Delays in approving imported products: briefing by National Regulator of Compulsory Specifications

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Trade and Industry

11 May 2016
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Chief Executive Officer of the National Regulator of Compulsory Specifications (NRCS) expounded on the mandate of the institution, which is to protect consumers and the South African market environment. Regulatory models were used to ensure that products complied with the laid down regulatory requirements. The NRCS Act No 5 of 2008 specified the categories of products that required the issuance of letters of authority (LOA) in order to fulfill compliance requirements. Overtime, the applications for LOA had increased due to the opening of South African borders to global trade. Other reasons for the rise in LOA applications were expanded upon. Between 2010 and 2014, NRCS had received over 27 000 LOA applications. Only 3 514 applications were processed within the stipulated 120 calendar days.  Previously NRCS had 120 working days to process LOA application, instead the Minister shortened  this to of 120 calendar days. NRCS is still in the process of implementing the new turn-around time.

A breakdown of the applications processed within and outside the deadline was given. Measures had been put in place to shorten the timeframe for the processing of applications. One of the key measures developed was the risk-based approach, which classifies LOA applications into high, medium and low risk categories. The implication is that these applications would be processed according to different turn-around times. The level of risk identified in each product application would determine the number of days within which LOA applications would be issued Assurance was given that the 120-day period would not harm the consumers or the environment in anyway, nor result in unfair trade.

In discussion, MPs focused on the implementation of the risk-based approach; the percentage of inspections carried out by NRCS that resulted in non-compliance; the 120-day period for processing LOA applications; means by which NRCS conveyed necessary information concerning its requirements for compliance to importers, users and builders; NRCS collaboration with other ministries and law enforcement agencies to deal with non-compliance; the difference between compliance with an existing standard and a non-existent standard; the correct process for obtaining an LOA; information on those pressurizing NRCS; the false narrative around using LOAs to frustrate businesses and promote local manufacturing; the number of industries or individuals that had been penalized for importing substandard or non-compliant products into the country; whether NRCS had the ability to impose penalties; the duration of the validity of an LOA; when the 120 days would start counting for an application; how NRCS made people aware of compliance requirements; and where the greatest non-compliance was recorded in terms of specific goods.
 

Meeting report

Letters of Authority by the National Regulator of Compulsory Specifications (NRCS)
Mr Asogan Moodley, NRCS CEO noted the mandate of NRCS was derived from the NRCS Act No 5 of 2008, the Legal Metrology (LM) Act No 9 of 2014, and the National Building Regulations and Buildings Standards Act No 103 of 1977. Products requiring approval or letters of authority (LOA) had be specified under the NRCS Act and the LM Act. Such products included vehicles, manufactures and importers of vehicles, including the component parts of vehicles in the automotive industry; cement, chemicals, detergents, safety shoes, building materials, plastic bags, paraffin stoves and other products within the chemicals, materials and mechanicals industry; electrical appliances under the electro-technical industry; as well as measuring instruments and gaming equipment, which fell under the LM industry.

NRCS regulatory models were dependent on the level of risk of any product. The models included pre-market approval through the issuance of LOA or other certificates, market surveillance, and third party certification. The burden to prove compliance with NRCS regulations was on the manufacturer, importer or builder (MIB).

In cases where LOA was required, the MIB had to apply for such LOA before importing products or making such products available on the market. The common practice was for MIBs to apply for LOAs after products had been imported and detained at the port of entry, or after being served with a directive by the NRCS. The LOA application had to be accompanied by valid documentary evidence, such as test reports from approved laboratories, and sample products where necessary for NRCS to conduct its own test. LOAs were only issued after NRCS was satisfied that all products were in compliance with the stipulated safety requirements.

LOA applications had increased overtime. The reasons for this increase had been attributed to the opening up of the South African borders to global trade since 1994; and the implementation of border enforcement approach to NRCS surveillance and enforcement work, which resulted in an NRCS focus on mainly regulated products, and the detection of non-compliant products. The NRCS border enforcement project identified issues such as the provision of incorrect documentation, false declarations from clearing agents and importers, shipping line delays in communicating regulatory requirements to clients, poor communication of NRCS requirements to the clearing agents/importers in a timely manner; and the lack of proof of compliance.

The total value of non-compliance recorded between 2010 and 2014 cumulated to an average of R450 million per annum, while the total value for 2014/15 was R548 million, and R205 million for 2015/16. NRCS recorded a total of 1 128 detentions at the Durban Port, while Port Elizabeth, Port of Ngqura and East London had 899 detentions. Cape Town had the lowest number of detentions at 351 detentions. The percentage of containers processed without NRCS detention was 99.41%.

