Committee Report on Trade and Industry Budget Vote & Transfer Pricing

Meeting report

Committee's report on Budget Vote of Department of Trade and Industry: First draft
The Chairperson explained the reason why the Introductory part of the Committee's draft report (the Report) was still blank, stating that it was done deliberately, so that the thrust of the discussion on the entire budget could be inserted later.

She asked Members to indicate, by show of hands, that the points they would raise would not include serious political input, noting that there was more that remained for discussion in the various party caucuses. Only key issues that still remained outstanding would be discussed. She indicated that the Committee should ensure that the process it adopted, via the Committee Secretary, should be reflected on page 1.

She reminded Members that the Committee had considered the strategic and annual performance plans of some entities, as well as the key issues of the State of the Nation Address that related to them under the Department of Trade and Industry (dti) mandate. All discussions on this area were captured on page 2 of the report.

The Chairperson drew attention to the second paragraph of page 3, which noted that "radically transforming the economy is placing it on a structurally different path... requires the infrastructure deficit, of which energy is central, to be addressed as well as less conflictual business and labour relations…”. She thought this phrase captured the intentions of the Committee.
 
Nine point plan
The Chairperson noted that one of the priority areas on the nine-point plan was the third point:  "advancing beneficiation or adding value to our mineral wealth". The issue was being dealt with in a colloquium at the moment. She asked that Members of the Committee should discuss this.

Point 3 on page 3 spoke to the issue of transfer pricing, with which this Committee was already dealing, and that was related directly to beneficiation and value addition. She clarified that diversifying away from manufacturing and resource extraction did not mean that there would no longer be mining. It did, however, stress that the mineral resources would be beneficiated more effectively through the value chain and through manufacturing.
The Committee is currently pursuing this in a colloquium that was examining the impact of transfer pricing, and this should be noted in the report.

Mr M Kalako (ANC) said that he was in full support of this sentiment.

The Chairperson noted that point 4 dealt with the higher impact industrial policy and action plan, stating that the two were linked. By going up higher, the Department would no longer be on the value chain, which will translate to more effectiveness. This was not a policy document but an action plan.

The emphasis on the fifth point was more on encouraging private sector investment. One of the reasons for deficits was that the Government was investing. The issue at hand was whether the private sector was investing sufficiently.

Point 6 dealt with moderating work place conflict. This was within the context of the issue of inequality, vulnerable workers and improving workers' rights. The issue with labour was that if more of the profits remained within the country legitimately, there would be more money for the workers. There was a relationship that should be noted.

Point 7 dealt with unlocking the potential of Small, Medium and Micro Enterprises (SMMEs). This issue was no longer a problem.

The Chairperson asked if dti’s involvement in the budget was only on incentives.

Mr B Mkongi (ANC) said that he had been reading some materials from the dti the previous day, and the sub-programme on incentives was budgeted for.

The Chairperson said the incentives should be effectively checked, to know what was left.

Mr A Williams (ANC) said that the Industrial Development Zones (IDZs), as well as the relationship between these zones and the SMMEs needed to be checked. One example was where the development zones were capable of setting up infrastructure to assist those small businesses for which the Committee would be responsible.

The Chairperson responded that not only IDZs, but also the Special Economic Zones (SEZs) should be addressed and she asked the Committee Content Advisor, Ms Margot Sheldon, to check up on the relationships, and also to check the numbers of SEZs that would be developed in the current financial year, within the Minister's input and action plan.

In relation to African Growth and Opportunity Act (AGOA) the Chairperson noted that Ambassador Faizel Ismail would be joining the meeting at 09.30 to shed more light on it, as there was a publication online about the status of AGOA. When this issue was last raised, she particularly recalled Mr G Hill-Lewis (DA) expressing the DA's support for this, and this was echoed also by the ANC and IFP, although she was not sure yet on the EFF's view. It was  important to note how strongly the Committee, as a group, felt about the matter.

