We are regularly alerted to the fact that some businesses or industries are suffering due to foreign competition. The complaint is almost always that the foreign products are so much cheaper than the local products. In some instances the foreign products are not only cheap but the quality leaves much to be desired. Many businesses are simply of the opinion that these foreigners can outcompete them on, for example, cheap labour or economies of scale.

The fact of the matter is that in many instances the foreign industries do not have some comparative advantage which allows them to sell more competitively priced products, but they are in fact illegally selling cheap products in the South African market. Few businesses are aware that they can actually stop the flow of these illegally cheap products.

In terms of our legislative framework products can be illegally cheap either because it is being dumped in South Africa or because the foreigners receive some form of a subsidy from their governments which allows them to price their products cheaply. However just because a product is competitively priced does not mean that it is illegally cheap and it is thus important to know what would constitute a dumped or subsidised product. Dumping occurs when a foreigner sells a product more cheaply in South African than in the foreigner's own country. As an example, dumping would be present if a Chinese manufacturer sells his product in China for R10 and in South Africa for R8. Thus a foreigner may sell his product in South Africa for less than the price of the same South African product, but the foreigner may not sell his product in South Africa for less than he sells it in his own market.

A product is considered to be subsidised if that product receives specific governmental assistance in order to make it more competitive. Such assistance may take the form of a financial contribution (such as an interest free loan or a tax holiday) or it could be that the government provides assistance for the provision or acquisition of goods and services needed by the foreigner. Often you will find that when there is a cheap foreign product in the South African market it is both being dumped and subsidised.

Dumped and subsidised products are illegal in terms of our law and thus South African business can take action to prevent these goods from entering the market at these artificially low prices. This result can be achieved by raising the tariffs (import duty) on these dumped and subsidised products by instituting anti-dumping duties and countervailing measures respectively. The amount by which the tariffs will be raised will thus effectively eliminate any price advantage which the foreigner illegally enjoyed.

South African businesses do not have to go through expensive High Court litigation or foreign courts or adjudicators in order to have these anti-dumping duties or countervailing measures instituted. Instead they may apply to the International Trade Administration Commission of South Africa (commonly known as ?ITAC?), preferably with the assistance of experienced international trade lawyers, to have the alleged dumping or subsidisation investigated. If you can convince ITAC with your legally sound application that there is a cause for concern, ITAC will investigate your allegations as well as the foreigners' attempts to refute your allegations. Typically this avenue is cost effective, efficient and results in fair competition from the cheap foreign products.

For any assistance or queries related to competition from foreigners, kindly contact Rian Geldenhuys on 021 403 6321.

In a recent High Court decision, the court questioned the market economy status of China. In terms of this case, tyre manufacturers complained that Chinese tyres were being dumped in the South African Customs Union. The South African manufactures alleged that the Chinese economy is not an open-market economy and that due to government intervention the prices of products are artificially low and therefore the International Trade Administration Commission (?ITAC?) should not recognise China as having market economy status for purposes of conducting the anti-dumping investigation.

After ITAC investigated the anti-dumping complaint it verified the Chinese exporters' information and concluded that no dumping occurred and thus terminated the anti-dumping investigation. The South African tyre manufacturers thus took ITAC's decision on review in the High Court.

In the instance where ITAC finds that there is government intervention in a country or industry in a country, in other words the country or industry should not have market economy status, ITAC may use the a surrogate or third country to determine the normal value (the price at which the goods are sold in the exporting country). Thus if a China does not have market economy status, ITAC will not verify the normal value of Chinese manufacturers but may use the normal value of a surrogate or third country. This third country normal value should increase the normal value and thus make a finding of dumping more likely. In the present instance the South African tyre manufacturers alleged that Chinese Taipei should be used as the third country for purposes of determining the normal value of the Chinese exporters as they alleged that China does not have market economy status.

The case also deals with the Record of Understanding. This is a political accord signed between the Republic of South African and the People's Republic of China in which South Africa recognises China's market economy status for purposes of anti-dumping investigation. The court finds that the Record of Understanding does not constitute an international treaty and that it does not give legislative recognition of China's market economy status. South Africa is therefore not bound to adhere to the Record of Understanding, and in fact ITAC is acting contrary to national law if it does follow the Record of Understanding.

The court thus finds that ITAC had a duty to investigate China's market economy status. ITAC's decision to terminate the anti-dumping investigation was thus set aside and ITAC was ordered to re-investigate the anti-dumping complaint with specific reference to China's alleged non-market economy status.

The judgement leaves two open questions:

1. Does the decision open doors for other determinations made by ITAC in which it accepted China's  ,market economy status?
2. What are the implications for the political relations between South Africa and China should South Africa proceed to ignore the bilateral Record of Understanding?

Trade Law Chambers wishes our national team every success in their soccer matches in the weeks ahead. Our firm  ,provides global solutions for African conditions rooted in African know how. We recognize and align ourselves with this same spirit in our national team.

On 9 March 2010, South Africa's Constitutional Court ruled on an anti-dumping matter that will have an impact on all future anti-dumping duties, especially sunset reviews.

