Special Economic Zones Bill [B3-2013]: deliberations continued

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Trade, Industry and Competition

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

The Committee was briefed on the changes that the legal drafting team had now made to the Special Economic Zones (SEZ) Bill, after the initial deliberations by the Committee. The majority were technical changes to clear up any ambiguity over the different boards involved and the role of the licensee and operator of the Zones. A new clause had been introduced resulting in a number of consequential and numbering changes, which had no substantial implications.

However, the Departmental and Parliamentary Legal Advisers did set out the substantive changes. The Long Title had been changed, and there were several changes or deletions proposed to the definitions section. It was later suggested by the Parliamentary Legal Advisers that perhaps consideration needed to be given to including definitions for the Industrial Development Zones and related terminology that was used in the transitional clauses of the Bill. It was noted that the Bill would reflect on national issues rather than provincial, despite its tagging as a section 76 Bill.

There were changes to the composition of the Advisory Board. Members felt that the procedure in the event of the Minister dissolving the Board needed to be coupled to time frames, and suggested thirty days. There was also a suggestion that different wording needed to be found from the present “reconstitute”, which did not sufficiently emphasise that an entirely new process would be followed. The drafters discussed issues regarding inter-governmental relations and on how the Minister would report to Parliament on protocols, in clause 20. It was noted that the Minister would be obliged to report to Parliament, not just the National Assembly, but Members questioned whether it was necessary to have annual reports, although the point was also made that there was a lot involved, and complex dynamics, but that perhaps “regularly” should be used, and it should then be up to the Portfolio Committee to call for reports. In clause 22, there was insertion of the phrase “and after consultation with the Minister of Finance” (which did not demand concurrence. A new subclause 22(7) would be inserted to cover the intention to declare an SEZ to be gazetted and provision allowed for public comment.

New wording was also suggested for clause 23. The type of entity to be established would depend on the nature of the authority in charge of the Zone. The appeals process against decisions by the Minister was modified, with an emphasis on written reports. Members raised issues on what would follow should the designation of a Special Economic Zone be withdrawn. They were assured that incentives granted under the designation would be retained by the business entities involved, subject to sunset clauses, but they would not have to lose any privileges as a result of an error by the licensee.

Members also raised issues over what was meant by control of property within the designated areas. This might be an issue in brown-fields developments, where existing businesses might not wish to be part of the Zone. Issues were also raised over the transition arrangements for the existing Industrial Development Zones. The Parliamentary legal advisor suggested a change to the Bill to cater for pre-incorporation agreements between the licensee and business entities, using wording similar to the Companies Act, but this was deemed unnecessary by the Department of Trade and Industry, who suggested that using the intergovernmental framework provisions would work as well and be less cumbersome.

The Chairperson reminded Members to apply their minds carefully to the amended Bill. She instructed the legal team to prepare the B Bill, incorporating the agreed amendments and possible further changes resulting from discussion at the meeting. The next deliberations on the Bill would be on 19 June 2013.

Meeting report

Special Economic Zones Bill: deliberations
The Chairperson noted that the Committee would be considering the Special Economic Zones (SEZ) Bill, and noted that the legal drafters had made some changes to the Bill as tabled, which they would outline to the Committee.

It had become apparent that there was some confusion over the use of 'board' in the Bill. It was not clear in some cases if the reference was to an advisory board or a commission.

Adv Johan Strydom, State Law Advisor, Department of Trade and Industry, said that a commission would have clear investigative powers. The function of the advisory board envisaged in this Bill was to offer advice to the Minister.

Mr Kaya Ngqaka, Chief Director, Department of Trade and Industry, agreed and said that the intention of the advisory board’s advice was to enable the Minister to make informed decisions. The purpose of the whole SEZ programme was to advance industrialisation in the country.

The Chairperson was satisfied with this explanation. Where 'board' stood alone it would be understood as the SEZ Board. Elsewhere, there were references to the advisory board.

