and in fact was looking at terminating the BITs. The Department of Trade and Industry is currently drafting a new bill, the Foreign Investment Bill that will replace all existing BITs.

According to the Deputy-Director General of International Trade, Mr Xavier Carim, the bill would deal with how the South African government would compensate foreign investors in the event of expropriation. It is understood that this new bill is not a reversal of government's protection of foreign investors but rather an attempt to modernise and improve on the current regulatory framework. This could indeed be valuable as South Africa has many BITs which may not always be aligned.

Although Mr Carim is reported to have stated that the proposed bill was unlikely to frighten investors as none of these investors cared about BITs the reality is that foreign investors do seek some form of protection. The proposed reform comes shortly after South Africa was engaged in arbitration proceedings with some Italian investors at ICSID (the World Bank's International Centre for Settlement of Investment Disputes) in terms of the South African - Italy BIT. The Italian investors claimed that their expropriation of certain mining rights in terms of South Africa's Black Economic Empowerment policy violated the provisions of the specific BIT. Had it not been for the BIT, the Italian investors may not have been able to bring such a dispute and attempt to enforce their rights, as under South African law the expropriation and the manner in which it occurred was sanctioned. The Department of Trade and Industry itself was also recently involved in ensuring investor protection and compensation for expropriation was included in the Bilateral Investment Protection Agreement (BIPA) concluded between South Africa and Zimbabwe. This protection was seen as a prerequisite by South African investors, without which they were not willing to commit to investing in Zimbabwe. As such foreign investor protection is an important consideration for foreign investors and the proposed bill will be followed closely.

To read Rian's quote in the Business Day, please click here.

Rian Geldenhuys
© Trade Law Chambers 2013

DealMakers 2013 Award Winner

The DealMakers Country Awards 2013 recognize a select number of leading professional firms, across the globe, for their individual areas of specialization, within their geographical location.

The DealMakers Country Awards 2013 are presented across all geographical locations that the Monthly Magazine penetrates.

The DealMakers Country Awards 2013 recognizes and salutes the organizations &, advisers that have performed to exceptional levels during the most difficult period that the global economy has experienced for decades.

We are delighted to announce that Trade Law Chambers has been recognized as the South African Trade &, Customs Law Firm of the Year in the DealMakers Country Awards 2013.

© Trade Law Chambers 2013

Trade Law Chambers International Trade Law Firm of Year

We are delighted to announce that Trade Law Chambers is a winner in the Finance Monthly Global Awards 2013. After a rigorous selection and judging process Trade Law Chambers was selected as the South African International Trade Law Firm of the Year.

This award is further affirmation of our lawyers' unparalleled experience in the field of international trade law having won similar awards in the recent past. We strive to excel in our chosen field of specialisation and this award will further fuel our pursuit of excellence.

© Trade Law Chambers 2013

Upcoming Event

On 14 February 2013 Rian Geldenhuys will be presenting on international trade law issues for the agro-processing sector. The presentation will cover on the following:

  • Brief overview of trade landscape as well as progress made thus far
  • Explanation of Sub-Saharan Africa free trade agreements
  • Outline of market access opportunities and obstacles of Sub-Saharan Africa
  • Market Access opportunities and obstacles for rest of the world
  • Potential competition for SA agro-processors
  • Possible competition law concerns in respect of export activity

The presentation is part of Wesgro's Export Development Programme Seminar and will be held at the Hilton Hotel in Cape Town. For more information, please download the programme here.

© Trade Law Chambers 2013

Duty increase on pasta

On 23 November 2012 the International Trade Administration Commission found that duty on certain pasta products should be increased to protect the South Africa pasta producers from illegally subsidized imports.

To read our comments hereon in a Business Day article of 31 December 2012 please click here. To read our further comments in another Business Day article of 3 January 2013 please click here.

To listen to our interview on BBC World Business Report, kindly click here.

© Trade Law Chambers 2013

BBBEE targets changed?

South Africa's Trade and Industry Minister, Rob Davies, published revised Broad-based Black Economic Empowerment Codes of Good Practice (the BBBEE Codes) for public comment on 5 October 2012. According to Minister Davies the revised codes are intended to ensure that genuine broad empowerment will take place.

Many amendments are proposed and unless business influences the process the revised BBBEE Codes may remain in its current form. One key amendment is that the generic scorecard has been reduced from seven to five elements, with Employment Equity and Management Control being consolidated and Preferential Procurement and Enterprise Development merged to form a Supplier Development Element. The weighting of these elements have also been adjusted.

Furthermore three elements, ownership, skills development and supplier development, have been classified as priority elements. Business will have to comply with the minimum threshold requirements of these three priority elements. If companies do not comply with these thresholds their BBBEE status will be discounted by either two levels if using the Generic scorecard or one level if using the Qualifying Small Entities scorecard. Businesses will have to achieve a minimum of 40% of the threshold prescribed in order to avoid having their BBBEE status discounted.

Business should take cognisance of the draft revised BBBEE codes to determine how it would affect them, especially as some businesses may lose their current BBBEE status.

Any interested parties should submit comments to the dti within 60 days from 5 October 2012.

Rian Geldenhuys
© Trade Law Chambers 2012

Businesses facing deregistration deadline

The Companies and Intellectual Property Commission (CIPC) have issued a notice reminding businesses that it is in the process of finalising the deregistration process of all entities that were referred for deregistration on 17 March 2011. A list of these entities can be found here.

These entities were referred for deregistration due to their annual returns being outstanding. Businesses can apply to the CIPC for reinstatement, but have to ensure that their outstanding annual returns are filed before the new deadlines to be successful with reinstatement. The deadline for filing all outstanding annual returns is 30 September 2012 for Close Corporations and 31 October 2012 for companies.

Businesses are urged to make sure that they have filed all outstanding returns, otherwise they risk being finally deregistered without any further notification from CIPC.

Niel Joubert
© Trade Law Chambers 2012

Market opportunities in SADC for service providers

On 18 August 2012 the Southern African Development Community (SADC) Secretariat stated that the SADC Member States agreed on a Protocol in Trade in Services. SADC Protocol on Trade in Services has been a long awaited affair. It presents SADC services providers with the opportunity to provide their services to other SADC Member States, an opportunity that is scarcely afforded to foreigners and almost never given the appropriate legal recognition within the region.

The Protocol on Trade in Services will also go a long way to facilitating trade in goods within the current free trade agreement applicable to SADC as many services are necessary in order to effectively trade in goods (such as transport, telecommunication and financial services to name a few). Currently many of these services are underdeveloped or ineffective within SADC.

The question is whether the SADC Protocol on Trade in Services really does provide the appropriate legal protection for foreign service providers. Recently we have seen that the SADC Tribunal was suspended which means that foreigners cannot enforce their rights under any legal agreement (such as the Protocol on Trade or the Protocol on Trade in Services). The government of South Africa has also recently announced that they are desirous of terminating their bilateral investment treaties which provided protection to foreign investors against expropriation as the foreigner may enforce its rights through arbitration.

The SADC Protocol on Trade in Services provides for its own rules of procedures for settling disputes, but for the rest the dispute settlement mechanism seems to rely on the SADC Tribunal. Obviously if the SADC Tribunal is currently suspended, it would not assist foreign service providers in enforcing their rights. However save for the rules of procedure which differs within the context of the SADC Protocol on Trade in Services the most important difference is that the dispute settlement mechanism only allows for State to State dispute settlement (as we have under the SADC Protocol on Trade). This means that a service provider company cannot enforce its own rights. This is contrary to the provisions of the Protocol of the Tribunal (leading to a fragmentation in SADC law) and will only allow the company to enforce its rights if, and only if, it can convince its government to take the matter on dispute. This is not an ideal state of affairs for business, but it seems to follow the thinking about the possible new SADC Tribunal (to read our article thereon please click here).

The SADC Trade Protocol on Trade in Services is further only a framework agreement in the sense that the actual opportunities will be found in the commitments that each SADC Member State make. These commitments in essence tell you how a foreign service provider can gain access to a market and once market access have been granted, how that foreigner will be treated differently vis-a-vie any national. Initially the commitments will only be on the six priority services sectors agreed upon, namely communication, construction, energy-related, financial, tourism and transport services. These are of course the subject of negotiation. According to the SADC Trade Protocol on Trade in Services the negotiation on these commitments must be concluded within three years of the start of the negotiations. The date of the start of the negotiations has not been determined and in light of the history of concluding SADC negotiations and emphasis placed on the SADC-EAC-COMESA Tripartite free trade negotiations it is likely that it will still be a very long time until business can rely on any real commitments.

This sentiment is perhaps also conveyed by the fact that 6 of the 15 SADC Member States did not sign the SADC Protocol on Trade in Services despite the SADC Secretariat reporting that the relevant authorities were present. Angola, Botswana, Namibia, Madagascar, South Africa and Zimbabwe did not sign the protocol. If all the signatures are eventually obtained it still does not present a legal framework as it will only enter into force within 30 days after two-thirds of the Member States have ratified the protocol in accordance with their own national constitutional procedures. Experience has shown that this too may take a very long time.

This does not mean that service providers cannot access the SADC market. It merely means that they will have to pay particular attention to the legal risks and avenues open to them.

Rian Geldenhuys

© Trade Law Chambers 2012

Foreign ownership of private security industry at risk

The proposed Private Security Industry Regulation Amendment Bill provides for the regulation of ownership and control of a business operating as a security services provider. According to the Bill, a security business will only be allowed to register, which is a requirement to conduct the business as a security provider, ?if at least 51 percent of the ownership and control is exercised by South African citizens?.

The Bill does give the Minister some discretion and allows the Minister to prescribe a different percentage ownership and control in respect of different categories of security business such as guarding, response security, assets in transit, importers and distributors of monitoring devices and security advisors. As the Bill currently stands, all current registered security businesses will have 5 years from the date of commencement of the Bill to comply with the ownership requirements. Of course new entrants will have to comply with the ownership requirement.