Mr N Koornhof (ANC) also said that he had seen a recent publication on AGOA.

Budget vote
The Chairperson said that there was nothing in the content that needed to be corrected in relation to the dti's undertaking of its mandate nor on the focus of the strategic plan.

The Chairperson read out the phrase “…guided by the strategic plan, the dti’s budget of R9.6 billion is to aid the implementation…” and said that the word "aid" should rather be replaced with “support”. She also said that the reference to “…the budget is channeled to the Department’s various programmes…” should be replaced with "allocated to", since this was a financial matter and this was more appropriate terminology.

The Chairperson referred to one of the seven programmes of the Department, one of which was “change”. This change emanated from the establishment of the Department of Small Business Development (DSBD), which was mandated to carry out certain functions. This had led to the transfer of some of the Department’s activities associated with small businesses and cooperatives. The principle of "funds to follow function" was adopted here and should be reflected in the Report. This explained the reorganisation and re-naming of Programme 3, which was previously broadening the participation programme to the SEZs and economic transformation. This would have an increasing impact on the mandate that the Committee already had, and which had been referred to in the report.

The Chairperson said the number of incentives targeted at small businesses and co-operatives that had been transferred should be mentioned.

She noted that the Department’s budget was expected to increase from R8.6 billion in 2014 to R9.5 billion in 2016/17, given the inflation estimate for the next two years. The Chairperson asked why there would then be a decline to R8.1 billion in 2017/18, since the National Treasury had said the inflation rate was likely to drop.

Ms Sheldon said the estimate was taken from the budget review.

The Chairperson asked Mr Tenda Madima, Committee Secretary, to get the budget review from her office, in order to confirm that the inflation rate had dropped. If not, then another reason must have explained the decline in the outer year.

Ms Sheldon said the decline could be due to a combination of the inflation rate and a reduced allocation, but the inflation figures would be double checked.

The Chairperson noted that it was important to get to the real issue on the decline because this would form part of the Budgetary Review and Recommendation Report (BRRR) process in which the Committee was also involved. A position had already being taken that more funds would not be requested until the outer years, but this would directly affect the Committee’s position on the first outer year of 2016/17.

The Chairperson noted that Ms Madalani, although not well and working from home, had offered to help with the figures for the Incentives Administration programme. The plan was to make the Incentives Administrative programme sound more productive.

Mr Mkongi said that the issue of incentive development administration dealt with the agencies of the dti. It therefore included both dispensing the incentives for economic participation as well as having the capacity to administer the programme. He said that the budget allocation of 3% for SEZs and the Economic Transformation programme would have to be reviewed, since the budget for the outer year had already been drawn up.

Mr Kalako agreed with Mr Mkongi. There was a need for clarity on the issue. Members of the Committee may feel that Special Economic Zones and the Economic Transformation programme were much more important, but the Department might have a reason for reducing the budget to 3%. It would be helpful to get the actual terms of what that figure entailed. He also suggested that the exact agencies around dti’s incentive development administration must be known, as this was the main problem of the dti. Knowing who the exact agencies were would help the Committee in carrying out its oversight functions.

Ms P Mantashe (ANC) asked at what stage the Committee would begin to monitor the consumption of funds, and for what purpose they are spent. She had some reservations about spending of allocated budget that could not be accounted for.

The Chairperson responded that the Committee could also approach the Parliamentary Budget Office to ask for clarification, starting with the dti. A notice could be given now and then an approach could be done in August.

Members of the Committee agreed to adopt this position.

Mr Mkongi said that the work that had been done on oversight should not be separated from the budget discussions, particularly in relation to the usage of the monies that were allocated to the agencies. One of the concerns was the question of the cost of offices. It was discovered, on the visit to Johannesburg, that agencies working closely together, such as the Consumer Commission and Credit Commission, had separate offices far away from each other, and some were not occupying all of the building they were leasing, which was wasteful. There was also a need to check some of the recommendations that were given in relation to the oversight and try to incorporate them into the budget debates.

