ITAC increased the general rate of Customs duty on aluminium plates, sheets, strips and foil classifiable under tariff headings 76.06 and 76.07 on Thursday, 31 December 2020.
On 31 December 2020 SARS implemented a significant increase in the general rate of Customs duty on aluminium plates, sheets, strips and foils. The general rate of duty on all product categories covered under tariff headings 76.06 and 76.07 increased from duty free to 15% ad-valorem. This is the outcome of a tariff investigation initiated by ITAC on 29 March 2019 in response to an application brought by Hulamin.
Whilst the ITAC Commission meeting at which the matter was decided already took place on 12 November 2019, it took more than a year from the date of the Commission meeting for the tariff increase to be announced. This is unusual as tariff amendments are typically implemented within 6 to 8 weeks from the date of the Commission meeting in which the Commission decide the matter and forward their recommendation to the Minister of Trade, Industry and Competition. It is not clear where the delay occurred. Was it with ITAC, the DTIC, the Department of Finance or with SARS? 2 recent court cases describe a detailed investigative process at National Treasury, which happens before a duty change is implemented. Did this investigative process at Treasury indicate a problem with the proposed duty? We simply don’t know, but no one benefits from the unpredictable environment created by investigations which should take 6 months from initiation to completion, to 21 months until finalisation, with most of that time not spent with the primary investigating authority.
The delayed announcement came as a shock to manufacturers and fabricators in the downstream aluminium value chain as such a high level of duty, applied this high up in the value chain, usually spells disaster for the downstream manufacturing sector which depends on competitively priced raw material in order to compete against low priced imports of finished products. The level of business failures and disinvestment in the downstream steel sector, following the significant tariff increases on steel, coupled with safeguard duties on hot rolled steel, is a stark reminder of this.
The initial investigation significantly overreached in that protection was required for a vast range of products not even produced by Hulamin. The increase announced on 31 December 2020, was followed by the publication of a wide range of temporary rebates introduced into the tariff schedules on 8 January 2021, addressing this key concern. All rebates for product not produced in SACU will require an ITAC permit to be applied for, likely with a letter of approval from Hulamin confirming that the product in question is not locally available. If it is available locally, but now expensive, as we would expect following the duty increase, then a permit is unlikely to be issued.
In the presence of a global economic downturn Government is clearly focused on providing maximum protection to our primary industries. This, in itself, may be a noble idea, but it comes with potentially catastrophic implications for the downstream manufacturing sector using these inputs as a raw material. Again, the downstream steel industry is a case in point.
In the present case, one needs to consider the fact that Hulamin is an export focused business, with the vast majority of its production being exported. Pressure in global markets causes a significant, almost existential threat to this business. Sales volumes need to be maintained and the focus very quickly shifts to the domestic market which, by volume, may represent little more than 30% of total turnover, to bridge the gap and support the cashflows and the company’s bottom line. There is a limit to which the downstream aluminium manufacturing sector in SACU can assist. It was common cause among a number of downstream manufacturers and fabricators that the maximum duty that industry may be able to absorb was 5%. Approximately 70% of the current product price represents the metal price component which is already passed on to customers as the metal price fluctuates.
A general view expressed by the downstream industry is that a 15% duty increase is simply unjust and highly prejudicial, posing an existential threat to the downstream sector.
This increase is announced against a concerning backdrop of Hulamin apparently applying different pricing models for exports and domestic sales, resulting in product being supplied to global customers at prices substantially lower than the prices at which it supplies the domestic market. A 15% duty, combined with the space that creates to further increase domestic prices, will likely cause the price disparity to widen even more.
In its application for the increase in the general rate of duty on these products Hulamin had to make certain reciprocal commitments to Government. The details thereof are not known. It is not known if Hulamin made any firm price commitments on domestic prices. It is also not clear if Hulamin would support permit applications for orders that do not meet its minimum order quantities, or are for product grades it technically can produce but not in the low volumes required. These aspects will be key in ensuring that Hulamin will still have domestic clients left and our economy will still have a downstream aluminium manufacturing sector left in 12 months from now.
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