Tripartite Free Trade Agreement; NRCS ICT modernisation project

Meeting report

Mr Lionel October, Director General: Department of Trade and Industry (Dti), said the presentation would be a brief overview of the ratification of the Tripartite Agreement. African trade integration was the first priority as the country and the Department engaged in two process, which included the continental free trade area and the Tripartite Agreement.

Regarding the South African Bureau of Standards (SABS) board, the Minister had last week notified the board members with a notice of intention to remove them due to governance and other institutional issues. In terms of the both the SABS Act and administrative laws, due processes had to be followed. The first step was to lodge the notice of intention and then after five days, the members must respond and those responses would be considered. The Minister had conveyed a message that he was dealing with the matter.

Mr Wamkele Mene, Chief Director: International Trade, Dti, said that the process of ratification was already in Parliament, and South Africa would be a member to ratify the agreement. The tripartite free trade area comprised the Common Market for Eastern and Southern Africa (Comesa), the Southern African Development Community (SADC), and the East African Community (EAC). It had been launched in Egypt by the heads of state in June 2015, and the main agreement had negotiated for free trade in Africa. Attached to the main agreement were the annexures which outlined the regulations for each specific trade area contained in the agreement itself. Minister Rob Davies had signed the agreement on behalf of the President last year in July, and so far 22 members of the 26 countries had signed the agreement. The threshold was 14 countries, and once they had their agreements of ratification, then it would come into force. So far, only three countries had submitted instruments for ratification – Egypt, Kenya and Uganda. The basis for the tripartite agreement was that the Dti under Minister Davies’s leadership had slightly changed to focus on development imperatives and the basis for this was infrastructure, economic and industrial development and market integration, which was distinct from previous ratifications. The Dti had added a strong dimension of development in this agreement instead of focusing only on market access.

The ratification request that had been put to Parliament addressed the market integration pillar. No agreement had been reached on the industrial and infrastructural development pillars, which meant ratification on those other two pillars was not required at this point.

The key features of the tripartite free trade area were that it had a strong development dimension, and members of the tripartite agreement recognised differentials in levels of economic development amongst them. This was why they had provisions such preferential treatment, and flexibility had to be taken into account where there were specific economic situations that may require more time, such as balance of payments problems. It was a variable geometry regarding liberalisation, which meant any region moved as fast as it needed to, and the rest of the tripartite members would follow. However. there were some countries that were not able liberalise as fast as others.

The objective was to create a single tripartite free trade area market to overcome the challenges of multiple memberships. For South Africa this had immense benefits:

• Access to new and dynamic markets:
• A combined gross domestic product (GDP) of US$1.2 trillion;
• A combined population of approximately 626 million people -- just over half the total African population and economy.
• Some Tripartite Free Trade Alliance (TFTA) countries were among the fastest growing economies on the continent, such as Rwanda, Ethiopia and Tanzania.
• South Africa would build on its current share of the African market and have access to a larger, more integrated, and growing regional market.
• This had the potential to stimulate industrial development, investment and job creation.
• It would promote intra-regional investment.

Evidence suggested that this would build on the current share that South Africa had, because it would move from the SADC markets to dynamic markets. Moving into these dynamic markets would be an expansion, and would be underpinned by a legal regime that would protect investors and South African exporters, which was not the case at the moment.

So far, phase one (trading goods) had been completed, and phase two was yet to come, which would include investment and investment negotiation.  When South Africa came in, it would its Protection of Investment Act as a basis for negotiating the investment chapter in the tripartite negotiation. It would have legal certainty and predictability of the market through the tripartite free trade area, because each member would be bound by the market access provisions and obligations that they provided. This meant that the past situation, where South African goods had been arbitrarily detained at the border, while this was not imposed on other importing countries, would no longer pertain. This would provide the measure of market certainty and predictability.

The agreement also had a dispute settlement mechanism which was conducted at national courts comprised of trade law experts who would adjudicate where a dispute arose, and criteria had been developed for people to be on the panel. The agreement also had a benefit in the sense that it would create a single rule book for trade, intellectual property rights, investment and competition in the tripartite area. Thus investors would have a greater sense of what rules they could expect to apply to them. This would have positive spill-over effects for boosting regional trade.

