NEWS

Countervailing Duties and Subsidy Investigations: A South African Policy Brief

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.

South Africa’s industrial base faces persistent competition from subsidised imports. To counter these distortions, the International Trade Administration Commission of South Africa (ITAC), acting under the Southern African Customs Union (SACU) Agreement, implements countervailing duties (CVDs) in line with the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement).

This briefing outlines the role of CVD investigations in South African trade policy, highlights relevant precedents, and identifies the key subsidy practices that undermine domestic industry.

Legal Framework

- WTO SCM Agreement: Establishes disciplines on subsidies, distinguishing between prohibited subsidies (e.g. export contingent) and actionable subsidies (causing injury, nullification, or serious prejudice).
- SACU Agreement, Article 26: Authorises member states, through ITAC, to apply trade remedies consistent with WTO obligations.
- ITAC Regulations (2005): Provide the domestic procedures for initiating, conducting, and concluding CVD investigations.

South Africa is thus firmly embedded in the multilateral subsidy discipline framework, while retaining flexibility to address unfair trade impacts on local industry.

Relevant Precedents

- ITAC Case: Flat-Rolled Steel Products (2015–2017)
SACU producers alleged injury from subsidised Chinese steel imports. ITAC found prima facie evidence of government support through preferential loans and raw material provision. Although final duties were not imposed due to evidentiary constraints, the case underscored ITAC’s readiness to investigate subsidies in sensitive sectors.

- WTO Dispute: DS437 – United States v. China (CVD Measures on Certain Products)
The Appellate Body confirmed that loans and input provision by state-owned banks and enterprises may constitute subsidies under Article 1 of the SCM Agreement, even when granted by entities formally independent of government. This jurisprudence is directly relevant for SACU, given the prevalence of such support in key import sources.

- WTO Dispute: DS436 – United States v. India (CVDs on Hot-Rolled Steel)
Clarified that subsidy benefit calculations must be based on market benchmarks outside the subsidising country when domestic prices are distorted. This precedent strengthens ITAC’s hand in examining subsidised inputs supplied by state enterprises at below-market rates.

Common Red Flags for SACU Policymakers

1. Export-linked rebates and exemptions exceeding actual duty payments (contrary to SCM Article 3.1).
2. Concessional financing from state-owned banks, as seen in steel, aluminium, and energy-intensive industries.
3. Provision of inputs at preferential prices by state-owned enterprises (iron ore, coal, and electricity being common examples).
4. Targeted industrial subsidy schemes, particularly in heavy industry, chemicals, and fertilizers, that compete directly with South African production.

Policy Rationale for Supporting CVD Investigations

- Industrial Sovereignty: CVDs prevent foreign subsidy programs from hollowing out South Africa’s industrial capacity.
- Employment Protection: By neutralising unfair advantages, CVDs help preserve jobs in steel, automotive components, and other strategic sectors.
- Rule-Based Enforcement: Properly conducted investigations strengthen South Africa’s credibility as a WTO-consistent actor, avoiding ad hoc protectionism.
- Negotiating Leverage: Enforcement of CVD rules sends a signal to major trading partners (notably China and India) that SACU will exercise its rights when subsidy programs harm domestic industry.

South Africa’s use of countervailing duty investigations is not a retreat into protectionism, but a defence of the rules-based trading system. WTO jurisprudence (DS437, DS436) confirms that many forms of state support qualify as actionable subsidies. ITAC’s past steel cases show that South Africa has the institutional capacity to pursue such matters credibly.

Going forward, sustained vigilance is required, particularly in sectors such as steel, aluminium, chemicals, and agriculture, where subsidised competition remains most acute. CVDs are thus both a shield for South African industry and a reaffirmation of its commitment to fair and transparent trade under global rules.

- Misha De Lange