The International Trade Administration Commission of SA (Itac) has moved to bar cash transactions in the sale of scrap steel.
This is as the country moves on from the damaging greylist it was on over the past two years as a result of lax anti-money-laundering laws, which it has since tightened.
The move by Itac, which manages SA’s import and export controls and conducts trade remedy investigations, is part of the review of the 2013 price preference system (PPS) for scrap metal.
Itac chief commissioner Ayabonga Cawe said the process of reviewing the PPS took about 13 months to complete. One of the main features of the new regime will see the discount for domestic ferrous scrap-consuming industries reduced from 30% to 25%.
“What we are also introducing is that all these transactions must no longer be done in cash. As you would imagine, this decision is also influenced by the scrutiny under the Financial Action Task Force (FATF) and some of the engagement over the last while and the export regulations controls of 2022,” Cawe said.
“We have also introduced a technical working group, which will be comprised of the SA Revenue Service and industry players. The technical group will be advisory in nature and provide insights and inputs with regard to issues when they arise from time to time as we administer the PPS,” he said.
“Secondly, the technical working group will participate in discussions and make recommendations to Itac and it will also assist us in dealing with instances of non-compliance and some illicit activity in the sector and ensure consistency in how we administer the system.”
A report by independent economic research consultancy Econometrix, released earlier this year, said SA’s embattled steel industry has bled 25,000 jobs since 2009 — losses that continued after the introduction of the PPS in 2013.
The report, released in February, points to the government’s interventionist policies in the steel industry, in which production has plunged 40% below its 2006 peak. The data shows that about 7,500 jobs were lost in the sector since 2014 after the introduction of the PPS the previous year.
The policy regulates the export of ferrous and nonferrous scrap by not allowing the exportation of scrap metal unless it has first been offered to domestic consumers at a discount to the international price at the time of sale.
The report found that PPS and scrap export tax policies created an imbalance in the sector, creating an unfair advantage for mini-mills.
“When there is no local demand, scrap steel is melted into billets or ingots and mainly exported. These semi-finished products are a combination of scrap steel and electricity (a scarce resource),” CEO of trade consultancy XA Global Trade Advisors Donald MacKay said in reaction to the review of the PPS.
“These exports are artificially high because of the arbitrage created by PPS, export duties on unprocessed scrap steel and friendly IDC finance,” he said.
“These exports represent the PPS discount forced on local generators of scrap, transferred to foreign buyers of steel. Some of that discount returns to SA as cheap steel, which competes with our own local steel industry. In the past 12 months just shy of R4.2bn was exported like this.”
