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Customs News Bulletin

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3 June 2015

 

 

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WHAT EVERY IMPORTER NEEDS TO KNOW ABOUT TARIFF CLASSIFICATION, VALUATION AND ORIGIN OF GOODS
There is a close relationship between the Customs trilogy tariff classification, customs valuation and rules of origin. These important aspects of Customs form an integral part of customs control, duty collection and the compilation of trade statistics, and every importer must make self-determinations in respect of each of these in respect of each import.

In this regard see sections 99 in Chapter 6 of the Customs Duty Act, section 116 in Chapter 7 and section 152 in see Chapter 8 of the Customs Duty Act, 2014 (Act No 30 of 2014).

Four chapters of the Customs Duty Act, 2014 (Act No 30 of 2014) provides for tariff classification of goods, valuation of goods and origin of goods and advance rulings on tariff classification, valuation and origin. In this regard see Chapters 6 to 8 and 10 of the Customs Duty Act.

The combination of classification, valuation and origin plays an important role in customs. These three aspects are inter-related and classification also plays an important role in determining the origin of goods.

If one consults the annexures to the General Rules to Schedule No 1 you will notice the importance and inter-linking role of tariff classification and preferential origin in relation to the List Rules which determines whether or not goods qualify for lower rates of duty if it originates in a country with which South Africa has a preferential trade agreement.

List of working or processing required to be carried out on non-originating materials in order that the product manufactured can obtain originating status.

Each of the SA-EU Trade Development and Co-operation Agreement, SADC Trade Treaty and the SACU-EFTA Free Trade Agreement has an annex containing the list of working or processing required to be carried out on non-originating materials in order that the product manufactured can obtain originating status ("The list rules") in order to qualify for the lower than the General rate of duty. Each set of list rules is preceded by an annex containing introductory notes to the list rules.

This list of working or processing is based on the HS tariff classification and contains for each position the appropriate condition(s). A position can be all products of a chapter, a heading or a group of headings or just a specific selection of these products (so-called "ex" position). In the case of an ex-position the rule applies only to the product as described in column 2 read with columns 3 and 4. See for example Jacobsens pages (29) to (92) in respect of the List Rules for the SADC Trade Treaty.

Therefore, to use the list of working or processing it is necessary to first identify the HS Chapter of tariff heading or subheading of the finished product. Then it must be verified whether the finished product has complied with the qualifying process listed in column 3 or 4 for the finished product of that heading. If this is not the case, a product may still be originating if the value of the non-originating materials does not exceed the general tolerance rule, here applicable.

There are several types of rules but the most common (see table of examples) are:
• that only wholly obtained materials can be used (a);
• that non-originating materials from certain positions can be used in or are excluded from the working or processing (b);
• that a specific working or processing operation must be carried out (c);
• that a certain percentage of value is added or cannot be exceeded in the production process (d);
• a combination of different rules (e)
• that a choice between different rules is given (f)
Where, for the entry in the first two columns, a rule is specified in both columns 3 and 4, the exporter may opt to apply either the rule set out in column 3 or the one set out in column 4 ( g). If no rule is given in column 4, the rule set out in column 3 must be applied.

A study conducted by the World Customs Organization indicated that Change of Tariff Classification (CTC)-based rules are used in particularly high proportions with respect to chemical products, leather products, wood products, metal products and other miscellaneous goods.

The research was carried out as part of the WCO’s comparative study on preferential rules of origin which concentrated on the use of CTC-based rules in product specific rules (PSRs) of existing free trade agreements (FTAs).

The decision to conduct the research arose due to the growing number of preferential trade agreements around the world and the important role played by the customs in the administration of such agreements.

The study of existing preferential agreements has shown that in the 20 largest free trade agreements selected according to trade volume, the average proportion of the CTC-based rules is 73.41 per cent based on the number of HS subheadings, with the proportion exceeding 95 per cent in more than half of them. The current document has been uploaded on the WCO official website, is a new module intended to complement and further develop the organisations comparative study on preferential rules of origin. While the existing modules focus mainly on explaining the rules of origin provisions, the focus in this new study module is on the use of the CTC-based rules in PSRs of existing free trade agreements.
 

 

 

DRAFT CUSTOMS DUTY RULES PUBLISHED FOR COMMENTS (Comments due by 5 June 2015)
The Draft Rules to Chapters 1, 3 to 9 and 11 to 13 of the Customs Duty Act, 2014 (Act 30 of 2014) were published for comments. The Draft Rules to Chapters 2 of the Customs Duty Act covering the Customs Tariff and Chapter 10 covering advance rulings will be published at a later stage.

SARS Customs has requested interested parties to use the Comment Sheet template to submit the comments (by no later than 5 June 2015). The Comment Sheet and the Draft Rules can be downloaded from the SARS website at http://www.sars.gov.za/Legal/Preparation-of-Legislation/Pages/Draft-Documents-for-Public-Comment.aspx

 

Customs Tariff Applications and Outstanding Tariff Amendments

The International Trade Administration Commission (ITAC) is responsible for tariff investigations, amendments, and trade remedies in South Africa and on behalf of SACU.

