SOUTH AFRICA: INPUT FOR THE 2006 NATIONAL TRADE

UNCLAS PRETORIA 004646

SIPDIS

DEPARTMENT FOR AF/S, EB/TPP
PLEASE PASS TO USTR/WJACKSON

E.O. 12958: N/A
ETRD, ECON, EINV, EFIN, ECPS, SF
SUBJECT: SOUTH AFRICA: INPUT FOR THE 2006 NATIONAL TRADE
ESTIMATE REPORT

REF: STATE 188246

NOT FOR INTERNET DISTRIBUTION


1. What follows is post's response for input for the
2006 National Trade Estimates Report as requested in
reftel. Per instructions, this has also been sent in
Microsoft Word format via electronic mail to William
Jackson and Gloria Blue in the Office of the United
States Trade Representative.

IMPORT POLICIES
--------------


2. Tasked with efficiently and effectively administering
South African trade laws, the International Trade
Administration Commission (ITAC) replaced the Board on
Tariffs and Trade in June 2003. ITAC's specific
responsibilities include:

- Tariff Administration: ITAC administers tariff-related
programs, including the Motor Industry Development Program
(MIDP) and the Duty Credit Certificate System (DCCS). In
addition, interested parties may petition ITAC to review
tariffs with the purpose of reducing or increasing them;

- Trade Remedies: ITAC administers antidumping and
countervailing duties and safeguards. Although introduced
in 2004, safeguard procedures have not been tested. The
textiles and clothing industry is reportedly putting
together several petitions in light of rising Chinese
imports; and

- Import and Export Control: ITAC issues import and
export permits for certain items designated by the Minister
of Trade and Industry under the authority of the
International Trade Administration Act of 2002 (which
replaced the Import and Export Control Act of 1963).

Import Control
--------------


3. The Minister of Trade and Industry may, by notice in
the Government Gazette, prescribe that no goods of a
specified class or kind be imported into South Africa,
except under the authority of, and in accordance with,
the conditions stated in a permit issued by ITAC. The
main categories of controlled imports are as follows:

- Used goods: ITAC may grant import permits on used
goods or substitutes if not manufactured domestically, thus
creating a de facto ban on most used goods. While designed
to protect the domestic manufacture of clothing, motor
vehicles, machinery, and plastics, these restrictions limit
imports of a variety of low-cost used goods from the United
States and Europe;

- Waste, scrap, ashes, and residues: The objective of
import controls on these goods is to protect human health
and the environment under the Basel Convention;

- Other harmful substances: Imports of substances such
as ozone depleting chemicals under the Montreal Convention
and chemicals used in illegal drug manufacturing under the
1988 United Nations Convention are controlled for
environmental, health, and social reasons; and

- Goods subject to quality specifications: This
restriction permits the monitoring of manufacturing
specifications that enhance vehicle safety (such as in the
case of tires) or protect human life.

Tariffs
--------------


4. ITAC continues to receive requests for tariff
protection from a number of industries and U.S. companies
have cited protective tariffs as a barrier to trade.
Other barriers to trade often cited include port
congestion, customs valuation above invoice prices, theft
of goods, import permits, antidumping measures, IPR
crime, an inefficient bureaucracy, and excessive
regulation.


5. Under SACU, products from Botswana, Lesotho,
Swaziland, and Namibia enter South Africa duty-free. In
a few cases, products from these countries compete
directly with U.S. goods that are subject to duties. One


example is soda ash imported from Botswana at a zero duty
while soda ash from the United States faces a 5.5 percent
duty. The soda ash duty benefits Botswana, the only
producer of soda ash within SACU. A standing complaint
from this producer to South Africa's Competition
Commission law has threatened to block all U.S. exports
of soda ash. Initially, the Competition Commission
accepted the complaint as a "per se" offense, but a
recent decision by the South African Supreme Court of
Appeal remanded the case to the Competition Commission to
confirm that U.S. exports have actually damaged the South
African market. As of late 2005, there the Competition
Commission indicated a willingness to settle the case and
avoid further litigation. If tariffs on U.S. soda ash
were removed, industry estimates that U.S. exports of
high quality soda ash to South Africa could increase from
less than $8 million to $25 million, closer to its
historical level.

