WORLD TRADE  
ORGANIZATION  G/SCM/Q2/ZAF/11 
20 October 2009 
 (09-5149) 
Committee on Subsidies and 
Countervailing Measures Original:   English 
 
 
 
SUBSIDIES 
 
Replies to Questions from MEXICO1 
to SOUTH AFRICA  
 
  The following communication, dated 19 October 2009, is being circulated at the request of the Delegation of South Africa.    
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BACKGROUND AND INTRODUCTION OF THE MIDP 
 
 The Motor Industry Development Programme (MIDP) was implemented in September 1995 
and will continue until 2012.  Its objective is to  restructure and transform the South African 
automotive industry in a manner to enable it to compete equitably in the global market.   
  The programme encourages automotive compan ies in South Africa and SACU to become 
internationally competitive;  to focus on in creasing the volume and scale of production through a 
greater level of specialisation in terms of both ve hicle models and components;  to obtain economy of 
scale benefits and in turn allow automotive comp anies to import low volume products, at low or duty 
free levels;  and to increase the availability and c hoice for consumers to access vehicles at affordable 
prices.     As the automotive industry in South Africa is a significant driver of employment creation, the 
programme aims to enhance sustainable employ ment and contribute to economic growth.   
  To achieve these objectives, the programme aims to gradually phase the South African 
automotive industry into the global economy over a period of time;  to increase volumes via rationalization, and to upgrade the industry by  attracting appropriate investment, skills and 
technology.   
  The programme sets out an annual import dut y reduction schedule which exposes the South 
African automotive industry to greater international competition.  Further, there are no minimum local 
content requirements which means the cheapest inputs may be sourced from anywhere in the world.  
Vehicle assemblers in South Africa are supported by a duty free allowance for vehicles built and sold 
locally.   It is important to emphasise that any benefit arising from this scheme can only be used to 
import vehicles or components.    
                                                     
 
1 G/SCM/Q2/ZAF/10.   G/SCM/Q2/ZAF/11 
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  IMPACT OF THE MOTOR INDUSTRY DEVELOPMENT PROGRAMME 
 
Productivity and Competitiveness 
 
 To a large extent, this programme has been successful, even though there is still room for 
improvement to fully achieve its objectives.  In th e early 1990s, the South African automotive sector 
was widely regarded as inefficient and uncom petitive.  The period 1995-2007 has been a phase of 
significant change.  This has largely been the re sult of significant liberalisation of the domestic 
market.   
 Since the introduction of the MIDP, the South African automotive industry has made major 
strides towards becoming more internationally in tegrated and competitive.  Furthermore, the 
multitude of multinational corporati ons operating in this sector has facilitated the industry’s access to 
global networks.    
 A major positive feature has been the growth e ngendered in the domestic market.  Production 
volumes in the vehicle and components sector have shown significant growth between 1995 and 2006.  
Domestic sales have been boosted by rising incomes, a strong rand and low interest rates.  Firms have 
also improved quality, in-plant producti vity and manufacturing benchmarks.    
  Today, the South African automotive industry h as entrenched itself as the largest and leading 
manufacturing sector in the country’s domestic econom y.  Aggregate productivity data show that the 
automotive industry has outstripped manufacturing as a whole since the introduction of the MIDP 
in 1995.  The industry has rationalised and restruct ured on a more efficient basis achieving significant 
growth in production volumes, whilst maintaining significant employment levels.  Critically, the 
industry comprises a wide range of production pr ocesses and experiences mu ltiplier effects into a 
variety of other sectors, hence engendering signifi cant spill-over, employment-enhancing effects in 
such sectors.    
Employment 
 
 Total employment in the vehicle manufacturing industry (assembly and components) has been 
enhanced since 1995, resulting in such employme nt in automotive production increasing significantly, 
as a share of manufacturing employment.  As a result of the scheme, over this period, relative to other 
sectors, the automotive industry has performed bett er in terms of employment growth, whilst job 
losses over the same period in other industrial sectors were substantial.  There has had a significant 
impact in labour intensive sectors especially, and this is critical in the context of South Africa’s high 
unemployment rate.  Vehicle and components manufacturing accounts for about 4 per cent of gross 
domestic product and directly employs about 107  000 people.  Traditionally, the automotive 
manufacturing, retail and other service industries account for approximately 585 000 jobs in South Africa and this is forecast to grow  with new investment and growth.   
  Without this programme, the sector would never have been able to support such consistent 
employment and growth, particularly in South Afri ca’s traditionally impoverished regions.  In light of 
the socio-economic importance of this programme, to sacrifice the industry would have devastating economic and social consequences in some areas,  particularly the Eastern Cape, a significantly 
impoverished coastal area in South Africa, wher e manufacturers such as Mercedes-Benz, General 
Motors, Volkswagen and Ford all operate and absorb thousands into the job market.   
 
