Competition 2nd Amendment Bill: voting; Promotion of SMME Sector & Role of Banks: adoption of report; UNECE Automotive Agreement

Meeting report

TRADE & INDUSTRY PORTFOLIO COMMITTEE
31 August 2000
PROMOTION OF SMME SECTOR AND ROLE OF BANKS: ADOPTION OF REPORT; BRIEFING ON SA’S ACCESSION TO UN’S ECONOMIC COMMISSION FOR EUROPE AUTOMOTIVE AGREEMENTS; COMPETITION SECOND AMENDMENT BILL: VOTING

 

Committee Report on the Hearings on the Promotion of the SMME sector and the role of Banks
United Nations Economic Commission for Europe (UNECE) Automotive Agreements (explanatory memorandum and background document) (See Appendix 1)
Proposed amendments to the Competition Bill (incorporated in the minutes)
Competition Second Amendment Bill [B 41 – 2000]
Memorandum on the Competition Act

SUMMARY
- The Committee adopted the report of the joint committees on Trade and Industry on the promotion of the SMME sector and the role of banks in this regard. The DP noted certain objections to the report.
- The Committee ratified SA’s accession to two United Nations Economic Commission for Europe automotive agreements.
- The Committee passed the Competition Second Amendment Bill after effecting minor changes to the issues they had flagged.

MINUTES
Committee’s Hearings Report on promotion of the SMME sector and the role of banks
Mr Bruce of the DP raised the following objections to the recommendations which flow from the report.
- Bankers have specific skills which they use to make banking decisions. He said that he would not encourage interference in respect of how bankers apply their judgement in business. Bankers make their decisions and take measures based on the financial risk involved. If government tells them where to invest it will create serious problems. SMMEs are not accommodated in sophisticated banking and the law must not coerce established banks to go into this market.
- The people who came before the committee made accusations of racism against the Banks. These accusations are not based on evidence, they are more a matter of opinion. They should be required to prove their case.
- There was no evidence to support the accusations of redlining. ‘’Money has no colour’’. Banks would not refuse to make an investment if they could profit from it. This does not make sense.
- Further reporting requirements on Banks will cost money and it will cause margins to increase.

The Chairperson said that he would like a debate on this report in the House. In respect of Mr Bruce’s (DP) claim that the allegations of racism were unproven, the Chairperson made the following comments:
The Equality legislation requires that people put forward a prima facie case. They are not required to prove their case beyond a reasonable doubt. The witnesses who came before the Committee put forward the requisite prima facie case. Further, the current Conference on Racism has pointed out that there is widespread racism in banks and they have called upon people to make use of the equality legislation. Banks should be aware that there could be a challenge of this nature against them.

Ms September (ANC) said that it is unacceptable that the bona fides of the people who testified is being tested. It is incorrect to think that racism disappeared with the advent of the new South Africa. The fact that banks cannot be told where to put their money is against the transformatory nature of this country. She added that she would support the idea of a debate on this issue.

Mr Moosa (ANC, NCOP) said that Parliament is not trying to bring down a sledgehammer on the banks. They want to engage with them so that they take into account the needs of all South Africans. The idea behind the negotiation process is to change the way these institution’s operate.

The Chairperson noted the DP’s objections and the report was adopted by the Portfolio Committee. (It will be adopted by the NCOP Select Committee on their return from the provinces)

SA’s accession to UNECE (United Nations Economic Commission for Europe) Automotive Agreements
Mr Tshenge Demana (Director of Standards and Environment in the Department of Trade and Industry) accompanied by a delegate from the South African Bureau of Standards, gave the briefing:

SA is going to accede to two UNECE automotive agreements:
1) agreement concerning the adoption of uniform technical prescriptions for wheeled vehicles, equipment, and parts which can be fitted and/or be used on wheeled vehicles and the conditions for reciprocal recognition of approvals granted on the basis of these prescriptions – referred to as ‘’the 1958 agreement’’
2) agreement concerning the establishing of Global Technical Regulations for Wheeled Vehicles, Equipment and Parts which can be fitted and/or be used on Wheeled Vehicles – referred to as the ‘’1998 agreement’’ or the ‘’global agreement’’.

