Export Taxes as a Means to Protect South Africas Minerals Beneciation Strategy*

ANDR THOMASHAUSEN** University of South Africa

1 Export Taxes
Since 2009, export taxation for ferrochrome and ferrochrome ore has been high on the agenda of consultations between the vast majority of South African ferrochrome producers and the Department of Minerals and Energy (DMR). The industry seeks the adoption of two comprehensive government measures, in order to protect and enhance the continuing beneciation of ferrochrome ore and exports of ferrochrome, namely: (i) a quota to be applied on chromite ore exports, restricting integrated producers to 30 per cent of their ore-equivalent Ferrochrome production capacity; and (ii) a tariff or duty of $100 per ton of ore to be payable on chromite ore exported. Other South African beneciation industries are increasingly sympathetic with the position assumed by the ferrochrome industry. They too are challenged by cheaper products manufactured in the Far East with raw materials procured freely and cheaply in South Africa. The WTO system does not prohibit export taxes. About one third of WTO Members impose some kind or other of export duties or taxes, with both terms referring to or describing the same scal measures. The multilateral trading system established by the successive GATT agreements, which were eventually bundled and integrated into the 1 January 1995 WTO Agreement, do not mention export taxes. No formal WTO/GATT legal framework exists for Members to schedule commitments with respect to exports. GATT Article II on Schedules of Concessions only concerns import duties and charges in connection with importation. GATT Article VIII only establishes certain criteria for fees and charges of whatever character (other than import and export duties. . .) which . . . shall be limited in amount to the approximate cost of services rendered and shall not represent an indirect protection to domestic products or a taxation of imports or exports for scal purposes. The drafters of the GATT nevertheless considered the potential for discrimination and trade distortion with respect to exports, besides their primary focus on imports. General Most-Favoured-Nation Treatment under GATT Article I(1) applies [w]ith respect to customs duties and charges of
* This article is based on a paper presented at the Eighth International Workshop on Commercial Law, hosted by the Centre for Business Law of the University of South Africa, on 3 August 2011 at Nedbank in Sandton, South Africa. ** Dr Iur (Kiel); Assessor (Germany). Chair of the Department of Public, Constitutional and International Law in the University of South Africa, Pretoria. e-Mail: thomaaea@unisa.ac.za.

407

2011. All rights reserved. Cite as: (2011) 23 SA Merc LJ 407419.

408

(2011) 23 SA Merc LJ

any kind imposed on or in connection with importation or exportation. . .. Likewise, GATT Article XI, on General Elimination of Quantitative Restrictions, specically references export taxes and duties as means by which Members may legally prohibit or restrict imports and exports. With a few narrow exceptions, Article XI(1) forbids Members from instituting or maintaining prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures . . . with respect to both imports and exports. Article XI(1) can therefore be read positively that other measures regarding exports, namely restrictions by applying duties, taxes or other charges, are permissible.1 GATT Article XI(2) allows Members to apply export prohibitions and restrictions for certain public policy purposes that would otherwise violate Article XI(1). For example, governments may apply export quotas or outright prohibitions in order to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting [Member] (article XI(2)(a)). The above provisions render it legal for governments to impose, for instance, an export quota or a prohibitive export tax during a food crisis, to secure the availability of affordable food to their citizens. However, the provision places general export quotas that are not justied by a critical shortage . . . of products essential to . . . in conict with WTO rules and thus assailable by other Member States through the Dispute Resolution Procedure. The above provisions conrm that the current international legal regime applicable to trade does not prohibit or restrict the ability of the South African government to impose an export tax as suggested at the outset (under (ii)). However, export quotas for reasons other than to avert critical shortages, are prohibited. Thus, the proposal by South African ferrochrome producers for a quota to be applied on chromite ore exports, restricting integrated producers to 30 per cent of their ore-equivalent Ferrochrome production capacity, cannot be legally supported.