The Chairperson agreed with Mr Mkongi. She added that this also referred back to the issue of transfer pricing that was raised the previous day. It was indeed important that entities worked together, and not separately. The challenge in the budget was to point to the conclusion that the current legal structure of some entities, which allowed them to operate independently even to the extent that they could take out their own leases, was not appropriate. There was the need for some stronger executive authority to be exercised. She asked Ms Sheldon to note that point in the conclusion to the Report.

She also asked if the 60% allocation for the incentives administration programme had been broken down in the Report.

Ms Sheldon responded that she drafted the Report alongside an addition of the percentage which was transferred to businesses as incentives, which may be highlighted at an economic classification paragraph. There was a reference to the total budget of R259 million, and this also explained what happened with the SEZs and economic transformation programmes.

The Chairperson said the explanation had been helpful to some extent, but it should be noted that there would be a comment on this in the conclusion.

Key issues raised by the Committee during its deliberations
IPAP and its impact
The Chairperson said that the explanation here needed to be clarified, as the Industrial Policy Action Plan (IPAP) was intended to bring about radical change. The reason for not achieving that purpose had already been stated; namely that the scope is not large enough. She asked Ms Sheldon if it was just the scope that was limited, as the Minister has already said IPAP was not at the stage where it was actually helping to bring about fundamental change. If that was the case, the policy might as well be scrapped.

Ms Sheldon replied that the Minister of Trade and Industry had referred to some examples where IPAP was working, which included automobiles and clothing sectors. He had said that a license needed to be given for the up-scaling of the IPAP this year.

Mr Mkongi said he was not sure what material Ms Sheldon was referring to. When he had gone through the Annual Report, in preparation for the Strategic Plan, he noted that there was a trend of the Ministry of Trade and Industry applauding the work that had been done, and referring especially to the positive impact of IPAP. There was also an account of the bottlenecks and challenges that had been faced in covering the broader scope of IPAP. Overall, IPAP was doing a good job and, if it was possible, the Committee should include in the foreword f the Minister's and the Director General's input and overview on the work of both the Department and the entities.

Mr Kalako said the Committee should capture the achievements of the Committee, the Minister and Director General in practical examples.

Resolving the energy crisis
The Chairperson said that the Minister was part of the "energy war room" but she did not know whether he supported it or not. The Minister of Energy should brief Parliament in this regard.

She said that her notes made previously had highlighted three points made by the Committee:

-The negative impact of the energy crisis on manufacturing had been raised before and there was a call for innovative ways to supplement the current gap in energy production. She asked if it was a good idea to have an Energy war room that was sitting regularly to resolve the issue.
-There was a need to encourage green industry.
- Emphasis had to be placed on the need for a proper preventative maintenance plan.
 
She noted that the issue was not so much that there was a shortage of energy per se, but there was a need to switch off intermittently to conduct the huge amount of maintenance needed. The critical problem here was that there had not been an effective maintenance programme and whilst that was now being developed and implemented, other measures should also be looked into, to prevent a total shut down of energy. Alternatives that had been mentioned on several occasions by the Director General and the Minister included fuel cells, diesel, wind, and gas.

Mr Williams said that it was important to state that all institutions should move to gas.

The Chairperson replied that she was not aware that a decision had indeed been taken for all institutions to move to gas. She said that fuel cells, wind, solar and diesel energy were other alternatives that should be looked into. This linked up with the oversight report, where it was said that large entities should consider manufacturing their power as an alternative.

Creation of black industrialists to advance economic transformation
Mr Williams said that one of the things that had been pointed out was that most sectors in South Africa were still white-controlled. An example was the green energy sector, which, although brand new, was completely controlled by white industrialists. The Committee should emphasise the urgent need for the radical transformation of economic sectors as well as the ownership relations within the sectors, and not just the creation of black industrialists.

