Intellectual Property Laws Amendment Bill referral; DTI, Companies & Intellectual Property Commission, National Regulator for Compulsory Specifications: 2nd quarter performance

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Trade and Industry

28 November 2012
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Constitutional and Legal Services Office of Parliament explained the President’s referral of the Intellectual Property Laws Amendment Bill back to Parliament. The Parliamentary Legal Adviser would follow up with the Speaker’s Office to find out what the stated challenges and hindrances were with the Bill so that they could be cleared up by the Committee. Legal opinion had been sought about the view of Counsel for the President that the Bill may not be constitutional because correct procedure had not been followed in that the Bill was not referred to the House of Traditional Leaders. The Bill should have been referred to it by the Department because it dealt with customs and indigenous law. The Senior Counsel opinion sought by Parliament had raised yet another issue – that it was a Section 76 Bill as it affected cultural matters listed in Schedule 4 of the Constitution.

The Committee was briefed on the Second Quarter performance of the Department of Trade and Industry, the National Regulator for Compulsory Specifications and the Companies and Intellectual Property Commission.

The presentation from the Department of Trade and Industry (dti) comprised of its strategic objectives, key achievements, Departmental expenditure versus budget, and its key challenges. As at 30 September 2012, the dti revised budget for 2012/13 was R9.09 billion. The year to date projection was estimated to be R4.2 billion while the year to date expenditure from the various programmes was R4.1 billion. The available budget was approximately R4.94 billion. The Committee was told that the expenditure was 98.2% or R4.148 billion, implying an under-spending of R77.7 million (1.8% variance). The Chief Financial Officer told the Committee that the key challenges faced during the Second Quarter included: current strikes in various sectors which negatively impacted on the economy; delay in the overhaul of the Preferential Procurement Policy Framework Act (PPPFA); and the slow uptake of incentives.

Members asked questions on the Draft Industrial Development Policy Plan, the Cuba economic package approved by Parliament, South Africa’s involvement in the Africa Growth and Opportunities Act (AGOA) and the engagement between dti and organized local government.

The presentation from the National Regulator for Compulsory Specifications (NRCS) comprised of its mandate, a background of the organisation, challenges, overview of strategic outcomes, performance against strategic plan, update on the findings of the Auditor-General, and a financial overview. The Acting Chief Executive Officer said that the challenges faced by the NRCS included: need for organisational maturity; transition from the South African Bureau for Standards to a stand-alone entity; delivery of the NRCS mandate and achievement of performance targets for operational units; internal stability; staff turnover; the prevalence of acting positions at senior management level; revenue generation reliant on trends and markets; internal control weaknesses; labour relations and a range of human resource issues.

In the discussion that followed, Members asked about the steps taken to address the qualified audit opinion from the Auditor General, the influx of sub-standard goods, the unauthorized conversion of panel vans into taxis and the prevention of wasteful and fruitless expenditure within the organisation.

The Companies and Intellectual Property Commission (CIPC) briefing dealt with organisational transformation, strategic issues, the operational environment, and an operational and financial overview. In the first quarter, a significant amount of time was spent planning, while the emphasis in the second quarter was implementation. During the period under review, a number of large scale interventions took place simultaneously. As of 30 September 2012, total income was R486 million while total expenditure was R317 million. This allowed a surplus of R169 million. There was a 17% decrease in revenue collection as compared to the same period in the previous financial year. The decrease was as a result of the waiving of penalties for late submission of Annual Returns, as well as the impact of the revised fee structure as per the new regulations.

Members asked about the use and volume of calls at the call centre, the handling and misplacing of documents and the progress with regards to the registration of patents.

Meeting report

Referral of the Intellectual Property Laws Amendment Bill (IPLAB)
The Chairperson said that the Committee wanted clarification on the status of the Bill and who had the power to refer the Bill back to the Committee.
 
The Parliamentary Legal Adviser, Adv Charmaine van der Merwe, explained the process was that the President referred a Bill back to the Speaker of the National Assembly and the National Assembly then referred it back to the relevant Committee. That was the normal process. It was the Speaker who referred the matter back to the Committee. She was going to follow up with the Speaker’s Office to find out what the challenges and hindrances were with the Bill so that they could be cleared up. The Parliamentary Legal Office had been acting on the instructions of the Speaker of the National Assembly to obtain a legal opinion from a Senior Counsel.