Anti-Dumping
--------------


6. The government promulgated antidumping regulations on
November 14, 2003. In 2003 and 2004, local industry
filed twelve antidumping petitions. In the first ten
months of 2005, local industry filed ten new antidumping
petitions against nineteen countries. The majority of
the petitions were against Chinese firms. However, ITAC
initiated an antidumping investigation into the alleged
dumping of feed supplements containing lysine imported
from the United States. ITAC also initiated sunset
reviews of antidumping duties on frozen chicken pieces
and aceteaminophenol from the United States. Antidumping
duties on U.S. origin suspension PVC and roller bearings
remain in force, though U.S. industry and the U.S.
Government have challenged the assertion of antidumping.
In 2004, ITAC increased the MFN applied duty on imports
of poultry offal, as requested by domestic industry.

Free Trade Agreement with the European Union
--------------


7. In 2000, South Africa and the European Union (EU)
began to implement provisions of their Trade,
Development, and Cooperation Agreement (TDCA). Under the
TDCA, South Africa and the EU agreed to establish a free
trade area over a transitional period of up to 12 years
for South Africa, and 10 years for the EU. The agreement
provides for the reduction and eventual elimination of
duties on approximately 85 percent of the products
imported by South Africa from the EU, and 95 percent of
the products exported by South Africa to the EU. The
agreement exempts certain agricultural products from
liberalization. Some U.S. businesses exporting to South
Africa are concerned that their products will be less
competitive because of EU preferences that the TDCA
provides. An example includes the tariff differential
between EU and U.S. bottled and bulk distilled spirits.
Another is automobiles.


8. In November 2005, South Africa and the EU completed
the work program on automobile trade as part of the TDCA.
The EU agreed to phase out all tariffs on South African
automotive imports by 2010. South Africa agreed to
reduce tariffs on European car imports from 25 percent to
18 percent by 2012. Currently, 51 percent of South
Africa's vehicle and component exports go to the EU.
Given strong U.S. presence in the EU market, U.S.
companies are divided on whether they are disadvantaged
by the TDCA.

STANDARDS, TESTING, LABELING AND CERTIFICATION
-------------- -

Apparel, Textiles, Shoes, and Leather Goods
--------------


9. The Minister of Trade and Industry published
regulations that prohibit the importation of or the sale
of textiles, apparel, shoes, and leather goods in South
Africa unless they are labeled in such a way that it is
clear which country produced the goods. These
regulations came into force on May 23, 2005 and required
placing the South African import registration code on the
label of each item. A number of companies complained,
noting that simply stating the country of origin should


be enough. The South African Revenue Service (SARS)
seeks to establish clear guidelines and procedures that
are less onerous and, in the meantime, is not enforcing
the regulations.

Biotechnology
--------------


10. There has been an active debate in South Africa
about agricultural biotechnology. The Genetically
Modified Organisms Act ("the GMO Act"),entered into
force in 1999, aims to ensure that all activities
involving the use of agricultural biotechnology
(including production, import, release, and distribution)
will be carried out in such a way as to limit possible
harmful consequences to the environment. Since 1999,
some retail groceries have promoted a limited range of
biotech-free products and a few consumer groups have
urged the Department of Health to introduce compulsory
labeling of biotech products.


11. Under the leadership of the Department of Health's
Directorate of Food Control, the South African government
issued labeling regulations on biotech products in early

2004. The regulations mandate labeling foods containing
agricultural biotechnology in certain cases, including
when allergens or human/animal proteins are present and
when biotech food products differ significantly from a
non-biotech equivalent. The rules also require
validation of enhanced-characteristic claims for food
containing agricultural biotechnology. The regulations
do not address labeling claims that products are biotech-
free. Biotechnology advocates are concerned about this
omission, noting it could lead to fraudulent claims.
Trade organizations seem satisfied with the regulations,
which follow internationally recognized, scientific
guidelines (under CODEX). South Africa's CODEX
representative comes from the Directorate of Food
Control.


