Conformity assessment and the WTO option (part 1)

As the government prepares for the Article 50 withdrawal negotiation, and (probably) a parallel negotiation on the UK’s future relationship with the EU, it becomes increasingly important to form an accurate assessment of the consequences of failing to reach a trade agreement before the two years are up (and of failing also to agree an extension to the talks). If, as some say, the results would be disastrous, then we would be in an extremely weak negotiating position. Better, it is sometimes said, to join EFTA and the EEA, despite the admitted drawbacks of such a course, than to risk the WTO option. In particular, it has been argued that an extra requirement to prove the conformity of their products to EU product safety legislation would greatly hinder UK exporters.

A preliminary: rectifying the WTO schedules

As a preliminary point, there has been discussion recently, beginning with an intervention by the WTO Secretary-General on 25 May 2016, about how hard it might be even to restore normal international trading, which since 1995 has been conducted under the WTO framework. In this connection, the remarks made by Richard Eglin to the House of Lords Select Committee enquiry on ‘Brexit: future trade between the UK and the EU’ on 8 September 2016 are of particular value. Eglin served for over 20 years as a Director in the WTO Secretariat. To summarise his position as best I can, he said that so long as the UK maintained the same tariff schedule as that of the EU, there would not be any great difficulty in what he called ‘a rectification of the schedule’. Certain matters, such as the agricultural quotas, would have to be negotiated, but there would be no breakdown in trade (Question 3, p. 7):

Chaos would break out if anybody were to suggest that the UK does not have a schedule and therefore they will not trade with the UK. It would be absolute pandemonium. It is not going to happen. The reality is that it is a matter of negotiation. It could take years before the schedule is actually certified by consensus, as you say, but in that period we would continue to trade on the terms in which we proposed we should trade, as long as they were reasonable. … As long as it is reasonable, I see no problem whatever.

Richard North reached similar conclusions, and the impression I gain from the UK Trade Policy Observatory Briefing Paper on the WTO option, is that while there would be ‘potential administrative problems’ (p. 2) and ‘complexities’ (p. 4), these should not be too hard to overcome. I conclude therefore that the WTO Option is achievable without too much difficulty, so that we may proceed to an assessment of it, with regard to one particular aspect.

Andrew Tyrie on conformity assessment

In a paper published by Open Europe on 2 September 2016, Andrew Tyrie MP, the Chairman of the Treasury Select Committee, writing in a personal capacity, contended that the WTO Option ‘should probably be set aside from the start’. Having given a figure of 5.3% for the average tariff facing UK exporters of goods to the EU, and pointing out that the rate for motor vehicles is 9.8%, he then suggested (p. 3) that a requirement to ‘prove’ that the exported goods conformed to ‘EU standards’ might perhaps be more important than tariffs as an obstacle facing UK exporters:

Perhaps more important, many UK exporters would face the requirement not only to conform to EU standards, as they do currently, but to prove that conformity, in some cases by sending samples to the EU for independent testing.

Tyrie is referring to the EU’s product safety legislation, which sets essential requirements that products have to meet if they are to be released for circulation in the Single Market. He is imprecise in speaking of conformity to ‘standards’. With one exception, the Construction Products Directive, adherence to the European harmonised standards is voluntary. Nevertheless, adherence to the standards does give a presumption of conformity to the essential requirements laid down in the legislation, and it may be that manufacturers most often choose to meet the listed standards for their product.

That said, and therefore adjusting the nomenclature accordingly, Tyrie is correct in saying in effect that the essential requirements to be met by the product are exactly the same whether the manufacturer is based in the EU or outside of it. This is only common sense, because the purpose of the legislation is to ensure that products are safe, wherever they are made.

The principle of equal treatment

But Tyrie errs, in my opinion, in implying that there is an extra obligation upon non-EU manufacturers to ‘prove’ conformity, an obligation which does not exist for manufacturers in the EU. In fact, the conformity assessment procedures that a manufacturer has to undertake to establish the conformity of his product with the requirements of the legislation, are formally exactly the same for manufacturers everywhere. The Commission’s Blue Guide ‘on the implementation of EU product rules’ states (p. 20) that:

basic

The EU’s product safety legislation deals not only with the essential requirements to be met by the product, but also with the way that conformity with those requirements is to be demonstrated by the manufacturer. Thus, the principle of equal treatment stated in the Blue Guide extends also to these conformity assessment procedures, as I will show in detail with an example below.