The main reason for referring this to a Senior Counsel for an opinion was that the Parliamentary Legal Office had a concern about the Office of the President request for the Bill’s referral to the National House of Traditional Leaders (NHTL). The Counsel for the President indicated that the Bill had to be referred to the NHTL because it dealt with customs and indigenous law. However, all Bills should not be referred to the NHTL as it could also take part in the general process of consultations and public hearings. The NHTL had the same right as all other organisations to take part in public participation processes on all legislation. There was therefore no need for a second process of referral of all Bills. Advice was sought from Senior Counsel on the matter. The Counsel was of the opinion that the IPLAB was a Section 76 Bill as it affected cultural matters listed in Schedule 4 of the Constitution.

This was of more concern to the Parliamentary Legal Office because of the leading case on the tagging of bills, Tongoane and Others v Minister of Agriculture and Land Affairs and Others which changed the way in which Bills were classified. The Parliamentary Legal Office met with the Senior Counsel in order to allow them to put forward their position on classifying bills since the Tongoane case. The end result of the meeting was that the same method of classification was used but the difference was in the interpretation of the phrase “cultural matters”.

The Senior Counsel confirmed on 22 November that he was finalizing his opinion, which he hoped to complete shortly. The Parliamentary Legal Office again followed up with both Counsels and was going to report to the Committee subsequently.

The Chairperson said that the Committee had hoped to get a clearer position from the Office of the Speaker before the end of the year.

Mr B Radebe (ANC) said that the Committee did not have any option but to wait for the legal advice from the Senior Counsel. Only then could a discussion be intelligently carried out on the issue. There was the need to prioritise the discussion next year.

The Chairperson thanked Adv van der Merwe for working with the Committee in 2012 and assisting it in bringing out very sound legislation.

Department of Trade and Industry (dti) 2nd Quarterly Report
The dti presentation was made by the Group Chief Operating Officer, Ms Jodi Scholtz. The presentation comprised of its strategic objectives, key achievements, Departmental expenditure versus budget and the key challenges. After outlining the economic context of the South African economy, Ms Scholtz listed the strategic objectives of the dti for the Second Quarter (see document).

Key Achievements
Ms Scholtz outlined some of the many achievements made by the dti between 1 April 2012 and 30 September 2012. The Industrial Policy Action Plan (IPAP) 2 was approved by Cabinet and launched. Seven designation instruction notes were issued for implementation by National Treasury. The IPAP 2011/12 Annual Report was presented to the NEDLAC strategic session and tabled before the Portfolio Committee. The Support Programme for Industrial Innovation (SPII) approved 26 projects worth R96 million. The Critical Infrastructure Programme (CIP) approved a total of five projects worth R8.911 billion. The Passenger Railway Agency of South Africa (PRASA) issued an optimized tender for 3600 coaches with 65% minimum local content. Transnet issued two tenders for 599 new dual voltage electric locomotives and 465 diesel locomotives while Eskom issued a tender for an amorphous transformer with 80% local content.

The Cuba economic package was ratified by Parliament. The dti actively participated in the United Nations Conference on Trade and Development (UNCTAD), African Growth and Opportunity Act (AGOA), the United Nations Framework Convention on Climate Change and the World Trade Organisation. Trade and Investment South Africa (TISA) won a prize for 2nd best National Pavilion for foreign exhibitors at FACIM in Mozambique in September 2012. A Memorandum of Understanding had been signed between TISA and the Botswana Investment and Trade Centre (BITC). 395 companies were assisted financially during the period under review of which 26% were emerging exporters.

The Broad-Based Black Economic Empowerment Bill was approved by Cabinet and the Revised Broad-Based Black Economic Empowerment Codes of Good Practice had been approved by Cabinet for public comment. The Special Economic Zones Policy was approved by Cabinet. The Co-operatives Amendment Bill was being discussed in Parliament.

The vacancy rate in the dti was at 6.28% and creditors payments were done within 30 days with most processed within 21 days. The dti had held many engagements with the public through “Taking the dti to the People” programme which was championed by Deputy Minister Elizabeth Thabethe.

