The 2017 National Trade Estimate Report on Foreign Trade Barriers (NTE) is the 32nd in an annual series that highlights significant foreign barriers to U.S. exports. This document is a companion piece to the President’s Trade Policy Agenda published by USTR in March.

Trade barriers elude fixed definitions, but may be broadly defined as government laws, regulations, policies, or practices that either protect domestic goods and services from foreign competition, artificially stimulate exports of particular domestic goods and services, or fail to provide adequate and effective protection of intellectual property rights.

This report classifies foreign trade barriers into ten different categories. These categories cover government-imposed measures and policies that restrict, prevent, or impede the international exchange of goods and services. The categories covered include:

• Import policies (e.g., tariffs and other import charges, quantitative restrictions, import licensing, customs barriers, and other market access barriers);

• Sanitary and phytosanitary measures and technical barriers to trade;

• Government procurement (e.g., “buy national” policies and closed bidding);

• Export subsidies (e.g., export financing on preferential terms and agricultural export subsidies that displace U.S. exports in third country markets);

• Lack of intellectual property protection (e.g., inadequate patent, copyright, and trademark regimes and enforcement of intellectual property rights);

• Services barriers (e.g., limits on the range of financial services offered by foreign financial institutions, restrictions on the use of foreign data processing, and barriers to the provision of services by foreign professionals);

• Investment barriers (e.g., limitations on foreign equity participation and on access to foreign government-funded research and development programs, local content requirements, technology transfer requirements and export performance requirements, and restrictions on repatriation of earnings, capital, fees and royalties);

• Government-tolerated anti-competitive conduct of state-owned or private firms that restricts the sale or purchase of U.S. goods or services in the foreign country’s markets;

• Digital trade barriers (e.g., restrictions and other discriminatory practices affecting cross-border data flows, digital products, Internet-enabled services, and other restrictive technology requirements); and

• Other barriers (barriers that encompass more than one category, e.g., bribery and corruption,i or that affect a single sector).

To highlight the growing and evolving trade using or enabled by electronic networks and information and communications technology, and reflecting input from numerous stakeholders, relevant country chapters include a dedicated section on barriers to digital trade. This section addresses all issues that are integral to the digital economy including those barriers formerly categorized under “electronic commerce.” The section will highlight ongoing and emerging barriers such as restrictions and other discriminatory practices affecting cross-border data flows, digital products, Internet-enabled services, and other restrictive technology requirements. This adjustment will ensure that the information presented in the NTE reflects market developments for U.S. exports.

The NTE continues to highlight the increasingly critical nature of standards-related measures (including testing, labeling and certification requirements) and sanitary and phytosanitary (SPS) measures to U.S. trade policy, to identify and call attention to problems and efforts to resolve them during the past year and to signal new or existing areas in which more progress needs to be made. Standards-related and SPS measures serve an important function in facilitating international trade, including by enabling small and medium sized enterprises (SMEs) to obtain greater access to foreign markets. Standards-related and SPS measures also enable governments to pursue legitimate objectives such as protecting human, plant, and animal health, the environment, and preventing deceptive practices. But standards-related and SPS measures that are nontransparent and discriminatory can act as significant barriers to U.S. trade. Such measures can pose a particular problem for SMEs, which often do not have the resources to address these problems on their own.

USTR will continue to identify, review, analyze, and address foreign government standards-related and SPS measures that affect U.S. trade. USTR coordinates rigorous interagency processes and mechanisms, through the Trade Policy Staff Committee and, more specifically, through specialized TBT and SPS subcommittees. These TPSC subcommittees, which include representatives from agencies with an interest in foreign standards-related and SPS measures, maintain an ongoing process of informal consultation and coordination on standards-related and SPS issues as they arise.

In recent years, the United States has observed a growing trend among our trading partners to impose localization barriers to trade – measures designed to protect, favor, or stimulate domestic industries, service providers, or intellectual property at the expense of imported goods, services or foreign-owned or developed intellectual property. These measures may operate as disguised barriers to trade and unreasonably differentiate between domestic and foreign products, services, intellectual property, or suppliers. They can distort trade, discourage foreign direct investment and lead other trading partners to impose similarly detrimental measures. For these reasons, it has been longstanding U.S. trade policy to advocate strongly against localization barriers and encourage trading partners to pursue policy approaches that help their economic growth and competitiveness without discriminating against imported goods and services. USTR is chairing an interagency effort to address localization barriers. This year’s NTE continues the practice of identifying localization barriers to trade in the relevant barrier category in the report’s individual sections to assist these efforts and to inform the public on the scope and diversity of these practices.