Implications of the 1958 agreement
The 1958 agreement enables SA to affix the ‘’E’’ mark to certain components made in the RSA. (The E-mark shows conformance with UNECE regulations. The mark will be affixed after testing by the SABS. If a component is affixed with the E-mark then regular testing of that product is unnecessary. Samples are tested at certain intervals.)
The agreement provides for mutual recognition of E-marked products. This ensures their acceptability by all contracting party countries. The removal of technical barriers to RSA exports will increase competitiveness by enhancing the flow of exports which in turn improves economic growth and provides job creation. Job creation will result from both increased exports and from the test work and surveillance activities related to the local application of the ‘’E’’ mark.
SA must comply with the regulations which it adopts under the agreement. If they develop a regulation which SA does not want to accept then SA must object to the regulation.

Implications of the 1998 agreement
This agreement does not provide for the E-mark. This agreement is specifically designed to ensure that the needs of developing countries are taken into consideration in what will be known as Global Technical Regulations. The 1958 agreement was focused on European acceptance. The outputs of the 1998 agreement will have greater worldwide acceptance.

The SA ambassador to the UN signed the agreement on 14 June 2000. It entered into force on 25 August 2000. Parliament is requested to ratify the accession of the agreements.

The general implications of the two agreements -
DTI’s ultimate aim is to secure complete recognition of South African testing and certification. This will avoid costly and time-consuming re-testing and re-shipment. The UNECE agreements do this and memberships will reduce costs for the local industry.

Discussion
The Chairperson asked if they had general support for this in the motor industry. Has SA been complying with these regulations in any case so that accession will not be problematic?
Mr Demana replied that SA is already complying with most technical specifications.

Mr Zita (ANC) asked by how much membership to this agreement would reduce costs. The SABS representative said that this was difficult to answer. Approximately 30% - 40% of the cost of making a car comes from the regulatory requirements. International standards for safety will reduce the cost but they do not know by how much exactly.

Mr Zita asked what would happen for example if standards in the North are forced up. Will the cost of improving be a problem? What if the standards are set so high that they cannot be absorbed by Third World society?
He replied that if an agreement or regulation was too expensive to adopt then SA will not adopt it. For example airbags are not compulsory here but they are in other countries.

Mr Rasmeni (ANC) asked how ratification of this agreement would affect job creation in South Africa.
The SABS representative replied that they would be able to export easily therefore they would get a bigger share of the international market. Currently South African manufacturers go overseas to get the e-mark approval. This is expensive. If given locally there will also be scope for employment for testers.

The Chairperson asked if there was a trend for developing countries to set high technical standards. Would we set standards that are achievable for developing countries?
The reply was that the 1958 agreement is Eurocentric. In the 1998 agreement developing countries are encouraged to have a say. Their rights have to be considered. There are checks and balances in the 1998 agreement. SA is trying to encourage countries to increase the voice of the developing world.

The committee proceeded to adopt the two agreements. There were no objections. [The Chairperson noted that there will be no debate on this in the house.]

Competition Second Amendment Bill
The committee received a list of proposed amendments from the Department. They proceeded to work through these and agreed to them. Of the four issues flagged the previous day, discussion ensued and the state law advisors present were consulted. Minor changes were made to these flagged issues:

Amendments agreed to:
1) On page 2, line 12: after the words "other agencies" to insert the following words: "and to provide for concurrent jurisdiction,..."

2) On page 2, lines 10 -11: to delete the words "a significant interest in".

3) On page 3, lines 30 -33: to delete paragraph (a) in the definition of target firm'.

4) On page 3, lines 37-38: to delete the words "a significant interest in, or".

5) On page 3, line 42: to substitute ",(b) or (c)" with "or (b)".

6) On page 3, to re-number the paragraphs in the definition of 'target firm' accordingly.

