This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 10 PRETORIA 005433 
 
SIPDIS 
 
DEPT PASS USTR FOR WJACKSON, PCOLEMAN AND GBLUE 
DEPT FOR EB/MTA/MST AND AF/S 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EFIN SF
SUBJECT: 2005 NATIONAL TRADE ESTIMATE REPORT FOR SOUTH 
AFRICA 
 
REF: STATE 240980 
 
¶1.  This cable responds to reftel request for updating 
and revising last year's NTE chapter on South Africa. 
Post is also sending the text by e-mail to EB/MTA/MST 
and to USTR contacts.  Post understands Washington will 
update the figures contained in the first paragraph in 
the trade summary. 
 
¶2. BEGIN TEXT 
 
SOUTH AFRICA 
 
TRADE SUMMARY 
 
The U.S. trade deficit with South Africa was $1.8 billion 
in 2003, an increase of $308 million from 2002.  U.S. goods 
exports in 2003 were $2.8 billion, up 11.7 percent from the 
previous year.  Corresponding U.S. imports from South 
Africa were $4.6 billion, up 15.0 percent.  South Africa is 
currently the 34th largest export market for U.S. goods. 
U.S. exports of private commercial services (i.e., 
excluding military and government) to South Africa were 
$1.1 billion in 2002 (latest data available), and U.S. 
imports were $782 million.  The stock of U.S. foreign 
direct investment (FDI) in South Africa in 2002 was $3.4 
billion, up from $3.1 billion in 2001.  U.S. FDI in South 
Africa is concentrated largely in manufacturing, services, 
and wholesale sectors. 
 
South Africa has increasingly opened its market since 1994 
by reducing tariff rates and non-tariff barriers.  The 
South African government has stated its aim to open the 
market further in order to increase trade and to develop 
more competitive domestic industries.  As a member of the 
Southern African Customs Union (SACU), South Africa began 
negotiations for a free trade agreement (FTA) with the 
United States in June 2003.  The FTA negotiations provide 
an unprecedented opportunity for addressing trade 
constraints on U.S. exports to South Africa, including 
relatively high tariffs and import restrictions on certain 
U.S. exports; inadequate copyright protection for software, 
films, and music; and barriers in telecommunications and 
other key service sectors. South Africa aims to conclude 
free trade agreements in 2005 with Mercosur and the 
European Free Trade Association (EFTA) and to begin 
negotiations with India.  It continues to explore a 
possible free trade agreement with China.  Along with India 
and Brazil, South Africa was a founding member of the G-20 
coalition of countries formed prior to the September 2003 
WTO Ministerial in Cancun. 
 
IMPORT POLICIES 
 
The South African International Trade Administration 
Commission (ITAC) came into operation in June 2003. ITAC, 
which replaced the Board on Tariffs and Trade, was 
established under Section 7 of the International Trade 
Administration Act of 2002. It has been tasked to establish 
an efficient and effective system for the administration of 
trade. ITAC's responsibilities include: 
 
  TARIFF INVESTIGATIONS - The ITAC administers tariff- 
related programs, including the Motor Industry Development 
Program (MIDP) and the Duty Credit Certificate System 
(DCCS). Interested parties are entitled to approach ITAC 
with specific requests for tariff assistance. 
 
  TRADE REMEDIES - The ITAC deals with antidumping and 
subsidized exports as well as safeguards.   The safeguards 
procedures were introduced in August 27, 2004, but have not 
yet been applied. 
 
  IMPORT AND EXPORT CONTROL - The ITAC issues import and 
export permits for certain items designated by the Minister 
under the authority of the International Trade 
Administration Act of 2002, which repealed the Import and 
Export Control Act of 1963. 
 
Import Control 
 
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 
ns 
stated in a permit issued by ITAC. The main categories of 
controlled imports and the objectives of control are as 
follows: 
 
-- Secondhand goods: Import permits are granted only if 
such goods or substitutes are not manufactured 
domestically, constituting a de facto ban on such goods. 
These restrictions are designed to protect domestic 
industries such as clothing, motors, machinery and 
plastics, but also serve to discriminate against low-cost 
secondhand goods from the United States. 
 
