Duferco Steel Processing applied for a rebate of the normal customs and safeguard duties on tariff codes 7208.27, ,7208.39 and 7225.30 when used in a re-rolling process (this being a massive oversimplification, but the details are noted below).
ITAC took the decision to extended the safeguard duties currently in place on hot-rolled steel beyond the 3 years they were originally imposed for. This decision is of dubious legality, but does have a serious impact on Duferco. Duferco is in the unenviable position of being both a client of, and a competitor to ArcelorMittal (AMSA), so securing a supply of raw material is absolutely crucial for their survival, let alone their profitability.
There are currently 50 rebates already in place on the various hot-rolled steel tariff codes, creating an unbelievably complex system of rebates which are conditional on AMSA not being able to supply. Some of these rebates are technical (AMSA can’t manufacture the required technical grade) and some are economic (AMSA can manufacture the item, but they can’t do so at economically viable levels). You can imagine how quickly this degrades into chaos, as anyone wishing to access one of the 50 rebates, has to approach ITAC to ask for an import permit. ITAC then checks with AMSA who confirms if they can or can’t supply. This is easy to deal with when the rebate is purely technical, but a lot more complex when AMSA has to look 6 months into the future to determine if they will produce the specific grade of hot-rolled steel.
And the madness doesn’t end here. With the closure of Saldanha and the currently idling of a Vanderbijlpark blast furnace, the list of products needing to be rebated for economic reasons keeps growing, but these rebates are not the same as having the duty removed. If the permit is not issued, you lose access to your rebate and need to pay the duty. This is not a trivial risk.
If Duferco succeeds in obtaining their rebate, they still need to get over the hurdle of getting the permits issued and whilst I suspect it is in AMSA’s best interest to allow that to happen now, it is not clear at all how they will feel when they are back up to capacity. Recall that Duferco competes with AMSA and also is their client. A rebate is a very poor alternative to a long-term supply agreement or even better, a removal of the safeguard duty.
If Minister Patel wakes up one morning and instructs ITAC to stop issuing import permits on these rebates, to allow AMSA time to get back on their feet, Duferco would simply lose their rebate, placing their business at risk. And lest you think this is far-fetched, take a look at what happened on 3 July 2020, when Minister Patel banned the export of scrap metal with immediate effect. The same empowering legislation he used to ban scrap metal exports, could just as easily be used to cut off access to this rebate.
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The deadline to respond is 6 November 2020
This is an unusually short deadline, which means this is likely to be pushed through quickly.Reasons for the rebate application
According to the application, the reasons for the rebate are:- The closure of AMSA’s Saldanha Steel Works, which came into effect during the first quarter of 2020, presents a major threat to Duferco’s future operations and economic stability. The only alternative source of supply is AMSA Vanderbijlpark, situated in Gauteng;
- When AMSA Vanderbijlpark is not able to fulfill the supply needs of the applicant, importing is the only alternative available; and
- In the event of the applicant having to import the raw material, the ordinary customs and safeguard duties will render such an alternative economically unviable, which will impact negatively on the applicant’s efficiency and its competitiveness in the export market, resulting in job losses.
The details of the rebate
For those with the fortitude to work through the details, here are the exact terms of the rebate being applied for: International Trade Administration Commission: Customs Tariff Applications: List 10/2020- “Flat-rolled products of other non-alloy steel, of a width of 600 mm or more, in coils, not further worked than hot-rolled, pickled, of a thickness of 1.80 mm or more but less than 3 mm, classifiable in tariff subheading 7208.27, for use in the manufacture of products classifiable in tariff headings 7210.49, 7210.61, 7210.70 and 7210.90, by reducing the thickness to less than 1.8 mm through cold rolling (cold-reducing) of the imported products before coating them, in such quantities, at such times and subject to such quantities as the International Trade Administration Commission may allow by specific permit, provided the goods are not available in the SACU market;
- Flat-rolled products of iron or non-alloy steel, of a width of 600 mm or more, in coils, not further worked than hot-rolled, of a thickness of 1.80 mm or more but less than 3 mm, classifiable in tariff subheading 7208.39, for use in the manufacture of products classifiable in tariff headings 7209.16, 7209.17 and 7209.18, by descaling and reducing the thickness to less than 1.8 mm through cold rolling (cold-reducing) of the imported products and thereafter putting it through an annealing and tempering process transforming the product from a yield strength of 500 Mpa to a yield strength not more than 280 Mpa, in such quantities, at such times and subject to such quantities as the International Trade Administration Commission may allow by specific permit, provided the goods are not available in the SACU market;
- Flat-rolled products of iron or non-alloy steel, of a width of 600 mm or more, in coils, not further worked than hot-rolled, of a thickness of 1.80 mm or more but less than 3 mm, classifiable in tariff subheading 7208.39, for use in the manufacture of products classifiable in tariff headings 7210.49, 7210.61, 7210.70 and 7210.90, by descaling and reducing the thickness to less than 1.8 mm through cold rolling (cold-reducing) of the imported products before coating them, in such quantities, at such times and subject to such quantities as the International Trade Administration Commission may allow by specific permit, provided the goods are not available in the SACU market; and
- Flat-rolled products of other alloy steel, not further worked that hot-rolled, in coils, of a thickness of 1.80 mm or more but less than 3 mm, classifiable in tariff subheading 7225.30, for use in the manufacture of products classifiable in tariff subheading 7225.92, by descaling and reducing the thickness to less than 1.8 mm through cold rolling (cold- reducing) of the imported products before coating them, in such quantities, at such times and subject to such quantities as the International Trade Administration Commission may allow by specific permit, provided the goods are not available in the SACU market.