There are some traders that would argue that exporting is no different to doing business in the local market. It is all about doing good business and making the right decisions. The reality is, however, that the foreign marketplace is often very different from that in South Africa.
Foreign environment as a barrier to trade
To begin with, there are social, cultural, economic, legal, political, technical and physical differences between South African and the rest of the world. After all, other countries speak different languages (e.g. German, French or Chinese), they use different currencies (such as the dollar or the yen), they adhere to different standards (think of the 110V power supply in the US), they follow different laws (such as Islamic law) and they are often governed by different politics (such as communism or socialism). These factors all contribute to making exporting more difficult – that is, they are barriers to exporting. These factors are all related to the different environments that you will encounter abroad and we have discussed them in more detail a separate section – click here for more information about the foreign environments you will need to deal with when exporting. Besides for the different environments that you will encounter abroad (which we have said are barriers to trade in their own right), there are also tariff and non-tariff barriers to trade that you should be aware of. These are discussed below:
A tariff is a tax that is placed on imported goods by governments. Governments do this for several reasons:
They may wish to restrict the amount of imported goods coming into the country in order to protect or encourage a positive trade balance. If a country imports more than it exports, it will have to use valuable foreign exchange to pay for these goods – this is referred to as a negative trade balance or a trade deficit. Since a country’s foreign exchange holdings represents direct wealth to the country, as more foreign exchange leaves the country to pay for imported goods so the country becomes relatively poorer. Governments try to prevent this by placing tariffs (taxes) on imported goods.
They may wish to protect a local industry from foreign competition. This is often done where the industry in question is still very young and susceptible to foreign competition. The government will then place a tax on imported goods that compete with goods being produced by that industry, thus making these imported goods more expensive compared with locally produced goods. In so doing, the expectation is that consumers will buy more of the locally produced goods thereby helping the industry to grow. Once the industry is better established the intention is normally to withdraw the tariff so that the local industry can compete normally with foreign competitors.
Some countries introduce tariffs in order to generate additional revenues for the country. This is often done in the case of luxury goods.
How are duties calculated?
Tariffs may be calculated in different ways. They are usually either ad valorem duties or specific duties.
Specific duty – A specific duty is usually levied on the quantity (measured by weight or volume) of imported goods (e.g. R1/kg or R1/cubic meter) Ad valorem duty – An ad valorem duty is levied as a percentage duty on the value of imported goods (e.g. 15% on the CIF value of the imported goods).
Where can I find information about the duties levied in a particular country?
Clearly, every country applies a different set of tariffs on its imported goods. Some countries have very low overall duties, others a very high set of duties. Unfortunately, there is still no readily available source of country import tariffs available on the Web.
Quotes – Quotas are defined as a specific unit or currency limit applied to a particular type of good. Quotes are thus quantitative restrictions applied to the import of goods and have the effect of either barring goods from a market altogether, or increasing the price of the goods in that market.
Customs and administrative entry procedures – These procedures, while they may be applied uniformly, are often so cumbersome and complex that they represent a major trade restriction in their own right. What is more, local manufacturers within the target market are generally not subject to the same procedures (except in instances where they may be using imported raw materials or components), and this places the exporter at a disadvantage compared to local firms.
Charges on imports – A few countries may apply port-of-entry taxes or levies on imported goods. The purpose of such a tax is usually to offset infrastructure costs at a port, for example, but such levies often stay in place long after their intended purpose has been achieved.
Sanctions, embargoes and boycotts – Sanctions, embargoes and boycotts represent an absolute prohibition on the purchase and import of goods from the sanctioned, embargoed, boycotted country. In the apartheid era, South Africa was subject to sanctions and boycotts from many of its former trading partners.
Licensing requirements – Some goods may only be imported only if they have been issued with import licences by the authorities (such as in the case of armaments). While licensing in itself should not hinder the export process, some countries issue only a limited number of licenses (thereby excluding late entrants from the market), or they may make the licensing process so cumbersome as to make it impossible or extremely difficult to obtain the license.
Standards – This category is described as including unduly discriminating health, safety, and quality standards that make it difficult for exporters to comply with these standards, thereby effectively barring them from that market.
Exchange controls – One of the more complete forms of non-tariff barriers, exchange controls represent a government monopoly on all dealings in foreign exchange. South Africa is an example of a country that still applies exchange controls on its trading community. Local firms therefore have to obtain permission to buy the foreign exchange they need to import goods and services and exporters also need to pay their foreign exchange earnings back to the commercial banks within seven days of receiving such income. No company is allowed to hold foreign exchange without permission from the Reserve Bank.
Government participation in trade – It is quite common for governments to follow discriminatory public purchasing activities (i.e. that favour buying local) as an effective way to lock out international competitors.
Voluntary export restraints (VER) – A VER is a ‘voluntary’ agreement between an importing country (such as the US) and an exporting country (such as Japan, in the case of motor vehicles) that the exporting country will restrict the volume of exports of the goods in question (in this instance, motor vehicles). Although such agreements are supposedly voluntary (a “gentlemen’s agreement”), they are generally agreed to under threat of stiffer quotas and/or tariffs being applied to the exporting country by the importing country. VERs may sometimes be referred to as orderly marketing agreements (OMA).
Differing product classification – Since the classification of a product according to the various customs’ product categories will almost certainly impact on the duty that is applied to that imported good, exporters may occasionally be frustrated by customs authorities (who always have the final say) who classify their goods into a category that they exporter does not agree with. This classification may render the goods completely uncompetitive in the market