  Waste, scrap, ashes, and residues (Basel Convention): 
The objective of import controls of these goods is to 
protect human health and the environment. 
 
  Other harmful substances: Imports of substances such as 
ozone depleting chemicals (Montreal Convention) and 
chemicals used in illegal drug manufacturing (1988 United 
Nations Convention) are controlled for environmental, 
health and social reasons. 
 
  Goods subject to quality specifications, such as tires: 
This restriction permits monitoring of manufacturer 
er 
adherence to specifications that enhance vehicle safety or 
protect human life. 
 
Tariffs 
 
To comply with its WTO commitments, since 1994 South Africa 
has reformed and simplified its tariff structure. It has 
reduced tariff rates from an import-weighted average tariff 
rate of more than 20 percent to 7 percent. Notwithstanding 
these reforms, importers have complained that South 
Africa's tariff schedule remains complex and can create 
uncertainty. The U.S.-SACU free trade agreement 
negotiations provide an opportunity to work with the South 
African government to lower these relatively high tariff 
rates. Tariff rates mostly fall within eight levels ranging 
from 0 percent to 30 percent, but some are higher, such as 
for specific textile and apparel items. In the Uruguay 
Round, South Africa agreed to a twelve-year phase-down of 
duties on textiles and apparel, but since then has 
unilaterally moved to a seven-year phase-down process. As 
of September 1, 2002, the following rates, which are also 
the end rates, apply: 
 
Apparel                 40 percent 
Yarns                    15 percent 
Fabrics                  22 percent 
Finished goods     30 percent 
Fibers                   7.5 percent 
 
Duty rates on cars, light goods, vehicles and minibuses are 
still at the high level of 36 percent, while the rate of 
duty on original motor parts is 28 percent. Under the terms 
of the Motor Industry Development Plan (MIDP), 
international companies that both import and export motor 
vehicles and parts are able to use export credits to reduce 
the import duties. 
 
ITAC continued to receive requests for tariff protection 
from industries, especially since the South African rand's 
appreciation curve started in late 2002. The appreciation 
of the rand resulted in increased competition from imports 
that hurt the competitiveness of many South African 
companies. U.S. companies have cited tariffs as a barrier 
to trade in South Africa, along with port delays and 
congestion, customs valuation above invoice prices, theft 
of goods, import permits, antidumping measures, IPR crime, 
an inefficient bureaucracy and excessive regulation. 
 
Dumping 
 
Twelve new antidumping petitions were filed in South Africa 
during 2003-2004, the majority against Chinese products. 
While no new antidumping investigations against imports 
from the United States were instituted in 2004, antidumping 
duties on U.S. chicken meat portions, suspension PVC, 
roller bearings, lysine and acetaminophenol remain in 
force. In early 2004, ITAC also increased the MFN applied 
duty on imports of poultry offal, as requested by the 
domestic industry. In an important step to increase 
transparency and clarity on the dumping investigation 
processes, anti-dumping regulations were promulgated on 
November 14, 2003. 
 
Free Trade Agreement with the European Union 
 
In 2000, South Africa and the European Union (EU) began to 
implement the development co-operation and financial co- 
operation provisions of their Agreement on Trade, 
Development and Cooperation, a free trade agreement (FTA). 
Under the agreement, South Africa and the EU will establish 
a free trade area over a transitional period of up to 
twelve years for South Africa, and up to ten years for the 
EU. The FTA provides for the reduction and eventual 
elimination of duties for approximately 85 percent of the 
products imported by SA from the EU and 95 percent of the 
products exported by South Africa to the EU. Certain 
agricultural products were exempted from liberalization 
under the agreement. South African and EU negotiators 
announced at the end of 2003 that they would seek to 
accelerate the process of negotiation towards freer trade 
in automobiles. U.S. firms exporting to South Africa are 
concerned that their products will be less competitive 
because of the preferences given to the EU. For example, 
there is a five percent differential between the duties on 
EU and U.S. trucks. U.S. companies are divided on whether 
they have been disadvantaged by the EU FTA. 
 
