SA textile exporters fight state bid to cut incentives

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Officials of the Southern African Customs Union (Sacu) will today decide the future of the Textiles and Clothing Industrial Development Programme (commonly known as the duty credit certificate scheme).

Limitations were placed on the export incentive programme in December, notably prohibiting the tradability of the certificates.

The government and labour are reluctant to see the benefit continue, arguing that it is open to abuse and citing discrepancies between certificates issued and actual volumes imported.

The scheme compensates manufacturers and exporters of textiles and clothing with rebates on import duty, which means they can import inputs cheaper. Many attribute their ability to compete profitably in the global market to the benefit.

According to a document from the National Economic Development and Labour Council (Nedlac), if a decision cannot be reached with other members of Sacu, the scheme will cease.

This would deal a severe blow to the export industry in SA, already hampered by a slew of competitive barriers — the strong rand, fierce competition from cheap Asian imports, cost pressures and a sharp drop in demand. Indications are that some manufacturers could be forced to close.

Government and labour representatives are set to push through changes to the scheme despite warnings from business about the negative commercial impact and the fact that changes would be tough to implement.

The proposal to limit the export incentive was “seriously flawed”, business representatives said.

Business constituents argue for the continuation of the scheme at full benefit. Apart from the dire financial impact of a change, they warned that logistical challenges would make it impractical to implement.

“The clothing and textiles industry already suffers with a problem of illegal imports and further challenges for customs administration at the borders are likely to worsen the situation,” the Nedlac document states.

A parallel study by consultancy group Gherzi, conducted on behalf of the Sacu secretariat, also says the continuation of the scheme in its current form would be the most desirable outcome for the region.

Prospects are dim that it would be maintained, with SA's government and the Southern African Clothing and Textile Workers Union set on diluting the benefit.

In its latest recommendation, SA's official position is not only that the tradability of the certificates be stopped, but that only seven yarn and fabric lines be eligible for import under the scheme, down from 102.

SA's plan to dilute the benefit flew in the face of promises from government officials and ministers that the country remained committed to regional integration and the development of common industrial policies that would be in the shared interest of countries in the region, a trade economist said.

Cathy Dix, a consultant for the Lesotho Textile Exporters' Association, said the limitation on the scheme would render it worthless.

Lesotho's economy is particularly exposed, as clothing manufacturing is its only notable industry and it is already reeling from the fallout of the global economic crisis.

In dollar terms, Lesotho exports dropped 11.5% last year, while in the first six months of this year exports were down 21% compared with that period last year.

Jobs had plunged from 45,000 in July last year to 39,000 in February this year and continued to drop, Dix said.

Source: Business Day

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