Steel & Sugar Tariffs: DTI, ITAC, SARS; Sugar Industry; Space activities

Meeting report

The Chairperson indicated that the Committee was becoming increasingly concerned about steel and sugar tariffs. The industry had only one opportunity per year to apply for an adjustment to the tariff. Members also wanted information about reports that there had been a period of duty-free sugar imports. This had to be addressed. The Committee needed to understand what factors had been taken into account when the steel industry had made its tariff application. South Africa was not becoming protectionist. It was way below the water line on that but the Committee was concerned about the opportunities for jobs.

SA Steel Industry status
Ms Thandi Phele, DTI Chief Director: Metal Fabrication, said that the global steel market was continually grappling with the challenges in the steel sector, characterised by structural problems, persistent excess capacity, exacerbated by the weak global economic recovery and market demand, causing a negative impact on trade and employment. There were indications of modest improvements in growth in steel demand and a recovery in prices from the historic lows recorded in 2015. Sustained recovery was uncertain due to megatrends associated with lower steel intensity, including the move towards recycling, climate change, the ageing population and increased digitalisation.

Since the onset of the crisis in 2015 several short-medium term measures had been put in place. The increase in the general rate of customs duty on primary steel products to 10% and a safeguard for a period of three years on hot rolled coiled and plate products was intended to support the industry. Tariff increases on a range of downstream products and the deployment of rebates for products not manufactured all added value. There was also an agreement on a set of principles for flat steel pricing in South Africa that was appropriate but ensured that steel-dependent industries remained competitive while at the same time ensured that upstream steel mills remained sustainable. ArcelorMittal South Africa (AMSA) agreed not to add duties to its prices. SARS was developing a reference price system for downstream products to address low-priced imports. National Treasury had proposed a scrap metal export tax.

DTI had requested the ITAC to lead a proactive investigation and review of downstream tariffs, which were presented. In a number of cases, ITAC had supported a proposal for a duty increase in WTO bound rates.

Ms Umeesha Naidoo, DTI Acting Chief Director: Primary Minerals Processing, noted that with effect from 23 March 2018, US President Trump had imposed a 25% duty on imports of steel articles and a 10% duty on imports of aluminium articles to the United States. Although South Africa did not pose a threat to the US national security and to the US steel and aluminium industries, tariffs had impacted on South African export to the US. As a result of those tariff increases, it was expected that some US companies would increase production and new US companies would also emerge.

Discussion
Mr A Williams (ANC) noted that two-thirds of regional demand for steel was supplied by imports. He wondered, since the demand was there, why South Africa was not meeting that demand, since the demand did not seem to be local? Was there much local competitiveness? Why had the industry not upgraded itself and what had industry members done to look after themselves? Now they come to the state to help. How much had government paid? What was the industry doing to promote itself? The presentation did not say how the money had been spent?

Mr D Macpherson (DA) stated that it was necessary to take a trip down memory lane to understand how the steel industry had got to where it was. In 2016, there was an agreement between AMSA and DTI to protect them against imported products coming mainly from China. In return, they had to meet a number of agreements, including not increasing pricing and investing in infrastructure. He did not know when they had once met any of those agreements. They had unilaterally increased prices by up to 22%. He did not know what they had done in terms of their infrastructure upgrading and their job retention and improving output. Government had been prepared to protect an uncompetitive monopolistic industry at the expense of the downstream industry. Where were the 190 000 jobs located? He thought that 170 000 were in the downstream industry and so DTI had to protect the downstream industries and make them more competitive. Since 2016, ready-made steel products had been imported because it was cheaper to buy imported goods rather than the AMSA shoddy, poor grade steel products. The Downstream Steel Industry Competitiveness Fund was announced for the 2017/18 budget, more than 18 months after those industries had been impacted by the 22% price increase. AMSA seemed to get preference at the expense of the downstream sector. What was DTI doing to assist the downstream industries? No one in the downstream industry believed that DTI was assisting them. Only AMSA seemed to believe that DTI was doing a good job.

Mr D Mahlobo (ANC) said the Committee needed more time because the topic was very specific and there was a knee-jerk reaction to tariffs, but there were fundamental questions about what the industry was doing and what government was doing. One of the technical issues that the DTI should address was the incoherence of the slides. Slide 6 talked to high level challenges and the results but what were the high-level mitigation measures? The slide on steel interventions showed no correlation between the two. If the interventions talked to the mitigation measures, Members could engage. References to the low economy and aged plants and such would take too long to address. There was an incomplete slide on the US import tariff measures and another on the impact on the industry in SA but again the correlation was poor, and the slide did not refer to critical issues such as the impact on jobs. “Next steps” was presented at a very high level and had not taken a comprehensive look at the industry.

Mr S Mbuyane (ANC) asked who owned the companies that they were talking about and what was their status in terms of localisation? What was their BBBEE status and how were they dealing with Preferential Procurement Policy (PPP) and the challenges of job creation, poverty and inequality. There were turnaround strategies, but they were not clear. He needed clarity on cheap steel imports that was one of the reasons for the decline. SA had been in decline since 2010 but since 2000, there had been an increase in imports. What was really happening about production versus demand? On interventions for local manufacturing, he asked about the challenges in local manufacturing industries. One could not talk of tariffs without knowing the challenges.

Mr G Cachalia (DA) asked what protectionist measures did SA take in the five years prior to the AMSA accommodation? What ire did that raise amongst WTO signatories? How did government investment in the industry boost local industry over the five-year period and what figures did DTI have to show on that? How much was spent, directly and indirectly, over the five-year period?

Ms N Ntlangwini (EFF) asked about the implementation of BBBEE requirements and specific numbers for BBBEE? How was DTI transforming the industry and how far had it had got with the transformation process? She commented that she had been taken aback that government departments had to be instructed by this Committee to carry out government policy on the procurement of locally produced goods. She could see in the industry that the big players were given the bulk of the cake while the small players got the scraps. She wanted all the figures to show where job losses were going to take place. Who owned the companies and what was their BBBEE component? She referred to the presentation on “Next steps, monitoring and evaluation for localisation’. How was DTI going to monitor this and what steps had been put in place to monitor and evaluate the companies?

Mr B Radebe (ANC) looked at the SA situation. What was the causal factor of SA having aging plants? Was it the unskilled labour, lack of capital or sheer negligence? Steel was central to the economy and one expected a high level of planning. All the ingredients needed to make steel could be found in SA, but the price was still uncompetitive. What was it that made SA uncompetitive? The situation was no different from what it had been in the Fourth Parliament. In respect of the tariff measures announced by the US, there were certain concessions that SA had had to make, such as the poultry industry concessions. He asked whether the African Growth and Opportunity Act (AGOA) was worth the paper it was written on. He understood that Agenda2063 had determined that the partners would trade amongst themselves, but SA had been left behind by its own BRICS partners. What had DTI done about that strategy to protect the industry?

Ms P Mantashe (ANC) asked what the long-term strategy was to protect the interests of SA industries. It seemed that DTI was always reacting to crises but did not have a plan.

The Chairperson indicated that she wished to guide the discussion. The link between steel and sugar was  tariffs. There was a need to engage with the steel industry in depth, but that was not the purpose of the meeting. Two months ago, the Committee had said that it needed a better understanding of the impact of tariffs and whether tariffs could be used to support the industry and jobs. How could the instrument of tariffs be used? Was it a useful measure or was it too blunt an instrument? The Committee had dealt with various aspects but had never dealt specifically with tariffs. The questions raised could be addressed but Members should confine themselves to the focus on tariffs.

Mr Macpherson asked why there were two sets of standards for DTI when it came to tariffs. DTI jumped to impose tariffs on steel but dragged its feet on sugar. When would they have that robust conversation?

Mr Mahlobo complained again about the quality of the presentation which did not allow one to get into the substantive issues. A tariff was an instrument that could protect the industry or to regulate an industry. The information presented was not sufficient for him to be able to engage with the need for a tariff. Someone had talked about aging assets and the economy and the market, but it was too generic and did not provide technical data so that it could answer the questions. It seemed that it was just a reaction to the US tariff.

DTI response
Ms Phele replied that she had structured the presentation to show the Committee how DTI, the Department of Economic Development (EDD) and the industry had tried to address the challenges. There was a different process that she would normally take for deciding on the level of the tariff and the technical data would then be included in the slides. The presentation today was not a technical presentation. Once the Committee had determined what needed to be done, she would be able to provide the technical data.

