Investigation on design support of automobile industry system in … · 2017-12-13 · 2 General...

To: Technical Cooperation Division, Trade and Economic Cooperation Bureau, Ministry of Economy, Trade and Industry

Business strengthening of Asia Industry infrastructure in 2016

Investigation on design support of automobile industry system

in South Africa

<Summary>

Feb. 1, 2017GENDAI Advanced Studies Research Organization

Table of ContentsIntroduction・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 1

General Overview(1) The present condition of the automobile industry・・・・・・・・・・・・・・・・・・・・・・・・・ 2(2) Framework of proposal・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 8(3) Particular proposals・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 9(4) Policy priority・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 10(5) Validation of the policy scenarios using CGE Model analysis・・・・・・・・・・・・・・ 11

Investigation ResultsⅠ. Present condition of automobile industry・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 16Ⅱ. Legal consistency of automobile industry policy(1) Details of APDP system design and their challenge・・・・・・・・・・・・・・・・・・・・・・・ 18(2) Details of the proposals made by the previous research・・・・・・・・・・・・・・・・・・・ 20(3) Verification of consistency with WTO rules・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・23

Table of Contents(continued)Ⅲ. Analysis of impacts from introducing automobile industry policy(1) Overview of policy simulation analysis・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 26(2) Analysis of economic ripple effect of automobile industry in South Africa・・・ 29(3) Simulation analysis of policy assessment of current APDP scheme・・・・・・・・ 31(4) Simulation analysis of policies of additional or alternative support

measures for PI and VAA policies・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 35(5) Simulation analysis of policies of additional or alternative support

measures for AIS policy・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 38(6) Simulation analysis of human resource development and promotion

measures to encourage use of alternative domestic products・・・・・・・・・・・・・ 40(7) Simulation analysis of effects of automobile industry policy towards

post APDP・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 42

Ⅳ. Proposal(1) Basic ideas of proposal・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 47(2) Framework of proposal・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 48(3) Particular proposals・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 49

1

Introduction■ Since 2012,South Africa’s real GDP growth rate has been at a low level of 1-2% and the

unemployment rate isstaying at a high level of 20% because of the depression of export of mineral resources that is thedriving force of the country’s economy.

■ To escape from such circumstances, the economic structure must be restructured from the onedepending on resources and external factors to the one focusing on the manufacturing industrywhich has big impacts on job creation and is independent of the external factors.The automobile industry which accounts for 7.2% of GDP and incorporates significantly broadcomponent and parts-supply industries could be the key factor for the economical and socialdevelopment of South Africa.

■ In light of the awareness of these issues, the “FY2015 Asia Industrial infrastructureimprovement,etc.:South Africa Automobile Industry System Design Support Research”organized the issues for reviewing research of automobile industry in South Africa from 2020

and made several proposals regarding directions of future policy.

■ The “FY2016 Asia Industrial infrastructure improvement,etc.:South Africa Automobile IndustrySystem Design Support Research” reviewed from [1] legal viewpoint of whether they were legally

consistent with the WTO rules and [2] viewpoint of a quantitative analysis of how implementationof a support system would cause advantageous and disadvantageous effects to provide morespecific proposals for the automobile policy in South Africa from 2020.

２

General OverviewーThe present condition of the automobile industry in South Africaー

（１） The Present condition of the automobile industry■The automobile policies in S.A. (MIDP & APDP) have contributed to the increase

in automobile production and export, and the automobile industry has helped thedevelopment of the economy of South Africa.■However, judging from the present condition, the industry now faces the seriousproblems outlined below.①Sluggish domestic market and high import vehicle rate(about 55%) constrain

the quantitative expansion of domestic sales of S.A made vehicles (refer to p3）

② Competitive position of South Africa in the global automobile industry isrelatively declining, and the ability to grasp the future global market isthreatened(p4,5)

③ Although the current automobile policy (APDP) contributes to the increase ofthe assembly production volume, since it is not the policy linked with theimprovement of the local content rate, the employment creation effect issmaller than other industries(p6)

３

General OverviewーStructural change of vehicle production and sales in South Africaー■In recent years, the volume of vehicle production and export has been increasing

steadily. On the other hand, the domestic sales declined consecutively in 2014 and2015, hovering around 600 thousand units.

■Furthermore, automobile import expanded after the financial crisis, which in turndampened the domestic market. The S.A made car sales is now below 300 thousandunits, far less than the peak of 410 thousand units in 2006.

■ Vehicle production/domestic sale/export/import/S.A made vehicle sale in South Africa

Source）NAAMSA, JAMA

10 thousand units

0.0

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Production

Domestic sales

Import

Export

S.A made car sales

4

General OverviewーComparison with competing automobile emerging countries(1/2)ー

■The newly competing countries including Thailand and Mexico have beenstrengthening their presence in global automobile industries since the late 2000sby boosting their automobile production and sales.

■On the other hand, the global presence of S.A. auto industry lags behind thatof competing countries, reflecting its slow growth in production and sales.

Source）OICA、JAMASource）OICA、JAMA

■ Vehicle production of South Africa and its competitors10 thousands units

■ Vehicle domestic sales of South Africa and its competitors10 thousands units

0.0

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Mexico

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5

General OverviewーComparison with competing automobile emerging countries(2/2)ー

■ The automobile export value of S.A. also falls far behind from that of Mexico andThailand. The latter two countries have developed their auto industry by boosting export.■The export value of components in S.A. is in a similar situation to that of

automobiles. While competing countries that have succeeded in developing strongcomponents industry are enjoying surplus in the components trade, S.A. suffersa deficit in the component trade, reflecting its weak supporting industry.

■ Vehicle export/import value of South Africa and its competitors(2015)

Source）Global Trade Atlas

■ Export/Import value of automobile components of South Africa and its competitors（2015）

Source）Global Trade Atlas

unit：million dollar

unit：million dollar

0

10,000

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export import export import export import export import export import

South Africa Thailand India Mexico Brazil

0

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6

General OverviewーEconomic ripple effect of the South African automobile industry(1/2)ー

■Judging from the current situation, the automobile industry in S.A. has a considerablypositive effect in boosting the real GDP and total domestic output, while beingdisappointing in job creation.

⇒The export-driven S.A. automobile industry with underdeveloped supporting industrylacks close industrial linkage inside. The revision of current automobile policies is required to cultivate the full potential of huge job creation power of the auto industry , which by its nature nurtures strong supporting industry.

7

General Overview ーEconomic ripple effect of the South African automobile industry(2/2)ー

■Comparison of Economic Ripple Effect among Industries in South Africa

-20.0

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30.0

Thousand employee Job creation

-0.10%

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0.25%Changes in Base value Real GDP

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changes in Base value Total output

8

General Overview ーRelationship between the recommendations items of 2015FY and 2016FYー（２）Framework of proposal■We make more specific policy recommendations focus on securing quantitative of

domestically produced vehicles, reinforcement of competitiveness, and expandedjob creation effect in this 2016FY proposal.

【2016FYproposal】【2015FYproposal】

(A)Correlation of increase in domestic production and expanding domestic market (A)Securing quantitative size to expanded domestic sales of domestically produced vehicles　　○ ① Securing economy of sale to promote domestic sales ① Re-examination of CBU import credits② Introducing sales incentive policy ② Protection and development of particular models/segments

(B)Introducing protection policy for domestic models （B)Development of the automobile component industry by raising local content ratio（Expansion of employment)○ ① Presenting the explicit policy ① Determination of strategic tariff rates imposed on components○ ② Providing precise measures for targeted models ② Creation of a production incentive scheme to promote local procurement

③ Expantion of the AIS scheme

(C)WorkingWorking on developing suppliers

○ ① Improving local content ratio （C)Improvement of competitiveness by facilitating transfer of skills and technologies○ ② Improving investment environment to attract foreign-affiliated companies ① Development of investment environment to encourage entry of foreign-affiliated companies

② Strenthening initiatives for local component makera to transfer technologies and develop human resources

(D)Securing and expanding export markets ③ Support for development of next-generation technologies

① Expanding export strategy○ ② Improving the quality of export models③ Forming Sub-Sahara economic block

（E)Developing human resources① Establishing labor-management cooperation

○ ② Creating framework for human resource development

9

General OverviewーParticular recommendations for next automobile industry policy ー

（３）Particular proposals① Re-examination of CBU import credits・ Abolish the measures that allow the sale of redundant credis to automakers do not produce automobiles in S.A・ Phase out CBU import credits in the medium to long term ⇒ Allocate the increased amount of tariff revenue to subsidies for domestic automakers

② Protection and development of particular models/segments・ Provide various production incentives for particular models/segments・ Prospective candidate in S.A: segmentB, PU, SUV

① Determination of strategic tariff rates imposed on components・ Re-examine parts import credits in stages・ Set the tariff rate of CKD,components based on the situation of localization

② Creation of a production incentive scheme to promote local procurement・ Grant incentives domestic automakers and component makers in conjunction local content ratio ・ Allocate more incentives to component makers

③ Expantion of the AIS scheme・ Provide additional incentives to domestic component makers・ Create measures to promote the entry of new component makers

① Development of investment environment to encourage entry of foreign-affiliated companies・ Development various infrastructures with its focus on SEZ

② Strenthening initiatives for local component makera to transfer technologies and develop human resources・ Refer to bilateral scheme of human resource development and technical cooperation (Japan-Asean countries, Japan-Mexico RTA etc)

③ Support for development of next-generation technologies・ Enhance the EV development support program・ Support the development materials industries essential for evolution of automobile indutry

(A)Securing quantitative size to expandeddomestic sales of domestically producedvehicles

（B)Development of the automobilecomponent industry by raising localcontent rate(Expantion of employment)

（C)Improvement of competitiveness byfacilitating transfer of skills andtechnologies

10

General Overview ーItems to be tackled in the short term and in the medium to long termー

・Prohibition of Reselling Import DutyCredit・Providing Incentives for particular segments/models

Expantionof Employment and Improvement of CompetitivenessbyGrowth in the Automotive Industrythrough collective and selective policies for meaningful localization

Goal ofＰｏｓｔ APDP

Short term

Mediumterm

LongTerm

Policies to be implemented to achieve Goal

・Re-examining of Components Import Duty Credit and the tariff rate

・Phasing out of CBU Import Duty Credit

OEMAssistance

SupplierAssistance

Investment ConditionImprovement

・Human Resource Development andTecnologyTransfer by bilateral schemeswith advanced countries(RTA ,etc)

・Providing better vocational education environment tied up with existingorganizations(AIDC, ASCCI, etc)・Providing assistance measures for next –generation technoligies（EEV, materials）

・Activating effective RTAs with majorautomotive markets

・Developing busineesinvestment for attraction of foreign companiesｰ Reinforcement of Incentives forinvestment in SEZsｰ Stabilizing power suuplies

・Providing Incentives to OEMs and suppliers associated with Local Content level

・Expanding the AIS scheme ・Categorizing CKD, components andsetting the tariff rate in strategic termsfor improvement of localization

（４）Policy priority

11

General OverviewーIt is effective to distribute tariff income as subsidy(1/2)ー

（５）Validation of the policy scenarios using CGE Model analysis

■The APDP has been effective because it boosted GDP by 0.19% and created 10,000 new jobs through the whole industry.

