Gerhard Erasmus, tralac Associate, discusses the governance implications of the recent amendments to South Africa’s private security industry regulation

The South African Minister of Police has issued a detailed statement to explain why the national legal framework pertaining to security firms, and in particular those operated by foreign companies, has to be altered. Some of these ‘explanations’ give rise to concern. The implications for governance, legal certainty, foreign investment as well as policy making, merit further discussion.

The Minister’s statement explains why a new legal framework has become necessary: “The challenge has come about because private security companies are increasingly performing functions that once were the preserve of the police and this has an effect on the criminal justice system.”[1] It is not quite clear how the administration of justice has been undermined by the practices of private security firms. If it is indeed the case the Minster should respond with effective remedial action and target actual problems. It is difficult to see how a change in ownership of these firms will bring about better criminal justice in South Africa.

The reasons why private security firms are a flourishing business seem to be relevant and should concern the Minister. Why have they become involved in functions such as crime prevention? The fact that South Africans (private households as well as companies) find it increasingly necessary to pay security firms to protect them suggests that the police cannot cope. It would be a much needed and welcome response from the Minister to indicate how the underlying causes would be dealt with. Unfortunately that is not the gist of his most recent statement.

Security firms must comply with the law of the land. The principle that this sector, like many others, should not escape appropriate regulation is not contested. What should such regulation entail? One could think of matters such as training, transparency, how firearm licences are issued and whether taxes are paid. It has not been suggested that private security firms have become a threat to law and order. If the Minster anticipates a new need to properly regulate their conduct and to “improve the capacity of the regulatory authority, enhance firearm management, public accountability mechanisms and tighten registration procedures” then he should indeed do so. These would then constitute the ‘jurisdictional facts’ for implementing his new policy.

Why local ownership of this (apparently quite lucrative) business sector is necessary in order to regulate their conduct as security firms is not clear. Neither does he explain why foreign private ownership of a business enterprise is tantamount to ‘foreign interests’. If that were true international investment generally becomes suspect. The Minster only says that the Government “believes that some restriction on foreign ownership is sensible. We believe a sound approach is that majority control must be vested in South African hands. This means foreigners may still invest in security firms, but control will always remain locally. This will go some way to ensuring that SA’s interests are served and not those of foreign interests.”

And then the Minster explains how he intends to deal with the implications flowing from South Africa’s international legal obligations: “The amended legislation was drafted taking cognisance of our constitution and our international commitments. SA is part of the Southern African Development Community’s agreement with the World Trade Organisation[2] and the General Agreement on Tariffs and Trade and we will fully honour our obligations. In terms of the protocols governing these agreements, we may withdraw from all or part of the agreement by giving three months’ notice that we are doing so in the public interest. Such a withdrawal is not a signal that should negatively affect investor sentiment because, in accordance with our constitution, SA has to take proactive steps to protect its national interests.”

The relevant WTO agreement is the General Agreement on Trade in Services (GATS), not the GATT. South Africa has scheduled certain obligations under the GATS which will be affected by the Minister’s proposed legislation. (See a previous Discussion by JB Cronjé). Unfortunately it is not possible for a WTO member state simply to ‘withdraw’ from obligations. The WTO package is a single undertaking. It also contains detailed provisions on how members could subsequently alter their commitments or deal with emergencies. These subsequent actions are governed by specific rules.

In terms of Article III of the GATS each Member must publish promptly “all relevant measures of general application which pertain to or affect the operation of” the GATS. Members are required to inform the Council for Trade in Services of the introduction of any new, or any changes to existing laws, regulations or administrative guidelines which “significantly affect trade in services covered by its specific commitments”. They are also required to respond promptly to all requests from other Members for specific information on any such measures.

Article VI contains general obligations which require Members to comply with the basic and fundamental principles of transparency and due process. In sectors where specific commitments have been undertaken, each Member is obliged to ensure that all measures of general application affecting trade in services are “administered in a reasonable, objective and impartial manner”.