In her presentation, she had attempted to show that it was necessary to address both the supply and demand side. She had shown that there were huge problems on the supply side and the ability of the industry to capture the demand. She had then looked at the interventions on the supply side and those on the demand side. It was true, as Mr Williams had said, that the African demand superseded the demand that SA could supply. There were, however, huge opportunities to supply sub-Saharan Africa. One of the interventions was to better package the product going to Africa and to ensure that the correct products were being packaged for Africa. The market demand was great, and two thirds of that demand was still being supplied by imports.

DTI was conscious of the need for the industry to improve its competitiveness. Interventions on the upstream side had mainly been tariff protection. The justification was that it was necessary to preserve the capabilities that the country had and to be better able to support the downstream industry. DTI was working towards making downstream industries more competitive. Of the 190 000 jobs, the majority, or 170 000, were definitely in the downstream industries. Tariff measures ensured that the industry could cope. The price of finished goods coming into SA was very, very low. Even a 30% tariff could not meet the prices of imported goods. Government needed a suite of interventions and so government departments were required to procure from the local industry. However, designation only worked with the government sector and not with the private sector. Government could not tell the private sector what it could do about local procurement and, unfortunately, the demand had not been coming from the private sector to be able to support the industry.

Support had to be equal, if not greater, on the downstream side. The Downstream Development Fund would assist. Its focus was mainly to improve the competitiveness of the downstream industry. Government had increased the duties on a number of products to increase support and to ensure that the industry could remain competitive. In the first round of designations in 2012, because prices had to be competitive, there had been a decision that even imported products could be used in government projects. When the crisis hit in 2015/16, government had brought in the deeming clause to create demand in the downstream industry.

The Chairperson told the presenter that the focus was tariffs. She was to address the questions succinctly. The Committee did not have six hours to listen to her.

Mr Macpherson said no questions had been answered. The question of reciprocity had not been answered. The answers were not acceptable.

The Chairperson asked the Chief Director to focus and not to give fragmented responses.

Ms Naidoo responded to the question on reciprocity. AMSA had made a commitment to the Competition Commission settlement on primary steel tariffs. In terms of investments, a R4.6 billion investment had to be made and, over the past two years, AMSA had made investments in the primary steel industry in equipment upgrading in the primary steel process. AMSA had complied with the pricing basket and the international pricing agreement baskets. International prices had gone up over the period as the basket was based on international prices.

Mr Williams asked that there be a comprehensive response in writing to the question on reciprocity with all the commitments and everything that AMSA had done. All the answers should be in writing.

Ms Ntlangwini said that Mr Williams was correct and that the Chief Director’s answers seemed to say that the private sector could do exactly as it wished. They needed to provide constructive answers to the questions put to them. There needed to be consequences. When a department came to Parliament, it could not give wishy-washy answers as that was fruitless expenditure. Members wanted to see industries transformed and she certainly wanted to leave a legacy when she left Parliament. Members did not have time to waste.

The Chairperson told DTI that the presentation had not focussed on tariffs and the role that tariffs played in supporting the industries of steel and sugar. The presentation had been described as a little incoherent. She seldom sent a department division away for wasting the Committee’s time. She had only done that three times in 25 years but that was a waste of the Committee’s time. However, they had invited ITAC to speak on upstream steel tariffs. She asked ITAC to remember that the topic was tariffs. Sugar and steel had only one thing in common, and that was the tariffs.

Steel tariffs: briefing by International Trade Administration Commission (ITAC)
ITAC Chief Commissioner, Mr Meluleki Nzimande, started with slide 10 to link to the previous presentation. It showed tariff support given to the upstream steel industry since 2015 and a list of ten applications for tariff support for a range of steel products. Nine out of ten applications were from AMSA or aligned companies requesting tariffs for a range of steel products from wire rods to steel plates and cold-rolled steel. One application was from Highfield Steel requesting tariff support for structural steel.

As background information, Mr Nzimande said that there were ordinary customs duties according to the WTO agreement of between 10-15% for steel, known as the bound rate. Those duties were set at a rate determined by DTI. The second set of duties were called trade safeguard duties which enabled South Africa to go beyond the bound rate and those rates stood at 12% on hot rod products. In exchange for those safeguard tariffs, a number of commitments had been made by AMSA and Safal Steel on pricing, investment, employment, supply-side measures and output in general:
• Competitive prices for flat steel in line with the basket price model determined by government for the sustainability of the downstream industry;
• No import parity pricing;
• Investment of R4.6 billion in plant and machinery in the next five years; and no retrenchment, subject to financial and economic feasibility and market circumstances; and
• Pricing model and rebate schemes on value-added exports for the re-rollers.
• Establishment of a Committee comprising primary steel producers, downstream users, DTI, EDD and other experts to monitor the reciprocal commitments and the impact of tariff support on the steel value chain.
The Steel Committee had met twice and issued one report. The second report was still to be finalised but it was confidential at that stage, so he could not give precise investment figures.

Discussion
Ms Ntlangwini asked Mr Nzimande to explain what information was confidential. The Chairperson supported her request.

Mr Nzimande explained that the Steel Committee had a report on the exact amounts invested but he could not give those exact figures as the report had not yet been released and was, therefore, confidential.

The Chairperson was concerned that there was information ITAC was not sharing with the Committee. She had not been informed beforehand that there was confidential information and at that point with so many members of the public and South African Farmers Development Association members present, she was unable to call a closed meeting. She would address the matter further.

Mr Macpherson was becoming concerned and asked for a ruling on how the meeting was to proceed. Members were being told that they could not have information that came from a pricing committee that had been established to protect a steel manufacturer. He had a big problem with that. It was Parliament and Members had a right to that information. If ITAC had told the Committee beforehand, arrangements could have been made but the Committee was effectively being blindsided by the information being confidential. The meeting was becoming incredibly frustrating when Members were being told at every turn, that they could not have information.

Mr Mahlobo agreed with the Chairperson that the Committee should have been told beforehand. He asked if the document contained any classified information. If there was confidential information or information that had not been finalised, the Committee could not receive information that had not been through the correct decision-making processes.

Ms Ntlangwini was concerned as all of a sudden the Committee was hearing that some information was confidential. When the information was finalised, the report had to be made available to the Committee. The presentation was clumsy and DTI and its entities just came and threw words at the Committee. Departments had to take full responsibility and do things properly. DTI had not even mentioned that there was confidential information; nor had it informed the Committee beforehand. They should not throw this at the Committee.

Mr Radebe was upset but the question of how to proceed was the important one. Either the presenter could remove everything that was confidential and then go forward, or if the public could not have the information, then there would be a problem going forward. If the Committee had been informed, arrangements could have been made about closing the meeting.

The Chairperson confirmed that it was not the right approach not to inform Committee. The Chairperson could make any ruling within the Rules of Parliament that was not unconstitutional. She asked Mr Nzimande if he wished to respond.

Mr Nzimande apologised to the Committee and stated that the presentation was a public document. There was nothing confidential in the document. R4.6 billion had to be spent but he was unable to say how the R1.6 billion had been spent as that was the confidential part. His colleagues were on the Steel Committee and had shared the information with him, but the information was not yet public. He was sharing some of the general information. The report was not even a draft yet, so all that he could communicate was the total amount spent and he could say nothing else.

The Chairperson stated that it was difficult to call a closed meeting at that point. The Committee might have to reschedule certain presentations for after July. She would be writing to him and he needed to know before he came to Parliament that all meetings were open to the public and only in certain instances could a closed meeting be held. Parliament asked how all budgets had been spent. He should complete the presentation but would have to return to Parliament at a later stage. It was not acceptable. There were rules that had to be taken into account. She could not simply decide to close a meeting. She did not want to hear the words, ‘confidential’. The Committee wanted to hear the principles. He was a Chief Commissioner and incredibly senior and it was not acceptable that she could not process a meeting constructively because he had not informed her. Parliament passed the budgets and Parliament needed to know how all government budgets were spent. But they were wasting time, so she would give him ten minutes to complete his presentation.

ITAC presentation (continued)
Tariff support given to the downstream industry was discussed and the products on which duties had been imposed were listed. Duties ranged between 10% and 20%. Duties were imposed on imported products that were also locally produced. During the investigation on primary steel products, it had been established that there were products which were not manufactured domestically but were classifiable under some of the tariff headings to which the duties applied. ITAC had advised the industry that it was prepared to consider other mechanisms to cater for such products. In October 2017, ITAC had initiated an investigation into the creation of rebate provisions on ordinary customs and safeguard duties applicable to certain primary steel products not manufactured locally A mechanism had been created for parties to apply for a rebate on that duty. Slide 16 showed the products which enjoyed a rebate. He set out the duties and that R1.6 billion of the R4.6 billion had already been invested.

Discussion
The Chairperson indicated that ITAC would return after July. She asked for Members’ questions.