Adv Strydom then started to take Members through the revised document (see document entitled Proposed Amendments) and said that it might look daunting at first sight, and imply that there had been a number of errors, but this was in fact not the case. It was true that a number of amendments had been made, but about 75% of them related to two issues. One of these was the change of name of the advisory board. A new clause 22 had been inserted, resulting in a number of sequential changes and updated cross-references. The remaining 25% of the changes were substantial changes. All were important for the Bill to be a proper product, but the majority of amendments did not warrant detailed discussion. The 'B version’ of the Bill would be ready in the following week.

Long title
Adv Strydom said that there was a change to the long title. The words 'to empower the Minister' would be changed to 'to provide for'. It was inappropriate for the Minister to form the Board and the Act would do this.

Definitions and ordering
Adv Strydom outlined that the next change was in the arrangement of clauses, where 'Board' would be replaced by 'Advisory Board'. The definition of 'Board' in clause 1 would be updated accordingly.

The definition of 'company' would be changed, to refer to the definition as it appeared in the Companies Act.

Some of the other definitions were also to be updated. A new definition would be inserted for 'operator permit'.

The definition of 'person' would be deleted, since the definition already contained in the Interpretation Act was sufficient.

A new definition of 'port of entry' would be included, specifying that it referred to entry places for ships, aircraft and persons.

The next definition to be changed was that of 'prescribed'. He felt that the reference to the specific section, namely section 40, rather than a broad reference to the Act, would be preferable. Other than that, he felt that the original wording should be retained.

The Chairperson said that there was a specific section in the Act indicated.

Adv Charmaine van der Merwe, Senior Parliamentary Legal Advisor, said that clause 40 indicated that the Minister could, after consultation with the advisory board, make recommendations. The clause captured what was intended, and the only change she felt was needed was that the reference would now be to clause 41.

The Chairperson noted agreement from Members that the definition of ‘prescribed’ would remain as in the tabled Bill.

Adv Strydom said that the definition of 'public entity' would be changed.

Adv van der Merwe said that the word 'licensee' had been inserted incorrectly in a number of places. She also explained that in the definitions clause, the definition of 'Special Economic Zone Board' referred to the board of the entity to be established by the licensee.

Adv Strydom said that the definition of 'SEZ Board' would be amended to refer to clause 25.

Adv van der Merwe said that the Minister would establish regulations. The definition of 'support measures' should be deleted.

Adv Strydom said that the definition of 'this Act' should be updated to refer to clause 41.

Adv van der Merwe said that it was incorrect for the wording of a definition to refer to itself. She recommended that the proposed amendment be omitted and the definition in the original Bill should be merely updated.

Adv Strydom said that Mr G Hill-Lewis (DA) had raised the issue of the fact that the Bill had been tagged as a section 76 bill. It must be made clear in the Bill that national issues were under consideration rather than provincial issues.  

Clause 7
Adv Strydom noted that the next substantive amendment was omission of lines 10 and 14 in clause 7. These were provisions for the Board to include members of the Department of Economic Development and the Development Bank of South Africa.

Clause 7 (k) would be amended to make provision for five, and not three, persons representing organised business and labour.

Adv Strydom proposed a new sub-clause 7 (7). This would make provision for the Minister to appoint alternate members, who would be at a level of Deputy Director General (DDG).

Clause 8
Adv Strydom offered an amendment to Clause 8. A new clause 8(1)(a) would reflect the conditions related to the appointment of members of the board, and would tidy up the wording regarding subsequent terms of office.

Clause 9
Adv Strydom said that clause 9 should be amended in line 53, by omitting 'appointed as'.

Clause 10
Adv Strydom said that clause 10 should be amended, in line 38. The words 'licensees and operators' would be replaced by 'a SEZ Board and an operator'. There would be an insertion in line 39 referring to the Minister being advised on minimum norms and standards for the establishment of a one stop shop.

Clauses 12 to 18
Adv Strydom said that the only amendments to Clauses 12, 13, 14, 15, 16, 17 and 18 were simply name changes.

Clause 19
The next substantive issue was in clause 19. The existing clause had been rejected by the Committee. A new clause had been drafted to cover the dissolution of the advisory board, or one of its committees. The Minister would have to appoint an interim advisory board consisting of at least four persons. The Advisory Board must be reconstituted by the Minister within six months of the appointment of the interim advisory board.

