Bell Equipment Company applied for a duty increase on “Dumpers designed for off-highway use: Other”, imported under tariff subheading 8704.10.90.
The reasons provided for the request are:
- The general economic decline and uncertainties that exist in South Africa and Sub-Saharan Africa make it difficult to maintain production volumes at a level where current facilities and work force is justified;
- The domestic industry has, over the years, lost its domestic market share to foreign OEMs which are not subject to territorial and distribution restrictions and often have access to cheap export credit finance facilities from the importing countries;
- The loss of sales to importers has a negative impact on the employment levels across the value chain; and
- The imposition of a 10% import tariff will assist domestic manufacturers to be more price competitive, retain current jobs and provide an opportunities to capture additional market share and boast employment across the value chain
Most of the reasons provided in this case are standard fare in duty increase applications, apart from the loss of market share to competitors who don’t have territorial and distribution restrictions. This borders right on that line of using duty increases for anti-competitive purposes. We don’t yet know enough about this case to say that with any certainty, but the statement looked at in isolation is certainly concerning.
Does increasing the duties make sense?
Maybe. At this point, all we have are the statements above which come out of the gazette notice, but looking at the import statistics a few things stand out:
- 55% of the imports come from Sweden and the UK, which will not be impacted by the duties, should they succeed.
- At the aggregate level, the import volumes have been dropping from the 5 biggest exporting countries impacted by the duties (India, China, Japan, Brazil and the USA).
You will notice not only that the volumes have dropped over the period, from 296 units for 2017, to 213 units for 2020, but also that the price has increased over the same period. This 28% drop in volume happened on imports which increased 53% in price over the same period. In other words, fewer imports which will be impacted by the duties are already being imported and those imports are considerably more expensive than 4 years ago.
Looking at the imports of dumpers from Sweden and the UK, their volumes are also falling, with their prices increasing over the same period.
Here the volume has dropped from 505 units to 317 units, which even after the 37% drop in volume over 4 years is still 49% greater volume than the countries impacted by the duties. And the price out of Sweden and the UK is already considerably cheaper too, so if the duties are increased on the other countries, then these 2 countries will become considerably more competitive or will simply raise their prices and maintain the same market share with bigger margins. Given that the average price for a unit from the non-affected countries is R5 294 803 each and the average price out of the affected countries is R9 931 800 each, it unlikely the duties will have the desired effect.
The tariff code applicable to this investigation ends with the words “Other”, which means there is a fairly large variety mix of products making up this tariff code. The only thing we know is the Gross Vehicle Mass (G.V.M.) exceeds 50 tons, which leaves a wide variety of products fitting into the investigation. The mix of products could therefore be quite different for the various countries and this could be impacting the average price.
Duty protection for subsidised industries?
It should also be noted that Bell received R117m in grant money from government for their 2019 financial year, the most recent period we have information for. This is not to say they should or should not get the duty increase, but simply that they are already receiving significant tax payer support in a market where import competition is decreasing.
Leaving out 2020, the exports out of South Africa have increased from 514 units, at an average price of R2.6m each in 2017, to 575 units, at R2.9m each, in 2019. In 2020, the exports fell to 441 units, with a slightly increased price of R3.1m per unit. This resulted in a fall in export revenue of R300m for 2020, which is significant in anyone’s books. This however is not a problem which can be solved with duties.
It is interesting to note that the directors of Bell were paid R11.6m for the 2019 financial year and the company made a profit of R61m for that year. The director’s income accounts for almost a perfect 10% of the support from government.
Without the government support, they would have posted a loss of R56m. (The financial data for Bell Equipment was obtained from their 2019 financial statements).
Want to respond to the requested duty increase? Your response needs to reach ITAC no later than 26 February 2021.
Want some help in that response? Drop us a note at firstname.lastname@example.org