Mr Williams said tariff support to downstream industries was very good, but he asked about the reciprocal commitment and what had come back in value for those efforts. Some tariffs went from 0% to 30%. He wanted a response in writing because South Africa should not put in tariffs on sectors of society or pump money into particular sectors without something coming back to the state.

Mr Mahlobo requested certain information when ITAC returned after July. Slide 10 made a reference to the US decision on tariffs. The Committee knew the percentage of US markets but what was the percentage of SA’s own total capacity? It was very minimal and insignificant. Government could be putting in tariffs that affected a miniscule sector of the market to benefit one sector in a particular way. The next bullet referred to the fundamentals: “Subdued domestic steel demand due to subdued infrastructure spend and increasing costs (electricity, labour and raw material)”. Fundamentals were around efficiency, productivity and growth. Whose view was that? Was it the view of government, or some expert? The US President was putting in tariffs because he was worried about protecting jobs. But SA was paying rebates when it was not even doing industrialisation beneficiation in terms of downstream. ITAC had to have that discussion. The rest of the information looked very helpful.

Ms Ntlangwini said that going forward she had no objection and some of the information in the presentation was very useful. It would help when ITAC came back. She proposed that the Steel Committee be invited to present in the same meeting so that the Committee could get some of the confidential information. The reports had to be sent prior to the meeting so that Members could engage with the information beforehand. Mr Nzimande had mentioned that R1.6 billion had already been invested. The Committee needed to know which companies had been invested in because Members wanted to see their BBBEE rating.

The Chairperson agreed that that was information that ITAC had to return to Parliament with.

In response to a query, the Chairperson confirmed that SARS was on the agenda.

Mr Macpherson noted that, with respect to the reciprocal commitments and the pricing committee, the reciprocal commitments were vague. The Committee needed to understand exactly what machinery had been invested in. People in the industry assert that AMSA was producing less and charging more than they had previous to the agreement. When ITAC or the Minister spoke about pricing principles for the pricing committee, what were the principles, when had they been agreed upon and how had they come into being? He wanted that response in writing. One of the reciprocal commitments was competitive pricing but, in 2016, AMSA had put up their prices three times in one year and yet the Steel Committee had only met twice since its establishment. How could that happen? The price increases, according to a letter from the Minister, were based on the Rand weakening. However, since then, the Rand had strengthened, and prices had not gone down. There were reasons for increases, but there were never decreases. When would the pricing committee be meeting again, had DTI put someone on that pricing committee, and who was it? When would the investment details be made available to the Committee?

Mr Cachalia asked why government seemed to protect an outmoded monopoly such as AMSA and what exactly went into shoring it up in monetary terms and what exactly it was used for. Secondly, was the injection by way of support for AMSA at the expense of the downstream industry? He would like to get the full extent of all investment commitments. He would like the answers in writing and in great detail.

Response
Mr Nzimande said that his understanding was that ITAC should respond to the questions in writing, which he was happy to do.

The Chairperson requested that there be adequate correspondence with the Chairperson. She would have to communicate with the Speaker about the confidentiality issue as her power to close a meeting was delegated by the Speaker. Parliament was democratic, and all meetings were open to members of the public. There were Members who had experience of working in Committees that were not as open as others. If there were an occasion where it had to work in a closed meeting, the Committee needed to be informed and the Members needed to fully understand the measures. ITAC had heard the dissatisfaction expressed by all parties in attendance. However, everyone had done their best to manage the situation.

The Chairperson explained that an exigency had arisen, and it had been necessary to include a presentation by the Department of Science and Technology on the agenda because the Committee had received a late invitation from the United Nations to attend a space event. The Committee would, therefore, suspend the discussion on tariffs and move onto the DST presentation.

The Chairperson welcomed the Chairperson of the Portfolio Committee on Science and Technology and asked her to co-chair. She also welcomed Mr Koornhof and Dr S Thembekwayo from that Committee.

Space Affairs presentation
Dr Val Munsami, CEO: South African National Space Agency (SANSA), Ms Nomfuneko Majaja, DTI Chief Director: Advanced Industry: Space Affairs and Mr Humbulani Mudau, DST Chief Director: Space Science and Technology, and Dr Peter Martinez, Professor of Space Studies at the University of Cape Town were welcomed.

Ms Nomfuneko Majaja, DTI Chief Director: Advanced Industry: Space Affairs, said the key principles of managing Outer Space included viewing space as a “province of mankind” as humanity had a shared interest in regulating activities in outer space. Outer Space was to be used for “peaceful purposes” and there was to be no weaponization. Celestial territory, such as the Moon or Mars, was not subject to “national appropriation” and no country could lay claim to those territories. All countries had primary responsibility for maintaining the orderly conduct of their citizens. The Outer Space Treaty stated that "outer space is not subject to national appropriation by claim of sovereignty, by means of use or occupation or by any other means.” But the ‘finders keepers’ legal framework applied. If one found it, one kept it.

New legislation was being developed in South Africa to align legislation and regulatory framework to international space treaties, and to align domestic space policies and strategies to developments in the domestic landscape, including a shift from military regulation focusing on space technology to manage potential proliferation to focus on socio-economic development and ensure a key role for industry and universities.

UNISPACE+50 would celebrate the 50th anniversary of the first United Nations Conference on the ‘Exploration and Peaceful Uses of Outer Space’ in 1968. South Africa would be attending. Other activities were: SANSA would be signing the BRICS Space Cooperation Framework, signing a Letter of Intent for the establishment of a Committee of African Space Institutions (CASI) to be signed by eight African countries, signing of a bilateral MoU between SANSA and ASAL (Algerian Space Agency) and making preparations for an IAF Global Conference for Emerging Countries (GLEC2019). A new Cube Sat, ZACube-2, would assist in tracking ships along the South African coast, amongst other things. South Africa was to host the largest space gathering, SpaceOps in Cape Town 2020. Challenges included resuscitation of its space heritage, sub-optimal funding, financial sustainability and stakeholder relationships.

Dr Martinez added a few comments as an independent space expert. He informed the Committee that South Africa was one the few countries that had space legislation, which had been very advanced in its time as it had suggested that SA should be a responsible user of the outer space environment. The legislation was being updated. He noted that everyone had to learn that space was a finite resource. There were 80 states and numerous private organisations that were active in space and so space governance was becoming critical.

UNISPACE+50 would provide an opportunity for the world space community to reflect on responsible governance in space. It was the first global space summit that would look at the existing treaty framework to ensure benefits to the growing number of space actors and ensure opportunities to collaborate but also opportunities to uplift the industry. Space resource utilisation was becoming critical as human economic activity was moving off earth and moving into space. A new legislative framework was being developed and SA should keep up with the developments so that when the rules were drawn up, South Africa was engaged.

Discussion
Mr Mahlobo thanked the team for the presentation and welcomed it as an important aspect. He advised that those involved in the international arena should never forget security issues related to space. Those in the security cluster would tell them that some countries were using space to their economic advantage and satellites, planted at a very high level, had all other countries under a microscope. He advised the presenters not to concern themselves only with technology. Big things were happening in space and BRICS colleagues knew all about it. Unfortunately, SA did not have all the data. The world had changed, and the Cold War had not died out but had taken a different form.

Mr Williams was interested in space mining and, while outer space was not subject to national appropriation, he asked if the SALT telescope focused on a planet at the edge of space and minerals were found, could SA claim the minerals in terms of the ‘finders keepers’ principle or did one have to send a person physically to that planet? This would be unfair as the countries with the technology could send people to planets and keep all the minerals for themselves.

Mr Radebe agreed with Mr Mahlobo. He suggested that control of space would ensure control of the world and SA should be sure not to ratify itself out of the game. The biggest economy in the world was meeting one of the smallest economies in the world on that very day. In the country’s enthusiasm to be democratic, SA should not paint itself into a corner. He asked if there was funding to maintain research in that area to ensure SA’s participation in the game. If not, SA could fall far, far behind.

Mr Macpherson said that Mr Mahlobo had raised a thought. Had the State Security Agency previously had anything to do with assisting military intelligence under the codenames, ‘Condor’ and ‘Flute’ to produce a satellite in conjunction with the Russian space agency? If SANSA had had any involvement, he would like to know about it.

Mr Cachalia noted that Mr Mahlobo had mentioned space technology in the security cluster. What protocols or treaties had SA signed that would protect the freedom and individual rights of people in the country as opposed to giving blanket surveillance to an organisation?

