Standards and National Regulator for Compulsory Specifications Bills: Department response

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Trade and Industry

29 January 2008
Chairperson: Mr B Martins (ANC)
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Meeting Summary

The Department of Trade and Industry provided a detailed written response to the submissions made during the public hearings, and to the comments and questions previously made by Members. The Department would recommend that clause 13(c) be amended for greater clarity, following a comment from National Association of Automobile Manufacturing Association. Their comments on administrative and support measures, and around fees were already dealt with. The National Laboratory Association and Business Unity South Africa had commented on the Board size, but the Department felt that representation would be accommodated through the Advisory Forums, and that the proposed size was correct. Business Unity’s suggestion for incorporation of South African National Standards was supported. The Department would investigate further mechanisms to make the standards more easily available at a lower cost. Comments in regard to assessment service providers would be incorporated. The Retail Motor Industry sector had asked for greater representation but the Department set out the ways in which they were already represented.

Members had asked for specific comment on financial requirements and organograms for the Bureau of Standards and the National Regulator, and these were now provided, with an indication of the portion that would be covered by the Medium Term Expenditure Framework allocations. Further detail was provided on the rights and obligations in terms of World Trade Organisation agreements. Further input and explanation was given on the advisory and consultative forums. The reasons giving rise to the Department’s decision to split the function and create separate agencies were set out, as well as the reasons for the size of the boards.

Members asked further questions around the size of the Boards, with many Members expressing the view that these were too large, that board members should be experienced already when appointed, and that perhaps provision should be made to limit the number of directorships that board members could hold simultaneously. Further clarity was sought on the Technical Barriers to Trade agreements, and whether other countries, including developed countries, had legislation around trade issues. Clarity was sought on how poor regulations would be curbed by the Bills, and the process of creating regulations and standards. Members asked about the current advisory boards, and how their function could be carried over under the new Bills, clarification around the costs and effects of the Bills, the input of all sectors, representation of small enterprises. The process for marks of conformity was explained and the question of oversight and training of new board members was discussed.

Meeting report

Standards Bill and National Regulator for Compulsory Specifications (NCRS) Bills: Department (DTI) response to public submissions
Dr Tshenge Demana, Chief Director, DTI, noted that the DTI had worked with South African Bureau of Standards (SABS) on the responses tabled, which related both to submissions made during the public hearings and the questions asked by the Committee at a previous meeting.

The South African National Accreditation System (SANAS) body had supported the separation of the regulatory function.

The National Association of Automobile Manufacturing Association (NAAMSA) had commented on Clause 13(c) of the National Regulator for Compulsory Specification (NRCS) Bill, relating to the Minister's declaration of compulsory specifications. It agreed that a compulsory specification should use a South African National Standard (SANS) to determine the technical specifications that a product had to comply with. DTI was of the opinion that the comment related to the uncertainty about the process. It would recommend that the clause be amended to make it clear that the option for declaration would only be allowed after all other processes had been exhausted. The Minister would thus be able to declare a compulsory specification once all the other processes outlined were followed.

The DTI similarly did not agree with the proposal of NAMSA to include administrative and support measures in the SANS, stating that the NRCS Bill already made provision for consultation on administrative and support measures.

NAMSA had further commented that the fees charged by the Regulator were to be used for regulatory processes, but that since all fees went to the SABS, it was difficult to say whether the money was properly divided. Dr Demana pointed out that the new Bills now allowed for the fees charged to be used for the cost of regulating, the development and maintenance of standards, and there would be wider sourcing of approved conformity assessment services providers.

DTI had further noted the comment by NAMSA about service delivery from the SABS. DTI felt that separation of the functions of the SABS would allow for improved service delivery, with each entity focusing on its main function. Capacity and skills development was a matter of concern and the DTI was working closely with all public entities already to improve skills.

The National Laboratory Association (NLA) had supported the Bills and the separation into two independent public entities. It had confirmed the importance of advisory forums. It however had felt that eight board members should be sufficient and commented that there should be cross representation. The latter point was not supported by DTI, who felt that representation could be accommodated by the proposed Advisory Forums, DTI noted further that the proposed number of Board Members was based on the recommendations of studies.

