Implementation of Protection of Investment Act & Legal Metrology Act

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Trade, Industry and Competition

21 October 2020
Chairperson: Mr D Nkosi (ANC)
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Meeting Summary

The Portfolio Committee on Trade and Industry met with the Department of Trade, Industry and Competition and the National Regulator for Compulsory Specifications, as well as the National Metrology Institute of South Africa on a virtual platform for a briefing on the implementation of the Protection of Investment Act and the Legal Metrology Act.

The Department of Trade, Industry and Competition informed the Committee that the Government had adopted a new investment policy framework in 2010 and had established new legislation to provide clarity on the protection, aligned to South African law and the Constitution, that would be afforded to all investors. Most of the investment treaties had been terminated and only a few remained, owing to their expiry conditions.

South Africa had initiated a process to develop the Protection of Investment Act which ensures that South Africa remains open to foreign investment, provides adequate security and protection to all investors (domestic and foreign) and preserves the sovereign right to regulate in the public interest and to pursue developmental policy objectives. The main provisions in the Protection of Investment Act require that foreign investors must adhere to South African law and that they are granted the right to be treated no less favourably than South African investors for investments “in like circumstances”. Expropriation was addressed by a reference to section 25 of the Constitution and, if section 25 were amended, the Amendment would automatically apply to the Protection of Investment Act. Investment disputes had to be resolved in national courts or referred to state-to-state arbitration if parties agreed. A novel provision was to allow mediation to avoid disputes. However, since the Act had been in place, there had been no requests for mediation or negotiation.

Members asked whether the Department thought that investment would decline if section 25 of the Constitution was amended. Did the Act protect foreign investors more than SA investors? How did the Protection of Investment Act apply to Somalians who came to South Africa to do business, such as running spaza shops in the townships?

The National Regulator for Compulsory Specifications explained the regulatory process of Legal Metrology and how the Legal Metrology technical regulations were maintained and administered, giving examples of each process. In terms of implementation of the Legal Metrology Act and Regulations, laboratories had been designated to conduct repair and verification work on behalf of the Regulator. Applications had been received from 98 verification bodies and 87 repair bodies. The names of designated bodies were published on the Regulator’s website. The National Regulator had co-ordinated, interacted and managed the international, regional and bilateral interactions with other institutes responsible for legal metrology in the light of the Act. Challenges included funding to support the implementation of the extended scope of the Regulator.
 
The National Metrology Institute of South Africa explained that modern day Legal Metrology was a highly sophisticated technical field requiring state of the art laboratories and advanced scientific expertise. To ensure compliance to legislation, the required infrastructure, expertise, knowledge and research needed to ensure a suitable legal framework for reliable, consistent and internationally recognised measurements. As was international practice, the Institute already provided calibration in the Legal Metrology domain in terms of health and safety, law enforcement, environmental monitoring and energy efficiency and air pollution monitoring but the Institute did not have the required infrastructure of laboratories, equipment, expertise, knowledge and research capability to continue as a stand-alone institution.

The Department of Trade, Industry and Competition confirmed that research was being undertaken in order to consider the viability of combining the National Metrology Institute and the National Regulator for Compulsory Specifications.

Members asked how much the budget cuts for the two entities had amounted to. How would the budget cuts affect service delivery in the two entities? Was there any progress regarding the ageing infrastructure at the Regulator? What progress had been made concerning the labour component at the Regulator? Could anything be done to ensure that rural provinces also benefitted from the postgraduate programme?
How was the Regulator managing the unfunded mandate of local metrology and the processed meat standards? How far had the process of integrating the two entities progressed?
 

Meeting report

Opening Remarks
The Chairperson greeted the Committee Members and everyone who was connected on the online platform.

The Secretary confirmed that the meeting was quorate and representative. He presented the agenda.

