Special Economic Zones Bill [B3-2013]: dti response to concerns

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Trade and Industry

03 June 2013
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Department responded to concerns raised in the previous meeting. These consisted of the composition of the Advisory Board, the roles and functions of the different structures, the concept of the one stop shop to reduce the administrative burden, the issue of increased consultation by the Minister and transitional arrangements for the Industrial Development Zones (IDZs).

Members asked why separate entities were needed for the licensee, the entity and the operator. What was the role of provincial government because provincial government was concurrent governance and national government needed to respect their role. The Bill should make provision for provincial government or municipalities to offer their own suite of incentives. Members asked if dti intended establishing a standing alternate for the Advisory Board. What time frames were provided for the application process? Could businesses still operate when incentives or special arrangements were withdrawn on suspension of the designated SEZ and could the suspension of the SEZ be re-instated? Members asked what the status of the Memorandum was. Members asked whether the take-over of a SEZ Board would affect the contractual agreements it had entered into. What were the provisions for IDZs in the transitional period? Members asked why civil society or business could not apply for a licence. Members asked whether the Minister would be presenting the SEZ strategy to Parliament. Why did the Department of Labour not have a representative on the Advisory Board? Why was the Portfolio Committee not consulted with regard to the placement of members onto the Advisory Board? Members asked whether a licensee designated by the Minister could stand for a second or third licence. Members asked if the Department had consulted with the Minister of Labour on whether national demographics or local demographics would apply in SEZs. Members asked whether time would be given so that private entities could become public-private partnerships. Could an IDZ remain an IDZ and not become a SEZ? Members said, concerning incentives, that the inclusion of a trumping type clause such as that in the BBBEE Bill be considered, so that the SEZ incentives trumped other legislation in matters where SEZs were concerned. This was so that all other departments did not have to amend their legislation.

Members said that they could not see how red tape was being cut down as the Department had indicated they were still busy reviewing the one stop shop model. The one stop shop needed to be spelled out clearly as it would be critical to the SEZ model. Members acknowledged that the Department needed more time.
 

Meeting report

Briefing by the Department of Trade and Industry
Mr Tumelo Chipfupa, Deputy Director-General in the dti, said that Adv Charmaine van der Merwe, the parliamentary legal advisor had gone over the main concerns about the SEZ Bill in the previous meeting. These consisted of the composition of the Advisory Board, the roles and functions of the different structures, the concept of the one stop shop to reduce the administrative burden, the issue of increased consultation by the Minister and transitional arrangements for the Industrial Development Zones (IDZs).

Composition of the Advisory Board
One issue had been whether the Advisory Board had the power to make decisions or whether it was advisory in nature only. He said that the decisions were important enough for it to be brought before the Minister for his attention and for his decision.

He said the composition of the Advisory Board was such as to deal with regulatory issues and to advise the Minister. He acknowledged that it might be difficult to convene meetings with so many high level officials required in attendance, but felt that the number of government entities could be reduced. For example both the Industrial Development Corporation (IDC) and the Economic Development Department were part of the Advisory Board and thus the IDC need not be part of the Board as the EDD were there. Similarly in the case of the Development Bank of South Africa (DBSA) and the dti. In consequence the number of independent persons on the Board would increase by two. The Bill provided for alternate members and modern technology could also be used so he did not see foresee any problems.

He said the Bill did not provide for a Department official to hold office for more than two terms. The Bill would be amended so that the DG should still serve on the Advisory Board but could be represented by the DDG. On the matter of the senior manager’s handbook indicating that the DG could not sit on boards, he said that if that were true, then the DDG would still be an appropriate senior person.

On the argument whether the Minister could dissolve the Advisory Board if it became dysfunctional, he said clause 19 indicated that it was appropriate action by the Minister.

The roles and functions of the different structures
He said it would be helpful to recognise that there were two boards, the Advisory Board which advised the Minister and the SEZ entity Board which was responsible for the governance of the entity. He acknowledged that the Department had incorrectly said at a previous meeting that the licensee appointed the operator; it was in fact the SEZ Board. Clauses 11, 25 to 28 and 30 to 34 would be amended and the term ‘SEZ Board’ would be used.

The operator could be from the private sector or the entity could manage and operate the SEZ as the Bill did not preclude this, but the operator had to obtain an operator permit. It would amend the Bill so that if the entity was established by a Private Public Partnership (PPP), the licensee could manage its own entity because a PPP had to go through a transparent, regulated process via the Treasury. He then discussed the roles functions and relationships of the different entities in more detail (see pp10-23 of the presentation).

One stop shop
On the concern over red tape, he said that after the Minister had approved the designation of a SEZ, the Minister only had to approve the types of business and what the incentives would be for those businesses. The Minister did not have to sign off on each application and this could be delegated.

