Gradual relaxation or gradual tightening of exchange controls? A review of South Africa’s obligations under article VIII(2) of the IMF Articles
| Jurisdiction | South Africa |
| Date | 25 May 2019 |
| Published date | 25 May 2019 |
| Citation | (2013) 25 SA Merc LJ 148 |
| Author | Phumudzo S Munyai |
| Pages | 148-167 |
GRADUAL RELAXATION OR GRADUAL
TIGHTENING OF EXCHANGE CONTROLS? A
REVIEW OF SOUTH AFRICA’S OBLIGATIONS
UNDER ARTICLE VIII(2) OF THE IMF
ARTICLES
PHUMUDZO S MUNYAI*
Senior Lecturer, Department of Mercantile Law, University of
South Africa
I INTRODUCTION
Since the dawn of democracy in South Africa, the policy on exchange
control bandied about by the government has been one of gradual
relaxation of exchange controls. If recent legal developments are any-
thing to go by, though, it can no longer be asserted with any degree of
certainty that the government intends continuing this policy of gradual
relaxation. The uncertainty has become more apparent from the deci-
sions in Couve and Another v Reddot International (Pty) Ltd and Others
1
(Couve); Oilwell (Pty) Ltd v Protec International Ltd and Others
2
(Oilwell)
and, perhaps most worryingly, from the recent amendment to regula-
tion 10(1)(c)
3
of the Exchange Control Regulations (the regulations),
4
dated 8 June 2012.
5
The amendment to regulation 10(1)(c) has the effect
that the term ‘capital’, for the purposes of that regulation, will now
include any intellectual property right, whether registered or unregis-
* LLB (UP) LLM (Unisa). Senior Lecturer, Department of Mercantile Law, College of Law,
University of South Africa.
1
2
3
Regulation 10(1)(c) states:
‘Restriction on export of capital.
(1) No person shall, except with permission granted by the Treasury and in
accordance with such conditions as the Treasury may impose:
...
(c) enter into any transaction whereby capital or any right to capital is directly or
indirectly exported from the Republic.’
4
Promulgated under s 9 of the Currency and Exchanges Act 9 of 1933 by GN R1111 GGE
123 of 1 Dec 1961, as amended from time to time by Government Notices from R872 GG 1458
of 3 June 1966 to R445 GG 35430 of 8 June 2012, including Orders and Rules 1961 as
published in GN R1112 GGE 123 of 1 December 1961, and amended up to GN R9 GG 33926
of 14 January 2011 (hence ‘the regulations’).
5
See GN R445 GG 35430 of 8 June 2012.
148
(2013) 25 SA Merc LJ 148
© Juta and Company (Pty) Ltd
tered. The unfortunate implication of this amendment is that transfers
of intellectual property rights from a South African resident to a
non-resident abroad will not be allowed, unless prior Treasury approval
is obtained. This result affects South Africa’s obligations under the
Articles of Agreement of the International Monetary Fund (IMF).
It is important to note as a starting-point that the problem with the
amendment to regulation 10(1)(c) originates from the decision of
the Witwatersrand Local Division (as the South Gauteng High Court
was then known) in Couve.
6
The court noted that regulation 10(1)(c)
provided that prior Treasury approval is required when a South African
resident transfers or exports capital to a non-resident outside the
Republic.
7
The court accordingly concluded that regulation 10(1)(c)
applied when the transfer abroad of ownership or ownership rights in
intellectual property (in that case, a patent) was involved.
8
However,
in Oilwell the Supreme Court of Appeal later came to a different
conclusion, that prior Treasury approval is not required when a South
African resident transfers ownership or ownership rights in intellectual
property (in that case, a trade mark) to a non-resident, because
intellectual property does not constitute capital.
9
The recent amend-
ment to regulation 10(1)(c)
10
practically overturns the Supreme Court
of Appeal decision in Oilwell and reinstates the law as pronounced by the
court in Couve.
The effect of the Supreme Court decision in Oilwell would have been
to further relax the exchange controls in line with the publicly declared
and widely accepted policy and practice of exchange control relaxation.
However, the effect of the recent amendment to regulation 10(1)(c),
together with the Couve decision, it is submitted, is ‘a freeze on the direct
or indirect export of all intellectual property from South Africa without
the prior express permission from the South African Reserve Bank’.
11
This essay notes that the principle that prior Treasury permission is
required may, without more, not be regarded as an obstacle or a
restriction on trade in intellectual property. However, it is argued that
the circumstances in which the Treasury may exercise its authority in
terms of the regulations to grant or refuse permission and the conditions
6
Supra note 1.
7
Idem at 433.
8
Idem.
9
Supra note 2 in paras 11 and 15.
10
Supra note 5.
11
Benjamin Cronin ‘Is the extension of exchange control regulations to IP unlawful?’,
available at http://www.webberwentzel.com/wwb/content/en/ww/ww-press-releases?oid=36270
&sn=Detail–2011&pid=32711, accessed on 14 May 2013.
EXCHANGE CONTROLS AND SOUTH AFRICA’S IMF OBLIGATIONS 149
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