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Cablegate: 2005 National Trade Estimate Report for South

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 10 PRETORIA 005433

SIPDIS

DEPT PASS USTR FOR WJACKSON, PCOLEMAN AND GBLUE
DEPT FOR EB/MTA/MST AND AF/S

E.O. 12958: N/A
TAGS: ETRD ECON EFIN SF
SUBJECT: 2005 NATIONAL TRADE ESTIMATE REPORT FOR SOUTH
AFRICA

REF: STATE 240980

1. This cable responds to reftel request for updating
and revising last year's NTE chapter on South Africa.
Post is also sending the text by e-mail to EB/MTA/MST
and to USTR contacts. Post understands Washington will
update the figures contained in the first paragraph in
the trade summary.

2. BEGIN TEXT

SOUTH AFRICA

TRADE SUMMARY

The U.S. trade deficit with South Africa was $1.8 billion
in 2003, an increase of $308 million from 2002. U.S. goods
exports in 2003 were $2.8 billion, up 11.7 percent from the
previous year. Corresponding U.S. imports from South
Africa were $4.6 billion, up 15.0 percent. South Africa is
currently the 34th largest export market for U.S. goods.
U.S. exports of private commercial services (i.e.,
excluding military and government) to South Africa were
$1.1 billion in 2002 (latest data available), and U.S.
imports were $782 million. The stock of U.S. foreign
direct investment (FDI) in South Africa in 2002 was $3.4
billion, up from $3.1 billion in 2001. U.S. FDI in South
Africa is concentrated largely in manufacturing, services,
and wholesale sectors.

South Africa has increasingly opened its market since 1994
by reducing tariff rates and non-tariff barriers. The
South African government has stated its aim to open the
market further in order to increase trade and to develop
more competitive domestic industries. As a member of the
Southern African Customs Union (SACU), South Africa began
negotiations for a free trade agreement (FTA) with the
United States in June 2003. The FTA negotiations provide
an unprecedented opportunity for addressing trade
constraints on U.S. exports to South Africa, including
relatively high tariffs and import restrictions on certain
U.S. exports; inadequate copyright protection for software,
films, and music; and barriers in telecommunications and
other key service sectors. South Africa aims to conclude
free trade agreements in 2005 with Mercosur and the
European Free Trade Association (EFTA) and to begin
negotiations with India. It continues to explore a
possible free trade agreement with China. Along with India
and Brazil, South Africa was a founding member of the G-20
coalition of countries formed prior to the September 2003
WTO Ministerial in Cancun.

IMPORT POLICIES

The South African International Trade Administration
Commission (ITAC) came into operation in June 2003. ITAC,
which replaced the Board on Tariffs and Trade, was
established under Section 7 of the International Trade
Administration Act of 2002. It has been tasked to establish
an efficient and effective system for the administration of
trade. ITAC's responsibilities include:

TARIFF INVESTIGATIONS - The ITAC administers tariff-
related programs, including the Motor Industry Development
Program (MIDP) and the Duty Credit Certificate System
(DCCS). Interested parties are entitled to approach ITAC
with specific requests for tariff assistance.

TRADE REMEDIES - The ITAC deals with antidumping and
subsidized exports as well as safeguards. The safeguards
procedures were introduced in August 27, 2004, but have not
yet been applied.

IMPORT AND EXPORT CONTROL - The ITAC issues import and
export permits for certain items designated by the Minister
under the authority of the International Trade
Administration Act of 2002, which repealed the Import and
Export Control Act of 1963.

Import Control

The Minister of Trade and Industry may, by notice in the
Government Gazette, prescribe that no goods of a specified
class or kind be imported into South Africa, except under
the authority of, and in accordance with, the conditions
ns
stated in a permit issued by ITAC. The main categories of
controlled imports and the objectives of control are as
follows:

-- Secondhand goods: Import permits are granted only if
such goods or substitutes are not manufactured
domestically, constituting a de facto ban on such goods.
These restrictions are designed to protect domestic
industries such as clothing, motors, machinery and
plastics, but also serve to discriminate against low-cost
secondhand goods from the United States.

Waste, scrap, ashes, and residues (Basel Convention):
The objective of import controls of these goods is to
protect human health and the environment.

