RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/34
6 April 1998
(98-1343)
Trade Policy Review Body
TRADE POLICY REVIEW
REPUBLIC OF SOUTH AFRICA
Report by the Secretariat
This report, prepared for the second Trade Policy Review of South Africa, has
been drawn up by the WTO Secretariat on its own responsibility.  The
Secretariat has, as required by the Agreement Establishing the Trade Policy
Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the
World Trade Organization), sought clarification from the Government of South
Africa on its trade policies and practices.
Document WT/TPR/G/34 contains the policy statement submitted by the
Government of South Africa.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Republic of South Africa.Republic of South Africa WT/TPR/S/34
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS
(1) Economic environment ix
(2) Institutional framework x
(3) Features of Trade Policies xi
(i) Policy instruments and their effects xi
(ii) Sectoral policy patterns xii
(4) Trade policies and trading partners xiv
I. THE ECONOMIC ENVIRONMENT 1
(1) Major features of the Economy 1(2) Evolution of the Economy 2
(i) Developments up to 1994 2
(ii) Recent economic developments 5
(3) Trade Performance and Foreign Investment 6
(i) Trade in goods and services 6
(ii) Foreign investment 9
(4) Outlook 11
Annex I.1 Foreign exchange regime 15
II. TRADE AND INVESTMENT REGIMES 16
(1) Institutional Framework 16
(2) Policy Formulation and Implementation 18
(3) Policy Objectives 20(4) Laws and Regulations 21
(5) Agreements 22
(i) Multilateral agreements 23
(ii) Regional agreements 25
(iii) Bilateral agreements 29(iv) Other agreements 32WT/TPR/S/34 Trade Policies Review
Page vi
CHARTS
Page
I. THE ECONOMIC ENVIRONMENT
I.1 Average gold price per fine ounce on the London market, 1984-95 3
I.2 Trade in goods and non-factor services as a percentage of GDP, 1989-96 7
I.3 Breakdown of trade, by main commodities, 1993-96 8I.4 Trade by partner, 1992 and 1995 10
I.5 Deficit in trade services, 1992-95 11
I.6 Origin and sectoral distribution of foreig n direct investment into South Africa, 1994 12
I.7 Destination of South Africa's outward foreign direct investment, 1994 13
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 MFN tariff distrib ution by sector, 1997 44
III.2 Average tariff by degree of processing, 1997 45
IV. TRADE POLICIES AND PRACTICES BY SECTOR
IV.1 Sectoral distribution of IDC financial assistance, July 1992, december 1996 87
IV.2 Average South AFrican tariffs by ISIC classification, 1997 89IV.3 Contribution of the main branches to gross value of agricultural production, 1981-96 91
IV.4 Gross income from field and hiorticultural crops, 1992-96 98
IV.5 Gross income from animal products, 1992-96 103
IV.6 South Africa's shares in world mineral reserves, 31 August 1995 107
IV.7 South African mineral sales, 1995 108
IV.8 Shares of products in South African mineral sales, 1995 111
IV.9 Gold mining industry, value added statement,1996 112IV.10 Gold formula tax 115
IV.11 International arrivals in South Africa, by origin, 1991 and 1995 133Republic of South Africa WT/TPR/S/34
Page ix
SUMMARY OBSERVATIONS
(1) Economic Environment
1. The transfer of power, the end of
apartheid and the holding of multi-party
elections in 1994 politically transformed the
Republic of South Africa.  Following theelections and coincident with the conclusion of
the Uruguay Round, the Government
embarked on new trade reforms and is rapidly
re-integrating the economy into the
multilateral system.  Adopted in September1994, the Reconstruction and Development
Programme (RDP) aims at the socio-economic
development of the majority and provides the
framework for South Africa's economic
policies.  In line with the RDP, theGovernment has introduced a five-year trade
liberalization programme comprising, inter
alia, a Tariff Rationalization Process (TRP)
and a restructuring of incentives.  These
measures aim at an improvement in the
investment climate and a re--orientation of
resources away from the highlycapital-intensive industrial structure that was
a heritage of the apartheid era.
2. Since South Africa's last Trade Policy
Review in 1993, economic growth has
averaged over 3% a year.  This followedgrowth of less than 1% a year over the
previous decade, a period of import-
substitution and international sanctions.  Since
then there has been a decided move toward
outward orientation, albeit with a bias towardexport promotion.  Quantitative import
restrictions are now largely absent and the
tariff has been somewhat simplified, rates have
been lowered and almost all lines are bound;
nevertheless, the tariff remains complex and isfrequently changed for selective protection.