The Chairperson indicated that as the two matters on the agenda were quite diverse, he would first deal with the Protection of Investment Act and Members would pose questions immediately after the presentation. That would be followed by a presentation by the Department of Trade, Industry and Competition (dtic), the National Regulator for Compulsory Specifications (NRCS) and the National Metrology Institute of South Africa (NMISA) on the Legal Metrology Act and there would be a discussion thereafter.

Update on the implementation of the Protection of Investment Act
Ambassador Xavier Carim, DDG Trade Policy, Negotiations and Cooperation, dtic, stated that before the Protection of Investment Act (PIA) was promulgated, SA did not have any protection of investments. Investments were covered by the Bilateral Investment Treaties (BITs)which began proliferating in the1990’s but at the same time, there had been a spike in litigation and the scope and number of challenges to (legitimate) government public policies (tax, environment, labour, economic development, amongst others) increased exponentially. There was also a concern that arbitration panels and their decisions might override democratic policy-making and national judicial systems. Arbitration decisions and awards were unpredictable, inconsistent and contentious, compounding concerns about the arbitration system.

SA undertook a four-year review of its BITs from 2007 to 2010, and the above concerns were confirmed. The review also revealed inconsistencies between BITS and the SA Constitution. Hence, the SA Government adopted a new investment policy framework in 2010 and established new SA legislation to provide clarity on the protection, aligned to SA law and the Constitution, that would be afforded to all investors. Most of the investment treaties had been terminated and only a few remained, owing to their expiry conditions.

SA also initiated a process to develop the PIA which ensures that SA remains open to foreign investment, provides adequate security and protection to all investors (domestic and foreign) and preserves the sovereign right to regulate in the public interest and to pursue developmental policy objectives. The main provisions in the PIA required that foreign investors must adhere to SA law and that they were granted the right to be treated no less favourably than SA investors for investments “in like circumstances”. Expropriation was addressed by a reference to Section 25 of the Constitution. Investment disputes had to be resolved in national courts or referred to state-to-state arbitration if parties agreed.

A novel provision was to allow mediation to avoid disputes. However, since the Act had been in place, there had been no requests for mediation or negotiation.

(See Presentation)

Discussion
Mr F Mulder (FF+) noted that the Amendment to section 25 of the Constitution was not on Ambassador Carim’s table, but he expected that it would have a negative effect on international trade with SA because the law had been controversial from the beginning with foreign governments and companies complaining that it would reduce their protection in SA and they would be disinclined to invest in the country.
If section 25 were amended, did Ambassador Carim think that investment would decline? He was inclined to think that it would as there would be no, or less, protection for investors. He was referring to property rights, including intellectual property rights.

Ms J Hermans (ANC) requested examples of the inconsistencies revealed in the four-year review.

Mr S Mbuyane (ANC) asked whether the Act protected foreign investors more than SA investors. He understood that foreign investors had to adhere to the SA law but he saw foreigners, like Somalians, coming to SA to do business, such as running spaza shops in the townships. How did PIA apply to them? Regarding the section 25 expropriation, he did not understand how investments were protected if some people had more property than others.
Ms N Motaung (ANC) asked for some examples of why investors had been aggrieved.

The Chairperson asked about the recent development in Gauteng in which the provincial government was attempting to regulate spaza shops. Products sold in many of the shops owned by foreigners were illegally imported, so there was no localisation of the space and it was technically unregulated. He would like the Ambassador’s comment on that situation.

Ambassador Carim responded to the question on the impact of changes to section 25. It was difficult to provide a clear determination. The Investment Act states that expropriation would be in line with section 25 of the Constitution. Therefore, if there were a change to section 25, there would be no need to change the Investment Act because it was cross-referenced. The way it would work in SA would be through bilateral treaties. The Constitution allowed for expropriation and gave the only reasons for expropriation, i.e. for a public purpose, non-discriminatory, and through due process of law. The question that might arise was that, at present, the Constitution spoke of just and equitable compensation. Under bilateral investment treaties, the standard was that compensation had to be market-related. That was the contested area and the only lack of consistency between SA’s Investment Act and international standards. He could not give a conclusive answer on the impact on investment.

