Consequences of duty applications – unintended, or is it?

STEEL INDUSTRY

CONSEQUENCES OF DUTY APPLICATIONS
UNINTENDED, OR IS IT?

By Gerhard Papenfus

Towards the end of 2022, ArcelorMittal South Africa (AMSA) applied to Government for an additional duty of 41%, on top of the existing 10% duty, on certain steel products, currently not manufactured by AMSA.

The product involved is galvanised coil with a thickness of less than 0.45mm, that includes many specifications which AMSA is not able to manufacture. This coil serves as raw material for the steel manufacturing industry to manufacture a host of products used by South Africans. 

On receipt of such an application, the International Trade Administration Commission (ITAC) has to make a recommendation to Minister Patel whether to implement the duty or not. 

Logic dictates that the mere fact that AMSA does not manufacture some of these products, should make it extremely unlikely that ITAC will recommend the introduction of such a duty by the Minister. That, however, may not be the case. Government is not known for making rational decisions. A recent example, in respect of the Steel Industry, was the extension of duties on hot rolled coil, in contravention of World Trade Organisation (WTO) rules. This decision by the Minister of Trade, Industry and Competition was ultimately challenged by Macsteel, a prominent role player in the Industry. Government eventually capitulated and settled the matter out of court..

Although it is inconceivable that Government will introduce an import duty on a steel product that AMSA does not manufacture, the delay by ITAC to deal with this matter speedily and decisively, and to make its intentions clear in respect of their recommendation to the Minister, already has severe negative consequences on manufacturers.

Steel manufacturers simply do not trust ITAC to make a just recommendation, namely not to tax products that AMSA cannot supply. Within this context it has become too risky for the relevant manufacturers to import the relevant product because, once the order is placed from an overseas supplier and the duty is suddenly introduced, that consignment is subject to the payment of the 51% import duty. Due to international payment systems, no order can be cancelled or payment reversed.

As a result of the above, and since the relevant raw material is not available, certain products cannot be manufactured and production lines associated with that raw material have to be mothballed. The impact on labour is severe: short-time arrangements and retrenchments have already been implemented in anticipation of Government’s decision.

What is clear is AMSA’s monopolistic nature and the devastating impact it has on the steel downstream. By merely applying for a duty, AMSA is able to stop the importation of alternative products that compete with them. Their self-serving and opportunistic conduct, in applying for duties on products that they do not manufacture, results in them being able to force industry to pay an exorbitant price for a different product which is not really an alternative but a critical necessity for certain consumers.

Not only should ITAC recommend to the Minister not to introduce these duties, Government should not be complicit in boosting AMSA’s monopolistic conduct, and they should communicate that to the industry as a matter of urgency. 

This particular sector is preparing for legal action should this duty be implemented. 

Gerhard Papenfus is the Chief Executive of the National Employers’ Association of South Africa (NEASA).

For more information:
NEASA Media Department
media@neasa.co.za