South Africa’s trade with tripartite countries stood at US $27 billion in 2017, with TFTA countries such as Egypt, Ethiopia and Kenya, among others. South African exports to Kenya accounted for 3,3 % of TFTA exports. South Africa in turn received about 2% of its TFTA imports from Egypt.

Mr Mene concluded that the TFTA had been used as a basis for engaging in the ongoing African Continental Free Trade Agreement (AfCFTA) negotiations. Ratification by South Africa would send a strong signal of South Africa’s commitment to regional integration. Lastly, ratification would bring South African exporters a step closer to enjoying preferential treatment under the TFTA.

Discussion

Mr B Radebe (ANC) said that the former governments had ensured that Africa did not and could not trade within itself, but instead had to continue enriching the colonial masters. This was therefore where the tripartite agreement came in, because it also touched on market integration and infrastructure development. If there was a lack of integrated infrastructure within the countries, growth would be significantly hindered. From this agreement, Africa would be able to grow.

Mr A Williams (ANC) agreed, but pointed out that yesterday the Committee had engaged with the sugar industry, which had indicated that 80% of South Africa’s sugar was imported from Swaziland. How did one protect the local sectors from coming under pressure?

Mr D Macpherson (DA) said that these were green lights, but they would only work if the finer details were stretched out and the public included. One often saw these agreements not working out down the line -- for instance, with SACU situation was a case in point. One had to take into consideration whether free trade equated to free movement of people, and how that would be implemented. Secondly, how did one maintain trade policy sovereignty as a country? There were many things to take advantage of, such as the access to new markets, but as much as free trade was welcomed, one also had to take into consideration how one would go about taking advantage of the new markets.

What was the strategy to bring the agreement to the fore, and when was the process envisaged to be completed?

Mr M Mahlobo (ANC) said there was a need to deal with the mechanics of the agreement that had been signed a while back, and now the continental one was coming into play. He was happy that the benefits were clear in terms of the free trade areas, population size and economic blocks. However, there were pertinent issues that had to be dealt which were not included in the presentation, such as protectionism and domestication. There were domestic laws, and their impact had to be considered, as they may need to be amended. The Dti had not touched on the implications of domestic legislation. There was also a question of the system to ascertain South Africa’s state of readiness. The Dti must also remember the complaints about imbalanced trade -- that South Africa had been privileged after 1994 in terms of business development and trade within the continent. He cautioned that the Department should not bring to Parliament an incomplete report, because Members needed to apply themselves and make an informed decision. The question was, what were the blind spots? Those should have been highlighted in the presentation.

Mr J Esterhuizen (IFP) said South Africa was going to benefit more than any other country in the continent, but how would the smaller countries that did not have adequate resources to produce profitable goods and services, benefit from this agreement? These countries could import value added and finished goods from countries like India and China much more cheaply than their African counterparts. There would be competition with China definitely, and would all the African leaders sacrifice the immediate money that they could derive from China for the long term gains of signing this agreement? Africa was known for its lack of infrastructure, corrupt leaders and weak border controls – how was that going to be factored into this agreement?

Mr G Cachalia (DA) said this was a welcome step for the continent, but he wondered whether at this stage the Department could provide more detailed documentation on how this was intended to be implemented.

The Chairperson said that a couple of years ago, the Department’s position on this had been very clear, and that it was important to focus on the harmonisation of those borders. Therefore, some clause must be put in to ensure that those countries that had not yet harmonised their borders would do so. If this was not done, one could face a decline in the benefits of trade.

Dti’s response

Mr October commented on the potentially negative impacts and the dangers, saying that all free trade agreements had pros and cons. The approach the Dti had adapted was a very careful one. This agreement had been under consideration for about five or six years, and the reason for that was because the objective was to ensure that it was legally binding and that everything went through proper legal details. The Department had gone deeply into aspects such as tariff reductions and countries of origin. This was why it had not signed the continental free trade agreement. It had signed the declaration, but not the agreement, because it wanted to ensure that it was checked and went through the Minister of Justice. The country was in the position to sign now because that had been done.

The second issue that the Department had insisted on was that it had to move at the pace of countries with slower economic growth. It did not want a “one-size-fits-all” system. The benefit of trade was definitely on South Africa’s side, as it had massive capabilities such as the motor industry. The Department could provide a summary on how it had laid out potential negative impacts.

