Industrial Development Amendment Bill, Counterfeit Goods Amendment Bill, Trade Practices Amendment Bill; Merchandise Marks Amend

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
28 August 2001
INDUSTRIAL DEVELOPMENT AMENDMENT BILL, COUNTERFEIT GOODS AMENDMENT BILL, TRADE PRACTICES AMENDMENT BILL: VOTING; MERCHANDISE MARKS AMENDMENT BILL: BRIEFING
 

COSATU Submission on the Industrial Development Amendment Bill
Industrial Development Amendment Bill [B32 – 2001]
Merchandise Marks Amendment Bill [B33 – 2001]
Counterfeit Goods Amendment Bill
Trade Practices Amendment Bill

SUMMARY
The Committee considered Cosatu’s proposed amendments to the Industrial Development Act. The Department conceded that some of Cosatu’s submissions contained merit and minor amendments were thereby duly effected. The Bill was passed unanimously with amendments. The Committee also passed the Trade Practices Amendment Bill, the Counterfeit Goods Amendment Bill. There was a briefing on the Merchandise Marks Amendment Bill but as the Committee had a problem with Clause 6, it was passed.

MINUTES
Department’s response to Cosatu submission on Industrial Development Amd Bill
Mr Bahle Sibisi (DTI) said that the objective that the Department had in amending the Industrial Development Act was to confine the amendments only to those that were necessary to "set the house (IDC) in order". These changes focused at extending the functions and the operations of the IDC to cover IDC’s activities outside South Africa and to take account of recent changes in industrial development, activities which the IDC principal Act did not cover.

The issues of substance that had been raised in Cosatu’s submission travel beyond the confined and limited technical amendments. The principal Act is an old statute that requires comprehensive review. This review would modernise its provisions to take into account changes in the economic environment, structural changes in the economy, legislative changes such as those contained in the Public Finance Management Act and the Public Enterprise Entities Act and a number of provisions which introduce new principles around the issues of corporate governance.

The IDC is one of the few development finance institutions on the continent that has sufficient capacity to raise funds and participate in developmental projects. He stressed that this ought not to be undermined by changes to the enabling legislation which may not have clear implications.

DTI is of the view that a comprehensive review will enable it to go through a detailed interaction before major amendments are made. It is important that in going through that process there should be a common approach about the areas that need to be provided for in the legislation.

Discussion
Ms C. September (ANC) asked for clarity on what Mr Sibisi meant by proposing that Parliament should not change the major structure or activities of the IDC by legislation.

Mr Sibisi replied that DTI suggests that the changes that need to be effected have to be focused in certain areas. Other substantive changes may not be appropriate for introduction at present and should be part of the review. The instruments that are available to the Minister provide room for some of the issues to be tackled. He encouraged the Committee to focus its attention on those amendments that deal with IDC’s roles, such as raising of capital for developmental projects.

Dr Rob Davies (ANC) commented that the Committee was originally presented with an amendment Bill whose primary purpose was to allow the IDC to operate outside the country without having to obtain a case by case authorization from Cabinet and also to extend its operations in terms of capital requirements. The Committee has heard the submission from Cosatu which called for a consideration of broader issues. He observed that some of Cosatu’s proposed amendments have merit. He asked if there was any case for a broader review of the Industrial Development Act?

Mr Sibisi replied that there is a need for a broader and comprehensive review of the Act, and that this review would have to be underlined by an interactive process engaging with all interested parties including the IDC and other social partners of the government. This obviously has to take into account the recent changes in the structure of the economy and corporate governance.

To introduce major changes without having had an opportunity to see the effect on the role of the IDC would be problematic. In looking at the detail of the Cosatu submission, some provisions are well suited to be in some form of a mandate and some are suitable for a discussion in a broader review. Others may fit into the anticipated confined amendments that the amendment Bill intended to achieve.

Mr S Rasmeni (ANC) was pleased that the Department is making a commitment for a comprehensive review of the IDC and asked when this will take place.

Mr Sibisi replied that the Department will make a written statement regarding the issue of the broader review of the Act to the Committee.