Businesses that are affected may of course pursue various avenues in order to safeguard their issues such as attending the Parliamentary Portfolio Committee meeting to make submissions and approaching the courts for relief. No doubt numerous arguments may be advanced as to why the amendment should or should not be allowed. Few may consider that South Africa is not allowed to implement the proposed changes to the Private Security Industry Regulation Act as far as the limitation on foreign ownership is concerned.

This is due to the fact that it is contrary to South Africa's international obligations at the World Trade Organisation (WTO). South Africa is a founding member of the WTO and a signatory to the General Agreement on Trade in Services (GATS). The GATS allows member countries to make commitments in services sectors. These commitments are commitments to liberalise the services sectors, i.e. allowing foreigners to provide their services in South Africa. However the GATS also allows a member country to maintain restrictions on services being provided by foreigners. As such South Africa in theory would be able to introduce a measure whereby foreign ownership in services sectors is limited. However this is only allowed if a member country made that specific commitment in its schedule of commitments. Is this the case for South Africa?

The South African government is in fact prohibited from imposing a 49% ceiling on foreign ownership in the security businesses. This is due to the fact that South Africa committed to its international trading partners at the WTO that it would not impose such restrictions on foreigners in providing security services. Any attempts to amend the legislation to impose such a limitation will be a violation of South Africa's WTO commitments. South Africa's trading partners could thus approach the WTO dispute settlement body to resolve any such dispute, whilst foreigners would be able to rely on bilateral investment treaties to protect their interests.

Rian Geldenhuys
© Trade Law Chambers 2012

Russia joins the WTO

On 22 August 2012 Russia officially joined the WTO. Russia has been negotiating is accession to the WTO for the last 19 years as it applied in June of 1993 to join the WTO with the Working Party of the Accession of the Russian Federation being established in June 1993. Russia thus became the 156th member of the WTO.

From the date of accession Russia has committed to fully apply all WTO provisions whilst very few transitional periods apply. Normally when a country joins a few of the WTO provisions will be suspended during a transitional period. Typically such suspensions would allow a newly admitted member to not apply all the WTO provisions whilst it adjusts to increased trade. It also allows existing WTO members to take measure they may not normally rely upon, such as imposing quotas on imports from the newly acceded member.

According to the WTO, Russia will, on average, apply a final bound tariff of 7.8% for goods, of which the average tariff for agricultural products and manufactured products are 10.8% and 7.3% respectively. Due to the fact that this is only an average, the bound tariff on many products may of course be much higher than 7.8% especially where Russia would like to maintain some protection for its local industries. Russia also concluded 57 bilateral agreements on market access for goods and hence may afford more preferential access to those 57 members.

Russia also made commitments to liberalise trade in services and made commitments in 11 of the services sectors. This also represents an opportunity for foreign services providers to render their services in Russia. Russia maintain a maximum of 49% limitation on foreign ownership, but will eliminate this in the telecommunication sector after 4 years from the date of accession.

These commitments are of course only the main commitments and Russia made commitments on several other important matters such as export duties, industrial and agricultural subsidies, energy, sanitary and phytosanitary measures, technical barriers to trade, trade-related investment measures and the protection of intellectual property rights.

For more information on the potential opportunities and threats which Russia my present, kindly do contact Rian Geldenhuys.

© Trade Law Chambers 2012

A new SADC Tribunal?

Following the SADC Heads of State summit over the weekend the media reported that the member states have taken a decision to bar individuals from accessing the SADC Tribunal. The communiqu? from the SADC Heads of State went further and stated that the SADC Tribunal will only hear disputes between different SADC member states. In other words legal entities will also be excluded from enforcing their rights at the SADC Tribunal.

The SADC Tribunal has of course been defunct ever since Zimbabwe's objections to decisions by the Tribunal which found that Zimbabwe was in violation of its obligations under the SADC Treaty. These cases were concerned with human rights violations, with the most famous case being the Campbell judgment which involved the unlawful expropriation of private land without compensation. Even though SADC requested a legal opinion on the correctness of these findings, which correctness was confirmed (in which Trade Law Chambers was involved), the Tribunal was effectively suspended after Zimbabwe exerted political pressure which led to a request by SADC leaders to review the powers of the Tribunal.

Media reports and commentators focussed exclusively on the travesty such decision brings in terms of human rights violations. Unfortunately not much attention has been given to the fact that the SADC Tribunal also had jurisdiction to adjudicate trade and investment disputes. A failure to recognise the rights of businesses in taking trade and investment disputes to the SADC Tribunal has far reaching implications. For one, businesses will have to lobby their own governments to initiate a trade or investment dispute against another member state of SADC as business will be prevented from enforcing its own interest at the SADC Tribunal. Prior to the suspension of the SADC Tribunal, all of the cases heard were initiated by individuals or legal entities. There has thus not been any dispute between SADC member states, not even any trade and investment disputes. It would also appear that SADC member states are not keen to even voice their concerns about the conduct of other member states. Furthermore, none of the SADC member states have ever initiated a trade dispute against any other WTO member (with that some member states have participated as third parties). This is in spite of the fact that there are numerous complaints by SADC businesses (and to a certain extent by SADC governments) of unfair trade practices at the WTO level. Although SADC business may be keen to enforce their rights, the WTO also does not allow individuals or legal entities to bring trade disputes. The WTO dispute settlement process is reserved for WTO member state and as such businesses have to lobby their governments to bring a WTO dispute.

To date such lobbying has not really been successful as there seems to be much resistance by SADC governments to get involved in the dispute settlement process. In defence of the inaction, governments often complain that, due to trade imbalances, retaliation would not be an appropriate remedy against unfair trade practices. Whilst in some instances there may be merit in such an argument, SADC member states should not lose sight of the fact that it is becoming an ever increasingly important market for the rest of the world and hence retaliation could indeed be not only appropriate but effective.

These complex political decisions weigh in heavily on the rights of the actual persons for which the SADC Trade Protocol or the WTO has been negotiated. It is of course business, and not governments, that trade and it is business that stands to gain or lose the most. It is thus a travesty that SADC is now clawing back the rights it gave to business in pursuing their trade and investment interests at the SADC Tribunal.

Rian Geldenhuys
© Trade Law Chambers 2012

The future of SAs bilateral investment treaties

South Africa has many BITs, the aim of which is to provide protection to foreign investors. On 26 July 2012 the Department of Trade and Industry released a media statement revealing that South Africa intends to refrain from entering into any future bilateral investment treaties (?BITs?).

At the launch of the South African United Nations Conference on Trade and Development (UNCTAD) Investment Policy Framework for Sustainable Development, Trade and Industry Minister Rob Davies stated that unless there are compelling economic and political reasons, South Africa will avoid entering into BITs in the future. It is of course in any country's best interest to only enter into a BIT if it makes economic and political sense as it could restrict a country's policy space. This could be especially true if the South African government wants to pursue its Constitutional-based transformation agenda. Countries must also ensure that they do not enter into a race to the bottom to attract investment, but also achieve benefits, such as skills development, technology transfer and sustainable economic linkages from the investment. The question that remains unanswered is what constitutes compelling economic and political reasons.

It is further reported that the Minister went on to state that ?Cabinet instructed that all first generation BITs which South Africa signed shortly after the democratic transition in 1994... should be reviewed with a view to termination.? This does not bode well for business confidence, both for foreigners investing in South Africa or for South Africans investing abroad. As an example the BIT between South African and Zimbabwe provided much needed confidence for South African businesses venturing into Zimbabwe. Providing protection from expropriation of investments is also a key consideration for foreigners investing in South Africa. Recently some Italian investors proceeded with arbitration proceedings against South Africa at ICSID (the World Bank's International Centre for Settlement of Investment Disputes) in terms of the South African - Italy BIT. The Italian investors claimed that their expropriation of certain mining rights in terms of South Africa's Black Economic Empowerment policy violated the provisions of the specific BIT. Had it not been for the BIT, the Italian investors would not have been able to bring such a dispute and attempt to enforce their rights, as under South African law the expropriation and the manner in which it occurred was sanctioned. The BITs therefore do play a role in investors' decisions to invest in markets.

Although the aim is to terminate the current BITs there is hope that the current BIT's may be renegotiated. However investors may have to wait some time as it is only anticipated that such renegotiation may commence once a model for bilateral investment treaties had been developed. Minister Davies did indicate that the government favours a favourable investment climate that favours inclusive growth and sustainable development. An Inter-Ministerial Committee has been tasked with the oversight of BITs. According to Minister Davies, ?key considerations would be to codify BIT-type protection into South African law and clarify their meaning in line with the South African Constitution. We would also seek to incorporate legitimate exceptions to investor protection where warranted by public policy considerations such as national security, health, environmental reasons or for measures to address historical injustice and/or promote development". Although the domestication of protection for foreign investors will be welcomed by foreigners as it would allow them to enforce their rights in South African courts, they may be sceptical as to the proposed exceptions to such protection, such as expropriation.

Rian Geldenhuys
© Trade Law Chambers 2012

SA fruit exports under threat

The European Union, in particular the United Kingdom has for a long time been the number one export destination for most fruit exported from South Africa. The ongoing financial crisis has seen demand in that market decline sharply, forcing South African fruit exporters to put more focus on alternative markets such as the Middle East, Far East and Africa.

Exporters are also facing increasingly complex regulatory environments with sanitary and phytosanitary measures in traditional markets becoming more strict. In particular, European chemical residues regulations are becoming so strict that even their own producers would struggle to meet their own standards.

In an interview with the Financial Mail last week, Charles Hughes, the managing director of Tru-Cape Fruit Marketing hit out at government for its inaction in assisting the South African fruit industry gain access to vital overseas markets. Tru-Cape is one of the biggest exporters of deciduous fruit from South Africa.

Thailand has been blocking South African exports of table grapes and apples since 2008, as the South African government failed to timeously provide the Thai authorities with the required phytosanitary information. This has caused the industry to lose exports worth more than R400 million, which has had a negative impact on employment in the industry. Efforts to resolve the Thai ban is still ongoing. Trade Law Chambers advised the industry in this matter.

