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Proposed tightening of the export regulations of waste and scrap products

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Proposed tightening of the export regulations of waste and scrap products

Willemien Viljoen, tralac Researcher, comments on the debate surrounding the regulation of waste and scrap products exports in South Africa

A long-standing debate has surrounded the regulation of exports of waste and scrap products. This debate has once again intensified with the publication of suggested amendments to the export control regulations towards the end of 2015.

In accordance with the export control regulations published on 10 February 2012 scrap metal products subject to a price preference system (PPS) include 36 tariff lines (at the HS6 level) including copper waste and scrap (HS 740400), tin waste and scrap (HS 800200) and manganese waste and scrap (HS 811100). These export regulations were amended in September 2014 with the publication of the Amended Export Control Guidelines on the Exportation of Ferrous and Non-Ferrous Waste and Scrap. According to the amended regulations the exportation of scrap materials is not allowed unless it is first offered for sale for domestic beneficiation for a specific time period and price preference calculated in accordance with the 2014 guidelines. On 11 December 2015 the International Trade Administration Commission (ITAC) published proposed changes to the existing PPS. These amendments aim to align the PPS with the Second-Hand Goods Act and black economic-empowerment policy while tightening the permit application and administration process by stipulating the times at which PPS-related transactions can be concluded and designating the Port Elizabeth harbour as the only Port through which exports can be channelled.

These suggested amendments are a cause of concern for scrap-metal dealers and the Road Freight Association (RFA), but have been welcomed by the scrap consuming industries. Domestic scrap metal users are supportive of the further tightening of export regulations as a means to close current loopholes within the PPS system. It is believed that the proposed changes will benefit the steel and engineering sector by securing current jobs and levelling the playing field currently made uneven by the large scale export of quality scrap. Scrap materials are seen as a valuable economic resource used in a range of value-added manufactured good (like mining explosives, chemical for treating water and metal casting). However, the high price of scrap metal has made the cost of production of beneficiated products uncompetitive. The local consuming industry hopes the amendments will improve compliance and enforcement and support the objectives of the PPS to provide the necessary input material to ensure internationally competitive beneficiation of scrap materials and stimulate the manufacturing sector.

It seems that the most contentious point (for the RFA and scrap dealers) of the suggested amendments are in paragraph 8.16 which states ‘All waste or scrap metal must be exported via the port of Port Elizabeth, being designated by ITAC as the sole port of export, which will be reflected on each ITAC export permit as a condition.’ According to the trade data South Africa exported waste and scrap metal products to the value of US$ 573 million in 2015 (0.7% of total exports for the year), most of which are routed through the Durban Port, to countries including India (35%), Pakistan (15%), Korea (10%) and China (5%). Road operators currently transport containerized imports from the Durban Port to the interior and cover the return trip to Durban by transporting scrap metal products from the interior to the Durban Port. If the now paying return journey becomes ‘dead’ operators will have to find other means to cover their costs or will have to close down due to the non-profitability of the journey and the inability to operate. Furthermore the rerouting of exports will result in the Durban Port losing income from berthing and thus increasing the cost for other products to move through the Port. Due to the extra distance to be travelled to the Port Elizabeth Port it is estimated that transport costs for scrap metal products will increase by approximately R700 per ton. The current average purchase price of steel scrap is approximately R1200 per ton. The increase in transport costs will wipe out approximately 60 percent of the value of the product leading to lower prices offered; negatively affecting the income of scrap dealers, especially for informal traders. With the limited availability of paying return loads from Port Elizabeth for hauliers there are limited options available to recoup these increasing costs. Although the increase in the cost of road transport could logically translate into the rerouting of scrap metal cargo via rail to the Port Elizabeth Port the RFA states that it is well-known that the Port Elizabeth rail link is highly unreliable and there is no efficient time table on the Port Elizabeth-Gauteng rail link. This can result in missed stack dates and sailings and damages for breaching lay times (demurrage) at depots.

It is uncertain whether the suggested amendments will lead to the objectives of the PPS being met. In balancing the impact of the suggested changes on the numerous role-layers it seems the protection of the metal fabrication sector in crises has outweighed the broader economic consequences of the regulations. These punitive and perverse suggested amendments can result in the complete halt of international trade and a loss of export earnings, impact gross domestic product negatively and lead to unemployment in both the formal and informal sector. Is there no alternative pathway? Can the scrap metal industry not be regulated in a manner which will support downstream industries and put mutually agreed (by the government, manufacturing industry and scrap merchants) industry norms and standards in place which will benefit the economy as a whole?

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Sources:

Trade Map (www.trademap.org);

Engineering News (www.engineeringnews.co.za);

Business Day (www.bdlive.co.za);

Freight & Trading Weekly and Government Gazette (No. R. 714 of 12 September 2014 and No. R. 1211 of 11 December 2015)

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