Ms L Maseko (ANC), Chairperson of Portfolio Committee on Science and Technology, said she was fascinated by the interest aroused by Mr Mahlobo’s comments. She believed that SANSA was one entity that had to go back to Science and Technology. She did not believe that it belonged in Trade and Industry. She had noticed the lack of interest in Science and Technology and believed that Ms Ntlangwini represented the Committee’s interests. She suggested that if the presentation had been made to the Portfolio Committee for Science and Technology, the presenters would not have had to rush. She referred to the core treaties and asked about the number of ratifying states. How many states had not signed yet? On the agreement on activities in space on the moon and other terrestrial bodies, why had only 17 countries ratified? The presenters had only presented a fraction of the presentation document sent to the Committees. It had disadvantaged Members as they could not engage when the entire presentation had not been delivered.

Adequate funding, research and development was impacted by the fact that the country was spending only 0.74% of GDP on research and development when it should be spending 1.5%. When there were budgetary constraints, research and development was the first to be cut. Some of the research had been funded outside the country but, if funding was by international donors, they called the tune. It was necessary to increase funding for research and development. The Portfolio Committee on Science and Technology was pushing to have a separate budget vote for R&D. Committees needed to complement each other in government. It was good to work as joint committees, saving resources and time. But Space had to go back to Science and Technology.

Co-Chairperson Fubbs agreed about the time pressures. The Committee had wanted to give the presentation two hours but at the end of term, there were enormous time pressures. She asked about outer space governance. The Committee needed more information on the treaties and that included the impact of treaties on SA’s developmental state. One needed to examine treaties closely before signing them. But space was the future, and everyone should take a deeper interest in the field.

Response
Ms Majaja replied that she agreed that they had to complement each other, which they had done by bringing everyone on board for the presentation. She explained to the Committees that most of the space role players were under the Department of Science and Technology. The Chief Director attending the meeting was from the Department of Science and Technology. Only the regulator was under DTI because the implementer and the regulator could not be under one Vote as one could not be both the referee and the player.

Why the number of treaties being ratified was dwindling or going downwards? There were 194 states in total. Some countries had ratified four of the five treaties, as was the case with SA. For the Moon Treaty, there had not been a lot of interest and there had been some misunderstanding of the treaty. SA was looking at ratifying the treaty but was examining the implications of ratifying. Once a decision had been made, the recommendation would be brought to Parliament to sign. SA wanted to be involved in the mining on the moon, which was becoming a hot topic. SA did not want to be left behind but the research would indicate whether SA should sign the treaty.

What did ratifying these treaties mean to citizens on the street? The treaties were intended to protect the citizens of SA. The state had to accept liability and therefore the state had become responsible for guiding measures in dealing with any occurrences in space. Launches of space equipment did not happen willy-nilly without the state knowing what was happening.

Dr Val Munsami, SANSA CEO, responded about space security. Military applications were also used for peaceful means. GPS had been a military application but it was now used by civil society. SANSA had a sister council called the Non-Proliferation Council for Weapons of Mass Destruction and its enabling Act regulated the import and export of dual use technology which could be used for space technology or nuclear weapons. Anyone who wanted to import such technology had to get permission to do so. Space institutions were expected to register with the Council in terms of what their activities were. That would be hardwired into the new Act that was to be drafted. SA also regulates the activities of non-state actors in space. On the Condor and Flute question, SANSA did not deal with the military. There was a military intelligence unit. SANSA serviced government departments. Armscor dealt with space issues for the military.

Dr Peter Martinez, UCT Professor of Space Studies, noted the interest in security and said it was a valid concern as security on earth was increasingly underpinned by security in space. That was why global space governance discussions were so important. In his field, people talked about the 3 S’s: security, sustainability and safety, all of which were closely interlinked and dealt with under separate committees in the UN but there were growing interactions.
 
Mr Humbulani Mudau, DST Chief Director: Space Science and Technology highlighted the fact that the government, together with the State Security Agency and Defence, had taken care of the security aspect. The greater investment in space had been from Security and Defence and therefore it was critical that government worked closely with Intelligence, Security and Defence.

The Chairperson thanked Ms Majaja for organising everything.  The two Committees would certainly work closely together. On return from UNISPACE+50, it should be possible to meet on the topic in August when there was less pressure on the Committee. She thanked Ms Maseko who was so passionate about Science and Technology and agreed that even Trade and Industry had to encourage more R&D in its own sector.

The Chairperson stated that the meeting would complete the presentations on steel.

Economic Development Department (EDD) comments on steel tariffs
Mr Siyabulela Tsengiwe, Advisor to Minister Patel in the Economic Development Ministry, said that he had not been called to make a presentation, so he would be very short.

EDD had oversight of ITAC and he wished to speak on the impact of interventions and the tariff measures.
Something was missing. It seemed as if the state of the steel industry upstream had remained as dire as it was three years previously and that was not the case. Following the tariff increases and trade remedies from the second half of 2016 to the present, for the vast majority of primary steel products, there had been a vast decline in imports which had some impact upstream, resulting in retention of jobs and retention of capacity. One example was Evraz Highveld Steel which had produced structural steel for construction. It had closed down at the height of the steel crisis in 2015. After the increase in tariff protection and the safeguard tariffs on hot rod steel, Highveld Steel had re-opened and 400 jobs were reinstated.

He accepted that there were still challenges but there were interventions, and they were working. He understood what the Committee wanted information on the reciprocal commitments and he would work on that. He pointed out that it would take six months to a year to see the impact on the downstream.

The Chairperson thanked Mr Tsengiwe for his input, commenting that the examples were very helpful.

SARS tariff implementation
Ms Helena Tripmaker, SARS Senior Manager Strategy and Legal Policy, gave a verbal presentation as she had been informed of the meeting only the previous day. She could respond to questions in writing, should it be necessary. Her job was to ensure a level playing field between imports and local industry. She had to ensure job retention to ensure that South Africa had taxpayers.

Ms Tripmaker addressed the broad management of tariffs. Determining tariffs was not the mandate of SARS. ITAC decided on tariffs as it was a trade policy issue, but customs legislation changed according to changes in tariffs. Her department had a tariff book that guided its work and was updated when new legislation was passed. Changes had to be signed by the Minister of Trade and Industry and National Treasury had to be informed. A Government Notice was then drafted to inform people of the changes. Then the legislation had to be prepared under the SARS Act and the Deputy Minister of Finance had to sign off, after which the SARS electronic system was changed. A Government Notice was published to indicate the date on which the tariff came into operation. It was quite a challenging administrative job. Once the tariff was on the electronic system, it was very difficult to pay the wrong tax unless an importer mis-declared. Each product had a tariff heading and under each tariff heading was the specific rate of tax.

In terms of SARS’ capacity to collect, the collection of import duties was not done at the physical borders. SARS had processing centres in Doringkloof, Cape Town and Alberton for customs matters. All taxes were collected electronically and run through risk rules which alerted SARS to the need for closer inspection. In those cases, inspection took place at the border. Some goods, such as steel and sugar, made it difficult to examine them at the border so other remedies had to be found. Scrap metal could not be unpacked at the border so that was a challenge to examine the goods. SARS had non-intrusive electronic scanning mechanisms. SARS had X-ray facilities at Durban and Cape Town harbours and at Beitbridge plus a facility would be erected at City Deep container depot.

SARS had introduced a goods control system that dealt with reports where people had to inform SARS upfront so that SARS had whatever necessary information to examine on goods arrival. SARS also did post audit and documentation inspection. That dealt generally with import tariffs. She would add to the Sugar Tax later.

Discussion
Ms Ntlangwini asked SARS how it could rely on declarations and no physical inspection at borders. What happened when one did not declare? What were the consequences? How could there be no inspection at borders? It was a total risk. There had to be physical checks at the border or the country would be flooded with illegal goods.

Mr Macpherson said that the steel and sugar industries were good comparisons in terms of challenges faced. Both faced the threat of imported products, and yet there were two different approaches to the same problem. In the steel industry, there seemed to be a rapid response by DTI and ITAC to protect steel, especially one particular company, but with the sugar industry there was a different and slower approach of deflecting and waiting to see. Tariff increase applications for the sugar industry had been made in February but there had been no response yet. Why was it that there were different systems? Why was there a different response for steel and sugar? Why was the sugar industry expected to do certain things in terms of transformation, but the government did not protect it?

Mr Macpherson referred to an article published in 2017 with the headline: Imports of sugar to SA were accidently duty-free for seven weeks. In the article, it detailed how, for seven weeks in 2017, imports of sugar were rated at zero tax instead of R2 111 per ton. The article detailed the process of charging taxes. When the sugar industry was asked to comment, they declined to do so. He wanted to understand how that administrative error could have happened, who was responsible and what action had been taken.

The Chairperson also questioned this and asked which service had been responsible for the error.

Mr Macpherson believed that it was SARS because SARS was responsible for collecting the taxes. SARS had to explain why sugar was zero-rated for seven weeks. What was the DTI’s intervention?