Business Unity SA (BUSA) noted its support, on the basis that both public entities would be able to focus on clear mandates. It had commented that there was no provision in the Bill for the Incorporation of South African National Standards (SANS) in law. DTI agreed that this should be incorporated and had asked the State Law Advisors to assist in drafting the necessary clause.

BUSA had called for greater accessibility to standards, suggesting that perhaps these could be made available free of charge or at lower cost. DTI noted the points raised, but stated that the SABS wording relied heavily on adoptions or adaptations of international regional or foreign standards. Intellectual property rights attached to the wording, and SABS could not distribute the final documents freely as it would be excommunicated from the standards development community and lose the benefits of aligning standards. However, Dr Demana pointed out that the SANS were distributed free of charge to all public libraries and were also available from their offices. DTI would look at additional mechanisms to facilitate easier access.

BUSA had commented, in regard to the NRCS Bill, that the regulator should make use of accredited conformity assessment service providers. Dr Demana said that the Bill intended that the NRCS could do so, as set out in Clause 5(2)(h). DTI noted the request for entrenchment of existing rights of permit holders, but felt that the request went against the intent of the separation of the entities. However, the current regulation that covered the SABS mark scheme and that provided permit holders with certain rights such as an exemption from regulatory fees would continue through transitional provisions of clause 35(2)d. DTI  agreed with the proposals for regulation with regard to the conditions for the issue of sales permits under clause 14(4).

BUSA had also commented on size and representation of the Board. Dr Demana noted that the Minister already had the power to include Small Medium and Micro Enterprise (SMME) and emerging entrepreneur representation.

The Retail Motor Industry (RMI) organisation had asked that their sector be specifically taken into account. Dr Demana said that SABS had advised that this sector was already well represented on the SABS Board, on the technical committees and the Transport Sector Board and the WP 29 Committee of the Regulator.

DTI response to input from the Committee Members
Dr Demana noted that the Committee had requested detail on the financial requirements and organograms for the SABS and the NRCS. He explained that the NRCS would be financed through money appropriated by Parliament and fees as prescribed by the Minister of Trade and Industry, after consultation with the Minister of Finance. Transfer payments through the Medium Term Expenditure Framework (MTEF) allocation, which was already included in the allocation to SABS for 2008/09, would be made, and 82% of the NRCS expenses would be financed through fees. Once there had been separation, there would be proportional division of the allocation. There would be around R2 to R3 million additional financial implications, for specified matters.

Dr Demana tabled the organogram of the NRCS. There would be three new positions of CEO, personal assistant and receptionist. There were already senior managers in the current regulatory function.

The SABS would be financed to 23% through appropriations and 77% financed through fees charged, training services and provision of conformity assessment services and testing and inspections. The MTEF transfer payments would be used for standards development and maintenance, and DTI already had and would continue to make budget allocations for this purpose. The current baseline would proportionally reduced to reflect the new mandate, which would exclude the regulatory responsibility. The organogram of he new SABS was tabled.

Dr Demana noted that the Committee had questioned South Africa's rights and obligations in terms of the World Trade Organisation (WTO) Technical Barrier to Trade (TBT) agreement. South Africa, as a signatory, had to ensure that technical regulations were not prepared, adopted or applied with a view to, or with the effect of creating unnecessary obstacles to trade. However, there were certain exclusions, relating for instance to national safety issues and restrictions that related to legitimate objectives. He explained that the separation of the NRCS from the SABS would delineate the responsibilities more clearly. DTI promoted alignment with WTO requirements and the NRCS would be required to adopt certain principles, including necessity, prevention of trade restrictiveness, use of equivalent and internationally harmonised measures, transparency, and the special and differential treatment principle. The focus was always on improvement of quality and efficiency of compulsory specifications. The advantages would include ensuring benefits to consumers and society, through an efficient and effective approach, promoting an open, transparent and predictable technical regulatory system, eliminating unnecessary technical regulations, improving technical regulatory quality, and benefiting the economy.

