The International Trade Administration Commission (ITAC) has issued a recommendation to the Department of Trade, Industry, and Competition to double the ad valorem tax on lead-acid car batteries imported to South Africa.
At present, these modules attract an ad valorem tax rate of 15%, which the ITAC contends should be raised to 30%.
This, it said, will support local manufacturers of these cells, who claim their competitiveness and profitability have been eroded by cheap lead-acid batteries imported from other countries at uncompetitive rates.
In the Southern African Customs Union (SACU) region, there are four known manufacturers of lead-acid batteries namely Auto-X, Chloride Exide Botswana, Dixon Batteries, and First National Battery.
These manufacturers produce both flooded lead-acid batteries as well as absorbent glass mat batteries, the latter of which is a more advanced lead-acid battery that offers better support to technological advancements in cars, including stop/start technology.
Known importers of these modules include Auto-X, BMW SA, Ford Motor Company SA, First National Battery, Mercedes-Benz SA, Nissan SA, Toyota South Africa Motors, and VW SA.
Flooding the market
In 2014, two local industry players applied for an increase in customs duty on lead-acid batteries from 5% ad valorem to 30%, holding the belief that cheap imports were hurting their business.
At the time, ITAC found no justification for such a considerable hike, stating it would have an “undue cost-raising effect on industrial users and consumers.”
Instead, it contended that a rate of 15% ad valorem would strike a good balance, which was subsequently implemented on 10 April 2015.
“Tariff support in 2015 resulted in the temporary reduction of low-priced imports of the subject products,” said ITAC.
“This assisted the SACU industry manufacturing lead-acid batteries to increase its market share of domestically manufactured products, investment in capital machinery, and employment.”
Lead-acid batteries import tariff structure
However, in the recent three-year period under review, there has been a resurgence of import volumes, significant portions of which are low-priced.
The increasing volume of imports into the SACU region resulted in the displacement of local production as well as a decline in market share, production volumes, capacity utilisation, and employment opportunities.
Challenges currently facing the SACU industry include, amongst others:
- High energy costs
- High sourcing cost for virgin lead
- High export volumes of scrap batteries
- Alleged circumvention of Price Preference System in terms of export of scrap lead batteries
Export data from the South African Revenue Services (SARS) highlights that exports of lead waste and scrap, a key input in the manufacture of lead-acid batteries, increased significantly from 2019 to 2021.
The increase in export volumes of lead and waste scrap was cited as a contributor to rising input costs and declining competitiveness against imported finished lead-acid batteries.
“The SACU industry is experiencing significant overall price disadvantages against imports of the subject product,” said ITAC.
The commission therefore concluded that tariff support of 30% ad valorem would enable the SACU industry to grow its market share increase economies of scale and utilize its existing under-utilized capacity.
“This should enhance the competitive position of the industry vis-à-vis imports of the similar product into the SACU market,” said ITAC.
“In addition, tariff support would result in the retention of existing jobs and the creation of additional jobs within the automotive sector.”
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