RESTRICTED
WORLD TRADE G/TRIMS/N/1/ZAF/1
8May1995
ORGANIZATION(95-1172)
Original: English Committee onTrade-Related Investment Measures
NOTIFICATION UNDER ARTICLE 5.1OFTHE AGREEMENT
ONTRADE-RELATED INVESTMENT MEASURES
South Africa
Thefollowing communication, dated 19April 1995, hasbeenreceived from thePermanent
Mission ofSouth Africa.
_______________
Pursuant toArticle 5,paragraph 1,oftheAgreement onTrade-Related Investment Measures,
South Africa hereby notifies thefollowing measures intheagreed format (G/TRIMS/1).
Notification ofthese measures ismade without prejudice toitscompatibility withtheTRIMs
Agreement and/or GATT 1994, andwithout prejudice totherights andobligations ofSouth Africa
under GATT 1994 and/or theTRIMs Agreement.
I. Motor Vehicle Industry
(i) Description oftheMeasure anditsMain Features
Aminimum localcontent hastobeattained bymotor vehicle manufacturers toqualify forrebate
ofexcise duties.
1. Themeasure appears tofallunder category 1(a)oftheillustrative listofTRIMs inconsistent
withtheAgreement.
2. Themeasure isapplied andadministered bytheGovernment, andisspecific tothemotor
manufacturing andmotor components manufacturing industries.
3. Themeasure isgeneral innature, andisapplicable topassenger motor vehicles, buses (including
minibuses) andlightandheavy commercial vehicles.
4. Themeasure isapplied pursuant tomandatory legislation -theCustoms andExcise Actof
1964 -Rebate Item609.17 andisalsoapplied tonewenterprises andnewinvestments ofexisting
enterprises.
5. Compliance withthemeasure bythemotor industry is
(a) mandatory under domestic law,and
(b) necessary toobtain anadvantage.G/TRIMS/N/1/ZAF/1
Page2
Theadvantage isasfollows:
(i) Anexcise dutyof37.5percent ispayable onallvehicles manufactured butthisduty
isrebated totheextent of50percent ofthelocalcontent value. Thismeans thatthisdutycan
befullyrebated oncealocalcontent of75percent isachieved.
Toqualify fortherebate, minimum local content hastobeattained bymotor vehicle
manufacturers. Therequirement issetat55percent localcontent, ofwhich 5percentage points
maycomprise ofexports.
(ii) Inordertoovercometheproblemsassociatedwithlowvolumeproduction(whichwould
bethecaseifonlytheinternal South African market wascatered for)exports arealsoconsidered
localcontent interms ofthemeasure. Inorder tofurther encourage exports, motor component
manufacturers thatexport theirproducts maycedesuchexport credits tothemotor vehicle
manufacturers toraisetheirlocalcontent level.
6. Themeasure relates topassenger motor vehicles, buses (including minibuses) andlightand
heavy commercial vehicles.
7. Thedateofimplementation ofthemeasure is1March 1989.
8. Noprovision ismade foritsphasing down and/or elimination.
9. Acopy ofaninformation document bytheDepartment ofTrade andIndustry isattached
(Annexure I).
10. Themeasure isapplied bythecentral government andisadministered byCustoms andExcise.
II. Telecommunications Equipment
(i) Description oftheMeasure andofitsMain Features
Alocal content requirement based onvalue added totheproduct during themanufacturing
process isaprerequisite forobtaining typeapproval forthefollowing types ofcustomer premises
telecommunication equipment:
* Private Automatic Branch Exchange (PABX)
* KeyTelephone Systems (KTS)
* PlanTelephones Systems (PTS)
* Standard (basic) telephone instruments
1. Themeasure appears tofallunder category 1(a)oftheillustrative listofTRIMs inconsistent
withtheAgreement.
2. TheTRIM wasinstituted bythegovernment under discretionary authority.
3. TheTRIM applies toallequipment mentioned in(i)thatisintended forconnection tothepublic
switched telephone network (PSTN).G/TRIMS/N/1/ZAF/1
Page3
4. TheTRIM hasbeeninplace since 1959.
5. TheTRIM isenforceable under domestic law. Without compliance therelevant equipment
willnotbepermitted connection tothePSTN.