Members had asked for further input was in regard to the advisory and consultative forums. The forums were considered crucial as the DTI advocated a stakeholder inclusive approach. They would bring diverse voices and views to the Boards and the management. They would provide stakeholders with the opportunity to engage with the Boards on a regular basis. The base of stakeholders could be broadened, and the SABS and NRCS could thus respond to stakeholder needs. Government departments would thus have the opportunity to discuss their needs for standards, those affected by technical regulations could highlight their needs and problems, and this exchange of information could inform the medium to long-term strategic priorities of the organisations. Similar forums were provided for in other legislation and there would thus be greater alignment with the National Measurement Unit and Measurement Standards Act (NMISA) and the National Standards Act.

Members had raised concerns that the DTI might be creating too many agencies. Dr Demana said that DTI had carefully considered this, and had identified the current problems. These included the conflict of interest between standards development, regulation and control by the SABS, confusion of functions, and the inappropriate current practice of using an entire standard as a technical regulation. The dual functions impacted on the efficiency and effectiveness of the regulator. Other countries' practices had been investigated, as well as their provisions for the appointment of representative Boards covering a number of areas of responsibility. The increased Board size took into account the increased responsibility of Directors, the increased complexity of public entities, and the need to increase the pool of available directors, including younger board members with potential to develop experience. Comparison with other Boards showed that these Boards ranged from twelve to fifteen members, and DTI remained of the view that the recommended range of ten to thirteen was correct.

Discussion
Mr L Labuschagne (DA) asked for, and received confirmation, that the current Board of the SABS consisted of seven members. He then raised concerns about the size of the proposed new Boards. The SABS was a competent organisation, and if the seven members served it properly, then he could not see that a division of this institution into two would justify two larger Boards than the current Board for each half of the functions. BUSA had asked for a large board, whereas the National Laboratory called for a smaller board. Noting that the budget was only R190 million, he thought that there was no reason to benchmark the size of these boards with those of multi-billion rand operations such as Eskom. He considered that a Board between eight and ten would be more in keeping with the budget and the responsibilities. He also queried whether the current Board had institutions such as the consultative and advisory forum, and if so, what they did to assist the Board and how they would serve larger boards.

Mr Labuschagne noted the reference by the DTI to the King II report, and its comments around responsibilities of directors. He pointed out that the fact that some board members held numerous directorships was hindering their ability to do their work. Perhaps this Bill should include a provision that no director should be permitted to hold more than a specified number of directorships. This would also allow for more people to gain board experience.

Dr P Rabie (DA) agreed that the size of the Board needed to be reviewed.

Dr Demana said that the DTI had expressed its views, but could change the size of the boards if Members wished. In regard to advisory forums, he noted that SANAS was the only organisation with such a forum, as a carry over from its previous status. This was found to provide a valuable opportunity for communication. There were meetings twice a year and the input given on the accreditation work was useful, therefore this concept had been carried over into the Bills. SABS currently had other mechanisms to get input from stakeholders.

Mr Geoff Visser, Standards Executive, SABS, said that the advisory forums were not mandated in the Standards Act, but had been instituted as part of good management practice. SABS currently had and consulted with industry sector advisory boards, to consult with various industry leaders - such as mining, consumer, or transport. These gave the SABS strategic advice as to their perceptions where the industry was going, gave input into the standards development process. Technical committees would give technical input, but the sector boards would give more of a strategic overview. There had been good participation on a purely voluntary basis.

Dr Demana agreed that a limitation on the number of directorships would be useful, and it would perhaps be worthwhile also to consider extending this concept to all agencies of government.

Mr S Rasmeni (ANC) asked whether there had been sufficient time to investigate also what had been done by developed countries in terms of the TBT agreements, including whether they had national legislation in place around trade matters. He wondered if there was differential treatment in differently developed countries. He noted also that the South African Industrial Policy Framework would be looking at developmental issues, and that might touch on this legislation and technical barriers.