USTR continues to vigorously scrutinize foreign labor practices and to address substandard practices that impinge on labor obligations in U.S. free trade agreements (FTAs) and deny foreign workers their internationally recognized labor rights. USTR has also introduced new mechanisms to enhance its monitoring of the steps that U.S. FTA partners have taken to implement and comply with their obligations under the environment chapters of those agreements. To further these initiatives, USTR has implemented interagency processes for systematic information gathering and review of labor rights practices and environmental enforcement measures in FTA countries, and USTR staff regularly works with FTA countries to monitor practices and directly engages governments and other actors. The Administration has reported on these activities in the 2016 Trade Policy Agenda and 2015 Annual Report of the President on the Trade Agreements Program.

The NTE covers significant barriers, whether they are consistent or inconsistent with international trading rules. Many barriers to U.S. exports are consistent with existing international trade agreements. Tariffs, for example, are an accepted method of protection under the General Agreement on Tariffs and Trade 1994 (GATT 1994). Even a very high tariff does not violate international rules unless a country has made a commitment not to exceed a specified rate, i.e., a tariff binding. On the other hand, where measures are not consistent with U.S. rights international trade agreements, they are actionable under U.S. trade law, including through the World Trade Organization (WTO).

This report discusses the largest export markets for the United States, including 58 countries, the European Union, Taiwan, Hong Kong, and one regional body. As always, the omission of particular countries and barriers does not imply that they are not of concern to the United States.

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South Africa

Trade summary

The U.S. goods trade deficit with South Africa was $2.1 billion in 2016, a 11.7 percent increase ($218 million) over 2015. U.S. goods exports to South Africa were $4.7 billion, down 14.2 percent ($773 million) from the previous year. Corresponding U.S. imports from South Africa were $6.8 billion, down 7.6 percent. South Africa was the United States' 42nd largest goods export market in 2016.

U.S. exports of services to South Africa were an estimated $3.2 billion in 2015 (latest data available) and U.S. imports were $1.6 billion. Sales of services in South Africa by majority U.S.-owned affiliates were $7.5 billion in 2014 (latest data available), while sales of services in the United States by majority South Africa-owned firms were $270 million.

U.S. foreign direct investment in South Africa (stock) was $5.6 billion in 2015 (latest data available), a 8.8 percent decrease from 2014. U.S. direct investment in South Africa is led by manufacturing, wholesale trade, and professional, scientific, and technical services.

Technical Barriers to Trade

In 2012, the Department of Health implemented a labeling regulation for foodstuffs (Regulations Relating to the Labeling and Advertising of Foodstuffs (R146)) that restricts the use of testimonials, endorsements, or statements claiming food as “healthy” or “nutritious” as well as the use of the term “diet”. In 2014, the Department of Health published draft regulations that would further prohibit the use of these terms unless the food contains no added sodium, sugar, or saturated fat, or only contains “low” levels of them. In addition, the draft regulations would prohibit the use of these terms for foods that contain any addition of fructose, non-nutritive sweeteners, fluoride, aluminum or caffeine, in any quantity. The Department of Health has indicated in the draft regulations that, in the case where health claims or nutrient content claims form part of a brand name or trademark, the use of that brand name or trademark on the packaging of the foodstuff would be required to be phased out. U.S. stakeholders are concerned that these new regulations could require some brand owners to make changes to existing trademarks, and branding and labels in order to continue to sell their products in South Africa.

In September 2014, the Department of Health issued proposed amendments to its regulations relating to health measures on alcoholic beverages (Amendment to Regulations Relating to Health Messages on Container Labels of Alcoholic Beverages (R697)). The proposal would require that the health warnings printed on the labels of alcoholic beverages be increased in size to 1/8 of the total container size, as opposed to 1/8 of the label. Some stakeholders have expressed concerns about the proposal, including the lack of a definition of the word “container”, which could be interpreted to include not just the consumer-facing packaging, but also any other packaging materials used to contain or transport the beverages. In addition, stakeholders are seeking clarity about enforcement of the proposed rotation requirement, which would require that the seven health warnings be exhibited on the labels with equal regularity to one another within a 12-month period.