The total number of LOA applications received by NRCS from various industries between 1 October 2015 and 30 April 2016, were 13 069 in the food and associated industries; 628 in the LM industry; 2 517 in the automotive industry; 348 in the chemicals, materials and mechanicals (CMM) industry; and 11 378 in the electro-technical industry, resulting in a total 27 940 applications. A breakdown of the LOA applications under the electro-technical industry was highlighted (see page 15 of document). Of the 27 940 applications received, 19 657 were processed, while 3 514 applications were processed within 120 days, which resulted in a total of 23 171 processed applications.

Measures were introduced and implemented to assist with compliance with the shortened time-frame for processing LOAs. These measures came in the form of overtime, appointment of two candidate inspectors, and allocation of LOA evaluation work to field inspectors and regional inspectors. Electro-technical management was also embarked upon to ensure the implementation of the risk-based approach (RBA) and other measures aimed at tackling the backlog of applications. A firm of attorneys was also employed to help with the development of the RBA policy. NRCS has yet to finalise the policy document.

Due to the increase in the number of LOA applications, as well as the large quantities of non-compliant products entering South Africa, NRCS reviewed its business and operating processes for regulated products imported into the country. It also introduced a more stringent approach to pre-market evaluations, which required the allocation of more time to evaluate each application. The impact of this approach resulted in a longer time for evaluation of applications. NRCS therefore came up with a turn-around time of 120 working days to effectively process each application. Numerous engagements were held with industry and Parliament, after which the Minister instructed NRCS to treat LOA applications within 120 calendar days, instead of 120 working days. NRCS was still in the process of implementing the new turn-around times of 120 calendar days.

Ms Teboho Aphane, Senior Manager, Legal Services, noted that the purpose of the RBA was to enable NRCS to classify LOA applications into high, medium and low risk categories. The implication was that these applications would be processed according to different turn-around times, depending on the category under which they fell. The low risk applications were processed within 75 calendar days, medium risk within 90 calendar days, while the high risk applications were processed within 120 calendar days. The factors considered in categorizing applications into low, medium or high risks, included the risks associated with particular products; alerts around particular products; compliance history of products; country of origin from which the product emanated; the manufacturing company and its compliance history; the status of testing facilities to see if such facilities were accredited; whether laboratories where tests were carried out were located within South African borders or international laboratories, and if it was an international laboratory, whether such laboratory had taken South Africa’s deviations into consideration; whether or not an application was for renewal; and seasonality of products.

Mr Moodley noted that a lot of the fraudulent information brought to the attention of NRCS is traced to applicants not wanting to comply with regulatory requirements, as well as avoiding the various duties of the country. The border enforcement approach to NRCS work resulted in the identification and embargoing of non-compliant products worth hundreds of millions of rands. A significant quantity of these consignments did not obtain prior approval from NRCS to confirm the safety of regulated products. Over R1 billion worth of goods were identified by NRCS within a five-year period, and only half a percentage of all the containers entering South Africa were inspected.

It should be noted that the 120 day calendar period introduced to consider LOA applications would not in any way harm the consumer or the environment, nor result in unfair trade. A shortened turn-around time for processing of applications could result in the trading of unsafe products, which would in turn result in severe negative consequences for consumers and South African environment in general.

Discussion
Mr A Williams (ANC) said that he was pleased that a risk-based approach was introduced to speed up the process for compliant importers. He asked how long it would take before the process would be completed. He asked the percentage of inspections carried out that resulted in non-compliance; and if the risk-based approach would afford NRCS more time to deal with the high-risk importers.

Mr G Hill-Lewis (DA) stated that the Committee had not pressurized NRCS into doing its job. The only area of concern to the Committee was the length of time it took for NRCS to complete its work. The Committee was responsible for holding NRCS accountable for performance on its mandate. At the moment, NRCS performance on its mandate was significantly slowing down the free-flow of goods in the South African economy. He suggested that 120 calendar days was too long to obtain letters of authority (LOA). A detailed explanation of the 120 day-requirement for the issuance of LOA was requested.

He noted that the Committee had received numerous complaints about the approachability of the NRCS staff, in terms of rude responses, getting pushed from pillar to post without definitive answers or no answer at all. It was also noted that there was no fast-moving consumer goods retailer that could realistically order products and inventory six months in advance. The Committee supported NRCS, but it had to ensure the existence of a reasonable fast-flow of goods into the economy. The pressure being faced by NRCS was only in relation to carrying out its job in an efficient and time-sensitive manner.