STANDARDS, TESTING, LABELING AND CERTIFICATION 
 
Biotechnology 
 
There has been an active debate in South Africa about 
products produced using agricultural biotechnology. The 
Genetically Modified Organisms Act ("the GMO Act"), which 
entered into force on December 1, 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 stores have promoted claims of selling a limited 
range of biotechnology-free products, while a few consumer 
groups have urged the Department of Health to introduce 
compulsory labeling of biotechnology products. 
 
Under the leadership of the Department of Health, 
Directorate of Food Control, the South African government 
issued regulations on the labeling of biotechnology 
products in early 2004 The regulations mandate labeling of 
genetically modified (GM) foods only in certain cases, 
including when allergens or human/animal proteins are 
present, and when a GM food product differs significantly 
from a non-GM equivalent.  The rules also require 
validation of enhanced-characteristic claims for GM food 
products.  The regulations do not address labeling claims 
that products are GM-free.  Biotech advocates are concerned 
about this omission, noting it could lead to many 
fraudulent claims.  Trade organizations seem satisfied with 
the regulations, which follow internationally recognized, 
scientific (CODEX) guidelines.   South Africa's CODEX 
representative comes from the Directorate of Food Control. 
 
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 through November 2004 and is 
currently evaluating those comments. 
 
 
In June 2001, the South African government published the 
National Biotechnology Strategy for South Africa, a 
document that shows the South African government's intent 
to stimulate the growth of biotechnology industries. The 
document states that biotechnology can make an important 
contribution to 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 2004 to examine 
the safety of foods derived from agricultural 
biotechnology. 
 
 South Africa has approved for commercial production [begun 
to grow] genetically modified soybeans that are tolerant to 
herbicides, and cotton and yellow and white maize that are 
resistant to insects.  Farmers are enthusiastically 
adopting the new technology, and they are expected to plant 
up to 1 million hectares of genetically engineered 
varieties in South Africa in 2004, up from about 400,000 
hectares in 2003.  The use of these products is widespread 
in the food processing industry. 
 
U.S. grain producers have raised concerns about South 
Africa's treatment of genetically modified "stacked 
events." 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" and encourages producers to 
notify the USG of such stacked events, South Africa -- like 
the EU -- considers the combined "stacked events" as a new 
event, and requires a complete, de novo review for 
registration purposes. This requirement creates significant 
delays in registering products, causing U.S. exporters to 
lose export opportunities. At present, U.S. yellow corn is 
not approved for import by the government of South Africa 
due to delays in registering stacked events and other new 
events. As a result, if yellow corn were in short supply in 
South Africa in 2005, importers would have to apply to the 
government for a special waiver in order to import U.S. 
yellow corn, with the guarantee that the U.S. yellow corn 
would be milled near the port to ensure that it cannot be 
planted. 
In 2003 and 2004, Biowatch, an environmental lobby group, 
took legal action against the National Department of 
Agriculture in order to obtain information on how it made 
decisions on issuing licenses for modified crops.  The 
local courts ruled in favor of NDA, which protects certain 
information on a business proprietary basis. 
 
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 that are based on either the Cartagena Protocol or 
the African Model Law on Biosafety. The heads of SADC 
member states also agreed to develop national biotechnology 
policies and strategies and to increase their efforts to 
establish national biosafety regulatory systems. Member 
states were also urged to commission studies on the 
implications of biotechnology for agriculture, the 
environment, public health and socio-economics. 
 
Agricultural Standards 
 
The Directorate of Plant Health and Quality of the National 
Department of Agriculture is responsible for setting 
standards for certain agricultural and agricultural-related 
products. These standards include composition, quality, 
packaging, marketing, and labeling, as well as physical, 
physiological, chemical, and microbiological analyses. 
These standards, published in to the Agricultural Product 
Standards Amendment Act of 1998 and the Liquor Products Act 
of 1989, set the regulations for products to be sold on 
both the local and export markets. U.S. distilled spirits 
producers have complained that South African regulations 
that require a minimum alcohol content by volume (a.b.v.) 
for whisky, rum, and other products limit the marketing of 
U.S.-origin spirits that meet the international standard of 
40 percent a.b.v. 
 