Other harmful substances: Imports of substances such as
ozone depleting chemicals (Montreal Convention) and
chemicals used in illegal drug manufacturing (1988 United
Nations Convention) are controlled for environmental,
health and social reasons.

Goods subject to quality specifications, such as tires:
This restriction permits monitoring of manufacturer
er
adherence to specifications that enhance vehicle safety or
protect human life.

Tariffs

To comply with its WTO commitments, since 1994 South Africa
has reformed and simplified its tariff structure. It has
reduced tariff rates from an import-weighted average tariff
rate of more than 20 percent to 7 percent. Notwithstanding
these reforms, importers have complained that South
Africa's tariff schedule remains complex and can create
uncertainty. The U.S.-SACU free trade agreement
negotiations provide an opportunity to work with the South
African government to lower these relatively high tariff
rates. Tariff rates mostly fall within eight levels ranging
from 0 percent to 30 percent, but some are higher, such as
for specific textile and apparel items. In the Uruguay
Round, South Africa agreed to a twelve-year phase-down of
duties on textiles and apparel, but since then has
unilaterally moved to a seven-year phase-down process. As
of September 1, 2002, the following rates, which are also
the end rates, apply:

Apparel 40 percent
Yarns 15 percent
Fabrics 22 percent
Finished goods 30 percent
Fibers 7.5 percent

Duty rates on cars, light goods, vehicles and minibuses are
still at the high level of 36 percent, while the rate of
duty on original motor parts is 28 percent. Under the terms
of the Motor Industry Development Plan (MIDP),
international companies that both import and export motor
vehicles and parts are able to use export credits to reduce
the import duties.

ITAC continued to receive requests for tariff protection
from industries, especially since the South African rand's
appreciation curve started in late 2002. The appreciation
of the rand resulted in increased competition from imports
that hurt the competitiveness of many South African
companies. U.S. companies have cited tariffs as a barrier
to trade in South Africa, along with port delays and
congestion, customs valuation above invoice prices, theft
of goods, import permits, antidumping measures, IPR crime,
an inefficient bureaucracy and excessive regulation.

Dumping

Twelve new antidumping petitions were filed in South Africa
during 2003-2004, the majority against Chinese products.
While no new antidumping investigations against imports
from the United States were instituted in 2004, antidumping
duties on U.S. chicken meat portions, suspension PVC,
roller bearings, lysine and acetaminophenol remain in
force. In early 2004, ITAC also increased the MFN applied
duty on imports of poultry offal, as requested by the
domestic industry. In an important step to increase
transparency and clarity on the dumping investigation
processes, anti-dumping regulations were promulgated on
November 14, 2003.

Free Trade Agreement with the European Union

In 2000, South Africa and the European Union (EU) began to
implement the development co-operation and financial co-
operation provisions of their Agreement on Trade,
Development and Cooperation, a free trade agreement (FTA).
Under the agreement, South Africa and the EU will establish
a free trade area over a transitional period of up to
twelve years for South Africa, and up to ten years for the
EU. The FTA provides for the reduction and eventual
elimination of duties for approximately 85 percent of the
products imported by SA from the EU and 95 percent of the
products exported by South Africa to the EU. Certain
agricultural products were exempted from liberalization
under the agreement. South African and EU negotiators
announced at the end of 2003 that they would seek to
accelerate the process of negotiation towards freer trade
in automobiles. U.S. firms exporting to South Africa are
concerned that their products will be less competitive
because of the preferences given to the EU. For example,
there is a five percent differential between the duties on
EU and U.S. trucks. U.S. companies are divided on whether
they have been disadvantaged by the EU FTA.

STANDARDS, TESTING, LABELING AND CERTIFICATION

Biotechnology

There has been an active debate in South Africa about
products produced using agricultural biotechnology. The
Genetically Modified Organisms Act ("the GMO Act"), which
entered into force on December 1, 1999, aims to ensure that
all activities involving the use of agricultural
biotechnology (including production, import, release and
distribution) will be carried out in such a way as to limit
possible harmful consequences to the environment. Since
1999, some stores have promoted claims of selling a limited
range of biotechnology-free products, while a few consumer
groups have urged the Department of Health to introduce
compulsory labeling of biotechnology products.

