On the 16th of March 2018, ITAC initiated an investigation into the reduction in Customs duty on ethylene-alpha-olefin copolymers, having a specific gravity of less than 0.94 [commonly known as linear low-density Polyethylene (LLDPE)], classifiable in tariff subheading 3901.40.
The current import duty on the product is 10% ad valorem. The applicant, West African Group requested that the duty be eliminated completely despite the existence of a local manufacturer of the subject product.
Will this application succeed?
The request to eliminate the duty while there is a local manufacturer in existence raises the question on the prospects of a successful outcome in this case. According to the applicant, the local manufacturer has capacity to supply 47% of the market, which is not insignificant.
This is an interesting situation because ITAC will typically not grant a duty reduction or removal were there is a local manufacturer especially given the current drive to protect local manufacturers. Looking at ITAC’s investigations over the last decade, this has been a common feature.
In fact in the last decade, more than 90% of applicants requested a duty removal because there was simply no local manufacturers of the specific products. In such a cases the success rate is 100%. Most applications for a removal with significant local manufacturing run into challenges.
Perhaps in this particular case there maybe exceptional circumstances justifying the duty to be removed or alternatively reduced. Still it is difficult to fathom the possibility of the current duty being removed completely in this case.
Removal of import duties with retrospective effect
The applicant also requested that the duty be removed with retrospective effect to 6 December 2017. Should this application succeed, the applicant wants it to be backdated to 6 December 2017. This means any duty paid on products imported from this date up to when the new duty change (the removal of the duty in this case) is gazetted, will be eligible for a refund of Customs duties by SARS.
Although the initiation gazette does not indicate why such a request was made, it is unusual in this type of application. However, such a request has been made in a few applications, particularly rebate applications and the majority if not all of them failed. ITAC rarely makes normal Customs duty changes with retrospective effect.
The recent Court case, Pioneer Foods vs Minister of Finance and Others, appears to show that there is a good reason why ITAC typically doesn’t grant this request. In this case the High Court Judge was of the view that although anti-dumping, countervailing, or safeguard duties may be changed with retrospective or prospective effect, it appears no such powers exist (in terms of the Customs and Excise Act) in regard to the imposition of normal Customs duties listed in Part 1 of Schedule 1 of the Customs and Excise Act. Part 1 of Schedule 1 lists all SACU Customs duties in force.
In this case, the duty removal has been requested with retrospective effect. It appears the Minister of Finance is not empowered to accept this request (for normal Customs duty changes) in terms of the Customs and Excise Act. Its important to note that ITAC makes its recommendations to the Minister of Trade and Industry, who then makes his recommendation to the Minister of Finance. The Minister of Finance applies his mind to the recommendations and appears to wield significant influence in whether or not to accept recommendations by ITAC and the Minister of Trade and Industry.
The High Court Judge in the above case indicated that a legislative amendment is required to empower the Minister of Finance to amend normal Customs duties with retrospective or prospective effect. No such amendment has been made.
A rebate is potentially a good alternative
When removing a duty on a specific tariff code or product, there can be unintended consequences. For example once the duty is removed the local manufacturer may come under significant pressure from imports, leading to closure. One way to handle this is to give an exemption of duty under certain circumstances, which is known as a rebate. Under a rebate the local manufacturer’s protection is kept in place while at the same time, certain import volumes imported under rebate are exempted from the duty.
The operation of such a rebate is guided by specific guidelines created by ITAC with the input of interested parties. A key issue to look out for in creating such a rebate is to ensure that no unnecessary administrative burden is placed on importers intending to import under the rebate.
If put in place, a rebate is typically administered by ITAC. In other words before importing, the importer applies for a rebate permit with ITAC, which is processed within a few days. Once issued, the rebate permit may stipulate the maximum quantities that each importer may bring in under the rebate facility.
There are many rebate facilities which exist across different products in many industries that have local manufacturers who are not able to satisfy the demands of the local market either on volumes, quality or product specifications among others.
Deadline for submitting comments
Interested parties have to submit comments on the investigation within 2 weeks. This means comments are due on 30 March 2017. This is a deviation from the norm in which ITAC has provided interested parties 4 weeks to comment in this type of investigation.
However, interested parties may apply for an extension to provide comments should there be good cause shown. The extension is granted for a maximum period of 2 weeks. nevertheless, ITAC is no obliged to provide 2 weeks, so a shorter extension may be provided.