National Credit Amendment Bill: Committee Report; Steel & Sugar tariffs: ITAC / DTI progress

Meeting report

The Chairperson reminded the Committee that the absence of Mr Esterhuizen of the IFP was usually due to the fact that he was a Member of five different Committees.

Consideration of the minority view report in the Committee Report on the Bill
The Chairperson turned her attention to the Committee Report which would accompany the National Credit Amendment Bill to the National Assembly. The Committee Secretary had received a minority report from the DA and, as the Committee was governed by the Rules of Parliament, the Chairperson had asked the Secretary to address the matter.

The Secretary stated that, when discussing the matter the previous meeting, he might not have been 100% clear to Mr Macpherson, that in the Committee Report, minority views could be expressed on the matter. National Assembly Rule 166(4)(a) stated that: A committee may not submit a minority report.

In terms of Rule 288(3)(f), the Committee Report:
"must, if it is not a unanimous report— (i) specify in which respects and why there was not consensus, and (ii) in addition to the views representative of the majority in the committee, convey any views of a minority in the committee in order to facilitate debate when the report comes before the House;"

The Chairperson added that she intended to deal with the matter according to the Rules of Parliament.

Mr D Macpherson (DA) stated that his report presented a comprehensive report of the process of the Bill since it was introduced. He appreciated that the Rules did not permit a minority report. Nothing in the rules stated that there could not be annexures. He proposed that under ‘Minority Views’, a short statement should refer the reader to Annexure A and that the report that he had submitted be attached as Annexure A.

The Chairperson perused the report submitted by Mr Macpherson.

Mr B Radebe (ANC) stated that an annexure was tantamount to a submitting a minority report. The minority view had to be contained as a point in the report, without preambles and views or that would be tantamount to a minority report. He asked the Chairperson not to entertain the issue of annexures.

The Chairperson stated that she would request legal advice from Adv van der Merwe.

Adv Charmaine van der Merwe, Senior Legal Advisor, Parliamentary Legal Services, agreed with the Committee Secretary that Rule 166 precluded the Committee from submitting a minority report, even as an attachment as that would be seen as a minority report. The minority views had to be included in the views of the Committee in the actual report.

Mr Macpherson stated that if the minority view were to be captured, it was important to report on the passage of the Bill. He proposed that the text from his minority report be included in the report under the heading ‘Minority Views’.

The Chairperson stated that under Rule 166(4)(a), a Committee might not include a minority report. She agreed that the report would be not unanimous. She read Rule 288(3)(f) and added that in previous Bills, every minority view had been included in the clauses as they were discussed and then captured under the heading ‘Minority Views’ so that the views of the minority became an integral part of the Committee report.

Mr Macpherson disagreed with the way in which the Chairperson wanted to handle the matter as it would be difficult for the majority to dictate the view of the minority. The argument of the majority could not be buttressed with a view of the minority. He had specifically added issues about process, enforceability, financial implications for the state, financial implications for the credit market, etc. A one-liner would not suffice, especially as there was so much more on the view of the majority. He proposed that three minority views be captured after point No. 7 in the report and under headings that were appropriate to the minority views.

Mr Radebe said the report was tantamount to circumventing the Rules of the House. If they had an opinion, they should raise it in the House.

Mr A Williams (ANC) agreed that the minority report should not form part of the Committee report. He did not want to include some of the points from the minority view because he did not think that it was reflective of the Committee and what had happened in the Committee or the intent of the Committee. He could not vote for those sections of the report that included the minority report.

Mr G Cachalia (DA) said that in the Committee report, under point 3, provision was made for minority views. If under that point, a submission were inserted, that should be allowed because there was no prescription as to how the minority view point was constituted. He told Mr Williams that the whole point was, obviously, that a minority view disagreed. The view would have a generic, overarching opinion and specifics per clause that the DA took issue with and that should be included holus-bolus.

The Chairperson asked for Adv van der Merwe’s views before she made a ruling.

