DTCRecent speculation concerning the Border Management Agency Bill have brought about reaction from both within government and industry. While there appears widespread support for a unified agency to administer South Africa’s borders, the challenge lies in the perceived administration of such agency given the specific mandates of the various border entities.

The Davis Tax Committee (DTC) was requested to provide a view on the affect of the proposed bill insofar as it impacts upon revenue (taxes and customs and excise) collection for the fiscus of South Africa.

The purpose of the Bill is to provide for the establishment, organisation, regulation and control of the Border Management Agency (BMA); to provide for the transfer, assignment, and designation of law enforcement border related functions to the BMA; and to provide for matters connected thereto. The functions of the BMA are (a) to perform border law enforcement functions within the borderline and at ports of entry; (b) to coordinate the implementation of its border law enforcement functions with the principal organs of state and may enter into protocols with those organs of state to do so; and (c) to provide an enabling environment to facilitate legitimate trade.

In short the DTC recommends that the functions and powers of SARS and the BMA be kept separate and that the Agency should not be assigned any of the current functions and powers of SARS with regard to revenue (taxes and customs and excise) collection and the control of goods that is associated with such collection functions. Of particular concern is the extraordinarily poor timing of the Bill. According to the 2014 Tax Statistics issued by SARS, the total of customs duties, import VAT, and ad valorem import duties collected amounted to R176.9 billion for the 2013-14 fiscal year. This was approximately 19% of the total revenue collected.

The DTC is of the view that to put so significant a contribution to the fiscus in a position of uncertainty, if the Bill were to be  implemented, is fiscally imprudent at this critical juncture for the South African economy. Follow this link to access the full report on the DTC website. Source: www.taxcom.org.za

ZIMRA AEOFollowing an invitation from Zimbabwe Revenue Authority (ZIMRA), WCO successfully completed a review of Zimbabwe’s Authorized Economic Operator (AEO) pilot and developed a series of recommendations for a “next generation” AEO programme that takes into account the WCO SAFE Framework of Standards, the WCO Voluntary Compliance Framework and best practices from other WCO members, as outlined in the WCO AEO Compendium. The mission, which took place between July 18 and 22, built on the March 2016 Mercator scoping mission, which established a multi-year framework of support for Zimbabwe under the tailor-made track of the Mercator Programme and was delivered with the financial and technical support of Her Majesty’s Revenue and Customs (HMRC).

A total of 20 representatives from ZIMRA and 15 trade representatives, participated in a facilitated dialogue which provided the mission team with a comprehensive overview of ZIMRAs’ current AEO programme, while raising awareness and understanding of relevant international standards and best practices. Based on the review, the mission team identified a series of future capacity building activities and deliverables, which can be supported under the current multi-year Mercator Programme engagement with Zimbabwe. The WCO looks forward to continued collaboration with ZIMRA and HMRC and UNCTAD in the implementation of this plan. Source: WCO

Hyperloop could be heading to the Middle East, thanks to a new deal signed on Monday between Hyperloop One and port operator DP World. The partnership calls for a feasibility study of how the nascent, ultra-fast transport technology could improve Dubai’s Jebel Ali Port, but both parties hope that’s just the beginning.

The study will look at the possibility of building a Hyperloop to take freight off container ships arriving at Jebel Ali and transport it via the technology’s system of pods moving through pressurized tubes to an inland depot that DP World plans to build further inland.

“By having a system where a box can be taken off a ship and dropped into the tube or pod, we are moving activity that would otherwise be on the island terminal as well as reducing the size of the terminal you need to build,” said Hyperloop One founding board member Peter Diamandis.

The Los Angeles-based startup says a Hyperloop can fit within Dubai’s existing transportation corridors and could reduce freeway traffic by taking cargo transport trucks off roads. DP World says it can even foresee using a “submerged floating Hyperloop” located next to its huge new terminal built on a man-made island. Source: Hyperloop One

Red Flags hang over BMA

August 16, 2016 — 1 Comment

Mesina-Beitbridge border crossing - Google MapsAccording to Eye Witness News, a draft law aimed at creating a new, overarching border control entity has run into problems.