The matter has a rather lengthy history but may be summarised as follows. As far back as 2000, Scaw South Africa (Pty) Ltd ("Scaw") applied to have anti-dumping duties imposed on stranded wire, rope and cables originating in or imported from the People's Republic of China, Germany, India, Korea, Spain and the United Kingdom. Scaw also applied to have countervailing measures imposed on these products originating from India and Korea, but this is irrelevant to the Constitutional Court's decision as the decision only related to anti-dumping duties.

After investigating the application the International Trade Administration Commission of South Africa ("ITAC") found that the products where being dumped and imposed anti-dumping duties in 2002 on the products originating from the above-mentioned countries. ITAC specifically found that one company exporting from the United Kingdom, Bridon International Limited ("Bridon"), was dumping its products and imposed an anti-dumping duty of 42,1%.

During 2006 Bridon, in an attempt to either remove or reduce the anti-dumping duties imposed against them, applied for an interim review of its anti-dumping duty alleging that there were significantly changed circumstances which necessitated a review of the anti-dumping duty applicable to Bridon. After investigating the interim review, ITAC decided to terminate the interim review as there were no significantly changed circumstances and recommended that the anti-dumping duties imposed against Bridon should be maintained. As a result the original anti-dumping duties were in fact maintained and these duties were expected to expire on 28 August 2007. This is due to the fact that anti-dumping duties may only remain in force for 5 years from the date of imposition unless a sunset review has been initiated in which the continued imposition of the anti-dumping duties are requested and found to be appropriate.

More than 6 months prior to the expected lapse of the anti-dumping duties, ITAC informed all interested parties that they would have to initiate a duly substantiated sunset review application, failing which the anti-dumping duties would lapse. Pursuant thereto Scaw did submit such a sunset review application and ITAC investigated the application. In a new development, to our mind questionable, ITAC decided that in some instances the anti-dumping duties should be increased pursuant to the sunset review. ITAC also decided that anti-dumping duties imposed against Bridon should be removed. It is against this decision of ITAC that Scaw then sought an interdict in order to prevent ITAC from recommending its decision to the Minister of Finance (who imposes the anti-dumping duties, or in this instance who would remove the anti-dumping duty imposed against Bridon).

The High Court granted the interdict to Scaw and the interdict was to remain in force pending the finalisation of a review which Scaw should institute. The purpose of this review application was to review the decision of ITAC. Although this review application was initiated by Scaw, it was still pending when this matter came before the constitutional court.

There are four reasons why this case was heard before the constitutional court. Firstly the interdict had the effect of restraining the minister from exercising its executive powers conferred upon them by the Constitution and national legislation.

Secondly the effect of interdict was to extend the lifespan of the anti-dumping duties beyond that allowed by South Africa's national legislation (the International trade Administration Act and the Anti-dumping Regulations) and as a consequence hereof being inconsistent with South Africa's international obligations as a contracting party on the Agreement on Implementation of Article VI of GATT, 1994 ("WTO Anti-dumping Agreement").

Thirdly the interdict brings to the fore the issue of separation of powers between the courts and the national executive and the issue of the potential breach of the state's international obligations in relation to international trade. The argument is that the setting, changing or removal of an anti-dumping duty is a policy-laden executive decision that flows from the power to formulate and implement domestic and international trade policy. That power resides in the heartland of national executive authority and the question is whether the courts should interfere.

Fourthly Scaw invoked the procedural rights under the Promotion of Administrative Justice Act which is founded on the constitutional right to fair administrative action.

The Constitutional Court found that interdict indeed had the effect of extending the lifespan beyond that which is allowed in terms of national legislation and South Africa's international obligations. This is due to the fact that anti-dumping duties will only remain in force for 5 years. Interestingly South Africa has been challenged on this point in the WTO's rules committee on occasion. Scaw argued that they are allowed to review a decision of ITAC and this may thus ?extend' the lifespan of the anti-dumping duty. However the Constitutional Court held that Scaw, or any future party, will have to institute its review application of a decision by ITAC before the expiration of the 5 year period if it wanted to maintain the anti-dumping duty for an uninterrupted period. However, it cannot institute a review proceeding in which will have the effect of extending the lifespan of the anti-dumping duty. The anti-dumping duty will be removed, but may be reinstituted after the review application has been concluded successfully. Furthermore any investigation held by ITAC, which has not been concluded, may not have the effect of extending the lifespan of the anti-dumping application.

On the question of separation of powers, the Constitutional Court found that the courts cannot, by granting the interdict in this instance, usurp the power or function given to the executive by making a decision of their preference, in this instance to extend the lifespan of the anti-dumping duties.

The Constitutional Court therefore set the interim interdict aside based on the above reasoning. It is therefore very important for parties to monitor their current anti-dumping duties and sunset review investigations especially where such parties would like to maintain the anti-dumping duties for an uninterrupted time period. The Constitutional Court should also be commended as this ruling brings SA into better conformity with its WTO obligations.