Under the leadership of the Department of Health,
Directorate of Food Control, the South African government
issued regulations on the labeling of biotechnology
products in early 2004 The regulations mandate labeling of
genetically modified (GM) foods only in certain cases,
including when allergens or human/animal proteins are
present, and when a GM food product differs significantly
from a non-GM equivalent. The rules also require
validation of enhanced-characteristic claims for GM food
products. The regulations do not address labeling claims
that products are GM-free. Biotech advocates are concerned
about this omission, noting it could lead to many
fraudulent claims. Trade organizations seem satisfied with
the regulations, which follow internationally recognized,
scientific (CODEX) guidelines. South Africa's CODEX
representative comes from the Directorate of Food Control.

In November 2004 the government published draft changes to
the GMO Act to bring it into compliance with the Cartagena
Biosafety Protocol. The government solicited public
comments on the draft changes through November 2004 and is
currently evaluating those comments.


In June 2001, the South African government published the
National Biotechnology Strategy for South Africa, a
document that shows the South African government's intent
to stimulate the growth of biotechnology industries. The
document states that biotechnology can make an important
contribution to national priorities, particularly in the
areas of human health, food security and environmental
sustainability. Environmental groups continued to exert
pressure on the South African government in 2004 to examine
the safety of foods derived from agricultural
biotechnology.

South Africa has approved for commercial production [begun
to grow] genetically modified soybeans that are tolerant to
herbicides, and cotton and yellow and white maize that are
resistant to insects. Farmers are enthusiastically
adopting the new technology, and they are expected to plant
up to 1 million hectares of genetically engineered
varieties in South Africa in 2004, up from about 400,000
hectares in 2003. The use of these products is widespread
in the food processing industry.

U.S. grain producers have raised concerns about South
Africa's treatment of genetically modified "stacked
events." Although the U.S. Government considers products
containing a combination of two previously approved genetic
modifications (such as for insect resistance and herbicide
tolerance) as "conventional" and encourages producers to
notify the USG of such stacked events, South Africa -- like
the EU -- considers the combined "stacked events" as a new
event, and requires a complete, de novo review for
registration purposes. This requirement creates significant
delays in registering products, causing U.S. exporters to
lose export opportunities. At present, U.S. yellow corn is
not approved for import by the government of South Africa
due to delays in registering stacked events and other new
events. As a result, if yellow corn were in short supply in
South Africa in 2005, importers would have to apply to the
government for a special waiver in order to import U.S.
yellow corn, with the guarantee that the U.S. yellow corn
would be milled near the port to ensure that it cannot be
planted.
In 2003 and 2004, Biowatch, an environmental lobby group,
took legal action against the National Department of
Agriculture in order to obtain information on how it made
decisions on issuing licenses for modified crops. The
local courts ruled in favor of NDA, which protects certain
information on a business proprietary basis.

In September 2003, countries of the Southern African
Development Community (SADC), including South Africa,
developed common guidelines on the regulation of products
resulting from biotechnology. The guidelines assert that
the region should develop common policy and regulatory
systems that are based on either the Cartagena Protocol or
the African Model Law on Biosafety. The heads of SADC
member states also agreed to develop national biotechnology
policies and strategies and to increase their efforts to
establish national biosafety regulatory systems. Member
states were also urged to commission studies on the
implications of biotechnology for agriculture, the
environment, public health and socio-economics.

Agricultural Standards

The Directorate of Plant Health and Quality of the National
Department of Agriculture is responsible for setting
standards for certain agricultural and agricultural-related
products. These standards include composition, quality,
packaging, marketing, and labeling, as well as physical,
physiological, chemical, and microbiological analyses.
These standards, published in to the Agricultural Product
Standards Amendment Act of 1998 and the Liquor Products Act
of 1989, set the regulations for products to be sold on
both the local and export markets. U.S. distilled spirits
producers have complained that South African regulations
that require a minimum alcohol content by volume (a.b.v.)
for whisky, rum, and other products limit the marketing of
U.S.-origin spirits that meet the international standard of
40 percent a.b.v.