Parliament’s Home Affairs Portfolio Committee has been briefed on the Border Management Authority Bill by the department, the South African Police Service (Saps) and National Treasury.

Cabinet approved the Bill in September 2015 to deal with weaknesses in the state’s ability to secure the country’s ports of entry.

The Bill proposes harnessing the responsibilities of Home Affairs, the police and the South African Revenue Service (Sars) among others in one agency under a commissioner.

The authority will take over the customs control functions currently undertaken by the South African Revenue Service. There are fears within the industry that it could compromise SARS’s achievements in modernising its customs administration that has facilitated the movement of goods across the border.

Red flags have been raised by both the SA Police Service and National Treasury over the Border Management Authority Bill.

Treasury’s Ismail Momoniat says while they support a single border control body, SARS must remain in charge of customs and excise and revenue collection.

“We’re talking of significant revenue collection, and that is a speciality… The Bill is a framework, it’s important it doesn’t generate uncertainty for an important institution like SARS.

The authority will be governed by a commissioner and overseen by an interministerial consultative committee, a border technical committee and advisory committees.

The SAPS’ Major General David Chilembe says the Constitution says South Africa must have a single police force. He says it may have to be amended if the new border authority takes over policing duties.

Chilembe also says the police, and not Home Affairs, should lead the new entity. Source: EWN.

“Customs” emoji

July 28, 2016 — 1 Comment

customsAlso known as “I am looking in your suitcase”, the rather dry “Customs” emoji will be familiar to overseas travellers everywhere. It’s especially handy if you find yourself in need of an emergency customs sign — simply print one of these out at font size 84,000. Alternatively, this emoji can also be used to warn traffic wardens of the dangers of reaching into giant oysters, which is definitely a thing, I imagine. The related “Cavity Search” emoji is due for release in 2017, possibly.

Raw-gold-619x413Global Trade Review reports that trade mis-invoicing is costing some developing countries two-thirds of the value of certain commodity exports.

New data gleaned from two decades of export figures emphasises the tens of billions of dollars being lost from the global economy to the under-invoicing of commodities from Africa and South America.

Between 2000 and 2014, 67% of the value of total gold exports were lost from South Africa through under-invoicing – when an invoice states a price as a lower value than is actually being paid.

Also read Maya Forestater’s blog post Misinvoicing or misunderstanding? for an alternative explanation regarding the UN’s claims in its recent report Trade Misinvoicing in Primary Commodities in Developing Countries.

This is often done to avoid paying taxes and is one of the most common methods of trade-based money laundering. The total loss in this particular commodity export amounts to US$78.2bn. More than half of this is lost on the trade of gold between South Africa and India.

From 1996 to 2014, the mis-invoicing of oil exports from Nigeria to the US was worth US$69.8bn. This is the equivalent value of one-quarter of all oil exports to the US.

The data from the UN Conference on Trade and Development (UNCTAD) shows that in the 20 years from 1995, more than half of Zambia’s total copper exports fell victim to misinvoicing, with US$28.9bn-worth not showing up on the books of Switzerland, the primary market.

From 1990 to 2014, Chile lost US$16bn in potential taxable revenue in the copper trade to the Netherlands, while the Netherlands did not record US$5bn in cocoa exports from Côte d’Ivoire between 1995 and 2015.

This is the first large-scale analyses of under-invoicing for specific commodities and countries,  despite the fact that the practice has been so rife for decades.

More awareness has been raised to the practice in recent years – in no small part due to the work done by not-for-profit organisations such as Global Financial Integrity (GFI) – but the lack of resources allocated to its eradication in much of the world, coupled with the culpability of many officials around the world, means that little progress has been made.

There is still no global standard against trade-based money laundering as there is against, for instance, sanctions breaching. The fact that it pre-dates most formal financial systems also means that any measures taken to stop it are difficult to enforce.