MsTripmaker suggested that she had been misunderstood about inspections. It was not the case that SARS did not do physical inspections. Declarations were fed electronically into the system but there was a risk rule that triggered inspection. In addition, there were physical inspections, especially at land borders. Trucks could not enter South Africa until all documents had been received and the driver would not know if there would be a physical inspection until he arrived at the border. At harbours, if goods were on a manifest, all the goods were entered into the system before they were offloaded. What she had said was that some goods, which were more difficult to inspect, were released under embargo and the inspectors went to the location of the importer to inspect the goods. That, of course, could not be the procedure for every consignment as it required extensive resources.

SARS had a goods control programme that enabled it to look at those goods in the supply chain at every step of the way. SARS also looked at the various reports fed into the electronic system. Controls on imported goods were tight. SARS had industry forums. There was one on scrap metal which involved ITAC, DTI, EDD and labour unions. SARS had introduced an intervention in the sugar industry and the first meeting had been on 1 June 2018. SARS also looked at other measures because the higher the tariff, the more people try to circumvent it such as making an incorrect statement on the value of goods.

Mr Tsengiwe responded to the question about the different treatment between steel and sugar. He wished to assure Mr Macpherson that the relevant departments were dealing with sugar on an urgent basis. On 10 May the Minister had announced in his budget speech that he had received a request to increase the tariffs on sugar. A meeting had been held with those in the sugar value chain plus the Minister. The meeting had resolved to establish a task team to report to the Minister by the end of next week. A long-term strategy would be presented a month later. The brief was to look at understanding the pricing chain. Medium to longer term it was going to be a process of looking at competitiveness in the industry and deepening formation as well as issues relating to the Sugar Acts and the agreements. Government was treating the sugar industry the same as steel on an urgent basis.

ITAC Chief Commissioner, Mr Ndzimande, stated that, from the side of ITAC, the sugar industry had received the most urgent attention. ITAC had truncated the period for investigations quite substantially and a meeting had been set for later this month. The matter was receiving urgent attention.

The Chairperson went back to the sugar duty zero-rate. She believed that the zero-tax situation had gone on for six months. Which intuition in the country would have been able to recognise that there was something wrong? Import and exports would form a pattern over time. In the case of tariffs not been charged on sugar, how would that affect the pattern and how would SARS know that the particular industry had not paid the usual tariff amounts? Would it at any point of become apparent to customs that the full amount was not being collected? Which agency would be able to pick that up?

Ms Helena Tripmaker confirmed that there was an allegation that sugar had been imported duty-free from Brazil. The tariff was applicable across the board and free trade agreements did not impact on the sugar levy. The last increase on sugar came on Friday 8 June 2018 was from 213 cents to 283.1 cents per kilogram. Sugar had been duty-free from 28 July 2017 to 15 September 2017. Report 542 received from ITAC about the new formula that the system should trigger had found that the tariff was not being paid.

Mr Mahlobo requested that the presenters give their briefings first so that all could participate and not in a piecemeal approach.

The Chairperson noted that some officials had left. Ms Nikki Kruger, Chief Director for Tariffs at DTI and Ms Mhlauli, Chief Director for Agro-Processing at DTI, had stayed behind so the meeting had a DTI team. SASA had been invited to make a presentation on what the Association had done on transformation. She welcomed representatives from the sugar industry: South African Sugar Association (SASA) Chairman, Mr Suresh Naidoo and Vice Chairman, Mr Hans Hackmann, Mr Siyabonga Madlala, Executive Chairman of SAFDA and Mr Deane Rossler, Executive Director  of SA Sugar Millers’ Association. The Chairperson explained to Mr Macpherson that his questions would not be forgotten but that the Committee would get the presentations first and so that everyone could engage. She asked the DTI for its presentation.

Mr Macpherson said that the meeting was moving off tariffs while there were more questions to be asked.

Ms Ntlangwini asked if the meeting had finished with SARS.

The Chairperson explained that DTI would make its presentation and then they would come back to the issue of the tariffs and the questions to SARS.

Mr Macpherson said that he had questions that SARS had not answered and he would continue asking the question until he received the answers. The first question related to the application made by SASA for an increase in sugar tariffs in February 2018.

The Chairperson asked Mr Macpherson not to put his questions at that point. She acknowledged that it seemed like the wrong presentation but pointed out that in that venue the only screen was behind the Chairperson and, therefore, she was unable to see the screen. She pointed out to DTI that the topic was tariffs and that was what should be presented. She herself had questions about tariffs.

Mr Radebe stated that everyone had a right to participate in the Committee and not just one person. He needed to have the whole picture on tariffs before the discussion could continue. He could not support any tariff unless he had the full picture, including transformation interventions and general input on transformation.

The Chairperson explained that they were dealing with tariffs and she would like the tariff presentation from DTI at that point. Thereafter, the Committee would deal with transformation. The agenda referred to ‘follow up with the sugar industry’ and that was where transformation came in. Tariffs would be completed first, without further discussion.

Mr Macpherson said that he rose on a point of order. Entities had made presentations and questions had been asked of them. Those questions had to be answered before the meeting could move on to the next presentation.

The Chairperson pointed to the agenda which indicated transformation would follow after tariffs. There had been had some disruption when the Committee had had a break for lunch and it had returned without completing the DTI presentation.

Mr Mahlobo asked the Chairperson to find out if DTI and ITAC had more information on sugar tariffs. If there were, they should be presented. Transformation was not going away.

DTI overview on Tariffs
Ms Nikki Kruger, DTI Chief Director for Tariffs, said she would give a broad overview of tariffs in the industry generally and ITAC would focus on sugar tariffs. A tariff was an instrument for industrial development and could be used to support industries. In the investigation on tariffs, it was important to remember that SA had agreed to a certain level of tariffs in WTO agreements, known as bound rates, above which the tariffs could not go such as 105% on sugar. If the ordinary tariff did not work, additional tariffs could be introduced as trade remedies. That was a safeguard where any remedy could be proposed but the country had to adhere to WTO criteria, for example, if there were a surge in imports which posed a serious threat to a domestic industry. That was what had happened in the US, although they had called it a national security duty.

Mr Mahlobo called on the Chairperson to intervene. If DTI did not have a formal presentation, it should not present as the Committee could not take decisions on a verbal presentation. He suggested ITAC present.

Ms Kruger confirmed that ITAC had a specific presentation on ordinary duties and the interventions they had taken on ordinary customs duties. The ad valorem or formula duties could be applied.

The Chairperson said that in the following meeting, DTI  would present the sugar and steel tariffs together.

Sugar Tariffs: briefing by International Trade Administration Commission (ITAC)
ITAC Chief Commissioner, Mr Meluleki Nzimande, explained that in respect of ordinary duties, the maximum duty on sugar was 105% according to the WTO agreements. The imports into SA had a direct impact on the sugar industry. In SADC, the biggest sugar industries were SA and Swaziland but there were no duties on Swaziland’s imports into SA since there was no duty on imports within SADC. Import duty was charged on sugar imports from the rest of the world.

The level of tariff support was determined by a variable tariff formula, which was based on the Dollar-Based Reference Price (DBRP) currently set at US$566/ton. The DBRP was calculated taking into account the four-year average global price, cost distortions, transportation costs and exchange rate. Adjustments to the level of duty protection were triggered by sustained deviations from the DBRP. The current applied duty was 55%, up from 42% in March. The maximum Bound Rate permissible duty was 105% in terms of South Africa’s WTO commitments. The current application sought to raise the DBRP to US$856/ton. At the current trigger, the duty would exceed 105%. Any duty applied would have to be capped with the Bound Rate.

Mr Nzimande explained the advantages of the variable tariff formula. It better suited the circumstances surrounding the production and trade of sugar than the normal ad valorem import duties, but swift reaction was required due to the high frequency of the peaks and troughs evident in the price cycles of that commodity. The formula also accommodated exchange rate fluctuations.
 
ITAC was aware that small scale growers were affected by the duty. They faced even tougher challenges because the smaller size of their operations, quality of land, distance from mills, different tenure system (farm on communal land) and other factors make their production costs much higher than that of the average commercial farmer. The sugar industry was committed to R1 billion should sugar be increased above $856 per ton. SASA had stated that the industry has committed a minimum of R1 billion to reciprocity projects over a three-year period, to be initiated on the gazetting of a Dollar-Based Reference Price of US$856/ton. The amount will be evenly spread over three years unless circumstances require a different funding distribution over the three years. However, the reference price could not be increased to $856 as that would be over the permitted 105% and a breach the WTO agreement. ITAC would not exceed the bound rate.