2 WTO Proposals for the Banning of Export Taxes

In a comprehensive 2004 WTO Discussion Paper on The Role of Export Taxes in the Field of Primary Commodities, Roberta Piermartini concluded that [e]xport taxes on primary commodities (especially unprocessed) work as an indirect subsidy to higher value-added manufacturing or processing industries. These are considered by Piermartini to result in inefficient transfers of wealth within markets and among markets.2
1 R Sharma Food Export Restrictions: Review of the 2007-2010 Experience and Considerations for Disciplining Restrictive Measures(May 2011) 32 FAO Commodity and Trade Policy Research Working Paper 10, see http://www.fao.org/economics/est/publications/en/, accessed on 29 July 2011; also Junlei Peng Case Analyses: Sino-US Trade Frictions on Non-automatic Export Licensing under the WTO Swiss National Centre of Competence in Research (NCCR) Working Paper (2011) 2830, see http://ssrn.com/abstract1820244 and http://www.nccr-trade.org/home. 2 http://www.wto.org/english/res_e/booksp_e/discussion_papers4_e.pdf 11, accessed on 29 January 2011.

EXPORT TAXES TO PROTECT BENEFICIATION STRATEGY

409

The critical economists view of export taxes played a role in several recent WTO accessions. The PR China, Mongolia, Saudi Arabia, Ukraine and Vietnam, have all committed in their accession negotiations to eliminate at least some of the export taxes practised by them. In particular, Member States from the EU had applied signicant pressure on acceding countries to undertake commitments beyond general WTO rules, and undertakings to eliminate export taxes are examples that underline the real effects of such policy pressures. When it became clear that Mongolias domestic cashmere processing industry was disappearing due to the unrestricted export of raw cashmere, the government requested from WTO Members and received a temporary waiver of its accession commitment to phase out export duties. Likewise, Russia showed great reluctance to accept a WTO accession commitment, required by the Europeans, to eliminate export duties on timber, as this inevitably inhibited the development of its domestic processing industries. However, the Chinese WTO Accession Protocol managed to exempt 84 listed tariff lines from Chinas commitment to eliminate all taxes applied to exports.3 These cases highlight the seriousness with which EU countries are pursuing an anti-export tax policy. The exemptions negotiated by the PR China in Annex 6 of the Accession of the Peoples Republic of China Decision, include, amongst the items that will remain subject to export tax, several minerals, namely: lead, zinc, tin, tungsten, Niobium, tantalum and vanadium ores and concentrates, as well as ferro-manganese, ferro-silicon, ferro-chromium, copper, nickel, and aluminium. WTO accession commitments to eliminate export taxes have recently been held to be enforceable under the Dispute Settlement Understanding, as in the Auto Parts WTO case against China all parties agreed that the protocol was an integral part of the WTO Agreement.4 Both Japan and the EU submitted formal proposals in 2005 and 2006 to introduce specic WTO prohibitions and/or restrictions on export duties or taxes. Japan aims at introducing new detailed procedural requirements to enhance the transparency in the creation and management of export restrictions (publication and notication of new measures, obligation to provide specic information, data and statistics). The stringency of the new provisions would be tantamount to those of the existing Import Licensing Agreement.5

3 In Annex 6 of the Accession of the Peoples Republic of China Decision of 23 November 2001, WTO WT/L/432. 4 WT/DS/339-340-342/R par 7.740. 5 Enhancement of disciplines for quantitative export restrictions on natural resources such as minerals (JOB(06)/14, 1 February 2006); Text-based contribution for negotiation on enhanced disciplines on export restrictive measures (JOB(06)/29, 24 February 2006); Text-based contribution for negotiation on enhanced transparency on export restrictions (JOB(06)/29/Rev.1, 20 March 2006); Progress report: Proposal for enhanced transparency on export restrictions (JOB(06)/21/Rev.1, 12