Regarding the SACU, there was a 100-year customs union, which SA said it must hold on to and move towards free trade. Its view was not to deepen integration, but rather widen it. Even with the sugar industry, it was not Swaziland that was the biggest threat, but India -- they were harvesting substantial amount of sugar and exported it at very low prices. The Department had engaged the International Trade Administration Commission (ITAC) on this matter, to raise protection.

Mr Mene referred to customs procedures, and said the agreement made provision for cooperation in customs agreements but it did not make provision for harmonisation. It created a platform for customs harmonisation.

South Sudan had indicated to the Department that they were acceding to COMESA and after they have finished the accession with COMESA, they would be ready to negotiate with SACU, but SA had sent a signal.

The movement of business people was being considered within the realm of immigration, and not trade negotiations. It was a side agreement that the Department of Home Affairs (DHA) was taking the lead on. They had identified categories of business people that would be eligible for visas on arrival. The immigration official would then do a screening in advance, facilitating the arrangements for the business people. They would not be automatically entitled to an African passport by virtue of being a business person.

With regard to the sugar industry, there was the Annex 7 of the SADC protocol which regulated how the SADC and SACU would deal with the question of imports of sugar into the region. In respect to infant industries, there was a provision in the agreement that granted protection to infant industries, subject to specific criteria. There were also trade remedies to deal with the issues of dumping and so on.

It was not envisaged that the agreement would lead to a customs union, but for now it focused on the free trade areas. There were 22 countries that had signed, and three had ratified out of 26 countries.

Mr Mahlobo said the things that the Chief Director was responding to were issues that the Department had to bring back to the Committee, and the DG had agreed to that. As the lead department, it needed to be able to demonstrate coordination and cooperation in areas where it leads.

The Chairperson said that with the special economic zones (SEZs), the issue of business visas had been raised and the Department had been at pains in explaining that it would want these visas issued, but on the other hand it became a stream of exploitation. Just as Mr Mahlobo had requested, the Dti would do the Committee justice to come back with much more detailed information. The Committee needed to be cautious about the implications, although it wanted to achieve these things.

Mr October said there was a multi-disciplinary team, and the dti leads in the movement of goods and the trade free area. There was also the discussion on customs which was led by the South African Revenue Service (SARS), and there was one on immigration which was led by the DHA, but they were all part of the same team. More information would be attached to two issues as well -- the immigration and customs issues. A comprehensive document would be furnished to the Committee which would include the full terms of reference in the agreements, and how the Dti would deal with unforeseen circumstances that may arise.

The Chairperson said that there was an agreement in the Committee that a full and comprehensive report would be provided.

Mr Radebe said that the Committee would not take any decision on the free trade agreement until the full and comprehensive document was submitted by the Department.

The Chairperson said the Committee would now await further information from the Department before taking any decisions. This was a critical agreement and it needed to be fully understood, as well as the readiness of the country to have it.

LOAs and ICT modernisation project: NRCS briefing

Mr Edward Mamadise, Chief Executive Officer: National Regulator for Compulsory Specifications (NRCS) said he would report only on the key aspects of the presentation due to time constraints.

With regards to pre-market approvals, or letters of authority (LOAs), the following was reported:

• Risk-Based Approach (RBA) policy developed and approved by the NRCS Chief Executive Officer (CEO) at the end of March 2018;
• Policy workshops held with staff during April 2018;
• NRCS-wide implementation plan being drafted.

Approval targets per inspector were now being set according to the risk mix of applications allocated to that particular inspector. This had the impact of doubling the target in the case where all allocated applications were low risk – for example, from six to 12.

Other interventions reported a capacity increase:

• Temporary capacity increase from market surveillance inspectors, who had started working on Certification Body (CB) Scheme applications in May 2018, with plans to follow up with low risk applications;
• Adding two administrators to Electrotech approvals from other business units within the organisation, to deal with administrative duties such as allocating applications, capturing, etc;
• Capturing of finished applications had currently been decentralised by using administrative staff in Port Elizabeth and Durban to deal with capacity constraints;
• Plan to deploy an additional manager in approvals, from internal resources, to reorganise the work along areas of specialisation.