Flagged issue:
7) On page 3, lines 48-51: to delete section 2 of the amendment bill and replace it with the following section 2: DTI suggested the following formulation:

"Section 3 of the principal Act is hereby amended-

(a) by the addition in sub-section (1) of the word "and" at the End of paragraph (b) and the deletion in the said sub-section of paragraphs (c) and d); and
(b) by the addition of the following sub-sections (3) and (4):

'(3) In so far as this Act applies to an industry, or sector of an industry, that is subject to the jurisdiction of another regulatory authority, which authority has jurisdiction in respect of conduct regulated in terms of Chapter 2 or Chapter 3 of this Act, this Act must be construed as establishing concurrent jurisdiction.

Here Mr Moosa suggested that they insert the words ‘’in respect of such conduct’’ at the end of ‘’concurrent jurisdiction’’. Everyone agreed to this.

(4) The manner in which concurrent jurisdiction is exercised in terms of this Act and any other public regulation, must be managed, to the extent possible, in accordance with the provisions of any applicable agreement concluded in terms of sections 21(1)(h) and 82(1) and (2)."

8) On page 5, line 36: to insert the following words after the words "exercise of…’’ "intellectual property rights including,…’’.

9) On pages 6 and 7: to amend the existing section 12(1)(a) by the substitution of the following section 12(1)(a):
'12(1)(a) For the purpose of this Act, a merger occurs when one or more firms directly or indirectly acquire or establish direct or indirect control over the whole or a part of the business of another firm."

10) On page 7, line 5: to delete the words "(i) or (ii)".

Flagged issue:
11) On page 10, line 37: to amend the existing sub-section (1) and replace following sub-section (1):
'’16(1) If the Competition Commission-
(a) approves a small or intermediate merger subject to any conditions, or prohibits such a merger, any party to the merger, by written notice in the prescribed form, may request the Competition tribunal to consider the conditions or prohibited merger; or
(b) approves an intermediate merger, or approves such a merger subject to any conditions, a person who, in terms of section 13A(2), to be given notice of the merger, by written notice in the prescribed form, may request the Competition Tribunal to consider the approval or conditional approval."

12) On page 11, line 30: to substitute "54" with "37".

13) On page 11, to substitute the existing section 18(2)(a)(ii) with the following
18(2)(a)(ii):
"(ii) a transaction for which consent is required in terms of section [50] 54 of the Banks act, 1990 (Act 94 of 1990); and

14) On page 11, line 36: to delete the words "the merger is’’.

15) On page 11, line 37, to insert the words "the merger is" before the words "a merger’’.

Flagged issue:
16) On page 11, line 38: to delete sub-paragraph (ii) and replace it with the following new sub-paragraph (ii):
(ii) it is in the best interests of the financial system that the merger is subject to the jurisdiction of the Banks Act, 1990 (Act 94 of 1990), only."
This was DTI’s suggestion.

Alternatively, Mr Moosa suggested the following formulation:
'(ii) it is in the public interest that the merger is subject to the jurisdiction of the Banks Act, 1990 (Act 94 of 1990), only."
Mr Moosas formulation was agreed to.

1 7) On page 20, line 36: to delete (7) and replace it with (8).

18) On page 20, line 42: to remove the italics from the word "Minister".

Flagged issue:
19) On page 27, line 14: to delete the word ’’may’’ in front of the words ‘’negotiate agreements…’’ and replace it with the word "must".

20) On page 27, line 18: to amend sub-section (2) as follows:
'’(2) Subsections (1) (a) and (b) read with the changes to the context, apply to the Competition Commission.'’

21) On page 27, line 20: after the existing sub-section (2) to insert a new sub-section (3) as follows:
(3) In addition to the maters contemplated in section 21(1)(h), an agreement in terms of sub-section (1) must
(a) identify and set procedures for the management of areas of concurrent jurisdiction;
(b) promote co-operation between the regulatory authority and the Competition Commission;
(c) provide for the exchange of information and the protection of confidential information; and
(d) be published in the Gazette."

22) On page 27 to renumber the existing sub-section (3) in section 8; as sub-section (4).