410

(2011) 23 SA Merc LJ

The EU proposal targets more specically a reduction, restriction or even prohibition of export taxes. In the view of the EU, export taxes articially transfer gains from trade between WTO members to the countries imposing them and provide an unfair advantage to the producers of the country where export taxes are applied when these producers export to third countries. Finally, according to the EC, most countries applying these measures have set prohibitive levels of taxes (fteen per cent or more). Hence, the EC proposal calls for a complete elimination of export taxes over a period of time, with the exception of few measures falling within a negotiated positive list, which would be authorized but subject to a maximum (bound) level. Developing countries currently have the right to apply export taxes, so this restriction or prohibition of export taxes would consist of new measures, proposed in the form of a new WTO Agreement on Export taxes. Under the EC proposal, the provisions and exceptions of GATT XII, VIII, XX and XXI would remain available.6 In the case of the PR China, where formal commitments to certain limitations of export duties exist, disputes have already arisen. The USA challenged in 2008 Chinese tax restrictions on exports of raw materials used in the steel industry through the WTOs dispute settlement mechanism.7 The EU has threatened China repeatedly since 2008 that it might use the WTO dispute settlement mechanism against Chinese export duties that it considers would hurt European markets. In response to the challenges by the United States, the European Union and Mexico, a WTO dispute resolution panel was formed in December 2009 to examine Chinas use of export quotas, export taxes and other measures to limit exports of coke, bauxite, uorspar, zinc, silicon carbide and other materials. The panel released its report recently, on 5 July 2011, nding that Chinas restrictions on the exports of nine raw materials violate its international obligations. The panel found that Chinas imposition of export duties on certain raw materials violates Chinas accession undertakings to eliminate all taxes and charges applied to exports, with a few narrowly-delineated exceptions. The panel agreed in particular with the European Union that China violated the GATTs requirements concerning prompt publication of duty rates, taxes or other charges by failing to promptly publish the total amount and allocation procedure for its zinc export quota. China will now have to decide whether to implement the panels ruling by eliminating the

April 2006;, and Modication history of the text for enhanced transparency on export restrictions (JOB(06)/29/Rev.2, 18 April 2006. 6 See: Communications from the EC: Activity Report on Export Taxes to the NGMA (JOB(05)/321, 08 December 2005), and Negotiating Proposal on Export Taxes, TN/MA/W/11/Add.6, 27 April 2006. AnalysisSC/AN/TDP/MA/6. 7 BRIDGES Weekly, 25 September 2008, http://ictsd.net/i/news/bridgesweekly/29763/, accessed on 14 January 2011.

EXPORT TAXES TO PROTECT BENEFICIATION STRATEGY

411

export restrictions or appeal the ruling to the WTOs Appellate Body for review.8 It is very important however not to misread the WTO dispute resolution panel ruling. The panel did not make a general nding against export taxation, but merely ruled in regard to what it determined to be specic breaches by China of its accession undertakings. Whilst most countries have not accepted restrictions on export taxes, these remain a powerful reality in respect of many commodities and markets. India is currently in the process of revising upward an export tax of ve per cent levied on all iron ore exports.9 Along the same lines, Brazil is considering imposing a ve per cent export tax on iron ore since end of 2009. Argentina has a long tradition of imposing export taxes.10 Another important and recent example is that of the Ukranian oilseed export tax.11 No WTO disputes of whatever kind have arisen in respect of these precedents. Future debates and developments on export taxation will remain committed to the overall objectives of the WTO. The WTO is not the free-trade institution, as it is often misread to be. Rather, the WTO is a system of rules dedicated to open, fair and undistorted competition. The purpose of the rules on non-discrimination, dumping and subsidies is to promote fair conditions of trade. The original GATT rules laid down the basis on which governments could impose compensating duties on these two forms of unfair competition. This approach was continued and extended in the WTO agreements, thus underlying the fair competition aspect of the WTO, rather than that of a utopian vision of free trade on a global scale. Hence, there is a strong probability that rules to curb export taxation will be applied whenever it is felt that such export taxation would result in unfair terms of trade, or distort markets in a signicant way. In anticipation of a growing international support for a tighter control of export taxes under WTO rules, governments will be cautious to impose new export taxes. The exception will be an unequivocal and clear case that would escape the kind of economic and legal concerns raised in the submissions of the EU and Japan in favour of the imposition of rules against export taxation. An important summary of these concerns can be found in the submission on