12. In November 2004, the government published draft
changes to the GMO Act to bring it into compliance with
the Cartagena Biosafety Protocol. The government
solicited public comments on the draft changes and, as of
late 2005, was still evaluating those comments.


13. In June 2001, the South African government published
the National Biotechnology Strategy for South Africa, a
document that articulated the South African government's
intent to stimulate industries based on biotechnology.
The document states that biotechnology can make an
important contribution to achieving national priorities,
particularly in the areas of human health, food security,
and environmental sustainability. Environmental groups
continued to exert pressure on the South African
government in 2005 to examine the safety of foods derived
from agricultural biotechnology.


14. The government approved for commercial production
biotech soybeans that are tolerant to herbicides, as well
as cotton, yellow maize, and white maize that are
resistant to insects. Farmers are enthusiastically
adopting the new technology, planting biotech crops on
500,000 hectares in 2004 and on an estimated 700,000 to
one million hectares in 2005. The use of these products
is widespread in the food processing industry.


15. U.S. grain producers raised concerns about the
treatment of "stacked events" when it comes to import
approval for biotech products. Although the U.S.
Government considers products containing a combination of
two previously approved genetic modifications (such as
for insect resistance and herbicide tolerance) as
"conventional," only encouraging producers to notify the
U.S. government of such "stacked events," South Africa --
like the EU -- considers "stacked events" to constitute a
completely new event, thus requiring a de novo review for
registration purposes. This requirement creates
significant delays in registering products, causing U.S.
exporters to lose export opportunities.


16. Currently, the Government of South Africa has not
approved U.S. yellow corn for importation because of its
treatment of "stacked events" for approval purposes. As
it stands, if yellow corn were in short supply in South
Africa, importers would have to apply to the government


for a special waiver to import it, with the guarantee
that the corn would be milled near the port to ensure
that it cannot be planted.


17. In 2004, Biowatch, an environmental lobby group,
took legal action against the National Department of
Agriculture (NDA) to obtain information on how it made
licensing decisions on biotech crops. The local courts
ruled in favor of the NDA, allowing it to continue
protecting certain information on a business proprietary
basis.


18. In September 2003, countries of the Southern African
Development Community (SADC),including South Africa,
developed common guidelines on the regulation of products
resulting from biotechnology. The guidelines assert that
the region should develop common policy and regulatory
systems based on either the Cartagena Protocol or the
African Model Law on Biosafety. The leaders of SADC
member states also agreed to develop national
biotechnology policies and strategies, and to increase
their efforts to establish national biosafety regulatory
systems. Leaders urged member states to commission
studies on the implications of biotechnology for
agriculture, the environment, public health, and socio-
economics.

Agricultural Standards
--------------


19. The South African government requires prospective
importers to apply for an import permit for certain
controlled products. Public Health officials still ban
the importation of irradiated meat from any source. U.S.
horticultural producers have complained about various
South African sanitary or phytosanitary barriers when it
comes to the importation of apples, cherries, and pears
from the United States. They estimate that, if these
barriers were removed, U.S. exports of each of these
fruits to South Africa could increase by $5 million to
$25 million in annual sales. U.S. producers have also
expressed concern about unnecessary sanitary and
phytosanitary requirements for some grains, pork,
poultry, and horticultural products.


20. To fulfill South Africa's commitment under the WTO
Marrakesh Agreement on market access, the National
Department of Agriculture (NDA) published the rules and
procedures regarding the application for market access
permits for agricultural products on October 24, 2003.
The NDA issues permits to importers registered with the
South African Revenue Service (SARS) and the Department
of Trade and Industry (DTI) for agricultural products
listed in the Table of Import Arrangements. Ten percent
of such permits are reserved for "new importers" (those
who have not imported within the past three years),and
10 percent are reserved for small, medium, and micro-
enterprises.


