NEWS

Staged Consignments: A Legal Loophole Undermining Local Industries?

How South Africa’s Import System Could Be Exploited—And What Needs to Change

Safeguard protection is granted whenever an industry is suffering from serious financial injury, caused by an increase in imports, which was because of unforeseen developments stemming out of the 1994 GATT negotiations, to which South Africa was a signatory.

Safeguard measures are enacted to ensure enough breathing room for the domestic manufacturing industry in distress to adjust and become more competitive, usually within a period of 3-6 years.

For this remedial protection to be effective, these safeguard duties need to be monitored and enforced across the board. However, as part of the Safeguard Agreement, the Safeguard Regulations creates an “Exempted Countries” list. This exemption has shown to provide a safeguard duty-free roue for imports from countries which are developing in nature and from where imports did not originate prior to the imposition of the safeguard duties.

The” circumvention” becomes a problem when the bigger importers switch their sources from imports from the traditional exporting countries like China and Russia, to smaller, developing nations, like Taiwan and Indonesia, effectively bypassing the Safeguard duties in their entirety.
Other WTO member countries would normally act quickly against these changes by removing these “developing nations” quickly once its import volume exceeds the established threshold. No further investigation is required.

In South Africa, the remedial action linked to the imposition of safeguard measures are failing because the officer in charge of this administrative action, the Minister of Trade, Industry and Competition, Minister Dave Patel, fails in his duty to authorise these exempted country removals immediately, or at all in some cases. Imports that reduced because of the imposition of the safeguard duties, with a resultant uptick in local production, regained lost ground within a year of the duties being imposed, rendering the safeguard protection completely impotent.

Below is an import chart, providing insight on how imports of Hexagon Nuts, a product protected by safeguard duties have climbed to almost pre-safeguard levels, because of a lack of action by the government to curb imports from developing nations.

Staged consignments, a customs mechanism designed to simplify large-scale industrial imports, might sound like a niche trade policy issue. But its loopholes could be costing South Africa millions in lost revenue, jobs, and industrial growth. While intended to support projects like renewable energy infrastructure, the system’s loopholes risk enabling tariff evasion, undercutting local manufacturers, and even facilitating trade remedy circumvention. Here’s why reform is urgent.

The Problem: A System Ripe for Abuse

Staged consignments allow importers to classify multiple components under a single tariff code (e.g., for machinery or renewable energy projects). But the current rules have glaring gaps:

• Minimal Checks: The sole criteria are weight/volume (500+ tons/cubic meters)—ignoring value, local sourcing potential, or anti-dumping risks.
• Trade Remedy Circumvention: Importers can bundle goods subject to duties (e.g., steel fasteners, cables) under a single duty-free classification, bypassing protections for domestic industries.
• Undervaluation Risks: No requirement to declare final project value, enabling importers to split a R10M factory into R1M shipments to avoid scrutiny.

Example: Wind turbine imports could exploit staged consignments to bring in foreign steel components duty-free, despite local manufacturers producing equivalent parts.

Where’s the Enforcement?

Post-import monitoring is nearly non-existent:

1. No Traceability: Once installed (e.g., bolts in a solar farm), components can’t be audited.
2. Diversion Risks: Goods could be repurposed or sold off without detection—enforcement often happens too late.
3. Local Sourcing Ignored: Importers aren’t required to prove components couldn’t be sourced domestically, undermining South Africa’s localisation goals.

Recommendations: Closing the Loopholes

To protect local industries and revenue, policymakers need to effect short term and long term strategies. In the short-term they need to flag keys sectors and ensure these sectors are duly accounted for, in the long-term they should consider amendments to the policy to ensure more robust checks-and-balances.

The Bottom Line:

Staged consignments shouldn’t be a backdoor for trade distortion. Without reform, the system risks harming South Africa’s manufacturing sector—while rewarding those who play the rules. As renewable energy projects expand, the stakes are too high to ignore.

Should SARS tighten staged consignment rules? Share your thoughts

-By Kherina Narotam