The South African government requires prospective importers
to apply for an import permit for certain controlled
products. The import of irradiated meat from any source is
still banned by public health officials. U.S. horticultural
producers have complained about various South African
phytosanitary barriers on the importation of apples,
cherries, and pears from the United States. They estimate
that, if these barriers were removed, U.S. exports of each
of these fruits could increase by $5 million to $25 million
in annual sales to South Africa. U.S. producers have also
expressed concern about unnecessary SPS requirements for
some grains, pork, poultry, and horticultural products.

In order to fulfill South Africa's commitment under the WTO
Marrakesh Agreement on market access, the National
Department of Agriculture published the rules and
procedures regarding the application for market access
permits for agricultural products on October 24, 2003. The
permits will be issued to importers registered with the
South African Revenue Service (SARS) and the Department of
Trade and Industry (DTI) for importation of the
agricultural products listed in the Table of Import
Arrangements.
Permits will be allocated as follows:

? 10 percent to importers who have not imported over the
past 3 years ("new importers"),

? 10 percent to Small, Medium, and Micro Enterprise
importers ("SMME Importers"),

? 80 percent to importers who have imported the products
over the past 3 years ("historical
importers").

In response to the BSE case in Washington State announced
on December 23, 2003, South Africa placed a ban on all
ruminant animals and products originating in the United
States effective December 24, 2003. By January 15, 2004
South Africa, in accordance with OIE standards, exempted
non-risk products such as hides, skins, wool and mohair
from the ban. At this time a ban is still in place on
ruminant meat products. The South African Department of
Agriculture is impressed with USDA's surveillance program
but wants to see a full report with data from the
surveillance program before considering lifting the ban.

During 2004 South African grain, pork and poultry producers
petitioned the government to raise tariffs with little
success except for poultry offal. The Government of South
Africa does not have an effective safety net to support
farmers financially during times of drought or strong
currency. Therefore, farmers' groups will likely continue
to pressure the government to try to reduce imports or make
them more expensive.

GOVERNMENT PROCUREMENT

Government purchases are by competitive tender for project,
supply, and other contracts. The South African government
uses its position as both buyer and lawmaker, however, to
promote the economic empowerment of historically
disadvantaged individuals (HDIs) through its Black Economic
Empowerment (BEE) policy. In January 2004, President Mbeki
signed into law the Broad-Based Black Economic Empowerment
(BBBEE) Act of 2003, the legislation enacting the BEE
strategy. The Act directs the Minister of Trade and
Industry to develop a national strategy for BEE, issue BEE
implementing guidelines in the form of Codes of Good
Practice, encourage the development of industry specific
charters, and establish a National BEE Advisory Council to
review progress in achieving BEE objectives.

The Minister released three Codes in December 2004 with
seven more due in early 2005. The recently released Codes
address specific issues pertaining to the BEE Framework,
Equity Ownership, and Management and include a new generic
scorecard with suggested targets for areas such as equity
ownership, management, procurement, and equality in
employment. The Codes are intended to harmonize existing
and future industry empowerment charters. Sectors that
have completed or are close to finalizing empowerment
charters for their respective industries include:
accounting, agriculture, chemical, cosmetics, clothing and
footwear, construction, engineering services, financial
services, forestry, health, information and communications
technology (ICT), liquid fuels, liquor, marketing, mining,
property, tourism, transport, and wine. The Minister is
expected to establish the National BEE Advisory Council
early in 2005.

While many U.S. companies operating in South Africa have
significant programs that support HDIs, they have concerns
about the lack of clarity and consistency in the BEE rules.
A major concern is whether HDI equity ownership will become
mandatory and a cost of doing business with the South
African government. The Minister of Trade and Industry is
developing a statement on equity ownership for
multinationals to be included in the Code of Good Practice
on Equity Ownership, which is expected to address the
concerns of U.S. companies.

South Africa's Preferential Procurement Policy Framework
Act of 2000 and its implementing regulations set a legal
framework and formula for evaluating bidders of government
contracts by price and the advancement of socio-economic
priorities. Revised draft regulations were released in
November 2004 to take into consideration the BBBEE Act.
The new regulations give greater preference to bidders of
government contracts who more effectively comply with BEE
objectives. In addition, the draft regulations raise
tender thresholds. Previously, companies bidding on
tenders worth up to R500, 000 earned 80 percent of their
points from their bid price and 20 percent on their
commitment to social objectives (80-20 preference point
system). Now, the 80-20 point system is applied to tenders
valued up to R1 million and firms are evaluated on their
compliance with their respective industry BEE scorecards.
Similarly, a 90-10-preference point system is applied to
tenders valued at over R1 million. The National Treasury is
expected to approve and gazette the new Preferential
Procurement regulations by mid-2005.