Adv van der Merwe did not have much to add. It was a Committee report and the Committee had to determine how it would like to present the report. There was provision in the rules for minority views and the Committee should respect that. It should indicate where views originated so that it was clear what was not the view of the majority.

Mr A Alberts (FF+) had tried to find a compromise. He said that to include the minority report as an annexure would diminish the status of the report. The views of the minority should be included in the body of the report itself but there should be a summary of the minority views as an annexure.

The Chairperson stated that she would make her ruling. Having heard the views of the parties present in the meeting and the advice of the Senior Legal Advisor and the Committee Secretary, she made her ruling: The minority views would be captured succinctly on particular clauses but not the explanation per se as that would become the subject of the debate. There would be no annexure. That was her ruling.

She added that there had been other reports since she had begun as Chairperson in about 2009/10 and a similar debate had been held but the views of the minority party had been capture in each clause, stating that x party disagreed with x.

Mr Macpherson asked what would go under point 3. How did one express a minority view when it came to processes, historical process, etc? How did one capture that because it was not attached to a clause per se? He was no closer to understanding how a minority view was captured. Were his points going to be included in the report with a note referring to the minority? What was the point of bullet point no 3?

Mr Cachalia agreed with Mr Macpherson as the report itself made provision for minority views and surely that would be where one ought to insert those views. He suggested that with respect to process and implications, the intent and purpose of minority views had to be considered. One should take a leaf out of the judicial system. In a court judgement, a dissenting view or minority view was appended to a judgement. For the Committee to depart from the time-honoured principles would make them remiss in their view of minorities.

The Chairperson stated that the Committee had not yet adopted the report. It had been prepared by the Committee Secretary as the Secretary had observed the process. The Committee had to adopt the report once Members had worked through it. She pointed out that there were three institutions of government. Parliament was one, the Judiciary another and the Executive was the third. There was a separation of powers and she was not going to collapse the Constitution into the Fubbs version of the Constitution.
Parliament had drawn up separate rules. In her position as Chairperson, she had to respect the Office of the Speaker. If she had made a mistake, she would be informed of it in writing.

The Secretary explained that the report before them was a draft report prepared by the secretariat of the Committee for consideration by the Committee. The report indicated the minority view in the relevant clauses. He was suggesting that those views would be moved to the minority report section. During the reading, minority parties would indicate if there were further views that should be captured.

The Chairperson stated that minority positions would be captured in the relevant clauses. Process was not part of the report and that would have to preface the debate in the House. The report would capture minority views with respect to the Bill. A general comment could be made in the clause, which could be process-related. The Chairperson stated that she would request legal advice from the most senior Legal Advisor in Parliament who was, that day, Adv van der Merwe.

Adv van der Merwe agreed that the process outlined by the Chairperson was in accordance with the Rules of Parliament.

Consideration of the Report on the National Credit Amendment Bill
The Chairperson read through the report. She asked Members to avoid discussing punctuation and spelling as staff would clean it up.

Paragraph 1: Mr Macpherson stated that debt intervention was also being given to people who had been lent money recklessly. The Chairperson noted that the point would be better placed further on in the introduction.

Committee Members discussed the rights of the minority to determine what was to be included in the report.

Paragraph 2: Mr Cachalia pointed out that Section 9 of the Constitution said that everyone was equal before the law but the Bill overrode the Constitution. The report was conflating issues. Adv van der Merwe explained that the Bill addressed a gap in terms of equality because the current provisions for over-indebtedness were only for those people with money. The intention was that even socio-economically disadvantaged people could get debt relief.

Mr Macpherson believed that more points could be added to the introduction but the Chairperson stated that the minority opinion could contain an objection to the introduction.

Mr Macpherson requested that the establishment of a Sub-Committee headed by Mr Williams be included in the report, as well as the memorandum from the House instructing the Committee to draft the Bill.

It was agreed to include a reference to the Sub-Committee.

Mr Macpherson wanted it recorded that the DA believed that the income figure of R7 500 and debt cap of R50 000 were illogical and without basis and removed people from debt counselling. He also did not believe that a person earning R7 500 was indigent.