He said that in terms of the Bill a one stop shop had to be established, which service the operator had to provide. The Department was in the process of reviewing one stop shop models. The challenge was that different government departments had different mandates and made it difficult to transfer all decision making into one body. He added that the Bill needed to provide flexibility to allow for constant innovation in this field. The Inter-Governmental Relations Framework Act would be used to allow departments to enter protocols and the Minister would have to report back to Parliament annually on how the implementation protocols were working.

Increased consultation by the Minister
On the issue of concerns that there was not sufficient consultation prior to a Minister taking a decision, he said that the Bill would be amended such that the Minister must publish his intention to designate a Special Economic Zone (SEZ) for public comment. The Department felt that the Minister may appoint an administrator and take over the functions of a SEZ in specified circumstances, for example financial mismanagement, in consultation with the Advisory Board and the SEZ entity Board but without having to consult with the operator or the businesses operating in it.

The Minister could suspend or withdraw the designation of the SEZ after considering the Advisory Board’s recommendations and in consultation with the licensee, the SEZ Board, the operator and the businesses inside the zone and allow them to make representations.

Transitional arrangements for IDZs
He said amendments to the Bill would clarify the status of current operators and operator permits and businesses and the funding arrangements for them. Any IDZ operator permit in force at the time of commencement of the Act would remain in force and be regarded as an SEZ operator permit. Any enterprise located in an IDZ must be regarded as a business located in a SEZ; however businesses would not automatically qualify for incentives. Prescribed criteria had to be met to qualify for incentives.

Discussion
Mr G Hill-Lewis (DA) said businesses had to go through seven steps to become operational and five of the steps relied on the Minister of Trade and Industry or the Minister of Finance or both of them for decisions. This was lengthening the application process. Why were separate entities needed for the licensee, the entity and the operator? He said it was worrying that the Minister had so much power as this led to slowing the process down. He asked what the role of provincial government was because provincial government was concurrent governance and national government needed to respect their role. He said the Bill only provided for national incentives. He could see no reason why the provincial government or municipalities could not offer their own suite of incentives and the Bill should make provision for that.

Mr N Gcwabaza (ANC) asked whether the Department intended establishing a standing alternate for the Advisory Board. What time frames were provided for the application process? Could businesses still operate when incentives or special arrangements were withdrawn on suspension of the designated SEZ and could the suspension of the SEZ be re-instated?

Ms S van Der Merwe (ANC) asked what the status of the Memorandum was. She said she was also confused with the different entities.

The Chairperson asked whether the take-over of a SEZ Board would affect the contractual agreements it had entered into. What were the provisions for IDZs in the transitional period?

Mr Chipfupa replied that after having been supplied all the necessary information, the Minister had only two key decisions to make, whether to designate or not and what incentives would apply to the designated zones.

On the establishment of the different entities, he said applications for a zone could be from national provincial or municipal government bodies. As the running of a zone was not their normal business function of these bodies, an entity needed to be established, the entity board which oversaw the entity and the entity in turn operated or contracted out the operational activities.

He said the application process recognised that intergovernmental cooperation was required and hence the Minister’s involvement. This did not take away from the provincial or municipal rights and was not to be seen as discrimination against them.

As for the provision of incentives, he said the Bill only provided for the Minister, in consultation with other ministers, to establish incentives.

Regarding the standing alternates, he said the intention was that standing alternates would be mandated and at the appropriate level of seniority.

On the matter of timeframes, he said that the idea was to speed up the process of getting investors operational. Companies locating to SEZs would go through a speedy process done by the SEZ Board. He said putting a time frame of a certain amount of days for a response would be considered.

He said the suspension of a designated zone could be re-instated. Suspension was a drastic step so the Minister would consult widely including the licensee, the SEZ operator and businesses.

He said businesses would want to know all conditions pertaining to incentives and the legislation regarding incentives would provide detail on all scenarios.

The Department would provide a visual diagram regarding the role and functions of each entity. He said the Memorandum was a document with additional information related to the presentation.

Regarding the appointment of an administrator, he said that the SEZ Board had a contract with the operator and the entities. If the Minister appointed an administrator, the administrator would honour the contractual obligations with the operator and businesses.

Regarding the transitional period provisions, IDZs would be seen as SEZs and an operator permit would be issued. The IDZ Act however had different obligations and requirements to the SEZ Act and a transitional period of five years would allow IDZ operators to bring themselves into line with the SEZ Act. Companies would not automatically enjoy the SEZ incentive benefits until they met certain criteria.

Mr Dumisani Sombinge, Director: Legal Unit, said activities in the SEZ were not affected by the suspension of a SEZ designation and the Minister had to consult before taking the decision to suspend. This was covered in clause 29.

Mr Hill-Lewis said he supported Mr Gcwabaza’s call for time frames for the application process otherwise it would take years to establish SEZs. From clause 21, it appeared only the Minister could provide incentives. An extra clause needed to be inserted so that provinces or municipalities could also provide incentives. He felt the Bill treated provinces like municipalities and that provinces needed to occupy a special place.