Mr Fenyane (ANC) asked a question regarding the urgency of passing the Bill in relation to market expectations

Mr Sibisi replied that the IDC has existing projects in the Southern African countries. These projects are mainly undertaken with the approval of the Minister on a case by case basis. If legislation is not passed, this would adversely affect the activities of the IDC which are currently expanding.

Clause-by-clause consideration of Cosatu’s proposed amendments
The Chair suggested a clause by clause consideration of Cosatu’s proposed amendments:

Clause 1 (b)
"Section 3(c): to strive for the retention of existing employment in South Africa and the creation of new employment, including through the promotion of labour-intensive production and the promotion of labour-intensive factors."

Mr Sibisi commented that this is one of the suggested changes that need to be addressed in a broader review of the Act. The Bill contains a provision in Clause 1 which provides that one of the objects of the IDC would be to invest in employment-creating activities in underdeveloped areas. The IDC can extend this into the promotion of employment creating activities in underdeveloped areas. However Cosatu’s formulation might have unintended consequences. What is needed is to insert provisions that will create certainty regarding the scope of operation of the IDC.

Dr Davies commented that it was clear that there was a certain measure of unwillingness from the Department to commit to Cosatu’s proposal particularly in legislation.

Mr Sibisi agreed with the Chairperson’s view and stated that this would be subject to confirmation by his principals.

"Section 3(d): to foster [entrepreneurship especially in the area] the development of small and medium enterprises and co-operatives."

Mr Sibisi commented that the Department does not have any problem or objection to Cosatu’s formulation.

Clause 2c
"4. Powers of corporation
For the purposes of attaining its objectives, and with due regard to its role as a public sector development institution, the corporation shall have the power-….
(o) to [assist] advance South African [exporters and importers of capital goods and services] economic and industrial development through extended credit facilities at favourable interest rates, taking into account all relevant factors, in particular:
economic sustainability;
potential for employment creation, and in particular labour intensive production;
potential to stimulate local economic development particularly in underdeveloped regions;
potential to facilitate the meeting of basic needs, reconstruction and development within historically disadvantaged communities;
potential multiplier effects in stimulating other enterprises and sectors. "

Mr Sibisi commented that the proposed amendment is a very focused area in the additional areas in which the IDC is currently not explicitly authorised - except on the basis of case-by-case approval by the Minister of Trade and Industry. The IDC plays a supplementary role in financing activities in the capital goods and services sector. To broaden the powers of the Corporation would cloud the intended objective to extend the IDC’s activities in the area of trade in capital goods. He persuaded the Committee to adopt the amendment as it stands in the Bill.

Dr Davies asked if Mr Sibisi meant that Cosatu’s formulation would mean that the IDC must extend credit facilities to the exporters. Mr Sibisi agreed.

Mr N Bruce (DP) asked if there was a legal construct or definition of the word "co-operatives" because the country has had other co-operatives that were not conducive to economic growth.

Adv Strydom (DTI) replied that there is no definition of the word "co-operatives" as the principal Act does not contain any definition in this regard. He asked if the committee would like to consider adding a substantive provision to describe a co-operative.

Dr Davies replied that there is a new code of legislation on co-operatives. Mr Sibisi agreed that the legislation on co-operatives will define in more detail what constitutes co-operatives.

Clause 11(b)
Dr Davies asked if there were any comments on Cosatu’s proposed amendment to beef up the reporting requirements in Section 19(2) of the Act.

Mr Sibisi replied that the Department would not have a problem with the sentiments expressed by Cosatu in this clause. However, the Department is of the opinion that it is not appropriate to legislate around these issues. The Department’s concern is that there might be unintended consequences to prescribing the reporting requirements by the IDC irrespective of what the broader society might want to know about IDC’s activities. Therefore, to make this a legislative provision might be a problem.

Mr Bruce commented that he would go along with Cosatu’s submission.

Mr Fenyane asked if it was not possible to have this included in the Regulations as it would create problems if it were included in the Bill.