The Chairperson had noted that credit providers would be invited to take part throughout the process of debt intervention. She wanted to reassure Members that credit providers would not be excluded from the process.

The Chairperson noted that clause 19E had led to a lot of deliberation and debate. She also pointed out that until the process started, no-one had had any idea that a magistrate could not rule on reducing interest rates. That empowerment of magistrates would make the debt review process more effective.

Members discussed the legal opinion by Senior Counsel Wim Trengove and whether Adv Trengove had assessed the entire Bill for constitutionality or only two clauses. The view was that he had been asked to assess two specific clauses for their constitutionality, but in the context of the entire Bill.

Paragraph 2.4(15): Mr Macpherson wanted the minority view recorded that effectively one of the most egregious parts of the Bill was that someone could have credit extinguished and then borrow again six months later.

Mr Alberts stated that the FF+ had ten points for inclusion in the report. He was asked to submit those points for the Committee to discuss.

Mr Macpherson wanted to add a point indicating that the Committee had decided to appoint a sub-Committee under Mr Williams. He wanted the House to know who had chaired the report.

The Chairperson indicated that all the names of everyone who had served in the Sub-Committee would be included in acknowledgements. There were many stakeholders who had attended those meetings.

Mr Macpherson wanted to add a minority view that he, as a Committee Member, had not been allowed to make proposals about the framework of the Committee Bill. His report had been distributed but neither accepted nor rejected.

Mr Macpherson asked that the exact clauses re-advertised be noted in the report. He wanted the report to note a minority view that the submissions had been distributed but, although the DA had asked for oral submissions from those people who had made submissions, the Committee had decided that Members would work from the written submissions.

The Chairperson referred to Adv Trengove’s legal opinion on the Bill and its constitutionality. Senior Counsel had been asked to look at specific clauses but not isolated from the rest of the Bill. Adv Trengove had, in his opinion on the Bill, talked about the complexity of the Bill and the fact that it was hard to understand and might not be user friendly. In summary, he had stated that the Bill was constitutional but the Committee had had to re-write one clause.

Mr Macpherson wanted it reflected that DA had wanted entire Bill assessed regarding its constitutionality. He added that the DA had wanted debt counselling for the poor and that financial literacy was not the equivalent of debt counselling.

Dr Evelyn Masotja, DTI DDG: Consumer and Corporate Regulation Division, added that two other legal opinions had been sought by the DTI on constitutionality.

As time had run out, the Chairperson noted that the report on the Bill would have to be concluded the following day. The Bill would be addressed from 8:30 to 9:30 on 5 September 2018.

The Chairperson thanked Adv van der Merwe, the NCR and DTI for their attendance.

Steel and Sugar tariffs
The Chairperson welcomed everyone involved in the briefing. She requested, in the light of the time constraints, that no one indulged in long preambles, but focussed on tariffs. Earlier on the Committee had been told that the International Trade Administration Commission of South Africa (ITAC) could not speak to the Committee, and then ITAC had said that it had to be a closed meeting because of the ITAC legislation, although Parliament was very strict reasons about holding closed meetings and the Committee had had to follow certain processes. Subsequently a letter was received, dated 27 August 2018, but not received on that date, which stated that a closed meeting was not necessary.

Presentation to the Portfolio Committee on Steel and Sugar Tariffs - DTI
Ms Thandi Phele, Acting DDG: Industrial Development Division, introduced the briefing, providing a general policy context and the priorities of South Africa’s Trade Policy and Strategy Framework (TPSF). She noted that Ms Nicki Kruger, Chief Director: Trade Negotiations, would brief the Committee on the trade policy issues as previously requested by the Committee. ITAC would present their actions in respect of the sugar and the steel tariffs.

Ms Kruger stated that the Department was focussing trade on Africa and was promoting industrial development. The Department wanted to move away from the current consumption and commodity-driven growth path into a more sustainable industrial development path. Development of trade with BRICS partners was important. Tariffs were determined by the World Trade Organisation (WTO) policies, one of which determined that all nations should be the same for all countries, except if one was offering a preferential trade agreement to a country in terms of a free trade agreement or a preferential trade agreement. South Africa had registered bound rate for imports with the WTO and could not go above those rates. Countries were also permitted to give preferences to developing countries and reciprocal agreements with countries. South Africa had negotiated a number of trade agreements that had to be considered when setting tariffs.