U.S. technology firms report that South African delays in issuing letters of authority (LOAs) are effectively blocking imports of certain U.S. high-technology/ICT equipment into South Africa. (LOAs are conformity assessments that show that products imported into South Africa meet the relevant South African standards.) Previously, the National Regulator for Compulsory Specifications (an agency within the South African Bureau of Standards that falls under the purview of the Department of the Trade Industry (DTI)), issued LOAs within four to six weeks; however, now LOAs are reportedly taking up to approximately one year to be approved and issued. Given the pace of technology advancing and short product life cycles for technology products, the approval delays can mean that an updated version of the equipment is being produced before the old version is approved for import to South Africa. As of February 2017, some U.S. technology firms impacted by the delays report that DTI and SABS are working to reduce the time to approve and issue LOAs and reduce the backlog of existing LOAs under review.

In September 2016, the DTI published for public comment the Final National Liquor Policy (no. 1208), which provides policy recommendations intended to amend the Liquor Act, 59 of 2003. Some stakeholders have expressed concerns related to the proposed prohibition on the sale of “very high alcohol content” products and the “strict” labeling of liquor beverage products, as these terms are undefined in the policy document.

The United States regularly engages with South Africa on these and other issues related to technical barriers to trade at the WTO, through bilateral discussions, and under the United States-South Africa Trade and Investment Framework Agreement.

Sanitary and Phytosanitary Barriers

Poultry

In December 2014, South Africa banned all poultry imports from the entire United States due to the detection of highly pathogenic avian influenza (HPAI) in backyard flocks in Washington and Oregon. In November 2015, the United States and South Africa agreed to an animal health protocol to allow trade in U.S. poultry from states not affected by HPAI.

In January 2016, USDA and DAFF reached agreement on a health certificate for the importation of U.S. poultry into South Africa. At the same time, USDA and DAFF agreed to specific procedures with respect to Salmonella testing to be applied to imports of U.S. poultry. Under the agreement, U.S. poultry was successfully imported into South Africa in February 2016.

While trade in poultry has resumed, South Africa has required that exports of U.S. poultry meat to South Africa be produced from U.S. birds hatched and raised within the United States. This requirement has restricted exports of U.S. turkey from meat produced from Canadian poults. Although less than 5 percent of U.S. turkey meat is produced from Canadian poults, all U.S. turkey exporters are required to certify that meat is not produced from Canadian poults. As a result of requirement, USDA has implemented an Export Verification (EV) program administered by USDA’s Agricultural Marketing Service (AMS). The AMS/EV program enables turkey producers and processors to ensure compliance with this origin requirement by paying a fee for AMS to verify that the meat is not produced from Canadian poults. Three U.S. facilities are approved to export under the AMS/EV program, and eight additional facilities are in the process of being approved. USDA is in discussions with DAFF to remove the EV program regarding poults originating from Canada and raised in the United States since South Africa also imports Canadian turkey.

Import policies

Tariffs

South Africa is a member of the WTO, the Southern African Development Community (SADC), and the Southern African Customs Union (SACU). As a member of SACU, South Africa applies the SACU common external tariff. In practice, South Africa sets the level of WTO Most Favored Nation (MFN) tariffs applied by all SACU countries, and manages all matters related to trade remedies and disputes for the SACU countries. South Africa’s average applied MFN duty rate in 2016 was 7.6 percent. South Africa has preferential trade agreements with the European Union (EU), the Southern Common Market (MERCOSUR), the European Free Trade Area, and SADC. In 2014, South Africa concluded negotiations for a SADC Economic Partnership Agreement (EPA) with the EU, which entered into provisional application in October 2016. SADC EPA partner countries include Botswana, Lesotho, Mozambique, Namibia, South Africa, and Swaziland. Angola is an observer to the agreement.

U.S. exports face a disadvantage compared to EU goods in South Africa. The European Union-South African Trade and Development Cooperation Agreement (TDCA) of 1999 covers a significant amount of South Africa-EU trade. South Africa’s tariffs applied to imports from the EU on TDCA-covered tariff lines average 4.5 percent based on an unweighted average, while the MFN duty rate, which imports from the United States face, averages 18.4 percent for the same TDCA-covered lines. Final phase-in of the EU tariff preferences under the TDCA became effective in 2012. Key categories in which U.S. firms face a tariff disadvantage include cosmetics, plastics, textiles, trucks, and agricultural products and machinery.

