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Scrap metal industry ‘cannot and should not’ carry a double burden related to exports

‘Patent contradiction’ by the dtic has left the industry to contend with both an export duty and a ‘price preference’ system.
Recyclers made business decisions on the fact that the export duty was supposed to replace the previous system, says the industry’s legal representative. Image: Moneyweb

The Metal Recyclers Association (MRA), representing the majority of scrap metal recyclers in the country, has asked government to remove the recently imposed export duty on scrap metal, or to keep it at 0% until the “ineffective” Price Preference System (PPS) lapses.

The export duty was supposed to replace the PPS in August.

However, Minister of Trade, Industry and Competition Ebrahim Patel extended the system for another two years – ostensibly to “support the export duty”.

The MRA said the repudiation of the policy decision to do away with the PPS at the eleventh hour was “legally and constitutionally unconscionable”.

In its latest submission to National Treasury the association said the industry should not and could not carry the burden of both the export duty and the PPS.

R360m hit so far

The export tax has so far cost the industry more than R360 million, which amounts to 15% of the total value that has been exported. This is on top of the discount imposed by the PPS.

The PPS was introduced around 2013 to ensure that local consumers had access to affordable, quality scrap metal before it was exported. The scrap had to be offered to the domestic market at a discounted price (ranging between 10% and 30%), and only if there was no uptake could it be exported.

An investigation by the International Trade Administration Commission, on the instructions of the minister, found that the system was ineffective as it has not provided the foundries and mills with affordable, quality scrap metal.

The export duties on scrap metals were imposed at 0% from March 1 this year until the end of July, as August 1 was the date on which the export duty should have replaced the PPS.

Contradiction

The MRA submission argued that the Department of Trade, Industry and Competition (dtic) “patently contradicted” the new policy for scrap metal as announced by National Treasury and the minister of finance (for the PPS to be replaced by the export duty from August).

The dtic, without prior public consultation, published a notice that proposed the extension of the PPS, less than two months before the introduction of the export duty.

It then went ahead and extended the PPS until July 2023 in conjunction with the export duty.

At a December 10 National Treasury workshop on technical tax proposals for amendments in the 2022 Budget Review, the MRA said there is no “practical, legal and financial” rationale for the two systems to co-exist.

Flawed consultation process

International trade lawyer Clive Vinti of XA International Trade Advisors, representing MRA, said the recyclers made business decisions on the fact that the export duty was supposed to replace the PPS.

The association argued that the imposition of the export duty was based on a “flawed consultation process whose integrity and rationality has been irretrievably compromised by the DTIC”.

It pointed out that while the PPS stays in place, no export permits are granted for scrap metal for which there is a local requirement.

“It follows from this that the only scrap metal which is exported while the PPS is in operation, is scrap metal for which there is no local requirement.

“There would be no rationale to apply an export duty on scrap metal for which there is no local requirement.”

Rule of law

It requested that the export duty be suspended or remain at 0% for as long as the PPS is in operation.

“A failure to do so exposes the export duty to charges of bias, capriciousness, bad faith and irrationality, which is an element of the rule of law under the Constitution.”

National Treasury said it took note of the industry’s concerns, stating that it followed the parliamentary process (to introduce the export tax) on the assumption that it would have replaced the PPS.

It said it could not in an open forum accuse another department of “going another way” or of going “rogue”, adding: “We are in consultation with the relevant department (dtic) and the matter will be resolved.”

Treasury did not however commit itself to a timeline of when the matter will be resolved.

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