Rheem SA and SA Steelpack have requested a duty increase on steel cans, holding less than 50 litres, which are closed by soldering or crimping (7310.21) or closed in some other way (7310.29). They have requested the tariff codes be split into more detail to better identify the respective size of the cans and also to separate out aerosol cans. The gazette does not tell us how much duty they requested, which is clearly not ideal, but the bound rate is 15%, so presumably this is how much they are asking for. The bound rate is maximum level the duties can be increased to.
The reasons given for the duty increase request are:
- Local manufacturers of tinplate cans have lost market share due to low priced imports fro China (true, but also complicated, which we deal with below).
- The imports don’t attract a duty (again also true, but still not the full story).
- The increased imports mean the plant utilisation as dropped, as happens every time market share is reduced.
- The cheap imports have resulted in downsizing of local production and have led to job losses, which is no doubt correct.
Tariff support will allow the domestic industry to compete favourably, increase market share and create jobs, or so the gazette says.
The duties on the tinplate raw remain in place
I have no doubt that the local producers would like to have their import competition from China become 15% more expensive, but we also need to consider the 10% duty on tinplate which remains in place, despite there being no local production of tinplate since November 2019. However, the R235m of tinplate cans, imported from China from August 2019 to July 2020 pales, into insignificance next to the R665m of tinplate raw material, imported from November 2019 to July 2020. Of this, R558m is imported from non-EU sources, thus attracting R58m in duties for the 9 months since ArcelorMittal shut down their tinplate production. If this number is annualised, we get to R886m of imports and R89m in duties and there is no reason to think these duties will not still be in place when the 1 year anniversary of the shuttering of the tinplate plant comes around. This is R89m in costs which have to be borne by someone. Given the disastrous state of our economy, I would assume prices can’t simply be increased, hence the pressure being placed on the intermediate businesses.
Rather than simply removing the duties, the current view seems to be to instead create a temporary rebate, where the duties will not be payable while there is local production, but where they be put back in place, effortlessly, should someone decide to invest in tinplate production. It is not clear at all why this mechanism should be preferred over the far simpler duty removal, as the temporary rebate introduces significant uncertainty to the downstream sector. If we consider the speed with which scrap metal exports were recently banned, this should be a very real concern to anyone consuming tinplate.
Uncertainty is not the friend of investment, so it must be understood that if the downstream industry can face duties on their raw material at the stroke of a pen, without the benefit of a proper investigation before such a decision, then the downstream industry will be understandably reticent to make an investment into a plant consuming tinplate as a raw material.
And no, a proper investigation is not required to withhold the import permit needed to access the rebate of duty. ITAC can simply refuse to issue it, making the duty effective immediately.
Does the industry require duty protection against imports of cans from China?
I honestly don’t know. Maybe. Probably. However, while the duties remain in place on a raw material which you have no choice but to import, it does seem as if we might be trying to fix the wrong problem.
Interested parties have until 23 October to respond.
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