Concurrently, the Government has pursued
fiscal and labour reform, has liberalized the
exchange system and macro-economic policy
has been prudent.  In 1996, the Government
released its Growth, Employment and
Redistribution (GEAR) strategy, whichincludes a tight monetary policy, fiscal
consolidation, and further trade and structuralreform:  the strategy aims at export-led growth
of some 6% a year from 2000.  Unemployment
remains very high and job creation is an
important element of the GEAR strategy.
3. Mining and related activities remain
at the centre of the South African economy.The mining and quarrying sector accounts for
between 8 and 10% of GDP and for some 40%
of earnings from merchandise exports.  Gold
alone accounts for about 50% of mineral
exports, and more than 20% of totalmerchandise exports.  In consequence,
developments on world mineral markets are
critical to South Africa's economic
performance.  The manufacturing sector,
largely centred around mineral processing,contributes nearly 25% of GDP.  The recent
decline in the production of gold, together
with an increase in exports of manufactured
goods, has contributed to a rise in the share of
exports of non-mineral products;  these
accounted for almost 56% of foreign exchange
earnings from merchandise exports in 1995 asagainst 49% in 1993.  South Africa is usually
a net exporter of agricultural products,
depending on domestic harvests;  agriculture
accounts for some 5% of GDP and for 8 to
10% of goods exports.  Services are the largestemployer, with over half of total employment,
and account for some 53% of GDP.
4. The reintegration of South Africa into
the world economy has contributed to an
increase in its foreign trade.  Merchandiseimports have grown faster than exports,
leading to a contraction of South Africa's
traditional trade surpluses and to external
current account deficits since 1994.  The rise
of merchandise imports also reflects theincrease in investment;  capital and
intermediate goods, particularly machinery
and mechanical appliances,  represent some
30% of South Africa's total merchandise
imports.  South Africa is also a net importer of
a broad category of services.  International
reserves (including gold) represented1.3 months of imports in 1996, compared to
1.9 in 1992.WT/TPR/S/34 Trade Policies Review
Page x
5. South Africa's exports include
machinery, motor vehicles and fertilizers to
African countries, and minerals, mineral and
agricultural products to developed markets,
mainly Germany, Italy, Japan, the United
Kingdom and the United States.  SouthAfrica's main suppliers of imports are
Germany, Japan, the United Kingdom and the
United States.
(2) Institutional Framework
6. The Republic of South Africa enacted
a new Constitution on 3 February 1997.
Under the Constitution, South Africa is a
parliamentary democracy with a bicameral
Parliament, comprising the National Assembly
and the National Council of Provinces.National legislative power is vested in
Parliament and the President.  The President,
Head of State, is elected by the National
Assembly from among its members;  tenure is
limited to two five-year terms.  Members of the
Assembly are  elected for five years by
universal adult suffrage under a system ofproportional representation.  The Cabinet,
consisting of the President, the Deputy
President and Ministers appointed by the
President, formulates government policy.  The
National Economic Development and LabourCouncil (NEDLAC) is the major vehicle by
which the Government, labour, business and
community organizations cooperate in
formulating economic and social policies.
7. The Constitution, Acts of Parliament
and Government Notices are the main
components of South Africa's laws.  Bills,
including those dealing with trade, are
initiated by the competent Ministries and
submitted for comment and approval toCabinet before submission to Parliament.  The
1964 Customs and Excise Act and the 1986
Board on Tariffs and Trade Act (as amended)
are South Africa's main legislation for foreign
trade.  The 1979 Maintenance and Promotion
of Competition Act (as amended) includes
provisions for the control of restrictivebusiness practices, mergers and acquisitions,
and monopoly situations.  Several acts,
including the 1978 Patents Act, the 1993Trade Marks Act, the 1993 Designs Act and
the 1978 Copyrights Act protect intellectual
property rights in South Africa;  the
Intellectual Property Laws Amendment Bill
was drafted in 1996 to bring South African
law into conformity with its obligations underthe WTO Agreement on Trade-Related Aspects
of Intellectual Property Rights (TRIPS).