Mr A Alberts (EFF) asked how the importers, builders and users were informed of new compliance  regulations on their products in terms of the NRCS mandate and Act; if NRCS was coordinating with other ministries and other law enforcement agencies to stop circumvention from taking place, and if action was taken by NRCS to close any legal loophole that may be identified in the process; the effect of a product in need of regulation, which did not receive or apply for an LOA, and was used in the market; if there was a difference between a product that did not comply with an existing standard and a new product for which a standard of compliance was yet to be designed; and what the effect of non-compliance and use of such new products would be.

Mr B Mkongi (ANC) said the NRCS mandate must be borne in mind engagement with NRCS. The mandate protected consumer health and safety, which included the environment.  He asked what the correct process was for obtaining an effective LOA – whether to sign off a deal with the importer before obtaining the LOA or to sign off the deal in terms of the LOA, after complying with the requirements for importing goods into South Africa. He asked why NRCS did not inform Parliament about the people placing it under pressure, so that Parliament could follow up on them to check their compliance status.

Mr D Macpherson (DA) said that the idea of using LOAs to slow down importers in order to manufacture products in South Africa was wrong and should be rejected outright. What occurred in the last eight years was a dramatic increase of LOAs, because items became too expensive to produce in South Africa and were moved off-shore. NRCS should have kept up with the trend at the time by increasing its staff component to deal with the increased LOAs, which made it difficult for NRCS to do its job effectively. He asked how many companies or individuals had been punished for bringing substandard products into the country; and why NRCS did not outsource the testing and verification of products since it could not handle the enormous applications brought before it.

Mr M Kalako (ANC) said that the major role of the NCRS was to protect the consumers and the environment. Those responsible for pressurizing NRCS were non-compliant companies or individuals. He asked if NRCS had the power to impose penalties on non-compliant companies and individuals.

The Chairperson asked long an LOA was valid for; when the 120 days would start counting; what the NRCS had done to ensure that importers understood the documentation needed for compliance; what sanctions had been put in place for importers that flouted the authority of NRCS; what exposure had NRCS given to make people aware of the requirements needed for compliance; and where the greatest number of non-compliance was recorded in specific goods.

Mr Lionel October, Director General of Department of Trade and Industry (DTI) clarified that DTI’s mandate covered consumer protection in terms of the NRCS Act. Since NRCS was a statute-based institution, its roles, responsibilities and duties were drawn from the NRCS Act. One of these was to handle substandard and non-compliant goods. NRCS had no mandate to promote imports or free-trade. It was only empowered to protect consumers. It was necessary for South Africa to accept the reality of the floods of imports into the country, and also that the country was not properly equipped to handle the situation. A similar flood of imports was experienced in post-1994, in the textile and footwear industry, which destroyed the industry. A minimum of 50 000 jobs were lost. Measures were put in place to address this issue. Those measures included having proper control of the South African borders, which was achieved by putting immense pressure on the South African Revenue Service (SARS); as well as investment of immense resources into the proper monitoring of the borders to detect illegal imports of undervalued goods. Employment in the textile and footwear industry had been stabilized; 6 000 jobs had been added to the industry, and 21 footwear factories had been opened.

There was a flood of imports of products such as televisions, refrigerators, microwaves, washing machines and other electro-technical goods, which destroyed the electro-technical industry. DTI was currently busy with Hisense, which had the second most efficient plant outside of China. Hisense had submitted a proposal to invest massively in the Atlantis industrial development zone (IDZ), by manufacturing electro-technical products. Hisense investment in the Atlantis IDZ had nothing to do with the mandate of NRCS in addressing issues around non-compliant goods.  DTI’s job is to create jobs, and this can only be achieved through exports. However, DTI cannot interfere with NRCS’ mandate in carrying out DTI's duty of job creation.

Mr Macpherson clarified that the false narrative that existed was to the effect that NRCS used the LOAs as a means to frustrate industries, and force them to manufacture goods in South Africa. This was a wrong intention. Not all electro-technical products could be manufactured in South Africa. LOAs should therefore, not be used to frustrate businesses in a bid to promote manufacturing in the country.

The Chairperson noted that microwaves had been produced in South Africa in times past. The production of microwaves stopped for other reasons apart from LOAs.

In terms of this false narrative, Mr Moodley clarified that NRCS spoke only to the huge influx of non-compliant and sub-standard products into the country as a contributing factor to South Africa’s inability to compete against these and produce compliant products. The national microwaves produced 20 years ago were compliant and lasted for 15 years. NRCS’ targeted approach was able to detect that 70% of the containers inspected contained regulated products, while 30% of these containers contained non-compliant products.

On the enormous number of complaints about NRCS’ accessibility and approach, NRCS noted that it received a large number of emails and phone calls from clients on a daily basis, and some could emanate from a single applicant. Responding to every email and/or phone call affected the time for dealing with applications. This remained a challenge for NRCS.