South Africa's Industrial Participation (IP) program,
introduced in 1996, subjects all government and parastatal
purchases or lease contracts (goods, equipment or services)
with an imported content equal to or exceeding $10 million
(or the rand equivalent thereof) to an IP obligation. This
obligation requires the seller/supplier to engage in
commercial or industrial activity equaling or exceeding 30
percent of the imported content of total goods purchased
under government tender. The program is intended to
benefit South African industry by generating new or
additional business.

In August 2004, the Minister of Finance issued the Code of
Good Practice for BEE in Public Private Partnerships (PPPs)
that had been released as a draft document in December
2003. The Code of Good Practice sets out the targets for
BEE to be achieved in PPPs and provides clarity to bidding
private parties.
South Africa is not a signatory to the WTO Agreement on
Government Procurement.

EXPORT SUBSIDIES

Under the Duty Credit Certificate Scheme, the government of
South Africa offers duty credit certificates to South
African exporters of textiles and clothing. Other
incentives are available for the promotion of manufactured
exports. SACU also has several duty drawback regimes for
agricultural and nonagricultural products.

In September 1995 the South African government established
the Motor Industry Development Program (MIDP) in order to
assist the South African auto industry. This program
includes measures to promote exports and introduces a
phased reduction in import tariffs. The MIDP allows vehicle
assemblers and component manufacturers to offset vehicle
and component exports against similar imports. The ability
to rebate import duties by exporting allows importers to
bring in vehicles at lower effective rates of duty. It also
enables assemblers to use import credits to source
components at close-to international prices. In late 2002,
the government extended the program from 2007 to 2012.

INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION

Legal Regime

Property rights, including intellectual property rights,
are protected under a variety of laws and
regulations. The South African parliament passed two IPR-
related laws at the end of 1997 -- the
Counterfeit Goods Act and the Intellectual Property Laws
Amendment Acts -- in order to enhance IPR protection. The
Department of Trade and Industry (DTI) administers these
acts. Although South Africa's intellectual property laws
and practices are generally in conformity with those of the
industrialized nations, there are deficiencies in
enforcement and in guaranteeing the protections afforded
under these laws. The U.S.-SACU free trade agreement
negotiations will seek to address some of the shortcomings
in South Africa's IPR protection regime.

The U.S. software industry has cited three principal
deficiencies in the 1978 Copyright Act:

-- Lack of criminal penalties for end user piracy. South
African law currently provides that the sale of infringing
software is a criminal offence, but there is no criminal
penalty for end users.

-- Lack of presumptions relating to copyright subsistence
and ownership. Amending the law to add subsistence
presumptions would reduce the procedural burden on rights
holders in proving their cases.

-- Non-deterrent civil damages. Amending the law to
introduce statutory damages to cover end users and to
ensure that compensatory damages serve as a deterrent would
improve IPR protection. The current statutory provisions on
damages are not considered to be sufficient to serve as a
deterrent.

Until these changes are made in the law, the enforcement of
individual copyright claims is complicated by the lack of
evidentiary presumptions in the law, requiring use of an
expensive registration system or submission of extensive
proof of copyright subsistence and ownership. Amendments
have been considered for years, but relatively little has
been done in this area.

In 2001, South Africa introduced measures to enhance
enforcement of the Counterfeit Goods Act. The South African
government appointed more inspectors, designated more
warehouses for counterfeit goods, destroyed counterfeit
goods, and improved the training of customs, border police,
and police officials. In 2004, there were 100 convictions
for people arrested with counterfeit DVDs and computer
games compared to 14 in 2003. Despite these efforts, the
International Intellectual Property Alliance estimates
total losses from copyright piracy in South Africa in 2002
at over $84 million, including $39 million in business
software applications and $30 million in motion pictures.
Although law enforcement authorities often cooperate with
the private sector in investigating allegations of
counterfeit trade, there are concerns about laxity in
enforcement of IPR laws against imports of pirated goods.
Complainants can take both civil and criminal action
against offenders.