8 The panels report is available at http://www.wto.org/english/news_e/news11_e/394_395_398r_ e.htm; see for a brief summary: Alan H Price, Timothy C Brightbill & Laura El-Sabaawi WTO Panel Says Chinas Raw Materials Export Restrictions Violate WTO Obligations 5 July 2011; http:// www.wileyrein.com/publications.cfm?sparticles&id7192;. 9 http://minerals-and-metals.blogspot.com/2009/10/indian-steel-minstry-seeks-iron-ore.html, accessed on 14 January 2011. 10 See RH Knight Export Taxes in Argentina, A Case Study (2005), available at http:// scholar.lib.vt.edu/theses/available/etd-05232005-111437/unrestricted/TitlePage.pdf, accessed on 14-January 2011. 11 A Kuhn & O Nivyevskiy Evaluating the Ukranian Oilseed Export Tax in: Institute for Economic Research and Policy Consulting (February 2005) 29 Working Paper, available at http://ierpc.org/ierpc/ wp/wp_29_eng.pdf, accessed on 14 January 2011.

412

(2011) 23 SA Merc LJ

export taxation for the Non-Agricultural Market Access (NAMA) negotiations, prepared by South Centre.12

Other South African International Commitments

3.1 South Africa as a member of the Southern African Customs Union (SACU), must consider any responsibilities or obligations it may have towards the other SACU member states. The 2002 SACU Agreement13 contains relevant provisions in article 25(1) where the right of individual members is recognized to impose export restrictions such as export taxes, provided agreement on these measures is reached by the SACU Council of Ministers. Article 25(1) of the 2002 SACU Agreement thus requires that any South Africa measure to impose export taxes would need the approval of the SACU Council of Ministers. 3.2 Art 1 of the Southern African Development Community (SADC) Protocol on Trade of August 1996 (ratied by South Africa on 21 December 1999 and in force since 25 January 2000),14 provides the following denition: Export Duties means any duties or charges of equivalent effect imposed on, or in connection with, the exportation of goods from any Member State to a consignee in another Member State. Article 5 of the Protocol (entitled Elimination of Export Duties) states:
1. Member States shall not apply any export duties on goods for export to other Member States. 2. This Article shall not prevent any Member State from applying export duties necessary to prevent erosion of any prohibitions or restrictions which apply to exports outside the Community, provided that no less favourable treatment is granted to Member States than to third countries.

Under the WTO agreements, countries cannot normally discriminate between their trading partners. By having granted SADC members the undertaking not to impose export taxes as towards them, South Africa would, in principle, be forced to grant the same privilege to any other WTO members, by virtue of the WTOs key principle known as most-favoured-nation (MFN) treatment. The principle is laid down in GATT Article 1, which governs trade in goods:
With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III, any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any

12 http://www.southcentre.org,http://www.southcentre.org/index.php?optioncom_docman&taskdoc_ download&gid115 &Itemid, accessed on 14 Mat 2011. 13 See http://www.sacu.int/main.php?includedocs/legislation/2002-agreement/main.html, accessed on 14 January 2011. 14 See the text at http://www.sadc.int/index/browse/page/161, accessed on 14 January 2011.

EXPORT TAXES TO PROTECT BENEFICIATION STRATEGY

413

other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.

However, one of the most important exceptions from the MFN principle applies in respect of free trade agreements, such as the SADC FTA. In terms of GATT Article 24(1), a (unied) customs territory shall . . . be treated as though it were a contracting party, and in terms of GATT Article 24(2), customs territory shall be understood to mean any territory with respect to which separate tariffs or other regulations of commerce are maintained for a substantial part of the trade of such territory with other territories. GATT Article 24(5) further provides that . . . this Agreement shall not prevent, as between the territories of contracting parties, the formation of a customs union or of a free-trade area or the adoption of an interim agreement necessary for the formation of a customs union or of a free-trade area. . .. In terms of GATT Article 24 (8)(b), a free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the trade between the constituent territories in products originating in such territories. Considering that the SADC FTA comprises approximately 80 per cent of all trade between SADC member states, it is clear that the WTO MFN principle will not be applicable in respect of the SADC FTA.

