National Regulator for Compulsory Specifications' Letters of Authority effectiveness: hearing; SPII & THRIP: Innovation & Capacity Building DTI interventions

Meeting report

South African Tyre Manufacturers Conference (SATMC) Presentation

Mr Riaz Haffejee, Chairperson: SATMC, said that 7 000 people were directly employed in the car manufacturing industry. An additional 4 000 was indirectly employed. The local tyre industry accounted for 80% of natural and synthetic rubber used in SA. There were six operating tyre-manufacturing factories in SA.

Global competition came from about 200 importers of tyres of various brand, more than half of which were from the Far East. The SATMC and Tyre Importers Association of South Africa (TIASA) had made a commitment to collectively address and engage technical regulatory institutions on the common regulatory challenges affecting manufacturers, legitimate importers, and the SA tyre industry as a whole. This included technical regulatory standards and specifications; the lack of technical standards and specifications infrastructure; and formula duty implementation.

The SATMC / TIASA cooperation and engagement with the National Regulator for Compulsory Specifications (NRCS) demonstrated a need for greater policy and regulatory harmonisation, integration and efficiency of implementation of NRCS standards and specifications.

The NCRS was demonstrating a willingness to provide support to the SATMC. The SATMC had engaged the NRCS to prioritise the SATMC Compulsory Standards applications. The SATMC had secured key NRCS undertakings on tyre import issues. This included providing feedback on consequential management of repeat under-invoicing of importers, and having measures to reduce the importation of goods that did not meet homologation specifications. The SATMC members had agreed to the payment of outstanding levies owed to the NRCS.

The Board of SATMC had prioritised consumer tyre and road safety at the forefront of its strategic priorities. All pneumatic (air filled) tyres for use on passenger and commercial vehicles and trailers manufactured by the SATMC members conformed to the compulsory safety standards introduced by the Minister of Trade and Industry. To ensure compliance with safety requirements on an ongoing basis, SATMC tyres were subjected to an approval and certification process to minimise the risk of non-complying tyres being introduced into the market place and being sold to the public.

The SATMC was cooperating with the NRCS in administering the regulations and compulsory specifications for tyres. The conference implemented an internationally recognised Quality Management System. The SATMC currently paid an annual fee for the issue of E-mark certificates relating to locally manufactured tyres.

With regard to exemption from the NRCS levy on the export of locally manufactured tyres, the NRCS had confirmed it did not impartially perform any regulatory testing on domestically manufactured tyres destined for export markets, as prescribed by international agreements. Due to the lack of appropriate technical expertise and infrastructure, the NRCS conducted only random inspections and processed paperwork for the homologation of tyres without any sample testing. In addition, the NRCS did not have its own quality standards for the South African market and relied on the international standards against which South African tyre manufacturers had homologates for various specifications of locally manufactured tyres.

The NRCS charged levies for verifying international quality standards which local manufacturers had obtained from international quality standards authorities. The industry incurred substantial costs to obtain these internationally approved quality standards due to the NRCS lacking the technical infrastructure to perform these functions locally. These double charges were an additional constraint on the competitiveness of the industry, which was already exposed to significant international competition as well as imports and dumping of low-cost subsidised tyres.

With the exception of Southern African Development Community (SADC) countries, each African country had an import duty of between 20% and 40%. Together, these charges inhibited the SA tyre manufacturing industry’s contribution to inter-regional trade in tyre exports through existing trade agreements in progress and already in place between SADC, the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Tripartite Free Trade Area (TFTA).

Concerning the homologation process, all manufacturers must implement an internationally recognised quality management system, and the tyres must conform to the applicable South African compulsory specifications and corresponding Economic Commission for Europe (ECE) regulations and directives.

Mr Haffejee also said there was a need to develop local tyre testing facilities. Currently, it took about six months to test tyres from date of registration. The turnaround time could be reduced through the development of effective tyre testing facilities and infrastructure and requisite technical capacity and expertise.

There was a national economic imperative and public interest for the formulation of a part-worn standard for second hand tyres. Its introduction would significantly contribute to improving the regulated sale of second hand tyres; create a fair playing field between domestic manufacturers and legally compliant importers and domestic resellers of compliant second hand tyres; and contribute meaningfully to improved road safety and consumer protection.