Tariff investigations include: Increases in the customs duty rates in Schedule No. 1 Part 1 of Jacobsens. These applications apply to all the SACU Countries, and, if amended, thus have the potential to affect the import duty rates in Botswana, Lesotho, Namibia, Swaziland and South Africa.

Reductions in the customs duty rates in Schedule No. 1 Part 1. These applications apply to all the SACU Countries, and, if amended, thus have the potential to affect the import duty rates in Botswana, Lesotho, Namibia, Swaziland and South Africa.

Rebates of duty on products, available in the Southern African Customs Union (SACU), for use in the manufacture of goods, as published in Schedule No. 3 Part 1, and in Schedule No. 4 of Jacobsens. Schedule No. 3 Part 1 and Schedule No. 4, are identical in all the SACU Countries.

Rebates of duty on inputs used in the manufacture of goods for export, as published in Schedule No. 3 Part 2 and in item 470.00. These provisions apply to all the SACU Countries.

Refunds of duties and drawbacks of duties as provided for in Schedule No. 5. These provisions are identical in the all the SACU Countries.

Trade remedies include: Anti-dumping duties (in Schedule No. 2 Part 1 of Jacobsens), countervailing duties to counteract subsidisation in foreign countries (in Schedule No. 2 Part 2), and safeguard duties (Schedule No. 2 Part 3), which are imposed as measures when a surge of imports is threatening to overwhelm a domestic producer, in accordance with domestic law and regulations and consistent with WTO rules.

Dumping is defined as a situation where imported goods are being sold at prices lower than in the country of origin, and also causing financial injury to domestic producers of such goods. In other words, there should be a demonstrated causal link between the dumping and the injury experienced.

To remedy such unfair pricing, ITAC may, at times, recommend the imposition of substantial duties on imports or duties that are equivalent to the dumping margin (or to the margin of injury, if this margin is lower).

Countervailing investigations are conducted to determine whether to impose countervailing duties to protect a domestic industry against the unfair trade practice of proven subsidised imports from foreign competitors that cause material injury to a domestic producer.

Safeguard measures, can be introduced to protect a domestic industry against unforeseen and overwhelming foreign competition and not necessarily against unfair trade, like the previous two instruments.

Thee following ITAC application (List 05/2015 / Notice 486 of 2015) was published in Government Gazette No 38822 on 29 May 2015.


A. PROPOSED AMENDMENT OF THE CONDITIONS PERTAINING TO THE GUIDELINES, RULES AND CONDITIONS PERTAINING TO TEXTILE FABRIC IMPORTED IN TERMS OF REBATE ITEMS 320.01/5407.61/01.06, 320.01/5903.20.90/01.08 AND 320.01/5907.00.90/01.08 FOR THE MANUFACTURE OF UPHOLSTERED FURNITURE; AND


B. WITHDRAWAL OF THE REQUEST BY TEXFED TO AMEND THE WORDING OF THE EXISTING REBATE PROVISION FOR 320.01/5407.61/01.06, AS PUBLISHED IN THE GOVERNEMENT GAZETTE ON 20 FEBRUARY 2015 AND AS SET OUT BELOW:

 

a) The additional proposed amendments to the guidelines regarding applications for permits for rebate of the full duty on qualifying fabrics used in the manufacture of upholstered furniture in terms of the provisions under rebate items 320.01/5407.61/01.06; 320.01/5903.20.90/01.08 and 320.01/5907.00.90/01.08 of Schedule 3 to the Customs and Excise Act. The additional proposed amendments to the guidelines are as follows:


1. Applications to ITAC for rebate permits will be accompanied by a sample of the fabrics to be imported which will then be sent to the Textile Federation (Texfed) for its confirmation of the local availability. Furthermore, upon importation, a sample of each of the fabrics included in the rebate permit should be supplied to South African Revenue Service (SARS) for verification purposes.
 

2. An annual audit should be performed by an independent 3rdparty who will perform the audit on importers of the rebated fabric. A Texfed representative may accompany such an audit process.
 

3. All applications by companies for rebates will be forwarded to industry representative bodies for comment before approval, in order to enhance ITAC's understanding of the bona fides of the applicant.
 

4. All consignment level data relating to the rebate application should be provided to interested parties , including trade associations and trade unions, and should include the following information relating to imports:
i. Date of import;
ii. Port of entry;
iii. Country of origin;
iv. Country of export;
v. Description of goods imported and quantity of goods imported;
vi. Rand value of goods imported
vii. Purpose (Customs Procedure/CPC) code and
viii. Identity of importer
 

b) Withdrawal of the request by Texfed to amend the current wording of certain fabrics, which may be imported in terms of rebate provision 320.01/5407.61/01.06 that is used for the manufacture of upholstered furniture.
 