Sugar Tariff: ITAC briefing
Mr Meluleki Nzimande, Chief Commissioner of ITAC, briefed the Committee on the reasons for the setting of a dollar-based reference price and then the variable tariff formula would be applied. The floor price was currently set at US$680/ton. There were two forms of import into South Africa in the sugar industry: Duty-free and duty-paid imports. SADC imports were duty-free. The sugar industry had approached ITAC to move to a dollar-based tariff when importers increased their share of the sugar market from 5% to 23%. That meant that the SACU sugar producers’ market share declined from 95% to approximately 77% during the same period. ITAC had to undertake a balancing act, also taking into consideration that if the tariffs were too high, industries would move away from the use of sugar to the use of sweeteners.

ITAC had received 13 pre-publication and 57 post-publication comments totalling more than 2 000 pages, including from the South African Sugar Association (SASA) and the South African Farmers’ Development Association (SAFDA) but also from Tiger Brands and BEVSA, Coca-Cola Beverages South Africa.

The next review of the sugar tariff was set for August 2021.

Discussion
Mr Williams asked the DTI about reciprocity. The sugar industry had made certain commitments to spend billions of Rand on transformation if the Committee had helped to negotiate the tariff that the industry believed was required. However, the Committee had not managed to get that tariff so he asked what was going to happen to the commitments made by the industry. Would SASA walk away from the commitments that it had made?

Mr Radebe asked who quality assured the sugar that was being imported into South Africa. Was there a research group that assessed the processes and costs etc? Although the tariffs might be high, there could be other factors such as cost inputs might be different and affecting pricing. When the tariff was issued everyone, across the board, was complaining. Had ITAC ever satisfied everyone with its tariffs ?

Mr S Mbuyane (ANC) noted that Mr Williams had asked a question that he had wanted to ask. He asked ITAC about tariffs downstream approach vis a vis upstream. ITAC checked in terms of food security and affordability but he was not sure why ITAC used the dollar-based reference when South Africa used Rands. He also asked the variable tariff formula. He asked about over-production versus production costs. In the SASA investigation, ITAC would have observed SASA processes. Could Mr Nzimande elaborate on what he had found in terms of the processes, company objectives, operations, dispensations, etc.?

Mr Cachalia appreciated the tight balancing act between upstream and downstream and tariffs and that ITAC operated within WTO guidelines. The review period that Mr Nzimande spoke of – a three-year window – was it not too long as a lot could happen in three years? Had ITAC factored in current levels of pricing in 2018? He appreciated the difficulties of doing so, but needed to know whether those prices had been factored in. He commented that sugar was a sunset industry and there had to be a degree of diversification into ethanol, and the like or the country would be clawing up the same tree expecting different results.

Mr Alberts noted that the sugar industry was under siege, not only due to tariffs, but also from the public that had certain views about the unhealthiness of sugar. The sugar industry, locally and world-wide, would have to diversify. Were there other products, such as sucrose, that could be produced, and was that a possibility? Was sucrose importation taking place at the moment and did that present any danger for the sugar industry. In the long term could the sugar industry be protected or would it have to adapt?

The Chairperson referred to the presentation indicating the balancing act. Mr Nzimande had indicated that because South Africa over-produced sugar, the product had to be exported. Was that a challenge? Other countries also over-produced and, in fact, shipped to South Africa. Where was that factored in? There had also been a slide on shipping costs. Whose shipping costs was he referring to? And what impact did shipping costs have on sugar and on other industries? Health recommendations should also be factored in. What could be done? The questions about alternatives should be answered by DTI. ITAC was involved in the calculation side of sugar.

Mr Nzimande informed Mr Williams that SASA had transformed despite not receiving their requested price. When ITAC had last appeared before the Committee, SAGA and SAFDA had been discussing working together on transformation.

