The Committee received a briefing from the Department of Trade and Industry on the new trade agreement with the United Kingdom. The Minister of Trade and Industry was in attendance.
The Department highlighted that over the last twenty years, the trade relationship had been governed by trade agreements with the European Union, but the United Kingdom’s planned withdrawal from the European Union was forcing South Africa to re-establish the legal basis of trade with the United Kingdom. The basic principles of the re-establishment were that (i) the trade relationship should be independent of the United Kingdom’s relationship with the European Union, and that (ii) the new trade relationship with the United Kingdom should be at least as favourable for South Africa as it was at present. The new agreement presented by the Department managed to adhere to these principles.
The Committee congratulated the Department on the new agreement. Members asked questions about health and phytosanitary standards for exported goods, details about the new tariff rate quotas, and the safeguards in place to protect the domestic market from surges of imported poultry.
The Committee formally approved he agreement for ratification.
The Committee also received a briefing from the Competition Commission on the implementation of the Competition Amendment Act. A detailed presentation explained the context of the Competition Act of 1998 and the need for amendments: the South African economy remained highly concentrated, inefficient and exclusionary toward smaller businesses. The presentation discussed some significant achievements of the Commission and provided details on the amendments. Members were informed that many of the amendments were technical but there were some substantive amendments too. For example, the Amendment Act removed the “yellow card” for first time offences, and fine levels were brought into line with international trends. This had led to calls from businesses to provide a more certain regulatory environment. The Amendment Act also aimed to support SMMEs through buyer provisions and price discrimination provisions. The Commission had also undertaken to provide guidelines and a set of frequently-asked questions to help SMMEs understand their rights.
The Committee asked questions about abuses of dominance by state-owned enterprises in energy and aviation, irregular expenditure, compensating the victims of anti-competitive behaviour and outsourcing at the Commission.
The Chairperson asked that outstanding questions be answered in writing.
The Chairperson accepted the apology of Mr Mbuyane and then gave the floor to Minister of Trade and Industry, Mr Ebrahim Patel.
Introduction by Minister of Trade and Industry Mr Ebrahim Patel
Minister Patel said that the United Kingdom (UK) was one of South Africa’s oldest and largest trade partners. Over the last twenty years, the trade relationship had been governed by trade agreements with the European Union (EU), but the UK’s planned withdrawal from the EU was forcing South Africa to re-establish the legal basis of trade with the UK. The basic principles of the re-establishment were that (i) the SA-UK trade relationship should be independent of the UK’s relationship with the EU, and that (ii) the new trade relationship with the UK should be at least as favourable for South Africa as it was at present. A new Economic Partnership Agreement (EPA) between the Southern African Customs Union and Mozambique (SACUM, comprising South Africa, Lesotho, Namibia, eSwatini, Botswana and Mozambique) with the UK had been under development for several years, and it was now required to be ratified by the Parliaments of South Africa and the UK. The EU had given the UK an extension until 31 January 2020 to finalise a withdrawal agreement with the EU, so it was not as urgent as it might have been.
Briefing on the SACUM/UK Trade Agreement
Ms Niki Kruger, Chief Director: Trade Relations, dti, explained that the intention of the new agreement was to reproduce the conditions of the current trade agreement with the EU. The current trade agreement would continue to govern trade with the UK until the end of 2020, even if the UK managed to reach a withdrawal agreement with the EU before the 31 January 2020 deadline.
Ms Kruger explained the existing EPA with the UK as part of the EU. She drew attention to a provision that allowed South Africa to increase tariffs if surges in imports of certain goods were disrupting the domestic market. She discussed the trade relationship between South Africa and the UK in general terms. The current discussions were not a re-negotiation, but rather a technical change. The reason for this was that the UK could not currently negotiate trade agreements independently, as it was still part of the EU. The technical negotiations, which had concluded on 7 September 2019, had focused on 5 key issues: tariff rate quotas (TRQs, which determine the volume of various goods that can be traded tariff-free), sourcing of inputs from the rest of the EU into UK production for export (and similarly into South African production), bilateral safeguard measures, other transitional arrangements and a built-in agenda (dealing with matters to be negotiated once the UK could negotiate independently of the EU).
