STI Electrical has requested an increase in the ad valorem customs duty on imported goods to 15%, instead of the current 5% in South Africa. According to the applicant, this relatively low 5% tariff has posed challenges for domestic producers and the influx of competitively priced imported cores has made it difficult for local manufacturers to compete effectively. To address this issue, the applicant seeks adjustments in tariff rates to enhance the competitiveness of the domestic industry.
Transformer cores, it turns out, play a pivotal role in electrical power distribution systems. These magnetic components transform voltage levels, ensuring efficient energy transmission. This application focuses on transformer cores with a power handling capacity not exceeding 50,000 kVA. These cores fall under tariff subheading 8504.90.
STI Electrical presented the following reasons for the duty increase:
- Cost Pressures: The price of grain-oriented silicon steel, a critical input material for transformer cores, has surged significantly over the years. Between 2019 and 2021, this increase further eroded the competitiveness of domestic core manufacturing. Adjusting tariffs would help mitigate cost pressures.
- Industrial Contribution: The domestic industry involved in fabricating transformer cores contributes significantly to industrialisation, diversification, and value addition in South Africa. Processes like sizing, slitting, stacking, and clamping are integral to this sector’s growth.
- Job Creation: STI Electrical is a vital contributor to job creation and retention, especially in the Ekurhuleni district—a region grappling with high unemployment rates, particularly among the youth. Tariff support would bolster both the industry’s growth and the country’s broader industrial development and employment objectives.
The reciprocal agreement, which is never spoken of
We don’t know if STI Electrical is aware of this, but once their case has been adjudicated, they will be asked to sign a reciprocal agreement, requiring a binding commitment to:
- a certain number of jobs created,
- further investment in equipment and
- additional spend on training.
They will be told they cannot increase their prices above raw material price increases and if these prices drop, that the saving must be passed along. Oh, and any raw materials they import, they will likely need to commit to buying locally. They will be asked to give a written report on their progress against these goals every six months.
It’s important to understand these things, which is why you should download the latest XA Import Duty Investigation Report here.