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Inaccurate coding distorts structural steelwork imports

Source: ILAN SOLOMONS Date: 11 July 2014

Imported fabricated structural steel is a significant challenge for local fabricators, owing to the quantity and price at which it is imported, says industry body for the promotion of the steel construction industry in Southern Africa the Southern African Institute of Steel Construction (Saisc).

“The matter is further aggravated by the fact that it is impossible to collect correct statistics on fabricated structural steel import volumes, owing to incorrect coding of imported fabricated steel products,” Saisc CEO Paolo Trinchero tells Engineering News.

He highlights that incorrectly coding fabricated structural steel enables importers to circumvent an import duty of 15%, which “essentially makes the product competitively priced to import into South Africa”.

Trinchero says the consequences of such actions are that local companies and importers cannot compete on a level playing field, adding that, in addition, “many Asian companies receive State subsidies to export their goods”.

He points out that local steel fabricators do not receive financial assistance when exporting goods.

Moreover, he says, when South African companies want to export fabricated steel to other Brics (Brazil, Russia, India, China and South Africa) countries, the duties are substantially higher than those in South Africa.

Eskom Steel Imports

Trinchero points out that about 70 000 t of fabricated steel has been imported for use on State-owned power utility Eskom’s Medupi and Kusile coal-fired power stations, in Limpopo and Mpumalanga respectively.

Eskom received an exemption on import duties in September 2008 from the South African Revenue Services (Sars) for all the material required for use at these power stations.

Saisc industry development executive Kobus de Beer explains that the international Harmonised System (HS) code for imported structural steel is HS7308, but Eskom imports products for the power stations using the generic HS8406.81 code.

“This is a nondescript code, which Sars has been using to simplify the import process, which results in structural steel imports not being recorded as a separate entity,” he states.

“In the current challenging economic climate, it would have been significantly beneficial had local fabricators been able to participate in the construction of the last three boilers for both power stations,” Trinchero says, adding that for every 100 000 t of structural steel imported, 10 000 real jobs are lost.

De Beer estimates that about 40 000 t of fabricated structural steel is entering South Africa duty-free each year, “which equates to more than R1-billion which Sars is losing in unpaid tariffs”.

He explains that, cumulatively, the amount could be much higher.

General Tariff Dodging

De Beer says other companies have also been using similar generic codes to import fabricated structural steel items to avoid paying tariffs.

“A case can be made for the power stations receiving these exemptions. However, it becomes unacceptable when the practice of classifying imported fabricated structural steelwork for projects is examined, as local steel fabricators are prejudiced through these wholesale exemptions,” he says.

De Beer notes that imports for local infrastructure projects, such as a new furnace building or a new workshop building for a mine group, are treated as ‘staged consignments’, where the quantity exceeds 500 t, “as most major structural steel projects do”.

He says these “staged consignments” are also allocated a HS8401 code, which labels the consignment as “nuclear reactors, boilers, machinery. . . mechanical appliances and parts thereof”, which are not only imported duty-free but also escape having to be listed in the relevant Sars customs records.

De Beer illustrated the point by adding that several importers advised him “not to worry” about import duties on brewery structural steelwork, as it would just be recorded as food-processing equipment.

However, he stresses that Saisc is not criticising the International Trade Administration Commission of South Africa, Sars or Eskom for the situation in which the steel industry finds itself.

“Our experience is that all these organisations are doing the best they can to ensure a fair and equitable situation,” says De Beer.

He adds that import leakages of fabricated structural steel occurred as a result of organisations finding convenient ways to label all incoming materials as being destined for the power stations or major projects to ensure they were duty-free.

Moreover, he notes that according to Saisc’s analysis of duties paid on properly identified HS73089090 imports, only 7% of the 15% duties payable on average was paid in 2012 and only 4% in 2013.

De Beer believes that the simplest solution would be to insist that every piece of imported fabricated structural steel be identified and coded in accordance with the applicable HS7308 code.