South African fruit exporters are at risk of losing other important markets due to bureaucratic ineptitude in the South African department of agriculture, forestry &, fisheries (DAFF). Currently they still do not have access to the Chinese market for apples, despite the fact that China has approved the South African production and certification processes. All South Africa's main competitors in the fruit market are already exporting apples to China. According to DAFF, talks with the Chinese government are at an advanced stage but the issue has not yet been resolved. In Indonesia, South African exporters do not have access to the main port of Jakarta, causing them to be less competitive than their competitors that do have such access. India is also requiring exporters to chemically treat their fruit with methyl bromide, which exporters argue violates the World Trade Organization (WTO) Agreement on Sanitary and Phytosanitary measures (SPS Agreement).

While the international trade rules of the WTO recognizes the right of trading nations to protect their citizens' health against unsafe imported products, in reality sanitary and phyto-sanitary measures and technical standards are often abused as protectionist measures to shield local producers from competition from imported products. The SPS Agreement and the Agreement on Technical Barriers to Trade (TBT Agreement) sets out the rules for how countries can make use of SPS measures and technical standards. The main principles found in both these agreements are that any measure applied should not be a disguised restriction on trade and should be the least trade restrictive measure available to obtain the desired objective.

Exporters have to comply with various SPS measures to gain access to a specific market, which can often be a huge cost factor for producers. While the fruit industry spends a lot of time and money to ensure that they can comply with these requirements, cooperation is often also required between the governments of the importing and the exporting countries. This is for instance necessary to ensure that the required protocols are put in place for the recognition of the exporting country's phytosanitary testing and certification processes by the importing country. It seems that the DAFF is currently failing South African exporters in this regard. This is an issue that needs to be urgently addressed by the DAFF, otherwise the industry will have no other choice but to explore the options it has available to force the DAFF to comply with its mandate.

Niel Joubert
© Trade Law Chambers 2012

WTO dispute over Australias tobacco brand law

Yesterday the Dominican Republic called for WTO consultations with Australia on its ?measures concerning trademarks, geographical indications and other plain packaging requirements applicable to tobacco products and packaging?.

The Australian legislation, which is set to come into force in December this year, prohibits the use of brand colours and logos on tobacco packaging. It is understood that the tobacco products will have to be sold in plain packaging being olive green packs. Tobacco companies will only be allowed to print their name and the brand in a small prescribed font on the packaging.

The Dominican Republic's request for consultations is the first step in WTO dispute settlement. Should Australia fail to answer the request for consultations within 10 days, the Dominican Republic will be allowed to request that a WTO Panel be established to adjudicate the dispute. If Australia does answer the consultation request, consultations will have to start within 30 days. The Dominican Republic will again have the right to request the establishment of a WTO Panel if consultations do not start within 30 days. Should the consultations fail to deliver a settlement after 60 days of the request for consultations, the Dominican Republic may again request that a WTO Panel be established.

This is the first time that the Dominican Republic has initiated a WTO dispute. Thus far it has only been involved in three WTO disputes as a third party along with a host of other countries. In requesting consultations, the Dominican Republic adds its voice to growing concerns over the Australian legislation. Ukraine requested consultations with Australia on the same legislation on 13 March this year. Brazil, Canada, the European Union, Guatemala, New Zealand, Nicaragua, Norway and Uruguay joined the consultations as third parties. Honduras also requested consultations with Australia on 4 April 2012. Subsequently Brazil, Canada, El Salvador, the European Union, Guatemala, Indonesia, Nicaragua, New Zealand, Norway, the Philippines, Ukraine, Uruguay, and Zimbabwe joined the consultations as third parties. We will have to wait and see who will join the Dominican Republic.

For further information on our WTO dispute settlement practice, kindly do contact us.

Rian Geldenhuys
© Trade Law Chambers 2012

AGOAs third country fabric provision extended

On 19 July 2012 the United States of America's Senate Finance Committee approved the extension of the Africa Growth and Opportunity Act's (AGOA) third-country fabric provision.

The third-county fabric provision was set to expire on 30 September 2012 and would have had dire economic consequences for textile businesses in sub-Saharan Africa.

Under AGOA qualifying sub-Saharan countries may export an eligible list of apparel products to the United States duty-free and quota-free until 2015. Typically the apparel products will be eligible for such duty-free and quota-free treatment if they are made from yarn and fabric originating from the United States or sub-Saharan Africa. The third-country fabric provision attempts to assist lesser developed countries in sub-Saharan Africa by allowing them to use fabric and yarn which originates anywhere in the world as long as the apparel products are wholly assembled in these lesser developed sub-Saharan African countries. This third-country fabric provision has now been extended to 30 September 2015 when the overall AGOA programme is set to expire. The extension is welcomed as it will greatly assist these lesser developed countries apparel and textile industries.

On 10 August 2012 President Obama signed the law that officially renews the third-country fabric provision until September 2015.

Rian Geldenhuys
© Trade Law Chambers 2012

WTO declares Chinas financial services restrictions illegal

On 16 July 2012 a WTO Panel report found that China's financial services restrictions are illegal under WTO law. The matter commenced on 15 September 2010 when the United States of America ,requested consultations with the People's Republic of China in respect to restrictions and requirements maintained by China in respect of electronic payment services. These electronic payment services related to card payment transactions and the suppliers of those services.

Specifically the United States alleged that China only permitted China UnionPay (a Chinese entity) to supply electronic payment services for payment card transactions denominated and paid in renminbi in China. Service providers from other WTO member countries were only allowed to render these electronic payment services for card payment transactions in foreign currencies. The Panel found that where specific commitments have been made on market access under the General Agreement on Trade in Services (?GATS?), a member is not allowed to limit the number of service suppliers. As China made specific market access commitments under Mode 3 for this particular type of financial services it was violating Article XVI:2(a) as China was not allowed to limit the number of service providers.

It was further alleged that China requires that all payment cards issued in China must bear the ?Yin Lain? / ?UnionPay? logo and must be interoperable with the UnionPay network. The United States also maintained that China upheld a requirement that all terminal equipment in China must be capable of accepting these ?Yin Lian?/?UnionPay? logo cards, and finally, a requirement that acquiring institutions post the ?Yin Lian?/?UnionPay? logo and be capable of accepting all payment cards bearing the ?Yin Lian?/?UnionPay? logo. China made national treatment commitments for these particular types of financial services. None of these commitments allowed it to impose the requirements outlined above. As a consequence the WTO Panel found that all of these requirements were inconsistent with China's national treatment commitments made under mode 1 and 3 for these types of financial services. China was thus not allowed to impose further national treatment restrictions after it had made commitments for these electronic payment services.

We now have to wait to see whether China decides to adhere to the decision, whether it launches an appeal to the WTO Appellate Body or whether the United States will have to take the necessary steps for making use of retaliatory action.

For more information on our WTO dispute settlement practice, kindly contract Rian Geldenhuys.

© Trade Law Chambers 2012

CPA Consumer Product Safety Recall Guidelines published

In August last year we brought an important new requirement with regard to the Consumer Protection Act No. 68 of 2008 (CPA) to the attention of suppliers (please click here to read that article).

South African businesses now have to be able to ensure the efficient and effective recall of unsafe consumer products from their clients and from within their supply chains. This is a new requirement stemming from Article 60 of the CPA. Draft Guidelines for the recall of unsafe products were developed by the National Consumer Commission and published last year for public comment. These Product Safety Recall Guidelines have now been finalised and are available for download from this link. The Guidelines set out what suppliers are supposed to do when conducting a product safety recall, including the legal and general requirements for conducting a product recall. Anyone interested in the consequences of the CPA for business is welcome to contact us at Trade Law Chambers for assistance.

Niel Joubert
© Trade Law Chambers 2012

Trade Law Chambers co lecturing on WTO Regional Trade Policy Course in Swaziland

Niel Joubert from Trade Law Chambers will be visiting Swaziland this week as a co-lecturer on the World Trade Organization's (WTO) Regional Trade Policy Course for English speaking African countries.

The 8 week course is being presented by the WTO in partnership with the University of Swaziland as part of the WTO's Technical Assistance programme. Niel will be co-presenting as a regional expert on Trade Remedies, covering Anti-dumping Measures, Subsidies and Countervailing Measures as well as Safeguard Measures from a regional perspective. Trade officials from Egypt, South Africa, Botswana, Ghana, Kenya, Lesotho, Malawi, Mozambique, Namibia, Nigeria, Rwanda, Sudan, Tanzania, Uganda, Zambia, Zimbabwe and Swaziland are attending the course.

© Trade Law Chambers 2012

Brazil initiates WTO dispute with South Africa

As we reported on the 6th of June 2012 (please click here to read that article), Brazil did in fact proceed to request consultations with South Africa. On 21 June 2012 the delegation of Brazil formally requested consultations with South Africa in accordance with the WTO legal framework.

Brazil is seeking to resolve a dispute in connection with South Africa's preliminary determination and the imposition of provisional anti-dumping duties on frozen meat of fowls, both the whole bird and boneless cuts, that are imported from or originates in Brazil.

According to the official WTO document (please click here to download it), Brazil alleges that the preliminary determination and the imposition of the provisional anti-dumping duties by South Africa is inconsistent with numerous provisions of the WTO Agreement on Anti-dumping Duties. It would seem as if Brazil mainly alleges that South Africa incorrectly determined:

  • the actual margin of dumping applicable to the product under investigation,
  • the actual injury suffered by the South Africa domestic industry,
  • the actual composition of the South African domestic industry,
  • the decision to initiate the investigation into the alleged dumped subject products, and
  • the evidence used by South Africa in making its determination.