“When we talk about illicit financial flows we’re always talking about curtailing it, because there’s not going to be any situation in which any set of policies is going to entirely limit criminal behaviour. We have many, many laws on the books and folks break them all the time. But if you can make it as difficult as possible for folks to engage in this kind of thing, you’re doing what you’re supposed to do it,” Liz Confalone, policy counsel at GFI tells GTR.

The report also brings to attention the practice of over-invoicing – whereby the price of a good is fraudulently increased, allowing the exit of illegal money from an economy. Often, this money is connected to the narcotics trade, or to other criminal activity.

The UNCTAD report reads: “Puzzling results also emerge at the trading partner level. Trade with the Netherlands presents a peculiar case, with systematic and substantial export over-invoicing. It appears that primary commodities exported to the Netherlands never dock in the Netherlands.

“The question is whether this is the outcome of smuggling or incorrect reporting of the residence of the buyers. Answering this question may require an investigation at the company level.”

The authors call on a three-pronged attack on trade mis-invoicing, encompassing greater government scrutiny of particular commodity sales, an improvement in trade statistics and greater transparency in certain jurisdictions.

They write: “The results from this study highlight the need for an investigation into the role of transnational corporations involved in the exploitation, export and import of commodities, as well as the role of secrecy jurisdictions in facilitating trade mis-invoicing.

“Such an investigation may shed light on the mechanisms of export over-invoicing and import smuggling. Enhanced transparency in global trade is indispensable, especially through co-ordinated enforcement of the rules on country-by-country reporting by TNCs at the global level.”

Speaking to GTR recently, Jolyon Ellwood-Russell, a Hong Kong-based trade finance partner at law firm Simmons & Simmons, called for more joined-up thinking on an intergovernmental level if the problem is to be tackled.

Praising moves by the Hong Kong Monetary Authority and the Monetary Authority of Singapore to clamp down on trade-based money laundering, he said: “The issue is that the techniques and methods are very complex and don’t necessarily fit into those existing countermeasure programmes. Both banks and regulators could probably benefit from a better understanding of trade finance structures and how they are used in trade-based money laundering.” Source: Global Trade Review

WCO Photo Competion 2016 Winner - Bahrain

USCBPThe US government is proposing making social media accounts part of the visa screening process for entry into the country.

US Customs and Border Protection’s proposed change would add a line on both the online and paper forms of the visa application form that visitors to the US must fill out if they do not have a visa and are planning on staying for up to 90 days.

The following question would be added to both the Electronic System for Travel Authorization (Esta) and I-94W forms: “Please enter information associated with your online presence—Provider/Platform—Social media identifier.”

The information will be optional, for now, but the proposed change published by the US Federal Register states that “collecting social media data will enhance the existing investigative process and provide Department of Homeland Security (DHS) greater clarity and visibility to possible nefarious activity and connections by providing an additional tool set which analysts and investigators may use to better analyze and investigate the case.”

The proposal is currently under consultation, with US government taking comments until 22 August.

The change forms part of the plan by the US DHS to scrutinise social media activity of visa applicants and those wishing to enter the country, following the San Bernardino killings in California, in which social media profiles formed part of the investigations along with an iPhone 5C.

Current DHS pilot programmes are being kept under wraps but are said to scan a limited amount of social media posts.

The pilot programmes currently used by DHS do not sweep up all social media posts, though government officials have kept details of the programmes closely held, as they do not want to reveal the precise process they use to try and identify potential threats.

It’s unclear if or how the DHS would verify information written on a form before hitting border control, leaving the possibility of false information being put down, and while the information may be optional, it will likely be difficult to discern what is and isn’t required on the form.

The US government approves around 10m visa applications a year and had 77.5 million foreign visitors in 2015. Collecting social media accounts for all visitors could produce one of the largest government-controlled databases of its kind almost overnight. Source: Customstoday

Zimbabweans protesting against restrictions on imports of basic goods from South Africa have forced the closure of the border post between Zimbabwe and South Africa on Friday.

