New China import rules leave SA importers scrambling

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JEREMY MAGGS: South African retailers and importers are facing a new supply chain headache.

From September, as I understand it, selected consumer goods imported from China will require pre-export verification and something called a certificate of conformity, proving that they meet South African standards before they are shipped.

Industry concerns are growing that this new process could delay legitimate cargo, disrupt stock planning and leave businesses short of key products when consumer demand is at its highest.

I want to explore this in a little more detail. Dylan Govender is with me, head of supply chain at Investec Business and Commercial Banking. Dylan, a very warm welcome to you.

This is an important issue. So what exactly changes for importers bringing goods in from China from September?

DYLAN GOVENDER: Jeremy, thank you for having me. Basically, the pre-export verification of conformity, known as the PVoC, puts the onus back onto the exporting country to ensure that compliance regulations are met.

So the South African Bureau of Standards (SABS), has long since had standards in terms of how products must be manufactured and what compliance requirements need to be met.

If you look at toys, for example, that they don’t contain lead paint. Furniture, it has certain load-bearing weight, those sorts of things. It’s a variety of products that we can run through.

But basically, those standards have never really been enforced and now it’s a fundamental shift in terms of how goods are imported into the country and how they’re going to be regulated with this PVoC certificate.

JEREMY MAGGS: So maybe let’s run through those products and sectors then that are most exposed to this new certificate.

DYLAN GOVENDER: Jeremy, you’re looking basically at furniture, household goods, plastic products, cookware, plumbing components, construction materials.

There’s a range, but basically it boils down to items that the end consumer uses and are not regulated into the market.

So the SABS have now partnered with the Border Management Authority (BMA) and with the South African Revenue Service (Sars), so at time of importation, these items or these components are going to be red-flagged in terms of the tariff headings, and it’s going to be red-flagged on Sars’s risk engine and automatically kick out queries for these certificates.

Now, if you don’t have the certificate at the time of importation, it’s just going to lead to a delay in terms of getting release of your goods.

It’s going to lead to storage and some high costs that are going to filter down back to the consumer eventually.

JEREMY MAGGS: As I understand it, the objective is consumer protection and product safety, which I guess begs the question then why would industry be worried about a measure that does, at least on the surface, Dylan, appear entirely sensible?

DYLAN GOVENDER: I don’t think the industry is worried about the legislation, Jeremy. Industry is for the legislation. We want to protect goods coming into the country. We want to protect the consumer.

The problem is the enforcement date, 20 September is around the corner, and it hasn’t given industry much time to adapt and to make sure that they are ready to ensure compliance.

Now products have to be tested in China, for example. There’s one body that’s been nominated to do the testing.

We don’t know how long the testing will take of these products, what the detailed cost is going to be.

Importers still need to engage with their suppliers, ensure that their supply chains are ready for this. On the other end, you’ve got the local authorities as well.

This is going to be enforced by Sars at the time of importation. Do they have the capacity locally to deal with all these queries that are going to come up?

That’s what Investec is busy engaging with industry on at the moment to see how we can assist and take this forward.

JEREMY MAGGS: And the timing issue, as I understand it, is that retailers will already be shipping stock for Black Friday and Christmas trading.

DYLAN GOVENDER: Yes, correct. If goods get here and you don’t have the certificate, it’s going to lead to a delay in turnaround time in terms of getting those goods on the shelf. Also, the costs are going to be inflated.

So the end consumer over Black Friday and Christmas is going to face inflated prices as well. So compliance is in the best interest.

JEREMY MAGGS: Is it too early to say then whether consumers could realistically face shortages of toys, appliances and household goods during the festive season? Or do you think we’re at a point where some kind of elegant compromise can be reached?

DYLAN GOVENDER: I don’t think we’ll face a massive shortage. I think it’s just about importers engaging with the exporters and their suppliers to ensure that they’re able to be compliant. If they’re not compliant, then they’re going to face massive delays and we’re going to face massive costs.

JEREMY MAGGS: So who carries the cost then if cargo is delayed or rejected, would it be the Chinese supplier, the importer, the retailer, or ultimately you and me, the consumer?

DYLAN GOVENDER: Ultimately, Jeremy, in order to be compliant, the testing is a minimal cost, and those test certificates are generally valid for a year period. So that can be absorbed by the importer.

But if you’re not compliant and you face huge storage costs here when the goods get here, it’s going to be built into the cost of the product, and the consumer is going to face that at the end of the day.

JEREMY MAGGS: Let me talk to you a little bit about risk. As I would see it, large importers probably have compliance teams, Dylan, and maybe even contingency stock. Surely this would put smaller South African businesses at a much greater disadvantage.

DYLAN GOVENDER: Jeremy, I think the risk is across the board, no matter what size the business is, because ultimately these products have to be tested at origin.

There’s one authority, a Chinese government-owned entity that’s been nominated by the SABS to conduct the testing and provide the certificates.

Now, if they don’t have the capacity and if it takes them six weeks to test one item, for example, we could be facing massive delays. Importers want to be compliant, but there are still processes that need to be followed.

The deadline of 20 September is just too short for importers to ensure compliance within the supply chain.

JEREMY MAGGS: So what then should importers be doing right now then to head that off at the pass, Dylan, to check whether their goods are covered, to secure that certification and avoid stock arriving late?

DYLAN GOVENDER: Importers need to be engaging with their suppliers immediately and enforcing that they obtain the test certifications for them. Negotiate on the costs.

Investec is lobbying, together with the industry, to try and apply for the extension with the SABS in terms of moving the enforcement date out, because we just feel industry is not in a position where we’re ready as yet.

JEREMY MAGGS: If you look at it holistically then, do you think it’s a necessary quality control measure that requires better implementation.

Or if this becomes, Dylan, entrenched, does it risk, as I think it might, becoming another regulatory obstacle to trade and economic growth in a very margin-pressed environment right now?

DYLAN GOVENDER: Jeremy, I don’t think it’s going to restrict us. I think ultimately at the end of the day, industry agrees with the regulation. It’s just how it’s rolled out and the enforcement of it.

We want to oblige by the regulation. We just need time to prepare as industry and ensure compliance.

JEREMY MAGGS: So how much time?

DYLAN GOVENDER: I would say another two months. If we could move this out to November, possibly if we’re successful with that, then it gives importers time to engage with their suppliers, ensure they’re able to meet compliance requirements, ensure that the entire supply chain is prepped for this, and at the same time, we minimise the risk to Christmas sales and peak times of sales.

JEREMY MAGGS: Dylan Govender, I’m going to leave it there. Thank you very much indeed. Head of supply chain at Investec Business and Commercial Banking.