Ms Phele informed the Committee that SASA had committed R1 billion. Transformation would be implemented, regardless of the level of tariff.

Mr Nzimande informed Mr Mbuyane that ITAC did not quality assure sugar. The sugar went to big suppliers and it was incumbent on suppliers to check the quality. He was not sure who quality assured sugar for ordinary people. Mr Mbuyane had asked about the dollar-based price. He explained to Mr Mbuyane that there were two legs to the duties. The first leg was to establish a reference price which was in dollars because it was an internationally determined price based on dollars. That price was converted to SA Rand using the relevant exchange rate and using the Reserve Bank real exchange adjustment factor. The reference price and the actual price were monitored over 20 days and then the real price was calculated over the reference price. If there was above a set difference, the rate change was triggered. There was an agreement that South Africa would over-produce and export. There was also over-production in Swaziland (or eSwatini). Swaziland and South Africa SA were the two significant producers of the SADC. South Africa was competing for the same market as Swaziland. With regards to SASA, it was a member organisation in which the members were companies or trading entities. The information obtained from SASSA would have been obtained from its members. SASA made industry undertakings on behalf of its members.

Mr Nzimande told Mr Cachalia that the length of the review period was set at three years in order to give the instrument time to work. If it was removed too soon, there would be insufficient time to assess whether it had worked. If it was left too long, the instrument might become blunt. A three year period was considered reasonable. However, if there was an urgent need for a review, nothing stopped the industry from applying. However, the import duty had gone up to close to 100%, up from 55% so it was working. The price had been based on pre-2018 prices. He agreed with the need for diversification. Longer term survival did not lie in just staying in sugar. The industry had to diversify because when the duty reached 100%, ITAC could not do anymore to protect the industry.

He agreed with Mr Alberts that the sugar farmers needed to diversify as there was only so much that ITAC could do. He referred the Chairperson to the charts. He showed comparisons between the cost of South African sugar and the cost of Brazilian sugar. That was compared to the losses South African sugar exporters experienced when selling in the export market.

The Chairperson asked how ITAC coped with the volatile rand exchange rate.

ITAC adjusted the rate according to a basket of 20 currencies. Shipping costs to SA was a levelling factor.

The Chairperson asked why sugar from overseas was cheaper, considering that shipping costs had to be added.

Mr Nzimande explained that, in Brazil, sugar farming was hugely subsidized and that had led to over-production. There were other explanatory factors but over-production meant farmers sold at a real loss.

The Chairperson noted that some questions had been addressed to DTI.

Ms Phele informed the Committee that commitments made to the industry by SASA amounted to R1 billion over 3 years. SASA had made the commitment to DTI, the Committee and ITAC. She had colleagues from SASA with her who could speak to the issue. Medium to long term, DTI was looking at diversification, including other products such as sugar beets and was looking at downstream industries such as biofuels. DTI was looking at the details and SASA would provide information to Parliament in the future. The industry had to diversify.

The Chairperson asked ITAC to address the critical issues on the steel tariffs.

Steel tariffs: ITAC briefing
Mr Nzimande made the presentation. He noted that the prices of primary steel were driven by a volatile exchange rate and international prices of coking coal, iron ore and scrap metal and focussed on reciprocal commitments on pricing. On average coking coal increased by 33% and iron ore by 23% in 2017. Safal had not met its pricing commitments due to low sales, but had invested significantly to increase productivity in 2016. AMSA had met its commitments and had replaced imported steel for Duferco Steel Processing and for Safal Steel. The three companies competed directly on the finished product.

Support for the downstream steel industry was in the form of tariff increases on imports of certain finished products and rebate of duties in primary inputs which were not locally manufactured. Reciprocal commitments included preservation of jobs for three years and the creation of 400 jobs over three years. To date 186 jobs had been created.

Steel tariffs had been raised to the maximum.