23) On page 27, line 25: to delete lines 25 and 26 and replace them with the following:
"21. (a) The following heading is hereby substituted for the heading in Schedule 1:
"Exemption of Professional Rules [in terms of section 2(c)]"
(b) Schedule I of the principal act is hereby amended by the substitution for Part A of the following Part:"

The Committee agreed to these amendments and passed the Competition Second Amendment Bill.

Appendix 1
BACKGROUND DOCUMENT
TABLING IN PARLIAMENT OF SOUTH AFRICA’S ACCESSION TO THE UNITED NATIONS ECONOMIC COMMISSION FOR EUROPE (UN ECE) AUTOMOTIVE AGREEMENTS

1. INTRODUCTION
1.1 The UN ECE has an international committee known as the world Wide Forum on Vehicle Harmonization ( abbreviation to WP29) which prepares Regulation on motor vehicle safety and environmental control.

The UN ECE WP29 operates in the same transparent manner as the International Organization for Standardization and the International Electro- Technical Committee which support the work of WP29. At issue, therefore, is South Africa’s accession to the UN ECE automotive agreements. These being:

1.2 The United Nation Economic Commission for Europe ( UN ECE) has, over the past 40 years, put in place two automotive agreements that are extremely important to the global motor vehicle industry. Both agreements were developed by Working Party 29 under the auspices of the UN ECE. WP 29 meets in Geneva three times a year and reviews the work of expert group who prepare UN ECE regulations on motor vehicle safety. Worldwide trade in motor vehicle and components is enhanced and facilitated for countries which become Contracting Parties to these Agreements. South African (mainly the SABS but also, on occasion, the National Association of Automobile Manufacturers of South Africa (NAAMSA) And the Department of Transport) have attended the WP 29 meeting for several years as observers.

1.3 The 1958 Agreement was one of the first serious post-war attempts to remove technical barriers to trade in Europe. It has become the international forum for the developed of vehicle safety regulations. This agreement concerns the adoptions of uniform technical prescriptions for wheeled vehicle, equipment and parts which can be fitted and/or be used on wheeled vehicle and the conditions for reciprocal recognition of approvals granted on these prescriptions. The agreement provides for reciprocal recognition of motor vehicle and components which comply with the relevant UN ECE Regulations. The Agreement seeks to further the worldwide acceptance by nations of complying vehicle and components. Signatories agree to accept vehicle and components which comply with those regulations which a contracting Party has not objected to. If a Contracting Party disagrees with a regulation there is no obligation to accept goods which comply with that regulation. Parties may declare at accession which regulations are not acceptable or object to new regulations. The system proved for "Type approval", the affixing of the E-mark and mutual recognition of E-mark products. ""Type approval" means that a sample of a product is submitted to a technical authority, i.e. the SABS, for testing. If found acceptable the type of product is approved sale making regular testing unnecessary. Samples are tested at certain intervals. The E-mark denotes conformance with the UN ECE regulations.

1.4 The Global Agreement was published in June 1998 as a result of a drive by the USA over some years to harmonise EU and US/Japanese standards. This agreement concerns the establishment of global technical regulations for wheeled vehicle and equipment and parts which can be fitted and/or used on wheeled vehicles. To harmonised differing motor vehicle and automotive component regulations into international regulations. A contracting party is obliged to adopt technical regulations (if it vote in favour). Parties may rescind or amend adopted regulations provided reasons and intent are provided. Parties may withdraw from the Agreement subject to twelve months notice. Unlike the 1958 agreement the global agreement does not provide reciprocal recognition of E-marked products. The focus is on harmonising the technical regulation. Contracting parties (if they agree to the adoption of the regulation in question) must adopt such a UN ECE regulation into its own laws and regulations.

* Agreement Concerning the Adoption of Uniform Technical Prescriptions for Wheeled Vehicles, Equipment and Parts which can be Fitted and/or be used on Wheeled Vehicles and the conditions for Reciprocal Recognition of Approvals Granted on the basic of these Prescriptions - "1958 Agreement"

* Agreement concerning the establishing of Global Technical Regulation for Wheeled Vehicles, Equipment and Parts which can be Fitted and/or used on Wheeled Vehicles - "Global Agreement".