6. Theminimum localcontent fortheproducts isasfollows:
* Private Automatic Branch Exchanges: 50%
* KeyTelephone Systems: 50%
* PlanTelephones Systems 50%
* Standard (basic) telephone instruments: 50%
7. See4above.
8. Noprovision ismade foritsphasing down and/or elimination.
9. Acopyoftherelevant regulations isattached.
10. TheTRIM isapplied andimplemented bytheDepartment ofPosts andTelecommunications.
Copies ofthefollowing documentation arealsoattached forfurther clarification:
* Suppliers guide toapproval andlicensing ofswitching systems andequipment (see
section onlocalcontent requirements (Annexure II.I).1
* Technical specification forswitching systems intended forconnection tothePSTN
(Annexure II.2).1
* Official listoflicensed switching system suppliers (Annexure II.3).1
III. TeaandCoffee
(i) Description oftheMeasure anditsMain Features
Themeasure entails thatcoffee orteapackers/blenders/roasters havetopurchase predetermined
quantities oflocally produced coffee orteaatpredetermined prices before import permits canbeissued
fortheimportation ofthebalance ofdomestic demand.
1. Themeasure appears tofallunder category 1(a)oftheillustrative listofTRIMs inconsistent
withtheAgreement.
2. Themeasure isanadministrative arrangement (agreement) between theparties butlegislation
intheformoftheImport andExport Control Actisindirectly usedtofacilitate implementation ofthe
agreement. Allimporters (packers/blenders/roasters) ofteaandcoffee aresubject tothemeasure.
3. Themeasure applies specifically totheteaandcoffee industries.
1Copies ofthese documents areavailable forinspection byinterested delegations intheSecretariat (Intellectual Property
andInvestment Division, telephone 7395115).G/TRIMS/N/1/ZAF/1
Page4
4. See2and3above.
5. Seeexplanation under 2.Theadvantage isthatimporters areallowed import permits toimport
thebalance ofdomestic market requirements freeofcustoms duty.
6. Themeasure relates totheimportation ofallcategories ofteaandallcategories ofcoffee,
classifiable under tariff headings 09.01 (coffee) and09.02 (tea).
7. Themeasure hasbeeninexistence since 1981 (tea)and1988 (coffee).
8. Inthecaseofteatheagreement between theproducers andpackers/blenders provides for
consideration ofsubstitution ofthequota arrangement bytariff protection, onceparity between the
quota andworld market prices iswithin reach. Seealso2above.
9. Acopy oftheadministrative arrangement (agreement) between theparties isattached
(Annexure III).2
10. Themeasure isapplied bytheDepartment ofTrade andIndustry andthefollowing Associations
inthecases ofthevarious industries:
ForTea:
TheSouth African Tea, Coffee andChicory Association (SATCCA) representing the
blenders/packers.
TheTeaCouncil ofSouth Africa (TCSA) representing theproducers.
ForCoffee:
TheSouth African Tea,Coffee andChicory Associations (SATCCA) representing thelocal
growers.
Theprocedures entail thatuponapplication foranimport permit theDepartment ofTrade and
Industry obtains confirmation thattherequirement aspertheagreement totakeuppredetermined quotas
oflocally produced coffee orteahavebeencomplied withbefore animport permit isissued bythe
Department.
2Available forconsultation intheSecretariat (Intellectual Property andInvestment Division, telephone 7395136).G/TRIMS/N/1/ZAF/1
Page5
ANNEXURE I
INFORMATION DOCUMENT
NOTIFICATION OFTHE AGREEMENT
ONTRADE-RELATED INVESTMENT MEASURES:
PHASE VILOCAL CONTENT PROGRAMME FOR MOTOR VEHICLES
BACKGROUND
1. Thelocalcontent programme formotor vehicles thatpreceded thecurrent Phase VIprogramme
wasbased onasystem ofmeasuring localcontent bymass. Thisprogramme hadtwomajor deficiencies:
- itleadtoatendency toproduce lowcostlowtechnology highmass components which were
unremunerative toexport andwereproduced inuneconomic volumes solocking theindustry
intoalowvolume highcostproduction structure; and
- averyhighimport billassource companies overseas tended toloadtheprice ofcomponents
theysupplied tolocalproducers. Astheyweresupplying largely hightechnology components
which thelocalindustry didnotproduce thistootended toraiseprices astherewasnoincentive
toproduce lowmass highcostcomponents locally.