Discussion
Mr Cachalia said that looking at the statistics and listening to the presentation, he was concerned about the Minister of Trade and Industry’s continued and inexplicable support for ArcelorMittal which was an outdated and a monopoly, charged high prices and did not foster good relationships with the downstream industry and creates complications for the industry. ITAC was caught between a rock and a hard place in trying to ameliorate the situation.

Mr Mbuyane said that South Africa had the NDP (National development Plan) the NGP (National Growth Plan) in South Africa to stimulate growth and reindustrialise the economy. The Minister was doing very well and had addressed the apartheid legacy for people to work in manufacturing. He asked about steel coming in to the country. What had ITAC done about steel manufacturers such as Columbus that had closed down? Practically, South Africa had closed down companies producing steel.

The Chairperson needed to understand how tariffs kicked in? Did South Africa just complete the process or was the product fully manufactured and imported? What was the situation? Recently, whilst in China, the President had referred to the fact that the country needed to be allowed to export value-added goods. South Africa had to sell value-added items. Apparently, some foundries were receiving South African steel and then returning finished products. How did exemptions work and when were they granted? Why could the foundries not be located in South Africa?

Mr Nzimande said that in terms of Minister Davies’ support for ArcelorMittal, he had to understand that certain industries supported other industries. If one of those industries went under, it would take a range of other industries with it. If one produced goods locally, one could negotiate with other countries from a position of strength. Other countries could not rip one off because one could purchase locally. He thought that Mr Mbuyane had been talking, not about Columbus, but about Everest, a company in Mpumalanga that had closed down but had opened up again with the same jobs, but new products.

Mr Nzimande explained that there were categories of steel inputs. South Africa had various trade agreements that affected tariffs. Tariffs could be increased for the whole world except for countries, such as the European Union, with which there were reciprocal trade agreements. There were instruments within those agreements to allow the country to protect particular industries. Chicken was one example. He informed the Chairperson that some products were not manufactured in the country but used for other goods. Items were brought in for use in other products, such as in motor vehicles.

He referred to items in his presentation, such as finished goods used on hoists. There was an agreement with local producers who would be bringing those items into the country to use in their products.

The Chairperson noted that the Committee would be meeting on 13 September 2018 from 9:00am to 9:00 pm. The Committee would then be able to give more time to come back to the tariffs as the Committee was not happy with the prevailing situation around steel but appreciated that the goods coming in without tariffs or with rebates were essential to manufacture goods within South Africa. The Committee would need a morning to understand how the tariff situation applied and was directly related to the volatility of currency. She requested the ITAC Chief Commissioner and Ms Kruger to avail themselves for a couple of hours on the 13 September 2018.

The Chairperson stated that the South African Sugar Association (SASA) and the South African Farmers Development Association (SAFDA) would be allowed one minute for comments and then they, too, would come back on 13 September 2018.

Mr Hans Hackman, Deputy Chairperson at SASA, appreciated the balancing act that ITAC had to engage in reaching a decision regarding sugar tariffs but, unfortunately, they found themselves on the wrong side of the scale. $680 was not sufficient to sustain the industry. Mills would not make a profit and farmers would not re-plant sugar, resulting declining yields. In three years’ time, even if world sugar prices increased, the inability to meet costs would reduce sugar farming by around 40,000 hectares and reduce sugar production by 240 000 tons. Sugar production would shrink from 2.4 million tons to 1.9 million tons per annum.

Mr Siyabonga Madlala, CEO of SAFDA, wondered where ITAC had found the costing. Small scale growers, 70% into the year, were still getting zero statements. The impact of the tariffs would not take the farmers out of the woods. They needed three to four years to recover from the devastating effects of low cost imported sugar. The impact of the tariff should not dissipate within a year. For small scale farmers, they would not have made it. ITAC may have captured the cost of production of the big companies but small scale farmers did not even make the market.

The Chairperson noted that DTI confirmed that it had extended the date for transitional arrangements between SASA and SAFDA to September 2019.

Closing remarks
The Chairperson thanked the ITAC Commissioner, SASA, SAFDA, DTI, Members and everyone else.

The meeting was adjourned.