Departmental Expenditure versus Budget
As at 30 September 2012, the dti revised budget for 2012/13 was R9.09 billion. The year to date (YTD) projection was estimated to be R4.2 billion while the YTD expenditure from the various programmes was R4.1 billion. The available budget was approximately R4.94 billion. The Committee was told that the expenditure based on the YTD projections of R4.226 billion was 98.2% or R4.148 billion, implying an under-spending of R77.7 million - a variance of 1.8%. The Committee was presented with a year to year comparison of the budget and expenditure from 2011/12 versus 2012/13 and the reasons for the material expenditure variance.

The Committee was also presented with the interventions put in place by the dti to address the audit findings by the Auditor-General.

Key Challenges
Ms Scholtz told the Committee that the key challenges during the Second Quarter included current strikes in various sectors which negatively impacted on the economy; the delay in the overhaul of the Preferential Procurement Policy Framework Act (PPPFA); and the slow uptake of incentives such as the Manufacturing Competitiveness Enhancement Programme(MCEP).

Discussion
The Chairperson said that the presentation was very thorough yet brief.

Ms S van der Merwe (ANC) said that the presentation was more of a retrospect of what had been done. She asked if the Draft Industrial Development Plan for SADC had been presented to the Committee. It was important for the plan to be presented to the Committee considering its interest in regional integration. Relating to the recent hearings on IPAP, there was a gloomy view from small and medium manufacturers about the effects of administered prices on their sustainability. The issue was of great concern and the dti had to take it seriously. She was impressed by the measures put in place to correct the audit findings of the Auditor-General.

Ms Scholtz replied that the draft policy report was going to be submitted to the Committee. On IPAP, the Acting Deputy Director General was going to present a full brief on IPAP to the Committee in January 2013. There were monthly reports to the Minister on IPAP.

Mr B Radebe (ANC) said that it was a good thing that dti’s expenditure pattern was better than that of the previous year. How far was the dti with the implementation of the Cuba package which was approved by Parliament? Was South Africa still in on the AGOA or was the process still being negotiated? On the issue of broadening participation, did the dti engage SALGA and local government as a whole? Was there a structural relationship between the dti and organized local government?

Ms Scholtz replied that she was aware that there were extensive consultation processes with organized local government but she was going to get the details and respond to the Committee in writing as to the participation of local government and SALGA.

The Chief Financial Officer of the dti, Mr Kumaran Naidoo, said on the Cuban package, the dti had identified the funding and the mechanisms were being put in place for the transfer of the funds. Part of the package was a loan and part was a grant. It was hoped that the package will be active in 2013.

The Chairperson asked why the assets of the dti were not properly reflected in the assets register. Why was there a slow uptake on grants and incentives?

Mr Naidoo said that the assets of the Department was being rectified. The issue was the exact locations of the assets as the dti worked in an open plan. The parallel asset register was going to take care of that aspect. On the slow uptake of the incentives, the point was that generally the implementation of an incentive scheme always started very slowly. The dti had applications of over R2 billion for funding. The take-up was increasing and the dti was going on a marketing campaign with the IDC in 2013.

National Regulator for Compulsory Specifications (NRCS) 2nd Quarterly Report
The briefing was given by the Acting Chief Executive Officer, Mr Katima Temba. The presentation from the National Regulator for Compulsory Specifications (NRCS) comprised of its mandate, a background of the organisation, challenges, overview of strategic outcomes, performance against strategic plan, update on the findings of the Auditor-General, and a financial overview. Mr Temba gave the Committee an outline of the background of the NRCS from 2008 onwards.

Organisational Challenges
Mr Temba said that the challenges faced by the NRCS included: the need for organisational maturity; transition from SABS to a stand-alone entity; delivery of NRCS mandate and achievement of performance targets for operational units; internal stability; staff turnover; the prevalence of acting positions at senior management level; revenue generation reliant on trends and markets; internal control weaknesses; labour relations and a range of human resources and staff issues.

Other external challenges faced by the NRCS included inadequate testing facilities in South Africa; lack of qualified staff; inability to cover all activities due to limited staff; the application and regulation of products covered under
Compulsory Specifications (VCs) that are outdated; and high transportation and storage costs for confiscated goods.