What the judgement does not settle and this is the subject of ongoing litigation, is as regards the question as to whether an ant-idumping duty can be increased beyond its initial level pursuant to a sunset review.

South Africa is in for major customs changes as the South African Revenue Service (SARS) released the draft Customs Control Bill and the draft Customs Duty Bill on 30 October 2009. The draft bills are set to replace the current Customs and Excise Act.

The draft Customs Control Bill will eventually establish a customs control system for all goods imported into or exported from South Africa and will prescribe the operational aspects of the system. The draft Customs Duty Bill will of course provide for the imposition, assessment and collection of customs duties. A third piece of legislation, the Excise Duty Bill, is envisaged that will provide for the imposition, assessment and collection of excise duties. The Excise Duty Bill has not been released yet and will only be released when the Customs Control and Duty Bills have been finalised and implemented, whereafter work will commence on the draft Excise Duty Bill.

Both these draft bills contain numerous amendments and the public has time to comment on these bills until 26 February 2010. However there currently is a request to allow for an extension to submit comments as the bills contain too numerous amendments and is too lengthy to comment on sufficiently in the time period given.

For any further information on the draft Customs Control Bill, the draft Customs Duty Bill or customs duties in general, kindly do not hesitate to contact Rian Geldenhuys.

On 1 October 2009 South Africa brought some of its customs legislation in conformity with the World Trade Organisation's Agreement on the Implementation of Article VII of the General Agreement on Tariffs and Trade (?GATT?) which deals with customs valuation.

In terms of the amended Customs and Excises Act, the full costs of the goods transported from the exporter's premises are now to be included in the customs value of the goods. This added value will thus increase the amount of duty payable on those goods. Thus all inland freight charges from the exporter's premises to the port or place of export where the goods are loaded on the ship will be included in the customs value of those goods.

Previously the FOB (Free on Board) price was used for as the basis for the customs valuation. This was due to the fact that a shipping container was regarded as an exporting vehicle and hence once placed inside the container, whether the goods were placed in the container at the port of shipment or at the exporter's premises, any charge incurred thereafter would not be added to the value of the goods for customs valuation purposes.

For any further information on customs matter, kindly contact ,Rian Geldenhuys.

The South African Revenue Services (SARS) is in the process of amending the Customs and Excise Act in order to uncover more schemes set up to avoid or reduce the payment of customs duty.

The Second Taxation Laws Amendment Bill, proposes to insert provisions in the Customs and Excise Act through section 29, which is aimed at schemes set up for the purpose of avoiding duty or reducing the amounts of duty payable.

In terms of the proposed amendment, which should come into effect shortly, if the SARS is satisfied on reasonable grounds that any scheme has been entered into or carried out which has the effect of avoiding liability for duty or reducing the amount of duty payable, SARS shall determine the liability for any duty and amount thereof as if the scheme has not been entered into or carried out in such a manner as SARS deem appropriate for ensuring the correct amount of duty is paid. This legislative inclusion is thus approximately the same as what we find in several other pieces of legislation and in the common law, including the revoked section in the Income Tax Act. The underlying rationale is to give effect to the intention of the parties involved, which is presumably to avoid some or other consequence, in most instances related to a form of tax. The proposed amendment also has this as its underlying rationale and it specifies that SARS may have regard to intention of the manufacturer, importer or user of the goods to establish the true characteristics, functions or use of the goods in order to determine whether there are reasonable grounds to believe that the scheme is actually one of avoiding or reducing liability for customs duty.

The proposed amendment will make it difficult for businesses running avoidance schemes to continue as a ?scheme? is very widely defined in order to bring more of these practices within the ambit of the proposed provision. A scheme includes any transaction, operation, scheme or understanding whether enforceable or not including all steps and transactions by which it is carried into effect. It could also include the situation where a business makes any arrangement with a supplier, manufacturer, exporter or seller of goods with the object of evading customs duty.

In addition the burden of proof is placed on persons suspected of being involved in an avoidance or reduction scheme to show that they are indeed innocent. According to section 29, if SARS proves that the scheme does result in avoiding liability for duty or reducing the amount of duty payable, it shall be presumed, in the absence of evidence to the contrary that raises a reasonable doubt, that he scheme was entered into or carried out solely or mainly for the purpose of achieving avoidance or a reduction in liability for the payment of customs duty.

Importers and exporters are thus cautioned to ensure that they are indeed classifying their products correctly and paying the correct duty in order to avoid the costly delays that may be associated with being suspected of being part of a scheme for the avoidance or reduction of customs duty. For further information on customs duty, kindly contact Rian Geldenhuys.

We continually warn clients about the risks associated with international trade transactions and advise on the numerous ways to mitigate these risks. Often clients are only concerned with certain issues relating to relationship between the two parties, being the importer and the exporter. In this context clients ask advice on the best method of securing payment, which Incoterm (payment and risk terms) should be applied and what the most appropriate method of dispute resolution should be.

These are very important considerations and should not neglected, however clients often omit to consider customs duties.