U.S. firms have complained that South Africa does not
adequately protect the safety and efficacy studies (also
called "registration data") filed before national
authorities for approval of agrochemical products. These
data are unfairly "referenced" by competitors in order to
register their products.

South Africa is a member of the Paris Union and acceded to
the Stockholm Text of the Paris Convention for the
Protection of Intellectual Property. South Africa is also a
member of the World Intellectual Property Organization
(WIPO) but has yet to ratify the WIPO Copyright Treaty and
the WIPO Performances and Phonograms Treaty.
Software/Audio Visual IPR Issues

Software piracy still occurs frequently in South Africa.
Between February and March 2001, the Business Software
Alliance (BSA) gave South African organizations a one-time
opportunity to legalize their software by registering. The
campaign received 608 registrations to legalize pirated or
illegally installed software, representing over 60,000
desktop personal computers. An independent research firm,
International Planning and Research Corporation, conducted
a survey for the BSA during 2001. It found that the local
piracy rate dropped from 45 percent to 38 percent. Piracy
in the video and sound industry also continues to be a
concern. The Motion Picture Association estimated video
piracy at 10 percent and optical disk piracy at 40 percent
in 2003.

SERVICES BARRIERS

Telecommunications

South Africa has made a series of WTO commitments on value-
added telecommunications and basic telecommunications
services and has adopted the WTO reference paper on pro-
competitive regulatory principles. The South African
government also committed to license a second supplier no
later than January 1, 2004, to compete against the current
monopoly supplier, Telkom, in long-distance, data, telex,
fax, and private leased circuits services. Despite the end
of Telkom's exclusivity period in May 2002, Telkom has been
able to continue its monopoly because of the government's
unsuccessful attempts to license a second network operator
(SNO).

Although the Minister of Communications conditionally
approved a license for the SNO in December 2003, 19 percent
empowerment shareholder Nexus Connexion sued the Minister
over the inclusion of equity partners who were previously
considered unqualified by the regulator. Nexus called for
a review of the Minister's actions and asked the Court to
prevent her from implementing her decision to license the
SNO. Consequently, the Minister restructured the 51
percent strategic equity portion of the SNO (SepCo) and is
in the process of awarding the controlling stake in SepCo
to a third equity partner. Thirty percent of the SNO is
held by the telecommunications divisions of Eskom (the
state energy utility) and Transnet (the transport
parastatal). Twenty five percent is held by equity
partners Two Consortium and CommuniTel with the remaining
26 percent soon to be awarded.

In September 2004, the Minister of Communications announced
a sweeping liberalization of the telecom sector, effective
February 1, 2005. Among other things, the Minister
indicated that mobile operators would be allowed to use any
fixed lines for the provision of their service, value-added
network services (VANS) could be provided by facilities
other than those owned by Telkom and the Second National
Operator, VANS providers would be allowed to carry voice
using any protocol, and private telecommunications network
operators could resell their spare capacity. The
Independent Communications Authority of South Africa
(ICASA) is developing regulations to take into account the
Minister's announcement. The new regulations are expected
to resolve past complaints by Internet Service Providers
(ISPs) and value-added network services (VANS), which have
previously cited problems in acquiring new facilities from
Telkom.

The Department of Communications (DOC) released a Draft
Convergence Bill in December 2003, which industry analysts
hoped would simplify the existing legislative framework,
empower the regulator, and open the telecoms industry to
greater competition. Following a highly critical public
comment period, the DOC undertook to revise the Bill. It
is expected to be released in early 2005.