The South African government requires prospective importers 
to apply for an import permit for certain controlled 
products. The import of irradiated meat from any source is 
still banned by public health officials. U.S. horticultural 
producers have complained about various South African 
phytosanitary barriers on 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 could increase by $5 million to $25 million 
in annual sales to South Africa. U.S. producers have also 
expressed concern about unnecessary SPS requirements for 
some grains, pork, poultry, and horticultural products. 
 
In order to fulfill South Africa's commitment under the WTO 
Marrakesh Agreement on market access, the National 
Department of Agriculture published the rules and 
procedures regarding the application for market access 
permits for agricultural products on October 24, 2003. The 
permits will be issued to importers registered with the 
South African Revenue Service (SARS) and the Department of 
Trade and Industry (DTI) for importation of the 
agricultural products listed in the Table of Import 
Arrangements. 
Permits will be allocated as follows: 
 
?    10 percent to importers who have not imported over the 
past 3 years ("new importers"), 
 
?    10 percent to Small, Medium, and Micro Enterprise 
importers ("SMME Importers"), 
 
?    80 percent to importers who have imported the products 
over the past 3 years ("historical 
importers"). 
 
In response to the BSE case in Washington State announced 
on December 23, 2003, South Africa placed a ban on all 
ruminant animals and products originating in the United 
States effective December 24, 2003.  By January 15, 2004 
South Africa, in accordance with OIE standards, exempted 
non-risk products such as hides, skins, wool and mohair 
from the ban.  At this time a ban is still in place on 
ruminant meat products.  The South African Department of 
Agriculture is impressed with USDA's surveillance program 
but wants to see a full report with data from the 
surveillance program before considering lifting the ban. 
 
During 2004 South African grain, pork and poultry producers 
petitioned the government to raise tariffs with little 
success except for poultry offal.  The Government of South 
Africa does not have an effective safety net to support 
farmers financially during times of drought or strong 
currency.  Therefore, farmers' groups will likely continue 
to pressure the government to try to reduce imports or make 
them more expensive. 
 
GOVERNMENT PROCUREMENT 
 
Government purchases are by competitive tender for project, 
supply, and other contracts. The South African government 
uses its position as both buyer and lawmaker, however, to 
promote the economic empowerment of historically 
disadvantaged individuals (HDIs) through its Black Economic 
Empowerment (BEE) policy.  In January 2004, President Mbeki 
signed into law the Broad-Based Black Economic Empowerment 
(BBBEE) Act of 2003, the legislation enacting the BEE 
strategy. The Act directs the Minister of Trade and 
Industry to develop a national strategy for BEE, issue BEE 
implementing guidelines in the form of Codes of Good 
Practice, encourage the development of industry specific 
charters, and establish a National BEE Advisory Council to 
review progress in achieving BEE objectives. 
 
The Minister released three Codes in December 2004 with 
seven more due in early 2005.  The recently released Codes 
address specific issues pertaining to the BEE Framework, 
Equity Ownership, and Management and include a new generic 
scorecard with suggested targets for areas such as equity 
ownership, management, procurement, and equality in 
employment.  The Codes are intended to harmonize existing 
and future industry empowerment charters.  Sectors that 
have completed or are close to finalizing empowerment 
charters for their respective industries include: 
accounting, agriculture, chemical, cosmetics, clothing and 
footwear, construction, engineering services, financial 
services, forestry, health, information and communications 
technology (ICT), liquid fuels, liquor, marketing, mining, 
property, tourism, transport, and wine.  The Minister is 
expected to establish the National BEE Advisory Council 
early in 2005. 
 