3.3 South Africa has also entered in 1999 into a Trade and Development Cooperation Agreement (TDCA) with the European Union.15 The TDCA contains provisions relating to export taxes. Article 19(3) is relevant and states that No new customs duties on imports or exports or charges having equivalent effect shall be introduced, nor shall those already applied be increased, in the trade between the Community and South Africa from the date of entry into force of this Agreement. South Africa would therefore not be able to impose new export taxes on goods exported to the EU. As in the case of the SADC FTA, the TDCA prohibition on export taxes in respect of exports to EU Member States (art. 19(3) TDCA), claims WTO exemption from MFN provisions by declaring in article 5 that the TDCA-South African Agreement constitutes a Free Trade Area:
1. The Community and South Africa agree to establish a Free Trade Area (FTA) in accordance with the provisions of this Agreement and in conformity with those of the WTO. 2. The FTA will be established over a transitional period lasting, on the South African side, a maximum of 12 years and, on the Community side, a maximum of 10 years starting from the entry into force of the Agreement. 3. The FTA covers the free movement of goods in all sectors. This Agreement will also cover the liberalisation of trade in services and the free movement of capital.

As a result, and just as in the case of South Africas SADC obligations,

15 In force since 1 May 2004, rst Revision Treaty dated 11 September 2009, see http:// www.eusa.org.za/en/ eu_and_country/agreements.htm, accessed on 14 January 2011.

414

(2011) 23 SA Merc LJ

third countries are in principle not able to invoke MFN treatment in respect of South Africas trade with EU Members States.16 However, it cannot be excluded that a dispute could arise as to whether the Free Trade Area provided for in Art. 5 TDCA is still in compliance with the requirements stipulated in GATT Article 24(8)(b), a free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the trade between the constituent territories in products originating in such territories. The determination of the quantity that is substantially all trade, presented in paragraph 8, has never been claried. Should all trade be measured by trade volumes or tariff lines? An exclusion of agriculture from a free-trade agreement may also undermine the substantially all trade requirement. Throughout the 1960s and 1970s, when the EEC invoked Article XXIV for a number of associations and agreements with its former colonies, they submitted to GATT review boards that substantially all trade was covered in those agreements, without further evidence. Yet when asked by the review boards to quantify that amount, the EECs reply was to demand that the review board rst provide a denition of substantially all trade.17 GATT Article 24(5)(b) imposes further qualications:
with respect to a free-trade area, or an interim agreement leading to the formation of a free-trade area, the duties and other regulations of commerce maintained in each of the constituent territories and applicable at the formation of such free trade area or the adoption of such interim agreement to the trade of contracting parties not included in such area or not parties to such agreement shall not be higher or more restrictive than the corresponding duties and other regulations of commerce existing in the same constituent territories prior to the formation of the free-trade area, or interim agreement as the case may be; and any interim agreement referred to in subparagraph[s] . . .. shall include a plan and schedule for the formation of such a customs union or of such a free-trade area within a reasonable length of time.

In addition to the requirements in GATT Article XXIV(5) and (8), the question arises whether internal requirements, such as rules of origin should be included in the assessment of external requirements. Rules of origin that affect the liberalisation of trade within a FTA, can be considered as other regulations of commerce. There are further a number of procedural rules. GATT Article XXIV requires that parties considering entering into a Article XXIV compatible preferential trading system, to notify the WTO of their intention, making information available to the WTO members that would allow them to evaluate

16 International Law Commission, Most-favoured-Nation Clause Report of the Working Group Geneva 7 May8 June and 9 July10 August 2007, UN General Assembly Fifty-ninth session, A/CN.4/L.719 (Limited Distribution), available at http://untreaty.un.org/ilc/documentation/english/a_ cn4_l719.pdf, accessed on 14 January 2011. 17 On this and other possible ambiguities and interpretational risks in regard to GATT Art 24, see M Haynes-Prempeh The MFN Clause in the EPA: Supporting Multilateralism or Making Foes of Nations? (June 2008), 9 et seq, available at http://www.garnet-eu.org/fileadmin/documents/ phd_school/ 6th_phd_school/ Students_papers/Haynes_Prempeh.pdf, accessed on 14 January 2011.

