On 28 February 2020, the South Africa Minister of Economic Development Ebrahim Patel announced he would again consider extending the Policy Directive on the Exportation of Ferrous and Non-Ferrous Waste and Scrap Metal to afford the National Treasury and Department of Trade and Industry more time to implement an export tax on scrap metals. This follows a notice published in the Government Gazette in October 2019 noting that the International Trade Administration Commission of South Africa (ITAC) had proposed the implementation of an export duty on ferrous and non-ferrous waste and scrap metals to replace the current Price Preference System (PPS). This system was introduced primarily as a means of improving the availability of domestic scrap and to facilitate a 20-30% export price discount for South African consumers.
The PPS was introduced via a Trade Policy Directive to the International Trade Administration Commission of South Africa (ITAC) in 2013 to deal with the exportation of ferrous and non-ferrous waste and scrap metal. It was renewed in 2018 and again in 2019 for a period up until 31 March 2020 so that the National Treasury, the Department of Trade and Industry and the Economic Development Department had time to assess the introduction of an export tax and its implications for the Directive.
In terms of section 18 of the International Trade Administration Act (2002), the Minister of Trade and Industry last year directed ITAC to investigate and advise whether it would be feasible to replace the PPS, which regulates the exportation of scrap metal, with an export duty. In terms of the PPS, ITAC cannot authorise scrap metal exports unless they are first offered to the domestic market at a discount or for a specific period.
There are conflicting views on the PPS and its overall impact on the different industries in the metals value chain. On the one hand these measures are seen to be restrictive as they are harmful to the vulnerable scrap metal recycling industry, on the other hand it is said that the lack of affordable scrap metal remains a problem in South Africa, despite the PPS, and that more support is needed for the scrap metal processing industry.
The 2019 Budget Speech announced that the PPS would be replaced by an export tax on scrap metal exports.
An export tax on scrap metals would mean certain metals would be subject to a specific duty based on the average value of exports for each category of scrap metals over a certain period of time. South Africa is a World Trade Organisation (WTO) member, and as such, it can legally make use of export taxes on raw materials to promote local businesses and increase international competitiveness. There is a view that the government could be using export taxes as a way to grow local beneficiation and aid downstream industries. A further view is that export taxes could be used as a way to raise tax revenue streams. It is no co-incidence that proposed amendments to the customs legislation in South Africa include a new framework for the levying of export taxes. Using export taxes as a development policy tool will most likely gain momentum in developing countries going forward.
From a legal standpoint, resource-rich countries intending to use export restrictions as a policy tool will have to ensure that their WTO commitments allow them to do so.
The export tax would apply to all countries except those with trade agreement exemptions. For example, under the current SADC-EU Economic Partnership Agreement (EPA), scrap metal exports to European Union (EU) member countries would be exempt from duties because, according to the agreement, an export duty on goods destined for the EU can only be applied for a limited period of years, with a pre-determined level of exports being exempted from export duty, including scrap metals.