A presentation made to members of the National Council of Provinces' economic development select committee ("the Committee") on 30 August 2011 by the Department of Mineral Resources' ("DMR's") chief director of mineral promotion, Siyabonga Ndabezitha ("Ndabezitha") regarding its beneficiation strategy is cause for some concern for the South African mining industry. If a proposal to allocate a percentage of production to local beneficiation activities, as a condition to new mining rights is implemented, it could amount to a breach of South Africa's international law obligations under the World Trade Organisation ("WTO") agreement.

Ndabezitha suggested to the Committee that the DMR may, in future, attach further conditions to mining rights to ensure the supply of raw materials for local beneficiation and support the DMR's recently published beneficiation strategy, which was adopted by the Cabinet in June. Limited access to raw materials has been identified as a constraint on the beneficiation of minerals in South Africa. In the future, the DMR may impose mandatory conditions on mining rights holders that would require that a certain percentage of production be "made available" for local beneficiation. In other words, the DMR may, in future, impose a quota-based restriction on the export of mineral products1.

Five "pilot commodity value chains" are being developed by the DMR. The beneficiation strategy identifies ten strategic mineral commodities and selects five value chains from these, which are intended to demonstrate the inherent value for South Africa in embracing beneficiation in relation to all strategic mineral commodities. The first two commodity value chains will be presented to cabinet in October 2011 and will cover the iron and steel industry (which has already been drafted) as well as "energy commodities" (which is still being developed and includes coal, uranium and thorium). The remaining three commodity chains cover: autocatalytic converters and diesel particulate filters, jewellery fabrication, (including gold, platinum and diamonds) and titanium metal and pigment production.

Ndabezitha also told the members of the Committee that proposed amendments to South Africa's Mineral and Petroleum Resources Development Act, 2002 ("the MPRDA") will "strengthen beneficiation provisions... and allow new entrants" to engage in beneficiation activities. The beneficiation strategy, in Ndabezitha's view, allows for "specific interventions" in the different value chains identified by the DMR. In his speech at the Africa Down Under Mining conference on 31 August 2011, the former DMR Director-General and now special adviser to the Minister of Mineral Resources, Sandile Nogxina ("Nogxina"), said that section 26 of the MPRDA, which allows the Minister to promote beneficiation, must be aligned with the new beneficiation strategy2. Nogxina has defended the continued state intervention in the mining industry as being a question of how rather than how much.

Consequences under international law:

South Africa, as a member of the WTO is bound by the rules of its predecessor, the General Agreement on Tariffs and Trade 1994 ("GATT") and may not unlawfully restrict imports or exports. The international trade law bar on non-tariff trade barriers found in Article XI, paragraph 1 of GATT relates inter alia to a restraint on exports affected through quotas or export licenses and any other measures that restrain trade (other than duties, taxes and charges) on any product3. How these quotas or other restrictive measures are enforced or made effective is irrelevant for the purposes of Article XI. An export licensing regime which does not operate in a traditional manner, through customs regulation, but rather as a condition to a mining right would thus still fall foul of international trade law. Restrictions on exports, based on a domestic retention of a certain percentage of product for local beneficiation, appears to amount to an unlawful restriction on exports of minerals prohibited under international law.

Notes:
¹The Beneficiation Strategy makes reference to setting aside a portion of production for local beneficiation: "The diamond industry can be viewed as a pilot for setting aside part of the production for local consumption as it has led the way through the establishment of the State Diamond Trader. On the basis of this model, the PGM downstream beneficiation study has proposed setting aside a portion of their production for local consumption and this can demonstrate the confidence expressed by the industry on the viability of the model", "A Beneficiation Strategy for the Minerals Industry of South Africa" DMR June 2011, p.21, see also references at p.5 and the table on p.7.
²Nogxina made no reference to a percentage of production being set aside for local beneficiation as a condition to mining rights.
³Article XI, paragraph 1 of GATT, the intended licensing conditions would also not qualify under any of the exceptions contained in Article XI paragraph 2.

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