While many U.S. companies operating in South Africa have 
significant programs that support HDIs, they have concerns 
about the lack of clarity and consistency in the BEE rules. 
A major concern is whether HDI equity ownership will become 
mandatory and a cost of doing business with the South 
African government.  The Minister of Trade and Industry is 
developing a statement on equity ownership for 
multinationals to be included in the Code of Good Practice 
on Equity Ownership, which is expected to address the 
concerns of U.S. companies. 
 
South Africa's Preferential Procurement Policy Framework 
Act of 2000 and its implementing regulations set a legal 
framework and formula for evaluating bidders of government 
contracts by price and the advancement of socio-economic 
priorities.  Revised draft regulations were released in 
November 2004 to take into consideration the BBBEE Act. 
The new regulations give greater preference to bidders of 
government contracts who more effectively comply with BEE 
objectives.  In addition, the draft regulations raise 
tender thresholds.  Previously, companies bidding on 
tenders worth up to R500, 000 earned 80 percent of their 
points from their bid price and 20 percent on their 
commitment to social objectives (80-20 preference point 
system).  Now, the 80-20 point system is applied to tenders 
valued up to R1 million and firms are evaluated on their 
compliance with their respective industry BEE scorecards. 
Similarly, a 90-10-preference point system is applied to 
tenders valued at over R1 million. The National Treasury is 
expected to approve and gazette the new Preferential 
Procurement regulations by mid-2005. 
 
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 
commercial or industrial activity equaling or exceeding 30 
percent of the imported content of total goods purchased 
under government tender.  The program is intended to 
benefit South African industry by generating new or 
additional business. 
 
In August 2004, the Minister of Finance issued the Code of 
Good Practice for BEE in Public Private Partnerships (PPPs) 
that had been released as a draft document in December 
¶2003.  The Code of Good Practice sets out the targets for 
BEE to be achieved in PPPs and provides clarity to bidding 
private parties. 
South Africa is not a signatory to the WTO Agreement on 
Government Procurement. 
 
EXPORT SUBSIDIES 
 
Under the Duty Credit Certificate Scheme, the government of 
South Africa offers duty credit certificates to South 
African exporters of textiles and clothing. Other 
incentives are available for the promotion of manufactured 
exports. SACU also has several duty drawback regimes for 
agricultural and nonagricultural products. 
 
In September 1995 the South African government established 
the Motor Industry Development Program (MIDP) in order to 
assist the South African auto industry. This program 
includes measures to promote exports and introduces a 
phased reduction in import tariffs. The MIDP allows vehicle 
assemblers and component manufacturers to offset vehicle 
and component exports against similar imports. The ability 
to rebate import duties by exporting allows importers to 
bring in vehicles at lower effective rates of duty. It also 
enables assemblers to use import credits to source 
components at close-to international prices. In late 2002, 
the government extended the program from 2007 to 2012. 
 
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION 
 
Legal Regime 
 
Property rights, including intellectual property rights, 
are protected under a variety of laws and 
regulations. The South African parliament passed two IPR- 
related laws at the end of 1997 -- the 
Counterfeit Goods Act and the Intellectual Property Laws 
Amendment Acts -- in order to enhance IPR protection. The 
Department of Trade and Industry (DTI) administers these 
acts. Although South Africa's intellectual property laws 
and practices are generally in conformity with those of the 
industrialized nations, there are deficiencies in 
enforcement and in guaranteeing the protections afforded 
under these laws. The U.S.-SACU free trade agreement 
negotiations will seek to address some of the shortcomings 
in South Africa's IPR protection regime. 
 
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 subsistence 
presumptions would reduce the procedural burden on rights 
holders in proving their cases. 
 
-- Non-deterrent civil damages. Amending the law to 
introduce statutory damages to cover end users and to 
ensure that compensatory damages serve as a deterrent would 
improve IPR protection. The current statutory provisions on 
damages are not considered to be sufficient to serve as a 
deterrent. 
 
Until these changes are made in the law, the enforcement of 
individual copyright claims is complicated by the lack of 
evidentiary presumptions in the law, requiring use of an 
expensive registration system or submission of extensive 
proof of copyright subsistence and ownership. Amendments 
have been considered for years, but relatively little has 
been done in this area. 
 