Strategic Objectives
Mr Temba told the Committee that the NRCS had five strategic goals but the focus of the Second Quarter was on utilizing a risk based approach to maximising the potential compliance with all specifications and technical regulations falling under the mandate of the NRCS. The NRCS had registered maximum coverage and had over achieved on all of its targets. On the target of imported products inspection of canned and frozen fish, the NRCS had inspected 3 116 as against the target of 2808. On locally produced frozen products, the NRCS had inspected 291 as against the target of 263. The Legal Metrology Division had done 1 015 inspections as against the target of 1 226 inspections. The Non-perishable Division had conducted 785
Coordinate Measuring Machine (CMM) inspections, 1 190 automotive inspections and 1 063 electro-technical inspections.

Mr Temba said the NRCS had received a qualified audit opinion during the period under review. Management had action plans to intervene in the following areas of audit concern: revenue from services rendered from exchange transactions; property, plant and equipment; restatement of 2011 financial year figures; predetermined objectives; Annual Financial Statements, performance and annual reports; asset management; procurement and contract management; internal control and expenditure management.

Financial Overview
As at 30 September 2012, the income of the NRCS was approximately R1.5 billion. Expenditure was about R900 million with a variance of approximately R60 million. The main expenditure was on staff costs followed by the cost of rentals for premises and travel costs.

Discussion
The Chairperson said that it appeared that the NRCS had tried in a concerted manner to deal with the issues raised in the qualified audit opinion. The speedy action taken by NRCS management was quite encouraging.

Mr Radebe said that the mission of the NRCS was very clear and it was to protect the interest of South Africans by developing and ensuring compliance with the system of compulsory specification. One of the major issues which was raised during the engagements on the IPAP was the sub-standard goods which were flooding the country. the NRCS was acknowledging that it did not have the capacity to handle the testing of all of these goods. If the situation was not reversed, the whole idea of the IPAP and promoting local manufacturing was never going to be achieved. What was the NRCS doing to hire qualified staff? What was the NRCS also doing to ensure that it had the necessary test centers? What was the situation about the conversion of panel vans into taxis? Who authorized the conversion of the panel vans into taxis and how many were converted?

Mr Temba replied on sub-standard goods that there were goods that required pre-market approval and there were those that did not require pre-market approval. The manufacturers of the goods which did not require the pre-market approval could produce and market them in the country as long as they met minimum safety requirements. The NRCS could impose sanctions such as product recalls and confiscation. The NRCS was working closely with industries and associations so that whenever they see sub-standard goods, they could inform the regulator which would respond accordingly. The NRCS was working with SARS in ensuring the testing of good before they were brought into the country. There were legislative challenges which needed to be cleared about the operations with SARS. With regards to strengthening of testing, the NRCS as the regulator did not test goods as that was the mandate of the SABS. It only enforced legislation and worked in partnership with the SABS. It was true that there were capacity concerns but it was difficult to establish whether the NRCS had full capacity or not. The NRCS planned using the risk based approach to ensure maximum impact. On the conversion of panel vans to taxis, the NRCS was going to compile a report for the Committee on the matter. The responsibility of the NRCS was limited in the sense that it did only homologation. It was also a shared responsibility between the NRCS and the Department of Transport. The taxis which were converted from panel vans could be identified when they were undergoing roadworthy tests.

Mr Gcwabaza asked what the ideal staff component was which could enable the NRCS to meet its mandate. What was the recruitment and training strategy of the NRCS?

Mr Temba replied that the staffing challenges were going to be projected in the strategic plan. This was going to be done in consideration of the coverage required of the NRCS. The source of revenue was mostly levies. The increase in the staff component meant an increase in revenue and charges. It was true that the staff capacity was not at a level where it was supposed to be and there was still need for growth so that the NRCS could effectively meet its mandate. It would keep the Committee informed on the progress made. On the recruitment and training strategy, most of the training was purely internal and the NRCS was exploring the possibilities of working with the Sector Education Authority to promote training and development.

Ms van der Merwe said that the Committee had noticed progress in the NRCS considering the difficult circumstances. If the staffing could be gotten right, the rest was going to come right. It was important for the NRCS to keep the Committee updated on its progress.