■However, the cost and benefit of the policy (minus 7.66 billion rand) has beendisappointing in spite of to the government’s financial support.

■In order to improve the cost-benefit performance and job creation effect of current APDP, the new policy should make use of import duties on CBU or CKD, without givingup tariff revenues as the current APDP do, as financial resources for incentivesdistributed to local assemblers and suppliers (Scenario C).

■In case of difficulty of raising enough money from the increase in tariff rates (Scenario D, the new policy should include the human resources development and import substituting measures (Scenario E) to improve the productivity of local suppliers,in order to get the equal (Scenario D) or more (Scenario E) funding than that would begained by the tariff rate increase.

12

General OverviewーIt is effective to distribute tariff income as subsidy(2/2)ー

〇 Analysis results

Notes 1) In scenario A, the tariff rate on CBUs is 15% (when imported by local assemblers) and 20% (when imported by import traders). The tariffrates on CKDs and other component parts are 0% and 12% respectively.

Notes 2) In scenario B, the import tariffs on CBUs, CKDs, other components and parts are 15%, 0% and 12% respectively.Notes 3) In scenario C, the import tariffs on CBUs, CKDs, other components and parts are 25%, 5% and 15% respectively.Notes 4) In scenario D, the import tariffs on CBUs, CKDs, other components and parts are 30%, 10% and 20% respectively.Notes5) In scenarioⅣ, Tariff rate and subsidy rate are the same as the scenarioC, but next two points were added: the productivity of

component manufacturers improve to the same level as that of local assembly manufacturers, more import vehicles and components are replaced to domestically produced vehicles and domestic components, respectively.

※CBUs import tariff rate on 15% in the scenarios above is the CBUs tariff rate under SA-EU FTA, 25% is MFN tariff rate, 30% is actual tariff rate(after subsidies) of 5% plus MFN 25% tariff rate.

13

General OverviewーProportional allocation according to the local content rate has a large employment effectー

■We performed simulation analysis to find the preferable allocating method of incremental amount of tariff revenue gained by raising tariff rates of CBUs and CKDs, as subsidies for local assemblers and components makers. We formed 2 scenarios, which are (1) allocating the tariff gain evenly based on production volume, or (2) allocating proportionally according to local contents rates. As the result, we found that the latter result in better benefit (equivalent variation) and has a stronger job creation effect on the industry overall.

Note) Subsidy allocation scenario X: Allocating incremental amount of tariff revenue as subsidies when the tariffs are raised to 25% (CBU), 5%(CKD) and 15%( other components)Subsidy allocation scenario Y: Allocating incremental amount of tariff revenue as subsidies when the tariffs are raised to 30% (CBU), 10%(CKD) and 20% (other components)


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equal allocation allocation in proportion to localcontent ratio

1000 employeesBillion Rand Subsidy allocation Scenario XBenefit(Equivalent variation)(left-scale)

Job creationacross all industry(right-scale)

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equal al location allocation in proportion to localcontent ratio

1000 employeesBillion Rand Subsidy allocation Scenario YBenefit(Equivalent variation)(left-scale)

Job creationacross all industry(right-scale)

14

General OverviewーThe greater allocation to manufacturers that achieve high local content ratio is economically effective(1/2)ー

■We performed simulation analysis for local assemblers with local contents rate of lower than 40% and for those with that of 40% or more, based on each scenario below, and evaluated the improvement of their production volume, local production rates and number of employers using actual data obtained from local sources.

■In both scenarios, local assemblers with higher local content had bigger improvement. From those findings, to boost policy effectiveness, we recommend that local assembler with higher local contents rate should be given higher subsidies.

15

General OverviewーThe greater allocation to manufacturers that achieve high local content ratio is economically effective(2/2)ー

Scenario 1; Tariff rate of CBU is 25%, CKD 5%, others components 15%. Subsidies are allocated proportionally according to local contents rates.Scenario 2; Tariff and subsidy rate are set at the same level of those of ⅢｰC. We added 2 factors to this scenario 2, (1) productivity of supplier will be improved to the same level of local assemblers and (2) shift from imported cars and components toward domestic cars and cts will be promoted.

Notes) Circles represent the number of employees

6.2 (1000 employee) 6.7 (1000 employee)

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24.8 (1000 employee)

28.7(1000 employee)


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0.0 100.0 200.0 300.0 400.0 500.0 600.0Production units (1000)

Local content ratio

Scenario Ⅰ

Scenario Ⅱ

OEM group that local content does not reach 40%

OEM group that local content reaches more than 40%

■ Changes in two types of local assembly manufacturers by automobile industry policytoward post-APDP

InvestigationResults

16

Ⅰ. Present condition of automobile industry■ The vehicle production volume of South Africa in 2015 was 610,000 units, up 8.7% from the previous year and the

export volume dramatically increased to 349,000 units, up 26.0% from the previous year with the help of weak rand.■ However, the domestic sales volume decreased by 4.1% from the previous year to 618,000 units and the import

volume also decreased by 5.4% from the previous year to 336,000 units both lower than the previous year for twoyears in a row.

■ The domestic market still remains at a low growth level because of the slumping economy, increase of the pricehike of imported vehicles caused by weak rand and the decline of the consumers’ sentiment due to the higher interestrate. And the S.A made vehicle sales is now below 300,000 units, far less than peak of 410,000 units in 2006.

■ Figure 1 Vehicle production/domestic sale/export/import/S.A made vehicle sale in South Africa

Ten thousands

Source) NAAMSA

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17

Ⅰ. Present condition of automobile industry■ On the other hand, with respect to the South Africa's position in the global automobile industry, Thailand, Mexico

and other emerging competitors have strengthened the cluster of their automobile industry and widen the gapwith South Africa. South Africa's position in the increasingly competitive global automobile industry does not promiseany optimistic outlook at all.

⇒ The key is to whether the automobile industry can be developed to obtain improved cost competitiveness andtechnological capabilities to react to changes in the competitive environment in the future.■ Figure 2 Vehicle production of South Africa and its competitors

■ Figure 3 Vehicle domestic sales of South Africa and its competitors

Ten thousands

Source) OICA, JAMA, etc.

Ten thousands

Year

Year

Source) OICA, JAMA, etc.

■ Figure 4 Vehicle export and import of South Africa and its competitors (2015)

Million dollar

Source) Global Trade Atlas

■ Figure 5 Vehicle parts import and export of South Africa and its competitors (2015)

Million dollar

Source) Global Trade Atlas

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18

Ⅱ. Legal consistency of automobile Industry policy(1) Details of APDP system design and their challenges■ APDP is implemented from 2013 focusing on the development of domestic vehicle production replacing the MIDP

implemented from 1995 to 2012 that focused on promoting export. The outline is described below.

○ Import duty・ Maintained the MFN tariff rate reduction policy after shifting to market liberalization in 1995.

CBUs are 25% (bound rates 50%) and CKDs are 20% (bound rates 30%). Most raw materials and production machinery including tooling that are difficult to procure domestically are 0%. For component parts, items difficult to procure are 0%

(lowest tariff rate) or low tariff rate of 5 to 10% where items with no competitiveness are subject to bound rates (maximum tariff rate) for protection.

○ VAA: Volume Assembly Allowance・ Provides credits to reduce import tariff of essential components so as to support production.・ Duty rebate incentive by taking into account whole sale price vehicle for the companies that produce minimum 10,000 units

per year.・ VAA credits are also applicable to reduce CBU import tariffs. Import of components for export purpose under the “re-export

tax exemption” program will also be applied .

○ PI: Production Incentive・ PI benefit focuses on value addition within the operations to support production.・ Duty rebate of components/CBU import tariff depending on value addition which is calculated using formula “FOB-Sourcing

cost (import cost of components) - Raw material”.・ In addition, particular materials (sourced within SACU region or less competitive) that are chosen by the government are

calculated as “supplier value addition” and qualified for incentive. Unnecessary amount can be sold to other firms in cash.

○ AIS: Automotive Investment System・ Provides financial help through cash grant depending on the investment value of the business to strengthen and develop

R&D, job creation and supply chain.・ Qualifying criteria: Minimum production of 50,000 per year for automobile maker and more than R 10 million sales for

components company.

19

Ⅱ. Legal consistency of automobile industry policy■ However, no satisfactory development has been observed to date with respect to the following four targets established for the

period from 2013 to 2020 in the APDP: (i) expansion of the automobile production volume to 1.2 million units by 2020; (ii) improvement of local content rates; (iii) improvement of trade balance with respect to automobile trading; and (iv) job creation.

■ The previous research indicated items described below as main issues that cause these factors.

○ Import duty・ CBU tariff rates are lower than those of competitors and not at the level that can protect the domestic market adequately.・ South Africa has smaller difference among tariff rates imposed on CBUs, CKDs and components as compared with its

competitors, failing to establish the tariff rates that intend to develop the domestic industry.

○ VAA: Volume Assembly Allowance・ Not only components but CBU can be used to refund import tariffs in which it limits the expansion of vehicle sales of

domestic makers.・ The requirement of the incentive is simply “production volume” and it is a production support measure without promoting

domestic procurement.

○ PI: Production Incentive・ The offset of the import tariffs imposed on CBUs has made it easier to import vehicles and constrained domestic makers

from expanding their sales of domestically produced vehicles. In addition, the system that allows selling of redundant PI credits to other companies is promoting this tendency.・ Since the incentive requirement is based on “value addition” in a production process of an automobile maker, it does not

directly contribute to the local content rates of component makers.・ SVA addition of designated materials, especially vulnerable materials drive up the value of incentives.

○ AIS: Automotive Investment System・ The apportioning of the cash incentive is more favorable for automobile makers and is insufficient for component makers.・ Conditions to enter the market is severe for component makers and new entry is difficult.