Mr Kalako said that he did not recollect the Department or the Minister mentioning the specific sectors of manufacturing that this programme would concentrate upon. He requested that this information should be double-checked.

Mr Mkongi said that there was a summit on the creation of black industrialists that was held three weeks ago. Information should be found from the outcomes of the summit. He asked where this suggestion would be placed in the Report, suggesting that it was probably correct to put it under the Recommendations section. He asked for the  updated  number of companies that had been registered, as the Report only mentioned 40 companies.

The Chairperson replied that the information Mr Mkongi mentioned was unavailable at the moment. There was a projection of an outcome and output, but not an actual report. The only possibility was to get the report in time for the debate for Members to use then.

Verification of BEE compliance
The Chairperson said that the Committee had already expressed concern on the need for an effective and accelerated implementation process of compliance of companies to the BBBEE, as it was a tougher programme.

Mr Williams said that it was not only the verification of BEE compliance that should be considered, but also its effectiveness. Recently, there had been reports of BEE compliance and yet at the end of a few years, some companies suddenly stopped benefitting, due to the use of dodgy mechanisms by some other companies to reduce compliance. The importance of real and effective compliance should be emphasised.

The Chairperson said that emphasis would be placed on exercising oversight functions over the entities, effective compliance of the BEE, as well as ensuring that IPAP was working within its expanded scope and all three critical points would be raised in the Conclusion to the Report. It was important not to neglect the ‘Trade’ aspect of the Department.

Mr Kalako said that since the verification had moved from the South African National Accreditation System (SANAS) and there was a new element that had been introduced to audit companies for compliance under the National Treasury, there was a need to enquire how far the process had gone under the Auditing Commission.

Ms Sheldon replied that clarity was required on whether or not the verification responsibility had been removed from SANAS.  A follow up would be done to clarify this, as the relevant Act fhad not been amended to include the verification of BEE, and so it may still be carried out by SANAS.

The Chairperson said the issue raised has to be pointed out, as it dealt with finance and that was the whole essence of committees working in synergy.

Status of investment pipeline
The chairperson said the relationship with foreign direct investment and capital outflows, which was raised on the previous day, was quite informative. The existence of capital outflows may make foreign direct investment sufficient. It would be helpful, in the budget report under consideration, to have more concrete information as to how much investment had been attracted so far.

Ms Sheldon replied that she would verify the actual figures from the dti.

Encouraging domestic investment
The Chairperson said that the concern which was expressed to the Committee by the Department and which had been reflected in the media from time to time, was that it appeared that the allocation had been virtually used up. She asked how much was left from the investment for the financial year, to avoid turning people down for lack of funding, when they applied.

Mr Mkongi said the Committee should expand on the issue of encouraging domestic investment by considering developmental pricing as part of the instruments to bring about this encouragement, and in order to create competition for the foreign direct investors that had been attracted. He was not sure if this could be included in the recommendations.

The Chairperson replied that whatever had not been mentioned in the main body of the report could not be included in the Conclusion or Recommendation section.

Mr Mkongi said that since the Minister had raised the issue of developmental pricing, and the matter had also been raised in public discourse, it should be captured somewhere, perhaps under encouragement of domestic investment.

Consultants
The Chairperson said that the word ‘to’ in “we also alluded to trade missions that require that companies are scoped and checked for joining the trade mission…” should be changed to ‘that’.

She asked Ms Sheldon to check for the allocation in terms of the budget for consultants.

At this point, Ambassador Ismail joined the meeting and was recognised by the Chairperson, who noted that she would be requesting him to speak when the Committee had dealt with the Report.

Advertising budget
The Chairperson said that the raw sources of advertisements must be checked at all times. It should be noted that this was dti’s advertising and marketing budget. A lot had been done recently and there had been much publicity on dti’s technical infrastructure entities, as well as the National Consumer Regulator and Consumer Commission that was now aired on television.