He also proposed that an amendment be effected to Clause 11(2) which reads, "The Minister shall table copies of all such balance sheets, accounts, reports or addresses….". He suggested changing balance sheets to financial statements because the phrase "financial statements" includes income statements, balance sheets and cash flow statements. There was no reason to separate balance sheets from the rest of the financial statements. The Public Finance Management Act requires that whenever there has to be reporting it must be done on the basis of financial statements. Mr Bruce supported Mr Fenyane’s proposal as did Dr Davies.

Mr Sibisi replied that the Department would consider Mr Fenyane’s proposal.

Clause 11 to amend Section 3(b)
"…to this end the economic requirements of the Republic may be met and industrial development within the Republic may be planned, expedited and conducted [on sound business principles] in an economically sustainable manner. "

Mr Sibisi contended that it is better to leave the amendment as is. He added that this proposed amendment forms part of the broader review that the Department needs to engage in.

The Committee resolved that Clauses 1(b) [Section 3(d) and (e)] in would be amended as earlier discussed.

The Committee also resolved that there would be no amendment necessary regarding the debt-equity ratio provision, i.e. raising the limit of borrowing to a 100%.

Mr Tony Tshivhase (Head, Legal Services: IDC) added that there is a special resolution that has since been filed with the Registrar of Companies authorising IDC’s borrowing powers. Therefore, there was no merit in amending this clause.

Mr Fenyane commented that there was technically no problem with the above as the State is the sole shareholder at IDC.

Mr Sibisi suggested that in line with the provisions of the Public Finance Management Act, that in Clause 2 "the approval of the shareholders previously given at the meeting of the of the shareholders" be substituted with "the approval of the Minister in concurrence with the Minister of Finance".

Mr Bruce did not see any necessity for the change, the word "shareholder" was quite adequate.

The Committee agreed that Clause 2 (c) would also be amended to omit "at favourable interest rates" in ss (o). Finally Clause 11(2) of the Bill, as proposed by Mr Fenyane, would be amended.

The committee went through the Bill clause by clause as follows:
Clause 1 – as amended
Clause 2 – as amended
Clause 3 – without amendments
Clause 4 – without amendments
Clause 5 – without amendments
Clause 6 – without amendments
Clause 7 – without amendments
Clause 8 – without amendments
Clause 9 – without amendments
Clause 10 – without amendments
Clause 11 – as amended
Clause 12 – without amendments
Clause 13 – without amendments
Clause 14 – without amendments
Clause 15 – without amendments
Clause 16 – without amendments

Dr Davies read both the Motion of Desirability and the Report adopting the Bill with amendments. All members unanimously agreed.

Trade Practices Amendment Bill
Mr McDonald Netshitenzhe (Registrar of Patents: SAPTO) expressed his confidence about the Bill and was of the opinion that it should be adopted.

Dr Davies opined that the general concern had been over the concept of "ambush marketing" particularly from people who sponsor major events. The other general concern had been over the penalties being too low.

Mr Netshitenzhe commented about penalties saying that aggrieved parties may avail themselves to civil remedies. He however made an observation that this idea may be self defeating.

Mr Bruce said that he understands that there is a criminal sanction here but did that mean that a company could not take the matter further to a civil court.

Mr Netshitenzhe replied that the company can, but it must be aware of the legal costs and other costs, hence this may be self defeating.

Mr Bruce said that it seemed that the criminal penalties are quite low and a company may consider it worthwhile to go the civil route above the additional criminal sanctions.

Mr Fenyane asked how it is possible to distinguish ambush marketing from ordinary marketing. He said that this may be a very difficult thing to do.

Mr Netshitenzhe replied that ambush marketing is misleading the public to believe that a company owns a particular trademark or is one of the participants in some major event and profits thereby – and does not in turn pay the profits to the owner of the trademark.

Dr Davies commented that it was clear what ambush marketing was in terms of the Bill and its Memorandum. He subsequently moved for the adoption of the Bill without amendments by reading the Motion of Desirability and the committee’s Report. All members unanimously agreed.

Counterfeit Goods Amendment Bill
Dr Davies recapped the issue and said that if somebody counterfeits a well known mark and passes it off to a South African consumer as though it were a genuine article – that should be an offence. For example, the production of false "Nike" shoes and their sale in South Africa. He said "well known marks" in order to become known or established in South Africa had to go through a process of adjudication in terms of the Trademarks Act.