20

Ⅱ. Legal consistency of automobile industry policy(2) Details of the proposals made by the previous research■ In light of the recognition of those challenges with successful and unsuccessful examples ofother automobile emerging countries, the Previous Research made the following proposals:

(i) Secure quantitative size that leads to expanded domestic sales of domestically made vehicles

・ Modify the production incentives so that they will

lead to expanded domestic sales of domestically made vehicles.

・ In particular, rectify the measures that allow the sale of redundant

(A) Implement policies that can correlate import tariff credits to makers not engaged in domestic production and utilize expanded production of domestically made vehicles with the redundancy for employment/research and development subsidies or corporate

their domestic sales expansion income tax relief.(ii) Introduce timely sales promotion policies

・ Introduce preferential tax treatment for targeted domestic models that are expected to expand sales.

・ Boost new demands by linking these policies

with macroeconomic policies that aim to transform the

lower-income class into the middle class.

(i) Clarify the policy to develop domestic makers

・ Clearly present the policy to treat domestic makers favorably,

including high tariff rates and differentiation of the domestic tax system.

(ii) Strategically designate the targeted models to be fostered nationally and provide detailed policy assistance

(B) Introduce protection and development policy ・ In order to support domestic models that suit the characteristicsfor targeted domestic models to support domestic makers of the South African market and are expected to sell higher

volumes, set higher tariff rates, give preferential treatments for

domestic taxes and provide incentives for production and investment.

・ However, in light of the current situation of the automobile

production in South Africa where export accounts for a

significant portion, the government should specify the strategic

models by taking into account the characteristics of the target market (for domestic sales or export) and review the details of the assistance that are

appropriate for each of the strategic models.

Details of the proposals Details of the policy

21

Ⅱ. Legal consistency of automobile Industry policy(continued)

(i) Implement continuous efforts to improve local procurement rates by public-private cooperation

・ Examine the cost penalty of components, identify the components to be fostered nationally and the components whose local procurement should be promoted, and set detailed tariff rates.

・ Provide incentives equally for automobile makers and component (C) Work on the development of the automobile makers on the condition that they will improve local procurement rates.

component industry and attract ・ Persistently continue the ASCCI, which was commenced in 2013,

foreign-affiliated companies that lead in 2017 and thereafter.

the development from the mid- (ii) Improve environment to attract foreign-affiliated companies that lead and long-term perspectives the development of the industry

・ In order for emerging countries to enhance the competitiveness of

their automobile industry, foreign-affiliated automobile makers

and component makers will be the key players.

・ It is necessary to review the details and methods of the attraction thatwould compare favorably with competitors.

(i) Strategically expand export markets

・ In order to secure economies of scale for domestic production,

it is essential to develop export markets through the creation of an FTA

or economic block (however, as liberalization is a double-edged sword,

it is necessary to set tariff rates that take into account competitiveness against other countries).

・ Enhance South Africa’s position as a base for logistics and processing in terms of

export promotion.

(ii) Improve the quality of export models for developed countries(D) Strategically promote the creation of regional ・ In response to tougher competition in major export markets in the developed countries and

economic blocks and the execution of regional accords tightened environmental and safety regulations, introduce assistance measures including the

to secure and develop export markets provision of incentives for the production of technically advanced vehicles that

address these trends, such as eco-cars.

(iii) Create the Sub-Saharan regional economic block and develop regional vehicle models

・ Work on the creation of the regional economic block with a view to the development of

countries in the medium and long term.

・ Implement policy measures to promote the development and the launch of the vehiclemodels Africa that are exclusive to Africa and meet the demands of the Sub-Saharan region

in conjunction with the models for South


22

Ⅱ. Legal consistency of automobile industry policy(continued)

(i) Establish labor-management cooperation

・ It is necessary to improve the framework of labor relation at the high level of the government,

labor and management.

(E) Establish environment where the government, (ii) Creating the scheme for human resource development labor and management can cooperate with one another ・ Improve the quality of labor by implementing policies that combine the BEE policyin developing human resource that will support with human resource development.

the development of the automobile industry ・ Establish the system that incorporates human resource development intoinvestment incentives and accelerates technology transfer from countrieswith the advanced automobile industry.


23

Ⅱ. Legal consistency of automobile industry policy(3) Verification of consistency with WTO rules■ To review the feasibility of details of the proposal, consistency with WTO rules and current APDP was

examined. First, relevant WTO rules are described below.

General Most-Favoured- GATT Article1 ・ WTO Member shall provide the most-favoured-nation treatment to similar products

Nation Treatment of other Members with respect to custom duties, importation/exportation regulation,

internal taxes, and internal regulations for imported products.

Schedules of Concessions GATT Article2 ・ Obligate Members to apply tariff rates that are no higher than their bound rates.

There are no problems in terms WTO rules in rising effective tariff rates within the scope of

their bound rates or rising tariff rates at will for non-bound items.

GATT Article28 ・ However, to increase or withdraw bound rates, it is required to negotiate and obtain

agreement with Member that directly negotiated the bound rate or with the principle

supplying country. In addition, it is required to have consultation with the principle supplying

country of relevant product that has a substantial interest in modification of the bound rate.

National Treatment on GATT Article3 ・ Members shall grant national treatment to other Menbers.

Internal Taxation and 　Paragraph2 ・ Imposing internal tax.etc. at a level higher than products of national origin to imported

Regulation products that are similar to, directly compete with, or can be replaced with products of

national origin is prohibited.

　Paragraph4 ・ The imported products shall be accorded treatment no less favorable than that accorded

to like products of national origin in respect of all regulations.

　Paragraph5 ・ No party shall establish or maintain quantitative regulation which requires directly or indirectly

any specified of any product which is the subject of the regulation to be supplied from

domestic sources.

　Paragraph8(b) ・ Payment of subsides exclisively to domestic producers is allowed as exception of the

national treatment.

General Elimination of GATT Article11 ・ Not only quantitative restrictions to import and export but a permission system for import

Quantitative Restrictions and export that functions as quantitative restrictions are generally prohibited.

GATT Article20 ・ Exceptions where a violation to GATT is justifiable are stipulated. Examples of general

exceptions likely associated with automobile industry policy options include "measures

necessary to protect human, animal or plant life or health(item(b))" and "measures relating

to the conservation of exhaustible natural resources(item(g)).

Paragraph1(b), ・ Subsides granted based on prioritizing domestic products ahead of imported products are

ArticleⅢ prohibited as Red-light subsides.

・ Subsides that do not apply to Red-light subsides but "specificity" and adversely affects

other countries are advised to be abolished or to correct the adverase effect as Yellow-light

subsides.

TRIMｓ・ Investment measures related to trade that violate Articles 3 and 11 of GATT are listed as

Agreement prohibited items. Local content requirements and trade balancing requirements are recognized

as "investment measures that have a strong trade-distorting effect" and are therefore

prohibited.

Provision Details of provision

ＧＡＴＴ

General Exceptions

Agreement on Susidies and CountervailingMeasures(SCM Agreement)

Trade-Related Investment Measures

24

Ⅱ. Legal consistency of automobile industry policy■ The consistency with WTO rules described above were verified by organizing APDP and details of previousresearch proposals (A) to (E) in two main categories: “Activities of domestic producers” and “Government policy(granting of incentive, change in tariff rate, and RTA)”.

Granting of incentive

Change in tariff rate RTA

Reduction of import tariff

rates

Reduction of internal

indirect taxes

Reduction of income tax

andcorporate

income tax

Granting of subsidies to corporations

Granting of subsidies to purchasers

Activities of dom

estic producers and consumers

General domestic production of

OEMs/suppliers

Production of specified model

(Domestic models only)

Sales of specified model

(Both domestic and imported)

Local procurement ratio

Capital investment

Employment / R&D

No condition

VAA/PI A

AB

B

C

AISB

AE

BC

D

25

Ⅱ. Legal consistency of automobile industry policy○ Verification results of APDP and details of previous research proposals

・ It is highly that they are considered as measures for reduction of internal taxes, not customs duties, under the WTO rules.

Since it will be viewed that automobile manufacturers and component manufacturers that do not conduct domestic production

will be in a less advantageous position and it is highly that the measure will be deemed violating of Article3 of GATT.

・ In addition, to companies that can not make use of duty credits, VAA and PI have the effect of restricting imports and may

possibly in violation of Article11 of GATT.

・ Resale of redundant credit of PI may violate Article13 of GATT that require non -discriminatory application of quantity limitation.

・ AIS does not violate TRIMs agreement since it is not applicable as export subsides or local content requirement.

Granting of incentive ・ It confirms to Article3 of GATT if granting of incentives is in form of reduction of internal direct tax(corporate income tax,

to domestic product in income tax,etc.) or subsides.

general/specific models ・ Reduction of internal indirect tax(commodity tax,etc.) only to domestically produced products may violate Article3 of GATT.

However, reduction of internal indirect tax to sales of specific model without distinction of domestic vehicle and imported

vehicle will not be in violation of Article3 of GATT.

Granting of incentive ・ Reduction of internal indirect tax(commodity tax,etc.) only to domestically produced products may violate Article3 of GATT.

to domestic sale of specific However, reduction of internal indirect tax to sales of specific model without distinction of domestic vehicle and imported

models vehicle will not be in violation of Article3 of GATT.

・ When products that are no longer in scope of incentives are classfied as "like product"or"competitive product" of products

in scope, its measure may be recognized as violating Article3 of GATT for discriminary measure. Therefore, it is necessary to

categorize products with HS code of tariff.

Granting of incentive ・ Article2 of TRIMs Agreement, Paragraph2 and 4 of Article3 of GATT, and Article3 of Subsidies Agreement from the standpoint

based on local content rates that domestic components are handled with advantages compared to imported components.

・ However, the possibility not to be viewed as violation will increase if the local content rates are not explicitly specified as a

forced requrement and by incorporating a system that promotes local procurement and grants incentive later according to the

achieved local content rates.

Granting of incentive ・ It does not violate TRIMs Agreement. And it will be not in violation of SCM Agreement if it is not viewed as measure that

for capital investment/ has trade-distoring effect.

employment/R&D

Modification of tariff rate ・ There is no legal problem if it is within the range of bound rates.

Regional Trade Agreement ・ When concluding the Regional Trade Agreement, The tariff rate must be lower than weighted average of tariff rates of

countries within the region prior to concluding the agreement and as domestic trade requirements, "substantially lebetalizing all

trades" are required be Article 24 of GATT.