Mr Mkongi said that the outreach programme of the Ministry, known as "dti to the people", must not be forgotten.

The Chairperson replied that the outreach programme was mentioned on page 8 of the Report. The Committee should be able to say that it welcomed this programme, as it was the first time dti was doing such a thing and it was a positive step to making the dti known.

Entities reporting to the Minister directly
The Companies and Intellectual Property Commission (CIPC)
The Chairperson said that the mandate outlined on page 9 of the Report mainly aligned with dti’s strategic objective to create a fair regulatory environment that labelled investment, trade and enterprise development in an equitable and socially responsible manner. Whenever the Companies and Intellectual Property Commission (CIPC) was checked, it should be measured with an equitable and socially responsible manner.

Its strategic plan has three outcome orientated goals, which were competitiveness, knowledge base and the broader formal economic participation. The question to be asked here was how effective the service delivery from CIPC had been.

It should be noted that it was Deputy Commissioner, and not the Commissioner, who had informed the Committee of the ongoing process to simplify the registration process.

The Chairperson added that the relationship with SARS that was being pursued should be noted. The CIPC also did not have the capacity in a very important area, which was de-registration of companies. It should be noted that Committee intended to monitor this issue.

Mr Mkongi said that he did not think the capacity for de-registration was the only problem facing CIPC. It also did not have the capacity to enforce transformation at the point of registration of companies. The Committee could not be found wanting in terms of the compliance, and so the issue of enforcing compliance must also be looked into.

The Chairperson replied that the broader transformation agenda was dealt with on page 11 of the Report, but that the points Mr Mkongi had raised were valid and would be included in the Report.

Mr Koornhof said that a distinction should be made on which companies were registered, and for what purpose.

The Chairperson said that Mr Koornhof’s point was taken, and that trusts fell in the category of "strange elements" that Government decided should become registered. The issue under consideration here was, however, the commercial companies and how they could be transformed. There was a need to directly interrogate the directors within the company, to prevent fronting.

Mr G Hill-Lewis (DA) asked for clarification on the interrogation of directors, and whether it meant checking the veracity of the documents of the companies.

The Chairperson replied that the veracity of documents was the issue and there was a need to eradicate fronting.

Mr Mkongi suggested that Members of the Committee should go back to examine this issue if need be, as the issue of non-compliance and the question of ownership and management had been a recurring issue in Parliament. He cited the example of the non-compliance with the 26% requirement of ownership ever since the establishment of the Mining Charter, despite the fact that companies had been registered and had been given licenses.

Mr Kalako said that a clear approach must be adopted for the transformation agenda that had emanated in all spheres of life.

The Chairperson replied that the absence of radical transformation in all entities should be pointed out and it should be pursued effectively.

The Swedish model
The Chairperson said that this issue came up three years ago and was seen as an option that could help the Ministry. However, most members of the Committee were yet to understand what exactly the Swedish model was about. The Committee intended to unpack the Swedish model and to consider its effectiveness, as it had not been put into operation.

Ms Sheldon said the Swedish model had been operational in the past. During the last oversight visit, it was noted that there was an intention to revert to the traditional call centre model, but feedback had not been received on this. There was an indication that it might revert back to the traditional call centre by 1 June.

The Chairperson said people would like to know the reason why the Swedish model had not been operational since a lot of funds were allocated to its purchase and implementation.

High vacancy rate
The Chairperson said that the delay in resolving labour matters had an impact on delivery. It should be noted that the Commissioner had resigned during the process of the budget report. If a further update was received it would be included in the final Report.

Customer and stakeholder survey
The Chairperson said the process that was adopted currently was to immediately forward the data of a company registration after it had been lodged. She said that a paragraph should be developed to include this, under the section on transformation.

Mr Mkongi asked if the role of CIPC in the broader transformation agenda had been raised earlier.

The Chairperson replied that it had been suggested that the issues be brought together under the "Transformation Agenda" heading.