Customs duties (or tariffs) could have a major influence on your revenue and could possibly even make importation or exportation economically unfeasible. However, it may well be that no customs duty is payable or that a lesser duty is levied or even that you may obtain a refund (or rebate) of the customs duty paid. Unfortunately clients often commit grave mistakes in determining which customs duty is applicable to their products. Determining which customs duty is applicable to a product is a complex exercise and expert advice should be sought. Often clients make use of clearing agents or freight forwarders (or worse still they decide for themselves) in advising them on which customs duty will be applicable. Unfortunately there are very few persons experienced in customs determinations and this leads to massive erroneous determinations which have very real financial implications. The incorrect determination of a customs duty does not only lead to the retrospective imposition of the correct duty, but could lead to a substantial financial fine or imprisonment. In addition the goods are impounded until the outstanding duties and fines have been paid. As we have seen in recent case law, the importer's or exporter's ignorance or intention is also an irrelevant consideration in minimizing retrospective imposition of the correct duty as well as fine or imprisonment.

The incorrect declaration could also imply that you do not have any history in importing or exporting a particular product. This could, in certain circumstances, prevent you from further importing or exporting that product. An example hereof was seen in the recent quotas imposed on clothing and textiles being imported from China. All of a sudden many importers could not receive a quota, because they have been importing under the incorrect tariff heading. Any such hassle may be avoided by obtaining a prior legal opinion on the matter, which cost would mostly be negligible in comparison with any loss which the business has now suffered as a result of not seeking such advice.\

Customs duties are not however only about determining what tax is applicable to a product. It may even be used to strategically position your business. A thorough knowledge of customs duties will show you that there are various ways to claim a refund (also referred to a as rebate or drawback) on the tax you pay for your imports. Such knowledge could therefore be used to position your business as an exporter for example. Such ?tax-free' imports relate to amongst other things the following:

• imports of goods used in the manufacture of other goods for local consumption,
• imports of goods used in the manufacture of other goods for export,
• imports of goods which are only temporarily in the country for adjustments, repair, etc which is then re-exported, and
• imports of goods for local consumption.

There are vast differences in the rules that apply to each of these refunds and importers will not automatically receive the refunds. Instead importers have to apply for these refunds, preferably before the goods were imported, in order to receive these refunds. The importer will also have to comply with certain legal requirements, which varies between the purposes for which the goods are imported, before such an application will be approved. It will be worthwhile to request a comprehensive review of your business' customs exposure. Such a review may save your business a great deal of money.

Some businesses may be tempted to approach the South Africa Revenue Services (SARS) for a customs determination (at a fee of course), but be weary of the fact that SARS is not bound by such determinations and may, and it has happened, decide to reverse its determinations. In such cases it would have been best to have obtained an objective legal opinion which could be defended should the need ever arise. For any further information about customs duties or risks in international trade transactions, kindly contact Rian Geldenhuys.

Trade Law Chambers has the pleasure of welcoming Niel Joubert who joins us as a Director of the firm, moving to us from Bowman Gilfillan Attorneys. Niel has a strong record of experience in international trade law. He has dealt with matters in WTO dispute settlement, trade remedies, regional trade agreements and the commercial aspects of cross border trade. He has previously served with the WTO Secretariat and the Trade Law Centre for Southern Africa. He holds an LLM in international trade law, and a joint masters degree in International Law and Economics (M.I.L.E). Niel joined Trade Law Chambers in July and we encourage our clients and friends to feel free to engage actively with him. Niel's abbreviated curriculum vitae may be read here.

Recently South Africa has enacted legislation which protects the consumer against certain practices by business. This legislation requires a business to modify its behaviour in certain areas and is not only intended to protect the consumer from unfair business practices. As an example, franchise agreements would need to comply with certain requirements. As an example, a franchisee may cancel a franchise agreement without cost or penalty within 10 business days of signing that agreement.

Bundled offerings (i.e. where, as a condition of the provision of a good or services, some additional good or service needs to be acquired from the same supplier) is further prohibited in certain circumstances and serves as another example of the need for all businesses to comply with the Consumer Protection Act. Luckily the final legislation did do away with many of the concerns business had with the consumer's rights to return goods or services purchased, however these rules would still need to be assessed by businesses in order to safeguard themselves against unforeseen returns. The Act also makes provision for the application of the new rules to pre-existing transactions and agreements and businesses are well advised to familiarise themselves with the application of these rules as they differ according to the exact field (for instance the right to receive information concerning the transaction in plain and understandable language or the disclosure of so-called grey goods) regulated by the Act. Luckily business do have limited time in order to ensure that they comply with the Act, as the provisions of the Act comes into effect within 12 months to 18 months from 29 April 2009. The legislation will apply equally to foreign firms entering the South African market.

For further information or assistance regarding the Consumer Protection Act, kindly contact Rian Geldenhuys.

As part of various teaching and academic collaborations the professionals from Trade Law Chambers are involved in, we also teach a post-graduate course on international trade law and the WTO at the University of the Western Cape.

In the first semester of 2009, one of the assessment assignments given to students was to write a short essay on two questions, the first being the recent rise in protectionism and what can or should be done about it and the second being whether the international trading system is doing enough to service the interests of developing countries.