On June 17, the Zimbabwean government said that it was suspending imports of products including bottled water, furniture, building materials, steel products, cereals, potato crisps and dairy products, most of which arrive from South Africa. A Statutory Instrument No. 64 of 2016 which effectively tightens the screws on the import of these products is purportedly intended to target businesses and not ordinary travellers buying goods for personal consumption. However, Zimbabwean Revenue Authority (ZIMRA) officials continued to demand permits and confiscate the listed goods, sparking the chaos.

A warehouse owned by ZIMRA for the storing of illicit goods seized from people crossing the border was set alight by the protesters on Friday, 1 July 2016.

More than 85% of working age Zimbabweans have no formal job and many make a living by buying goods in South Africa to sell in Zimbabwe. Source: New Zimbabwean/ Reuters.

WCO News – June 2016

June 28, 2016 — 2 Comments

WCO News June 2016 (1)The WCO has published the 80th edition of WCO News, the Organization’s flagship magazine aimed at the global Customs community.

This edition features a special dossier on illicit trade which gathers together articles focusing on the trafficking in various commodities such as cultural goods, small arms, fisheries products and pesticides, as well as articles highlighting the tools and technologies that can contribute to enhancing Customs enforcement capabilities.

Readers will also benefit from articles on how pollen analysis (palynology) has become an essential Customs forensic and intelligence tool in the United States, the challenges in accurately quantifying the illicit trade in tobacco, and why publishing time release study results is advantageous. Source: WCO

Panama inaugurated the long-awaited Panama Canal expansion on Sunday, 26 June 2016 with the ceremonial transit of the China Shipping Panama through the new neo-panamax Agua Clara locks on the Atlantic side.

The $5.25 billion Expansion Program is the largest improvement project in the Canal’s 102-year history, and included the construction of new, larger locks on both the Pacific and the Atlantic sides and dredging of more than 150 million cubic meters of material, creating a second lane of traffic and doubling the capacity of the waterway.

Despite challenges facing the global shipping industry, the larger canal is anticipated to open up new routes, services, and market segments, such as liquefied natural gas (LNG). Source: gCaptain.com – Pictures courtesy of Panama Canal Authority

Lebombo+border+postA “Unified border guard and authority” will be one of the first orders of business when Parliament opens for the third quarter of the year.

On the agenda for the portfolio committee on home affairs is “processing the Border Management Authority Bill — which‚ a statement noted‚ is a modified name as “the authority was called the agency in the former draft of the bill”‚ it said at the weekend.

It was necessitated by “inefficiencies resulting from having many government departments co-ordinating, and often duplicating, the securing of SA’s land‚ sea and air borders,” which “have contributed to the porous 5,244km border”.

“The bill and related authority aim to centralise the border-related responsibilities of‚ amongst others‚ the Department of Home Affairs‚ the South African National Defence Force and Police Service‚ Customs of the South African Revenue Service as well as aspects of the Departments of Agriculture‚ Environment and Health‚” the committee said in the statement.

After briefings‚ public hearings and written submissions‚ it is “likely to be finalised in the last quarter of 2016 or early in 2017”.

Also on the committee’s plate is “reliable higher bandwidth network services” needed by the Department of Home Affairs “to facilitate the expanded roll-out of technology-driven service delivery improvements”.

“These include paperless applications for more secure smart identification cards and passports as well as online visa and permits processes. The Department of Home Affairs has experienced challenges with the network services provided by the State Information Technology Agency and is in the process of seeking alternatives.” Source: Buisness Day Live

SACU mapThe Southern African Customs Union (SACU) is an almost invisible organisation. Yet it has arguably had a profound impact on South Africa’s economic and even political relations with its much smaller neighbours – and on those four small countries themselves. But there are also deep differences among its five members – the others are Botswana, Lesotho, Namibia and Swaziland (BLNS) – about what the essential nature of SACU should be.

This weekend, SACU ministers will be meeting in South Africa for a retreat to try once again to set a new strategic direction, a roadmap into the future, for this critical body.