Import-Enhancing Aspects 
 
 Automotive imports have expanded rapidly.  Un til the early 1990s, prohibitive tariff levels 
resulted in negligible imports of vehicles into S outh Africa.  Vehicle prices were significantly above  G/SCM/Q2/ZAF/11 
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  international levels.  Currently, the import duty boun d rates for light motor vehicles is 50 per cent and 
for components it is 30 per cent, whilst the applie d duties are currently 28 per cent and 23 per cent 
respectively.  Tariffs have been phased down ever y year since 1995.  Specifically, since the inception 
of the programme, there has been a mandatory ph ase down of applied duties, both on light passenger 
vehicles and components.   
 
 The opening up of the economy and the structure of the MIDP have resulted in imported passenger vehicles growing their share of the domestic  market from about 9 per cent in 1995 to about 
62 per cent in 2008.  Due to the import-enhancing na ture of the MIDP, the industry trade balance has 
continued to deteriorate, as imports outstripped exports.   
 
 The increased demand for imports is directly attributable to increased demand for vehicles domestically in the SACU market over the releva nt period.  The SACU market grew from about 
382 000 units in 2003 to 714 000 un its in 2006, whilst local production increased from 421 000 units 
to 587 000 units during the same period.   
 
 A positive spin-off has been incr easing affordability, availability and choice of motor vehicles 
available to consumers.     All these positive outcomes have obviously been prior to the onset of the recent economic 
downturn occasioned by the financial crisis, wh ich is discussed in the next section.   
 
The Road Ahead 
 
 Notwithstanding the fact that South Afri ca’s Motor Industry Development Programme 
(MIDP) has led to rapid structural changes in the automotive industry, externally, South Africa 
continues to account for only less than 1 per cent of  the global market both in terms of production and 
sales.  South Africa is therefore a small player in gl obal terms.  Further, South Africa is isolated from 
larger markets, and long shipping routes en trenches a competitive disadvantage relative to 
competitors.  For these reasons, it is difficult for the industry to compete with other global players.   
  Notwithstanding the progress achieved under the MIDP, vulnerabilities and questions over 
sustainability remain.  Without continuing assistance , this vital sector of the economy will shrink.  
The supply chain remains underdeveloped and heavily  reliant on imports.  Investment in assembly 
and many first tier components remains well below world scale in most cases.     The nature, extent and duration of the global crisis on the South African motor industry, like 
other global automotive producers is at this stage un certain.  This has made it difficult to implement 
long-term plans.  The local automotive industry has, li ke its international counterparts, been ravaged.  
It has lost at least six component manufacturing fi rms and about 16 000 direct jobs during the last 
six months of 2008 and first two months of 2009.  Du ring 2009, it is forecast that an estimated 22 000 
to 30 000 jobs may be lost, and a few announcements  in this regard have already been made by 
various vehicle assemblers and component manufacturers.  Many company closures and 
retrenchments are also taking place in the retail segment of the industry, as approximately 150 car 
dealerships (out of a total number of dealerships in South Africa of about 1450) closed during 2008 
alone.     As a result of the economic crisis, the major vehicle producers are operating on a four day 
working week, to avoid large scale retrenchments.   The concomitant decline in production will also 
compromise the continued viability of an increasing number of component companies.      G/SCM/Q2/ZAF/11 
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  SPECIFIC RESPONSES TO MEXICAN QUESTIONS 
 