Students were given one week to prepare and submit their responses following a lecture on the same topics presented by Mr. Simon Lacey at the Cape Town chapter of the South African Institute of International Affairs on 15 April 2009.

It was agreed that the best assignment would be posted on the Trade Law Chambers website. This prize went to Ms Marilize Ackermann who wrote a well-balanced and soundly researched response to these questions. We are happy to provide visitors to our website the chance to read Ms Ackermann's essay firsthand. To read Ms Ackermann's essay, please click here.

This week the People's Republic of China denied South Africa's request for an extension of the quotas which have been in force for two years. In terms of the agreement reached, China would curtail its exports on certain clothing and textile products to South Africa from the beginning of 2007 until the end of December 2008. An extension of the quotas would only be implemented if both parties agreed thereto.

In response the South African government has set up a task team dedicated to curbing illegal imports of clothing and textile products. According to reports this is due to the fact that persons illegally circumvented the quotas when they where still in place using various means and effectively undermining the effectiveness of the quotas on Chinese clothing and textile products. The South Africa Government is apparently also fast-tracking support measures in order to bring relief to the clothing and textile sector.

Despite these reports at this stage one can only wait and see what response will come from all parties who may have an interest in this matter.

The application of ?zeroing' is a contentious practice with anti-dumping authorities around the world. This is because using this tool artificially boosts the quantum of the dumping margin and is thus an extremely protectionist orientated practice. Some practitioners have even referred to it as ?blatantly naughty'.

On the 4th of February 2009, the World Trade Organisation's Appellate Body circulated its report on the usage of zeroing methodology in anti-dumping investigations. This dispute arose as the European Communities complained of the United States of America's use of the zeroing methodology in anti-dumping disputes. As in the panel phase the Appellate Body ruling was a resounding condemnation of the use of ?zeroing'.

The essence of the practice operates as follows:
Dumping occurs if a foreign exporter sells goods in another country at a price (the ?export price?) lower than what the exporter sells that same product for in its domestic market (the ?normal value?). The difference between the normal value and the export price would constitute the margin of dumping and typically this percentage difference would be the same as the anti-dumping duty imposed on the dumped goods.

In terms of the WTO's Agreement on the Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (or commonly referred to as the Anti-dumping Agreement), the existence of margins of dumping during the investigation phase into alleged dumping is normally established on the basis of a comparison of a weighted average normal value with a weighted average of prices of all comparable export transactions or by a comparison of normal value and export prices on a transaction-to-transaction basis.

In other words according to the WTO's Anti-dumping Agreement when investigating alleged dumping one would compare the weighted average normal value with the weighted average export price. In practice this will mean that in some sales the normal value will be lower than the export price meaning that dumping has indeed occurred. However some sales will reflect that the normal value is higher than the export price, which implies a negative dumping margin or stated differently, that no dumping has occurred. The WTO's Anti-dumping Agreement calls for the weighted average of the normal value and export price to be used. In other words the weighted average of all the positive and negative dumping margins found in the investigation phase.

The United States of America uses the zeroing methodology whereby they overestimate the final dumping margins, as it sets negative dumping margins to zero when averaging rather than allowing negative and positive dumping margins to cancel. The WTO's Appellate Body found that this practice is in contravention of the WTO's Anti-dumping Agreement and recommended that the USA brings its dumping calculation into conformity with its obligations under the WTO's Anti-dumping Agreement. There is a real possibility that the US will not comply with this decision as they consider the Appellate Body to have exceeded their authority in making this ruling.

South Africa's International Trade Administration Commission (?ITAC?) does not follow the practice of zeroing when conducting investigations and compares the weighted average normal value with the weighted average export price. In the cases where ITAC finds a pattern of export prices which differ significantly among different purchasers, regions or time periods, ITAC does compare the weighted normal value with individual export transactions as allowed by the WTO's Agreement on Anti-dumping.

If the US does not change its approach as the WTO has required, the possibility exists that other WTO Members may recalculate their own existing and future antidumping duties against the US so that the US also faces the brunt of their own practice in export markets. This would be a logical but systemically perverse outcome which we hope will not arise. Will sanity prevail?

According to media reports South Africa is proposing to limit cheap imports into the country in order to save South African jobs. This proposal originates from a joint government, business and labour task team.

It is understood that the proposal will try and stay within the rules for multilateral trade as South Africa agreed to at the World Trade Organisation. However at this stage it is too early to comment on what avenues will be pursued as there are currently no details on the proposed limitations on these cheap imports.

This approach by the South African government is in line with that of some of South Africa's trading partners who are trying to weather the effects of the global economic slowdown. As we mentioned earlier (please click here to read that article) South Africa was also considering extending the quotas on textiles and clothing originating from the People's Republic of China. Again this has been done in an attempt to save jobs in the local industry. Business Day reports that China's ambassador to Pretoria confirmed that South Africa did indeed request an extension of the quotas at the end of 2008. Currently the request is being considered by China as a myriad of legal questions surround the imposition of the quotas (please click here for our article on some of the legal issues surrounding the Chinese quotas).