Adv Strydom, was concerned, as were some of his colleagues, over the word 'reconstitute'. This created the impression that the same board was being resurrected. The previous board had in fact vanished. A better word should be found. Clause 7 might provide some guidance, and he suggested that perhaps the wording should be something like 'make the necessary appointments’.

The Chairperson said that a fresh appointment process would be needed, not simply a reshuffling of the cards.

Ms S van der Merwe (ANC) remembered the discussion quite clearly, and she understood that none of the old board members would be re-appointed. 'Appoint' might not exclude members of the previous board.

Dr W James (DA) concurred with Ms van der Merwe.

The Chairperson asked if the interim board would be appointed virtually the same day as the existing board was dissolved.

Adv van der Merwe said that no time period was included. It was reasonable to expect this to be done as soon as possible.

The Chairperson did not feel so much scope should be allowed, especially in view of past experiences of numerous delays with boards.

Dr James felt that six months was a long time. There should be a time limit, and six months might be too generous.

The Chairperson said that advertisements might have to be placed. She was more concerned over the interim board. She wanted some reassurance that this would be done.

Adv van der Merwe proposed that in clause 19, the time limit for the appointment of an interim board could be set at one month. The board was required to meet four times a year, so only two meetings would be affected.

Dr James felt that one month was acceptable.

Mr X Mabasa (ANC) agreed, modifying the proposal slightly to 30 days.

Adv Strydom suggested some the proposed wording off the cuff, but apologised if his English was not the best, and said he would tidy this up.

Clause 20
Another substantive amendment would be the new clause 20. This would be titled 'Implementation Protocol'. This would empower the Minister to enter into an implementation protocol, in terms of the Intergovernmental Regulations Framework Act, with any of the Ministers for Environmental Affairs, Home Affairs, Labour or Finance. This protocol might deal with the one stop shop concept, and co-ordination with the functions of organs of state. The Minister would be obliged to table a report in Parliament - not just the National Assembly (NA) - on the implementation of protocols and the one stop shop concept.

The Chairperson could not recall when the budget was tabled anywhere else than in the NA.

Ms van der Merwe was happy with the use of the word 'Parliament'. She asked how often the protocols would change. It seemed fairly onerous to submit annual reports, even if they only reported that nothing had changed.

Mr Ngqaka felt the reports would be in the form of progress reports, and would detail any need for intervention by Parliament. Various departments and agencies would be involved, and this provision would give the Minister the space to raise matters in the right channels.

The Chairperson said that there were annual reports and budget processes. There was a regular progress report on the Industrial Policy Action Plan (IPAP) but no compulsory annual report.

Ms van der Merwe asked if there were any precedents for annual progress reports in other legislation.

Mr Ngqaka replied that the thinking was that there was a very dynamic environment. The legal team would take the advice of the Committee on the regularity of reports.

The Chairperson asked Members to consider the issue seriously. There was a lot involved with many dynamics. Once the provision was incorporated into legislation, a lengthy amendment process would be needed for any changes. The wording could be 'regularly', with the relevant Portfolio Committee calling for reports.

Mr Mabasa said that departments provided annual reports from the Directors-General. It sounded like this report would be outside of the scope of the annual report.

Ms van der Merwe said that the Minister might enter into protocol discussion, but must table a report on the conclusion of an agreement. This might only happen every five years or so. The conclusion of the protocol was one matter, but the implementation was another. She accepted the need for reports, but felt that 'annually' could be deleted. This Committee would oversee the procedure, and the Minister would be breaking the law if he or she did not submit an annual report, according to the current wording. She felt that whilst a report on the conclusion and the implementation would be necessary, annual reports might be too burdensome. She proposed that this be included in the Annual Report of the dti instead, based on a suggestion from the DA.

Adv Strydom undertook to attend further to this point, before the A-list and proposed B version of the Bill was printed the following week.

The Chairperson approved this request, and asked the legal team to proceed.