21. In response to the Bovine Spongiform Encephalopathy
case in Washington State announced on December 23, 2003,
South Africa banned all ruminant animals and products
originating in the United States. By January 15, 2004,
South Africa, in accordance with World Organization for
Animal Health (OIE) standards, exempted non-risk products
such as hides, skins, wool, and mohair from the ban. At
the end of 2005, the ban on ruminant meat products was
still in place. The South African Department of
Agriculture was impressed with USDA's surveillance
program, but wanted to see a full report with data from
the surveillance program before lifting the ban.

GOVERNMENT PROCUREMENT
--------------


22. Government purchases are by competitive tender for
project, supply, and other contracts. The government
uses its position as both buyer and lawmaker to promote
the empowerment of the historically disadvantaged
majority population in South Africa through its Black
Economic Empowerment (BEE) policy.


23. South Africa's Preferential Procurement Policy
Framework Act of 2000 and its implementing regulations
created the legal framework and set forth a formula for
evaluating bidders on government contracts. To augment


this, the Department of Trade and Industry has been
working on regulations to clarify the Framework Act and
incorporate the intentions of the Broad-Based Black
Economic Empowerment (BEE) Act of 2003. The new
regulations give greater preference to bidders of
government contracts according to their compliance with
BEE objectives. The regulations include BEE thresholds
for tender qualification. Companies bidding on tenders
valued up to R1 million will earn 80 percent of their
points from their bid price and 20 percent from their
commitment to BEE objectives. For tenders valued over R1
million, companies will earn 90 percent of their points
from their bid price, and 10 percent from their
commitment to BEE objectives. The National Treasury is
working with the Department of Trade and Industry to
align preferential procurement regulations with the BEE
Codes of Good Practice on Procurement, to be released for
discussion in early 2006. The codes will help
standardize how firms are evaluated on their compliance
with industry BEE scorecards.


24. South Africa's Industrial Participation (IP)
program, introduced in 1996, subjects all government and
parastatal purchases or lease contracts (goods, equipment
or services) with an imported content equal to or
exceeding $10 million (or the rand equivalent thereof) to
an IP obligation. This obligation requires the
seller/supplier to engage in local commercial or
industrial activity equaling or exceeding 30 percent of
the imported content of total goods purchased under
government tender. The intent of the program is to
benefit South African industry by generating new or
additional business.


25. In August 2004, the Minister of Finance issued the
BEE Code of Good Practice for Public Private Partnerships
(PPPs). The code sets out BEE targets for PPPs and
provides greater clarity for private sector participants.
In October 2005, the Minister of Trade and Industry
issued final Codes of Good Practice on BEE Equity and BEE
Management.


26. South Africa is not a signatory to the WTO Agreement
on Government Procurement.

INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION
--------------

Legal Regime
--------------


27. A variety of laws and regulations protect property
rights, including intellectual property rights. In 1997,
the South African Parliament passed the Counterfeit Goods
Act and the Intellectual Property Laws Amendment Acts.
The Department of Trade and Industry (DTI) administers
these acts. Although South Africa's intellectual
property laws and practices generally conform with those
of developed countries, there are issues with enforcement
and in guaranteeing the protections afforded under these
laws. The U.S. government has raised its concerns with
the South African Government. The United States has also
provided training on IPR enforcement to South African
government and private sector representatives.


