The South African Government has banned the use of imported cement in state-awarded contracts. Bidders for state projects will only have their offers considered if they agree to source all cement from local producers.

The relevant Government Circular has been issued in terms of Regulation 8(3) of the Preferential Procurement Regulations, 2017 and will take effect 04 November 2021.^[1] The enabling Regulations have been promulgated in terms of Section 5 of the Preferential Procurement Policy Framework Act, 2000 (Act No 5 of 2000), which came into effect on 01 April 2017. They allow the Department of Trade and Industry (now the Department of Trade, Industry and Competition, the dtic) to designate sectors in line with national development and industrial policies for local production.

It is noteworthy that this protective measure has been implemented as part of a localization scheme, not an Anti-dumping duty. The South African cement industry has lobbied for state protection against cheaper imported cement (coming mostly from Asian countries with excess capacity and lower production costs) for several years. It is delighted at this decision of Government.^[2] The local cement industry has also applied to the South African International Trade Administration Commission (ITAC) for a sunset review of the anti-dumping tariffs imposed on Pakistani cement in 2015 and another application for a general import tariff on all imported cement and clinker. These applications are “still in the process”.^[3] South African cement producers also claim the imported cement is sub-standard.

Not everyone is happy with this announcement. Local property developers have warned that limiting cement imports could have a huge inflationary effect on construction. Some have warned that localisation is not a panacea and may have “adverse economic consequences by creating monopolies, reducing competition, increasing the costs of doing business and weakening incentives for productivity and innovation”.^[4] There have been warnings that policies that create barriers to cross-border flows of goods and services could contravene South Africa’s international trade obligations and result in its commercial partners seeking recourse.^[5] Trade and Industry Minister Ebrahim Patel has promised that the economic effect of localisation measures will be monitored amid concerns that the competitiveness of local industry will be adversely affected and that costs will increase.^[6]

The Government sees localisation as an approach to boost output, revive the domestic manufacturing industry and create jobs. The preferential procurement policy framework enables it to designate sectors for localisation in line with national development and industrial policy goals. While localisation has been pursued since 2014, it has become more strategic since the advent of the pandemic. Business, the government, and labour groups have agreed on an initial list of 42 products and subsectors that should be prioritised. 

The localisation drive will run alongside six so-called Master Plans aimed at supporting the domestic poultry, sugar, automobile, furniture, steel and metal fabrication, and clothing, textile, footwear, and leather sectors. Together, the industries account for about 6% of GDP and 700,000 jobs, according to the Ministry.

Are localization/procurement schemes compatible with international legal obligations? Questions about the lawfulness of such measures arise in the context of the National Treatment principle in Article III of the General Agreement on Tariffs and Trade (GATT), with respect to the TRIMS (Trade-related Investment Measures) Agreement, the Agreement on Subsidies and Countervailing Measures (SCM) as well as the General Agreement on Trade in Services (GATS). It has been said that very few of these measures can be described as WTO compatible.^[7]

What about the requirements in the African Continental Free Trade Area (AfCFTA) Agreement? A first conclusion would seem to be along the same lines. Article 5 of the AfCFTA Protocol on Trade in Goods deals with “National Treatment” and provides: A State Party shall accord to products imported from other State Parties treatment no less favourable than that accorded to like domestic products of national origin, after the imported products have been cleared by customs. This treatment covers all measures affecting the sale and conditions for sale of such products in accordance with Article III of GATT 1994.

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^[1] PPPFA Designated Sector Circular NO. 01 of 2021/2022, Preferential Procurement Policy Framework Act (Act 5 OF 2000).

^[2] Treasury bans use of imported cement on all government-funded projects - Moneyweb

^[3] Ibid.

^[4] Business Day 14 Oct 2021.

^[5] Ibid.

^[6] BL Premium, 12 Oct 2021.

^[7] Holger P. Hestermeyer & Laura Nielsen, The Legality of Local Content Measures under WTO Law, Journal of World Trade, Vol 48, 2014, 553-592.