The leaders of the member countries will meet in a summit, also in South Africa, sometime before 15 July – when South Africa’s term as SACU chairs ends – to adopt or reject this roadmap. The aim of the changes in the SACU treaty would be to turn it ‘from an arrangement of convenience held together by a redistributive revenue formula to a development integration instrument,’ South African Trade and Industry Minister Rob Davies said during a press briefing in Kasane, Botswana, last Friday.

Davies said there were still ‘lots of differences’ among SACU members, which they had been unable to resolve despite years of negotiations.

SACU was founded in 1910 – the year South Africa was also created. Since then, the common external tariff it created has functioned as an instrument for the much larger South Africa to support the much smaller BLNS economically, by re-distributing to them a disproportionate share the customs tariffs collected at the external borders. Or, depending on your point of view, to relegate them to being passive markets for South African products.

The new African National Congress government, which came to power in 1994, ‘democratised’ relations with the BLNS by creating a Council of Ministers to make decisions by consensus in a new post-apartheid SACU treaty, which came into force in 2004. But the basic deal remained the same, as Davies implicitly acknowledged in last Friday’s briefing when he said: ‘we have historically just set the tariffs on behalf of SACU … and … in return for that, provided compensation … in the revenue-sharing formula.’

Also read – SACU Retreat announced by President Zuma

The re-distributive revenue-sharing formula has been hugely important for the government revenues of the BLNS. In South Africa’s 2015-2016 budget year, for example, the total revenue pool was expected to be about R84 billion, of which the BLNS would receive R46 billion – according to Xolelwa Mlumbi-Peter, Acting Deputy Director-General in South Africa’s Department of Trade and Industry, in a briefing to the parliamentary portfolio committee on trade and industry last year. She added that South Africa contributes about 98% of the total pool, while BLNS receive about 55% of the proceeds.

That meant South Africa was losing – or re-distributing – about R44.3 billion in that budget year, as de facto ‘direct budgetary support’ to the BLNS, to use the language of Western development aid.

‘This is seen as “compensation” for BLNS’s lack of policy discretion to determine tariffs, and for the price-raising effects of being subjected to tariffs that primarily protect SA industry,’ Mlumbi-Peter said.

A glaring example of that dynamic is South Africa’s maintenance of import tariffs on foreign automobiles to protect its own automobile industry. That, of course, makes automobiles more expensive in the BLNS countries.

And should South Africa choose instead to grant rebates on some tariffs – for example to encourage imports of inputs into South African industrial production – this would also impact negatively on the BLNS by reducing their tariff revenues, Mlumbi-Peter suggested.

In 2011, South African President Jacob Zuma chaired a SACU summit to review these inherent disparities. It agreed on a five-point plan to change SACU’s fundamentals, including a review of the revenue-sharing formula; prioritising work on regional cross-border industrial development, including creating value chains and regional infrastructure; promoting trade facilitation measures at borders; developing SACU institutions; and strengthening cooperation in external trade negotiations.

Nonetheless, as Davies said in Kasane, ‘we haven’t really been able to reach an understanding of what does development integration in SACU mean.’ And so Zuma had just completed a tour of visits to his counterparts in the BLNS countries to discuss these plans, and the upcoming retreat and summit. Davies said Zuma had found the BLNS leaders ‘flexible’ – though regional officials suggest otherwise.

Does South Africa, as the only really industrialised nation in SACU, not have inherent and irreconcilable differences with the rest of the body? Davies acknowledges that South Africa – with about 85% of the combined population, and about 90% of the combined GDP – also has most of the industries that demand tariff protection.

Nevertheless, he added, ‘We are all committed on paper to seeing tariffs as tools of industrial development… But there is also an obvious temptation for a number of other countries to see the revenue implications as more important.’ And, he did not add, there is also a growing feeling in South Africa that it could do with that R44 billion a year or thereabouts, which it gives to the BLNS every year.

