The on-going row between the South African and Australian governments regarding the latter’s official assistance to leather exports destined for Australia, has resulted in a major change in South African support policy, which has enraged local leather companies.

The South African Government has announced that assistance available to automotive leather product suppliers under the Motor Industry Development Programme (MIDP), a major part of the government’s economic expansion policy, is to be withdrawn on exports to Australia and will be limited on exports to other markets from January next year. Automotive stitched leather components are the second most important automotive component export after catalytic converters. Valued at R2.9 billion (US$494 million) in 2003, they accounted for nearly 14% of South Africa’s total automotive component exports of R21.3 billion (US$3.6 billion).

Industry sources attributed the withdrawal to ‘pressure amounting to bullying’ by Australia, while suppliers indicated ‘that the loss of such assistance would probably make automotive leather product exports to Australia uncompetitive unless an alternative benefit was introduced.’

The ‘completely unexpected and potentially devastating changes’ to the assistance available under the MIDP are alleged by the leather industry to be included ‘in a secret Memorandum of Understanding signed between the South African and Australian governments last year, after Australia threatened to challenge the activities of the MIDP at the World Trade Organisation.’

The threat was said to follow the award to Aunde South Africa of a contract to supply Holden Australia, part of the global multinational General Motors Corporation, with automotive leather products previously supplied by an Australian leather company.

The withdrawal of MIDP benefits was also intended to apply to contracts in force on September 1, 2004, to supply automotive leather products to Australia, but apparently these contracts will still qualify for assistance this year in terms of current MIDP rules.

Siegfried Kuhn, Aunde SA’s CEO had stated in a published interview that the company’s position on scrapping the benefits was on record, and that the company had decided against releasing an official statement on the issue. He was later reported, however, as saying that ‘A replacement should be implemented as soon as possible, since without such support we will not be price competitive, as our products are also subject to a 10% import duty into Australia. We have already considered alternative ways of conducting our business which we will implement if necessary.’ He declined to comment on what these options might be.