Mr Nzimande responded to Mr Macpherson that it was possible for sugar to come in from SADC at 0%. However, there had been instances where there had been a number of ITAC recommendations to change duties but there had been a delay in implementation. To the extent that ITAC sets duties, ITAC had done its part and made its recommendations timeously.

Discussion
Mr Williams asked about reciprocal commitments in general. How was implementation measured and who measured that implementation? Who checked what happened if commitments were not met? Slide 8 stated that SASA was not going to make the investment until they had a revenue increase from the tariffs. Who decided when there was a revenue increase?

Mr Cachalia noted that ITAC was at pains to point out that it had discharged its responsibility, which he understood, but everyone was working in silos. So how did they achieve the goals if there was not a seamless integration? How did they deal with the differential when there was a short-term increase in prices? Did DTI and ITAC act on it? But there seemed to be an inevitable delay at SARS which meant that there was an open window period when importers could take advantage of the gap in tariff changes. That nullified the whole purpose. The two had to work together.

Mr Radebe noted the challenges experienced by small sugar cane growers on slide 4. One could not start speaking about increases until those problems had been addressed. He believed that the transformation of the sector had to happen before there could be talk of tariffs. It was unacceptable that there were emerging farmers who made 0% profit. That had to be resolved immediately. People could not work the whole year and end up with nothing. It could not be allowed that some producers got zero profit or suffered a loss.
 
Mr Mahlobo asked if ITAC could state, for record purposes, that the important discussion could not be held because government had come unprepared. Tariff support and intervention were about policy interventions, but the Committee had not been presented with the policy imperatives. There did not seem to be a coherent approach to tariff support, reciprocal agreements and rebates viz à vis trade agreements. That questioned the fundamental trade agreements. One could not complain about the agreed upon duties, since someone had agreed to the trade agreement.

Who would benefit from the missing taxes? The discussion was not at the right level. There were challenges around small-scale growers. ITAC did not indicate whether it supported the measures or not. The agriculture challenges stood sharply against those treaties that were agreed to. If the Committee had received a proper report from DTI, Members would know. Could DTI not tell the Committee about the EU and others who wanted SA to accept their tariff rates? Those were the serious policy discussions.

Ms Ntlangwini was adamant that one could not charge a person starting up in an industry the same rate as someone who had been in the industry for years. That was unacceptable. She asked how it had come about that small-scale growers were paying the same rates as large-scale organisations. According to slide 8, ITAC had made recommendations to the Minister. Did ITAC give time lines to the Minister? What was ITAC's total role of ITAC and when were the recommendations concluded? DTI and its entities were working in silos.

She agreed with Mr Williams that one could not speak about tariffs without speaking of transformation. Small scale farmers still needed to travel to the sugar mills. What was ITAC going to do about that? What was the ITAC Chief Commissioner's opinion? She needed more clarity on the zero rate from July to September 2017. DTI and its entities were killing the industry which would collapse with the amount of imports still coming in. Were the ITAC recommendations followed by the Minister, and if so, what was happening?

Mr Macpherson told DTI that it could have as much transformation as it wanted but what would happen when there was no industry to transform. Perceptions did count, and it appeared that there was no rush to deal with the sugar tariff. He did not believe that ITAC had worked urgently. Why had it taken two months for an application to become a duly completed application? How could it be an administrative error that no import taxes had been paid on sugar imports totalling R660 million? What had been done? Who was being held accountable for the error?

There was a difference between the bound rate and the dollar-based rate. The application was not above the bound rate, so perhaps ITAC was confusing the two. The sugar industry should be given the opportunity to give their version of events and what had been applied for and where the country was going. Task teams were not good at providing results. As long as the process of application was not adjudicated on, the Committee would be going around in circles.

The Chairperson asked who was responsible for the application of the tariffs. Who was responsible for sugar being imported without tariffs? The Committee needed answers.

Ms Mantashe said she was becoming very worried as DTI had been asked to talk to the Committee about this. She reiterated the stand of the ANC that there could be no tariff changes at the expense of transformation. What was the industry’s take on transformation? When their business was booming they had not been interested in transformation or helping the small farmers. She did not like the attitude. The industry had threatened the Committee that they would not go ahead with reciprocity projects until the tariff had been adjusted. There would be no tariff adjustment until transformation had been taken care of.

The Chairperson said that it was important for all entities and DTI to answer.

ITAC response
ITAC Chief Commissioner, Mr Nzimande, replied that he would answer the question as well as he could. On the commitments and who checked on compliance and what if there was a failure to comply, he explained that at the end of the process, there would be a report by ITAC. That report would be three years from the date on which the duties were increased, assuming they were increased, and it would check for compliance. If there was no compliance, and ITAC had received an undertaking that the applicants would do x, y, z, ITAC would enquire why they had not complied. If there was not a satisfactory response, ITAC would withdraw the duty. ITAC could consider other options, which they would communicate to Parliament.

Mr Nzimande replied that the comment that the entities had not been working together, had some truth. He recognised that people worked in silos where it was a sensitive product and in certain phases, but he had to say that there were instances where the entities and DTI worked very well together. He would leave SARS to respond from its point of view, but he agreed that there was room for improvement and the work would be more effective if they worked together more consistently. He assured them that particular attention was given to small scale farmers. ITAC had asked for written representations from them but there would also be an opportunity for oral submissions before ITAC took a decision.

In reply to Mr Mahlobo’s question on the impact of trade agreements on South Africa, ITAC was not responsible for making trade agreements but it did make technical inputs to DTI about trade agreements. There were aspects of certain trade agreements that he was personally not happy about, but as long as they remained in place, ITAC would operate within the framework of those agreements. What was the endgame in terms of transformation? The mandate of ITAC was to administer trade tariffs in a way that promoted economic growth. Transformation was an imperative and ITAC had started to conduct impact assessments on the sugar industry to assess the impact of the trade tariffs on the sugar role players. Eventually those assessments would be across all industries.

ITAC had communicated timelines in the presentation and the investigation was being carried out on an urgent basis. Ms Ntlangwini had asked if the investigation of all five role players would be concluded on 26 June 2018. Mr Nzimande corrected that understanding, saying that on 26 June, ITAC would be holding a special meeting and on the agenda was the opportunity to listen to clusters of stakeholders.

Addressing Mr Macpherson’s question, he assured him that he was addressing the matter expeditiously. The first application received on 15 February 2018, had not contained sufficient information to show that there was a case to be made. ITAC worked in a contested space. One tenet of ITAC was to ensure that if decisions became subject to judicial review, ITAC would not be found wanting in terms of accuracy. ITAC would not rush things as they would be unable to defend their decisions. He had given the information and did not believe that ITAC had been tardy in responding as ITAC had even truncated the period in which the industry had time to respond. The industry had submitted the application for tariff adjustments to ITAC, although sometimes ITAC was proactive in investigating possible tariff changes.

The Chairperson noted that SARS had a flight to catch. She was angry that SARS had not been informed about the meeting the previous week. She would report to Parliament Committee Section that SARS had only received its invitation the day before the meeting. Ms Mantashe had declared no transformation, no tariff increases. ITAC was in communication with the industry players who had set out the commitments to which industry had agreed, and then ITAC would tie them to those commitments.

SARS response
Ms Helena Tripmaker, SARS responded about the period when there was zero duty on sugar. SARS could not levy a duty on goods other than what and when ITAC said SARS should impose. The variable duties did not have a bearing on the trade agreements in place. SARS had received Report 542 from ITAC but at that stage the world price for sugar did not warrant it. Her colleague could advise on the timelines that SARS needed to respond to a tariff change request from ITAC, but it was about six weeks.

Mr Macpherson asked if SARS was saying that the fault lay with ITAC because nothing was in place about a tariff for sugar.

Mr Cachalia said that it was unbelievable that it took six weeks to implement tariff adjustments. Was that what she had said?

Mr Radebe was interested in the capacity of SARS to manage tariffs. With what countries did SARS benchmark itself? What about all the other tariffs?

Ms Ntlangwini said it would have been helpful if her question had been answered by SARS. What checks and balances did SARS have? It was not a personal attack. She understood that SARS could not check each and every thing that came into the country.

Ms Tripmaker confirmed that there had been no import duty on sugar over that period. As to what had happened, she suggested that the Committee ask ITAC as SARS only did as instructed. The capacity to collect duties was there and was underpinned by an electronic system. Rates went into the electronic system, as did the responses to whoever was importing. All importers had to complete all fields on the import forms. It was a comprehensive form. Those forms were checked electronically, and the system checked for risk criteria. Every importation was checked against certain criteria and certain goods were physically inspected. One had to look at the facilitation of trade and so one could not check everything. If everything had to be checked, SARS would not have capacity, the container yards would not be able to hold all the containers and that would impact negatively on trade with SA.