Although the throughput was less than the previous financial period, the turnaround time through these interventions had improved to 75% approvals within 120 days, compared to 37% in the previous financial period.

The information communication technology (ICT) modernisation project was a suite of interdependent strategies that the NRCS planned to deploy to deal with organisational challenges.

The purpose was:

• Revenue qualification;
• Automation of NRCS operational processes, which includes collaboration with other key stakeholders such as SARS and Customs;
• Automation of the NRCS approval system - LOA issuance;
• Implementation of internal support systems – Enterprise Resource Planning (ERP).

Reasons for delays of the project had been:

• Inadequate IT resources – the NRCS IT department did not have the adequate skills to take on this project;
• The timeline had been extended due to the need to appoint a service provider to assist NRCS with its business process mapping and needs analysis;
• Appointment of a Chief Information Officer (CIO). There had been a failure to obtain a suitable candidate through the normal recruitment process. The NRCS was embarking on a new process, using a recruitment agency, and an appointment would be made before the end of September.

Discussion

Mr Macpherson said the Committee was aware that government regulations were supposed to look after consumers and foster business opportunities and not be a hindrance to businesses to grow their market share. What had been seen over the years was a degeneration in the handling of queries regarding the importation of electro-technical goods. He received a lot of emails and telephone calls from various businesses, but what he found rather appalling was the fact that in trying to facilitate or intervene, the NCRS staff had accused MPs of being “captured” or lobbyists. MPs’ interventions were always last resorts, but the responses from the NCRS staff had not been assisting in the process. It seemed there were some stumbling blocks existing on the NCRS declaration forms about how they could be used for one consignment, but the same form for another consignment could be rejected. Perhaps a protocol on declarations forms needed to be developed by the NCRS.

When it came to the implementation of the ICT project, this was supposed to have been implemented and rolled out in December last year. The Committee still did not have a clear date on when this would happen. There was no ability to link the JBF System and the system that generated statements for customers, because people were being told that they were in arrears when they were actually not -- the two systems did not speak to each other.

Ms P Mantashe (ANC) welcomed the improvement achieved thus far, and asked when the ICT project would be implemented.

Mr Esterhuizen asked why products bearing the SABS mark still required letters of authority from the NCRS. Why were they subject to the compulsory levy in addition to the SABS permit fees, because this increased the financial burden on companies?

Mr Mahlobo said the reasons for the delays seemed quite profound, but he suggested the NCRS should develop a metrix that outlined what would be done about problems highlighted. There had also been the issue of trying to migrate to digitisation, and the project had been difficult – who was the project manager, and was he or she given all the resources? If there was company outsourced, how credible was this company? The IT capability was the biggest issue, involving the right service provider, the service level agreement, and why the service provider was not on time. Was the NCRS imposing penalties? Ultimately, the system must be fully installed and then, in terms of the licensed applications, the NCRS could introduce a phased approach.

Mr S Mbuyane (ANC) said he was having a challenge with the presentation, because about three months ago the Department had come before the Committee and presented a similar presentation. The issue of staff had been brought up again, as well as the Risk-Based Approach – wanting to transform, as well as the libraries. The issue of ICT was always coming up, with the same information presented in exactly the same format. The reasons for the delay were all the same since three months ago, so clearly the NCRS was not taking Parliament seriously.

The Chairperson said that the issues regarding these delays had been raised numerous times before by Members of Parliament, and even the previous CEO had sung the same tune. The implementation of the ICT modernisation project would have addressed the backlogs. She asked if insufficient funds had been allocated for the ICT system. She wanted to know what exactly the problem was, because Members could not continue hearing about the same things over and over again.

Mr Mahlobo said that perhaps when the CEO responded, he should share whether there was a service delivery standard in the organisation. If a standard existed, how was it enforced?

Dti’s response

Mr October responded that the ICT system was indeed critical for resolving the issues of efficiency in the organisation. This matter had been brought to the Department by NCRS, and the Dti would work with the NCRS to recruit an IT professional to oversee this process, and timeliness would be presented. Regarding the overall response, in all the Department’s  agencies the quality of leadership mattered, because systems did not implement themselves. There was a service delivery standard, which was 120 days. The backlog had been brought to the Department, and the previous board and CEO had been removed because of inefficiency. The new CEO had managed to assist in removing the backlog. The new management team had been working hard, and now that part had been resolved. The Department had asked the Companies and Intellectual Property Commission (CIPC) to work with the NCRS on this matter.