Ambassador Carim explained to Mr Mbuyane that foreigners and their businesses in SA were subject to SA law and the protection afforded by the Constitution provided for the protection of SA citizens and foreigners. The bilateral treaties and the Investment Act did not speak to those circumstances – it was a high level treaty calling for high level treatment of investors. One would need to look at those cases he was referring to through those lenses.

He responded to the question by Ms Motaung about issues of grievance raised by investors. So far no concerns had been raised by any investor to take up an issue for mediation, as explained in the final slide.

The Chairperson stated that it was not an easy process to develop legislation and there was a bigger challenge in respect of how one determined impact. A flexible, but focussed team would help the country to get benefit from the regulations.

Mr Mbuyane said Ambassador Carim had not clarified his question about foreigners running spaza shops. He did not know whether they were investors or asylum seekers but he wanted clarity on the matter. What was investment and what was asylum?

Ambassador Carim stated that it was not a straightforward question. If a migrant came into SA and started a business, the question was whether that immigrant had brought foreign capital into the country or whether the person had just started up a business, perhaps using local money. Foreign investment occurred when an investor brought foreign capital into the country and produced goods in the country for domestic supply or export. The Act provided protection for those investors. There was no distinction between foreign and local investors, except that foreign investors could expect a similar standard of treatment as a SA investor would receive in like circumstances.

The question raised by Mr Mbuyane was a very specific questions. Who was Mr Mbuyane talking about? Was it someone who had brought money into the country, etc.? Before one could determine whether the person would be subject to the Protection of Investment Act, a lot more detailed information was required.

Update on the implementation of the Protection of Legal Metrology Act
Dr Anneline Chetty, Acting DDG Spatial Industrial Development and Economic Transformation, dtic, led the delegation assisted by Dr Tshenge Demana, Chief Director Technical Infrastructure Institutions. The CEO of NRCS and the CEO of NMISA would present on the specifics of the Legal Metrology Act. Dr Chetty explained that dtic was currently reviewing the Act.

Dtic
Dr Tshenge Demana defined verification for Committee Members. Verification ensured that measuring instruments performed within tolerable limits. As budgets decreased, the dtic and the entities had to be much more efficient. For that reason, dtic was looking at consolidating programmes, for example between the NRCS and NMISA. He explained that the first weights and measures Act in SA was introduced in 1922 to set uniform standards across the country for weights and measures. That was followed in 1973 with the Trade Metrology Act after which there were changes to bring the matter to its current position and Act: the Legal Metrology Act, Act 9 of 2014 which substantially expanded the scope of legal metrology beyond consumer goods.

NRCS
Mr Edward Mamadise, CEO, NRCS, explained that typical activities in the field of legal metrology included the approval of measuring instruments used in trade (e.g. retail scales, fuel pumps) and their ongoing verification, the inspection of measuring instruments and pre-packages and the application of sanctions in cases of non-compliance with legislation as well as the calibration of measurement standards used by the regulator and industry

Mr Mamadise explained that SA was a member of OIML, the Intergovernmental Treaty Organisation for Legal Metrology harmonisation that underpinned and facilitated international trade. He indicated that the regulatory process of the Legal Metrology and how the Legal Metrology technical regulations were maintained and administered, giving examples of each process. For example, interim requirements had been approved and were being implemented for Open Road Tolling (e-tolls).

In terms of implementation of the Legal Metrology Act and Regulations, laboratories had been designated to conduct repair and verification work on behalf of NRCS Legal Metrology. Applications had been received from 98 verification bodies and 87 repair bodies. The names of designated bodies were published on the NRCS website. The NRCS had co-ordinated, interacted and managed the international, regional and bilateral interactions with other institutes responsible for legal metrology in the light of the Act.