On these five issues, Ms Kruger explained
- changes in TRQs for SACUM countries and the UK.
- a new provision, valid for three years, that would allow inputs from the EU into South African manufacturing chains (for example, an engine from Germany in a vehicle manufactured in South Africa) to be regarded as local inputs for the purpose of tariff calculations. There was a similar provision for UK products.
- that the exiting safeguard protecting the South African poultry market would remain in place for as long as it remained in place with the EU.
- some of the transitional administrative arrangements.
- the agenda of matters to be discussed at a later date when the UK was able to negotiate trade agreements independently of the EU.
Finally, Ms Kruger looked at the way forward, and asked the Committee to recommend the agreement for ratification.
Mr D Macpherson (DA) congratulated the Minister and the Department on the agreement. He said the new agreement should be seen as an opportunity to increase the volume and variety of goods traded with the UK, and hoped that the Department was developing a long term plan to take the opportunity presented.
Minister Patel agreed that the new agreement was a good opportunity to boost the country’s exports. South Africa’s largely duty-free access to the UK market was a distinct advantage, and the more preferential TRQs gave South Africa an opportunity to expand and diversify its exports to the EU and the UK, particularly in value-added goods. The country should look to add value to its raw materials.
Mr Macpherson asked if the Department had a plan for addressing the issues around phytosanitary regulations. These issues were currently handled by the Department of Agriculture, Forestry and Fisheries. This would become important if South Africa wanted to increase its beef and poultry exports to the UK.
Minister Patel replied that the Department was engaging with the Department of Agriculture and the private sector to improve the health standards in local industries, which would enable them to export their products. Progress had already been made over the last ten years in the beef industry.
Mr Macpherson appealed to the Department to regard Members of Parliament as partners in implementing trade agreements, given that they were responsible for ratifying them and interacting with their constituents.
Mr M Cuthbert (DA) asked what negotiations had taken place with the UK regarding citrus black spot (CBS), noting that the EU did not seem like they were going to make any changes to their phytosanitary standards.
Minister Patel replied that there was no scientific basis for the EU to limit the import of South African citrus fruit because of CBS. It was naked protectionism. The matter was being discussed with the EU. The issue had not come up in the talks with the UK, and given that the government’s view was that the EU’s position was intended to protect citrus growers in Europe, and that there were wasn’t a big citrus industry in the UK, there was a reason for hope.
Mr W Thring (ACDP) asked why Zimbabwe was not part of the agreement.
Minister Patel explained that Zimbabwe was not part of the existing EPA with the EU, and the SACUM bloc already had a joint agreement with the EU, and for the sake of simplicity, the same countries were included in the new agreement.
Ms Kruger added Zimbabwe had already signed a new agreement with the UK, as part of a different group of countries which had been formed by the EU when it first negotiated trade deals with African countries.
Mr Thring welcomed the new TRQs, and asked if there was any possibility that they would increase the UK’s exports to South Africa.
Ms Kruger explained that the TRQs for UK exports to SACUM countries had also increased but the Department did not expect any significant increases in the near future as a result of this. The safeguard for poultry imports was still in place, she added.
Mr Thring asked for an explanation of the acronym TBT.
Ms Kruger explained that it stood for technical barriers to trade.
Mr Thring asked if the process of ratification of the agreement in South Africa had been completed.
Minister Patel explained that once the Portfolio and Select Committees recommended that Parliament ratify the agreement, the National Assembly would be able to ratify it and thereafter it would become legally binding.
Mr F Mulder (FF+) asked if the exceptional treatment in the EU EPA of “aluminium and some agricultural products” from South Africa was a new change.
Minister Patel replied that it was an existing regulation.
Mr Mulder asked for an explanation of the 16% average increase in TRQ rates, given that South Africa’s TRQ rates were set to increase by 38%.
Ms Kruger replied that the two numbers referred to imports from the UK and exports to the UK, respectively.
Mr Mulder asked if there had been any reservations about the new agreement.
