Opinion: Arms exports framework needs urgent reform to support local industry

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The trade of armaments is a heavily regulated matter both at national and multi-lateral levels. This is understandable given the risks associated with potential misuse of arms for illicit acts such as terrorism, repression and unjustified aggression against innocent states and/or persons.

In South Africa, the national legislation that governs arms export activities is the National Conventional Arms Control Act No. 41 of 2002 or NCAC Act. This Act doesn’t include the control of weapons of mass destruction, which are governed by the Non-Proliferation of Weapons of Mass Destruction Act No. 87 of 1993. Let me mention from the onset that this piece of legislation is important for the protection of South Africa’s democracy and also to uphold the prescripts and the spirit of international treaties (such as the Wassenaar Arrangement) where the Republic of South Africa is a signatory.

The implementation of the Act is carried out by the National Conventional Arms Control Committee (NCACC), which is a committee of ministers appointed by the President of the Republic. Unfortunately, the implementation of the NCAC Act has caused several difficulties for the exporting companies in the local defence industry over the years. It becomes important to understand these challenges if they are to be effectively addressed in the near future. There are two sources of the said challenges, namely regulatory framework arrangements and institutional framework arrangements.

Regulatory Framework

As mentioned above, the NCAC Act was established to ensure that armaments are exported in a responsible fashion that does not endanger innocent lives within or outside the country’s borders. Sections 16 and 17 of the Act are particularly important when it comes to ensuring such control as they impose duties to the government of the importing country to ensure that the armaments are used for the purposes for which they were imported and nothing else. Section 16 (a) states that:

where conventional arms are exported and ownership thereof is transferred, the Committee must satisfy itself that the government of the country of import has given an undertaking, reflected in an end-user certificate, that the conventional arms in question will not be transferred, re-sold or re-exported to any other country without the prior approval of the Committee…”

Section 17 provides that the assurance sought through section 16 will be provided through an end-user certificate (EUC) issued by the importing government, which sets out details of the end-user of the armaments and their application. The Act further allows for the issue of regulations that will provide detailed guidelines on the implementation. The promulgated regulations contain a template of the EUC which stipulates that:

It is agreed that on-site verification of the controlled items may be performed by an inspector designated by the Minister in terms of Section 9 of the Act

The implication of the above statement is that a South African inspector would have to visit the base of the importing country to inspect the imported military equipment for ‘verification’ purposes. This became a bone of contention between the defence industry and government for a few years leading to 2019. The boiling point was however reached in 2018/19 where South African defence exporters were losing significant business because end-users did not want foreign inspectors scrutinizing their arsenal, which is located in strategic military bases, for whatever reasons. This meant that local companies could not export products unless the inspection requirements were done away with altogether.

There were several engagements between industry and government on this matter in 2018 and 2019, wherein government was unwilling to review the EUC template in the regulations, even though it was not prescribed by the Act. This meant that several thousands of jobs were at stake as large defence exporters like Rheinmetall Denel Munitions (RDM) and Hensoldt Optronics lost significant export revenues. Relief only arrived in February 2020 when government agreed to revise the statement on the EUC template to read: “It is agreed that on-site verification of the controlled items may be performed through diplomatic channels”. This meant that the diplomatic missions between the two countries could work out a mutually agreeable verification process.

The two-year experience of to-ing and fro-ing on the matter made it clear that government did not prioritise support to the defence industry, and by extension to job retention and economic development. There was absolutely no justification to refuse to change an unreasonable internal policy requirement, which was not even legislated to begin with. There is clearly a long way to go in getting government to understand the value of the defence industry to the economy of RSA. One has to ask if this was the automotive industry, would it take such a long time to resolve such a critical exports-enabling matter? There is significant lobbying that needs to be done to increase awareness in government on the legitimate status of the defence industry.

Institutional Framework

The Act provides that the authority responsible for its implementation is Minister of Defence (MOD), and the Secretariat of the NCACC is provided by the Department of Defence (DOD) under the control of the Secretary for Defence. The administration of all arms control activities therefore take place within the DOD, where the Department’s officials are tasked with processing export permits and handling industry queries. The inspectorate that is responsible for ‘verifications’ as explained in Section 17 discussed above, is also appointed by MOD within the Department of Defence.

The institutional arrangements resulting from the NCAC Act are within the heart of the problems experienced today. The Department of Defence has nothing to do with arms trade, except as a buyer of arms. It should never be the regulator of arms trade. This function should be under the Department of Trade and Industry (DTI), whose constitutional mandate includes industry regulation and support. The entire Directorate of National Arms Control (DCAC) currently residing within DOD should have been under the DTI. The mandate of the DTI is in line with this.

The DOD’s mandate is security-centric, which means it will always naturally make things difficult to third-parties that it interacts with. That’s why no one in the DOD seems to care much about Company X being unable to sell its products to Country A because of ridiculously phrased EUCs. DTI would have realised the impact of this on the economy and acted swiftly to address the same, because that’s part of the DTI’s mandate. It comes naturally to the DTI to assist industry; just like frustrating third parties comes naturally to the DOD.

We have seen similar structures in other parts of the world. In the UK for example, UK Trade and Investment (UKTI) or Department of International Trade (DIT) has a division within it called Defence and Security Organisation (DSO), which is responsible for exports of armaments. This is separate from the UK MOD. This ensures that there is no conflicting or even competing interests within the Defence establishment in as far as the Defence industry is concerned.

The secretariat of the NCACC is made of public servants. While this is convenient for the regulators, it can also be the cause of frustration to the industry. The Act allows for appointment of non-public employees to both the sub-committees of the NCACC and the secretariat. This would assist in diluting the civil servant mentality when industry matters are discussed. The minister should seriously consider this. The Minister also has authority to second any public service personnel to the sub-committees, secretariat or any structure created under the Act. Why not second DTI personnel who understand trade and industry needs? This would immediately alleviate the frustration experienced by industry as a result of mismatch between the latter’s expectations and the DOD’s actions. Lastly, it is also mind-boggling that the Minister of Defence is the one tasked with everything the Act stipulates, except the chairing of the Committee. Currently the Committee is chaired by the Minister in the Presidency, yet the secretariat, sub-committees, and the inspectorate are all appointed by the MOD. This can also blur the lines of command since functional reporting and administrative reporting fall with different ministers.

Conclusion

 The regulatory framework does not have to be restrictive to be effective. Whereas the provisions of the Act do not intrinsically impose restrictions on commercial activities of the defence industry, the implementing mechanism does. This mean there are issues with the institutional arrangements that should be addressed. It is my submission that the NCAC Act should fall under the authority of the Minister of Trade and Industry, and be administered under the DTI. This Department already has systems and processes in place to support the industry. Even the personnel involved are well equipped to effectively deal with industry challenges whenever they arise.



Written by Dr Mthobisi Clyde Zondi, Executive Chairman of SanDock Austral.