Dr Demana said that there was a range of special cases set out where countries would not have to follow TBT agreements, particularly in regard to matters such as national security. The Department would like to comply as far as possible, but would not like to hinder itself. There was nothing in these Bills to say that certain actions could or could not be taken because of the WTO agreements

Mr J Maake (ANC) agreed with the comments made by the DA Members on the size of the Board. He also wanted to clarify the percentages of income received from the MTEF and from fees and subscriptions. He asked whether the reporting of the agencies would relate to the whole of their operations, or would relate only to that part received from the MTEF.

Dr Demana noted that the Public Finance Management Act (PFMA) required an organisation to report on all its finances, not only those received from the parliamentary allocation. The figures he had given had attempted to set out what portion of the income would be derived from government and what from other sources.

Mr Maake also sought clarity on the advantages of creating the NRCS. The DTI said that there would elimination of unnecessary technical trade regulations that may have been badly designed. He asked for an example of such regulations, and how this would be done.

Mr Geoff Visser said that he could not think of specific examples of bad regulations off hand. However, a bad regulation would be one not necessarily aligned with best practice. An importer of products into South Africa would need to meet different requirements from one not importing. A manufacturer in South Africa would have to meet local standards for development and sale in the country, as well as different regulations if he wished to export. In some cases, there might be a compulsory specifications – for instance in the health environment – that could not be implemented, and that therefore created an undue barrier. One such specification in relation to sterile environments for tissue culture was currently being revised. A question had been asked whether it was necessary to have a problem before creating a standard. The answer was yes - the problems had to be identified, and then the Regulator would need to decide how to regulate, what this would address, the risk, and the cost of regulating. The Bill allowed for a clear process that would assess the risk and the cost, and provided for well-thought-out regulations.

Ms M Ntuli (ANC) asked what would be the situation with those who were currently advising voluntarily, and what would happen if a sector was not being represented.

Mr Visser said that advisory boards would seek to give a broad overview of the industry affected by certain activities. Therefore consideration must be given either to separate boards for different sectors, or one large board. The SABS did need to ensure that it would consult with all sectors affected. The voluntary process had been effective because those serving felt their input was taken seriously and made a difference to the outcome of the organisation. There were problems in certain areas, which needed to be addressed, but he did not believe that there was any need to insert additional provisions for payment of the advisors. SABS would need to ensure, from the point of view of good management practice, that it covered all sectors.

Mr Rasmeni asked whether SABS was advocating for a number of Boards. He had understood that the Bill made provision for two separate Boards.

Mr Visser said that perhaps his response had not been clear enough. The Bill provided for an Advisory Forum. Currently there was no such forum in place, but instead there were several sector advisory boards, which would feed into the management process. The Bill created a provision for a single forum, and it would be necessary to consider how this would best be made up, to allow for the most valuable input from the most number of stakeholders in the most efficient way possible.

Dr Demana added that the current management practice of advisory boards would be elevated to the new Forum at Board level.

Mr S Njikelana (ANC) asked for more clarification around the costs and the effect of the new Bills.

Dr Demana said that this could be answered by considering the standards and regulation process. The current standards process allowed DTI to comply with international requirements in a more cost effective way. The cost in South Africa, compared to international standards, was around 10%, and the standards agency in South Africa therefore helped to cut costs of doing business. DTI was also trying to ensure that the Regulator would check that any regulations were necessary and would not be too costly for business to adhere to. This would become clearer in future since the regulator would have this specific focus, and would not have to worry about the dual responsibility that the SABS held currently. The fees to be charged would now be considered by the Minister of Trade and Industry, as well as the Minister of Finance and the process of the fee setting would be more transparent, including consultation with industry.

Mr Moses Moeletsi, Regulatory Executive, SABS, commented on quality and safety health issues. He had given a number of examples the previous week, which indicated that certain specifications recently introduced had led to a drop in fires.

Mr Njikelana said that NAMSA had complained that this sector had not been treated fairly, and that there had been problems in the testing.

 Dr Demana said that the Bill would give an opportunity for all sectors to have input.

Mr Njikelana asked for more clarity on the process, and whether the marks of conformity would remain with the SABS.

Dr Demana said that ideally a problem would be identified, then the regulator would look at what standard would address the problem. If there was no standard that could address the problem, then a new standard would have to be developed. Clause 13(c) dealt with these cases. If there was no existing standard, or if one could not be developed in a reasonable time, then the Minister could issue a regulation. 