2. GENERAL IMPLICATIONS
2.1 The economic importance of the motor vehicle industry cannot be over emphasized. 1998 saw an increase in exports of 181% in motor vehicle units and 98% by value over the exports of 1996! Of the light motors vehicle exports, the major destinations were the developed countries within the EU as well as SADC. Components exports also increased from R4,05 billion in 1996 to R6,8 billion in 1998, an increase of 68%! The main destination for these exports is the EU. It is clear from these statistics that EU specifications are extremely important to industry.

2.2 Ensuring fast and cost effective market access for these exports is a DTI priority. Our ultimate aim is to secure complete recognition of South Africa testing and certification thus avoiding costly and time-consuming re-testing and re-shipment. The UN ECE agreements do just that and membership will be reduce costs for the local industry.

3. IMPLICATION OF SOUTH AFRICA BECOMING A CONTRACTING PARTY TO THE 1958 AGREEMENT
3.1 Advantages
a) Enables RSA to apply the "E" mark to certain components made in RSA and thereby ensures their acceptability by all Contracting Party countries.

This removal of technical barriers to RSA exports will increase competitiveness of our motor industry by enhancing the flow of exports which in turn will improve economic growth and provide job creation

b) Job creation will result from both increased exports and from the test work and surveillance activities related to the local application of the "E" mark.

c) Contracting Party status will allow South Africa to input our needs into WP29.

d) Since 1985 RSA has been adopting and applying many of the UN ECE Regulation on unilateral basis as Compulsory Specification promulgated by the minister of Trade and Industry - but without any of the multilateral benefits mentioned above.

e) Increase the local and regional focus on internationalization of standards and regulations, which is essential to future regional and international trade and economical prosperity.

3.2 Oligations
a) To accept imported vehicle and components which comply with whatever regulations South Africa adopts under the Agreement (we already do so)

b) In the event that a new Regulation is developed which we do not wish to accept, then we must object to that Regulation (A hypothetical example would be left - hand- drive vehicle only).

c) In cases where RSA applied the "E" mark to components, to introduce measures to ensure compliance of the components.

4. IMPLICATION OF SOUTH AFRICA BECOMING A CONTRACTING PARTY TO THE 1998 GLOBAL AGREEMENT

4.1 Advantages
a) General similar to those advantages for the 1958 Agreement except that "E" marking is not provided for under the 1998 agreement.

b) This Agreement is specifically designed to enable full participation of the USA (not possible under the 1958 Agreement) and to ensure that the needs of developing country are taken into consideration in what will be known as Global Technical Regulation (GTR)

The GTR’s are expected to become annexed to the 1958 Agreement and so enable "E" marking to be applied under the 1958 Agreement.

c) In essence the outputs will have a greater worldwide acceptance Whereas those of the 1958 Agreement were rather focused on European acceptance.

4. 2 Oblication
a) To accept imported vehicle and components which comply with the Regulations.

b) If a contracting Party votes in favour of a GTR it is then "obligated to submit the technical regulation to the process used by that Contracting Party to adopt such technical regulation into its own laws and regulations..."

(Note that the obligation is to initiate the process not to require Adoption per se)

5. CURRENT STATUS
In late 1999 the Chief State Law Advisor and the Office of the Chief State Law Advisor International Law indicated that the agreements were acceptable. The minister of Trade and Industry then sought and obtained Cabinet’s approval for South Africa’s accession to the UN ECE 1958 Agreement and the 1998 Global Agreement on 2 February 2000.

With the approval of the State President South Africa’s Ambassador to the UN signed the agreement on the 14 of June 2000. It entered into force on 25 August 2000.

To become a contracting Party to the 1998 agreement Parliament is requested to ratify the signing of the agreement. At the same time we are requesting Parliament to agree to South Africa’s accession to the 1958 agreement so that the instrument of accession can be deposited in Geneva.