APDPVAA/PI

AIS

2015FYproposals

26

Ⅲ. Analysis of impacts from introducing automobile industry policy(1) Overview of policy simulation analysis■ Each policy is evaluated by analyzing the cost-effectiveness of when APDP and the details of previous

proposals are conducted.・ By considering the “cost” generated by conducting certain policy as “government revenue” and the “effect” as

“equivalent valuation”, the policy can be evaluated as “desirable policy” if the equivalent valuation is higherthan the amount of revenue reduction. Furthermore, it is evaluated by the production activity index of the automobile industry’s production and import & export, real GDP, volume, etc..

■ As simulation analysis steps, (i) the SAM (Statistical Accounting Matrix) of 2011 of South Africa was extendedto be SAM for evaluating automobile industry policy → (ii) the developing country CGE (Computable General Equilibrium) model developed by the International Regional Development Research Center of Reitaku Universitywas modified for South Africa specification → (iii) policy simulation using South Africa CGE model was performed.

Flow chart of research and analysisFlow chart of research and analysis<STEP3>

Reitaku Univ,'s 2011 SAM model is consisted of 45×45 dimentions

①16 industry sectors

②16 product types

③5 production factors（2 labor types and 3 capital types）

④4 institutions types (2 household types,1 company, 1 government)

⑤4 other factors（saving/investment, directtax, indirect tax,foreign sectors)

＜STEP 1>

■Break up transportation machine sector into 4 segments; ①Domestic-focused vehiclemanufacturing ②Export-focused vehiclemanufacturing③Auto parts manufacturing ④Other transportation machinemanufacturing:

to create SAM suitable for automobile industry and use it as a database for OGE model.

＜STEP2＞

■Modify the Reitaku Univ.'s "CGE model for developingcountries" for the use of S.A.study.

・Estimate an elasticity of substitution of①laborandcapital ②domesticgoodsand importgoods③domesticgoods and export goods,in S.A.

■Instrument variables and parameters for each policysimulation

①Tariff rate of each product

②Subsidy rate of each industry③Indirect tax rate of each

industry④Income tax rate for hosehold

and company⑤Savings rate of the government

⑥Efficient parameter of production function in each

industry⑦Elasticity of substitution of

domestic goods and import goods

⑧Elasticity of substitution of domestic goods and export

goods⑨Capital supply from overseas

⑩International price of importand export goods

■Outputs from each policy

simulation

・ＧＤＰ

・Equivalent variation

・Government revenue

・Aside from those above,

endogenous variable of CGE

model

①Production volume of each

industry

②Domestic supply of each industry

③Volume of exports and imports of

each industry

④Labor and capital demand in each

industry

⑤Household wage rate, return of

investment

⑥Number of unemployed people⑦Family income

⑧Exchage rate

etc.

Simulation by CGE model

・Carry out estimation through a nonliner system estimation method , utilize macroeconomic statistic time-series data in S.A and SUT as a database.

・ Automotive related

statistics data collected by

B&M Analyst (S.A)・Utilize 2005 SＵＴ whose

industry segmentation is more detailed.

・Instrument variables and

parameters from ①to⑥

above can be obtained by

calibration from 2011 SAM

・16 industry sectors

27

Ⅲ. Analysis of impacts from introducing automobile industry policy

○Overview of CGE Model■The reason why we employ a computable general equilibrium (CGE) model instead of a macro- econometric model as an analysis tool

for the policy evaluation is that a macro-economic model is effective for analyzing quantitatively to examine (1) economic effect of

investment expansion in public and private sectors, (2) impact of financial policies including exchange policy and (3) the economic

outlook for a specific country. On the other hand, a CGC model is the most appropriate model to analyze fiscal policies including tax and

subsidy reform. It is suitable for a quantitative analysis of the economic ripple effect caused by tax reform on economic agents (such as

industry, government, family and company) and on production factors (labor, capital) as well as savings, investment and overseas

operations. In addition, developing a macro-econometric model, which is based on probability theory, requires a time-series data-set

composed of various economic statistics data gained through statistical surveys. However, a CGE model is easily developed using social

accounting matrix (SAM) for any specific time.

■ CGE model (computable general equilibrium model) expresses general equilibrium structure of the economy based on the price

mechanism (with the increase of demand, the price increases, and with the increase of price, the demand decreases)

・ Expresses (i) how economic units such as family finance and corporate make actions within the given economy and (ii) how

equilibrium of each activity is achieved in the market (family finance aims for the maximum effectiveness within the given budget and a

corporate aims for the maximum profit within the given technology).

■CGE model is a major quantitative analysis model used for establishing and evaluating economic policies to understand which industry

in the relevant economy system and people in which income bracket will receive what level of effect when certain policy is conducted.

・ This model is used in a wide range of fields by the Cabinet Office and others in the Japanese government as well. For example, it was

used in the field of international trade to analyze effects of TPP before its negotiation, financial policy to analyze effects of increase in

consumption tax and commodity tax, macro economy issues to analyze effects of introduction of environment tax, and for industry

policies to analyze the effects of liberalization of electric power industry.

・ In addition, this is widely used as a tool for policy analysis in developing countries, where time-series data is not available.

28


■ Overview Diagram of Policy Simulation with CGE Model

Government spending

Import

volume

・Wage rate

・ Returns to capital

Production volume of ・Agriculture, Mining industry・Manufatcuing industry( excluding auto)・Some part of

construction, teriary industry

Labor quantity of

service sectorLabor quantity oflabor in other industries

Capital value of other industries

Export

volume

Capital value of public

service sector

Production volume of public service sector

Export volume of domestic cars

Production Incentive(Tarrif reduction)

Domestic price of imported cars

Relative price of domestic cars compared to imported cars

Domestic

consumption of automobiles

Eecnomic welfare of family

（Equivalent variation:effectiveness ）

Exchange rate

Tariff revenue of the

government

Production volume of

domestic cars

Goverment

revenue（Cost）

・Direct tax

・Indirect tax

・Family income

・Corporate income

Volume of imported

cars

Domestic Supply of domestic cars

Capital value of auto industry

Labor quantity of labor in auto industry

Number of

unemployed

29


(2) Analysis of economic ripple effect of automobile industry in South Africa

■ Before evaluating the automobile policy of South Africa, the economic ripple effect of the current automobile industry was evaluated comparing with other industries. Simulation was conducted using CGE models of 16 industries under an assumption that fixed amount of subsidies are allocated to each industry.


(i) Job creation effect: Transportation equipment is at 12th in 16 industries. Food items had the largest job creationeffect

(ii) Cost/benefit: Transportation equipment is at 11th in 16 industries and in negative. Food items had the largest positive

(iii) Real GDP: Transportation equipment is at 5th in 16 industries. Food items is at the top.(iv) Total production volume: Transportation equipment is at 5th in 16 industries. Basic metal and general machinery

are at the top

⇒Although the real GDP and total production volume are at a high level, the job creation is low.This is because since the growth of automobile industry of South Africa was led by export and the domestic component industry is undeveloped, the automobile industry does not have a close industry linkage in thecountry as that of automobile advanced countries.

⇒ In order to widely open the potential of the automobile industry that essentially can expect job creation effect ina broad base of comprehensive industries, the current automobile industry policies need to be reviewed and

appropriate industry support measures need to be provided to local automobile makers and componentmakers.

30


■ Figure 6 Comparison of economic ripple effect among industries in South Africa

-20.0

-10.0

0.0

10.0

20.0

30.0

Thousand employee Job creation

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0Rand Billion Differnce(=Benfit -Cost)

-5.0

0.0

5.0

10.0

15.0

20.0Rand Billion Equivalent Variation

-0.10%

-0.05%

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%Changes in Base value Real GDP

-0.10%

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%changes in Base value Total output

31


(3) Simulation analysis of policy assessment of current APDP scheme■ Conduct simulation analysis using CGE model “without” implementation of each APDP program

to evaluate APDP policies and evaluate by comparing the amount of change from the “present situation” (reference value).・ The benchmark year is 2011 since the database used in this research is of the latest version currently available, which is of 2011.

Therefore, for the “without” policy setting, the import tariff was set back to the level of 2011. For AIS, it was estimated that the amount paid in 2014 was also paid in 2011.

■ Figure 7 CGE model setting value for “without” policy simulation

CBU importedby OEMs

CBU importedby Non-OEMs

CKD imported bycomponent

manufacturers

Othercomponentsimportes bycompmenet

manufacturers OEMs

AutoComponent

Manufacturers

5% 5% 0% 12% 1.0% 0.6%

26% 26% 21% 21% 1.0% 0.6%

5% 5% 0% 12% 0.2% 0.2%

26% 26% 21% 21% 0.2% 0.2%

If the AIS were not conducted

Numerical value inserted into CGE model

Setting Tariff Setting Subsidy rate

Present situation ( Base value of SAM 2011)

If the PI and VAA were not conducted

If the APDP scheme were not conducted

32



■ The cost of APDP scheme is significantly higher than the benefit (about 7.66 billion Rand higher)indicating that the policy is not being effective as a government fiscal measure.

■ However, from the viewpoint of economic indicators and automobile-related indicators, GDP increasedfor 0.11%, the total production volume increased for 0.19%, and created employment for over 10,000 people in the whole industry, which can be evaluated that certain result was obtained.

■ For the ratio of domestic component in the domestic component supply, PI and VAA practicallydecreased the tariff rate in which the rate decreased for 1.2%. However, AIS had an increase effect of 0.1% increase.

■ Figure 8 Results of cost and benefit effect of each policy simulation

Cost(=A)(A decrease in

RealGovernmentRevenue)

(Rand billion)

Benefit(=B)(EquivalentVariation)

(Rand billion)Difference

(=B-A)Real GDP

(%)Total output

(%)

Job creationacross allindustry

(thousandemployee)

Domesticproduction of

OEMs(%)

Domesticproduction ofComponentManfaturers

(%)

Ratio ofdomesticallyproducedcomponents tocompoenetssupplied

13.79 6.02 -7.78 0.10% 0.17% 9.5 6.00% 0.33% -1.2%

0.49 0.58 0.09 0.01% 0.03% 1.0 1.23% 0.68% 0.1%

14.25 6.59 -7.66 0.11% 0.19% 10.6 7.10% 0.97% -1.1%

Major economic and automobile-related indicators

If the PI and VAA were notconducted


If the APDP scheme were notconducted

Changes in Simulation results ofeach Scenario to to the Presentstituation (Base value)

Cost-Benefit Analysis

33


〇 Analysis results (continued)

■ When the local assembly manufacturers and component manufacturers where separated in twogroups by the local content rates, (Local assembly manufacturers were categorized by the local content rates of 40% based on the information obtained in the local survey. Manufactures that are less than 40% on thebusiness model are manufactures that focus on export with export ratio of 80%.) it was clarified that local assembly manufacturers and component manufacturers with low local content rates have advantages with PI and VAA.