In his conclusion, he indicated that the SATMC was calling upon Parliament to work with the Department of Trade and Industry (dti), the NRCS and industry to assess and evaluate the impact of the current legislative framework. They should look at amendments to the NRCS Act and assess the impact of such amendments. The NRCS and South African Bureau of Standards (SABS) required urgent collaboration and commitment to finding a solution for local impartial testing. The requirement for an independent testing facility by the NRCS was clear, but it had not been well communicated to the industry.

Tevo Presentation

Mr Patrick Bennet, Chief Executive Officer: Tevo, told the Committee that his organisation specialised in the sourcing, development, marketing and distribution of innovative, high quality products. It had so far created 2 579 jobs. Sales were dependent upon new products listing.

The product was sourced and tested by Tevo for quality and suitability of sale in SA. The product must have a test report, according to IEC standards from a recognised international test house. The full test report was attached as part of the Letter of Authorisation (LOA) application to NRCS. In 25 years of importing and submission to SABS and NRCS, Tevo had never had a report to IEC standards questioned for rejected.

Problem areas regarding the NRCS were around its portal. Because its portal was unstable, so much time was wasted. Its portal was unable to upload large IEC documents. The “Status” Report of the portal was vague, and that was forcing voice calls to be made to the NRCS, which took up unnecessary time for both parties. The issuing of LOAs took too long. Tevo’s timeline from order to launch in SA was 60 days. The NRCS’s clients complete application forms incorrectly. This involved much training by NRCS staff to rectify. It was not clear whether the NRCS was under-staffed.

Mr Bennet proposed that the IT infrastructure of the NRCS be upgraded. A “Fast Pass” system based on a history of compliance adherence and administrative effectiveness should be introduced. This would enable regional NRCS offices or inspectors, who had the unique experience, to process applications for applicants in their region.

SA Gaming Manufacturers Association (SAGMA) Presentation

Mr Alpheus Matsebula, Technical Advisor: SAGMA, said that the majority of their products were imported in full or part from Australia, Asia, Europe and United States. SAGMA relied on the South African National Accreditation System (SANAS) for the transfer of its safety results from these countries through the International Laboratory Accreditation Cooperation (ILAC).

In terms of the NRCS Act 5 of 2008, all gambling equipment standards under the South African National Standards (SANS) 1718 were compulsory standards, and therefore fell under the NRCS scope. Members of SAGMA were fully dependent on a NRCS LOC before they could be involved in the distribution and selling to any of the nine provinces, because the selling or distribution of uncertified products was prohibited by provincial legislation, as it required the approval of all gambling equipment prior to selling and distribution.

With regard to the experience of SAGMA in dealing with the NRCS, most members of SAGMA had generally recorded an average of 18 business days’ service -- and sometimes even longer when it came to the turnaround time -- whereas the NRCS had committed five to seven days.

On the quality of certificate evaluation, most members often discovered mistakes that could have been rectified by the NRCS evaluation process. They questioned the role, function and validity of the actual review process.

Concerning authority to adjudicate and determine compliance to compulsory specifications, the understanding of SAGMA was that the NRCS owned the jurisdiction on the determination of compliance to SANS 1718 standards. Most members of SAGMA found themselves having to be rejected by the provincial gambling boards over a technical standard matter. One of the provincial gambling boards had recently introduced additional technical requirements to testing laboratories’ evaluation reports, in addition to SANAS’s requirements. That was why SAGMA members had questioned the role, function and jurisdiction of the NRCS in the whole process. He also added that industrial action and LOA/LOC issuance systems’ down time caused delays in import placements.

In his conclusion, he recommended that the dti should engage with the NRCS management to put an extra effort into its services to SAGMA members. They should engage and consult for process improvement. The dti should reinforce the role, responsibility and jurisdiction of NRCS to the provincial Gambling Boards, in terms of the NRCS Act 5 of 2008. The NRCS management team should invest in electronic options that would allow for the recording of LOC submissions and the tracking of turnaround times for services rendered. The dti and the national Gambling Board should look at improving the processes in order to improve industry growth, especially the national database registration of imported and manufactured gambling equipment.