28. The U.S. software industry has cited three principal
deficiencies in the 1978 Copyright Act:

- Lack of criminal penalties for end user piracy. South
African law currently provides that the sale of infringing
software is a criminal offence, but there is no criminal
penalty for end users;

- Lack of presumptions relating to copyright subsistence
and ownership. Amending the law to add ownership and
subsistence presumptions would reduce the procedural burden
on rights holders in proving their cases; and

- Non-deterrent civil damages. Amending the law to
introduce statutory damages to cover end users and to ensure
that monetary damages serve as a deterrent would improve IPR
protection. Neither the current provisions on damages nor
the application of these provisions are sufficient to serve
as a deterrent to future infringement.


29. Until the government amends existing legislation,


the lack of evidentiary presumptions in the law will
continue to complicate enforcement of individual
copyright claims.


30. In 2001, the South African Government introduced
measures to enhance enforcement of the Counterfeit Goods
Act. The government appointed more inspectors,
designated more warehouses for counterfeit goods,
destroyed counterfeit goods, and improved the training of
customs, border police, and police officials. In 2004,
there were 100 convictions for people arrested with
counterfeit DVDs and computer games, compared to 14 in

2003. 2005 figures will only be available in March 2006.
Cooperation between industry and customs authorities and
police also improved. Despite these efforts, monetary
losses from trademark counterfeiting and copyright piracy
remain high. U.S. industry is also increasingly
concerned about illegal commercial photocopying,
especially at universities, libraries, and other on-
campus venues. Counterfeit medicines are also a growing
problem. Although law enforcement authorities often
cooperate with the private sector in investigating
allegations of trade in pirated or counterfeit goods,
there are concerns about laxity in enforcement of IPR
laws against imports of infringing goods. Complainants
can take both civil and criminal action against
offenders. U.S. industry reports that South Africa is
becoming a transshipment point for pirated and
counterfeit goods into the rest of Africa.


31. U.S. firms have complained that South Africa does
not adequately protect safety and efficacy studies (also
called "registration data") submitted to national
authorities with applications for product approval. U.S.
firms have claimed that these studies are unfairly
"referenced" by competitors for the purposes of
registering competing products.


32. South Africa is a member of the World Intellectual
Property Organization (WIPO),but has yet to ratify the
WIPO Copyright Treaty and the WIPO Performances and
Phonograms Treaty. South Africa has acceded to the
Stockholm Text of the Paris Convention for the Protection
of Intellectual Property.

Software/Audio Visual IPR Issues
--------------


33. Software piracy still occurs frequently in South
Africa. In a study that examined 2004, the Business
Software Alliance estimated that the piracy rate was 37
percent and that U.S. industry in South Africa lost an
estimated $91 million in sales. Piracy in the video and
sound industry also continues to be a concern. U.S.
industry estimates that piracy rates for the audiovisual
industry rose from 15 percent to 50 percent from 2001 to
2005, caused mainly by the growth in imports of pirated
optical disc products. The South African Federation
Against Copyright Theft estimates that industry losses
for 2005 will be in excess of $55 million.

SERVICES BARRIERS
--------------

Telecommunications
--------------


34. Telkom's monopoly continues to present difficulties.
Telkom has managed to keep telecom prices high and to
stifle competition. Telkom has restricted the resale of
telecommunications services through predatory pricing and
legal challenges. Pending a lawsuit in the South African
courts, Telkom has refused to pay a multi-million dollar
contract with a U.S. telecommunications software company.
By March 2005, Telkom had parlayed its market dominance
into $1.7 billion in operating profit on $6.5 billion in
sales. In 2005, the DOC sponsored two colloquiums to
discuss measures to lower telecommunications prices. DOC
intended to release an action plan before the end of

2005.


35. South Africa has adopted the WTO reference paper on
pro-competitive regulatory principles and made
commitments to the WTO on value-added telecommunications
and basic telecommunications services. These commitments
include a promise to license a second national operator


(SNO) to compete in long-distance, data, telex, fax, and
privately leased circuit services no later than January
1, 2004. The Minister of Communications conditionally
approved a license for the SNO in September of 2004, but
disagreements between SNO shareholders over operational
control and allocation of equity stakes have delayed the
launch until 2006. The result has been that Telkom has
enjoyed monopoly privileges well beyond its period of
exclusivity, which ended in May 2002.