・ For example, “without PI and VAA policy”, the increase in production volume of local assembly manufacturers that are less than 40% is 8.63%, which is almost double increase compared to the 4.78% increase of the local assembly manufacturers with 40% or more. Even for the domestic supply volume and export volume, the amount of change of manufacturers with low local content rates is larger than that of manufacturers with high local content rates. This result is the same with component manufacturers.

・ As a result, although PI and VAA decrease the ratio of domestic components in domestic component supply for 1%, the effect of 6 to 8% increase of the domestic automobile market is observed since the price of imported components and imported vehicles will also be reduced.

34


■ Figure 9 Simulation results of each policy under “without” policy condition of each group

less than 40% more than 40% low high less than 40% more than 40% low high

8.63% 4.78% 0.97% 0.03% 6.61% 3.88% -0.18% -0.29%

1.33% 1.18% 0.77% 0.64% 0.82% 0.87% 0.49% 0.50%

9.75% 5.87% 1.67% 0.65% 7.35% 4.69% 0.28% 0.20%

less than 40% more than 40% low high less than 40% more than 40% low high

15.96% 10.21% 3.63% 1.42% 13.84% 12.14% 4.20% 4.65%

3.14% 3.07% 1.38% 1.26% 0.23% 0.31% 0.26% 0.30%

18.52% 12.93% 4.93% 2.63% 14.03% 12.40% 4.41% 4.92%

low high less than 40% more than 40% low high

-1.02% -1.23% 6.56% 8.48% 8.75% 4.84% 1.00% 0.05%

0.05% 0.05% 0.72% 0.65% 1.29% 1.17% 0.80% 0.65%

-0.97% -1.18% 7.22% 9.05% 9.84% 5.93% 1.69% 0.67%

OEM Parts suppliers

Local content ratio Local content ratio Local content ratio Local content ratio


Domestically produced parts ratio Domestic automotive market Labor Demand



Parts suppliers

Local content ratio

OEM Parts suppliers

Local content ratio Local content ratioPrivate demand (Household)

Corporatedemand andInvestment

demand

Domestic output delivered to home market


Exports Imports

OEM Parts suppliers

Local content ratio Local content ratio

OEM Parts suppliers

Local content ratio Local content ratioChanges in Simulation results ofeach Scenario to to the Presentstituation (Base value)





Domestic production volume




OEM Parts suppliers

35

Ⅲ. Analysis of impacts from introducing automobile industry policy(4) Simulation analysis of policies of additional or alternative support measures for PI and VAA

policies■ To re-examine to obtain policies that provide larger cost effectiveness, financial resources

necessary for the incentive policy were secured in the automobile industry, created a scenario of how to divide the incentive as subsidies, and simulation analysis of additional/alternative supportingmeasures was conducted.■ Figure 10 Setting of additional or alternative support measures for PI and VAA policies

Note) For scenarios I-C to F, subsidies of 1 are evenly allocated, 2 are allocated in proportion to the local content rate, and 3 are allocated inversely proportional to the local content rate.

CBU imported byOEMs

CBU imported byNon-OEMs


manufacturers

Other componentsimportes bycompmenet

manufacturers OEMsAuto ComponentManufacturers

5% 5% 0% 12% 1.0% 0.6%

Scenario I-A 5% 25% 0% 12% 1.5% 0.6%

Scenario I-B 5% 25% 0% 12% 3.9% 0.6%

Scenario I-C 15% 25% 0% 12% 1.0% 0.6%

Scenario I-C1,C2 15% 25% 0% 12% 5.4% 0.6%

Scenario I-D 15% 15% 0% 12% 1.0% 0.6%

Scenario I-D1,D2 15% 15% 0% 12% 4.3% 0.6%

シナリオ I-D3 15% 15% 0% 12% 1.0% 5.2%

Scenario I-E 25% 25% 5% 15% 1.0% 0.6%

Scenario I-E1,E2,E3 25% 25% 5% 15% 7.8% 4.8%

Scenario I-F 30% 30% 10% 20% 1.0% 0.6%

Scenario I-F1,F2,F3 30% 30% 10% 20% 8.8% 8.1%


Present situation ( Base value ofSAM 2011)

Additonaloralternativepolicymeasureson PI andVAA

36

Ⅲ. Analysis of impacts from introducing automobile industry policy〇 Analysis results■ Benefit exceeds the cost in all scenarios.・ This is because the government revenue does not decrease even when the government uses the tariff revenue

gained from setting the MFN tariff rate back to the level of 25% for subsidies but allocation of subsidies will make the automobile industry to grow, the whole economy to revitalize, and increase the equivalent valuationby drastically re-examining the production incentive of PI and VAA.

■ However, just returning the tariff rate back to the former level as shown in scenario (I-D, E and F)will lower the GDP and total production volume and increase the unemployment rate. On the otherhand, the scenario that returns the tariff revenue back to the automobile industry as subsidy (I-A and B) pushes up the GDP, increases the production volume of local assembly manufacturersand component manufacturers, and creates employment in all industries.

■ In terms of job creation effect, scenarios that allocated subsidies in proportion to the local contentratio (I-C2, D2, E2 and F2) had a larger effect than scenarios with even allocation (I-C1, D1, E1 and F1). In addition, the effect increases with increase in tariff rate.

⇒ For South Africa to develop the automobile industry as the country’s key industry, securing of financialresources necessary for the incentive policy inside the automobile industry is required rather thanthe fiscal measure that uses waiver or revenues and part of tax income for the incentive policy of theautomobile industry.

⇒ It is more effective to use those financial resources for allocating subsidies to local assembly manufacturers and component manufacturers in proportion to local content rates.

37

Ⅲ. Analysis of impacts from introducing automobile industry policy■ Figure 11 Simulation results of each policy under “without” policy condition of each group



(Rand billion)



(=B-A)Real GDP

(%)Total output

(%)


(thousandemployee)


OEMs(%)


(%)

Ratio ofdomestically

producedcomponents to

compoenetssupplied

Scenario I-A -2.26 -0.09 2.17 -0.01% -0.01% 1.0 -0.03% -0.06% 0.0%

Scenario I-B -1.23 1.19 2.42 0.02% 0.06% 3.1 3.53% 0.97% 0.0%

Scenario I-C -3.89 -0.95 2.94 -0.02% -0.04% -0.5 -1.38% -0.44% 0.0%

Scenario I-C1 -1.96 1.22 3.17 0.02% 0.08% 3.0 5.45% 1.47% 0.0%

Scenario I-C2 -1.97 1.29 3.26 0.02% 0.08% 3.2 5.36% 1.47% 0.0%

Scenario I-D -2.77 -0.86 1.92 -0.02% -0.03% -1.0 -1.01% -0.33% 0.0%

Scenario I-D1 -1.36 0.86 2.22 0.02% 0.06% 2.0 3.84% 1.07% 0.0%

Scenario I-D2 -1.37 1.01 2.38 0.02% 0.06% 2.5 3.75% 1.09% 0.0%

Scenario I-D3 -0.82 1.21 2.03 0.01% 0.04% 2.6 0.61% 4.11% 0.6%

Scenario I-E -7.40 -2.81 4.59 -0.05% -0.09% -4.0 -3.02% -0.55% 0.3%

Scenario I-E1 -2.62 2.67 5.29 0.04% 0.18% 5.4 9.06% 6.83% 0.9%

Scenario I-E2 -2.63 3.01 5.64 0.04% 0.18% 6.5 8.87% 6.64% 1.0%

Scenario I-E3 -2.56 2.26 4.81 0.04% 0.18% 4.0 9.52% 7.16% 0.8%

Scenario I-F -11.14 -4.57 6.57 -0.08% -0.14% -6.9 -4.71% -0.59% 0.7%

Scenario I-F1 -4.37 3.01 7.38 0.04% 0.23% 6.1 10.17% 11.26% 1.8%

Scenario I-F2 -4.32 3.50 7.82 0.04% 0.23% 7.6 10.14% 10.98% 1.8%

Scenario I-F3 -4.26 2.54 6.80 0.03% 0.24% 4.4 10.76% 12.08% 1.7%

Changes in Base value

Cost-Benefit Analysis Major economic and automobile-related indicators

Additonaloralternativepolicymeasureson PI andVAA

38


(5) Simulation analysis of policies for additional or alternative support measures for AISpolicy

■ The benefit is exceeding the cost with the current AIS policy. Therefore, simulation analysis was conducted to understand the level of effectiveness by wider application of AIS policy.■ Figure 12 Setting of additional or alternative support measures for AIS policy

Note) For scenarios II-C, subsidies of 1 are evenly allocated, 2 are allocated in proportion to the local content rate, and 3 are allocated inversely proportional to the local content rate.

Group with a lessthan 40% localcontent ratio

Group with a 40%or more localcontent ratio

Group with alower local

content ratio

Group with ahigher localcontent ratio

1.0% 0.6% 1.0% 1.0% 0.6% 0.6%

Scenario II-A 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%

Scenario II-B 1.8% 1.8% 1.8% 1.8% 1.8% 1.8%

Scenario II-C1 2.6% 2.6% 2.6% 2.6% 2.6% 2.6%

Scenario II-C2 2.6% 2.6% 2.2% 2.8% 2.2% 2.8%

Scenario II-C3 2.6% 2.6% 3.1% 2.4% 3.1% 2.4%

Present situation ( Base value ofSAM 2011)

Additonaloralternativepolicymeasureson AIS

Setting subsidy rate

OEMsComponent

Manufacturers

OEMs Component Manufacturers

Numerical value inserted into CGEmodel

39

Ⅲ. Analysis of impacts from introducing automobile industry policy〇 Analysis results■ As the cash grants increase, the costs increase; however, benefits that worth the increased costs are not obtained.Job creation effect of the industry as a whole that worth the increased cash grant is not obtained either (II-A, B and C1).⇒ The effect is limited as long as the cash grant amount is evenly allocated irrelevant to the local content rate.■ However, when cash grants are allocated in proportion to local content rates (II-C2), the cost & benefit and job

creation is more effective compared to even allocation (II-C1) or inversely proportional to the local content rate (II-C3).