MIBs were aware of all NRCS regulations. The regulations were on the NRCS website, and were discussed at regular industry meetings. NRCS inspectors were mandated to convey the regulations to industries. NRCS offices were also open to industries for enquiries.

NRCS worked closely with the National Consumer Commission to deal with cases affecting consumers. It was however faced with the challenge of tracing the exact addresses where the imported products had to be delivered, after such products had been signed off by agencies as complian. Issuance of penalties was not within the NRCS mandate. Both the NRCS Act and the LM Act stipulated that penalties could only be issued by a presiding officer in a court of law.

On the difference between non-compliance with an existing standard and where no standard existed, it was noted that a compulsory specification had to be complied with where such existed. Where no compulsory specification standard existed, there could be no compliance. No illegality in compliance could occur if no compulsory specification standard existed. Safety critical items without compulsory specification standards would be identified and NRCS would develop a compulsory specification standard for them. Where a national standard that could be converted to a compulsory specification could not be developed, section 22 of LM Act empowered the CEO of NRCS to engage with the parties concerned to develop interim technical regulations for the protection of consumers and sustainability of the national standards.

In terms of what should come first: importing products or complying with requirements, compliance with laid down requirements was of topmost priority before importation of products. This was a standard international practice.

The do it yourself (DIY) practice had no contribution to the country, since components were only imported into the country and the products had to be manufactured.

NRCS established that it was the same set of people mounting pressure on it over time. NRCS would engage with the DG of DTI, Chairperson of the Portfolio Committee and the legal advisers, to determine if information on those responsible for the pressure facing NRCS could appear before the Portfolio Committee.

It was re-emphasised that NRCS’ mandate was not to issue LOAs, but to protect consumers and the environment, and to ensure fair trade. A three-pronged approach was adopted in carrying out this mandate, which were pre-market approvals, market surveillance, and conformity-based approvals. NRCS’ understanding of an efficient and effective mandate was the arrival at zero existence of non-compliant products in the market space.

NRCS accepted test reports from other countries apart from South Africa, as long as the tests were carried out in accredited laboratories in terms of the 17 000 standards. However, there was such a thing as the ‘South African deviation’, which was a situation where a compulsory specification demanded specific tests to be carried in relation to the South African environment. In such instances, such tests had to be carried out to ensure compliance, as international laboratories could not conduct such tests. NRCS could verify the validity of tests, as well as the accreditation of laboratories where the need arose.

NRCS would address the shortage of personnel within the institution, and alongside the DTI.

Ms Aphane said that RBA should be implemented in June. Additional work was being done by each of the operations unit in creating the relevant databases needed for the risk-based system. NRCS’ information technology (IT) department was working on developing the system itself to ensure the system was objective.

Ms Stephina Teffo, NRCS Manager: Approvals, said that only 3 000 of the 4 000 approved LOAs were processed within the stipulated 120 days. The challenge NRCS faced with the applications was that while some submitted applications complied with the requirements, other applications were submitted without the accurate documentation needed for processing. Some applications had been closed due to non-conformity to the requirements. Most role players in the industries were not making an effort to understand the application requirements. NRCS therefore went through applications to ensure that all requirements were complied with, and this slowed down the processing of applications for more than 120 days.

Test reports within the South African environment were valid for three years, after which a renewal should be made. The three-year requirement was based on the possibility of change in the components of products.

The 120 days would start counting from the time NRCS received the application form, along with all supporting documents. It had been discovered that applicants upload other documents on the online system, after submitting their applications, and this practice affected the calculation of days for processing such applications.

The Chairperson urged NRCS to submit responses to other challenges yet to be tackled, in writing to the Committee.

Mr October said that DTI’s primary interest was to support businesses in creating jobs. It was therefore, necessary to protect local manufacturers. DTI was in support of local business that produced locally for exportation.

Mr Hill-Lewis reiterated the need to shorten the number of days for the issuance of LOAs. He asked what critical path NRCS adopted for products faced with urgent deadlines. He asked how many China malls in South Africa had been inspected and goods seized from in the last six months, simply because most of these China malls breached compliance requirements. NRCS was required by its Act to have a performance agreement with the board. NRCS was asked to submit its performance targets as inputted in the performance agreement.

The Chairperson emphasized that NRCS had mentioned that most of the non-compliant goods were found in the electro-technical industry, and were mostly imported from the East, particularly China. A concern had been raised for NRCS to increase its inspection rate. The critical path for urgent goods would be clarified through the implementation of the RBA. NRCS would be invited sometime in August or September to discuss the results of the implementation of RBA, as well as other issues raised.

The meeting was adjourned.

 

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