36. On February 1 2005, the Minister of Communications
effected sweeping liberalization of the
telecommunications sector. Mobile operators will now be
allowed to use any fixed lines in the provision of their
service, value-added network services (VANS) can be
offered through infrastructure other than that which is
owned by Telkom, and VANS providers are allowed to employ
Voice Over Internet Protocols. In addition, private
telecommunications network operators can sell spare
capacity. On May 20 2005, the Minister approved
supporting regulations for the licensing of VANS. These
developments should help resolve past complaints by
Internet Service Providers (ISPs) and VANS providers that
Telkom has limited their access to Telkom's network.


37. In 2003, the Department of Communications (DOC)
released a draft Convergence Bill, which industry
analysts hope will simplify the existing legislative
framework, empower the regulator, and open the
telecommunications industry to greater competition.
Following a highly critical public comment period, the
DOC undertook to revise the bill. In 2005, the DOC
released for comment its modified version, entitled the
Electronic Telecommunications Bill. The revised bill and
amendment is currently under debate in Parliament.
Critics charge that the bill will increase the authority
of DOC at the expense of ICASA and, therefore, is likely
to incorporate greater political bias in future
regulatory decisions. They believe that ICASA should be
strengthened to better carry out its regulatory mandate.


38. One U.S. company withdrew from the South African
market in 2005 after having made a substantial investment
in an earth station for mobile satellite services, only
to have ICASA demand an excessively high license fee. In
late 2005, ICASA sought assistance on pricing models for
different services.

Other Services
--------------


39. The United States and the Government of South Africa
met in August 2005 to discuss a possible Open Skies
Agreement. Open Skies agreements provide for open route
rights, capacity, frequencies, designations, and pricing,
as well as opportunities for cooperative marketing
arrangements, including code-sharing and airline
alliances. At the talks, South Africa argued for
incremental liberalization of the existing 1996 bilateral
air transport agreement. South African Airways (SAA),
the national airline wholly owned by the state owned
enterprise Transnet, had previously registered its
concern about U.S. airlines exercising "fifth-freedom
rights" in Africa (i.e., carrying passengers to and from
countries other than the United States and South Africa),
which could impinge on SAA's strategic regional market.
At this time, the two sides have no plans to re-engage on
Open Skies.


40. U.S. financial services providers have expressed
ongoing concerns about the implementation of the Black
Economic Empowerment (BEE) charter for the financial
services sector. In 2003 and 2004, several of these
providers participated in the negotiations with
government, labor, and industry stakeholders that
resulted in the drafting of the BEE Financial Services
Charter. Since, the Department of Trade and Industry
(DTI) has released generic scorecard targets, including a
25 percent equity ownership target. It is unclear
whether this will affect the Financial Services Charter,
which currently permits foreign financial institutions to
substitute equity ownership with financing and/or
investing in BEE companies or projects. DTI wants to
finalize all BEE Codes of Good Practice, including those
on multinational corporations, by the end of 2006.


INVESTMENT BARRIERS
--------------

Uncertain Implementation of the BEE Act
--------------


41. In January 2004, President Mbeki signed into law the
Broad-Based Black Economic Empowerment (BEE) Act of
2003, giving force of legislation to the government's
Black Economic Empowerment strategy. The intention of
black economic empowerment is to move the historically
disadvantaged majority population in South Africa into
the mainstream of the economy. U.S. businesses strongly
support the goals of BEE, and many have a long history of
instituting human resource management, procurement, and
enterprise development policies in South Africa that are
consistent with BEE objectives. These businesses hope
BEE implementation will allow them to continue these
policies and to participate fully in South Africa's
economy. However, the government's BEE strategy has been
evolving very slowly, through a series of policies on
human resource development, management, procurement,
enterprise development (investment in black-owned firms),
and equity ownership. Twenty-nine industry charters have
been negotiated or are being negotiation with government
in such areas as accounting, agriculture, chemicals,
cosmetics, clothing and footwear, construction,
engineering services, financial services, forestry,
health, information and communications technology (ICT),
liquid fuels, mining, property, tourism, marketing,
transportation, liquor, and wine. Conflicting precepts
among these charters and questions about implementation
and verification programs have created considerable
uncertainty for both local and foreign firms.