Telecommunications is one of the areas being addressed in
the U.S.-SACU free trade agreement negotiations. South
Africa's telecommunications regulatory authority, ICASA,
has sole authority to determine whether these services are
illegal. In the past, service providers have complained
about ICASA ineffectiveness in asserting its authority over
Telkom and have pursued remedies in the Pretoria High
Court. Telkom also often challenges decisions taken by
ICASA, leading to delays in implementing rulings. The
Amended Telecommunications Act of 2001 allows only Telkom
and the SNO to provide voice over Internet protocol (VOIP)
services, and it appears to expand the definition of a
public switched telecommunications service (PSTS) to
include the provision, repair, and maintenance of any other
telecommunicationsapparatus. Interested parties continue to
raise questions concerning the consistency of these and
other provisions of the Amended Telecommunications Act with
South Africa's WTO obligations. The United States continues
to monitor South Africa pursuant to section 1377 of the
Trade Act of 1988 for compliance with its WTO commitments.

Other Services

The United States has in the past shown interest in
reaching an open skies air transport agreement with South
Africa. During negotiations in May 2001, however, South
Africa indicated that it would not agree to open skies,
preferring instead incremental liberalization of the
existing air transport agreement. Open skies agreements
provide for open route rights, capacity, frequencies,
designations, and pricing, as well as opportunities for
cooperative marketing arrangements, including code-sharing
and airline alliances. South African Airways (SAA), the
national airline wholly-owned by the transport parastatal
Transnet, had previously noted concerns about U.S. airlines
exercising fifth-freedom rights in Africa and thereby
impinging on one of SAA's strategic markets.

ANTICOMPETITIVE PRACTICES

Ownership Patterns

There is an historical legacy of concentrated ownership in
some sectors of the South African economy. During the
apartheid years, a large portion of the South African
population was entirely excluded from ownership of business
enterprises. Moreover, government policies from 1961 to
1994 prohibited some successful companies such as South
African Breweries, Anglo American (including DeBeers) and
SASOL from investing abroad. They therefore expanded their
activities locally. As a result, conglomerates with
considerable market power developed in the South African
marketplace. Thissituation has been changing, as many of
the major players have been expanding internationally and
have listed on foreign stock exchanges. Together with the
more effective competition authority and strong sectoral
initiatives to enlarge the share of black participation in
the economy, South Africa's business environment is
becoming more competitive and more open to new entrants
(including U.S. companies). Sectors such as energy,
transport and telecommunications have also historically
been controlled or dominated by parastatals. These sectors
are gradually restructuring and opening up for competition
from the private sector. The privatization program of the
South African government, although moving slowly, is also
starting to bring a change in ownership patterns.

ELECTRONIC COMMERCE

Effective July 31, 2002, all companies that conduct
business in South Africa via electronic commerce must
comply with the new Electronic Communications and
Transactions Law. The new law was designed to facilitate
electronic commerce but may increase regulatory burdens and
introduce uncertainty into the future of electronic
commerce in the country. The law requires government
accreditation for certain electronic signatures, takes
government control of the ".za" domain name, and requires a
long list of disclosures for web sites that sell via the
Internet.


OTHER BARRIERS

Transparency, Corruption and Crime

South African law provides for prosecution of government
officials who solicit or accept bribes. Penalties for
offering or accepting a bribe may include criminal
prosecution, monetary fines, and dismissal for government
employees, or deportation for foreign citizens. South
Africa boasts no fewer than ten agencies engaged in anti-
corruption activities. Some, like the Public Service
Commission (PSC), Office of the Public Protector (OPP), and
Office of the Auditor-General (OAG), are constitutionally
mandated and address corruption as only part of their
responsibilities. Others, like the South African Police
Anti-Corruption Unit and the Directorate for Special
Operations (more popularly known as "the Scorpions"), are
dedicated to combating crime and corruption. High rates of
violent crime, however, are a strain on capacity and make
it difficult for South African criminal and judicial
entities to dedicate adequate resources to anti-corruption
efforts.
During the last few years, crime has been a far more
serious problem than either corruption or political
violence and an impediment to, and a cost of, doing
business in South Africa. The South African police forces
have not been effective or well accepted in many
communities because of their historical role in enforcing
minority rule, their lack of training, and internal crime
and corruption within the forces. The levels of crime,
especially violent crime, are a deterrent to attracting
U.S. companies to South Africa.

New laws, such as the Promotion of Access to Information
Act signed into law in February 2000, have helped to
increase transparency in government in the last few years.
The Public Finance Management Act, which became effective
on April 1, 2000, helped to raise the level of oversight
and control over public funds and improved the transparency
of government spending, especially with regard to off-
budget agencies and parastatals. Notwithstanding these
efforts, businesses complain about the lack of certainty
and consistency in interpreting and implementing some
government policies.