⇒ If there is any limitation of financial resources for cash grants, the most effective method is to allocate subsidies tolocal manufactures and component makers in proportion to the local content rates.

■ Figure 13 Analysis results of additional or alternative support measures for AIS policy



(Rand billion)



(=B-A)Real GDP

(%)Total output

(%)


(thousandemployee)


OEMs(%)


(%)



compoenetssupplied

Scenario II-A 0.16 0.17 0.01 0.00% 0.01% 0.3 0.14% 0.37% 0.1%

Scenario II-B 0.83 0.93 0.10 0.02% 0.04% 1.6 1.55% 1.47% 0.2%

Scenario II-C1 1.51 1.69 0.18 0.03% 0.08% 2.8 3.02% 2.61% 0.3%

Scenario II-C2 1.52 1.79 0.26 0.03% 0.08% 3.1 3.01% 2.58% 0.3%

Scenario II-C3 1.53 1.62 0.08 0.03% 0.08% 2.6 3.09% 2.72% 0.3%

0.65 0.75 0.10 0.01% 0.03% 1.3 1.38% 0.96% 0.1%

0.67 0.76 0.09 0.01% 0.03% 1.3 1.41% 1.10% 0.1%

0.68 0.77 0.08 0.01% 0.04% 1.3 1.47% 1.14% 0.1%



Additonaloralternativepolicymeasureson AIS

"If AIS were not conducted" +"Scenario II-A"

"Scenario II-B"- "Scenario II-A"

"Scenario II-C1"- "Scenario II-B"

40

Ⅲ. Analysis of impacts from introducing automobile industry policy(6) Simulation analysis of human resource development and promotion measures to ecourage

use of alternative domestic products■ In this section, we simulate a case where the government initiates measures to develop human resources and

encourage use of alternative domestic products. The used scenario is scenario I-D (the setting where the increased tariffrevenue rate by setting the tariff rate at 15% is provided to the government revenue).The setting is on the assumption that the government revenue is then provided for education expenses for humandevelopment to build up the automobile industry and for public services including R&D for quality improvementof domestic products. Three scenarios described below were analyzed.Scenario I-D3: Allocate increased tariff revenue to component manufacturersScenario I-D4: I-D plus assumption that the productivity of component manufacturers improves to the same level as that of local assembly

manufacturersScenario I-D5: I-D4 plus assumption that imported products are replaced to domestic products

■ Figure 14 Results of cost-benefit analysis of human resource development measures and measures to stimulate the domesticmarket



(Rand billion)



(=B-A)Real GDP

(%)Total output

(%)


(thousandemployee)


OEMs(%)


(%)



compoenetssupplied

Scenario I-D -2.77 -0.86 1.92 -0.02% -0.03% -1.0 -1.01% -0.33% 0.0%

Scenario I-D3 -0.82 1.21 2.03 0.01% 0.04% 2.6 0.61% 4.11% 0.6%

Scenario I-D4 -4.07 0.63 4.70 0.11% 0.14% 3.2 0.60% 4.03% 0.6%

Scenario I-D5 -4.09 1.17 5.25 0.12% 0.20% 3.9 3.10% 7.17% 1.6%



Personneltraining policyand Promotion ofreplacementdemand fordomesticproducts

41


〇 Analysis results■ Cost has significantly decreased for both scenarios of I-D4 and D5 compared to I-D in

which the difference of the amount of benefit minus cost is double or more.・ The government revenue increases not only by increase in tariff rate but also by increase in

indirect tax and direct tax by revitalization of the whole economy.

■ Increase in GDP, total production volume , and job creation of I-D4 exceeds that of I-D3.・ The labor demand decreases by improvement of productivity of component manufacturers

where the labor flows to other industries and pushes up the total production volume.

■ The increase rate of production volumes of local assembly manufacturers and component manufacturers, and the ratio of domestic component in the domestic are at the same level with I-D3 and I-D4 .

⇒ If the productivity of component manufacturers improves to the same level as the productivity of local assembly manufacturers, an equivalent effect can be obtained as the effect of increasing the tariff revenue to 15% and allocating the subsidies to component manufacturers.

⇒ In addition, similar to I-D5, larger effect can be obtained if the government promotesswitching the use of imported products to domestic products.

42

Ⅲ. Analysis of impacts from introducing automobile industry policy(7) Simulation analysis of effects of automobile industry policy toward post-APDP■ Based on additional or alternative support measures and simulation results of PI, VAA, and AIS policies, scenarios described below were set to conduct simulation analysis toward post-APDP.

■ Figure 15 Setting of automobile industry policy toward post-APDP

Scenario III-A: I-C + II-BScenario III-B: I-D2Scenario III-C: I-E2 + II-C2Scenario III-D: I-F2 + II-C2*Although not included in the figure above, Scenario IV was setScenario IV: Tariff rate and subsidy rate are the same as the Scenario III-C, but next two points were added: the productivity of component manufacturers improve to the same level as that of local assembly manufacturers, more import vehicles and components are replaced to domestically produced vehicles and domestic components, respectively.

CBU importedby OEMs

CBU importedby Non-OEMs


manufacturers

Other componentsimportes by compmenet

manufacturers OEMs

AutoComponent

Manufacturers

5% 5% 0% 12% 1.0% 0.6%

Scenario III-A 15% 25% 0% 12% 7.2% 2.4%

Scenario III-B 15% 15% 0% 12% 6.1% 2.4%

Scenario III-C 25% 25% 5% 15% 10.4% 7.4%

Scenario III-D 30% 30% 10% 20% 11.4% 10.7%


Present situation ( Base value of SAM2011)

Automotivepolicy forpost-APDP

43

Ⅲ. Analysis of impacts from introducing automobile industry policy〇 Analysis results

■ Benefit exceeds the cost in all scenarios. However, scenario III-A or B may be selected for the mean timetaking into account that business models of local assembly manufacturers and component manufacturers are built withthe present APDP system and by considering the feasibility of the policy.

⇒ However, when one of them is selected, although the production volume of local assembly manufacturers and component manufacturers as well as employment of the whole industry will increase, the ratio of domestic components in the domestic component supply rate will increase only slightly because the current system of import duty of parts will remain.

■ On the other hand, drastic re-examination of APDP such as returning the import tariff of CBU, CKD and othercomponents to the original level as demonstrated in scenarios III-C and D will be necessary if the South African government aims to grow the automobile industry as the key industry from a medium- and long-term viewpoint.

⇒ If one of them is selected, double or higher cost benefit effect compared to that of scenarios III-A and B can be obtained with further advantages in GDP increase, increase in production volume of local assemblymanufacturers and component manufacturers, increase in domestic component ratio, and in job creation.

■ In addition, all indices of scenario IV have significantly exceeded all other scenarios.⇒ Active measures to promote replacement of imported products, enhancement of supporting industries and

human development for productivity improvement of the automobile industry are necessary for South Africa toobtain benefit from the policies equivalent to the benefit obtained by restoring the tariff revenue increased by higher import tariff to the automobile industry since the upper limitation of import tariff practically exists at present for CBU, CKD and other parts because of arrangements such as regional economy agreement between South Africa and EU.

44

Ⅲ. Analysis of impacts from introducing automobile industry policy■ Figure 16 Results of simulation of the post-APDP automobile industry policy



(Rand billion)



(=B-A)Real GDP

(%)Total output

(%)


(thousandemployee)


OEMs(%)


(%)



compoenetssupplied

Scenario III-A -1.09 2.25 3.34 0.04% 0.13% 4.8 7.17% 3.03% 0.2%

Scenario III-B -0.50 1.97 2.47 0.04% 0.10% 4.1 5.48% 2.62% 0.2%

Scenario III-C -0.84 4.97 5.81 0.07% 0.27% 9.7 12.79% 9.89% 1.3%

Scenario III-D -2.40 5.53 7.93 0.07% 0.33% 10.8 14.26% 14.69% 2.2%

Scenario IV -1.06 8.37 9.43 0.23% 0.68% 16.0 23.13% 26.83% 5.1%



Automotivepolicy forpost-APDP

45

Ⅲ. Analysis of impacts from introducing automobile industry policy■ Finally, simulation analysis based on performance values of local assembly manufacturers with

local content rate of less than 40% and local content rates of 40% or more obtained from local information of how the production unit, ratio of domestic production, and number of employeeschanged in each scenario indicates that the changed value was large with local assembly manufacturer with local content rate of 40% or more in each scenario.

■ Figure 17 Changes in two types of local assembly manufacturers by automobile industry policytoward post-APDP

Note) Circle indicates the number of employees

6.2 (1000 employee) 6.7 (1000 employee)

7.4 (1000 employee)


28.7(1000 employee)


20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

60.0%

0.0 100.0 200.0 300.0 400.0 500.0 600.0Production units (1000)

Local content ratio

Scenario III-C

Scenario IV

OEMs group with a less than40% local content ratio

OEMs group with a 40% or more local content ratio

46

Ⅲ. Analysis of impacts from introducing automobile industry policy■ Scenario setting list

lessthan40%

more than40% low high

lessthan40%

lessthan40% low high

5.0% 5.0% 5.1% 5.1% 1.0% 1.0% 0.6% 0.6%Scenario I-A 20.4% 5.0% 5.1% 5.1% 2.5% 1.0% 0.6% 0.6% × ×