Businesses importing from Asian countries need to take special notice of these developments as a change in the current trading climate may have adverse effects on the business. Please visit our website regularly as we will report on these developments as they may happen.

Recent media reports state that the South African Department of Trade and Industry warned that there is ?massive and systemic? fraud relating to clothing and textile imports from the People's Republic of China. According to the South African Revenue Service statistics imports on these products are under invoiced by up to 60%. The South African clothing and textile industry already enjoy protection from foreign competitors via the use of a range of import tariffs. However, since 1 January 2007 the local clothing and textile industry has enjoyed further protection from imports originating from China.

This protection comes in the form of a quota restriction on certain designated products being imported from China. According to the import restrictions and regulations the current quota restriction is due to lapse on 31 December 2008. According to media reports South Africa's chief director of Industrial Policy, Nimrod Zalk, hinted that an extension of the quotas is being considered. However more recent media reports have stated that apparently the retailers that will be affected the most will be excluded from the potential extension of the quotas. It was reported that the Trade and Industry Department would have met on 20 November 2008 in order to discuss the possibility of extending the quotas, however representatives of the retail sector were unaware of the meeting.
Although South Africa may protect its industry, the current quota restrictions and its potential extension may be contrary to South Africa's WTO commitments.

According to Article XI of GATT, the General Agreement on Tariffs and Trade, the WTO recognises that the only method to regulate trade is through the imposition of tariffs and quantitative restrictions are not allowed. In particular import quotas are prohibited, this includes bilateral quotas and ?voluntary' export restraints. Under the erstwhile WTO Agreement on Textiles and Clothing, quotas were tolerated, but these had to be phased out by 1 January 2005. Consequently the only protectionist quotas which are allowed under WTO law are that of subsidies in terms of Article XIX of GATT.

Instead the South African government should have used the WTO Agreement on Safeguards and South Africa's own domestic regulations for safeguards if they want to implement these quotas without disregarding South Africa's WTO obligations. However China is a special Member State and its conditions of joining the WTO does provide some leeway for other governments to protect their industries. In such cases governments may seek consultations with China (in terms of Article 16 of China's Accession Protocol) in order to reach some sort of an agreement to limit any injury, failing which resort may be had to safeguards. However such request for consultation must immediately be referred to the WTO's Committee on Safeguards. According to our information (in relation to the current quotas) this was not done as the WTO Committee on Safeguards has not been notified. Neither has China's decision to limit exports in terms of the Memorandum of Understanding which incorporates China's agreement to limit exports of certain clothing and textile products, amongst other matters. This indicates that the South African Government is neither following the method described in China's Accession Protocol nor our own safeguard regulations. It could therefore seem as if the voluntary export restraint is therefore contrary to the WTO regime.

Alternatively Member Sates may use Paragraph 242 of the Report of the Working Party on China's Accession which provides a method whereby a Member State may enter into consultations with China in order to limit the imports of clothing and textiles. However under this article China can only limit the imports to no greater than 7.5% above the amount of imports during the first 12 months of the preceding 14 months. You therefore cannot restrict the imports to less than the preceding 12 months, as it seems as if only the growth may be limited. Thus if the current regulations (and its possible extension) limit Chinese clothing and textile imports to less than the imports during the preceding 12 month period, they will not comply with WTO law.

However the Memorandum of Understanding specifically mentions that South Africa will not rely on Article 16 or Paragraph 242 and it is therefore uncertain under which WTO provision the current quota was implemented. It is further uncertain which avenue the South African government will pursue when extending these quotas.

Normally when there are disputes of a WTO nature, only countries may rely on the WTO's dispute settlement system. Private companies or industries have no recourse to the WTO's dispute settlement system. However, it is unlikely that a dispute between countries will arise as both South Africa and China agreed on the quota restrictions. Whether China will agree on its extension is of course up for debate.

However, the hands of the South Africa private sector who may want to oppose the extension of the quota restrictions are not tied. This is due to the fact that South Africa is a constitutional democracy and as such certain checks and balances are in place. One option therefore would be to look towards the Constitution. In terms of section 33 of the Constitution everyone has the right to administrative action that is lawful, reasonable and procedurally fair. The Promotion of Administrative Justice Act No. 3 of 2000 gives effect to this particular right enshrined in the Constitution and provides one avenue for affected textile and clothing businesses to demand that a lawful, reasonable and procedurally fair decision is taken on the quota restrictions.

For further information, please contact Rian Geldenhuys.

© Trade Law Chambers

Since 2006 we have been actively warning businesses operating in South Africa that the trading conditions they face are set to change dramatically. This change relates to the extent that businesses are dealing with consumers and to the extent which the Consumer Protection Bill is applicable to this relationship. This legislation is equally applicable to foreign exporters servicing the SA market.

Like the Companies Bill, the Consumer Protection Bill was approved by the National Assembly on 26 September 2008 and is expected to come into law in 2009. The Consumer Protection Bill was initially introduced hot on the heels of the National Credit Act. Essentially the Consumer Protection Bill is similar to the National Credit Act in that the Consumer Protection Bill aims to introduce more rights for the consumer and to safeguard these rights. As such the National Consumer Commission (similar to the National Credit Regulator) will be introduced that will investigate complaints from consumers and illegal practices by businesses.