Mr Macpherson asked what had happened at ITAC so that the tariff had not been charged. That was the answer he was seeking.

The Chairperson thanked SARS for the presentation and input. She asked for more information about the application for a tariff adjustment by ITAC.

Ms Rika Theart, Senior Manager: Tariff Investigations at ITAC, explained that there were two processes and the one that Mr Macpherson was referring to, was the implementation of the previous review and why there was a time lag. The question asked by the Chairperson was referring to the current investigation. In response to Mr Macpherson, she replied that in 2016 the Minister of Economic Development had instructed ITAC to investigate the impact of the bound rate on the variable formula for wheat, maize and sugar. They were three very complicated investigations that had to be undertaken in a short time because the sectors been identified as sectors in distress. Two weeks before the investigation had been completed, ITAC had realised that the pricing would go to zero as there was no financial data to support the implementation of a duty. They had attempted to influence the trigger mechanism that worked in a specific way to trigger a tariff rate but to no avail. Without the trigger mechanism, they could only implement the regulation after the statutory 20 trading days period. The formula was very technical, and they had tried to keep the zero-tariff period to a minimum but after 20 July 2018, they had to wait for the compulsory 20 trading days before they could ask the Minister to approve the rate of 42%. ITAC had tried to expedite the matter. Once it had been signed by the Minister of Trade and Industry, it then took six weeks for SARS to implement.

Mr Williams asked for the answer in writing.

Mr Macpherson thanked her for the helpful explanation, but said that the Departments worked in silos without a business plan for how the process of adjusting tariffs was going to be implemented. When a ton of any product came in duty-free, it was a ton of that product that the local industry could not sell and a job that was lost. The problem lay in the implementation period being far too long. It was critical that DTI and its entities developed a process for making the process more efficient. The 20 trading days wait was understandable but the period without duties on sugar had been far longer than that. He understood that processes were very important, but they could not be allowed to delay the completion of the task. It would invariably happen again in the future.

Ms Nikki Kruger, DTI Chief Director for Tariffs, responded on the specific issue of legislation. Only the Minister of Trade and Industry could instruct the Minister of Finance to instruct SARS to implement changes to legislation. Once the Minister of Trade and Industry had signed, it went to Treasury and went through a process before it was approved for the Minister to sign. DTI had initiated a discussion with Treasury on how the number of days could be reduced. They were addressing the process and the timelines.

The Chairperson asked for written response plus a flow chart. The 20 working days translated into one month, but the Committee could see that it could run to three months. That amount of sugar legally rushing into the country at zero rate was a huge problem. She requested Ms Kruger to send the written response and to engage with ITAC, SARS and Treasury and to develop a flow chart for the Committee.

This week Parliament would rise and would only return on 31 July 2018, which was a long wait. It was a serious problem when people were working on zero profit and, in some cases, the problem had led to a very high negative balance. The timeline had to be addressed. The tariff was a lever that was critically important for supporting industries.

Mr Mbuyane asked what had led to the application for a tariff adjustment. What were the challenges in the industry that led to the application? The Committee had not had a response from DTI. What was DTI’s response to the days that it had taken to finalise the tariff adjustment?

The Chairperson reminded him that DTI would return to discuss the tariffs. They would also be responding in writing. The Committee wanted to hear from SAFDA and SASA.

Ms Kruger informed the Committee that the question on trade agreements was a long discussion and proposed a separate session to discuss trade agreements.

Mr Nzimande informed the Committee that he had only a very brief slide on transformation in the industry, but DTI had extensive slides on it.

Mr Mbuyane said that Mr Nzimande was making the matter far too complicated. He had asked for a transformation plan. The industry had to transform.

The Chairperson said that the tariffs had been tackled but the Committee needed to deal with other issues. The Committee had emphasised after the oversight visits that transformation in the sugar industry was really urgent. The President himself had made contact with the sugar industry on Good Friday. She believed that SASA had applied for tariff adjustments in February 2018, but it had taken SASA two months to complete the application form, which was a long time considering that they had made applications previously. She asked why that process had taken so long.

The Chairperson reminded the Committee had adopted the first phase of the Sugar Industry Oversight Committee Report. It had been decided to complete that report after the follow-up meeting with role players in the sugar industry.

Transformation in the Sugar Industry by DTI
Ms Ncumisa Mcata-Mhlauli, DTI Chief Director: Agro Processing, said that at its April appearance before the Committee, DTI had been requested to follow up on the timelines for the application for the sugar tariff increase and that had been submitted in writing, plus ITAC was in attendance and had made a presentation on the matter. Secondly, DTI had been requested to present a short-term sugar industry transformation plan and that was what SASA would be presenting. Thirdly, DTI had to look at a long-term transformation plan for the sugar industry and had to look at amendments to the sugar industry regulations. DTI had a presentation on the sugar industry regulations and SASA would report on transformation plans.

Mr Williams was concerned that DTI was not reporting on the transformation process which meant that the Committee would receive a one-sided report on that process. He found it most unusual because DTI always presented. He asked why it would only be the South African Sugar Association that would be reporting. What about the other associations? Where was the small growers’ association?

The Chairperson clarified that SAFDA had become member of SASA. The Committee had asked SASA to report on transformation. That was what the Committee had requested. Members had taken a decision not to fully adopt the  Committee Oversight Report on the Sugar Industry until the follow-up presentation. DTI had to report on regulations. The Committee had requested the ‘sugar industry’ report and the industry was channelled under SASA. One change was the inclusion of SAFDA. That was where they were.

South African Sugar Association (SASA) briefing
Mr Suresh Naidoo, SASA Chairman, emphasised that the initiative that he would be talking to was current, immediate and had been bought into by all role players. It was not imposed but crafted by all role players. The Committee had wanted SASA to delink transformation from the tariff issues. The Committee had wanted an urgent submission on immediate transformation in the sugar industry within the context of its existing operational infrastructure. Secondly, the Committee had asked for a comprehensive five-year transformation plan that would result in meaningful transformation in the sugar industry.

Mr Naidoo stated that the bulk of presentation dealt with immediate transformation. There were 20 000 black small-scale growers in KwaZulu-Natal and Mpumalanga and the interventions would impact on them. Currently those growers received a premium price which was supplemented by R16 million. He outlined each intervention:
1. Increase the premium even further by another R16 million. It was an enhancement of R70 per ton of cane for small scale growers or effectively a 21% fee.
2. For the category of cane growers who were above small scale, the industry was to pay a premium price for cane from those growers. A separate fund of R35 million would pay a premium above market price leading to an enhancement of R21 per ton of cane.
3. The cost of cane transport was a major cost to small suppliers, so the industry had allocated R20 million to subsidise transport costs of black small-scale farmers, i.e. R12 per ton of cane.
4. Access to seed cane was ensured by providing supplementary funding of R12 per ton and the establishment of nurseries for new cane.
5. Subsidise membership levies to a cap of R4 per ton compared to the previous year’s levy of R3.58.
6. The black cane farmers associations would become part of the federation and R10 million was available for new member associations. That year SAFDA would get R10 million.
7. Development of education and training. The sugar industry had a grower development fund which had been increased from R4 million to R14 million. None of the above amounts was dependent on the dollar-based price.
8. R10 million was for jobs for black people, especially women.

SASA was working on the long-term plan and had invited well-known transformation experts to assist to ensure that the transformation was meaningful.

Overview of the Sugar Industry: DTI briefing
Ms Ncumisa Mcata-Mhlauli had been asked to look at an overview of the sugar industry which provided 79 000 jobs. SASA would in future have two members in a federation-type structure, known as the South African Sugar Milling and Refining Federation and the South African Cane Farmers Federation. She provided details of the structural arrangements (see DTI document).

DTI had received comments on the amendments to the Sugar Industry Regulations. SAFDA had a concern about the levy-sharing mechanism and that was under discussion. The industry was working towards the long-term plan of economic transformation.

Discussion
The Chairperson referred to slide 17 about the SAFDA concern about levy sharing. SAFDA had asked DTI to hold off signing to allow SAFDA to discuss levy-sharing with the industry. What were the details of the levy that the industry was discussing?

Mr Macpherson asked for comment on the impact of the zero-tariff on imported sugar on the industry.

The Chairperson responded that she first wished to finalise SASA transformation.

Ms Mantashe asked SASA to explain difference between the presentation and the reciprocal commitments that would be based on the review of the Dollar Based Reference Price (DBRP), provided the tariff had been implemented. SASA had said that it was implementing immediately but the tariff had not been adjusted.

Mr Williams was pleased that everyone was united. He asked if the R172 million projects were dependent on the tariff adjustment or whether they are going to be implemented regardless.