The aim of the request for consultations is to amicably settle the dispute between South Africa and Brazil. This is of particular relevance as both countries are members of BRICS. Should the parties be unable to settle the dispute within 60 days from the request for consultations, a WTO Panel may be established that will adjudicate the dispute. If the matter progresses to this stage it will be the first time that South Africa participates in a WTO dispute. Prior to 21 June 2012 Brazil also alleged that South Africa did not respond to informal negotiations on this dispute. If South Africa fails to respond to this request for consultations within 10 days from the date of such request, Brazil may fast track the process and immediately request that a WTO Panel be established to settle the dispute.

To read Rian's interview in Farmers Weekly, please click here.

Rian Geldenhuys
© Trade Law Chambers 2012

SA Companies still free to use ?trading as names for now

South Africa's Consumer Protection Act 68 of 2008 (the ?CPA?) was signed into law in April 2009. The CPA has been heralded as a great step forward for the protection of consumer rights and the prevention of unfair business practices in South Africa.

The CPA provided for its implementation to be staggered over an 18 month period, with two Chapters supposed to come into effect 12 months after its effective date and the remainder of its provisions after 18 months. To provide businesses with more time to prepare for the consequences of the CPA its implementation was deferred by the Department of Trade and Industry and it eventually entered into force on 1 April 2011.

The CPA has many implications for businesses in their dealings with consumers, including for the first time in South Africa the introduction of strict liability for defective, hazardous or unsafe goods. In terms of the strict liability principle producers, importers, distributors or retailers can be held liable for damage caused to consumers by defective goods or by hazardous goods that did not contain adequate warnings even where there is no fault on their side. This has forced companies to review their commercial agreements with suppliers and distributors, their warranties and to obtain additional liability insurance in many cases.

Another requirement of the CPA that has had business up in arms is the provision in Part A of Chapter 4 for the registration of business names. Historically businesses in South Africa have been allowed to make use of so called ?trading as' names, where they trade under a different name to their company or business name registered with the Companies Registrar. Section 79 of the CPA now prohibits businesses from trading under any business name unless that business name is registered with the Companies Registrar.

The good news for business is that the provisions relating to the registration of business names have not yet entered into force. The CPA provides for the Minister of Trade and Industry to publish the effective date for the implementation thereof by notice in the Government Gazette, which notice must be given at least six months prior to the effective date.
There are therefore currently no prohibitions on the creation and use of unregistered business names. However, once the Minister has determined the effective date all business names will have to be registered with the Companies and Intellectual Property Commission (CIPC) as from that date. Only where a name has been registered in terms of prior legislation or where a name has been in use for a period of more than one year prior to the effective date will such names not need to be registered. Anyone interested in the consequences of the CPA for business with regard to name changes or in general is welcome to contact Niel Joubert.

© Trade Law Chambers 2012

Brazil given go ahead to commence WTO proceedings against South Africa

Yesterday, Valor Economico, a leading Brazilian newspaper, reported that Brazil is preparing to commence proceedings against South Africa at the World Trade Organisation (WTO). This will be the first time that Brazil takes action at the WTO against a member of the BRICS group.

According to Valor Economico, on 11 June 2012 Camex (the Brazilian Inter-Ministerial Body Responsible for Trade Policy) will give the green light to the Ministry of Foreign Relations to lodge formal consultation request against South Africa's anti-dumping determinations on Brazilian poultry and pork. It is stated that the action will first be taken against the anti-dumping duties applicable to poultry. It is further reported that, according to sources, Brazil stated that it tried to resolve the issue informally, first through a potential trade-off between Brazilian poultry and South African wine, but South Africa did not show interest in such a negotiation. After the failed negotiation attempts Brazil pushed for informal consultations in Geneva but South Africa did not respond to these requests. Accordingly, it is claimed, Brazil has no other option but to lodge the disputes at the WTO.

Brazil alleges that the International Trade Administration Commission (ITAC) of South Africa's investigation into the potential dumping of poultry did not comply with the WTO rules. The Brazilian Poultry Union (Ubabef) questions why Brazil will dump poultry in South Africa when it does not do so in the other 150 countries it exports to.

As for pork, South Africa has banned the entry of Brazilian pork products since 2005 citing health reasons as the reason for the ban.

The information above is a rough translation of information found on a variety of Brazilian websites which all rely on the report by Valor Economico.

If the matter progresses further, it will be first time that South Africa participates in a WTO dispute. South Africa has been a respondent at the WTO for the anti-dumping duties it levied against blanketing from Turkey, pharmaceutical products from India and uncoated woodfree paper from Indonesia, but these cases never proceeding further than a request for consultation. South Africa has also been a third party in complaints against agricultural subsidies by the United States of America (in which we were involved) and domestic support and export credit guarantees for agricultural products by the United States of America. In both these cases, Canada, the complainant, withdrew its request to establish a panel at the WTO to hear the complaint.

For further information please contact Rian Geldenhuys.

Expired anti dumping duties remain in place

In 2008 we reported that, due to the Progress Office Machines-case, the International Trade Administration Commission of South Africa ("ITAC") had to terminate the anti-dumping duties on a whole host of products and that a sunset review could no longer be launched.

However we also indicated that ITAC was still in the process of drafting court papers to ask for clarification in the matter and requested affected businesses to provide ITAC with information on what effect the removal of the anti-dumping duty will have on their industries.

On 9 May 2012 (although only publicly released on 16 May 2012) the North Gauteng High Court handed down its judgment in the matter. The applicants seeking clarification includes ITAC, the South African Revenue Services and the Ministers of Trade and Industry and Finance. The respondents, or interested parties, included many businesses and industries affected by the Progress Office Machines case including the Ministry of Commerce of the People's Republic of China, the European Commission and the Embassies of the People's Republic of China, Republic of Turkey, Thailand, the Republic of France and the United States of America.

The decision handed down ensures that the anti-dumping duties that had lapsed due to the Supreme Court of Appeal's decision in the Progress Office Machines case, would remain in place pending sunset reviews by ITAC. Readers will recall that anti-dumping duties may only be in place for a period of five years, unless a sunset review has found that it is necessary to impose the anti-dumping duties for a further period. The Supreme Court of Appeal in the Progress Office Machines case held that the date on which the provisional measures were imposed (retrospectively) and not the date of the notification of the imposition of the anti-dumping duties, would be the date on which the calculation of the 5 year term would start. ITAC always calculated the start of the 5 year period from the date of notification of the imposition of the anti-dumping duties. The effect of the judgement by the Supreme Court of Appeal was that ITAC incorrectly (as it was now too late due to ITAC's incorrect calculation of the 5 year period) sent out notifications requesting a sunset review for the continuation of the affected anti-dumping duties. As a consequence hereof the anti-dumping duties on all of the affected products expired before a sunset review could be initiated and finalised. The affected products and their expiration dates are:

  • Acetampinophenol from China, France and the USA - 9 April 2004,
  • Acrylic blankets from China and Turkey - 18 December 2008,
  • Carbon black from Thailand - 14 April 2005,
  • Chicken meat portions from USA-  5 July 2005,
  • Door locks and door handles from China - 31 August 2006,
  • Flat glass from China and India - 27 November 2003,
  • Float glass from China and India - 27 November 2003,
  • Garlic from China - 24 March 2005,
  • Bolts and nuts of iron and steel from China - 5 February 2004,
  • Nuts of iron or steel from Chinese Taipei - 5 February 2004,
  • Paper insulated lead covered electrical cable from India - 7 May 2004,
  • Lysine from the USA - 30 July 2006.

Due to ITAC's erroneous calculation of the 5 year period, Schedule 2 of the Customs Act was not amended to remove the anti-dumping duties on the affected products from the date on which the relevant 5 year period expired. The North Gauteng High Court now finds that although it may be true that the duties in Schedule 2 lapsed by operation of law, it is still necessary to declare it invalid and to give the Minister of Finance ample time to remove it. This is due to the fact that the exercise of public power must comply with the Constitution and the doctrine of legality. Due to fact that Schedule 2 is inconsistent with the decision in the Progress Office Machines case, it stands to be declared invalid. Section 172 of the Constitution further gives the court power to suspend any order of invalidity for any period to allow the competent authority time to correct the defect. ITAC obtained a period of three years to initiate and conclude sunset reviews for all of the affected products. The effect is thus to keep the lapsed anti-dumping in place for a further 3 year period.

Rian Geldenhuys
© Trade Law Chambers 2012

Trade Law Chambers participates in SAIIA events

The South African Institute of International Affairs (with partners) is holding a series of events around trade. Trade Law Chambers have been invited to participate in these events.

On the 14th of March 2012 SAIIA will be holding a Media Forum on Trade Policy. The topic will be ?Deepening Engagement on South Africa's Trade Policy?. Rian Geldenhuys will participate in the panel discussion on ?The multilateral trading system, Doha and the political economy of global economic governance?. For more details on the programme please click here.

On the 15th of March 2012 SAIIA will be holding its 4th Annual Public Forum on Trade Policy. The topic will be ?Deepening Engagement on South Africa's Trade Policy?. Lambert Both and Rian Geldenhuys will participate in this public forum and Lambert will be a panellist in discussing the on ?Institutional Reform at the WTO?. Lambert will specifically address the role of dispute settlement in this regard. For more details on the programme please click here.

On the 16th of March 2012 SAIIA, the Deutsche Gesellschaft fur Internationale Zusammenarbeit (GIZ) and the African Development Bank, will host a Regional Trade in Services Roundtable. Various stakeholders in the SADC-COMESA-EAC Tripartite region have been invited, ranging from government negotiators, trade policy experts, academics, think tanks, business representatives and trade lawyers. Rian Geldenhuys will present on the topic ?How Much Can Regional Services Negotiations Deliver??

© Trade Law Chambers 2012

Business Joins WTO Ministerial Meeting this week

The World Trade Organization (WTO) will be holding its 8th Ministerial Conference in Geneva this week. The meeting is likely to be lacklustre, tailing out on several months of bemusement as to what the meeting should actually do, and what, in the context of the long-suffering Doha Round of trade negotiations, it can achieve.