SA Association of Freight Forwarders (SAAFF) Presentation

Mr Jean Pool, Customs Portfolio Consultant: SAAFF, took the Committee through excise controls used by the state departments and those of the NRCS.  With state departments, customs would detain goods on the customs declaration for the relevant state department and release the goods from customs control. Then the clearing agent would take the customs declaration with the permit or other supporting documents to the other state department for inspection. If the state department was satisfied, it would endorse the customs declaration with its own release stamp and signature. The customs declaration with the releases was then presented to the shipping line for final release of the goods.

On the other hand, the NRCS operated with a policy furnished to shipping lines and clearing agents. The clearing agents provided import documents separately on request. The shipping lines’ documents were made available separately to the NRCS. These documents were first provided to SARS Customs. The NRCS randomly stopped containers for inspection, regardless of whether or not SARS had stopped or detained the containers. The SARS customs declaration system was capable of identifying all goods that ought to be subject to NRCS requirements, and to detain such goods for release by NRCS. The NRCS refused to allow goods to be conditionally released to the premises of the importer for inspection, as other state departments routinely did. The NRCS insisted on costly inspections at the container depots instead.

Pertaining to challenges faced by traders, he said that the NRCS regulations covered components that were commonly used in the manufacturing of articles that were subject to NRCS control. This led to a system of double control and double levy payments. The description of goods subject to NRCS specifications was too broad and could be interpreted differently by different parties. There was widespread non-compliance with the NRCS Act and this led to random targeting by the NRCS, instead of addressing the root cause of the problem. There was also unequal trade treatment.

Mr Pool identified the following possible solutions:

• Amendments to the NRCS legislation;
• Acceptance of international certificates rather than issue LOAs;
• Online registration of products through an NCRS Electronic Data Interchange (EDI) portal;
• Create enabling flexible provisions;
• Fair and equal treatment to all importers without any form of discrimination or selective targeting;
• NRCS should make an office available or provide online solutions to handle the SARS customs detentions, and to release goods in a timely manner.

In closing, he said the industry acknowledged the need for an organisation like the NRCS to prevent SA becoming a dumping ground for inferior products. Products that were imported into SA must undergo registration or testing by the NRCS against the SANS. Every item required a separate LOA. There was a disconnect between the requirements of the NRCS and the priorities of commerce.

NRCS Presentation

Mr Asogan Moodley, Chief Executive Officer: NRCS, told Members that the NRCS had the responsibility for ensuring that South African consumers and the SA environment were protected from the effects and impact of harmful, non-compliant products and also to ensure that consumers received the measures for which they paid.

The country had mandatory technical specifications that importers had to abide by in order to trade in SA. It was the responsibility of the importers to acquire the required approval prior to shipping the containers into the country.

He shared with the Committee incidents which had resulted from non-compliant products. Recent reports indicated that up to two million households in SA still relied on paraffin apparatus for lighting their homes, and for heating and cooking. The majority of these consumers were found in informal settlements across the country. It was unfortunate that paraffin came with some risk, and the risks increased with the use of an apparatus that did not meet the specifications as set out by the NRCS. There were only two registered local manufacturers of paraffin stoves in SA, yet the number of illegal paraffin stoves available in the markets was huge.

In 2013/14, Legal Metrology had inspected 1 361 products at the border, of which 441 were non-compliant with regards to short measures. A non-compliance rate of 32.4% had been recorded, with a financial impact of R28 962 000.

In 2014/15 at the Cape Town harbour, ten containers had been seized with non-compliant incandescent lamps valued at about R2.1 million.

The NRCS, working with the foods and associated industries, had destroyed fishery products valued at R40 million that did not meet the compulsory safety requirements. These included imported products such as hake, pilchards, shark and salmon products that failed due to defective cans.

He said that the environment would benefit significantly if non-compliant products did not gain entry into the country. Soil and sewage systems became contaminated, and non-compliant products also destroyed the economy because their importation was greater than the local production. This led to job losses and poverty.

He said there was still a need for the 120 days’ LOA processing. The processing of LOAs required detailed attention, especially on imports, as the products were imported as finished goods. The complexity of the test reports, coupled with misrepresented information submitted, had necessitated the NRCS to become considerably more vigorous in assessing the applications before approval was granted. The NRCS had to ensure that all products entering the country complied with the administrative and technical requirements.

With the implementation of source (Port of Entry) inspections, the outcome had revealed that millions of products entering our ports did not have the pre-approval (LOA) required. This had led to the NRCS receiving an influx of applications for LOAs, increasing from 400 applications per month to 14 000 currently in the electrotech environment only. The increase in LOA applications could be attributed to the success of the resource inspections at the port of entry of products in SA.