EXPORT TAXES TO PROTECT BENEFICIATION STRATEGY

415

the effect of the PTA on them and to provide some oversight thereby reducing the incidence of non-compatible trading practice. It is not clear whether the South African EU PTA, including its recent amendments in 2009, were in fact notied prior to their commencement to the WTO. Considering the difficulty of a dispute relying on GATT Article 24(5)(b) and (8), it can be submitted that a third country, and in particular the PR China, would hesitate to enter into such a dispute.

4 RSA-PR China Bilateral Agreements

A total of 60 bilateral agreements have been concluded between South Africa and the PR China. Upon review, ve bilateral agreements could become relevant in context of an imposition of South African export taxes on certain minerals: 19971230 Memorandum of Understanding on the Establishment of Diplomatic Relations Entry into force: 19971230 19971230 Joint Communique on the Establishment of Diplomatic Relations Entry into force: 19971230 19971230 Agreement concerning the Reciprocal Encouragement and Protection of Investments. Entry into force: 19980401 1990202 Agreement on the Establishment of a Joint Economic and Trade Commission 19990202 Agreement on Trade, Economic and Technical Cooperation. 19990202 Letter of Intent on Consultations. Entry into force: 19990202 20000425 Pretoria Declaration on the Partnership between the Republic of South Africa and the Peoples Republic of China. 20060621 Programme of Cooperation on Deepening the Strategic Partnership. 20060922 Agreement on Mutual Administrative Assistance in Customs Matters Entry into force: 20070201. 20070924 Agreement on Cooperation in the Minerals and Energy Sector Entry into force: 20070924 The Memorandum of Understanding on the Establishment of Diplomatic Relations and Joint Communique on the Establishment of Diplomatic Relations of 30 December 1997 commits South Africa to create favourable conditions for the long term development of trade and economic interaction between the two countries. . . (clause 5(2) of the MoU). Article 3 of rhe Agreement concerning the Reciprocal Encouragement and Protection of Investments of 1 April 1998 provides:
1. Investments and activities associated with investment of investors of either Contracting Party shall be accorded fair and equitable treatment and shall enjoy protection in the territory

416

(2011) 23 SA Merc LJ

of the other Contracting Party. Neither Contracting Party shall in any way impair by unreasonable or discriminatory measures the management, maintenance, use, enjoyment or disposal of investments in its territory of investors of the other Contracting party. 2. The treatment and protection referred to in Paragraph 1 of this Article shall not be less favourable than that accorded to investments and activities associated with such investments of investors of a third State. ... 4. The provisions of paragraphs (1) and (2) shall not be construed so as to oblige one Contracting Party to extend to the investors of the other Contracting Party the benet of any treatment, preference or privilege resulting from: (a) any customs union, free trade area, common market, any similar international agreement or any interim arrangement leading up to such customs union, free trade area, or common market to which either of the Contracting Parties is or may become a party. (b) any international agreement of arrangement relating wholly or mainly to taxation, or (c) any special arrangement to facilitate frontier trade.