Future plans included the registration of manufacturers and importers and interim requirements for infrared thermometers as well as environmental measurements, collaboration with the National Nuclear Regulator and the development of national standards by SABS based on OIML model regulations and SADCMEL (Southern African Development Legal Metrology) requirements.

Challenges included funding to support the implementation of the extended scope. The NRCS had developed a three-year implementation plan with budget requirements in support of the implementation of the Legal Metrology Act and Regulations and a request for funding had been submitted to the dtic but no additional funding has been allocated. The NRCS would use its surplus from the previous financial year to gradually capacitate Legal Metrology. There were also problems with the environmental conditioning of laboratories and back-up generators were to be installed.

NMISA
Mr Ndwakhulu Mukhufhi, CEO, NMISA, explained that NMISA was established by the Measurement Units and Measurement Standards Act, 2006, to provide for the use of measurement units of the International System of Units (SI) and to designate other measurement units for use as well as to provide for the designation of the national measurement standards (NMS) and the keeping and maintenance of the NMS. The primary function of NMISA was to ensure that measurements made for regulatory purposes were fit-for-purpose.

Modern day legal metrology was a highly sophisticated technical field requiring state of the art laboratories and advanced scientific expertise. Mr Mukhufhi said that budgets, skills and laboratory needs suggested that the time was right for metrology to become a single programme of the dtic.

Unfortunately, compliance to legislation could not be achieved by the creation of an Act and Technical Regulations only. To ensure compliance to legislation, the required infrastructure, expertise, knowledge and research needed to be in place to ensure a suitable legal framework for reliable, consistent and internationally recognised measurements. He was aware that the Department was working on a proposal to merge the two metrology programmes and a proposal was due by the financial year end. NMISA did not have the required infrastructure of laboratories, equipment, expertise, knowledge and research capability to continue as a stand-alone institution.

Mr Mukhufhi noted that, as was international practice, NMISA already provided calibration in the Legal Metrology domain in terms of health and safety, law enforcement, environmental monitoring and energy efficiency and air pollution monitoring.

The Chairperson stated that modernisation would be a major issue for NMISA.

Discussion
Ms Motaung asked Dr Demana how much the budget cuts for the two entities had amounted to. How would the budget cuts affect service delivery in NRCS and NMIS? A10% and 11% budget cut was a lot of money. The NRCS had spoken of the installation of the back-up generators for the laboratories. Had that work been done or was it still to be done? Was there any progress regarding the ageing NRCS infrastructure? What progress had been made regarding the issue relating to the labour component at the NRCS? Could anything be done to ensure that rural provinces also benefitted from the postgraduate programme?

Dr Chetty stated that the dtic did not determine which entities received budget cuts. The cuts were made by National Treasury and the dtic simply had to implement them, so dtic had not chosen which entities would have their budgets cut.

Mr Mamadise stated that the budget cuts had impacted some plans, but NRCS had enjoyed a surplus of R200 million in the previous financial year which meant that the NRCS was financially viable and able to implement all the programmes, including the improvements to the NRCS.

Regarding organised labour, Mr Mamadise stated that there had been labour unrest in 2016 but the organisation had been restored to order. However, there were certain historical issues that were still to be resolved, especially the Continuous Development Programme which, by implication, allowed for automatic progress of employees and had been implemented in certain cases, but not in others. The Deputy Minister had been delegated to assist in the issue of the labour concerns.

Mr Tshiamo Maletswa, Acting GM for Legal Metrology at NRCS, was to speak on the ageing infrastructure but his connectivity to the online platform failed him.

Mr Mukhufhi stated that, unlike the NRCS, NMISA did not collect levies so NMISA relied on the government subsidy and also on the revenue that the entity generated by offering legal metrology services. The cutting of the budget by 10% had also had a ripple effect, cutting some of the potential revenue that the entity could have generated for its metrology consulting work which, as the leading metrology entity in the developing world, NMISA usually undertook for African and other countries. NMISA had consequently reorganised its work, but the effect of the budget cut had been very negative. It had caused the delay in the full implementation of the Act. NMISA could also not engage in some of its foresight work.