Mr Macpherson congratulated everyone on getting to this point. There had been more progress in the last couple of months than in the last few years. If they could get this far, they could certainly get to the end of the journey. What the Committee had seen today was a commitment by private industry, that received very little, if any, government funding, but had worked on transformation spending R172 million on transformation efforts, which was a lot more than government would spend on such a project. He suggested that government needed to take a long hard look at itself and he called on the Departments of Agriculture, Forestry and Fisheries (DAFF) and Rural Development and Land Reform (DRDLR) to explain why they had not assisted. What was DAFF’s role in resolving small-scale farmer challenges? Why are they not getting title deeds to their land? Those were the tough questions that had to be asked. He hoped that the Committee would take those questions seriously going forward. He asked SASA and SAFDA to comment about the tariffs or lack of tariffs.

Mr Mahlobo had to welcome the team’s efforts in terms of governance and participation. It was the first step. The intention was good, but it was not fundamental transformation. The object of transformation was to assist in inclusive growth, involvement of the communities, growing the sector, but also with government creating conditions for growth. If the pillars were not there, it would just be peripheral. Transformation was about changing which meant moving from the current condition to a better condition. One item was daily transport. The distance of farmers to mills was being addressed by a few million but that did not help. The issue was about the mechanics of getting there.

A fundamental question was who owned the mill? How did small scale farmers participate in the mills, and not only as suppliers? What were the key items for small grower support. Pricing was one issue, but the presentation had not given the Committee the going rate. What was the impact of the millions given to them? How did their price compare with the price of sugar from Swaziland? What about the drought? What was the issue about imports which could kill the industry? So far, the transformation was compliance, but the areas of focus were not right. They needed to get transformation experts to assist them.

Ms Ntlangwini thought that perhaps the transformational plan was still coming. It looked like a wish list. She saw help but not a transformation plan. The Committee needed a more in-depth report. On the plan, she asked what the long-term strategy was to get farmers into the milling value chain. Why create many more associations when the industry was not yet transformed?

Mr Mbuyane applauded the DTI and SASA for trying to do what they had been asked to do. He still had questions on the transformation pillars. He saw numbers but not participation in governance, management and socio-economic development. Where was business within the transformation sphere? SASA still had to do the pillars of transformation. He queried the membership; 24 farmers had been nominated out of 2 500.

Mr Cachalia said that the object of transformation was to give smaller black players the support in order to get an equal opportunity. The outcome might not be equal but there had been some tangible assistance. However, at the heart of the matter was representation as hand-outs came to an end, which they should do. It was proportionally-based representation in which larger producers would cause self-perpetuation. SASA needed a robust view of transformation that would lead to a better society.

The Chairperson noted that in the structure for the long-term solution, there would be separate federations. SASA could not charge everyone the same levy. On what was the levy based? She did not understand that and maybe it had not been shared. SAFDA had requested the DTI Director General not to sign the regulations until the industry had agreed. However, the working out of the formula could not go on endlessly. They needed to reach an early conclusion. They needed a timeline that would not reduce the capacity to engage but would deal with the issue while it was critical. The industry had to do X and government would deal with tariffs, but government made it clear that real progress had to be made in transformation. The danger was that it could be too slow to achieve its purpose. All of the questions were valid, but she wanted SAFDA to explain why the levy was a problem.

South African Farmers Development Association (SAFDA) comments
Mr Siyabonga Madlala, SAFDA Executive Chairman, said that they had travelled a journey and they were part of the document that had been presented. The short-term plan was not a transformation statement. It was about relief, but they were working as a team on transformation that would transfer the value to the majority of the people. The sugar imports was creating a sunset industry. It had been hit with a crisis. The first intervention was to rescue them before the industry died. They would not allow SASA to use SAFDA as a bargaining tool. It was about sharing pain, but the pain was not the same. SAFDA was bleeding.

They had reached agreement in December and had been excited. But when SAFDA zoomed into the detail of the agreement, they did not feel represented, and it could not be only SAFDA. The agreement on structure showed two pillars: access to levies and sitting in the boardroom. SAFDA had the numbers and so on a one man one vote basis, SAFDA would get 90% of the votes. SAFDA had thought it was noble to say that they should share the Boardroom on a different basis, but the formula used for boardroom participation was not used in the same way for levies. SAFDA had 50% in the boardroom but only got 10% of levies. The organisation did not want gazetting until the sustainability of levies had been resolved, i.e. they could not survive on the subsidy amount given.

Further, it was now about numbers and there was chaos in trying to get more members. Everyone was canvassing for members because it was about control before the voting in September. A 90-year-old organisation was competing with a five-year old organisation. They had set up a divisive platform. SAFDA had a voice, but how were they going to pay their staff salaries on 10% of the levy?

Discussion
The Chairperson asked ITAC to note that the industry was dying. Some of the concerns raised serious questions on transformation.

SASA Chairperson, Mr Naidoo, stated that the essential difference was that the figures given were initially dependent on the tariff. Today, as he had stated, the interventions were being done regardless of tariffs and they were being done immediately.

He appreciated Mr Macpherson’s recognition. The SASA  vice-chairperson would respond to the question on the impact of tariffs and lack thereof and he would reply to the DAFF question. He explained to Mr Mahlobo that what was presented was an immediate action plan. It was not an intention. Transformation was not a destination; it was a journey, which was why they had brought on board transformation expertise to advise them on the best options to bring about meaningful transformation. The R20 million was not only for transport costs for small scale growers, but also for a study to understand the impact from a grassroots level. SASA could not put in a solution if it did not know what the constraints were. The impact of price for small scale growers had been softened by the additional R50 million which had increased their price by R70 a ton.
           
He replied about new grower associations. One initiative had been put in place and the only association currently was SAFDA, so they had already received R10 million. If there was a second association the following year, the structure was in place so that any additional associations could be recognised and supported. Mr Mbuyane had questioned participation in decision-making and observer status. The industry had formed the transitional committee and SAFDA was a fully-fledged member of the SA Cane Growers’ Association. He replied to Mr Mbuyane’s concerns on transformation pillars, saying that the transformation experts had made reference to the pillars that had to be put in place and the experts had dealt with the pillars in more complex industries than the sugar industry, so they would get there. Long-term transformation fell broadly within the answers that he had given. On the levies, SAFDA had spoken. DTI had informed SASA that it was to be an item of discussion at the 18 June 2018 industry meeting and it took note of the SAFDA comments.

Mr Hans Hackman replied that the industry was in the worst place it had ever been. The industry was looking for a dollar price that would cover the costs plus allow a small profit margin. The focus was on the urgency of getting the tariffs to ensure the survival of the industry. SAFDA supporters had travelled to Cape Town from Durban to show how important the matter was because livelihoods and thousands of jobs were dependent on it. An enhanced tariff was key to survival and it could not take months, it had to be very, very soon. The story of the industry’s troubles was well known. ITAC Commissioner Nzimande had created an impression that SASA was asking for an unreasonably high price which was way beyond the WTO bound rate. The industry was not asking a high rate. The industry was happy to be dependent on the WTO rate, 105% of $56 per ton, but it depended on where the price of sugar was located. At the moment the sugar price was extremely low and 105% of $56 was a problem. When it goes back to $400 a ton, the 105% would be no problem at all.

He simply had to say that the industry could not wait any longer. He had been alarmed to hear feedback from his colleagues in the downstream industries. The SA sugar industry was not the most competitive in the world due to impediments. It was the most southerly industry in the world and a great distance from the Equator but was ranked in the top 20 out of 120 sugar industries. The sugar task team was doing a great job in Pretoria. He had been engaging with them in Pretoria the previous day. There were more meetings planned but he had been alarmed to hear the questionable information being put out by the downstream producers. If the tariff was reduced to the dollar-rate price or below, the growers and millers could close up shop. He thanked DTI and ITAC for their work on the tariffs.

The Chairperson said that during the input from SAFDA, she had recognised that tariffs were very important. She asked ITAC how fast the sugar tariff could be expedited. Looking at remittance advice and tax invoices which showed -R23 000 and that farmers were unable to sustain whole communities, it was very concerning.

ITAC Chief Commissioner said that he knew that it would not take long. An ITAC senior manager had informed him that the ITAC tax processes could be concluded by the end of July.

The Chairperson felt reassured by ITAC that it would expedite the process. She hoped that the interventions by SASA were immediate. Did it mean that some of it had already been implemented?

Mr Naidoo assured her that immediate meant now. Some money had already been transferred.

The Chairperson asked if it was unconditional and Mr Naidoo assured her that it was.

The Chairperson thanked Members who had stayed to the end. SAFDA members were very welcome.

The meeting was adjourned.