In 2001, South Africa introduced measures to enhance 
enforcement of the Counterfeit Goods Act. The South African 
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. Despite these efforts, the 
International Intellectual Property Alliance estimates 
total losses from copyright piracy in South Africa in 2002 
at over $84 million, including $39 million in business 
software applications and $30 million in motion pictures. 
Although law enforcement authorities often cooperate with 
the private sector in investigating allegations of 
counterfeit trade, there are concerns about laxity in 
enforcement of IPR laws against imports of pirated goods. 
Complainants can take both civil and criminal action 
against offenders. 
 
U.S. firms have complained that South Africa does not 
adequately protect the safety and efficacy studies (also 
called "registration data") filed before national 
authorities for approval of agrochemical products.  These 
data are unfairly "referenced" by competitors in order to 
register their products. 
 
South Africa is a member of the Paris Union and acceded to 
the Stockholm Text of the Paris Convention for the 
Protection of Intellectual Property. South Africa is also 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. 
Software/Audio Visual IPR Issues 
 
Software piracy still occurs frequently in South Africa. 
Between February and March 2001, the Business Software 
Alliance (BSA) gave South African organizations a one-time 
opportunity to legalize their software by registering. The 
campaign received 608 registrations to legalize pirated or 
illegally installed software, representing over 60,000 
desktop personal computers. An independent research firm, 
International Planning and Research Corporation, conducted 
a survey for the BSA during 2001. It found that the local 
piracy rate dropped from 45 percent to 38 percent. Piracy 
in the video and sound industry also continues to be a 
concern. The Motion Picture Association estimated video 
piracy at 10 percent and optical disk piracy at 40 percent 
in 2003. 
 
SERVICES BARRIERS 
 
Telecommunications 
 
South Africa has made a series of WTO commitments on value- 
added telecommunications and basic telecommunications 
services and has adopted the WTO reference paper on pro- 
competitive regulatory principles. The South African 
government also committed to license a second supplier no 
later than January 1, 2004, to compete against the current 
monopoly supplier, Telkom, in long-distance, data, telex, 
fax, and private leased circuits services. Despite the end 
of Telkom's exclusivity period in May 2002, Telkom has been 
able to continue its monopoly because of the government's 
unsuccessful attempts to license a second network operator 
(SNO). 
 
Although the Minister of Communications conditionally 
approved a license for the SNO in December 2003, 19 percent 
empowerment shareholder Nexus Connexion sued the Minister 
over the inclusion of equity partners who were previously 
considered unqualified by the regulator.  Nexus called for 
a review of the Minister's actions and asked the Court to 
prevent her from implementing her decision to license the 
SNO.  Consequently, the Minister restructured the 51 
percent strategic equity portion of the SNO (SepCo) and is 
in the process of awarding the controlling stake in SepCo 
to a third equity partner.  Thirty percent of the SNO is 
held by the telecommunications divisions of Eskom (the 
state energy utility) and Transnet (the transport 
parastatal).  Twenty five percent is held by equity 
partners Two Consortium and CommuniTel with the remaining 
26 percent soon to be awarded. 
 
In September 2004, the Minister of Communications announced 
a sweeping liberalization of the telecom sector, effective 
February 1, 2005.  Among other things, the Minister 
indicated that mobile operators would be allowed to use any 
fixed lines for the provision of their service, value-added 
network services (VANS) could be provided by facilities 
other than those owned by Telkom and the Second National 
Operator, VANS providers would be allowed to carry voice 
using any protocol, and private telecommunications network 
operators could resell their spare capacity.  The 
Independent Communications Authority of South Africa 
(ICASA) is developing regulations to take into account the 
Minister's announcement.   The new regulations are expected 
to resolve past complaints by Internet Service Providers 
(ISPs) and value-added network services (VANS), which have 
previously cited problems in acquiring new facilities from 
Telkom. 
 