42. The BEE Act directs the Minister of Trade and
Industry to develop a national strategy for BEE, issue
implementing guidelines in the form of Codes of Good
Practice, encourage the development of industry-specific
BEE charters, and establish a National BEE Advisory
Council to review progress in achieving BEE objectives.
Codes of Good Practice, formulated by the Department of
Trade and Industry (DTI),are intended to harmonize
existing and future industry BEE charters. On October
31, 2005, the Minister released the final version of the
first-phase Codes of Good Practice for Broad-based Black
Economic Empowerment. These include codes on the BEE
framework, BEE in equity ownership, and BEE in
management. The codes include a new generic scorecard
with suggested BEE targets for equity ownership,
management, purchasing, and employment. Questions remain
about interpretation of the codes, and the measurement
and verification of BEE adherence. The draft Codes of
Good Practice on multinational companies and BEE
purchasing have yet to be distributed. DTI expects to
release them along with draft Codes of Good Practice on
employment equity, skills development, and enterprise
development in early 2006. DTI wants to promulgate the
new Codes of Good Practice in the Government Gazette
under Section 9(1) of the BBEE Act 53 of 2003 by the end
of 2006.


43. Because of their corporate structure, most U.S.
businesses cannot easily transfer equity to BEE
shareholders, and are concerned that mandatory equity
transfers could - for very practical reasons - put the
future of their South African operations in doubt and/or
deter further investment. U.S. businesses hope the Codes
of Good Practice on multinational corporations and BEE
purchasing will establish flexible criteria that allow
them to meet BEE objectives through multiple means, and
accommodate those companies that have concerns about BEE
equity requirements. USTR and the U.S. Embassy in
Pretoria have been closely monitoring the ongoing
development and implementation of South Africa's BEE
policies and have maintained a continuous dialogue with
the South African government and U.S. industry on BEE.

ANTICOMPETITIVE PRACTICES
--------------

Ownership Patterns
--------------


44. There is a historical legacy of concentrated
ownership in some sectors of the South African economy.


Between 1961 and 1994, the apartheid government denied a
large portion of the South African population from
participating actively in the economy by disallowing them
the opportunity to gain higher education and managerial
experience, or to take advantage of entrepreneurial and
investment opportunities. Apartheid policies also
prohibited successful companies such as South African
Breweries, AngloAmerican, DeBeers, and SASOL from
investing abroad. Therefore, these enterprises expanded
their businesses domestically in horizontal and vertical
conglomerates. As a result, major South African
companies entangled themselves into complex ownership
structures and a series of crossholdings that resulted in
the accumulation of considerable power in the South
African marketplace. This situation has changed
considerably since 1994, as many of the major players
have disentangled their businesses, got back to basics,
expanded internationally, and even listed on foreign
stock exchanges. Together with more effective
competition laws and BEE initiatives to enlarge the share
of black participation in the economy, South Africa's
business environment has become more transparent, more
competitive, and more open to new entrants, including
U.S. companies, than it was ten years ago. The
exceptions have been energy, transportation, and
telecommunications, sectors still dominated by state-
owned or state controlled monopolies.

ELECTRONIC COMMERCE
--------------


45. The Electronic Communications and Transactions Law,
effective July 31, 2002, governs all companies that
conduct electronic commerce in South Africa. The law was
designed to facilitate electronic commerce, but may
instead increase the regulatory burden and introduce an
unacceptable level of uncertainty for some businesses.
The law requires government accreditation for certain
electronic signatures, takes government control of the
".za" domain name, and requires a long list of
disclosures for web sites that sell via the Internet.


