July 22, 2017

South Africa’s safeguard duty on steel imports for the benefit of a few

 

By Gerhard Papenfus

In a surprise move Government notified the World Trade Organization that it intends to introduce a 12 percent safeguard duty on top of the existing 10 percent customs duty – totalling a 22 percent tax on imported hot rolled steel.

This decision by Government is in direct conflict with the findings of the International Trade Administration Commission (ITAC), a statutory body specifically tasked to investigate and advise Government on the impact of import duties on industries. ITAC recently published an essential facts letter in which they found that the introduction of a safeguard duty is not in the public interest.

The question is: why would Government decide to protect ArcelorMittal South Africa (AMSA), a primarily foreign owned entity, to the detriment of ten thousand South African downstream steel manufacturers and hundreds of thousands of employees currently employed in the steel downstream? Two questions hang in the air:-

  • what was discussed during the meeting between the owner of AMSA and the president, a meeting which caused a total turnaround in attitude by Government towards a monopolistic AMSA?; and
  • what is the effect of AMSA’s recent Black Empowerment deal on current developments? How do the envisaged safeguard duties fit into the scheme of making AMSA profitable, even with the burden of its new equity partners? – and does the downstream have to pay for it?

During prosperous times when steel prices were high, coupled with a lucrative import parity pricing arrangement, instead of investing in a modern mill capable of producing high-quality steel at much cheaper prices, the owners of AMSA took billions out of the country.

The effect of this is that AMSA’s antiquated plant produces hot rolled-base steel at $550/ton while the world is trading at $460/ton. When the price of steel hit rock-bottom at $250/ton two years ago, many mills were in trouble globally. Currently however, at $460/ton, modern mills have returned to profitability. Old technology mills also utilise 60 percent more electricity compared to modern mills.

The above are only some of the factors which make it impossible for AMSA to be profitable in a modern global steel environment. However, instead of fixing this and making themselves more profitable, they are afforded Government protection. This arrangement ensures that AMSA does not need to adapt to what is globally dictated and what the steel downstream needs; this arrangement will dictate to the downstream how to adapt to a monopolistic AMSA’s needs.

Let us acknowledge the argument of those who say that, unless AMSA get protection, they will have to close their steel mills. Our view is that this is a decision AMSA will have to make. They have to adapt to the needs of the downstream, not the other way round. They’ve made the profits, now is the time to invest; not doing patchwork to keep the old plants alive, but building a new competitive plant. If that is not what they want to do, we suggest to them that they cut their losses and close whatever is not profitable.

But, says the AMSA loyalists, if AMSA goes China will dictate their terms to our downstream. Why is that so? There are many competing steel mills in China, and who dictates that the downstream must buy from China? There is the example of Vietnam whose steel industry grew multiple times since 2000. In the Vietnam scenario there was no dominant supplier but duty free access to cheap raw material from the rest of the world. Why can’t we follow that example? Is the fact that such an arrangement will hurt AMSA not the only excuse?

Let us again make this very clear; the steel downstream does not only demand that the latest move to have safeguard duties introduced be withdrawn, we remain absolutely firm in our demand that the 10 percent customs duties also be scrapped – it does not help AMSA and it only serves as a slow poison to the already struggling downstream.

The Steel downstream cannot, and will not, accept a ‘steel capture’ situation where all South Africans pay more for steel products to benefit AMSA and a few individuals.

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

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