Discussion
Mr Strydom (Legal Services, DTI) commented that section 35 of the Trademarks Act requires that in order to establish a mark as a well known trademark requires an exercise of a discretion on the part of the Registrar to make an appropriate decision. He concluded that the reference to section 35 clearly suffices. There are criteria and procedures to be followed which also include a quasi-judicial process that is laid down in that section.

Dr Davies asked if Mr Strydom meant that for something to be recognised as a well known mark in South Africa it has to go through this process, and until it has gone through this process there may be no recognition. Mr Strydom replied that that was correct.

Dr R Rhoda (NNP) asked what criteria would be applied to a trademark that is well known only in Cape Town. Is such a trademark well known in the Republic as a whole? Furthermore, is it possible for an overseas country to use the trademark without authority. Is there any protection that is afforded to small businessmen in proving that their trademark is a well known trademark, because it is costly to litigate in the High Court.

Mr Netshitenzhe replied that the criteria is not exhaustive. However, the trademark must be well known within a particular sector of the public – for example the public of Cape Town excluding the other provinces. He still has to register his trademark because it is only known within a particular sector. A well known mark does not need to be registered. That particular sector may be a small section of the community. The trademark must also not be misleading. He conceded that legal costs are generally very costly in the higher courts.

Dr Rhoda asked what happens in the case of the non-use of a trademark which has already been registered – for an example, non-use for six years since registration, and the mark subsequently becomes used by another person or company.

Mr Netshitenzhe replied that non-use is still part of trademarks law. The Registrar is under a duty to ensure that that trademark is not used by someone unauthorised to use it, but if it is not used for a period in excess of five years it must be removed from the Register. This does not apply to a well known mark since a well known mark does not need to be registered.

Dr Davies proposed that the Bill be adopted without amendments and the Committee agreed. He read the motion of desirability and the Report unanimously adopting the Bill without amendments.

Merchandise Marks Amendment Bill
Dr Davies suggested that the committee should go through the Bill clause by clause:

Clause 1
Mr Netshitenzhe said that it is necessary to have the expression "convention country". In terms of the Trademarks Act there is a need to publish countries that are member states of the Paris Convention. This is relevant to when persons apply for trademarks. A person applying for a trademark may claim priority in the member state or the convention country.

In answer to a question about there being any Caribbean countries that are signatory to the Paris Convention, Mr Netshitenzhe said that most of Caribbean countries are not members. They have only recently begun to join due to the Copyright Treaties.

Clause 2
Mr Netshitenzhe said that the object behind this clause is the prohibition of "false trade descriptions". Trademark law stipulates that false trade description constitutes making a false statement to the public such as to convey that goods are manufactured in a certain country. False trade description conveys a false message to traders and consumers. The clause was inserted to ensure honesty in trade.

Mr Fenyane asked if affixing labels "Imported from Italy" on goods manufactured in South Africa constituted false trade description. Mr Netshitenzhe replied that it did.

Clause 3
Mr Netshitenzhe commented that this clause emphasises the point made in clause 2, i.e. trade description should in no way tamper with a trademark. A trademark should be conspicuous that it is a trademark and a trade description ought also to be separable from a trademark.

Clause 6
"sale of imported goods bearing marks in official language, unaccompanied by indication of origin"

Mr Netshitenzhe said that there was a need to protect consumers as this is part of the objective that the section is trying to achieve.

The Committee felt that there was a problem with this clause as it was not easy to identify geographical locations to ascertain from where the goods originated. This might easily create or lead to fraudulent practices being perpetrated.

Dr Davies concluded that there was enough doubt about this clause in the Committee for it to take a decision not to pass the Bill that day.

Clause 7
Mr Netshitenzhe commented that the object behind this clause is to protect state emblems such as national flags and banners against use in trade without the necessary permission. Emblems symbolise patronage to a particular state and may symbolise that certain goods are directly imported from a country whose emblem or banner is reflected or used in the business of a trader. He cited that the use of the name "Nelson Mandela" is being unlawfully used in other countries. There would be a protest made to trade organisations such as the WTO against the use of such emblems.

The meeting was adjourned.