(Yet another) update to the trade policy directive on the export of scrap metal

PPS has been extended to the end of July 2021.

Between the Minister of the Department of Trade, Industry and Competition and ITAC (International Trade Administration Commission of South Africa) various proposed amendments to the PPS (Price Preference System) for scrap metal have been published. Key issues to note in the various proposed amendments are:

1) The latest gazettes of 17/12/2020 and 24/12/2020 note that the PPS has been extended to the end of July 2021
2) There are more detailed discounts for specific types of scrap metal
3) The seller must cover the cost of transporting the scrap metal to the buyer. This can no longer be negotiated
4) Scrapping the additional discount of 10%, which the last amendment inserted, for companies selling scrap from coastal provinces. Don’t get too excited though, as the point above simply makes this the seller’s problem no matter where they are situated
5) Scrap metal export permit applications, submitted to ITAC, may not be withdrawn unless a local sale has been made
6) Scrap metal will only be allowed to be exported as breakbulk cargo, with containerised exports being prohibited

“No other Trade Minister, since the implementation of the International Trade Administration Act in 2003, has used trade policy directives with quite the vigour and enthusiasm of Minister Patel and no other industry has been the target of these directives like the scrap metal industry,” writes Donald Mackay of XA International Trade Advisors in one of his blogs.

“This is a complex industry, which has been turned from a productive part of the economy, creating R10 billion of export value out of what would simply be garbage without the recycling industry, to a shadow of its former self, at R3 billion in exports. The reason for the drop in export value is directly connected to the use of trade policy directives around the Price Preference System (PPS) and in July 2020, the outright ban of scrap metal exports, even those grades of scrap not consumed locally.”

“You can read my most recent scrap metal blog posts here (https://xa.co.za/yet-another-amendment-to-the-price-preference-system-pps-for-scrap-metal-exports/) and here https://xa.co.za/possible-overlapping-of-pps-and-export-duties-on-scrap-metal/).”

“For those too lazy to click the links, the nub of the PPS is to force recyclers to sell to the local consumers of scrap at a discount. If an offer is made at or higher than the mandated discount price, then an export permit cannot be issued. In other words, the recycler needs to accept the offer or have no alternative, hence the drop in the value of exports and the overconsumption of local scrap.”

“The pernicious PPS was meant to be replaced by an export duty on scrap metal, due to be implemented on 1 April 2020. Although both destroy export value, the export duties are by far the least harmful. Unless of course the PPS is not removed when the export duties are imposed, which is precisely what will happen.”

“On 23 November 2020, Minister Patel proposed extending the latest PPS trade policy directive, due to expire on 31 December 2020, to 30 June 2021. This is alarming enough, however, the latest gazette extends the PPS to the end of July 2021. This means that for the period from April to July (4 months), recyclers will either sell locally at a discount or export and pay a duty.”

“The reasons given by the Minister are to allow for:
1) Work by SARS to bring the export tax on scrap metal into operation in terms of any applicable taxation law; and
2) Consideration by the DTIC and ITAC on which aspects, if any, of the [PPS] Policy Directive which may be continued in order to complement and support the operation of the export tax on scrap metal

Here is why these reasons are flimsy:
1) The proposed legislative amendments have already been published and just need to be signed into law. These were the amendments in the Taxation Laws Amendment Bill, which is the bill that ultimate results in the various changes to the tax laws each year. These big changes result in the budget and are implemented like clockwork each year. There is no reason to think that 2021 will be any different. Certainly the process is exactly where it usually is in prior years, so there is no cause for alarm right now. SARS may get many things wrong, but they have a keen sense of how to collect money from tax payers and the amendment to allow the collection of export duties is not complex.
2) Point 2 is really worrying because it has every appearance of the Minister not wanting to let go of the control he currently exerts through the PPS and the connected export control regulations.”

“I have no idea why the overlapping period was extended by a month, except that it seems someone asked for it to be extended. We have requested copies of the submissions made which resulted in this decision and will update you when we know more.”