46. The South African Law Reform Commission has
submitted draft legislation and discussion documents on
privacy and data protection for public comment by
February 28, 2006. The aim is to bring South Africa
closer to international standards and to provide citizens
with legal recourse to protect personal information,
which is currently protected by the Constitution and
various provisions in other legislations. The South
African Law Reform Commission plans to hold a series of
workshops on the legislation in February 2006.
Legislation may negatively impact the ability of South
African and foreign companies to receive and send trans-
border flows of personally identifiable data, thereby
weakening cross-border e-commerce and services between
South Africa and its trading partners.

OTHER BARRIERS
--------------

Transparency, Corruption and Crime
--------------


47. South African law provides for prosecution of
government officials who solicit or accept bribes.
Penalties for offering or accepting a bribe may include
criminal prosecution, monetary fines, dismissal from
government employment, or deportation (for foreign
citizens). South Africa has no fewer than ten agencies
engaged in anticorruption activities. Some, like the
Public Service Commission, Office of the Public
Protector, and Office of the Auditor-General, are
constitutionally mandated to address corruption as only
part of their responsibilities. Others, like the South
African Police Anti-Corruption Unit and the Directorate
for Special Operations (more popularly known as the
"Scorpions"),are dedicated to combating crime and
corruption. High rates of violent crime, however, are a
strain on capacity and make it difficult for South
African criminal and judicial entities to dedicate
adequate resources to anti-corruption efforts.


48. During the last few years, crime has been a far more
serious problem than either corruption or political
violence when it comes to being an impediment to, or


raising the cost of doing business in South Africa. The
South African Police have not been effective or well
accepted in many communities because of their historical
role in enforcing minority rule. The lack of training
and internal crime and corruption within the police force
has only compounded the situation. Although statistics
on violent crime have declined in recent years, the
perception that crime is a serious problem remains high.
The level of crime has deterred some U.S. companies from
doing business in South Africa.


49. New laws, such as the Promotion of Access to
Information Act, signed into law in February 2000, have
helped to increase transparency in government during the
last few years. The Public Finance Management Act, which
became effective on April 1, 2000, helped to raise the
level of oversight and control over public funds, and
improve transparency in government spending, especially
with regard to off-budget agencies and state owned
enterprises. Notwithstanding these efforts, businesses
complain about the lack of certainty and consistency in
interpreting and implementing some government policies.


50. On April 28, 2004, President Mbeki signed "The South
African Prevention and Combating of Corrupt Activities
Act" (PCCAA) into law. The PCCAA, inter alia, defines
graft, bars the payment of bribes by South African
citizens and firms to foreign public officials, and
obliges public officials to report corrupt activities.
One shortcoming of the Act has been its failure to
protect whistleblowers against recrimination or
defamation claims. This is now receiving some political
attention.

Immigration Laws
--------------


51. For a number of years, U.S. and other foreign
companies have complained that South African immigration
legislation and the application of the law made it
extremely difficult to get work permits for their foreign
employees. Previously, South Africa relied on the
apartheid-era Aliens Control Act, which did not take into
account international developments and the opening up of
the South African market. A new immigration law entered
into force on May 31, 2002. The legislation establishes
yearly quotas for granting work permits to foreigners.
Local businesses have criticized the new law for creating
uncertainty because the quota system sets limits on the
number of skilled people that may enter the country in
particular categories. Under a separate dispensation,
corporate investors may make blanket applications for the
people they need. It is not clear whether these
corporate permits fall within the quota system. The
Minister of Home Affairs has said that the new law is an
enormous improvement over previous legislation, and
places South Africa on a par with other countries,
especially with respect to investors and intra-company
transfer permits. The Minister for Trade and Industry
and the Minister of Finance have suggested that the South
African government may need to revise the law to acquire
critically needed skills in South Africa.

TEITELBAUM