He concluded that the NRCS had developed a risk-based approach that would be used to profile the applications. A firm of attorneys had been appointed to assist with the preparation of regulations.

Support Programme for Industrial Innovation (SPII) and Technology and Human Resources for Industry Programme (THRIP) Presentation

Ms Nonkululeko Shinga, Chief Director: Innovation and Technology: dti, said that the idea behind SPII was to promote technology development in South African industry through the provision of financial assistance for the development of innovative products or processes.

The SPII had three schemes: the Product Process Development Scheme, the Matching Scheme and the Partnership Scheme.  In order to get support, the following factors were considered:

• Development should represent a significant advance in technology;
• Development and subsequent production must take place within SA;
• Intellectual property had to reside in a South African registered company;
• Participating businesses must be South African registered;
• SOEs could not participate directly, but only as sub-contractors.

213 projects had been supported between 2009/10 and 2013/14, and were valued at R394 million. The budget for 2015/16 was R57 million, against R100 million worth of projects in the pipeline.

She said that THRIP had been established to forge a partnership between government, university/science councils and the private sector in order to enhance the competitiveness of SA industries by generating skills and technologies. In 2009, the focus had shifted to include small, medium and micro enterprises (SMMEs) and Black Economic Empowerment (BEE).

Requirements for THRIP support must:

• Include a human resource development component;
• Be a high quality innovation that would improve the industrial partner’s competitive edge;
• Have at least one registered SA student in fourth year or higher that was involved in the project;

1 548 students and 1 047 researchers had been supported during the 2013/14 period. 1 267 projects had been supported between 2009/10-13/14, and were valued at R716.6 million. The budget for 2015/16 was R174 million, against R400 million worth of applications.

She concluded by saying SPII and THRIP reviews had been completed in 2014 and 2015 respectively. These two were highly relevant when other funding instruments were considered. There was a lack of business skills, especially in small businesses. There was also a lack of “angel” financing or venture capital to fill the gap and fund projects to commercialisation.

Discussion

SATMC Presentation

Mr D Macpherson (DA) wanted to know why it took 120 days to have something tested and why tyre testing was not done in SA. He also asked if the SATMC was aware of the dumping of second hand tyres from China.

Mr Haffejee said that the period of 120 days for testing was a capacity issue. It was unclear at this stage and a dialogue was needed on it. Regarding second hand tyres from China, he said the SATMC had not come across that. Second hand tyres came here when second hand cars were imported to SA. China exported new tyres to SA.

Mr A Williams (ANC) asked why a tyre factory had been decommissioned in KwaZulu-Natal, and he wanted to find out about the sort of regulation SATMC was looking for second hand tyres.                                                    

Mr Haffejee reported that the factory that had been decommissioned was for bus and truck tyres. 600 people had been retrenched and it was uncompetitive. Concerning regulation on imported tyres, he indicated that a company needed to have an International Trade Administration Commission (ITAC) permit in order to import tyres.

The Chairperson wanted to establish what percentage of recycled material was used in the manufacture of tyres, and where the material for tyre manufacturing came from.

Mr Haffejee reported that less recycled material was used in the making of new tyres. The materials used for making tyres came from local producers, but the ingredients were imported.

SAGMA, Tevo and SAAFF Presentation

The Chairperson asked SAGMA to state what it wanted to see happening.

Mr Matsebula said that they had been trying to tell Parliament to give the NRC more muscle, because the space was conflicted between technical regulations and operational regulations.

Mr Macpherson commented that there was a need to review the legislation that governed the NRC, because there were companies that wanted to create jobs but the legislation was an impediment. If something could not be produced in SA, something must be done to make sure there were companies that produced these items locally so as to create jobs for the locals. A system was needed to allow those businesses to operate efficiently and to raise the bar.

Mr Williams asked the organisations if markets should be opened up in terms of imports. However, he cautioned them that their duty as legislators was to protect local businesses and not allow the country to be a dumping place of inferior goods.

Mr Clifford Evans, Customs Broker: SAAFF, replied that the market was opened up already. The only problem was that compliance was being overlooked and no one was paying attention to it.