PHASE VIPROGRAMME
2. Itwas,therefore, decided tointroduce from1March 1989, anewprogramme which measures
localcontent byvalue withtheexpress aimofreducing theforeign exchange usage ofthemotor industry
from thethenapproximately 45percentto25percentorlessoveraperiod ofeight tonineyears.
Theprogramme isapplicable topassenger motor vehicles, buses (including mini-buses) andlightand
heavy commercial vehicles.
3. Theadvantages ofthisapproach arethat:
- theuseofforeign exchange istobedramatically reduced; and
- itencourages theproduction ofhightechnology (high value added products) forlocal
andexport consumption.
4. Inorder toovercome theproblems associated withlowvolume production (which would be
thecaseifonlytheinternal South African market werecatered for)exports arealsoconsidered local
content interms ofthePhase VIprogramme thusextending themarket forSouth African locally
produced automotive components andvehicles bymaking itpossible tousethewhole world asthe
"local" market.G/TRIMS/N/1/ZAF/1
Page6
5. Themechanics ofthePhase IVprogramme areasfollows:
DUTIES AND REBATES
(a) Afiscal excise dutyof2.5percentformotor vehicles islevied andthisincome isarevenue
source fortheStates;
(b) Anexcise dutyof37.5percentispayable onallvehicles manufactured butthisdutyisrebated
totheextent or50percentofthelocalcontent value. Thismeans thatthisdutycanbefully
rebated oncealocalcontent of75percentisachieved.
Aminimum localcontent hastobeattained bymotor vehicle manufacturers. Therequirement
issetat55percentlocalcontent, ofwhich 5percentage points maycomprise ofexports.
INCENTIVES FOR LOCAL COMPONENT MANUFACTURERS
6. ThePhase VIprogramme provides strong incentives totheindustry toincrease itslocalcontent
anditsexports soreducing theRSA'susage offoreign exchange formotor vehicles. Inorder tofurther
encourage exports, component manufacturers thatexport their products maycedesuchexport
credits tothemotor vehicle manufacturers toraisetheirlocalcontent level. Thissystem, therefore,
provides abuiltinexport incentive forlocalcomponent manufacturers aswell.
ADMINISTRATION
7. Theprogramme isadministratively somewhat complex necessitating certification offoreign
exchange usage allthewaydown theline,i.e.suppliers tothemotor industry mustprovide certificates
offoreign exchange content intheircomponents tothevehicle manufacturers, andcomponent suppliers
mustobtain suchcertificates fromtheirsuppliers andsoontoorigin ofthecomponents. Thereporting
system, while complex, isreadily verifiable andistherefore, administratively sound.
GENERAL EXPORT INCENTIVE SCHEME
8. Themotor industry isexcluded from theincentives available toother industries interms of
theGeneral Export Incentive Scheme (GEIS).
ADJUSTED GUIDELINES
9. TheDepartment hasissued (reference EE04/5/II) adjusted guidelines inrespect ofaccounting
records tobemaintained, returns tobesubmitted andinformation tobefurnished byparticipants in
thePhase VIprogramme.
IMPORTED PARTS AND ACCESSORIES
10. Imported spare partsandaccessories donotpresently formpartofthePhase VIprogramme.
IMPORT OFASSEMBLED MOTOR VEHICLES
11. Cars,includingstationwagons,importedinanassembledcondition,donotformpartofPhaseVI
andaresubject toacustoms dutyof70percent. Light andheavy goods vehicles, buses andminibuses,
which areimported inabuiltupcondition similarly donotform partofPhase VIandareliable to
acustoms dutyof100percent.