8. National treatment applies to foreign
direct investment in South Africa;  apart from
limitations in pursuance of exchange controland immigration, foreigners are free to invest
in all industries open to local investors and to
repatriate the earnings.  Sector-specific acts
regulate investment in South Africa;  various
incentive schemes, including tax holidays,accelerated depreciation, export marketing,
investment assistance, and a small/medium
manufacturing development programme, are
provided to foreign  investors and local
companies.  Investment South Africa, a
non-profit organization, was established by
the Government in January 1997 to promoteforeign direct investment into South Africa.
9. Through the early 1990s, South Africa
privatized or commercialized a number of
public enterprises, including for iron and steel
and telecommunications.  Since then theprocess has slowed:  several State-owned
enterprises  hold monopolies or exercise such
rights in various areas, including electricity,
water, transport and communication, and
mining and quarrying;  14 marketing boardsfor agricultural products still operate.  In
1996, NEDLAC defined the National
Framework Agreement (NFA) under which
Government-labour relations will be
addressed in the process of restructuring stateassets and public enterprises.  The NFA will
terminate in April 1999 at the earliest.
10. South Africa is a founding member of
the World Trade Organization (WTO) and
grants at least MFN treatment to all WTO
members.  Previously, South Africa was a
founding member of the GATT andparticipated in, or observed, several
Tokyo Round Agreements and Arrangements.
Under its Uruguay Round commitments, SouthRepublic of South Africa WT/TPR/S/34
Page xi
Africa bound some 98% of  its tariffs at the HS
eight-digit level (excluding petroleum
products);  tariff bindings are at ad valorem
rates, with a simple average of 19.8% but with
maximum ceiling rates of almost 400% (on
agricultural products).  In addition topetroleum products, unbound tariffs are
mostly on fishing products and preparations
thereof, and arms and ammunition.  Subject to
limitations on the presence of foreign natural
persons, South Africa bound market accessand national treatment under the General
Agreement on Trade in Services (GATS) for
several categories of services, including in the
areas of business, communications,
distribution, tourism and environment.
11. South Africa is a member of the
Southern African Customs Union (SACU).
Under SACU, members apply to imports into
the Union the customs, excise, sales, anti-
dumping, countervailing and safeguard duties,
as well as related laws, set by South Africa;
however, each member has its own legislationon quantitative import restrictions.  Customs,
excise, sales and additional duties collected by
the members are pooled in the Consolidated
Revenue Fund and subsequently distributed to
members by South Africa, according to aformula.  The Agreement is under
renegotiation, particularly with respect to the
revenue-sharing formula, time lags in revenue
distribution, and joint management of the
SACU system;  some members have alsoexpressed the need for a dispute settlement
mechanism.
12. South Africa joined the Southern
African Development Community (SADC) in
August 1994.  The Trade Protocol under theSADC Treaty provides for the establishment of
a SADC free trade area. South Africa has
bilateral trade agreements with Malawi and
Zimbabwe, and grants preferential tariff
treatment to a list of products from
Mozambique.  South Africa is negotiating a
bilateral trade agreement with the EuropeanUnion;  a protocol on South Africa's partial
accession to the Lomé Convention was
finalized in April 1997.  Since its 1993 Trade
Policy Review, South Africa has not beendirectly involved in any WTO dispute
settlement proceedings.
(3) Features of Trade Policies
(i) Policy instruments and their effects
13. Tariffs and "supply-side measures"
are South Africa's main trade policyinstruments.  Since 1993, South Africa has
reduced both the total number of its tariff lines
and the number of  non-ad valorem tariffs;  it
has also increased the percentage of lines
carrying zero rates, and lowered certain rates.However, South Africa's tariff remains
complex:  the wide variety of duties, ranging
from ad valorem, specific, compound, mixed
and "formula" duties to their combinations,
has not changed since the last Review.  Basedon minimum import prices, formula duties,
originally designed to combat "disruptive
competition", are still used, although South
Africa also applies anti-dumping actions.
Protective tariffs can also be introduced
relatively easily.  South Africa has not
requested delayed application of the WTOAgreement on Implementation of GATT Article
VII (on customs valuation).
14. In accord with its Uruguay Round
commitments, South Africa has tariffied all
quantitative restrictions in agriculture, excepton black tea.  South Africa maintains import
controls on certain agricultural and
manufactured products, and on minerals;  it
prohibits the importation of certain waste and
hazardous materials and goods banned underinternational conventions.  The importation of
used goods is either subject to controls or
prohibited and products such as live animals
and animal products, plants and plant
products, honey, beeswax, geneticallymanipulated organisms and fresh water fish
are subject to import permits under health,
sanitary and phytosanitary regulations.