Clause 22
Adv Strydom moved on to clause 22. In line 17 the word 'national' would be inserted after 'further'. In line 39, it was proposed that the words 'and after consultation with the Minister of Finance' be added. This would make consultation mandatory, but did not demand concurrence. A new sub-clause (7) (a) would be inserted to cover the intention to declare an SEZ to be gazetted, with provision for public comment.

Clause 23
Adv Strydom said that the whole of clause 23 (1) and (2) would be omitted. New wording would empower the Minister to designate an SEZ in pursuance of strategic national interests. This would enable the Minister to make such designations at his or her own discretion, and not only on recommendation by the Board.

Clause 24
Adv Strydom said that the whole of Clause 24(1)(a)(b) and (c) would be omitted. The clause would now oblige the licensee to establish an SEZ. Where a national or provincial or a public entity was the licensee, a national or provincial government business enterprise must be established.

In sub-clause (3), which related to a municipality or municipal entity licensee, the SEZ must be established as a municipal entity. The reference to the Municipal Systems Act might be incorrect, but this would be checked. In the case of a public-private partnership (PPP) licensee, the SEZ entity must be established as a company. This company would have to be incorporated in terms of the Companies Act, and this would preclude any other juristic person, such as a closed corporation, from participating in this activity. In the future, a legal entity, other than a legal company, might be perfectly suitable to perform this function.

The Chairperson said that when the legal team returned to Parliament, a full explanation would be needed on how this could be established.

Ms van der Merwe said that the licensee was an important player, and should be a company complying with the Act. A close corporation might not have the structure to be a licensee. A tribal trust might be another eligible licensee.

Adv Monwabisi Nguqu, Senior State Law Adviser, Office of the Chief State Law Adviser, said that close corporations could no longer be established. There were a variety of companies that could be established.

Mr G Hill-Lewis (DA) said that the Bill should ideally have a minimum of bureaucratic provisions.

Adv Strydom continued with setting out the changes to clause 24. In line 42, the words 'municipality or' would be inserted after 'a'. There would be an insertion in line 49 directing the licensee to provide the SEZ with the necessary resources. This could be quite onerous.

Mr Hill-Lewis asked what would happen with ownership of existing property to be incorporated into an SEZ, or alternatively asked if only greenfield development was being considered.

Mr Ngqaka felt that in terms of the legislation, it was assumed that the land was already owned by the entity.

Mr Hill-Lewis countered with the example of OR Tambo International Airport. Most of the land around the airport was already in private hands. In the case of brown-fields developments in urban areas, one party could neither own nor control acres of land.

Ms van der Merwe asked if 'control' could include a lease agreement.

Adv van der Merwe said that in the case quoted by Mr Hill-Lewis, existing businesses would have to subscribe to be part of the SEZ. Some businesses might opt out of such an arrangement. 'Control' could be understood as having the buy-in of businesses in the area. If the company withdrew its willingness to participate, the operator would have to deal with the situation. The operator would be expected to make an area work. This needed to be sorted out at the application stage. The Minister would have to decide if some businesses within the boundaries of the area did not wish to participate.

Mr Hill-Lewis asked if this would mean that the land would have to be sold.

Adv van der Merwe said that this was moving into the territory of policy. The Bill would not prevent the sale of land. The licensee would have to show ownership or control. The operator previously had no link with the land. As long as the SEZ entity had control, the operator could control the use of the land.

Mr Ngqaka agreed with Adv van der Merwe's interpretation.

Mr Nguqu said that for drafting purposes, he would find a suitable place where the clause would follow most coherently. The substance would remain the same.

Clause 25
Adv Strydom moved on to clause 25. In line 51, 'SEZ Board' would replace 'licensee', and the same would be done in line 1, on page 12.

Clause 26
Adv Strydom moved on to clause 26. Line 5 on page 12 would be changed, to oblige an SEZ Board to provide reports two months in advance.

Clause 27
Adv Strydom said that in clause 27 there would be greater clarity on the requirements for record keeping of the financial affairs of the SEZ entity.