Minister Patel replied that South Africa’s poultry industry safeguard duty had been a point of contention. The UK had not wanted South Africa to retain this safeguard against sudden surges of poultry into the country. Holding firm to the principle that the new agreement should be at least as favourable for South Africa as it was at present, the safeguard duty had been retained. On the other hand, South Africa was intending to re-negotiate the regulations governing the trade of engines under 1000cc. When this agreement had been established, car engines were generally over 1000cc, but now it was not unusual for cars to have engines under 1000cc. These concerns had been put on hold to ensure stability.
Ms P Mantashe (ANC) congratulated the Department and asked them to protect the country’s sovereignty in whatever agreements they made.
Minister Patel thanked her and said that the hard work started now.
Ratification of Agreement
The Portfolio Committee approved the agreement for ratification.
Briefing by the Competition Commission on the implementation of the Competition Amendment Act
Mr Tembinkosi Bonakele, Commissioner, CC, explained that the Competition Act of 1998 created three bodies. The Competition Commission itself investigated complaints and regulated mergers. The Competition Tribunal was the first line adjudication body, before which the Competition Commission prosecuted its cases. The Competition Appeals Court was a specialised court for hearing appeals to the findings of the Competition Tribunal. He gave a broad overview of the kinds of business agreements prohibited by the Competition Act. He noted that the Commission could also approve, prohibit or impose conditions on mergers between businesses on the basis of public interest. The Competition Act had been passed to address the excessive concentration of ownership and control within the economy. It also contained an imperative to promote racial transformation of the economy, while promoting and retaining its international competitiveness. He observed that the economy remained highly concentrated, inefficient and exclusionary toward small, micro and medium enterprises (SMMEs), even twenty years after the passing of the Act. This had led to the Competition Amendment Act, which had been assented in February 2019.
Dr Monde Tom, Acting Director-General, dti, discussed some of the developments that had unfolded since the Competition Amendment Act was signed into law. The Minister had established an expert panel to assess the Competition Commission and Tribunal’s readiness to implement the amendments.
Dr Tom outlined the key findings of the expert panel. He presented some significant achievements of the Competition Commission so far in 2019, including the gazetting of ministerial regulations and the compiling of the Competition Commission guidelines.
Mr James Hodge, Chief Economist, CC, said that many of the amendments were technical but there were some substantive amendments too. For example, the Amendment Act removed the “yellow card” for first time offences, and fine levels were brought into line with international trends. This had led to calls from businesses to provide a more certain regulatory environment. The Amendment Act also aimed to support SMMEs through buyer provisions and price discrimination provisions. The Commission had also undertaken to provide guidelines and a set of frequently-asked questions (FAQs) to help SMMEs understand their rights. This in turn would create a need for alternative dispute resolution mechanisms for SMMEs who could not necessarily afford to bring a case to the Competition Tribunal. For online platforms, rules governing self-supply, product or service ranking and data protection had been developed. The Commission now had the power to enforce its recommendations.
Mr Macpherson asked when the Commission was going to proactively address the abuse of dominance practised by state-owned enterprises, particularly in the energy sector and by South African Airways.
Mr Macpherson asked if the law firm Ndzabandzaba Attorneys was still doing work for the Commission. When would the forensic report be released?
Dr Tom replied that the forensic investigation was underway and would probably be released in December 2019. He was unsure whether Ndzabandzaba Attorneys was still doing work for the Commission, and he was unwilling to talk about specific transactions as the investigation was ongoing.
Mr Macpherson was not satisfied with this response.
Mr Thring recalled that the Auditor-General’s report on the Commission had found a significant amount of irregular expenditure. The Commission needed to address this.
Mr Thring pointed out that although businesses were punished with fines when they engaged in anti-competitive behaviour, affected consumers, who were often the poorest of the poor, were not compensated. The Commission needed to look at ways to compensate consumers.
Dr Tom explained that interest earned on fines was one of the Commission’s revenue streams.
Ms Y Yako (EFF) asked what kinds of jobs were outsourced by the Commission.
Mr Bakhe Majenge, Manager: Legal Services, CC, explained that the work of the Commission took place at the interface of economics and law, and therefore the skills it required were scarce and expensive. This made it necessary to outsource some work.
Ms I Hermans (ANC) asked if the FAQs had been circulated to the Committee.
Ms Hermans asked if the Sears Report had raised any issues for the Commission.
The Chairperson asked for the remaining questions to be answered in writing.
The meeting was adjourned.
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