None the less international negotiations can take unexpected turns, so most WTO Member countries will send delegations well prepared to take up issues should a spark of unexpected progress ignite. South Africa is no exception. We are pleased to report that Trade Law Chamber's Lambert Botha will be part of the official South African delegation attending the Ministerial Conference as one of three representatives of the private sector through Business Unity South Africa (BUSA).
The ?8th' refers to the eighth time that the ministers of trade, the highest decision making body in the WTO, will meet since the WTO opened for businesses on 1 January 1995. The agreement establishing the WTO requires this meeting to take place every two years and grants the ministers the authority to take decisions on any matter related to the organization's Multilateral Trade Agreements. The previous meeting was also held in Geneva and was in early December 2009. That meeting also did little to progress the Doha Round of trade negotiations and was plagued by violence and arson on the streets of a wintry Geneva. This is becoming somewhat of a disturbing pattern as the 2007 meeting was skipped over completely as there was not going to be any visible progress, and a non-result at the time was thought to be systemically harmful to the trading system. The other Ministerial Conferences in the Doha era were the launch of trade round itself at the 2001 meeting in Qatar, followed by Canc?n in 2003 and Hong Kong in 2005, Hong Kong being where the last ?substantial' negotiation of Doha Development Agenda issues took place at a full ministerial level.

Even if, as some are starting to suggest, the Doha Round is despatched conclusion-less and unceremoniously to the vaults of history, the present WTO agreements remain unquestionably in force. This means that the work of the regular WTO bodies in their role for maintaining and implementing existing Agreements, dispute settlement and avoidance, transparency through monitoring and reporting and as a forum for the consideration of trade-related issues raised by Members, while perhaps mundane at times, remains highly relevant.

If nothing else, a positive and upbeat outcome of the Ministerial Conference will be the confirmation of membership to the WTO for Vanuatu, Samoa, and the Russian Federation. This is symbolically very meaningful as the Russian Federation is the last outstanding major global player, a permanent member of the UN Security Council, to be drawn into the global trading rules at the WTO. These accessions bring the membership to 156 countries, and Montenegro is due to follow short on their heels brining that number to 157 members. It is notable that 123 countries signed the WTO Agreement upon the establishment of the body back in 1994. Despite civil critiques of globalization and serious economic introspection on globalization in the wake of the ongoing global recession of 2008, no country has ever left the WTO. On the contrary membership has now grown by almost 30% since the body was established - food for thought indeed.

Businesses wishing to make final inputs as to late red flags, especially on potential developments on the WTO's government procurement rules, are welcome to engage with us this week.

© Trade Law Chambers 2011

Upcoming Events

Some of Trade Law Chambers' professionals are presenting at various conferences and seminars.

On 21 February 2012 Lambert Botha will be presenting on the rules of trade and their impact on African Development at the African Energy Indaba. The event is held in Johannesburg in and presented by the South African National Energy Association in association with the World Energy Council. For more information, please download the programme here.

On 23 February 2012 Rian Geldenhuys will be presenting on trade in services at Wesgro's Export Development Programme Seminar. The event will be held at the One &, Only in Cape Town and further information may be downloaded here.

On 8 March 2012 Rian Geldenhuys will be presenting on "How to use and gain maximum benefits from Trade Agreements" at Wesgro's Export Development Programme Seminar whihc will be held at the Mount Nelson Hotel in Cape Town. For more information, please download the programme here.

© Trade Law Chambers 2012

Using tariffs to your advantage

In the current economic climate we are frequently asked to advise businesses on the opportunities under South Africa's trade agreements. In the vast majority of the instances the focus is always on goods, although South Africa's trade agreements provide many opportunities in respect to services, investment and intellectual property.

Often the focus is on utilising tariffs or customs duties (i.e. the tax charged on the importation of goods) to the advantage of the particular business, although there are many more aspects to consider in accessing the benefits provided in trade agreements.

Few businesses are aware that the tax charged on the importation of goods is not absolute. You can apply to have the current tariff amended. If you are an importer paying too much customs duty on a product or input, you may apply for a reduction in the tariff which could reduce the tariff to zero. In contrast, if you are a local manufacturer or producer and you need protection from imports, you may apply to have the customs duty increased. The maximum allowable tariff increase will vary from product to product depending on the rates South Africa bound at the World Trade Organisation (the ?bound rates?). However for the majority of products, these increases in the customs duty may be substantial.

It may also be that businesses have a need for greater protection than what the maximum bound rate may provide. In such instances businesses have three further options depending on the circumstances. If imported goods are sold in South Africa for less than what they are sold for in their country of origin, then these goods are considered as being dumped. If the domestic industry can show that they are suffering injury (which could manifest itself in a variety of ways) due to the dumped goods, an anti-dumping duty may be applied for. These anti-dumping duties may result in substantial increases of the customs duty applicable to the dumped products often making it economically unfeasible to continue importing the products.

Often the goods are not being dumped but are still much cheaper than locally produced goods. In such instances it may be that the imported goods are subsidised by a foreign government. A subsidy may take a variety of forms, but usually takes the form of a financial contribution. South African businesses may take action against subsidies if the subsidised goods are causing them injury (which again may manifest itself in various ways), by applying for a countervailing duty. A countervailing duty has as its aim to counter the subsidy and level the playing field. As such the countervailing duty will increase the customs duty beyond the bound rate and often make it economically unfeasible to import the product.

Sometimes there is just a sudden surge of imports into South Africa that are neither dumped nor subsidised. If this causes serious injury or threatens to cause serious injury to businesses, the affected businesses may apply to have a safeguard imposed. The safeguard may take the form of a duty which has the effect of increasing the custom duty to counter the surge of imports. The level of such a safeguard duty will thus be very high so as to prevent imports from entering South Africa. Typically, however, the most appropriate relief will be to impose a quota, which will prevent goods from entering South Africa in order that local businesses may have time to adjust to the increased imports.

The use of tariffs highlighted above may be accessed not by lobbying the government so that they may negotiate with South Africa's trading partners for assistance, but by applying to the International Trade Administration Commission of South Africa (?ITAC?). If you ensure that your application form complies with the relevant legal requirements the application will be approved and you will be entitled to the relief for which you applied. It is thus a cost effective and efficient mechanism to take advantage of tariffs. This however does not imply that businesses should not actively engage with government when it is negotiating free trade deals with our trading partners. It further also does not imply that these are the only benefits under the current trade regime. The trade agreements in force provide many opportunities for gaining access to markets outside of South Africa.

For more information on how your business can benefit from these trade agreements, kindly contact Rian Geldenhuys.

© Trade Law Chambers 2011

Tariff structure set to change

By now South African traders would have encountered several changes being introduced to customs administration in South Africa by the Customs Control Bill and the Customs Duty Bill. By 2012 these traders will be faced by some further changes to the current status quo.

On 1 January 2012 the 2012 version of the Harmonised System (?HS?) Nomenclature will be implemented in terms of section 48(1)(c) of the Customs and Excise Act. The 2012 version is merely part of the 4-6 yearly amendment to the HS Nomenclature. The implementation of the 2012 HS Nomenclature will change the current structure of the South African Customs Union (?SACU?) tariff book. As such product codes and descriptions will change. The main changes include:

  • the classification and coding of goods of specific importance to food security and the early warning system of the United Nations' Food and Agriculture Organisation (?FAO?). This is to assist with the monitory on these products for global food security. Many new additional subheadings has been created for this purpose,
  • the creation of new subheadings for the separate identification of certain edible vegetable, roots and tubers, fruit and nuts, as well as cereals,
  • the creation of new subheadings for specific chemicals under the Rotterdam Convention and ozone-depleting substances controlled under the Montreal Protocol, and
  • the deletion of many subheadings due to the low volume of trade in these goods, separate identification of certain commodities in either existing or new headings, some advancements in technology and changes aimed at the clarification of text to ensure uniform application of the HS Nomenclature.

The majority of the changes apply to the agricultural, chemical, paper, textile, base metal, machinery and hi-tech sectors whilst there are 37 amendments that will apply to a variety of other sectors. The World Customs Organisation has published a correlation table correlating the 2012 changes to the current 2007 version of the HS Nomenclature. SARS has also published the draft amendments to the Schedules to the Customs and Excise Act. These amendments cater for the 2012 changes to the HS Nomenclature, but it also includes the following:

  • the phase-down of the duties in terms of the Trade Development and Cooperation Agreement between South Africa and the European Union,
  • the phase-down of duties in terms of the free trade agreement between South African and the European Free Trade Association (consisting of Liechtenstein, Iceland, Norway and Switzerland),
  • the phase-down of duties in terms of the MIDP,
  • the reduction in the rate of duty on paper and paper board,
  • the reduction in the rate of duty on aluminium products classifiable under tariff headings 76.06 and 76.07,
  • the reduction in the general rate of duty on organic surface-active agents and primary polymers,
  • and technical adjustments including requests for the creation of additional tariff subheadings for statistical purposes from industry and other government agencies.

In the majority of instances the duty rates will remain unchanged, but the classification of the goods will change, which is of course important for customs declaration purposes, which is the trader's obligation and not that of SARS. It is thus important for traders to ensure that they are familiar with the impact the 2012 HS nomenclature will have on their business to ensure that they are compliant by 1 January 2012. As such traders must make sure that they known how their goods are classified as the 2012 HS nomenclature changes this for some products. Any such change could also potentially mean that there may be a change in duty applicable to that product, which unexpectedly increases costs and potentially reduces profits. Potentially traders could also lose out on rebates that they are eligible for under the current system. It may also be that goods that are subject to protection in the form of anti-dumping duties or countervailing measures may no longer benefit from such protection and the current beneficiaries may have to apply to the International Trade Administration Commission of South Africa (?ITAC?) to rectify such unforeseen circumstances. It may also be that such an anti-dumping duty or countervailing measure may now apply to a product to which it was not intended to apply. Traders must make sure that they clear their goods under the correct tariff heading in order to avoid potential seizure of the goods and costly penalties. Businesses monitoring the volume of trade in certain goods must make sure that they now monitor the correct tariff. Applications for any trade remedies (anti-dumping duty, countervailing measures or safeguard action) and tariff amendments which are in progress at the time of the change in the 2012 HS Nomenclature may have to be amended to provide for the different tariff that may be applicable.