Mr Visser added that the Bills took into account best practice, that the technical aspects of the product needing to be regulated should be put in the standard. The current Standards Act of 1993 mandated the SABS to issue a mark of conformity (the SABS mark), with the idea that this would be the only mark in the country. The new Bill still provided for SABS marks, but did not say that this was the only mark that would be accepted. Accreditation of new providers of marks would be catered for in the SANAS legislation, so there would be freer competition in the issuing of marks, based on the competence of the people issuing the marks. This was not longer the sole domain of the SABS.

Mr Njikelana noted the comments on the size of the Board, but asked also about the costs, and the desirability of including younger members.

Dr Demana said that clearly the desirability of bringing in more young members would need to be balanced against other factors, and that the costs had been considered.

Mr Maake noted, in regard to the Advisory Forums, that there were currently several advisory sector Boards. He wondered if one Forum would be sufficient, or if it was necessary to cater for specific sectors in different board. He wondered also why currently, there was no mix across the sectors.

Mr Visser said that the current system worked, in that it would facilitate good advice with specific focus from a specific group. He clarified again that the current “Boards" were in fact advisory committees. The single forum as mandated in the Bill would be set out, and this format would be tried out, but it might be found to be more useful or necessary to break it down into sub committees or different areas. There was one conduit into the Board and management of the SABS, creating a known structure. It was about balancing the correct input, rather than getting a watered down approach.

Ms Ntuli noted that DTI had not commented on representation of the Small, Medium and Micro Enterprises (SMMEs) and representation on the forums, a point raised by RMI, and she asked for its views, as well as how they might be represented.

Dr Demana said that during the public hearings the question had been asked whether the Bills were transformatory in nature. The Bills themselves were not, but there was still the opportunity for the Minister, when bringing new people on to the Board, to consider whether small business or a particular sector should be represented.

Mr Rasmeni asked who monitored oversight over the Board and CEOs, and who would ensure that there was adequate capacity for jobs to be carried out. The comment had been made that representatives on the Board should not be limited to those with technical ability, but also those skilled in other areas, or those who would acquire the skills and experience on the Board. He noted that this Committee had picked up problems with other Boards.

Dr Damane responded that DTI did fund training courses on corporate governance for new board members. The Agency Management Unit, reporting to the Director General, also looked at what boards needed to do and ensured that they complied. There was further an agreement between the DTI and each agent, referred to as a Shareholder Compact, where the roles of the CEO and the Board were clearly spelt out. The Minister met with the Agency representatives on a regular basis to outline the strategic vision for the year. There was therefore a close working relationships with the Boards and CEOs. Of course, problems could still arise with different institutions, but he noted that in the past the technical infrastructure institutions had handled issues properly.

The Chairperson added that this Committee could also exercise an oversight role if there were problems. However, because not all institutions could be seen in every year, it had a responsibility to prioritise those institutions that might be beset by challenges and problems.

Ms Ntuli hoped that there was monitoring also of accredited bodies, to ensure consumer protection.

Mr Labuschagne noted the comment that the Minister met with institutions once per year. He wondered whether this Committee, as the oversight body, should not also be invited to these meetings so that it could be privy to the comments.

Mr Labuschagne noted that DTI was offering training, but noted also that board members should be appointed by reason of their experience and capacity to run multi-million Rand State operations. He would hope that the training was merely fine-tuning rather than training at elementary levels, as there surely already be proven experience and expertise.

Dr Demane said that the training, which was limited to one or two days, took new board members again through the King Code on Governance and the public service protocols and Public Finance Management Act, which many new board members may not have had to deal with in the past. The training was more in the nature of orientation as to the workings of the public service boards.

Mr Rasmeni commented that this Committee had the responsibility of oversight, but it was unfortunate that when the Committee called upon institutions to attend, many of the board members would not be present.

The Chairperson added that he would appreciate the DTI stressing to the board members that when an institution was called to account, the responsible accounting officials must be present.

The meeting was adjourned.

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