An association which represents businesses involved in the collection and processing of scrap metal has launched a court application to challenge the government’s decision to continue with regulations forcing industry players to sell at a discount locally while an export tax has been introduced.
The Metal Recyclers Association of SA, whose members collect and process an estimated 80% of all scrap metal in the country, argues that the parallel requirements of the new export duties — which have been implemented and the unexpected continuation of the price preference system — results in a double barrier to the ordinary export of scrap metals.
Most recent industry figures shows that in 2019 SA shipped about 633,000 tonnes of scrap metal amounting to R5.6bn.
The state considers scrap metal a critical feedstock into manufacturing and crucial for SA’s industrialisation drive. As a result, the government introduced various measures to boost access to higher quality and more affordable metal waste in the local market.
A price preference system was introduced in 2013, which disallowed the export of scrap metal unless it had first been offered to domestic consumers at a discount to the international price at the time of sale. The government’s long-term plan for the industry, however, has always been to introduce an export tax on scrap metal to replace the price preference system. It says such a tax will be the most effective tool to reduce the domestic price.
But trade, industry & competition minister Ebrahim Patel announced late in 2021 that the price preference system would be extended by two years. This came a few weeks before the export tax came into effect on August 1, meaning scrap metal exporters must now sell at a discount locally and at a cut rate when they export, with many critics considering this a form of double tax.
In court papers, the Metal Recyclers Association of SA says continuing with the price preference system and introducing an export tax at the same time is irrational, inconsistent with the constitution and liable to be set aside.
“The applicant and its members at all relevant times had a legitimate expectation that, with the introduction of export duties, the price preference system would simultaneously lapse. The state respondents unlawfully and unconscionably reneged on a promise,” the association says.
The court papers cite as respondents Patel, his finance counterpart Enoch Godongwana, as well as the International Trade Administration Commission (Itac) — the organisation tasked with customs tariff investigations, trade remedies, and import and export control.
The association points out that it was always clear that export duties would replace the price preference system and all the submissions and economic analysis it did, and those by National Treasury and Itac were based on this assumption.
“However, instead of the price preference system being replaced, we now have both systems in place at the same time ... The recommendation to retain [the system] while the export duties were also in place was given to the minister by a so-called working group, whose identities are unknown, despite this information having been requested,” the association says in its court papers.
It adds that one of the foundational values of the constitution requires that all government action must be exercised in a manner that is lawful, justifiable, and rational.
“The [association] has supported the introduction of the export duties, being a much more certain and effective regulatory scheme than the price preference system. The support by the [association] for the export duties was however given under the understanding that the export duties would replace the price preference system, as announced by the state respondents,” the association said.
“It is irrational for the state respondents, to operate and implement the price preference system and export duties in tandem with effect from August 1 2021, as both are directed at the same goal, but implementing them together has the effect of doubling the cost impact to the recycling sector, with no benefit to anyone in the scrap metal value chain.”
In a reply to a question from the DA published in parliament late in 2021 Godongwana said the Treasury is engaging with the department of trade, industry & competition on the role and effect of the export tax on scrap metal while a price preference system is in place.
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