Rian Geldenhuys
© Trade Law Chambers 2011

Supreme Court of Appeal overturns earlier decision on market economy status

Recently the Supreme Court of Appeal heard an appeal on the International Trade Administration Commission?s (?ITAC?) perceived duty to investigate a country's or industry's market economy status. Previously the North Gauteng High Court ruled that ITAC failed to apply its mind in determining the market economy status of the tyre industry in the People's Republic of China (?PRC?).

The South African Tyre Manufacturers Conference (?SATMC?), acting on behalf of four tyre manufacturers brought an application for the imposition of anti-dumping duties, which ITAC duly initiated, but recommended that the investigation be terminated. The recommendation was based on the fact that the some of the PRC tyres were not found to be dumped and that those tyres that were being dumped did not cause injury to the South African manufacturers.

SATMC relied on the PRC's WTO Accession Protocol (?Accession Protocol?) which provides in article 15 that a member country is permitted to refuse the use of China's domestic prices in determining the normal value unless the Chinese producers can clearly show that it has market economy status. In other words, the Chinese producers must show that market economy conditions prevail, otherwise ITAC may construct the normal value or use the highest comparable price of the like product when exported. This alternative determination of the normal value is also contained in s32(2)(b)(ii) of the International Trade Administration Act (?ITA Act?). Both the constructed normal value and the highest comparable price will inevitably be higher than the actual domestic selling prices. This means that the normal value will be much higher than the export price and hence a higher anti-dumping duty will be imposed than would have been the case had the domestic selling prices been used. It is therefore obviously of interest to South African applicants to allege that an industry has non-market economy status. The vice versa is true for foreign manufactures as they would like to show that they are operating under market economy conditions without government intervention.

The judgment rightly states, which SATMC accepted, that South Africa is entitled to accept the advantages that the Accession Protocol provides if implemented in South African legislation, but it has not done so and even if South Africa has done so, private citizens cannot derive any rights therefrom. Furthermore, since the Accession Protocol is not part of international law, the ITA Act and the regulations cannot be interpreted with reference to the Accession Protocol under section 233 of the Constitution.

Although SATMC did not provide the domestic selling prices in the PRC but instead relied on export prices to Chinese Taipei (the ?surrogate country?), it never claimed to be utilising s32(2)(b)(ii). In turn, although ITAC initiated the investigation based on the dumping margin calculated using the surrogate country normal value and the export price, it never indicated that it is relying on section 32(4) (which holds that ITAC may consider the information of a surrogate country when it evaluates an application and finds that free market principles are not at play in an industry). SATMC argued that due to the fact that ITAC initiated the investigation based on the surrogate country information it accepted that the Chinese exporters did not have market economy status and as such they carried the burden of proof to show that it must be granted market economy status. Thus SATMC assumed that because of the Accession Protocol, it had certain rights (which it did not) and ITAC had certain duties (which were not contained in the ITA Act or regulations). Indeed the North Gauteng High Court also erroneously held that the most important aspect of ITAC's investigations was to determine whether the economy is a free market economy of not and only if this was found to be the case could ITAC proceed to determining the normal prices in the ordinary course of business (normal value).

The Supreme Court of Appeal overturns this position as it finds that section 32 does not require an investigation into whether a country has a free market economy or not. Neither does the section entitle any application for anti-dumping duties to prescribe the method which ITAC has to adopt when it determines the normal value. In fact section 32 provides ITAC with a discretion in that it ?may' apply to those goods a normal value established in respect of a surrogate country. It ?may' only do so if the price is representative (and not the country). In addition it overturns the North Gauteng High Court's factual finding that ITAC did not investigate the free market economy principles as it had in fact investigated 13 factors in order to determine whether it should invoke section 32(4).
The case is welcomed as it correctly clarifies the situation around market economy status which was left muddled after the North Gauteng High Court decision. As such all parties involved in anti-dumping investigations should now be more certain in the positions they have to adopt to show the existence of market economy status where this is alleged.

To read our earlier article on the North Gauteng High Court decision, kindly click here.

Rian Geldenhuys
© Trade Law Chambers 2011

Traders face new duty to recall defective products

Businesses operating in South Africa have to be able to ensure the efficient and effective recall of unsafe consumer products from their clients and within their supply chains. This is a new requirement which stems from the Consumer Protection Act No. 68 of 2008. Guidelines for business (?suppliers') have been published and are open for comment until the end of the month.

A supplier is the entity who has the primary responsibility for the supply of safe consumer products and 'suppliers' include manufacturers, importers, distributors and retailers. As importers are affected there is an international trade implication and South Africa will thus have a notification requirement of these regulations to the WTO's Committee on Technical Barriers to Trade.

The Consumer Protection Act No 68 of 2008 was signed into law in April 2009, but the substantive and regulatory provisions only came into force in April 2011. The regulations pertaining to the Act have been finalised by the Minister of Trade and Industry and all companies have to comply with the Act. Failure to do so may result in disruption of business and possible penalties. The new Guidelines are created in terms of the provisions of Section 60 of the Consumer Protection Act and are developed and administered by the National Consumer Commission.

What does compliance involve? Well, unsafe products should not be available on the market and if they are there they can be voluntarily removed or removed upon instruction of the Commission. A voluntary recall occurs when the supplier initiates the recall and voluntarily takes action to remove the relevant goods from distribution, sale, and consumption. A voluntary recall may also be negotiated with a supplier by the Commission following enforcement or compliance action. The use of the word ?voluntary' does not correspond to whether or not the distribution network can choose to remove the product from sale when a recall occurs. All of the particular consumer products subject to the recall must be removed from the market place. On the instruction route Section 60(2) empowers the Commission to order a supplier to recall any goods which on reasonable grounds the Commission believes that those goods will or may be unsafe, or that there is a potential risk to the public from the continued use of or exposure to the goods, and the producer or importer of those goods has not taken any reasonable steps required and applicable. The Commission may require that the producer carries out a recall programme on any terms required by the Commission. These are known as 'compulsory' recalls.

The decision about the most appropriate action in order to reduce the risk to consumers will depend on a number of factors, including the nature of the risk and distribution and lifecycle of the product. What is clear is that this action will be a costly exercise for any business and should be conducted carefully in line with regulatory requirements so as to mitigate costs to the business.

Businesses wishing to obtain copies of the guidelines or assistance in commenting thereon are welcome to contact us at Trade Law Chambers for assistance.

© Trade Law Chambers 2011

Conditions for doing business in Africa may improve

Africa is set to improve its image of being a notoriously difficult place to conduct business in. This is due to a drive by three regional trading groupings being the South African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC) towards deepening regional integration.

SADC, COMESA and EAC are aiming to create a free trade area with 26 Members States from Egypt to South Africa termed the COMESA-EAC-SADC Tripartite Free Trade Area.

The COMESA-EAC-SADC Tripartite Free Trade Area is ambitious with an aim to eventually establish a customs union which will include the elimination of both tariff and non-tariff barriers for substantially all traded goods. Member States of the COMESA-EAC-SADC Tripartite Free Trade Area will have to harmonise their customs procedures and trade facilitation measures (such as standards, sanitary and phyto-sanitary measures and rules of origin). However, its aims are much more ambitious than ensuring free movement of goods within the free trade area. It is also envisaged that the free trade area will guarantee the free movement of services and business persons as well as the facilitation of cross-border investment. Initially liberalisation of services will only occur in priority sectors before liberalisation of all services sectors will commence. It is expected that these priority services will be services that facilitate trade in goods. Typically these include communication, construction, energy-related, financial, tourism and transport services. Thus service providers in the region stand to benefit substantially from gaining access to foreign markets from which they have, by and large, been prohibited from rendering their services with legal certainty.

In addition the COMESA-EAC-SADC Tripartite Free Trade Area will eventually have harmonised competition laws. As such Member States will have to ban any prohibited practices which may affect trade between Tripartite Member States or has as its object the prevention, restriction or distortion of competition within the Tripartite Region. The current draft Annex on Competition Policy and Consumer Protection contains details on prohibited abuse of dominance as well as prohibited practices between other players in the Tripartite Region which may for instance have price fixing or market allocation as its objectives. Mergers within the Tripartite Region will also have to be notified to the established authorities in a bid to gain insight into the competitive landscape within the region. Further consumer protection measures are also contemplated in the draft Annex and Member States will have to establish working bureaus of standards or Standards, Metrology Conformity Assessment and Accreditation structures, which will verify the quantity, quality, nature or value of the goods traded within the Tripartite Region.

The first Tripartite Summit was held in 2008. Since then two versions of the Draft Tripartite Free Trade Agreement and its various annexes have been prepared, the latest drafts being finalised in December 2010. These drafts will form the subject matter of the actual negotiations by the 26 Member States. In May 2011 the COMESA-EAC-SADC Tripartite Ministerial Committee met and agreed on the draft roadmap for the actual negotiations. In terms hereof Member States will have 6 to 12 months for preparing to negotiate whereafter they will have 24 to 60 months to negotiate on the free movement of goods and of business persons. Only once the negotiations on the free movement of goods and of business persons have been concluded will negotiations commence on trade in services, intellectual property rights, competition policy, and trade development and competitiveness. The Member States however recognised that trade liberalisation on its own is not effective and have thus agreed to negotiate on infrastructure development and industrial development. There is already a number of infrastructure development projects being implemented or developed in transport, ICT, energy and water.

Further progress in the finalisation of the Tripartite Free Trade Agreement is expected to be achieved when the Tripartite Council of Ministers will meet on 12 June 2011 in Johannesburg.