The EU-SADC EPA will further erode U.S. export competitiveness in South Africa and the region due to the greater disparities in tariff levels that U.S. exports will face under the EPA compared to the TDCA. The United States has raised concerns about the tariff disparity in bilateral discussions with South Africa, noting the unilateral benefits the United States offers South African imports under the African Growth and Opportunity Act. South African authorities have emphasized that the only way to address this imbalance is through a free trade agreement.

In September 2013, the South African International Trade Administration Commission (ITAC) increased import duties for whole chickens to the maximum bound rate of 82 percent, and announced import duty increases for other poultry products, including an increase in duties to 37 percent for imports of frozen bone-in chicken (imports of U.S. frozen bone-in chicken are also subject to antidumping duties. South Africa raised the tariffs in response to requests from its domestic industry. In recent years, the South African government has encouraged domestic industry to appeal for increases up to the bound tariff rates where a lack of global competitiveness was a concern.

U.S. stakeholders have expressed serious concerns about South Africa’s imposition of antidumping duties on imports of frozen bone-in chicken from the United States, including concerns about methodology, transparency, and due process spanning the original investigation and final determination in 2000 to the improper initiation of subsequent sunset reviews. As a result of industry negotiations to address and resolve these issues, in June 2015, U.S. and South Africa poultry industry groups reached agreement on an understanding to establish a tariff rate quota (TRQ) on a certain volume of U.S. bone-in chicken that could be exported to South Africa without being subject to antidumping duties. In December 2015, ITAC published final guidelines for administering the TRQ. Upon publication of the final guidelines, the TRQ entered into force, allowing U.S. trade in bone-in chicken subject to the agreement to begin. In February 2016, shipments of U.S. bone-in chicken subject to the TRQ began to be imported into South Africa.

Non-tariff Measures

The DTI prohibits imports of goods of a specified class or kind into South Africa by notice in the Government Gazette, unless the products are imported in accordance with a permit issued by ITAC. Prohibited imports include narcotic and habit-forming drugs in any form; fully automatic, military and unnumbered weapons, explosives and fireworks; poison and other toxic substances; cigarettes with a mass of more than 2 kilograms per 1,000; goods to which a trade description or trademark is applied in contravention of South African law (for example, counterfeit goods); unlawful reproductions of any works subject to copyright; and prison-made or penitentiary-made goods. ITAC requires import permits on used goods if such goods are also manufactured domestically, thus significantly limiting importation of used goods. Other categories of controlled imports include waste, scrap, ashes, residues, and goods subject to quality specifications.

Investment barriers

While South Africa is generally open to greenfield FDI, merger and acquisition-related FDI is scrutinized closely for its impact on jobs and local industry. Private sector and other stakeholders are concerned about politicization of South Africa’s posture towards this type of investment. South Africa also imposes local content requirements on investments in areas such as renewable energy projects.

Other Legal Concerns for Investment

President Zuma signed the Protection of Investment Act into law in December 2015. Some analysts have commented that the Act is overly vague with respect to measures the government of South Africa may take against an investor or its investment, including “redressing historical, social and economic inequalities and injustices”; “promoting and preserving cultural heritage and practices, indigenous knowledge and biological resources related thereto, or national heritage”; and “achieving the progressive realization of socio-economic rights.” The Act also allows for international arbitration of disputes only after domestic remedies have been exhausted, which could deter foreign investment.

In May 2016, South Africa’s Parliament passed an Expropriation Act that redefined the country’s legal framework relating to expropriation. The Act provides that the government can expropriate property for a “public purpose” or in the “public interest” in return for compensation deemed to be “just and equitable.” Some analysts have suggested that how these terms will be interpreted and applied is uncertain, and that the Act could deter investment. Others have argued that provisions of the Act are inconsistent with South Africa’s constitution. The legislation is currently awaiting President Zuma’s signature.

Another concern for investors is the Private Security Industry Regulation Act Amendment Bill, which, if signed, would require 51 percent local ownership in private security firms. The United States has raised concerns about the local ownership provision of the bill in bilateral discussions with South Africa, including in relation to South Africa’s international trade commitments.