Mr Temba replied that the NRCS appreciated the comments on the need to improve the human resource component of the organisation.

The Chairperson asked if any irregular or wasteful expenditure was continuing at the NRCS.

Mr Temba replied that the NRCS did not foresee any wasteful expenditure and no wasteful expenditure was identified in the previous financial year. Mechanisms put in place to avoid fruitless and wasteful expenditure as much as possible.

Companies and Intellectual Property Commission (CIPC) Second Quarter Performance
CIPC Commissioner Astrid Ludin spoke on the organisation’s transformation, strategic issues, its operational environment, and gave an operational and financial overview. In the first quarter, a significant amount of time was spent planning, while the emphasis in the second quarter was to commence implementation. During the period under review, a number of large scale interventions took place simultaneously. With regards to organisational transformation, great strides had been made with the transformation process – specifically with the organisational design process.

Strategic Issues
On strategic issues, the CIPC was nominated at the Regional Doing Business Conference in Botswana at the end of the previous financial year to host the next such seminar in 2013. The key stakeholders were the dti and the World Bank. Media coverage on the CIPC had been neutral for the period under review. There was a pilot project with FNB to streamline processes around entity life cycle. Other banks had been approached to collaborate on an individual basis with CIPC. There was progress towards other partnership efforts around simplifying company registrations and perhaps even tax compliance in the longer term.

A round table on substantive examination of patents was hosted with key national and international stakeholders. An e-filing project in the Intellectual Property area was underway.

Operational Environment
The operational environment had mainly been stable over the reporting period with service delivery standards met in most areas. A process was underway to improve the auditing of service delivery standards and developing internal service delivery standards. The Committee was presented with the service delivery standards, operational overview and company and co-operatives registrations.

With regards to intellectual property registers, there was a slight decline in the number of trade mark and patent applications in the Second Quarter as compared to the first. However, there was an increase in the number of design applications received and billed in the Second Quarter. This also applied to applications for copyright in films. There was also a slight decline in the number of renewals requested across the different IP streams, except in design where the figures remained constant over the past two quarters.

On investigations, the CIPC had received complaints about unfit directors, financial irregularities, unauthorized or fraudulent changes to directorships, amongst others. Overall, 47 cases were closed during September 2012 with an average turnaround time of 69 days.

Financial Overview
As at 30 September 2012, the total income of the CIPC was R486 million while total expenditure was R317 million. This allowed a surplus of R169 million. There was a 17% decrease in revenue collection as compared to the same period in the previous financial year. The decrease was as a result of the waiving of penalties for late submission of Annual Returns, as well as the impact of the revised fees structure as per the new Companies Act regulations.

Discussion
Ms van der Merwe asked who were the people who used the call centre services and why they were calling. Were there other ways in which the public could contact the CIPC besides its call centre?

The Commissioner replied that the reasons people were calling had to do with annual returns, billing issues, trying to understand the registration process and the status of their applications. Another reason people called was because they did not trust that they were going to get the services which they required. People called the centre more than once and they usually sent multiple emails. CIPC needed to have more people answering the calls so as to avoid repeated calls.

Mr Radebe asked what mechanism was put in place to ensure that a document delivered to the Commission was not lost or misplaced.

The Commissioner replied that the CIPC, in preventing the loss of documents, was requiring the public to fax documents to the Commission and the CIPC was currently looking for a partner with a national footprint who could distribute the forms and facilitate payments. The Commission was also looking at the scanning of documents so as to ensure proper handling. This was going to improve the situation.

Mr Gcwabaza asked if there were improvements on the registration of patents.

The Commissioner replied that there was not a very great change in the numbers of patent registrations. There was the need for a lot more education and the CIPC was working closely with the Department of Science and Technology and joint education campaigns were being done.

Preliminary Report on IPAP – State of the Manufacturing Sector: adoption
The Committee approved the preliminary report on the IPAP – State of the Manufacturing Sector.

The Chairperson said that the meeting of the day was the last meeting for the year 2012. She extended her thanks to the members and the staff of the Committee for their hard work and commitment.

The meeting was adjourned.

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