President Mbeki signed "The South African Prevention and
Combating of Corrupt Activities Act" (PCCAA) into law on
April 28, 2004. The PCCAA makes it more clear which
activities are considered graft. The act:

? Includes a list of codified corruption offenses
related to specific persons.

? Clearly defines that graft occurs between a
"corruptor" and a "corruptee."

? Declares that a bribe need not be monetary in nature,
nor need it be paid directly to the person who will be
undertaking the corrupt act.

? Bars the payment of bribes to foreign public officials
by South African citizens and firms.

? Provides a list of corruption-related offenses
relating to specific matters in the public and private
sectors.

? Allows for the investigation and seizure of
"unexplained wealth."

? Tasks the National Treasury to establish a register of
tender defaulters for corrupt individuals and firms.

? Obliges public officials to report any corrupt
activities.

? Prescribes strict penalties, including the possibility
of life imprisonment.

One shortcoming of the act is the failure to protect
whistleblowers against recrimination or defamation claims.


Immigration Laws

For a number of years, U.S. and other foreign companies
have complained that South African immigration legislation
and the application of the law made it extremely difficult
to get work permits for their foreign employees.
Previously, South Africa relied on the apartheid-era Aliens
Control Act, which did not take into account international
developments and the opening up of the South African
market. A new immigration law entered into force on May 31,
2002. The legislation establishes yearly quotas for
granting work permits to foreigners. Local businesses have
criticized the new law for creating uncertainty because the
quota system sets limits on the number of skilled people in
particular categories that may enter the country, and
because corporate permits allow investors to make blanket
applications for the people they need. It is not clear
whether these corporate permits fall in or out of the quota
system. The Trade and Industry Minister has suggested that
the South African government may need to revise the law to
acquire critically needed skills in South Africa. Home
Affairs officials oppose moving away from quotas because it
might mean reverting to the Aliens Control Act, wherein an
employer had to establish
the clear need for a skill. The Minister of Home Affairs
has said that the new law is an enormous improvement over
the previous legislation and places South Africa on a par
with other countries, especially with respect to investors
and intra-company transfer permits.
Southern African Customs Union
South Africa has been a member of the Southern African
Customs Union (SACU) since its inception in 1910. The SACU
Agreement was renegotiated in 1969 following the
independence of Botswana, Swaziland and Lesotho. Namibia
joined SACU in 1990. SACU aims to promote free trade and
cooperation on customs matters among its five member
states. There are currently no internal tariff barriers
between SACU members but because of different tax regimes,
there are some tax adjustments that occur at the borders.
All SACU members except Botswana share a common currency as
members of the Common Monetary Area. Imports from outside
SACU are subject to a common external tariff. The SACU
governments signed a new agreement in October 2002 setting
out the responsibilities of the Council of Ministers, the
Customs Union Commission, and the Secretariat. SACU began
negotiations on a free trade agreement with the United
States in June 2003. SACU has also concluded a revised
trade agreement with the SADC countries that would
eliminate almost all duties on SACU-SADC trade.

Because of SACU, products from Botswana, Lesotho,
Swaziland, and Namibia enter South Africa duty-free. In a
few cases, products from these countries compete directly
with U.S. goods that are subject to duties. For example,
soda ash from Botswana comes into South Africa at a zero
percent duty, whereas, soda ash from the U.S. faces a 5.5
percent duty. South Africa does not produce soda ash, but
the duty on imported soda ash was introduced for the
benefit of Botswana. Moreover, a legal complaint from
Botswana's soda ash producer under South Africa's
competition law threatens to block U.S. exports. The South
African Competition Commission has pursued the claim as a
"per se" offense, without making any judgment on the U.S.
soda ash producer's impact on competition or consumers. If
the South African Supreme Court does not grant an appeal so
that the legal merits of the case can be argued, U.S. soda
ash exports would be adversely affected. If the tariffs on
U.S. soda ash were eliminated, U.S. exports of soda ash to
South Africa could increase from less than $8 million to
$25 million, closer to its historical level.

END TEXT

FRAZER

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