The coincidence of the signing, on 10 June, of the Economic Partnership Agreement (EPA) between the European Union (EU) and the Southern African Development Community (SADC), and the attempt to revive SACU, underscored an ironic analogy of South Africa’s and the EU’s predicaments.

Also read – Historic Economic Partnership Agreement between EU and SADC 

With the EPA, the EU hopes to shift its relations with the SADC nations away from the traditional donor-recipient type of arrangement, to one of more equal and normal trade and industrial partners. That, essentially, is what South Africa is also hoping to achieve with its proposed reforms of SACU.

But it’s hard to see how South Africa is going to convince the BLNS to give up R44 billion a year of hard cash in hand, in exchange for the rather dubious future benefits of being absorbed into South Africa’s industrial development chains.

Source: Peter Fabricius – ISS Consultant.

nrcsThe National Regulator of Compulsory Specifications (NRCS), in its battle to protect the country from non-compliant goods whilst facilitating trade, advises that it intends rolling out a pilot programme aimed at cutting delays in the issuance of Letters of Authority (LOA).

The intention is to categorise risk, thereby ensuring that applications from compliant importers will be fast tracked i.e.: the letters of authority will be processed in 21 days or less. Companies in the ‘low risk’ category will, however, be subjected to heavy penalties should they not meet the requirements.

The proposal the NRCS intends presenting to the Department of Trade and Industry (DTI) will reflect three categories of risk: low, medium and high. It is expected that NRCS will rollout its pilot study in the last 6 months of the year, before officially launching the programme early next year. Companies earmarked to participate in the pilot study will be identified by mid-June. Source: Shepstone & Wylie Attorneys – Taryn Hunkin

contractLaw firm Shepstone and Wylie cautions traders to be well aware of the legal considerations to be taken into account when negotiating an international trade transaction.

When importing or exporting goods, a trader is inclined to conclude a transaction on terms that place the least possible obligations on the trader concerned.

There are a number of separate (albeit related) agreements which form part of an international trade transaction e.g.:

  • Agreement of sale
  • Agreement of carriage
  • Insurance contract
  • Letter of credit or some payment agreement

Under the contract of sale, the main obligations are the effecting of payment on the part of the importer, and delivery of the agreed thing on the part of the exporter. The manner of delivery, passing of risk, obligation of insurance and carriage depend on the terms to which the parties have agreed.

Sale agreements usually deal with the rights and obligations of the parties by reference to Incoterms. Devised and published by the International Chamber of Commerce, Incoterms are at the heart of world trade. Incoterms are standard trade definitions most commonly used in international sales contracts.

The “E” & “F” terms are most onerous for the buyer. Such terms, however, allow the buyer to control the carriage and insurance and should reflect in a lower purchase price for the goods.

The “C” and “D” terms are less onerous for the buyer, but result in a higher purchase price and the seller arranges the carriage, and in most instances, the insurance.

While it is tempting to look for the least onerous incoterm, it may not always be a wise choice if it leaves the party exposed either under the other agreements, or due to consequence that were not considered.

A few commercial benefits to concluding a sale agreement based on Incoterms that obligate a party to bear the cost of insurance and carriage are:

  • An ability to negotiate a lower price or higher purchase price for the goods, depending on whether the party is a seller or a buyer; and
  • If the party has a good relationship with or a preference for a certain service provider, the party is able to obtain insurance or carriage services on terms and conditions more acceptable to it.

A vital consideration when negotiating an international trade transaction access to legal redress if things go wrong (and they often do in trade).

It is important to ensure that a party has a proper understanding of the agreed terms, including both the legal and commercial considerations. A party’s risk must also be considered against the full suit of contractual obligations in order to ensure:

  • The rights and obligations under the different agreements are compatible; and
  • Obvious benefits under one agreement do not pose risks under another.

Legal advice is always desirable in circumstances where a trader feels he does not have a full appreciation of the legal implications of the international trade transactions he is seeking to enter in to. Source: Shepstone & Wylie Attorneys – Quintus van der Merwe