15. South Africa's simple average MFN
import tariff at end-June 1997 was some 15%,
with substantial dispersion;  because of
formula and specific rates the maximum advalorem rate cannot easily be defined.  Duty-WT/TPR/S/34 Trade Policies Review
Page xii
free treatment applies to some 44% of all the
tariffs, particularly on inputs of capital goods
and products that are not manufactured in,
and do not have substitutes in, South Africa.
About 23% of all lines carry rates above 30%.
Sectorally, the highest average tariff was inmanufacturing where it was 15.6%, compared
with 5.6% in agriculture and 1.4% in mining
and quarrying.  There is negative escalation in
the tariff overall, but this may be misleading in
that it mostly reflects the application of zero,or low duties on industrial products that are
neither manufactured nor have substitutes in
South Africa.  The Tariff Rationalization
Process should substantially simplify South
Africa's tariff structure but it could increaseescalation and therefore the effective rate of
protection.
16. In addition to tariffs, imports - like
domestic goods - are subject to ad valorem
excise duties, ranging to 20%, and to specific
excise duties;  a value-added tax of 14%
applies to goods and services.  "Fuel levies"are collected on imported oils and specific
levies are charged on agricultural products.
An import surcharge introduced in 1985 for
balance-of-payment purposes was eliminated
in October 1995.  The South African RevenueService (SARS), an administratively
autonomous body, was established in April
1996 to improve revenue collection and
administration.  At end-1996, South Africa had
35 definitive anti-dumping duties in force,mostly on imports of chemical and mineral
products, paper and clothing from 16
countries;  it had no countervailing or
safeguard duties.  South Africa is amending its
legislation on anti-dumping, countervailingand safeguard measures with a view to
bringing it into line with the relevant WTO
Agreements.  Import controls, under the WTO
Agreement on Safeguards, were still in force
at end June 1997 on certain products,
including new tyres.
17. Under the National Industrial
Participation Programme, all State and
parastatal purchases and leases with an
import content of at least US$10 million are
subject to Industrial ParticipationObligations;  under these the seller must invest
in South Africa the equivalent of at least 30%
of the value of the imported content of the
purchase.  South African content is also
required for several incentives, including the
rebate of import duties under the RevisedPhase VI Motor Industry Development
Programme, for credit facilities to exporters of
capital goods and services, for obtaining type
approval for certain telecommunications
equipment, and for preferences in governmentprocurement;  there are also local-content
requirements for coffee and tea packing,
blending and roasting.
18. South African trade policy favours
export promotion, with a wide variety ofincentives, including tariff concessions, credit
facilities, financial assistance and guarantee
facilities.  Export subsidies under the General
Export Incentive Scheme were terminated on
11 July 1997.  Export controls are maintained
on a number of agricultural products, certain
minerals and industrial products.  Exports ofcrude or unprocessed tiger's-eye, ostriches
and fertile hatching ostrich eggs are
prohibited.  There is a 15% export tax on
unpolished diamonds.
19. The retail prices of petroleum
products and producer prices of a number of
agricultural products, including meat,
oilseeds, wheat, canned fruit, mohair,
sorghum, wine and sugar, are controlled.  The
pricing of  certain services, mainly thosesupplied by parastatals, is also regulated.
(ii) Sectoral policy patterns
20. The South African economy is
relatively capital intensive.  The major
objective of economic policy is thus to enhancevalue-added in labour-intensive activities.
21. As the backbone of the economy, the
mining and quarrying sector receives the
largest share of financial assistance to
enhance value-added.  In addition to the
general tax deductions provided to South
African companies, prospecting expenditure isdeductible from mining income, and miningRepublic of South Africa WT/TPR/S/34
Page xiii
companies may also deduct capital
expenditure from their current taxable income,
whereas other companies may do so over a
five-year period.
22. Large and diverse endowments of
minerals, and relatively low tariffs on theirimports have  contributed to the development
of mineral processing;  for example, locally
produced coal, supplied at low prices,
provides 70% of South Africa's primary
energy.  Tariffs on mineral imports average1.4%, with a maximum of 18%;  higher rates
apply to processed minerals.  Products subject
to import controls include mineral fuels, oils
and distillates, radioactive chemical elements
and radioactive isotopes, gold, coins, and avariety of other minerals. Export controls,
exercised by permits, apply to a number of
minerals and mineral products;  exports of
unprocessed tiger's-eye are prohibited.