Regarding the inclusivity of the Human Capital programme, Mr Mukhufhi explained that seven years previously, when he had taken over, the entity had adopted a universal programme with the bulk of the bursary beneficiaries and graduate students coming from rural communities. NMISA had been lacking a presence in the “Coloured” community and the entity had recently adopted schools in the Western and Northern Cape and had employed a Master’s graduate from that community. The entity looked ahead to requirements seven years ahead and planned student programmes to meet those demands.

Mr Mbuyane asked about the human capital goals. He requested a copy of the report of that programme so that Members could appraise themselves of the programme. He asked for a briefing on how the NRCS was managing the unfunded mandate of the local metrology, and the unfunded meat standards project. How was the process of integrating the NRCS and NMIS progressing?

Dr Chetty stated that dtic was close to concluding the research phase in respect of the two organisations – NRCS and NIMSA and, once recommendations had been submitted, dtic would take the matter forward.

Mr Maletswa stated that he would provide a report on the human capital programme to support rural students. It had been a positive development, initiated to ensure that the entity had people with the required skills for metrology.

Mr Mamadise responded to the question about the back-ups for laboratories. The NRCS was working with the SA Bureau of Standards which was going out on tender to procure the generators and other requirements for the laboratories. One of the unfunded mandates was the new scope of legal metrology and the other was the mandate for compulsory standards for processed meat. The NRCS had made representations to the dtic and provided a business plan indicating the resources that would be required for effective implementation of the two programmes, but there had not been any additional funding. The NRCS had begun to look inwards for resources from the entity’s financial surplus as the two programmes were key and had to be implemented.

Mr Maletswa emphasised the issue of quality in the interim requirements. (His connectivity with the online platform was extremely poor.) His concerns were section 22 of the Legal Metrology Act which stated that: “ (a) Every type of measuring instrument used for a prescribed purpose is subject to type approval, unless excluded by regulation” and that: “(c) The Chief Executive Officer may, in consultation with the submitter, set requirements and conditions pertaining to the use thereof, for measuring instruments where these are not prescribed, until such time as a legal metrology technical regulation is published in terms of section 15.”

The value chain was there but there was no regulation that spoke to the legislation. Seven of the interim requirements had been submitted to the SABS but there were challenges with the other interim requirements and they had not been finalised. NRCS had implemented what was possible. Where interim requirements had been approved, the NRCS was in process of approving all existing instruments.

Mr Maletswa explained that the NRCS still had to appoint its own inspectors to check on adherence to the requirements but, other than that, it had done everything in its powers to manage the issues. There was also a question of market surveillance. However, there had been no modernisation to date. It was quite expensive to develop standards, but there was no other organisation that could assist.

He repeated that the NRCS was in progress of implementing the Act, given the limited resources, and the meeting should recognise that. The challenges related only to capacity. For example, there was no international standard that talked to the standards for infrared thermometers. What was required was calibration and that was difficult and very complex and that made the development of the standard very expensive. There had been progress and the NRCS did not need any help, except for capacity. The research had been done. All that the NRCS had to do was to implement.

Dr Chetty thanked her team for increasing the knowledge of the Committee Members on the matter of Legal Metrology.

The Chairperson commented that the Committee had been referring to the general modernisation of equipment, such as laboratories. He thanked the teams for their presentations.

Mr Mbuyane said that he had asked about the human capital development programme for graduates in the NRCS. Was the entity going to respond?

The Chairperson stated that the question could be answered in writing and requested the CEO to do so.
 
Concluding remarks
The Chairperson concluded the issue, stating that there were no further items on the agenda. He informed Members that the next meeting would be on Friday, 23 October 2020. It would be a preparatory meeting in connection with the interviews for the National Lottery Commissioner.

The Chairperson thanked the Members for their participation.

The meeting was adjourned.

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