20% tariff hike for struggling R33 billion industry in South Africa shot down
The International Trade Administration Commission (ITAC) has opted not to implement a 20% tariff on imported paper products, following an investigation into the industry.
The investigation was initially prompted by Mondi, a paper manufacturer with a large footprint in South Africa.
The company alleged that South Africa’s paper industry was under threat from cheaper international imports, which could harm domestic operations.
Calls for an investigation were echoed by Sappi, another manufacturer in the country’s paper industry, after it reported a R2.77 billion loss in its last financial year.
“Profitability continued to be impacted by intense competition from low-priced imports, which placed significant pressure on selling prices,” it said.
Sappi CEO, Steve Binnie, also noted that imported paper products posed a problem in the South African market.
“South Africa remains a strong business with competitive assets and healthy demand in several of our markets,” he said.
“However, increasing levels of imported products continue to create challenges for local manufacturers and deserve greater policy attention.”
Calls for an investigation from these major industry players prompted the Minister of Trade, Industry, and Competition, Parks Tau, to request an investigation from the ITAC.
“The South African pulp and paper industry is under tremendous strain, particularly in the uncoated paper, newsprint, packaging, and tissue segments,” the request said.
“The sector has raised concerns about the growing challenges of rising import penetration, declining demand for print paper, and the slowdown in the domestic economy.”
The request also noted that high electricity and transportation costs were further increasing the industry’s manufacturing costs.
“Increasing input costs, particularly electricity and transportation expenses, are placing significant pressure on local manufacturers and squeezing local producers’ profit margins,” it said.
Paper manufacturing is a major industry in South Africa, with the Department of Trade, Industry, and Competition previously estimating that R33 billion has been invested in it in the past seven years.
No tariff increases
In a recent gazette, ITAC recommended that no tariff increases be implemented on imported paper products.
“In light of the information before it at the time, including stakeholder comments, market analysis and WTO bound rate considerations, the Commission recommended that no increase be made to the customs duty applicable to the subject products,” it said.
“The Commission further considered that trade-remedy instruments, such as anti-dumping and/or safeguard duties, may constitute more appropriate measures should evidence of injurious import competition emerge in future.”
The commission said that, despite South Africa’s industry being under pressure, it could not find sufficient evidence that this was due to imported products.
It also noted that the majority of imported paper products originated from the European Union, which has preferential trade agreements with South Africa.
Ultimately, the commission decided that increasing tariffs would not benefit the country’s paper industry and could negatively affect consumers.
“An increase in the General rate of customs duty would then not effectively address the source of import competition and could have potentially resulted in higher costs for downstream industries and consumers,” ITAC said.
While the commission acknowledged that the paper industry was under pressure, it said that this was likely due to changing market trends and increased digitisation.
“The Commission found that the domestic industry was operating in a market characterised by long-term structural decline associated with digitisation, changing consumer behaviour, weak economic growth and subdued demand for paper products,” ITAC said.
While Tau approved ITAC’s recommendation not to increase tariffs, he simultaneously requested the commission to investigate the domestic market.
He requested that ITAC investigate the country’s paper industry and recommend “appropriate trade policy instruments that can drive the industry towards sustainability and resilience.”
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