The Department of Communications (DOC) released a Draft 
Convergence Bill in December 2003, which industry analysts 
hoped would simplify the existing legislative framework, 
empower the regulator, and open the telecoms industry to 
greater competition.  Following a highly critical public 
comment period, the DOC undertook to revise the Bill.  It 
is expected to be released in early 2005. 
 
Telecommunications is one of the areas being addressed in 
the U.S.-SACU free trade agreement negotiations. South 
Africa's telecommunications regulatory authority, ICASA, 
has sole authority to determine whether these services are 
illegal. In the past, service providers have complained 
about ICASA ineffectiveness in asserting its authority over 
Telkom and have pursued remedies in the Pretoria High 
Court. Telkom also often challenges decisions taken by 
ICASA, leading to delays in implementing rulings. The 
Amended Telecommunications Act of 2001 allows only Telkom 
and the SNO to provide voice over Internet protocol (VOIP) 
services, and it appears to expand the definition of a 
public switched telecommunications service (PSTS) to 
include the provision, repair, and maintenance of any other 
telecommunicationsapparatus. Interested parties continue to 
raise questions concerning the consistency of these and 
other provisions of the Amended Telecommunications Act with 
South Africa's WTO obligations. The United States continues 
to monitor South Africa pursuant to section 1377 of the 
Trade Act of 1988 for compliance with its WTO commitments. 
 
Other Services 
 
The United States has in the past shown interest in 
reaching an open skies air transport agreement with South 
Africa. During negotiations in May 2001, however, South 
Africa indicated that it would not agree to open skies, 
preferring instead incremental liberalization of the 
existing air transport 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. South African Airways (SAA), the 
national airline wholly-owned by the transport parastatal 
Transnet, had previously noted concerns about U.S. airlines 
exercising fifth-freedom rights in Africa and thereby 
impinging on one of SAA's strategic markets. 
 
ANTICOMPETITIVE PRACTICES 
 
Ownership Patterns 
 
There is an historical legacy of concentrated ownership in 
some sectors of the South African economy. During the 
apartheid years, a large portion of the South African 
population was entirely excluded from ownership of business 
enterprises. Moreover, government policies from 1961 to 
1994 prohibited some successful companies such as South 
African Breweries, Anglo American (including DeBeers) and 
SASOL from investing abroad. They therefore expanded their 
activities locally. As a result, conglomerates with 
considerable market power developed in the South African 
marketplace. Thissituation has been changing, as many of 
the major players have been expanding internationally and 
have listed on foreign stock exchanges. Together with the 
more effective competition authority and strong sectoral 
initiatives to enlarge the share of black participation in 
the economy, South Africa's business environment is 
becoming more competitive and more open to new entrants 
(including U.S. companies). Sectors such as energy, 
transport and telecommunications have also historically 
been controlled or dominated by parastatals. These sectors 
are gradually restructuring and opening up for competition 
from the private sector. The privatization program of the 
South African government, although moving slowly, is also 
starting to bring a change in ownership patterns. 
 
ELECTRONIC COMMERCE 
 
Effective July 31, 2002, all companies that conduct 
business in South Africa via electronic commerce must 
comply with the new Electronic Communications and 
Transactions Law. The new law was designed to facilitate 
electronic commerce but may increase regulatory burdens and 
introduce uncertainty into the future of electronic 
commerce in the country. 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. 
 
 
OTHER BARRIERS 
 
Transparency, Corruption and Crime 
 
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, and dismissal for government 
employees, or deportation for foreign citizens. South 
Africa boasts no fewer than ten agencies engaged in anti- 
corruption activities. Some, like the Public Service 
Commission (PSC), Office of the Public Protector (OPP), and 
Office of the Auditor-General (OAG), are constitutionally 
mandated and 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. 
During the last few years, crime has been a far more 
serious problem than either corruption or political 
violence and an impediment to, and a cost of, doing 
business in South Africa. The South African police forces 
have not been effective or well accepted in many 
communities because of their historical role in enforcing 
minority rule, their lack of training, and internal crime 
and corruption within the forces. The levels of crime, 
especially violent crime, are a deterrent to attracting 
U.S. companies to South Africa. 
 