The Department would look into the staff’s conduct and would deal with it, because professionalism had to be maintained. The NCRS’s role was to ensure that consumers were protected. As Members would know, there had recently been the Listeriosis outbreak, the Ford Kuga fires and some cellphones that were exploding. The test of the NCRS was to ensure that the public was not exposed to these incidents. In respect of food processing, the NCRS oversees canned products and seafood, but it does not have control over processed meat products. The Minister had now allocated those types of foods over to the NCRS. It would now do all the factories and do testing of those products. Additional funding would now be made available, and the Department would ensure that it would expedite the appointment of an IT professional.

NCRS’s response

Mr Mamadise referred to the culture of the organisation and its interaction with customers, and said he had picked up that the performance was very poor. It was not at the level where government should be operating. This behaviour was unacceptable, and he had taken the matter up for the general manager to address. However, the main issue was to try and change the culture of the organisation to be a better level.

All the compulsory specifications (VCs) would define explicitly what they covered, especially the VCs abroad in the area of electro-technical products. The NCRS tried to keep its VCs open enough so that it could deal with innovation in that spectrum.

The main issue that all Members had raised pertaining to the ICT modernisation project was that one of the challenges was the inadequate capacity within the ICT environment. The NCRS had a small ICT department with about four or five permanent staff, and with the resignation of the CIO, the problem had just become even worse. When the new management came in, there had been no ICT steering committee to advise on the implementation of the project. The ICT strategy which would talk to the architecture and infrastructure of the system had been developed.

The organisation did not have a service provider yet, but it would be appointing a new service provider by the end of June.

Ms Mantashe asked how soon the DG could empower the CEO with the necessary resources.

Mr Mamadise said that the Department would be assisting in the head-hunting process for the organisation to appoint a CIO, as well as a service provider.

Mr Bongani Khanyile, General Manager: Electro-technical, NCRS, confirmed that the business unit dealt with a number of applications, but that did not mean that all the applications that had been received constituted a backlog.

On the issue of the letter, he was aware of it and he had been copied. It had been discussed between him and the CEO, as well as the evaluator concerned. Even though sometimes things may be stressful for the staff as well, measures had been put in place to ensure that it did not happen again.

Regarding the VCs, unfortunately electro-technical technology was one of the fastest growing industries, and every day there was something new. When the VCs were developed, they tended to be broad so that they could accommodate any possible innovation that could come, and there were things that could fall outside their scope. The issue of the batteries had been addressed with the industry, who had been informed that if they were not satisfied, they could come forth with submissions.

With regard to the report presented to the Committee, it was indeed the same as the report that had been presented to the Committee previously, but Members should note that the organisation was reporting on the progress it had made so far since the previous meeting.

Mr Mbuyane asked whether the organisation had managed to review its human resources (HR) policy. The ICT issue needed to be laid to rest, as it dated back to 2014. The Department needed to really focus on this because this was the era of the Fourth Industrial Revolution.

Mr Macpherson said that if there was progress, low risk products from low risk factories did not need to meet the regulatory processes. One should not forget that the time to process an LOA application used to be 21 days to six months, and now it was back to three months. He hoped that the sole aim was to reduce the timeframes for LOA applications, to increase service delivery.

The Chairperson voiced her concern about the same issues being raised over and over again. There were certain areas which would take longer in the processing of applications, while there were others that would be quicker. She requested that when the NCRS sent through its report, it had to include what could be done to ensure that these issues were dealt with.

Mr October indicated that the suggestions from the Members were welcomed and accepted, and said the first priority would be the ICT system, as well as the appointment of the CIO. Secondly, the techno-electronics issue would also be dealt with. Lastly, the turn-around times would be re-visited to see what could be done to ensure that LOA applications for techno-electronic applications were dealt with quickly.

The Chairperson reminded the Department and the NRCS to furnish the Committee with the required information and documentation.

Consideration of outstanding minutes

The Committee’s minutes dated 17 April, 18 April, 24 April, 25 April, 8 May, 9 May and 31 May 2018 were adopted without any substantial amendments.

The meeting was adjourned.