Scenario I-B 20.4% 5.0% 5.1% 5.1% 4.9% 3.4% 0.6% 0.6% × ×

Scenario I-C 22.7% 15.0% 5.1% 5.1% 1.0% 1.0% 0.6% 0.6% × ×

Scenario I-C1 22.7% 15.0% 5.1% 5.1% 6.5% 5.0% 0.6% 0.6% × ×

Scenario I-C2 22.7% 15.0% 5.1% 5.1% 6.0% 5.2% 0.6% 0.6% × ×

Scenario I-D 15.0% 15.0% 5.1% 5.1% 1.0% 1.0% 0.6% 0.6% × ×

Scenario I-D1 15.0% 15.0% 5.1% 5.1% 4.3% 4.3% 0.6% 0.6% × ×

Scenario I-D2 15.0% 15.0% 5.1% 5.1% 3.4% 4.7% 0.6% 0.6% × ×

Scenario I-D3 15.0% 15.0% 5.1% 5.1% 1.0% 1.0% 3.9% 5.8% × ×

Scenario I-D4 15.0% 15.0% 5.1% 5.1% 1.0% 1.0% 0.6% 0.6% ○ ×

Scenario I-D5 15.0% 15.0% 5.1% 5.1% 1.0% 1.0% 0.6% 0.6% ○ ○

Scenario I-E 25.0% 25.0% 9.2% 9.2% 1.0% 1.0% 0.6% 0.6% × ×

Scenario I-E1 25.0% 25.0% 9.2% 9.2% 7.8% 7.8% 4.8% 4.8% × ×

Scenario I-E2 25.0% 25.0% 9.2% 9.2% 5.9% 8.6% 3.6% 5.3% × ×

Scenario I-E3 25.0% 25.0% 9.2% 9.2% 10.1% 6.8% 6.2% 4.2% × ×

Scenario I-F 30.0% 30.0% 14.2% 14.2% 1.0% 1.0% 0.6% 0.6% × ×

Scenario I-F1 30.0% 30.0% 14.2% 14.2% 8.8% 8.8% 8.1% 8.1% × ×

Scenario I-F2 30.0% 30.0% 14.2% 14.2% 6.6% 9.8% 6.0% 9.1% × ×

Scenario I-F3 30.0% 30.0% 14.2% 14.2% 11.4% 7.7% 10.6% 7.0% × ×

Scenario II-A 5.0% 5.0% 5.1% 5.1% 1.0% 1.0% 1.0% 1.0% × ×

Scenario II-B 5.0% 5.0% 5.1% 5.1% 1.8% 1.8% 1.8% 1.8% × ×

Scenario II-C1 5.0% 5.0% 5.1% 5.1% 2.6% 2.6% 2.6% 2.6% × ×

Scenario II-C2 5.0% 5.0% 5.1% 5.1% 2.2% 2.8% 2.2% 2.8% × ×

Scenario II-C3 5.0% 5.0% 5.1% 5.1% 3.1% 2.4% 3.1% 2.4% × ×

Scenario Ⅲ-A 22.7% 15.0% 5.1% 5.1% 6.8% 6.0% 1.8% 1.8% × ×

Scenario Ⅲ-B 15.0% 15.0% 5.1% 5.1% 4.2% 5.5% 1.8% 1.8% × ×

Scenario Ⅲ-C 25.0% 25.0% 9.2% 9.2% 7.1% 10.4% 5.2% 7.5% × ×

Scenario Ⅲ-D 30.0% 30.0% 14.2% 14.2% 7.8% 11.6% 7.6% 11.3% × ×

Scenario Ⅳ 25.0% 25.0% 9.2% 9.2% 7.1% 10.4% 5.2% 7.5% ○ ○

Present situation(Base value ofSAM2011)

Additionaloralternativpolicymeasureson APDPprogrames

Numerical value inserted into CGEmodel

Setting Tariff Setting subsidy rate

OEMsComponent

Manufacturers OEMsComponent

ManufacturersLocal Content ratio Local Content ratio Local Content ratio Local Content ratio

Other setting

Prodivtivity increase

Tofacilitate

substitution of

imports

47

Ⅳ. Proposal(1) Basic ideas of proposals

■ According to the simulation analysis of CGE model described above, the certain economic ripple effectis recognized with APDP, which is the current policy of the South Africa’s automobile industry such asincrease of GDP by 0.11% and creation of employment for more than 10,000 people. However, in termsof the ability to increase the real income of the entire nation, it is difficult say that the APDP is theoptimum scheme that deserves active fiscal measures by the government, including the waiver oftariff revenues and fiscal spending.

■ In addition, with respect to the situation of the South Africa’s automobile industry, it does not promiseany optimistic outlook at all viewing the domestic market at a low level of 600,000 units becauseof the economic stagnation in the country and abroad as well as examining the position in the globalautomobile industry by rapid development of emerging competitors such as Thailand and Mexico.

■ By taking into account these situations, the South African government should generate the policydesign that encourages further development of automobile industry in three areas:securing quantitative of domestically produced vehicles, reinforcement of competitivenessand expanded job creation effect while continue to provide incentives that secure minimumproduction level attained by introducing APDP.

48

Ⅳ. Proposal（２）Framework of proposal■We make more specific policy recommendations focus on securing quantitative of

domestically produced vehicles, reinforcement of competitiveness, and expandedjob creation effect in this 2016FY proposal.

【2016FYproposal】【2015FYproposal】

(A)Correlation of increase in domestic production and expanding domestic market (A)Securing quantitative size to expanded domestic sales of domestically produced vehicles　　○ ① Securing economy of sale to promote domestic sales ① Re-examination of CBU import credits② Introducing sales incentive policy ② Protection and development of particular models/segments

(B)Introducing protection policy for domestic models （B)Development of the automobile component industry by raising local content ratio（Expansion of employment)○ ① Presenting the explicit policy ① Determination of strategic tariff rates imposed on components○ ② Providing precise measures for targeted models ② Creation of a production incentive scheme to promote local procurement

③ Expantion of the AIS scheme

(C)WorkingWorking on developing suppliers

○ ① Improving local content ratio （C)Improvement of competitiveness by facilitating transfer of skills and technologies○ ② Improving investment environment to attract foreign-affiliated companies ① Development of investment environment to encourage entry of foreign-affiliated companies

② Strenthening initiatives for local component makera to transfer technologies and develop human resources

(D)Securing and expanding export markets ③ Support for development of next-generation technologies

① Expanding export strategy○ ② Improving the quality of export models③ Forming Sub-Sahara economic block

（E)Developing human resources① Establishing labor-management cooperation

○ ② Creating framework for human resource development

49

Ⅳ. Proposal（３）Particular proposals

① Re-examination of CBU import credits・ Abolish the measures that allow the sale of redundant credis to automakers do not produce automobiles in S.A・ Phase out CBU import credits in the medium to long term ⇒ Allocate the increased amount of tariff revenue to subsidies for domestic automakers

② Protection and development of particular models/segments・ Provide various production incentives for particular models/segments・ Prospective candidate in S.A: segmentB, PU, SUV

① Determination of strategic tariff rates imposed on components・ Re-examine parts import credits in stages・ Set the tariff rate of CKD,components based on the situation of localization

② Creation of a production incentive scheme to promote local procurement・ Grant incentives domestic automakers and component makers in conjunction local content ratio ・ Allocate more incentives to component makers

③ Expantion of the AIS scheme・ Provide additional incentives to domestic component makers・ Create measures to promote the entry of new component makers

① Development of investment environment to encourage entry of foreign-affiliated companies・ Development various infrastructures with its focus on SEZ

② Strenthening initiatives for local component makera to transfer technologies and develop human resources・ Refer to bilateral scheme of human resource development and technical cooperation (Japan-Asean countries, Japan-Mexico RTA etc)

③ Support for development of next-generation technologies・ Enhance the EV development support program・ Support the development materials industries essential for evolution of automobile indutry

(A)Securing quantitative size to expandeddomestic sales of domestically producedvehicles

（B)Development of the automobilecomponent industry by raising localcontent rate(Expantion of employment)

（C)Improvement of competitiveness byfacilitating transfer of skills andtechnologies

50

Ⅳ. Proposal (A) Securing quantitative size that leads to expanded domestic sales of domestically produced

vehicles①Re-examination of CBU import credits[Issues]・ In the automobile industry in South Africa, imports account for 55% of the domestic sales where 57% of the domestically produced

vehicles are exported. This shows a distorted structure that does not directly correlate increase in domestic production withincrease in domestic sales.・ Various models have flown in the domestic market causing it to be fragmented and domestically produced models cannot

create economies of scale.⇒ Mainly because of the extension of CBU tariff-free import credits resulting from production incentives of the PI and the VAA. The real

tariff rate is estimated to be approximately 5% (MFN import tariff rate is 25%) because of the said production incentives, makingits market almost completely open.

[Proposal]・ Re-examine policies connected to production and CBU import credit in stages

1st stage: The abolition of the measures that allow the sale of redundant import tariff credits to automobile makers that do not produce automobiles in South Africa. Allocate tariff revenue obtained by this measure to subsidies for domestic automobile makers (subsidies for employment and R&D, reduction of corporate tax, etc.).

2nd stage: For the medium- and long-term plan, phase out the CBU tariff-free import credits and allocate the increased amountof tariff revenue to subsidies for domestic automobile makers.

○ Reason・ In the simulation analysis of CGE model, the GDP, total production volume, and production volume of domestic automobile

makers and component makers exceeded the current level and created employment in the 1st stage. Further advantages can be obtained in the 2nd stage (refer to p. 22 and 23).・ There is a possibility that conflict with Articles III, VI, and VIII of the GATT will be indicated with the current policy (refer to p. 11).・ It was separated in stages since there is a risk that the abolition at this point with respect to domestic automobile makers as well may

conversely shrink the domestic market in South Africa. Domestic automobile makers import low price models that cannot bemanufactured by the costly production system in South Africa and offer them to entry users of new vehicles. If the tariff rates even of MFN import tariff rate increase due to abolition, import vehicles will be expensive and may inhibit entry users to appear.⇒ It is desirable to examine abolition in stages while observing situations of reduction of the production cost for domestically

produced vehicles.

51

Ⅳ. Proposal (A) Securing quantitative size that leads to expanded domestic sales of domestically produced

vehicles②Protection and development of particular models/segments[Issues]・ Competitors such as Thailand and India have designated certain models to be fostered nationally and supported production

and sales of particular models by introducing high tariff rates and preferential treatments on domestic taxes, expanded their domestic markets, and created economies of scale for domestically produced models. However, there is no specific development measures for domestically produced models similar to those of competitors in South Africa.

[Proposal]・ Designate several models/segments for development support taking into account the characteristics and needs of the market.⇒ According to the target market (domestic market, developed country’s market or emerging country’s market including African

region), clarify the strategic development model/segment taking into account the sales record and competitiveness in relevant market, and provide various production incentives such as reduction or exemption of corporate income taxes, tariffs on imported machinery and equipment as well as subsidies for R&D/employment to several strategic models.・ In light of the current South African market, the model/segment that is likely to be regarded as the one with robust sales record and

competitiveness is the PU, which belongs to the most popular B segment (sub-compact vehicles) and has both domestic sales records and export records, and the SUV, which has been expanding domestic sales volume in recent years with a high growth potential in the global market.

○ Reason・ In a sense, the South African market is an advanced market that has already offered various models ranging from premium

models to entry models and users have diversified tastes as well. It is difficult to implement policies that offer preferential treatment for a specified model in this type of market.・ Supporting the preferential treatment of domestically produced models will not violate Article III of GATT according to WTO rule if it is

provided in the form of internal direct taxes or subsidies. However, there is a possibility to be viewed as violation of Article III of GATT if equivalent preferential tax treatment is provided only for domestically produced vehicle and not for imported vehicles when it is provided in the form of internal direct taxes such as commodity tax (refer to p. 11).⇒ To examine preferential treatment by tax, approaches with policies such as treatment with tariff rate by segmentation of HS

code items are necessary.