Enquiries:
Ms Khosi Mzinjana, Tel. (012) 394 3664 , Fax (012) 394 4664 , e-mail: kmzinjana@itac.org.za ; or
Ms Amina Varachia, Tel. (012) 394 3732 , Fax (012) 394 4732 , e-mail: avarachia@itac.org.za .

Comments on this application is due by 26 June 2015.
 

 

 

 

Customs Tariff Amendments

With the exception of certain parts of Schedule No. 1, such as Schedule No. 1 Part 2 (excise duties), Schedule No. 1 Part 3 (environmental levies) Schedule No. 1 Part 5 (fuel and road accident fund levies), the other parts of the tariff is amended by SARS based on recommendations made by ITAC resulting from the investigations relating to Customs Tariff Applications received by them. The ITAC then investigates and makes recommendations to the Minister of Trade and Industry, who requests the Minister of Finance to amend the Tariff in line with the ITAC’s recommendations. SARS is responsible for drafting the notices to amend the tariff, as well as for arranging for the publication of the notices in Government Gazettes.

During the annual budget speech by the Minister of Finance in February, it was determined that parts of the tariff that are not amended resulting from ITAC recommendations, must be amended through proposals that are tabled by the Minister of Finance.

Once a year big tariff amendments are published by SARS, which is in line with the commitments of South Africa and SACU under international trade agreements.

Under these amendments, which are either published in November or early in December, the import duties on goods are reduced under South Africa’s international trade commitments under existing trade agreements.

1. In terms of section 48 of the Customs and Excise Act, 1964, Part 1 of Schedule No 1 is amended, with retrospective effect to 1 May 2015, to the extent indicated below:


Note 5 to Chapter 98 concerning original equipment components for certain motor vehicles is amended as recommended in ITAC Minute 10/2014.
Government Gazette 38823, R. 437 29.05.2015 A1/1/1517
 

2. In terms of section 75 of the Customs and Excise Act, 1964, Part 1 D of Schedule No 6 is amended to the extent indicated below:
Part 1D of Schedule No. 6 is amended to provide for a refund on spirituous beverages, which have become off-specification, have been contaminated or have undergone post-manufacturing deterioration.
Government Gazette 38823, R. 438 29.05.2015 A6/1D/04

3. In terms of section 48 of the Customs and Excise Act, 1964, Part 1 of Schedule No 1 is amended to the extent indicated below:
Tariff subheadings 1701.12, 1701.13, 1701.14, 1701.91 and 1701.99 are amended to increase the rate of customs duty on sugar in terms of the existing variable tariff formula as recommended in ITAC Minute 01/2015.
Government Gazette 38834, R. 445 29.05.2015 A1/1/1518
The following tariff amendments were published in Government Gazettes:
• 38823 dated 29 May 2015
• 38834 dated 29 May 2015

2. Note 2 in Schedule No 6 is amended to add rebate items 620.03 and 622.05 to exempt other fermented beverages and tobacco products supplied to the President, diplomats and other foreign representatives from registration in terms of rule 59A (Government Gazette 38804, R. 427 22.05.2015 A6/33)

3. Rebate item 619.07/104.10.20/01.01 is inserted to provide for a rebate on beer made from malt, used in the manufacture of non-alcoholic beverages (Govern-ment Gazette 38804, R. 428 22.05.2015 A6/1B/01)

4. Note 4 in Part 1 C of Schedule No. 6 is amended to remove the reference to “commercial use”, and to insert of rebate items under 620.21/104.17 to provide for a rebate of excise duty on other fermented beverages to be used in the manufacture of non-alcoholic beverages (Government Gazette 38804, R. 429 22.05.2015 A6/1C/40)

5. Rebate item 621.11 is amended to include spirits used in the fortification of other mixtures of fermented fruit or mead beverages, fortified with an alcoholic strength of at least 15% by volume, but not exceeding 23% by volume. (Government Gazette 38804, R. 430 22.05.2015 A6/1D/03)

 

 

Customs Rule Amendments

The Customs and Excise Act is amended by the Minister of Finance. Certain provisions of the Act are supported by Customs and Excise Rules, which are prescribed by the Commission of SARS. These provisions are numbered in accordance with the sections of the Act. The rules are more user-friendly than the Act, and help to define provisions which would otherwise be unclear and difficult to interpret.

Forms are also prescribed by rule, and are published in the Schedule to the Rules.

Forms are also prescribed by rule, and are published in the Schedule to the Rules. 

There were no Rule amendments at time of publication.

The last rule amendment (DAR/144) was published on 27 March 2015 in Government Gazette 38603 under Notice R. 246.

Download the latest Customs Watch to have access to the latest tariff and rule amendments.

 

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Contact Information:

 

Contact the Author:

Mayuri Govender
Jacobsens Editor

Tel: 031-268 3273
e-mail to:
jacobsen@lexisnexis.co.za

 

Leon Marais
Independent Customs Consultant
Tel: 053-203 0727
e-mail to:
leon.marais@intekom.co.za

 

LexisNexis

 

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