“Import duties at 15% should be levied and refunded, or waived, in the event of exemptions, but never automatically sidestepped.

Imported fabricated structural steel is a significant challenge for local fabricators, owing to the quantity and price at which it is imported, says industry body for the promotion of the steel construction industry in Southern Africa the Southern African Institute of Steel Construction (Saisc).

“The matter is further aggravated by the fact that it is impossible to collect correct statistics on fabricated structural steel import volumes, owing to incorrect coding of imported fabricated steel products,” Saisc CEO Paolo Trinchero tells Engineering News.

He highlights that incorrectly coding fabricated structural steel enables importers to circumvent an import duty of 15%, which “essentially makes the product competitively priced to import into South Africa”.

Trinchero says the consequences of such actions are that local companies and importers cannot compete on a level playing field, adding that, in addition, “many Asian companies receive State subsidies to export their goods”.

He points out that local steel fabricators do not receive financial assistance when exporting goods.

Moreover, he says, when South African companies want to export fabricated steel to other Brics (Brazil, Russia, India, China and South Africa) countries, the duties are substantially higher than those in South Africa.

Eskom Steel Imports

Trinchero points out that about 70 000 t of fabricated steel has been imported for use on State-owned power utility Eskom’s Medupi and Kusile coal-fired power stations, in Limpopo and Mpumalanga respectively.

Eskom received an exemption on import duties in September 2008 from the South African Revenue Services (Sars) for all the material required for use at these power stations.

Saisc industry development executive Kobus de Beer explains that the international Harmonised System (HS) code for imported structural steel is HS7308, but Eskom imports products for the power stations using the generic HS8406.81 code.

“This is a nondescript code, which Sars has been using to simplify the import process, which results in structural steel imports not being recorded as a separate entity,” he states.

“In the current challenging economic climate, it would have been significantly beneficial had local fabricators been able to participate in the construction of the last three boilers for both power stations,” Trinchero says, adding that for every 100 000 t of structural steel imported, 10 000 real jobs are lost.

De Beer estimates that about 40 000 t of fabricated structural steel is entering South Africa duty-free each year, “which equates to more than R1-billion which Sars is losing in unpaid tariffs”.

He explains that, cumulatively, the amount could be much higher.

General Tariff Dodging

De Beer says other companies have also been using similar generic codes to import fabricated structural steel items to avoid paying tariffs.

“A case can be made for the power stations receiving these exemptions. However, it becomes unacceptable when the practice of classifying imported fabricated structural steelwork for projects is examined, as local steel fabricators are prejudiced through these wholesale exemptions,” he says.

De Beer notes that imports for local infrastructure projects, such as a new furnace building or a new workshop building for a mine group, are treated as ‘staged consignments’, where the quantity exceeds 500 t, “as most major structural steel projects do”.

He says these “staged consignments” are also allocated a HS8401 code, which labels the consignment as “nuclear reactors, boilers, machinery. . . mechanical appliances and parts thereof”, which are not only imported duty-free but also escape having to be listed in the relevant Sars customs records.

De Beer illustrated the point by adding that several importers advised him “not to worry” about import duties on brewery structural steelwork, as it would just be recorded as food-processing equipment.

However, he stresses that Saisc is not criticising the International Trade Administration Commission of South Africa, Sars or Eskom for the situation in which the steel industry finds itself.

“Our experience is that all these organisations are doing the best they can to ensure a fair and equitable situation,” says De Beer.

He adds that import leakages of fabricated structural steel occurred as a result of organisations finding convenient ways to label all incoming materials as being destined for the power stations or major projects to ensure they were duty-free.

Moreover, he notes that according to Saisc’s analysis of duties paid on properly identified HS73089090 imports, only 7% of the 15% duties payable on average was paid in 2012 and only 4% in 2013.

De Beer believes that the simplest solution would be to insist that every piece of imported fabricated structural steel be identified and coded in accordance with the applicable HS7308 code.

“Import duties at 15% should be levied and refunded, or waived, in the event of exemptions, but never automatically sidestepped.

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