The Agreement concerning the Reciprocal Encouragement and Protection of Investments also provides for an own consultation and dispute resolution procedure. The Agreement on the Establishment of a Joint Economic and Trade Commission of 2 February 1999 establishes a Joint Economic and Trade Commission that is tasked with resolving any problems that may arise from economic and trade relations (art 3). In terms of article 7, any dispute arising out of the interpretation or implementation of this agreement shall be settled amicably through consultation and negotiation. . .. The Agreement on Trade, Economic and Technical Cooperation also of 2 February 1999 serves to facilitate and promote the development of trade and economic cooperation. It makes provision in article II for a very comprehensive most favoured nation clause:
1. In order to promote trade development between the two countries, both parties shall grant each other Most Favoured Nation Treatment in matters relating to: (a) Customs duties and all other charges in taxes applicable to importation or exportation of goods as well as methods of levying such duties, charges and taxes; (b) internal taxes and other levies of any kind applicable directly or indirectly to imported goods; (c) Methods of affecting payments arising from the implementation of this Agreement and transfer of such payments; (d) Legal provisions pertaining to selling, purchasing, transportation, distribution and use of goods in the domestic market. 2. Any advantages, favours, privileges or immunities which a Party has granted or may grant to a third country in respect of trade in products originating in the territory of that third country or destined for its territory, shall be granted immediately and unconditionally by such a Party in respect of the same products originating in the country of the other Party or destined to be imported into its country. 3. The provisions of sub Articles (1) and (2) shall not be construed to as to oblige one Party to extend to the other Party the benet of any treatment, preference and privileges (a) that are accorded or may be accorded by either of the Parties to contiguous and neighbouring countries in order to facilitate frontier trade; (b) resulting from being or becoming a member of any customs union, free trade area or common market; (c) granted by either Party to any third country in accordance with existing preferential trade agreements as set out in the attached schedule (1). (d) which either Party has granted or may grant under mutual or plurilateral agreements for the expansion of trade and economic co-operation for developing countries in which the other Party is neither a participant, nor a beneciary.

As in the case of the Reciprocal Encouragement and Protection of Investments agreement, the most favoured nation undertakings are made notwithstanding any FTA arrangements.

EXPORT TAXES TO PROTECT BENEFICIATION STRATEGY

417

Together with the Agreement on Trade, Economic and Technical Cooperation and the Agreement on the Establishment of a Joint Economic and Trade Commission, a Letter of Intent on Consultations was executed on 2 February 1999. The Letter of Intent established regular bilateral consultations on ministerial and technical level and consultations before attendances of international conferences to enhance bilateral cooperation the political, economic and trade . . . elds. A subsequent Pretoria Declaration on the Partnership between the Republic of South Africa and the Peoples Republic of China of 25 April 2000 established a formal Bi-National Commission between South Africa and the PR China. The Pretoria Declaration makes a number of further commitments that go beyond the diplomatically usual undertakings in respect of trade and economic co-operation:
Secondly, the Governments of South Africa and China will, within the context of South-South Cooperation, endeavour to develop, strengthen and diversify their economic relationship to the mutual benet of their peoples, by removing obstacles impeding negatively on their bilateral trade, investment, service and commercial relations. The two Governments will work hard to primarily encourage and support closer cooperation between enterprises of the two countries in the development of natural resources, especially in the sectors of mining and manufacturing; Thirdly, the Governments of South Africa and China will cooperate constructively and effectively in the promotion of a new Sino-African relationship on the basis of equality and mutual benet by supporting the African continent in its efforts to seek peace, stability and development and by promoting the interests of Africa through multilateral fora as the G-77 and China, and the structures of the United Nations; and Fourthly, the Governments of South Africa and China will support each other in efforts to create a new international political and economic order. The two sides maintain that in this future New Order, the diversity of the world should be respected; the principles of sovereign equality and non-interference in the internal affairs of other countries should be upheld; no country should dominate others; the negative effects of globalisation especially on developing nations should be reduced and restricted; and harmony, democracy, justice and equality in international relations should be actively pursued and fully promoted. This Declaration publicly states our common guiding vision for the future and the fundamental principles for the forging of even closer and stronger relations between the Republic of South Africa and the Peoples Republic of China.

It is clear from this document that South Africa and the PR China have established a preferential relationship that provides for the closest forms of cooperation and mutual consultations, especially regarding economic relations and trade, with particular mention of mining. The undertakings made in the Pretoria Declaration on the Partnership between the Republic of South Africa and the Peoples Republic of China are expanded and spelt out in greater detail in the subsequent Programme of Cooperation on Deepening the Strategic Partnership of 21 June 2006. The Agreement on Mutual Administrative Assistance in Customs Matters of 22 September 2006 is dedicated to technical cooperation on customs matters only. Finally, the Agreement on Co-operation in the Minerals and Energy Sector of 24 September 2007 is also of a purely technical nature. It provides for exchange of information on investments in the mining sector, promotion of joint projects on studying and developing of mineral deposits, joint