The Chairperson said it was necessary to question what the purpose of business rescue was, and  if the rationale behind it had been working. The purpose of business rescue, when it was introduced into the Companies Act, was to ensure that companies could be assisted in difficult times and continue employing the people working in the companies. The other issue to consider was the significant contributions companies could make to the economy, meaning that they should be rescued when the need arose. The third point was to try to discourage people from automatically pursuing liquidation.

Mr Mkongi proposed a rearrangement of the entire paragraph. He also raised the issue of the principle and policy of business risk, stating that one of the points to be noted was the reckless activities undertaken by businesses, that led to their collapse. When this happened, it became the responsibility of the government to rescue these companies. This should be looked into.

CIPC Website
Mr Hill-Lewis said that he recalled that the Committee expressed its unhappiness about the fact that the CIPC was not reporting back to the Committee on its call waiting times. The Committee unanimously agreed that even if CIPC’s annual report did not reflect this, it should still report to the Committee on what the call waiting times were.

The Chairperson said the issue raised by Mr Hill-Lewis should be captured in the Report.

Mr Mkongi said, in addition, that there was a problem with the ICT, in terms of usability of the CIPC system. People should be taught how to log in to the system. There had been an extensive discussion on the issue of the website not being user-friendly.

The Chairperson replied that the switch to a more electronic system had been raised but it was yet to be balanced with the population requirements, especially since the issue of load shedding still was another factor. This had resulted in the suggestion to link up with another Government entity, apart from SARS. It should be noted that if more participation from the majority of the people could be encouraged, the challenges these people faced would have to be considered.

Website availability
The Chairperson said Mr Macpherson (DA) had raised this issue as huge impediment, because the website was not user friendly. It should be noted that CIPC had taken a decision to move out of the Swedish model and revert back to the traditional call centre.

Key issue of annual returns and the percentage
The Chairperson said that it was important to state the percentage of calls taken by the call centres, since it was a recurring issue. The reality of how difficult it is to get through these call centres should be addressed.

Mr Mkongi asked if a full report on the functionality of the CIPC’s call centre and website had been requested.

The Chairperson replied that a five-hour presentation had been given on the call centre last year. That presentation should be requested from the members of staff and looked into again. Since there was no Commissioner at the moment, the only thing that could be said about the call centre was that the Minister had instructed that the traditional call centre should be reverted to, since the Swedish model was not operational. The Committee would monitor the effectiveness of the traditional centre.  A full report setting out the challenges and successes of the Swedish model should be requested.

Transfer Pricing information
The Chairperson said that Members of the Committee should go through the transfer pricing information that was being sent to them as a "rolling document", and that it may be pertinent to do so before including their personal comments on this Draft Report. No decisions would be made today on the budget report under consideration.

Companies Tribunal
The Chairperson said the issue of competitiveness had been raised earlier in the meeting. It also came up at the Transfer Pricing Colloquium hearings that took place the previous day. There w a need to look into this again.

The strategic plan had mentioned that the government was looking into adopting Alternative Dispute Resolution (ADR) for the purpose of making proceedings more economic and accessible. This was a shift to resolve issues outside the regular court system, through a more economical and speedy means.

The Chairperson said that the question that needed to be answered, on the issue of costs, was how the Tribunal would generate its own revenue, and that would require an examination of other funding options.

One of the key issues that was raised was the current staff complement of the Companies Tribunal. The Chairperson said that the Tribunal was not operating at its full establishment level, since it was only three years old. It was not expected that the number of staff should be that large, at this initial stage. More staff would be employed as the demand increased for the work of the Companies Tribunal.

Adv A Alberts (FF) said that whatever extra funding the Tribunal decided on must not be allowed to impugn its independence,e because the Tribunal is acting as a court.

The Chairperson replied that the whole purpose of the Tribunal was to make dispute resolution more accessible and faster. The Committee should receive feedback on the progress of the other funding options, once they had been developed.