Mr Gcwabaza said that to expedite the red tape the functions of the Advisory Board in clause 11(1) would be important.

Mr A Alberts (Freedom Front+) asked why civil society or business could not apply for a licence. He said the Bill needed to be used to experiment to see whether the legislation worked or not. He asked whether the Minister would be presenting the SEZ strategy to Parliament. Why did the Department of Labour not have a representative on the Advisory Board? Why was the Portfolio Committee not consulted with regard to the placement of members onto the Advisory Board?

Mr Chipfupa said that in the original text of the Bill the Minister approved each company for operation in an SEZ with the recommendation of the Advisory Board, Now at the time of designation of a zone the Minister provided the types of companies and the incentives of the SEZ so this would cut down on the SEZ administration of the Minster as these would be the only two decisions he would have to take, the latter in consultation with the Minister of Finance. He said the application process was not a sequential process and could be done in parallel. Three types of bodies could apply for a licence, national, provincial and municipal bodies or a PPP in conjunction with any of the three types of bodies.

He said the Advisory Board would be doing all the work around adherence to the provisions of the Act before the application reached the Minister’s desk.

He said an SEZ could not be established by the private sector on its own, as it needed government’s facilitation role and its input in terms of infrastructure and incentives.

The Minister’s SEZ strategy would be presented to the Committee after being approved by Cabinet.

He said a lot of government departments were involved not just the Department of Labour and it would not be possible to get all government bodies onto the Board. The Department would be reporting to Parliament.

Mr Hill-Lewis asked whether a licensee designated by the Minister could stand for a second or third licence. He said that that the Constitution treated provinces and municipalities differently therefore there needed to be differentiation between them.

Mr Alberts asked if the Department had consulted with the Minister of Labour on whether national demographics or local demographics would apply in SEZs.

The Chairperson asked whether time would be given so that private entities could become PPP. Could an IDZ remain an IDZ and not become a SEZ?

Mr Chipfupa replied that it was possible that a province could hold more than one licence, but would have to apply for a licence for each SEZ and the Minister would designate each one afresh. The Department would investigate whether a new entity needed to be established.

He said private sector entities could approach government bodies to establish PPPs.

Regarding employment equity, he said the Department had not chosen the extra territorial model of SEZs so the laws of the Country would apply including employment equity.

He said not every IDZ was a PPP, some IDZs were government owned. Provincial departments had established IDZs and they would be given time to convert to SEZ Act.

Mr Gcwabaza said that the objective of the Employment Equity Act was to address the effects of job reservation in the past and that one had to be careful not to abuse the Employment Equity Act.

Mr Alberts agreed with Mr Gcwabaza and said that that was why he had not asked whether but rather how it would be applied; whether the national or the regional demographic would be applicable.

Mr Kaya Ngqaka, Chief Director: Special Projects, said that on the question of IDZs and SEZs, the Department had decided on going the route of the SEZ in taking into account the political direction of the government as the IDZ had a narrower focus than the SEZ tool.



Mr Chipfupa said the Bill did not force changes to the Employment Equity Act or how it was to be applied. It was special in that it would be provided with infrastructure, red tape would be cut, and incentives would be provided. The Bill provided for the Minister to enter into a contract with the Minister of Labour.

Adv Charmaine van der Merwe, Senior Parliamentary Legal Advisor, said that concurrency referred to legislative capacity to legislate on a matter. Clause 4(2) promoted government’s industrial policies and objectives and 22(2)(b) indicated that it had to be consistent with national applicable laws and thus deal with national objectives therefore there would be no discrimination against provincial government as all applicants would be treated the same.

On the matter of current IDZs and whether they could choose to remain IDZs, she said that the IDZs were established under an incentive program which would be withdrawn or would not continue in future. IDZs therefore had to be classified in which category they fell in the transitional period.

On the matter of labour laws and employment equity, she said that there was a proposal for the Minister to enter into agreements with other departments. This was OK for UIF or one stop shop processes. If the way labour laws or customs law operated in an IDZ were different, it would be better for these differences to be in the department’s legislation. She said it would be helpful to have a diagrammatic flow chart presentation of the application process as well as the timelines involved.

Mr Hill-Lewis said, concerning incentives, that the inclusion of a trumping type clause such as that in the BBBEE Bill be considered, so that the SEZ incentives trumped other legislation in matters where SEZs were concerned. This was so that all other departments did not have to amend their legislation.

The Chairperson said that the Department had indicated they were still busy reviewing the one stop shop model and she could not see how red tape was being cut down. The one stop shop needed to be spelled out clearly as it would be critical to the SEZ model. She acknowledged that the Department needed more time.

Other Matter
Mr Hill-Lewis said he had still not received the copies of presentations made on the BBBEE Bill he had requested some weeks ago.

The meeting was adjourned.
 

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