Commenting to South Africa's ?Business Day' newspaper (click here for the article) in advance of this Council meeting Hilton Zunckel noted that the underlying logic of merging the 3 trading blocks is sound. In short ? we create larger markets for our goods and services that are able to move duty free, and hence enjoy economies of scale. The move also harmonizes things for the countries, like Swaziland or Tanzania, that hold multiple memberships with differing rules on the same things ? a type of therapy for trade schizophrenia. These are certainly good things to look forward to.

The real bedevilment, he notes, is , as always, in the detail and it remains to be seen whether there is the political stomach for deeper integration, when we have been unable to integrate properly within these trading blocks individually to date. For instance we note that SADC was supposed to have become a customs union in 2010, which never materialized. This begs the question as to how we would then achieve this same thing on a more grandiose scale? The other recent example we have from SADC is the inability of the Member States to commit to the rule of regional law where the SADC Tribunal (our regional court) was essentially made inoperative by the SADC Summit last month because some countries did not like the rulings that had been made by the Tribunal. Another very practical matter to explore will be which of the 3 Secretariats will run the show under the new 3-way dispensation? This is bound to generate some serious turf scuffles as logically several of the secretariat functions will need to be streamlined as duplication is eliminated.

The bottom line is that businesses operating in the region need to keep abreast of changes to the legal regime in order to ensure the continued viability of their trade and investment strategies. Trade Law Chambers remains uniquely placed to provide advice on this Tripartite Free Trade Agreement.

Rian Geldenhuys &, Hilton Zunckel
© Trade Law Chambers 2011

Labelling and advertising of food

On 1 March 2012 the labelling and advertising of food will change in South Africa. This is due to the Labelling and Advertising of Foodstuff Regulations (the ?regulations?) promulgated by the Department of Health in terms of the Foodstuffs, Cosmetics and Disinfectants Act. The regulations prescribe that no person shall manufacture, import, sell or offer for sale any foodstuff unless it is labelled in accordance with the regulations.

The regulations prescribe labelling of both pre-packaged and non-prepackaged foodstuff. In addition the regulations prescribe the information, claim, reference or declaration that will not be permitted when advertising a foodstuff.

The regulations, in the same spirit as recently enacted consumer-focused legislations such as the Consumer Protection Act, gives wider protection to the South African consumer. The regulations will ensure that the consumer can fairly compare different products. It also ensures that truthful descriptions are provided by manufacturers and prevents the practice of misleading or confusing the consumer.

The regulations are extensive and broadly cover the following topics:

  • Labelling sizes,
  • Proper identification of the foodstuff (including batch marking),
  • Identification of the country of origin of the foodstuff,
  • Date marking (for ?best before?/ ?use by?/ ?sell by? purposes),
  • Prohibited statements and negative claims,
  • Several special provisions dealing with topics such as compound ingredients, fats and oils, bulk stock, food additives, allergens, etc, and
  • Nutritional information.

Manufactures, importers and retailers should ready themselves for compliance with the comprehensive regulations well before 1 March 2012. For further information on the regulations, kindly contact Rian Geldenhuys.

?Trade Law Chambers 2011

WTO bans double remedies imposed by USA

On 11 March 2011 the World Trade Organisation's (?WTO?) Appellate Body ruled that the United States of America (?USA?) illegally imposed simultaneous anti-dumping and countervailing duties on several products originating from the Peoples Republic of China (?China?). Specifically the Appellate Body ruled that the USA contravened section 19.3 of the WTO Agreement on Subsidies and Countervailing Measures (?SCM Agreement?).

At the WTO Panel China argued that the USA essentially offset the same subsidy twice. This is due to the fact that the USA does not afford China market economy status (i.e. where prices are set in a free price system set by supply and demand) and treats it as a non-market economy (?NME?). In investigations involving NMEs, the USA calculates the normal value on the basis of surrogate values taken from countries considered to have market economy status rather than on the basis of the prices or costs of production actually incurred by the investigated producer/manufacturer. China argues that this methodology used by the USA essentially places the investigated producer/manufacturer in a position of having unsubsidized, market-determined cost of production and the producer's export price. In doing so, China argues, the USA captures any trade distorting effect of the alleged subsidies in the anti-dumping margin. Thus when the USA again calculates the amount of subsidization in a parallel countervailing duty investigation, it is repeating the same exercise undertaken in the anti-dumping NME calculation which results in the same alleged subsidy being offset twice. The Panel found that it is likely that a double remedy may be imposed based on the methodology used by the USA, but did not consider the matter any further as it stated that China did not establish that the imposition of double remedies is inconsistent with the WTO Agreements which includes section 19.3 of the SCM Agreement.

On appeal to the Appellate Body China pointed out that the Panel's finding, that nothing in the WTO Agreements prevents the same subsidy being offset twice, is:

?one of the most surprising and anomalous conclusions in the history of dispute settlement? and "flies in the face of the remedial purpose of countervailing duties and the objective of imposing meaningful disciplines on the use of countervailing measures".

China argued that WTO Members are under a legal duty not to offset a subsidy in a countervailing measure if it simultaneously offsets the subsidy through the way it calculates anti-dumping duties in respect of the same imported product. According to China this obligation arises from Article 19.3 of the SCM Agreement which requires investigating authorities to impose countervailing duties in the ?appropriate? amounts. Thus when an importing Member has offset a subsidy through its calculation of anti-dumping duties, it must take this into account in determining the ?appropriate? amount of a countervailing duty to be levied. China also makes the point that the purpose of a countervailing duty is to offset any subsidy bestowed on the manufacture, production to export of any merchandise and as such the countervailing duty is remedial rather than punitive. Thus the ?appropriate? amount can be no greater than the amount necessary to offset the subsidy.

The Appellate Body found in China's favour. Specifically Article 19.3 is interpreted in the context of Article19.2 which states that it is ?desirable? that ?the duty should be less than the total amount of the subsidy if such lesser duty would be adequate to remove the injury?. This link to the subsidy actually causing injury to the USA industry is also found in Article 19.3 which provides that ?countervailing duty shall be levied, in the appropriate amounts in each case ... on imports of such product ... found to be subsidized and causing injury?. Throughout the SCM Agreement references can be found which link the actual countervailing duty to the actual injury suffered. Thus the Appellate Body found that when taking into account the ?appropriate amount? of countervailing duty to be levied, the USA must take into account the effect of the USA's NME methodology used in calculating the anti-dumping duty and the diminished injury which the USA industry may now face as a result of the imposition of the anti-dumping duties. It therefore now the position that the imposition of double remedies, that is, the offsetting of the same subsidy twice by the simultaneous imposition of anti-dumping duties calculated on the basis of NME methodology employed by the USA and countervailing duties, is inconsistent with Article 19.3 of the SCM Agreement.

Rian Geldenhuys

© Trade Law Chambers 2011

First African International Economic Law Network Conference

On 5 and 6 May 2011 the first African International Economic Law Network Conference was held at the Mandela Institute at the University of the Witwatersrand in Johannesburg. Prominent academics and international trade lawyers from around the globe were in attendance to both mark the successful launch of the African Chapter on the International Economic Law Network Conference

and to discuss the central theme of the conference being ?Africa and the Global Economy: Trade, Investment and Development.? Notably 12 African countries were present at the event.
Over two days participants were treated to presentations and discussions on the cutting edge papers that were invited to be submitted by leading lawyers in the field. These discussions covered :

  • African regional trade agreements,
  • African participation at the WTO,
  • Dispute resolution in international trade law including the recent the recent difficulties encountered at the SADC Tribunal,
  • Africa-South investment relations,
  • Economic integration in Africa,
  • Business and regulatory issues in Africa,
  • Trade Remedies available to business, and
  • The need for increased education on international economic law.

Trade Law Chambers supported the conference in various capacities. Hilton Zunckel served on the organising committee and chaired a session entitled ?Themes and Issue in Contemporary International Economic Law?. Rian Geldenhuys submitted a paper entitled ?Access to confidential information in anti-dumping disputes - A SACU Perspective? and may be downloaded here. Lambert Botha presented a paper he was commissioned to write by the USAID Southern Africa Global Competitiveness Hub entitled ?The regulation of energy goods and services under the rules of the WTO? which may be downloaded here.

Trade Law Chambers looks forward to a longstanding association with the African International Economic Law Network and we offer our congratulations to the ladies elected as the new co-chairs of the Network - Nokuhle Madolo from the Mandela Institute at Wits Law School and Malebakeng Forere from the University of KwaZulu-Natal.

?Trade Law Chambers 2011

Advising Fruit Industry on regaining market access into Thailand

Trade Law Chambers is providing the table grape and pome fruit industries with advice concerning a ban imposed by Thailand on South African exports into the Thai market. To date, the industries have lost millions of Rands in export earnings as a result of the ban. The industry together with Trade Law Chambers are working in close liaison with the South African Government to investigate all possible avenues to address the ban.

For further information please click here for a media statement released by industry regarding the matter.
© Trade Law Chambers 2011

 ,The industry together with Trade Law Chambers are working in close liaison with the South African Government to investigate all possible avenues to address the ban.

For further information please click here for a media statement released by industry regarding the matter.
© Trade Law Chambers 2011

Trade Law Chambers Contributes to AgriSA

On 21 and 22 February 2011 AgriSA had their conference at the Lord Charles Hotel in Somerset West.

The conference included presentations on the agricultural dimensions of national policies, the third level government, cost and competition realities and economic growth and job creation. Presenters included individuals from the public sector, the private sector and academia.

Rian Geldenhuys discussed the Industrial Policy Action Plan (IPAP2) and the Trade Policy and Strategic Framework paying particular attention to the linkages between the two as well as the practical implications thereof. He also discussed whether the practice reflects the policies.

To download his presentation, please click here. To download the AgriSA Conference Agenda, please click here.

© Trade Law Chambers 2011

African International Law showcased

The Society of International Economic Law (SIEL) is an organization that represents academically minded practitioners in the field of international economic law. The Society's African chapter was re-launched at the Society's biannual conference held in Barcelona, Spain in July 2010. The African chapter's first conference will be held in South Africa in May 2011. The conference's goal is to bring together work-in-progress on all aspects of trade, investment and finance relating to Africa.