On the marketing strategy, it should be noted that the Minister has appointed a full-time member to focus on its operational and strategic process.

Mr Kalako said that the issue around the Chairperson of the Companies Tribunal must be included in the recommendation. The Department must draw up a clear guideline or policy for those who served in these agencies, and also state the amount they would be paid.

The Chairperson replied that Mr Kalako had raised two issues. One related to policy. The other had been raised also by the Auditor-General, and that was that proper systems were not in place initially, and that was why the appointment of a full-time staff by the Minister was welcomed. These points should be noted in the Conclusions and Recommendation section of the Report.
 
National Credit Regulator (NCR)
The Chairperson said that the National Credit Regulator fell within the Consumer and Corporate Regulatory Division. The NCR had received additional funding, in line with the Committee’s recommendation.

The importance of credit bureau information was to deal with the inaccuracies that affected people’s ability to get jobs.

She noted that the Committee needed to know whether the additional funds requested had been received. The point was that the Commissioner had already noted that there was a constraint on funds but that there would be a review of service delivery to address that lack of funding. The Committee had to take a position on whether the NCR was important and deserved to get more funding, so that this factor was referred to in the Medium Term Expenditure Framework debates.

In relation to the total cost of credit, the Chairperson said that the NCR had indicated, for the first time, that it was having a very constructive operational relationship with National Treasury which was working very well.

National Metrology Institute of South Africa (NIMSA)
The Chairperson said NIMSA was performing very important work and although it was a very technical division, the reality was that it affected the lives of people. The division was supported by two cross-cutting divisions, of research technology and technical infrastructure.

It was noted, during oversight, that it appeared that there would be a loss of continuity of institutional knowledge when a person with all the knowledge was leaving the division. This issue had to be addressed earlier, before the departure of such person. There was a need to ensure that institutional knowledge did not disappear when somebody left through retirement or other means.

Mr Mkongi said that it should be called ‘institutional memory’.

The Chairperson replied that both the institutional knowledge and memory of the entity should be preserved.

Mr Kalako said that he did not understand how the Department intended to fund NMISA, since the major complaint had always been insufficient funding. NMISA was of the engines for the manufacturing development of the country and problems may arise if it was not sufficiently funded. This should be included in the recommendation for the Government.

The Chairperson agreed with Mr Kalako and said that it should be noted in the body of the Report, since it was supported by the oversight report. This also related to NIMSA's role in addressing value addition, which was another priority of Government.

Budgetary projections
On the issue of compensation, the Chairperson said that the it referred to "personnel / human resources". The reason for the reduction in complying with the Treasury’s new base line, which was only for two years, was to confirm or work within the budget constraint that the National Treasury had projected.
The projected increase was associated with the appointment of new senior staff as well as the implementation of settlement agreements agreed to with organised labour. This raised an issue of whether a problem had arisen before, which necessitated a settlement agreement. The Chairperson said this should be verified, in order to note in the Report if it was a proactive or reactive labour dispute that was being referred to.

Letters of Authority (LOA)
The Chairperson said that the Committee was concerned that no measures had been put in place to address the LOAs. These LOAs were so critical and should be put in order in the course of the coming week.

Conclusion of discussions
The Chairperson reiterated that all issues that had been discussed here and taken into consideration had been noted and highlighted and would be included in the next version of the Report. She emphasised also that no political decisions had been taken.


AGOA: Ambassador Ismail briefing
The Chairperson introduced Ambassador Fazel Ismail, stating that he had been active as an official in the World Trade Organization (WTO) and later had acted as an ambassador for four years. The Minister would be briefing the Committee at the conclusion of the AGOA process with he United States’ African Group for that negotiation was ongoing at the moment. She had requested clarification on the status of the negotiation.

Ambassador Ismail summarised the current status of the ongoing discussions with the United States on AGOA, which he said was divided between categories of good news, not so good news, and bad news.