The major difference between the National Credit Act and the Consumer Protection Bill is that where the National Credit Act has a very limited scope of application (only credit transactions), the Consumer Protection Bill will be applicable to every interaction business may have with consumers. The following are included as some examples of these interactions:

• Restrictions on unwanted direct marketing
• Protection of personal information
• Options to escape liability in terms of fixed term contracts
• Cooling-off periods in certain instances, like returning goods purchased after a couple of days
• Prescriptions for product labelling and trade descriptions
• Detailed rules for marketing

Businesses are cautioned to address the Consumer Protection Bill in order to avoid the consequences which the unprepared businesses faced when the National Credit Act came into law.

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For further information on the Consumer Protection Bill, kindly contact Rian Geldenhuys.
© Trade Law Chambers 2008

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On 10 October 2008, the Minister of Trade and Industry published a notice in the Government Gazette informing the public that he intends to change the threshold applicable to merger notifications. The current thresholds are determined in accordance with section 11 of the Competition Act No. 89 of 1998 read with Government Notice No. 254 of 1 February 2001. This has implications both for local businesses ventures and for certain forms of foreign investment into the country.

In terms of the current legislation, before a proposed merger is implemented in South Africa, the Competition Commission will need to be notified of such a merger. However mergers are categorized into a small, intermediate and large mergers. Small mergers do not have to notify the Competition Commission before implementing a merger, but may subsequently be ordered to do so. Intermediate and larger mergers need to notify the Competition Commission of their proposed mergers. Due to this distinction it is important that thresholds be determined so that corporations know when they should notify the Competition Commission.

The current thresholds therefore are:

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The newly proposed thresholds are:

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The proposed changes will classify more mergers as small mergers which would previously have been considered as intermediate mergers which would have to be notified to the Competition Commission.

All interested parties are invited to submit their comments on the proposed amendment by the 31st of October 2008. For further information or assistance in competition law matters, kindly contact Rian Geldenhuys.

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The National Assembly approved the Companies Bill on 26 September 2008. The Department of Trade and Industry has been busy for quite some time to redraft South Africa's company legislation. South Africa's Company Act dates back to 1973 and our corporate landscape has long been due for an overhaul.

Many of the amendments have been drafted to provide for the more modern way in which companies operate. The amendments also propose even less regulatory compliance for smaller businesses or private companies, but increased compliance for larger companies or public companies.

The Bill, which now still awaits approval by the National Council of Provinces, has undergone numerous changes during its various drafts. One of these changes is that the concepts of closely-held and widely-held companies have been removed. Instead companies will still be regarded as either companies operating for profit or non-profit companies. These for profit companies (termed ?profit companies?) will be divided into private, public, personal liability and state-owned companies. The private companies will, as under our current dispensation, not be allowed to offer their securities (such as shares) to the public and they must restrict the transferability of their securities. A public company in contrast will not have to have such limitations on their ability to offer shares to the public or their transferability of any securities. Personal liability companies will continue to hold the company's current and past directors jointly and severally liable for any debts and liabilities of the company as they were incurred during their respective periods in office. As such professionals such as a firm of attorneys or auditors will therefore continue to make use of personal liability companies.

Close corporations to a certain extent will remain a legal business entity through which persons may conduct a business. However, as is the case with law, it is not always that simple. All close corporations currently in existence and which may be established before the date that the Companies Bill becomes effective (in other words before section 13 of the Companies Bill becomes law) will remain regulated under the Close Corporations Act No 69 of 1984. For these close corporations, the new Companies Bill will bring about no change. These close corporations have the choice of whether or not they want to convert under the Companies Bill into a company. , However after the Companies Bill has become law no close corporations may be established (or incorporated).

In addition the Companies Bill provides for an even simpler method of incorporating a company (or establishing a company) by creating simpler forms which may even be completed electronically. The process has also changed in order to provide for the modernised way of doing business. This is especially true where a transaction is entered into and the parties do not yet have a juristic entity (or company). Previously one had to conclude pre-incorporation contracts which then had to be ratified once the company has been registered and the documentation has been received back from the Companies and Intellectual Property Rights Office (CIPRO). The Companies Bill allows for incorporation to occur before registrations, which in theory should make it easier for newly formed companies to do business.

Capitalisation of companies has also changed to a certain extent and we will be writing hereon as well as other important changes on company law soon. , We have written numerous articles on the new Companies Bill as it has undergone transformation. These articles may be accessed by utilising the search function on our website. Kindly keep a close eye on our website for further articles and developments on the Companies Bill. It is anticipated that the Companies Bill will become the new law in South Africa by 2010. Companies are cautioned however to already pay attention to the Companies Bill.

For further information, kindly contact Rian Geldenhuys.