New laws, such as the Promotion of Access to Information 
Act signed into law in February 2000, have helped to 
increase transparency in government in 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 improved the transparency 
of government spending, especially with regard to off- 
budget agencies and parastatals. Notwithstanding these 
efforts, businesses complain about the lack of certainty 
and consistency in interpreting and implementing some 
government policies. 
 
 
President Mbeki signed "The South African Prevention and 
Combating of Corrupt Activities Act" (PCCAA) into law on 
April 28, 2004.  The PCCAA makes it more clear which 
activities are considered graft.  The act: 
 
?    Includes a list of codified corruption offenses 
related to specific persons. 
 
?    Clearly defines that graft occurs between a 
"corruptor" and a "corruptee." 
 
?    Declares that a bribe need not be monetary in nature, 
nor need it be paid directly to the person who will be 
undertaking the corrupt act. 
 
?    Bars the payment of bribes to foreign public officials 
by South African citizens and firms. 
 
?    Provides a list of corruption-related offenses 
relating to specific matters in the public and private 
sectors. 
 
?    Allows for the investigation and seizure of 
"unexplained wealth." 
 
?    Tasks the National Treasury to establish a register of 
tender defaulters for corrupt individuals and firms. 
 
?    Obliges public officials to report any corrupt 
activities. 
 
?    Prescribes strict penalties, including the possibility 
of life imprisonment. 
 
One shortcoming of the act is the failure to protect 
whistleblowers against recrimination or defamation claims. 
 
 
Immigration Laws 
 
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 in 
particular categories that may enter the country, and 
because corporate permits allow investors to make blanket 
applications for the people they need. It is not clear 
whether these corporate permits fall in or out of the quota 
system. The Trade and Industry Minister has suggested that 
the South African government may need to revise the law to 
acquire critically needed skills in South Africa. Home 
Affairs officials oppose moving away from quotas because it 
might mean reverting to the Aliens Control Act, wherein an 
employer had to establish 
the clear need for a skill. The Minister of Home Affairs 
has said that the new law is an enormous improvement over 
the previous legislation and places South Africa on a par 
with other countries, especially with respect to investors 
and intra-company transfer permits. 
Southern African Customs Union 
South Africa has been a member of the Southern African 
Customs Union (SACU) since its inception in 1910. The SACU 
Agreement was renegotiated in 1969 following the 
independence of Botswana, Swaziland and Lesotho. Namibia 
joined SACU in 1990. SACU aims to promote free trade and 
cooperation on customs matters among its five member 
states. There are currently no internal tariff barriers 
between SACU members but because of different tax regimes, 
there are some tax adjustments that occur at the borders. 
All SACU members except Botswana share a common currency as 
members of the Common Monetary Area. Imports from outside 
SACU are subject to a common external tariff. The SACU 
governments signed a new agreement in October 2002 setting 
out the responsibilities of the Council of Ministers, the 
Customs Union Commission, and the Secretariat. SACU began 
negotiations on a free trade agreement with the United 
States in June 2003. SACU has also concluded a revised 
trade agreement with the SADC countries that would 
eliminate almost all duties on SACU-SADC trade. 
 
Because of 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. For example, 
soda ash from Botswana comes into South Africa at a zero 
percent duty, whereas, soda ash from the U.S. faces a 5.5 
percent duty. South Africa does not produce soda ash, but 
the duty on imported soda ash was introduced for the 
benefit of Botswana. Moreover, a legal complaint from 
Botswana's soda ash producer under South Africa's 
competition law threatens to block U.S. exports. The South 
African Competition Commission has pursued the claim as a 
"per se" offense, without making any judgment on the U.S. 
soda ash producer's impact on competition or consumers. If 
the South African Supreme Court does not grant an appeal so 
that the legal merits of the case can be argued, U.S. soda 
ash exports would be adversely affected. If the tariffs on 
U.S. soda ash were eliminated, U.S. exports of soda ash to 
South Africa could increase from less than $8 million to 
$25 million, closer to its historical level. 
 
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FRAZER