(A) MIDP 
 
 It is important to note that all benefits under the MIDP can only be realised by the importer 
through importation of vehicles and automotive compone nts.  Furthermore, there is no specification in 
the programme with respect to specific local c ontent requirements and duties have continued to 
decline for the entire period the programme ha s been in place, since its inception.   
  The programme is characterised by the gradual reduction of import duties which exposes the 
South African automotive industry to more internati onal competition every year.  Further, since there 
are no minimum local content requirements, the cheap est inputs can be sourced from anywhere in the 
world.  The vehicle assemblers in South Africa are supported by a duty free allowance for vehicles 
built and sold locally.    
 Participation in the MIDP is on a voluntary basis.  All imported components must be 
imported under a specified chapter in the Custom s and Excise Act.  The duty was scaled down from 
50 per cent in 1995 to the current 23 per cent.     The benefits earned under the MIDP by com ponent and vehicle manufacturers are granted 
through an Import Rebate Credit Certificate (IRCC).  All importers of vehicles may use an IRCC to 
reduce the value of the imported vehicles on which customs duty is calculated. Most IRCCs earned by 
component manufacturers are used to reduce the value of imported components on which customs duties are calculated, but these IRCCs can also be used to reduce the value of imported light motor 
vehicles.    (B) TERMINATION OF THE MIDP AND SUCCESSOR PROGRAMME 
 
 In 2005 South Africa initiated a review of  the MIDP in order to assess its impact and 
recommend options to deal with identifie d gaps and domestic priorities.   
  After years of rigorous assessment and evalua tion of the automotive industry and the MIDP, a 
successor programme was devised in 2008.  A deci sion to implement the new programme has been 
taken and a general architecture agreed with the indu stry.  However, especially in light of the current 
financial crisis, many aspects and elements of the programme are subject to further ongoing 
consultations with the industry.    
 The new programme will be implemented in crementally.  Some elements of the new 
programme are planned to be introduced  in the 2009-2010 financial year.   
  As mentioned above, though the review has been finalized and is currently being 
implemented by means of phasing out the existing progr amme in incremental stages, the details of the 
programme are still to be finalized.  The entire progr amme is scheduled to be terminated by 2013, 
subject to prevailing economic conditions.   
  Though the government’s best intentions are to precipitate phasing out of the programme, 
with the advent of the financial crisis and the economic fallout it has occasioned, the South African 
government will seek to avoid further disruption in the sector, noting the process of adjustment the 
sector is still to undertake.  Like many othe r governments around the globe, the South African 
government has had to accommodate extended consulta tions with the automotive industry in the wake 
of the financial crisis.  However it remains th e South African government’s intention to fully 
implement the new scheme by 2013, again subject to prevailing economic circumstances.     G/SCM/Q2/ZAF/11 
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  (C) NEW PROGRAMME 
 
 The new programme, to be known as th e Automotive Production and Development 
Programme (APDP), will provide the South African au tomotive industry with a solid basis to rise to 
the challenge of maintaining and e nhancing its international competitiven ess.  It is further intended to 
expand the production of new cars and light commercia l vehicles in South Africa and generate new 
employment over time.  The key objective of the AP DP is to support the expansion and deepening of 
the light motor vehicle manufacturing industry in South Africa by the increased volume of production of vehicles and improving the competitiveness of com ponents suppliers.  It is also intends to achieve 
the objective of enhancing the consumer’s opport unity to access a wider range of vehicles at 
affordable prices.   
  In broad terms, the new programme will consist of:    
• A cash grant calculated as a percentage  of capital expenditure on plant and 
machinery:  This support will be availabl e to encourage investments by vehicle 
assemblers and component manufacturers in a manner that supports skills and 
equipment upgrading and research and development;  and 
 
• Duty credits based on vehicle production:  This support will be in the form of duty 
credits issued to vehicle assemblers base d on the quantity of vehicles produced.   
 
• Duty credits based on all production:  This support will be in the form of duty credits 
issued to vehicle assemblers and compone nt manufacturers based on a certain value 
of production from 2013.   
  However, it is important to emphasise that the finer details of the constituent parts of the new 
programme are still to be finalised.    
It is critical to note that the new programme w ill in no way be contingent, neither in law nor 
in fact, on exports.  The APDP would provide approp riate levels of support for the envisaged targets 
in order to satisfy growing domestic demand thro ughout the SACU market.  Similarly, the new 
programme will not be contingent, neither in law or  in fact, upon the use of domestic over imported 
goods.   
 
 At this point in time there are no specifics with  regard to any specific treatment for catalytic 
converters under any programme.      
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