30 March 2006
The South African government is to move strongly against discriminatory pricing, which it sees as harming the potential of smaller, downstream industries to contribute to economic growth, with Minister of Trade and Industry Mandisi Mpahlwa announcing several measures to wipe out the practice.
“It has long become clear that downstream value-addition or beneficiation of raw materials is constrained by high input costs often arising from the anticompetitive pricing practices of monopolistic enterprises,” Mpahlwa said on Wednesday, presenting his department’s budget for a parliamentary vote.
It was government’s wish, he said, “to see a phasing out of substantive price discrimination between domestic and export customers in key intermediate input sectors in the economy”.
Discriminatory pricing, also known as import parity pricing (IPP), is when a firm sells goods locally at the price that customers would pay if they were to import the same goods from another country.
Mpahlwa said that to deal with discriminatory pricing, the Competition Act is to be strengthened “to better deal with the high levels of concentration in certain sectors of the economy, and attendant uncompetitive outcomes”.
Doing business with government
Sounding a warning to those firms continuing to practice IPP, the trade minister said that any future fiscal support of these by government or public entities “will be dependant on adoption of nondiscriminatory pricing between the domestic and export markets”.
On top of this, the government is to develop a state-owned enterprise pricing and procurement framework which links the pricing and procurement practices of the enterprises “to market behaviour of strategic input industries”.
At the same time, protection of product lines engaged in IPP through import tariffs – such as the 5% tariff on certain steel products – will be removed, he said.
“Contingent legislation will be amended to ensure that anti-dumping and countervailing duties are not used as a form of protectionism to inhibit import competition in such commodities”.
Switching the focus to those firms potentially harmed by IPP, Mpahlwa said the government was developing downstream beneficiation incentives to address “the historical underdevelopment” of key downstream beneficiation sectors.
These include the metal manufacture, machinery and equipment, and plastics sectors.
At an earlier press briefing, Mpahlwa said the government was leaving the door open for ongoing negotiations with major firms seen as having benefited from IPP to bolster their profits, such as those in the steel industry.
In yesterday’s announcement, he said “specific discussions” with Mittal Steel – the country’s leading steel producer, owned by Indian tycoon Lakshmi Mittal – “are still under way”.
Mittal Steel’s pricing structure is currently under review by the Competition Tribunal, following complaints by two gold companies which, although part of the downstream industries intended to benefit from the government’s current policies, are major users of steel.
The Competition Tribunal has heard that there was no other market in the world in which the price of steel was determined by the import parity price.
Despite the talks with Mittal Steel, and “in line with our policy of bringing down the cost of key manufacturing inputs”, the minister announced on Wednesday that a 5% import tariff on certain primary carbon and stainless steel products is to be removed with immediate effect.
This removes in one stroke a key tariff protection enjoyed by domestic producers of these commodities. The move that is expected to make raw materials cheaper for downstream industries whose value-adding activities are seen by government as having vast potential for driving the country to higher levels of economic growth.
Moving on to South Africa’s beleaguered clothing and textile sector, under threat from a flood of cheap Chinese exports but previously warned by government to become more competitive by producing higher-quality products, the minister announced some immediate support.
This support comes in the form of an extension of the Duty Credit Certificate Scheme, which Mpahlwa said would continue for a 24-month period, retroactive from 1 April 2005.
Introduced by the Department of Trade and Indutry in 1993, the scheme involves a system of earning duty credits based on exports of textile and clothing products, with the intention of encouraging textile and clothing manufacturers to compete internationally.
In the meantime, the government is finalising a customised strategy for clothing and textiles to secure the long-term sustainability of the sector, Mpahlwa said.
He added that he would shortly convene a meeting with stakeholders involved in the sector strategy, when he would also unveil an arrangement that South Africa is entering into with the People’s Republic of China “in respect of import relief in the sector”.