© Trade Law Chambers 2009

South Africa's competition authorities have been very busy since its introduction in the late 90s. This is especially true in the realm of investigating mergers and acquisitions for possible violations of the Competition Act. It is only in recent times that the competition authorities have made headlines in the area of prohibited practices

(such as collusion and price fixing), with investigations launched, for example, in the agricultural, banking and automobiles sectors. There is however a general sentiment that South Africa faces a much bigger competition problem than these cases illustrate. Deputy Trade and Industry Minister, Rob Davies, believes the new draft of the Competition Amendment Bill will ?tighten up capacity to deal with collusive behaviour?.

There are areas in the economy where there are either inherent monopolies or complex monopolies. Inherent monopolies are typically privately owned monopolies which attained monopoly status before the effective date of the Competition Act whilst complex monopolies are co-operative arrangements between competitors that can be maintained without resort to an easily discernible anti-competitive conduct. Accordingly the draft Competition Amendment Bill aims to insert provisions into the Competition Act to effectively deal with these scenarios.

The current draft Competition Amendment Bill (April 2008) does exactly that by stipulating that a complex monopoly is present in a market where at least 45% of the goods or services in that market is supplied to, or by two or more firms and these firms conduct their respective business affairs in a co-ordinated manner, irrespective of whether they do so voluntary or not or with or without agreement or concerted practice. Participation in such a complex monopoly is prohibited if the complex monopoly has the effect of substantially preventing or lessening competition in that market and the market in which the complex monopoly subsists is characterised by either a restriction on supply, a lack of innovation, exploitive pricing, exclusionary acts, high entry barriers, uniform pricing, similar trading conditions or other indicators of parallel conscious conduct.

To give more teeth to the investigations into the so-called complex monopolies, the Bill introduces a new section which allows the Competition Commission to initiate a market enquiry in order to study the general state of competition in a market for a particular good or service. This may happen without exclusive reference to the conduct or activities of any particular named business enterprise. This new section amplifies the Commission's powers under the current Act and gives more structure, efficiency and transparency to these powers. Based on the outcome of the market enquiry the Commission may initiate a complaint against the whole market or just one or a few active enterprises, enter into a consent order with any respondent or initiate and refer the complaint directly to the Competition Tribunal. However the Commission may also report to the Minister of Trade and Industry and recommend new or amended policy, legislation or regulation or make recommendations to other authorities.

The Competition Amendment Bill also introduces individual liability for directors and individuals directly responsible for engaging in price fixing or cartel-like behaviour. Under the current Act, directors would not be held liable for such involvement, and the final penalty will be paid by the company and ultimately the shareholders whilst the directors escape liability. The new section 73A proposes that involvement by persons, under certain conditions, in price fixing or cartel- like behaviour would constitute a penalty under the Competition Act and be punishable either a fine of up to R500 000 or imprisonment of up to 10 years or both. The new penalty should therefore move directors to at least consider the provisions of the Competition Act, especially given the widened scope of the current draft Competition Amendment Bill.

On 14 December 2007 the Corporate Laws Amendment Act finally became law and brought with it a new dispensation for allowing a company to provide financial assistance for the purchase of its shares and disposing of the whole or a substantial part of its business or assets. However another change this Act brought to the corporate world is ,that of refined financial reporting.

Before we get into the details of the financial reporting requirements we have to mention that the Act already gives birth to the term ?widely held company? as envisaged in the current Companies Bill that is expected to change South Africa's corporate landscape within the next year or two. A widely held company in terms of the Act broadly means that its articles permit the offer of shares to the public or provides for the unrestricted transfer of shares.

Accordingly a new requirement for all widely held companies is that every financial year the board appoints an audit committee for the next financial year. Such an audit committee consists of at least two members and must consist only of non-executive directors of the company, who of course have to act independently. The Act also places certain qualifications on what would constitute an independent non-executive director. Essentially the audit committee will be tasked with appointing an independent auditor, determining terms and conditions of such engagement and reporting in the financial statements as to how the audit committee has carried out its functions and stating that that audit committee was satisfied that the auditor was independent of the company. The Act then also prescribes certain requirements in order to determine whether the auditor was indeed independent of the company. The audit committee and the auditor of a widely held company must meet not more than one month before the board of the company meets to approve the financials and discuss related matters of importance or relevance.

Every widely held company must now also report its interim and final results to every member and debenture holder as previously required of public companies. Widely held companies must also comply with financial reporting standards and Schedule 4 of the Companies Act which has been substantially amended, whilst limited interest companies must comply with accounting standards and Schedule 4.

The Act then inserts a new chapter in the Companies Act which deals exclusively with financial reporting standards. In terms of the new chapter a ?Financial Reporting Standards Council' is established which will establish financial reporting standards for widely held companies and accounting practices for limited interest companies. Any person who believes that a widely held company is not conforming to these standards may complain to the Financial Reporting Investigations Panel who will investigate the matter.

Any company that falls within the definition of a widely held company may delay compliance with the financial reporting standards until its first financial year after 14 December 2007.

Should you require any additional information on the changes brought about by the Corporate Laws Amendment Act, kindly visit our website here for informative articles or contact Rian Geldenhuys.