Mr B Mkongi (ANC) commented that it was painful to hear there were products with inferior quality that were damaging the lives of humans, and no one was taking responsibility. Some of the imported products were not meant for the conditions of the continent. He also commented that there was no truth in the idea that our technical infrastructure was sub-standard. He suggested that the presenting companies should indicate to the Committee the clauses in the legislation that should be amended so that companies could operate efficiently.

Mr M Kalako (ANC) added that as legislators, they would not oppose the idea of amending the legislation in order to give SA the edge. The challenge was in balancing -- that is, growing the economy and protecting the consumer against imported goods which were inferior. He  remarked that the SATMC wanted to start a tyre testing station, but the NRCS said it would not be independent. He said the testing station should be established and be under the auspices of a government entity.

Mr Bennet commented that the key issues were around safety, economic growth and job creation. The only thing that seemed to pose a challenge was to balance safety and economic growth. He indicated that his company, Tevo, took responsibility for each and every retailer it dealt with. Commenting on the issue of 120 days for testing, he said that could be a sign the economy was not working. If testing could be done in 60 days, that was fantastic. He added that our standards were tested internationally and when the imported products arrived here, the standards were different. He suggested that the problem was that SA had not created space for manufacturing. It had only created space to have sales people, marketing people and repairs, and continued to be a springboard to the African continent. The main thing that needed to be addressed was the process-capacity issue.

NRCS Presentation

Mr Williams asked if there was any move to try and establish a tyre testing facility in SA.

Mr Moodley stated there was an urgent process in place but would not reveal the details.

Mr Mkhongi wanted to know if it was true that our technical infrastructure was inferior, compared to international standards. He remarked that it was not the intention of the government to make it difficult for business to operate. Its duty was to protect the livelihood of its people.

Mr Moodley said that our technical infrastructure was poor in some areas, but good in others. The whole issue was due to budgetary constraints. South Africa was not an inferior country. South Africa had been honoured for her contribution internationally. When South Africa attended international conferences, it made a significant contribution. It represented the southern block of the region. South Africa did not go to the conferences as an observer.

The Chairperson wanted to know what measures had been developed regarding capacity constraints and the change of approach from visiting retailers to reports.

Mr Moodley reported that when products were brought into the country, the focus was on regulated products. As a result, capacity had been increased so as to do better. Measures were in place to deal with backlogs, and applications were processed within 120 days. The 120 days turnaround time was seen as globally competitive.

dti Presentation

Mr Williams wanted to establish if there had been efforts to engage the rural provinces, because it appeared that all the SPII and THRIP projects were funded in the metros.

Ms Shinga reported that the bulk of the budget was taken up by the Universities of Pretoria and Cape Town. All the other universities in other provinces had to partner with the two universities. An effort had been made that in research and development projects, women and previously disadvantaged academics should be involved and capacitated.

Dr B Bozzoli (DA) remarked that she did not think the dti was the right department to deal with universities and SPII and THRIP projects, because it was a strangled and bureaucratised department. She wanted to know the number of innovations that had come out of these schemes. She further commented there had always been a gap in the innovation schemes, and that no one had wanted to own innovation within the departments, but it appeared now that every department wanted to own it.

Ms Shinga, concerning the number of innovations, said the list would be sent to the Committee. With regard to the gap in innovations, she reported that SA was a member of the World Trade Organisation (WTO), and governments were not encouraged to support direct commercialisation. That was why there was support of development by SPII and THRIP, and hence the dti had developed the technology venture capital sceme to close the gap. She added there was no one who owned innovation.

Professor C Msimang (IFP) wanted to know if the presentation was a solution to the call for aligning education skills to industry’s needs.

Ms Shinga explained that the main idea behind these projects was to promote partnerships between universities, the dti and private sector.

Ms Y Phoswa (ANC) wanted to find out if the movement of SPII and THRIP from the Department of Science and Technology (DST) to the dti would prevent SA from producing its target of scientists or PhDs.

Ms Shinga indicated that THRIP was there to strengthen what came out of education and what the industry needed. The movement had improved communication and clearly identified the roles and responsibilities, because she had been with the DST before.

Ms S Mchunu (ANC), on projects supported, wanted to know the difference between women’s shareholding and BEE shareholding, and asked if BEE shareholding did not include women.

Ms Shinga said there was duplication. BEE shareholding did include women. Women’s shareholding referred to women of all races.

The meeting was adjourned.