52

Ⅳ. Proposal (B) Development of the automobile component industry by raising local content rates①Determination of strategic tariff rates imposed on components

[Issues]・When an emerging country seeks to promote its automobile industry, it adopts a policy to promote domestic automobile

production by imposing high tariff rates on CBUs and low tariff rates on CKDs and components.・ For South Africa, however, the MFN tariff rates are 25% for CBU and 20% for CKD in which the difference in tariff rates is only

5%. Moreover, no strategic viewpoint to promote domestically made vehicles can be found in its import tariff rates as both CBUs and CKDs can be imported with almost no duty due to the production incentives under the VAA and the PI.

[Proposal]・ Re-examine tariff-free import credits of VAA and PI in stages⇒ In light of the current situation where the automobile component industry is underdeveloped and South Africa has no choice but

to import many components because of quality and cost issues, it should maintain tariff-free import credits for components forthe time being. However, we believe that, in the long run, it is appropriate to raise local content rates through the development of the automobile component industry and to gradually reduce tariff-free import credits for components in the medium- and long-term.

・ Examine the development condition of the automobile industry, and continuously conduct reviews for suitable CKD qualification requirement and tariff level of CKD and component parts.⇒With an eye on medium- to long-term development of the automobile component industry, upon identifying in detail the situations of

localization of its domestic automobile component industry, examine the characteristics of components with assistance fromautomobile makers and automobile component makers while considering cost penalty to categorize them into the following groups:

(i) components the localization of which has already been or can soon be achieved; (ii) components the localization of which requires substantial time to be achieved; (iii) components the localization of which is difficult; and (iv) componentsthe development of which should be prioritized.

○ Reason・ There is a possibility that conflict with Articles III, VI, and VIII of the GATT will be indicated with the current policy (refer to p. 11).

Differentiation of domestic components and imported components using difference in tariff rates is the method in line withWTO rule (setting of tariff rate within the scope of bound rates is permitted).

53

Ⅳ. Proposal (B) Development of the automobile component industry by raising local content rates②Creation of a production incentive scheme to promote local procurement

[Issues]・ A scheme to promote local procurement is not built in the scheme of PI and VAA.⇒ Possible to import components tariff-free with production incentives of VAA and PI. Since the VAA’s incentive is based on

production volume, approaches for local procurement is not considered. Since the production incentives of PI is based on value addition in a production process of automobile makers, it does not directly contribute to the local content rates of component makers.

[Proposal]・ Grant incentives to domestic automobile makers and component makers in conjunction with local content rates.・ For granting of incentives, allocate more incentives to domestic component maker than the present level.

○ Reason・ Improvement of local content rates of components is considered as a pillar of the policy since it contributes to enhancement of

employment.・ As the simulation analysis by the CGE model shows, the provision incentives in proportion to the local content rates has

greater job creation effects (refer to p. 22,23 and 42).・ Under the TRIMs Agreement, local content requirements are recognized as “investment measures that have a strong trade-

distorting effect” and are therefore prohibited by WTO rule (refer to p. 11).⇒When designing systems to improve local content rates, do not explicitly specify the local content as the target to achieve but

incorporate a system that promotes local procurement and grants incentive later according to the achieved local content ratesis necessary.

54

Ⅳ. Proposal (B) Development of the automobile component industry by raising local content rates③Expansion of the AIS scheme

[Issues]・ Current amount supplied as incentive is not enough to cover cost for expensive tooling, etc.・ Standard requirements such as production volume and sales value are strict in the current scheme and it is difficult for

new investors to enter.

[Proposal]・ In addition to the current incentives for tooling, provide additional incentives to local component makers.・With respect to newly entering component makers, create a scheme that promotes those component makers to enter

the market with supporting measures, including the provision of preferential tax treatment and basic services. Similar toThailand, one idea is to handle investment for vehicle assembly and component production as one project.

○ Reason・ The incentive program for investments in the AIS is appreciated by local component makers in which enhancement of the

program is an important starting point for the development of the component and parts-supply industries.・ Although the AIS scheme is an investment item and is a policy subject to TRIMs agreement according to the WTO rule, it is

not applicable as export subsidies or local content requirement, thus, it does not violate the TRIMs agreement (refer to p. 11).・ According to results of the simulation analysis of CGE model, the AIS scheme that provides cash grants to new investments

is more advantageous when the incentive is granted in proportion to the local content rates (refer to p. 25).

55

Ⅳ. Proposal (C) Improvement of competitiveness by facilitating transfer of skills and technologies①Development of business and investment environments that encourages market entry of foreign-affiliated

companies

[Issues]・ The central government and local governments of competitors including Thailand, Mexico, and India compete with each

other to attract foreign automobile makers and component makers where they have strengthened the cluster of their automobile industry and improving their competitiveness. ・ However, policies for development of automobile business and investment environments other than APDP are

insufficient and falling behind of competitors in South Africa.

[Proposal]・ After the APDP, without limiting the policy within the framework of APDP, but, recognize the attraction of foreign companies as

a breakthrough to promote the industry, and develop business and investment environments that enables it to rank withglobal competitors in attracting companies (e.g. development of various infrastructures, such as logistics, electricity, water and information), with its focus on SEZ.

○ Reason・ Development of the automobile component industry described above cannot be achieved over night but requires long-term

continuous efforts that will be implemented step by step.・ However, on the other hand, as global sourcing has been accelerating since 2000, it is important for emerging countries to

attract as many foreign-affiliated automobile makers and Tier 1 foreign-affiliated automobile component makers as possible in order to strengthen the competitiveness of the automobile industry.

56

Ⅳ. Proposal (C) Improvement of competitiveness by facilitating transfer of skills and technologies②Strengthening initiatives for local component makers (mainly foreign-affiliated companies) to transfer technologies and develop human resources

[Issues]・Thailand, Mexico and other competitors not only attract foreign automobile makers and component makers but provide

schemes and incentives that encourage technology transfer to and human development of local component makers toimprove their competitiveness.・ Although South Africa has also started similar schemes, they are not sufficient in terms of quality and quantity.

[Proposal]・ Enhance the initiative/partnership of the current ASCCI, SAABC, and province level, and increase the effectiveness by using the“Management consultant system for small and medium sized companies” and “Rotation expert program” created by the Japanese government in early 2000s for ASEAN countries in collaboration with the automobile industry.・ EPA of Japan with Mexico, Malaysia, and the Philippines is characterized by not only the liberalization of trade in goods

and service but its broad scope of business and technical cooperation ranging from development of business environments, investment cooperation, development of small and medium enterprises to technical cooperation.⇒ It is one of the promising choices for South Africa to consider executing an EPA with Japan in light of the regional

industry promotion.

○ Reason・ In the simulation analysis by CGE model as well, the scenario in which the government expenses are used for expenses

of wide range of education and R&D for the development of component and parts-supply industries of the automobile industry to promote productivity improvement and replacement of imported products to domestically produced products created the largest ripple effect to the economy and automobile industry (refer to p. 26, 27, 29 and 30).

57

Ⅳ. Proposal (C) Improvement of competitiveness by facilitating transfer of skills and technologies③Support for development of next-generation technologies

[Issues]・ Thailand, Indonesia and other competitors are shifting to strengthen fuel consumption standards and emission gas

regulations corresponding to growing interest in enhancing regulations for the environment and safety in a global scale as wellas to deal with their serious air pollution and traffic issues in which their focus of development in automobile industry isshifting to support development and production of eco-friendly cars.・ On the other hand, the emission gas regulation of South Africa is still at the level of Euro2 and is falling behind of

competitors.

[Proposal]・ Further enhance the EV development support program that is currently being implemented as part of AIS scheme to

correspond to EEV technology and advanced safety technology.・ Focus on the development of material industries including support to processing technology to use the potential of platinum,

aluminum, steel and other materials South Africa obtains in light of material development essential for the development of automobile technologies.

○ Reason・ Supporting development of next-generation vehicles is essential for exploring not only of the advanced countries but also

in a global scale and for upgrading the environment and safety levels of the domestically sold vehicles amid the global current to strengthen environment and safety regulations,・ It can be estimated that emerging countries are making efforts to implement automobile industry policy options while

guaranteeing consistency with the exceptional provision of GATT Article XX (g) where it is at the phase where South Africa also needs to examine measures to support the next-generation vehicles.

*GATT Article XX provides for exceptions that may be justifiable even when a measure does not comply with the provision of Article XX. One of the exceptions is (g) measures relating to the conservation of exhaustible natural resources in whichmeasures promoting limitation of emission gas and low fuel consumption to automobile industry apply to this exception.

（様式２）

頁図表番号

7no number

12no number13no number

15no number

28no number

30Figure 6

31Figure 7

32Figure 8

34Figure 9

35Figure 10

37Figure 11

38Figure 12

39Figure 13

40Figure 14

42Figure 15

44Figure 16

受注事業者名：GENDAI Advanced StudiesResearch Organization

Setting of additional or alternative supportmeasures for AIS policy

Analysis results of additional or alternativesupport measures for AIS policy

Results of cost-benefit analysis of humanresource development measures and measuresto stimulate the domestic market

Setting of automobile industry policy towardpost-APDP

タイトルComparison of Economic Ripple Effect amongIndustries in South AfricaAnalysis results

CGE model setting value for“without”policy simulation

二次利用未承諾リスト

委託事業名：Business strengthening ofAsia Industry Infrastructure in 2016Investigation on design support ofautomobile industry system in SouthAfrica

報告書の題名：Business strengthening ofAsia Industry Infrastructure in 2016Investigation on design support ofautomobile industry system in SouthAfrica

Analysis results

Changes in two types of local assemblymanufacturers by automobile industry policytoward post-APDP

Overview Diagram of Policy Simulation withCGE Model

Comparison of economic ripple effect amongindustries in South Africa

Results of cost and benefit effect ofeach policy simulation

Simulation results of each policy under“without”policy condition of each group

Setting of additional or alternative supportmeasures for PI and VAA policies

Simulation results of each policy under“without”policy condition of each group

Results of simulation of the post-APDPautomobile industry policy

（様式２）

45Figure 17Changes in two types of local assemblymanufacturers by automobile industry policytoward post-APDP

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