Trade Law Chambers is pleased to support this event which is being hosted by the renowned Mandela Institute based at the University of the Witwatersrand in Johannesburg. The Institute is a fitting host as Nelson Mandela himself addressed the WTO at the 50th anniversary of the GATT back in 1998, stating that:
?Developing countries must accept that we want to be fully part of the WTO, and that that includes improving the management of the world trading system to ensure that our economies do develop. These are complex matters, and in dealing with such matters there are no easy solutions. But where there is a determination to find joint, negotiated, solutions then there is a way.'

At Trade Law Chambers we fully concur and thus we retain an active role in several African law schools in fostering young talent in the trade law field. We thus support the endeavours of the SIEL African chapter in showcasing an Afro-centric view on the latest developments in international economic law.

This article serves to draw your attention to the call for contributions which is open to scholars, practitioners, experts and students from around the continent - the unifying theme being the African approach to international economic law. Proposals for papers may be on any international economic law topic relating to Africa, recognising the fact that this conference will also mark the official launch of the African International Economic Law Network. The call for papers can be downloaded here.

Trade Law Chambers is supporting the organizing committee and would like to encourage your participation in this landmark event, via the preparation of a paper, a sponsorship or through your attendance at the event.

Hilton Zunckel

© Trade Law Chambers 2010

2nd Annual Africa Trade Conference

The Second Annual Africa Trade Conference is held from 22 to 23 February 2011 in Sandton, South Africa.

The presenters at the conference will:

  • Discuss the prominence of Regional Trade Agreements within Africa
  • Improve trade by identifying different customs valuations methods
  • Redefine risk transfer models and elaborate on mitigation methods
  • Gain perspectives on opportunities in the African export market
  • Maximise your export trade potential through mechanisms which facilitate trade
  • Overcome the obstacles in logistics which cause inefficiencies.

Niel Joubert will be presenting on the topic of Regional Trade Agreements within Africa and will also act as the Chair of the first day of the Conference.

Interested parties are urged to contact the organisers of the Second Annual Trade Conference by downloading the conference agenda and contact details by clicking here.

© Trade Law Chambers 2011

New Assistance Programme for the SA Clothing and Textile Industry A Stitch in Time

South Africa currently has one of the highest unemployment rates in the world, currently standing at 25.3%. While the South African economy fared reasonably well during the recent worldwide financial crisis, it still shed around one million jobs. In the year up to the second quarter of 2010 alone job losses amounted to more than 600 000 (Statistics South Africa). Job creation is therefore now even more than before a top priority for the South African government.

Traditionally the South African clothing and textile industry was one of the main employers in manufacturing, especially in the Western Cape Province. However, since South Africa's reintegration into the international economy post-1994 the industry has been in rapid decline. South Africa liberalized its import duties quite aggressively in the Uruguay Round of international trade negotiations and since the expiry of the Agreement on Clothing and Textiles in 2005, which meant the end of worldwide quotas in the clothing and textile trade, it has been facing increasing competition from low cost producers in the Far East, especially from China. According to Statistics South Africa, in the period from 1995 to 2010 the South African textiles, clothing and leather industry lost more than 120 000 jobs.

While many critics argue that China's export success is mainly a result of subsidization in violation of the rules of the World Trade Organization (WTO), there can be no doubt that it does have a comparative advantage over countries such as South Africa. South African manufacturers simply cannot compete with the low labour costs enjoyed by their Chinese counterparts, even with the current import duties on most clothing and textile items being as high as 40 to 45%. Furthermore, South African firms enjoyed protection from international competition for many years prior to liberalisation, but many of them failed to invest in new technologies during that period.

Despite facing increased competition, the clothing and textile industry remains an important employer in the South African economy. Many local manufacturers have moved away from low cost articles to instead focus on niche markets, producing value-added products with shorter lead times and in many cases focusing on synthetic materials for the sportswear and protective clothing markets. Improved market access for South African exporters in terms of the South African free trade agreement with the European Union, the Trade, Development and Cooperation Agreement (TDCA) and the free trade agreement with the Southern African Development Community (SADC) has also contributed to keeping the sector alive. In this regard the African Growth and Opportunity Act (AGOA), a unilateral preference programme extended by the United States (US) to certain African countries, has especially been responsible for huge growth in South African exports to the US market.

In an effort to stem the increased inflows of cheap textiles and clothing products from China, South Africa's Department of Trade and Industry (dti) introduced a quota system on Chinese imports in 2007. The aim of the quota system was to increase domestic manufacturing, but its effectiveness was limited as total imports into South Africa did not decrease. The quota system simply caused importers to replace their Chinese imports with imports from other low cost producers in countries such as Malaysia, Vietnam and Bangladesh, while it prevented certain domestic manufacturers from sourcing the textiles required for their manufacturing. It also led to an increase in customs fraud, especially cases of illegal transshipment of Chinese imports. The quota system was phased out in 2008, despite a push for its renewal by some local manufacturers.

Even without the quota system in place one of the big remaining obstacles for the domestic industry remains customs fraud, with manufacturers complaining of widespread under-invoicing of imports and other forms of illegal imports. In response South African Customs has established a dedicated task team to deal with customs fraud in clothing and textile imports. While this has led to some successes in customs enforcement, fraud remains a critical challenge.

In 2009 in an effort to improve the competitiveness of the domestic clothing industry the dti, through the International Trade Administration Commission (ITAC) undertook a review of the import duties on textiles not manufactured locally or that are in short supply. As a result the import duties on certain fabrics not manufactured locally and/or fabrics that are not available in sufficient quantities were reduced through the implementation of a duty rebate system. ITAC has also raised the import duties on a number of clothing and textile tariff lines to their bound rates, the highest applicable duties allowed in terms of South Africa's commitments at the WTO. While this provides some additional protection to domestic manufacturers, it did not have a huge impact as the applied rates in most cases were already very close the bound rates.

In the latest effort to boost the sector's international competitiveness the dti last month launched the Clothing and Textile Competitiveness Programme (CTCP) and its core funding mechanism, the Production Incentive (PI). These two programmes form one of the six projects of the Clothing and Textile Customised Sector Programme (CSP), which is the dti's new strategic approach to restructuring the sector with the main objective of ensuring long term sustainability and competitiveness. The other five projects within the CSP are the Skills Development Plan, Broad Based Black Economic Empowerment, the Technology &, Innovation Plan, the ongoing review of import tariffs on raw materials and the Combating of Customs Fraud. The CSP as a whole is meant to assist industry in upgrading its processes, products and people, and to reposition itself in the market to compete more effectively both in the domestic and global markets.

The CTCP consists of three components, the first being the Capital and Technology Upgrading Programme, with two sub-components, the Manufacturing Investment Programme (MIP) and the Preferential Financing Scheme from the Industrial Development Corporation (IDC). The second component is the Competitiveness Improvement Programme (CTCIP) and the third the Production Incentive (PI). The PI provides funding assistance to the clothing, textiles, footwear, leather and leather goods manufacturing industries to invest in competitiveness improvement interventions. The PI consists of two components, namely an upgrade grant facility and a facility consisting of an interest subsidy for working capital.

While this new assistance programme has been welcomed by industry, it is unlikely to completely halt the decline of the clothing and textile sector. Compared to their global competitors many South African manufacturers will still have a lack of competitiveness, due to factors such as the inflexibility and high cost of labour, illegal subsidization by competitors, the impact of the strengthening Rand and the increasing cost of inputs such as electricity. The industry should continue to put pressure on government to step up its efforts in fighting customs fraud and it should investigate the possibility of taking action against illegally subsidized imports by means of countervailing duties. Finally, it will also have to continue to focus on innovation to ensure that it can create a competitive edge for itself in value-added niche markets that are less attractive to low cost producers.

Niel Joubert

© Trade Law Chambers 2010

Firm engages European Parliamentarians

The European Parliament has recently been on a fact finding mission in South Africa. This fact finding exercise was conducted by a delegation from its Committee on International Trade (INTA). The delegation was headed by Robert Sturdy, vice chair of the INTA, who commented that it was the first occasion ever for the committee to be briefed by private sector trade lawyers. It was indeed a pleasure for Trade Law Chambers to meet with the delegation in Cape Town to share the Firm's views on local and regional trade law issues from a practitioners' vantage point.

Trade Law Chambers considers these engagements critically useful in improving trade relations between the EU and South Africa, which potentially has a direct impact on trading profitability of many of the Firm's clients.

In Europe there has been a substantive change in the way that trade policy is formulated over the past year. This is due to the implementation of the Lisbon Treaty which entered into force in December 2009. This instrument amends the Treaty on the European Union (known as the Treaty of Maastricht) and the Treaty establishing the European Community (known as the Treaty of Rome).

Most widely known is that the Treaty of Lisbon is the instrument that has brought about the name change from ?European Community' to ?European Union'. However ? what is in a name? More importantly it fundamentally changes certain areas of policy making, especially for the EU's Common Commercial Policy. The most notable new elements of the Common Commercial Policy for current purposes are primarily related to the decision making process in the negotiation and conclusion of trade agreements and the delimitation of competences between the EU and its Member States.

This more balanced institutional setup adopted with the entry into force of the Lisbon Treaty implies that the European Parliament will henceforth be treated on an equal footing with the Council. This puts an end to the dual governance (or diarchy) of the Commission and the Council on external trade matters. In future the Parliament, through the INTA committee, will specifically share powers with the Council to adopt EU legislation on trade agreements and trade instruments such as anti-dumping measures, safeguards, the Trade Barriers Regulation, as well as autonomous trade programmes such as the Generalised System of Preferences scheme.

The importance of the visiting delegation for South Africa is thus patently clear insofar as its trade relations under the existing Trade Development and Cooperation Agreement are concerned, as well as its future trading relationship through the emerging SADC Economic Partnership Agreement. Readers affected by either of these trade agreements are welcome to contact us for advice as to how to apply the provisions of the agreements to their benefit.

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