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FM AMEMBASSY PRETORIA
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RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPARTMENT OF TREASURY WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC

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