Clause 28
Adv Strydom said that most of the changes in clause 28 were related to numbering and replacing 'licensee' with 'SEZ Board'. There would be an insertion after line 50, to direct that the Minister must review the appointment of the administrator within ninety days, after consultation with the Advisory Board and the SEZ Board concerned. The SEZ entity would have to cover the costs of the appointment.

Clause 29
Adv Strydom said that the heading of clause 29 would be changed from 'Suspension or Withdrawal' to simply 'Withdrawal'. There was no longer provision for suspension. Line 53 would indicate the Advisory Board. The whole of subclauses (2) and (3) would be replaced. The new subclause would detail the duties of the Minister, in the event of an intention to withdraw a licence. The affected Board would be given thirty days to lodge an objection. The lawful activities of any business located within an SEZ would not be affected by the withdrawal of the SEZ designation. The team had reached consensus that it would be wrong to penalise a business in the face of an operator or licensee who had acted inconsistently with the objectives of the Act.

Mr Hill-Lewis asked if such a business would still have access to the rights conferred upon it in terms of the Act, such as incentives.

Adv Strydom said that this was clearly the intention. The business entities should continue to enjoy the privileges conferred on them by the Act.

Mr Mabasa was not sure what was meant by this. There would be no point in withdrawing the designation, only for business to go on as normal. He believed that incentives should be withdrawn, although the business could continue to operate on a normal basis.

The Chairperson said that the designation would confer certain privileges. She commented that it was a pity that the Chief Director was not present at the meeting at this point to give input.

Adv van der Merwe said that an area would be designated, with special dispensation for businesses in that area. A business located within an SEZ could apply for incentives focused on the SEZ, as well as any other national incentives. If the designation was withdrawn, that business could still proceed with its lawful business. Any incentives would be preserved, but a new business would not be entitled to the privileges associated with an SEZ.

The Chairperson found this a complicated arrangement.

She noted that Mr Ngqaka had returned to the meeting. He said that the Chairperson's interpretation was correct. A business would be located in a zone. Terms and conditions applied to that zone, and there could be sunset clauses to incentives. A business might not be at fault, but the licence could be withdrawn due to some failing by the licensee. This clause would provide a level of certainty that the privileges afforded would continue, despite the withdrawal of the designation.

Adv Strydom said that the Minister was free to re-designate an area as an SEZ.

Clause 30
Adv Strydom noted that in clause 30 there were some technical changes. There would be a provision that only the SEZ of a PPP could be developed by that SEZ entity.

Clauses 31 and 32
Adv Strydom said that clause 31 contained technical changes, as did clause 32.

The Committee Content Advisor pointed out what seemed to be a numbering error.

Adv van der Merwe said that there was an issue, where the Bill did not read well. The intention of clause 32 was that a PPP entity could also be the operator. This clause would be reconsidered before the B version of the Bill was published.

Clause 33
Adv Strydom said that there were technical changes in clause 33. On page 14, at line 3, the word 'written' would be included.

Clause 34
Adv Strydom continued that clause 34 also contained technical changes. The wording of paragraph (b) would be amended to refer to the written agreement. Paragraph (I) would be changed, to oblige the operator to refer an application from a business for incorporation to the SEZ Board.

Clause 35
Adv Strydom listed more technical changes to clause 35. The whole of paragraph(c) would be withdrawn.

Adv van der Merwe said that if the commissioner of the South African Revenue Service (SARS) notified the Minister of a minor infraction of the rules, there could be a conflict. The current clause 35 (p) referred to any breach of the law. By omitting this provision, the Minister could act in a more discretionary manner.

Adv Strydom continued with clause 35. The term 'make representations', in line 10 on page 15, would be replaced by 'submit written comments'. The Minister would now be required to inform the SEZ Board in writing of a decision to suspend or withdraw an operator permit.

Clause 36
Adv Strydom said that clause 36 contained technical changes.

Clause 37
In clause 37, the word 'Minister' would be omitted from line 35. Applications would now be made to the SEZ Board. Subclause (3) would be substituted by a subclause  empowering the SEZ Board to approve the application of a business to locate within that SEZ.

