Recent media reports state that the South African Department of Trade and Industry warned that there is ?massive and systemic? fraud relating to clothing and textile imports from the People's Republic of China. According to the South African Revenue Service statistics imports on these products are under invoiced by up to 60%. The South African clothing and textile industry already enjoy protection from foreign competitors via the use of a range of import tariffs. However, since 1 January 2007 the local clothing and textile industry has enjoyed further protection from imports originating from China.

This protection comes in the form of a quota restriction on certain designated products being imported from China. According to the import restrictions and regulations the current quota restriction is due to lapse on 31 December 2008. According to media reports South Africa's chief director of Industrial Policy, Nimrod Zalk, hinted that an extension of the quotas is being considered. However more recent media reports have stated that apparently the retailers that will be affected the most will be excluded from the potential extension of the quotas. It was reported that the Trade and Industry Department would have met on 20 November 2008 in order to discuss the possibility of extending the quotas, however representatives of the retail sector were unaware of the meeting.
Although South Africa may protect its industry, the current quota restrictions and its potential extension may be contrary to South Africa's WTO commitments.

According to Article XI of GATT, the General Agreement on Tariffs and Trade, the WTO recognises that the only method to regulate trade is through the imposition of tariffs and quantitative restrictions are not allowed. In particular import quotas are prohibited, this includes bilateral quotas and ?voluntary' export restraints. Under the erstwhile WTO Agreement on Textiles and Clothing, quotas were tolerated, but these had to be phased out by 1 January 2005. Consequently the only protectionist quotas which are allowed under WTO law are that of subsidies in terms of Article XIX of GATT.

Instead the South African government should have used the WTO Agreement on Safeguards and South Africa's own domestic regulations for safeguards if they want to implement these quotas without disregarding South Africa's WTO obligations. However China is a special Member State and its conditions of joining the WTO does provide some leeway for other governments to protect their industries. In such cases governments may seek consultations with China (in terms of Article 16 of China's Accession Protocol) in order to reach some sort of an agreement to limit any injury, failing which resort may be had to safeguards. However such request for consultation must immediately be referred to the WTO's Committee on Safeguards. According to our information (in relation to the current quotas) this was not done as the WTO Committee on Safeguards has not been notified. Neither has China's decision to limit exports in terms of the Memorandum of Understanding which incorporates China's agreement to limit exports of certain clothing and textile products, amongst other matters. This indicates that the South African Government is neither following the method described in China's Accession Protocol nor our own safeguard regulations. It could therefore seem as if the voluntary export restraint is therefore contrary to the WTO regime.

Alternatively Member Sates may use Paragraph 242 of the Report of the Working Party on China's Accession which provides a method whereby a Member State may enter into consultations with China in order to limit the imports of clothing and textiles. However under this article China can only limit the imports to no greater than 7.5% above the amount of imports during the first 12 months of the preceding 14 months. You therefore cannot restrict the imports to less than the preceding 12 months, as it seems as if only the growth may be limited. Thus if the current regulations (and its possible extension) limit Chinese clothing and textile imports to less than the imports during the preceding 12 month period, they will not comply with WTO law.

However the Memorandum of Understanding specifically mentions that South Africa will not rely on Article 16 or Paragraph 242 and it is therefore uncertain under which WTO provision the current quota was implemented. It is further uncertain which avenue the South African government will pursue when extending these quotas.

Normally when there are disputes of a WTO nature, only countries may rely on the WTO's dispute settlement system. Private companies or industries have no recourse to the WTO's dispute settlement system. However, it is unlikely that a dispute between countries will arise as both South Africa and China agreed on the quota restrictions. Whether China will agree on its extension is of course up for debate.

However, the hands of the South Africa private sector who may want to oppose the extension of the quota restrictions are not tied. This is due to the fact that South Africa is a constitutional democracy and as such certain checks and balances are in place. One option therefore would be to look towards the Constitution. In terms of section 33 of the Constitution everyone has the right to administrative action that is lawful, reasonable and procedurally fair. The Promotion of Administrative Justice Act No. 3 of 2000 gives effect to this particular right enshrined in the Constitution and provides one avenue for affected textile and clothing businesses to demand that a lawful, reasonable and procedurally fair decision is taken on the quota restrictions.

For further information, please contact Rian Geldenhuys.

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