418

(2011) 23 SA Merc LJ

participation in workshops etc, training and exchange of skills and know how, and the establishment of working groups. The signing of the agreement coincided with the third meeting of the SA-China Bi-National Commission and, public declarations after the signing of the Agreement on Co-operation in the Minerals and Energy Sector referred to far reaching cooperation plans, in particular in the context of what the then Deputy President of South Africa, Mlambo-Ngcuka termed to be a plan to swop (South African) minerals for job creating but polluting (Chinese) factories. Mlambo-Ngcuka was quoted at the time as having said: China needs to send some of its polluting industries elsewhere because it is choking them.18 Besides these plans, the meetings resolved to introduce the teaching of the Mandarin language in 50 South African public high schools. As was then also announced, trade at the time stood at R14 billion worth of South African exports to China, against just under R48 billion worth of Chinese imports into South Africa.19 The review of the bi-lateral agreements between South Africa and the PR China does not reveal any specic provisions that would prevent South Africa from introducing new export taxes, including in respect of commodities or goods exported to the PR China, nor any provisions that would force South Africa to grant a most favoured nation treatment to the PR China in respect of undertakings made by South Africa towards SACU and or SADC Member States, nor the EU and its Member States. However, the review of the bi-lateral agreements between South Africa and the PR China also shows that repeated and several obligations have been assumed by South Africa to consult with the PR China on all and any matters of mutual interest in the bilateral and multilateral spheres.20 In such consultations it would obviously play a role that the PR China is applying duties on South African ferrochrome, and is also practising export taxation on a very wide range of commodities and goods.

5 South African Constitutional Framework for Export Taxation

The Constitution of the Republic of South Africa, 1996 guarantees in section 22 a general freedom of trade; albeit subject to limitations regulated by law (Every citizen has the right to choose their trade, occupation or profession freely. The practice of a trade, occupation or profession may be regulated by law). Such limitations must meet the standards established in section 36:
(1) The rights in the Bill of Rights may be limited only in terms of law of general application to the extent that the limitation is reasonable and justiable in an open and democratic society based on human dignity, equality and freedom, taking into account all relevant factors, including: (a) the nature of the right;

Tim Robbins Business Report, 2 October 2007. The China Memoir Issue 23, October 2007. 20 So the Pretoria Declaration on the Partnership between the Republic of South Africa and the Peoples Republic of China of 25 April 2000.
19

18

EXPORT TAXES TO PROTECT BENEFICIATION STRATEGY

419

(b) the importance of the purpose of the limitation; (c) the nature and extent of the limitation; (d) the relation between the limitation and its purpose; and (e) less restrictive means to achieve the purpose. (2) except as provided in subsection (1) or in any other provision of the Constitution, no law may limit any right entrenched in the Bill of Rights.

The imposition of an export tax on chromite or other ores would thus have to serve an important and constitutionally legitimate purpose and the resulting restrictions of freedoms would have to be proportionate in relation to the purpose(s) thereby pursued, and they would also have to constitute the least restrictive means to achieve such purpose(s). The constitutional requirements for the introduction of an export tax on ores would thus be to balance the interests of ferrochrome producers as against those whose trade it is to export any affected ore. Established case law of the South African Constitutional Court shows that such balancing must avoid sacricing the core of any one particular conicting right or interest, and ideally so as to preserve the scope of each of the conicting rights or interests to their utmost. In the end result, this balancing consideration will allow for the introduction of the envisaged export taxation, but will impact on the permissible levels of taxation. The introduction of a South African export tax on chromite and other ores can thus be taken to be constitutionally permissible and possible, but would require consultation with South Africas main minerals trading partner, the PR China. Considering that WTO consultations on formulating general prohibitions or at least rules on export taxation are advancing steadily, it would be to South Africas advantage to pre-empt such rules and introduce an export taxation regime that would in all likelihood benet from the inevitable exemptions for export taxation existing prior to the coming into effect of any future WTO rules or prohibitions.