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The ordinary import duty on automotive lead-acid batteries has been increased from 5% ad valorem to 15% ad valorem with effect from Friday, 10 April 2015. This increase follows the consideration by the International Trade Administration Commission of South Africa of a joint application by Powertech Batteries (Pty) Ltd and First National Battery (Pty) Ltd for an increase in the rate of customs duty on automotive lead-acid batteries of a kind used to start piston engines, classifiable under tariff subheading 8507.10, from 5% to 30% ad valorem. The applicants cited in their application that, in recent years the imported automotive lead-acid batteries have continued to flow into the SACU market. As a result, the local manufacturers have found it increasingly difficult to compete with the imports as the pricing models adopted by foreign manufacturers are often below local costing. They considered this influx of low priced batteries as a threat to the local battery manufacturers’ performance in relation to sales, market share and employment. They also stated that majority of the imports originate from South Korea where these manufacturers enjoy government sponsored grants and incentives, and a number of battery importers are sending back scrap batteries to the countries where they were originally manufactured, and as a result this raises the cost of domestically recycled lead which makes the local manufacturing uncompetitive and uneconomical. According to the applicants, it is estimated that importers have grown their share of the South African battery market from about 8.5% in 2010 to just over 20% in 2013. Thus, this has had a significant negative impact on local manufacturers, which has been compounded by the exportation of scrap batteries. The domestic industry has the capacity to produce approximately 5 million automotive batteries per annum, which is more than sufficient to supply the SACU replacement market demand estimated at approximately 4 million units as well as the requirements of the Original Equipment Market. Over the period of the investigation, the local manufacturers produced on average 4 million batteries per annum. Following a decline in production volumes between 2012 and 2013, total industry capacity utilisation declined from 77% to approximately 70% over the same period. According to the information at the Commission’s disposal, the domestic industry experiences price disadvantages vis-à-vis foreign manufacturers, in the face of rising domestic production costs and declining profitability. Comments in support of the application were received from the National Association of Automotive Component and Allied Manufacturers (NAACAM), Dixon Batteries (Pty) Ltd, Chloride Exide Botswana (Pty) Ltd and the Botswana Ministry of Trade and Industry.
The objections centred on the inclusion of batteries for motorcycles which are not manufactured domestically; the insignificant price differentials between domestically manufactured products and imported equivalent products, perceived restrictive business practices by local manufacturers; and the cost-raising effect of the duty. The Commission considered the application in light of the information at its disposal, and took the following factors into account:
The Commission found no justification for an increase in duty to the requested level of 30% ad valorem. Such an increase would have an undue cost-raising impact on industrial users and consumers. On balance, the Commission found that tariff support for the industry at the level of 15% ad valorem would significantly improve its price-competitive position, enable it to utilise its installed production capacity and achieve economies of scale with a reduction in the marginal cost of production. Following the tariff support, the Commission will conduct a review of the duty structure to determine its impact on the industry value chain, three years from the date of implementation. The Commission also found that motorcycle batteries are not manufactured domestically and recommended that a separate tariff subheading be created at the existing rate of 5% ad valorem for these smaller lead-acid batteries.
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