Safeguard Duty On Hot Rolled Steel Imports Will Hurt Local Manufacturing

The introduction of the provisional safeguard duty of 9% will only serve to increase input costs and threaten the sustainability of downstream manufacturers of steel goods, regardless of whether the raw material is imported or sourced locally, says Pieter du Plessis, chief operating officer of XA Global Trade Advisors.

While imports will attract the duty, the 9% provisional duty will allow ArcelorMittal South Africa (AMSA) to increase the prices of the domestically-produced product.

Du Plessis says safeguard measures are blunt instruments that should only be applied under very specific conditions, typically when a surge of imported product causes serious financial injury that threatens the domestic steel producers in the Southern African Customs Union (SACU). The investigation is still ongoing.

This 9% provisional safeguard duty is levied over and above the existing 10% general customs duty on hot rolled steel. The provisional safeguard duty on hot rolled steel products comes in the wake of an investigation by the International Trade Administration Commission of South Africa (ITAC), following an application brought by the South African Iron and Steel Institute, representing AMSA, the major producer of these products in SACU.

The provisional tariff of 9% will remain until ITACs investigation is finalised, or for a maximum of 200 days. A final decision would depend on the outcome of the investigation.

Du Plessis says that there needs to be a causal link between increased imports and the injury allegedly suffered by AMSA, yet in its routine financial reporting the company repeatedly noted electricity, logistical concerns, labour problems and unexpected breakdowns as the causes for its financial and operational challenges, not imports.

He explains that the local downstream manufacturers use a mixture of locally-manufactured and imported steel. XA represents a number of agricultural equipment manufacturers, who use a number of different grades of steel products. While AMSA produces product of sufficient quality, there have been instances where they could not always provide a reliable supply, due to unexpected plant breakdowns and production inefficiencies.

Companies are in some instances contractually bound to have more than one supplier of steel product to ensure security of supply, hence the need to import steel, despite already procuring from AMSA. As a result, manufacturers often have to carry more inventory to safeguard themselves against AMSAs sometimes unreliable delivery.

This results in more capital being tied up in stock than would otherwise be necessary, upping their costs and making them less competitive and vulnerable to imports of finished products, which can be landed for cheaper than the combined materials and labour costs of the local manufacturers.

The ongoing safeguard investigation will also consider a public interest aspect which ITAC will address through a public interest hearing, where interested and affected parties will have the opportunity to raise their concerns. ITAC will announce the date of the public interest hearing and invite interested parties to indicate their interest in participating.

A final decision may alter the level of safeguard duty imposed or may remove the temporary duty introduced altogether. If confirmed, the duty would typically be in place for a period of three years.