The good news is that a Bill on AGOA had been brought to the US Congress and had gone through the necessary Committees in the Senate – the Senate Finance Committee, the Senate Foreign Relations Committee and the House Waiting List Committee. The Bill had effectively granted an extension of AGOA for a further ten years. South Africa had been included in the Bill for that ten-year period.

The not-so-good news was that the Bill had not passed completely through the Congressional process. It still had to come before the floor of the full Congress for voting, and thereafter would have to go to the President for signature. Because it had not gone through the full course, there was a possibility that amendments may still arise when it came before Congress for voting. Amendments limiting South Africa’s inclusion in AGOA may come up. This was because amendments had been put forward by one of the Committees that looked into the Bill, to limit South Africa’s inclusion to three years, but that amendment did not succeed in the Senate Finance Committee.

The current draft of the Bill that was likely to be passed included something called ‘out of circle review’ which would identify countries with which the US had some trade and investment concerns. Concessions of those countries could be limited, or in the worst case they might have their eligibility within AGOA withdrawn. South Africa had been named in this provision of the Bill as a country that would have to go through this review process, within 30 days of the enactment of the Bill.

The bad news was that the Bill contained provisions that called for continuous out-of-circle review of eligibility of countries that should benefit from AGOA. This review could be brought into effect at any time. AGOA was a preferential arrangement, but built into the Bill were provisions to begin to initiate free trade agreements between the US and AGOA eligible countries. Although the Bill provided for the extension of AGOA for the next ten years, it did not create the necessary certainty and stability that businesses across the Continent required, in order to be able to use these preferences in a manner that would attract the necessary investments and helps to build industrialization, due to the several threats on countries to transit from a preferential regime to a reciprocal regime, throughout the provisions of the Bill.

The Chairperson said that there were problems with time that prevented the Committee from delving into in-depth discussion. She wanted to know when the deadline was for the Bill to be considered by the US Congress.

Ambassador Ismail replied that no one could tell when the Bill would be placed at the floor of the US Congress. This was in part due to the huge complexities surrounding the Bill, and also because the AGOA Bill was just one out of the many weighty bills of political importance going to the US on trade. Although the Bill has to be re-enacted by September, when the current legislation would expire, it could be re-enacted within weeks from now, or longer.

The Chairperson said that the issue of AGOA was very important but it was not likely that it could be considered alongside the budget report, due to time constraints. She reiterated that the Committee would like to see the AGOA Bill passed, and that the decision of the US Congress must be obtained before dealing with the issue.

Mr Kalako suggested that a separate day should be set aside, depending on the Ambassador’s availability, so that the Committee could be briefed thoroughly on AGOA.

The Chairperson replied that the Committee might consider 10 June for an extensive discussion on AGOA. The Ambassador should be able to give a further report by then, especially since the Minister would be present and trade issues would also be discussed. She asked that the Ambassador should update the Committee from time to time on any new developments that arose.

Mr Hill-Lewis asked whether the Committee Members would have an opportunity to engage the Ambassador on AGOA at that meeting.

The Chairperson replied that the reason for having the Ambassador in attendance was to get an official report on the status of AGOA, since the Minister, who should ordinarily give that report, was unavailable.

Mr Alberts asked that there should be an opportunity to engage the Ambassador in future.

The Chairperson replied that an opportunity would be given in future, when there was some finality on the issue at the US Congress.

Committee procedures
The Chairperson said that the Committee must formally consider the draft Reports on the transfer pricing and on the budget vote, on 7 May 2015.

The next meeting on the budget would be held on 12 May 2015. On Wednesday, 13 May 2015, there would be a formal consideration of the budget. If there was any update on AGOA by then, it would also be considered on 13 May.

She asked that all Members should go through the document on the transfer pricing with critical eyes, and be ready to discuss it on 7 May. She also requested that each party send through any input on the draft Report, in writing, electronically.

The meeting was adjourned.