Clause 38
Adv Strydom moved on to clause 38. These dealt with the transition of an Industrial Development Zone (IDZ) to becoming an SEZ. In terms of the amendment, an IDZ would be regarded as having an SEZ operator permit. An IDZ enterprise would automatically become a business entitled to be within an SEZ. The IDZ operator must ensure that the IDZ complied with the framework regulating SEZs, within three years of the commencement of the Act.

Adv van der Merwe had three concerns initially on this point, but some had already been addressed. In relation to the transitional clause, at page 15, there were a number of places where reference was made variously to an IDZ enterprise, an IDZ and an IDZ operator. These terms were not defined. She proposed that the drafters should include a definition of an IDZ and related terms.

Clauses 39 to 41
Adv Strydom noted that the changes to clauses 39, 40 and 41 simply incorporated number and name changes. He pointed out that this document was still a draft.

Companies Act comment
Adv van der Merwe noted that she had taken section 21 of the Companies Act and had reworked it for use in the SEZ Bill. She had looked for legal precedents, but this section had not yet been challenged at the Constitutional Court. The reason for her proposal was a concern over the time taken between applications and getting the SEZ up and running. An operator would have to start working in the IDZ. While this might be a noble cause, it could be badly abused. A province could appoint the operator, and might follow its own procurement process. The roles of stakeholders might become blurred. She had been assured that the clause relating to implementation protocols did not only have to deal with the one-stop shop concept, but could cover other matters. The Chris Hani municipality had stated that it was already geared up for applications. She had listened to the Department of Trade and Industry (dti), and was satisfied that the proposal might be achieved. Nevertheless she wished to put her proposal forward.

The Chairperson said that this was an important point. In the event of a court challenge, the court would first ask if Members had applied their minds properly when passing the legislation. Legislation was a serious issue, and she asked Members to apply their minds thoroughly to all issues, even if they did find the process a bit boring.

Mr Ngqaka felt that Adv van der Merwe had made her point well. The intention was good and there might be some benefit in her proposal, but the dti felt that there might be more harm than good from the potential abuse of the clause if this was followed. He suggested that an easier way to address the problem, which was likely to be as effective, would be to use the inter-governmental protocols to deal with any delays. He proposed that Adv van der Merwe's proposal be rejected.

The Chairperson said that the point had been made by Chris Hani municipality. She asked the dti to consider the matter and provide the Committee with a written motivation for its point of view. It was not easy to apply one's mind to an oral argument. She reminded the dti that there was a holiday period coming up, and a prompt answer was needed.

Mr Ngqaka said that there was already a document expressing the opinion of dti.

The Chairperson stressed again that Members must consider the matter carefully. There was a strong Companies Act. The dti was worried that a pre-incorporation clause might lead to abuse.

The Chairperson asked that the legal team could continue with the process with the printers in the meantime. She had noted four areas which would be moved around.

Mr Ngqaka said that the documents would be ready by 18 June 2013.

Ms van der Merwe enquired about the Committee programme for the following few weeks.

The Chairperson said that the meeting of 18 June would be cancelled due to the Appropriations Vote. Meetings were scheduled for 19 and 26 June. The printer (Creda) process would take some time. She said that the whole process needed to be finalised quite speedily. Any amendments which would be proposed during the adoption process should preferably be distributed in writing beforehand.

The National Lotteries Bill and National Credit Amendment Bill would be dealt with in July, and public hearings would be held in July.

The issue of grooms and horse racing association groups had been pending for eighteen months. The associations had agreed in writing that they had no problem recognising the grooms, but this had still not been done. There were bodies for jockey and book-makers, but not for the grooms.

Another issue was more of a social engagement with the distilleries. They had made representations on the supposed good done by alcohol advertising, and the employment implications. There was a proposal that 1% of alcohol profits would go to non-governmental organisations, and the argument was that many retailers would be unable to administer the process. She suggested that perhaps extra issues could be heard on a Saturday morning.

Ms van der Merwe said that Members had many constituency commitments and needed to plan their schedules.

The meeting was adjourned.


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