Article XIV might be of particular interest to the Minister; provided he can justify the South African legislation as being permitted by one of the stated exceptions. It might be difficult. This GATS Article provides for General Exceptions but clearly draws the boundaries as to when exceptions would be possible and what legal principles must be respected:

Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services, nothing in this Agreement shall be construed to prevent the adoption or enforcement of measures necessary .........to protect public morals or to maintain public order; necessary to protect human, animal or plant life or health; necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement......(Abbreviated.)

One of the most important features of the WTO is that it is rules-based. Respect for obligations is ultimately ensured through the possibility that other members are entitled to bring an action under the Dispute Settlement Understanding to enforce the rules. The defending state cannot prevent litigation by refusing to cooperate in such proceedings. The same applies to obligations under the GATS. The defending Member may for example plead one of the exceptions contained in Article XIV. The burden of proof is on the party seeking to invoke it. In order to claim the benefit of this defence, the defending party must demonstrate that its measure would not constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services, and it must be based on one of the stated exceptions.

Under Article XXI of the GATS a Member may modify or withdraw specific commitments in its Schedule. In order to do so at least three years must have elapsed from the date of the entry into force of that commitment. At the request of any Member affected by a proposed modification or withdrawal, the Member seeking to modify its commitment must enter into negotiations with a view to reaching agreement on any necessary compensatory adjustment. In any such negotiations, the objective is “to maintain a general level of mutually advantageous commitments not less favourable to trade than that provided for in the Schedules of specific commitments prior to such negotiations”. Any compensatory adjustments agreed through negotiation with affected Members must be made on an MFN (most favoured nation) basis; other Members are entitled to similar benefits.

If an agreement cannot be reached between the modifying Member and the affected Members, the matter may be referred to arbitration. Where arbitration has been requested by an affected Member, the modifying Member must make compensatory adjustments in conformity with the findings of the arbitration before taking action to modify or withdraw its commitment. If the modifying Member does not comply with the arbitration’s findings, any affected Member that participated in the arbitration may modify or withdraw substantially equivalent benefits in conformity with the findings.

These provisions are discussed in some detail here in order to emphasize how international agreements strike a balance between obligations entered into by states, and their subsequent decisions to alter these ‘in the public interest’. This is typical of all legal orders based on the rule of law. These very same principles are found in the South African Constitution and its Administrative Law. Executive action and legislative changes based on policy ‘adjustment’ have to be justified, be rational and must comply with legality, transparency and fairness requirements. The ‘public interest’ is not a blank cheque for the executive branch of government.

The SADC Finance and Investment Protocol (which has entered into force and which South Africa has ratified) is another relevant international legal instrument. It inter alia protects foreign investment. This Protocol does not have to be analysed in any detail (refer to the previous Discussion by JB Cronje, details above) but the original spirit behind the SADC regional integration endeavour needs to be recalled. Article 4 of the SADC Treaty mentions respect for democracy, human rights and the rule of law as the basic principles of the organization. The Member States undertake “to adopt adequate measures to promote the achievement of the objectives of SADC, and shall refrain from taking any measure likely to jeopardise the sustenance of its principles, the achievement of its objectives and the implementation of the provisions of this Treaty”[3]. They “shall take all necessary steps to accord this Treaty the force of national law” and “shall co-operate with and assist institutions of SADC in the performance of their duties.” In case of violations sanctions may be imposed: “Sanctions may be imposed against any Member State that persistently fails, without good reason, to fulfil obligations assumed under this Treaty....[4]

It is true that SADC has not lived up to its own ideals. That is part of another problem. However, South Africa should set an example of how to respect the rule of law when it comes to doing business across borders. One of the reasons why this is very necessary is because of the reciprocal disrespect which violations of accepted commitments may invite. Others may follow suit and discover ‘public interest’ justifications for treating successful South African firms in the same manner now contemplated for foreign owned security companies doing business in South Africa. The result will be a downward spiral towards unpredictable and illegal action on many fronts. Africa’s integration plans require a different basis.

Tell us what you think.

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[1] From the statement by the Minister published in Business Day, 20 May 2014.