23. Under the  Minerals Act, which
entered into force on 1 January 1992, the
number of authorizations required foroperating in the sector has been reduced from
some 40 to 3 (prospecting and mining permits
and a mining licence).  The Act also aims to
ensure fair management of mineral
prospecting and of mining rights.Distribution, wholesale and retail marketing
of liquid fuels are regulated, and trade in
crude oil and refined products is controlled.
24. The Government has reoriented its
agricultural policy away from self-sufficiencyto food security, defined as access by all
people at all times to enough food for an
active and healthy life.  The Marketing of
Agricultural Products Act was introduced in
1997 to promote the deregulation of themarketing systems:  the number of control
boards has been reduced from 22 in 1992 to
14 in June 1997.  It is government policy that
over the long-term the sector will be
"primarily" protected by tariffs.
25. Tariffs on agricultural products range
from 0 to 35%, with a simple average of 5.6%.Formula duties apply to preparations of
tomato, cornflour, cherries and tobacco, andspecific duties to certain animal and fishery
products, beverages, products of the milling
industry, sugar and sugar confectionery.
South Africa bound tariffs on all products
covered by the WTO Agreement on
Agriculture, except certain albuminoidalsubstances based on eggs.  Ceiling bound
rates ranging up to 399.9% leave considerable
margins for discretionary increases in applied
tariffs.  Imports of fish, crustaceans, molluscs,
dairy products, oats, maize, wine, vermouthand fermented beverages are subject to
controls by permits.  Export controls apply to
coffee and wattle seeds.
26. The international competitiveness of
manufacturing has been hampered by upwardpressures on unit labour costs resulting partly
from a lack of skilled labour.  The sector is
protected mainly by tariffs, which average
around 16%;  textiles, clothing and related
items are the most tariff-protected products.
Most non-tariff barriers have been phased out
except on products such as new tyres and firearms, which are still subject to import
controls, and on chemicals and motor vehicles
to which export controls apply.
27. The Tariff Rationalization Process,
which is to simplify and rationalize the tariffs,aims to lower cost structures and reduce price
distortions.  However, by escalating rates from
primary to final products - with rates of 10, 20
and 30% generally not to be exceeded on raw
materials, intermediate goods and  finisheditems, respectively - the Process may increase
effective protection, and thus perhaps raise the
capital intensity of manufacturing.
28. South Africa has restructured several
State-owned service suppliers;  theGovernment sold a 30% share in Telkom in
1997, and companies such as Sun Air,
Autonet, Px (parcel express), Abakor
(abattoirs) and Aventura are earmarked for
privatization.  Except for limitations on the
presence of foreign natural persons, services
are generally open to foreign investment.However, monopolies or exclusive rights
remain in a number of areas, including port,
airport, transport and basic switchedWT/TPR/S/34 Trade Policies Review
Page xiv
telecommunication services.  Further
liberalization of services should improve the
efficiency of other sectors, such as
manufacturing and tourism;  it would also
help the competitiveness of South Africa's
exports, especially by reducing costs relatingto transport and telecommunication.
(4) Trade policies and trading partners
29. South Africa is reintegrating itself into
the global economy. It is engaged in structural
reform that will help its products to competeinternationally.  South Africa has redrafted
almost all its legislation to provide a legal and
credible foundation to its reform effort.  This
reform is encapsulated by the Growth,
Employment and Redistribution (GEAR)strategy, a major element of which is trade
liberalization.
30. At the same time, South Africa's
regional and preferential links are becoming
more complex, with renegotiation of the SACU
Agreement, the liberalization of regional trade
under the SADC Trade Protocol, and thedevelopment of new structures that may result
from a bilateral trade agreement with the EU.
There is a risk that the evolution of this
complex set of relations could create a
structure of tariffs, preferences and rules oforigin that will distort trade patterns.31. To simplify and coordinate the various
aspects of trade policy, plans with respect to
trade liberalization should be actively
pursued, especially by moving toward lower,
more uniform rates.  By simplifying the tariff
structure through the elimination of non-advalorem tariffs, the reduction of maximum
rates and the number of tariff bands,
liberalization will help to prepare South
African production for greater foreign
competition and enhance its adherence toWTO principles, thus both rendering its
reforms more credible and helping to attract
foreign investment.