While the procedures are formally exactly the same, these procedures do tend to favour EU manufacturers in one respect, namely that of the location of establishment of the conformity assessment bodies that issue third party certification, where that is needed. Of this more below, but suffice to say for now that while these bodies must in general be established in the EU (or EEA-EFTA or Turkey or nations with an MRA with the EU in that sector), they are free to operate anywhere in the world, and can also subcontract to testing companies established in third countries.

A second respect in which a non-EU manufacturer might be disadvantaged through the product safety legislation is that, for products imported from third countries, it generally requires the involvement of an economic operator established in the EU. For example, under those of the so-called New Approach 1 Directives and Regulations which were enacted after the New Legislative Framework was introduced in 2008, an ‘importer’ is required to receive the goods into the Community. The importer has a responsibility to confirm that the requisite conformity assessment procedures have been carried out by the manufacturer, but he has no obligation to carry out the procedures himself. I expand briefly on the importer’s obligations below, and conclude that they do not seem overly onerous.

Checks on goods at the border

A third source of potential difficulty for non-EU manufacturers is conformity assessment at the border. This issue was raised by Richard North in a dramatic way in his oral evidence to the Treasury Select Committee on 13 July 2016, claiming that British exported products would be ‘automatically detained’ at the border, leading to a huge traffic jam in the South East of England. Andrew Tyrie, in the Chair, drew attention to the effect that the threat of such an eventuality could have on the UK’s negotiating position:

stack-2

In his Open Europe paper, Andrew Tyrie concluded his discussion of the WTO option as follows:

wto-rules

with his reference n. 10 being to the same session of the 13th of July at which North gave evidence. So it seems possible that Tyrie paid some credence to North’s claims. One may note also, in passing, the similarity between North’s view that leaving the single market brings a new burden of ‘proof of conformity’, and that of Tyrie, as cited above, that there would be an extra requirement to prove conformity.

Under the New Legislative Framework of 2008, provision is made in Regulation (EC) 765/2008 ‘setting out the requirements for accreditation and market surveillance relating to the marketing of products’, in a section of it entitled ‘Controls of products entering the Community market’, for checks to be made on products from third countries:

controls-of

According to the first paragraph of the Article referred to in 27(1) above, goods may be inspected by the authorities, and samples sent to laboratory for testing, all on the basis of risk assessment:

samples

I will demonstrate in my next post that for most products, after Brexit, non-EU manufacturers will be able to attach the CE Mark and draw up a Declaration of Conformity just as they do now. So there is no reason why a lack of correct documentation should trigger intervention at the border. Moreover, as I intend to show in a later post, under the risk-based sampling approach as currently practiced, market surveillance authorities are devoting most of their attention to consumer goods from the Far East and Africa. Finally, for the minority of products which require third-party certification by notified bodies, I will argue that it is highly unlikely that existing certificates will suddenly lose their validity at Brexit. And if that rather implausible scenario did come to pass, it would certainly be known about in advance, and UK exporters would then take the necessary steps to obtain valid certificates before they sent their goods to the border.

An illustrative example: the 2016 PPE Regulation

To see how this all works in practice, I will take the 2016 Personal Protective Equipment (PPE) Regulation (EU) 2016/45 as an example:

ppe-2016

The Regulation is in the process of replacing the existing PPE Directive 89/686/EEC, which will be repealed on 21 April 2018. Barring an accelerated exit from the EU, it is one of the  Regulations which British PPE exporters would be facing as a third country under the WTO option.

Sections 14 and 15 of the Preamble show the balance that the legislation is trying to strike. On the one hand, conformity assessment is ‘solely the obligation of the manufacturer’. On the other, an obligation is placed upon importers to ensure, so far as possible, that the appropriate procedures have been carried out by third country manufacturers:

14-15

This rather begs the question of how importers are to ‘make sure that PPE they place on the market complies with the requirement of this Regulation’, if they are not themselves to carry out the assessment procedures. The answer becomes clearer when we look at the Articles which specify the obligations of importers. But before doing that, it is worth confirming from the definitions of ‘manufacturer’ and ‘importer’ in Article 3, that while the latter must be established in the Union, there is no restriction on the place of establishment of the former:

manu

imp

So the obligations of manufacturers, which follow, apply equally to all manufacturers, whether established in the EU or not.

Obligations of manufacturers

Article 8 contains the obligations of manufacturers, of which the first is the overarching one to ensure that their product meets the essential requirements laid down in Annex II of the Regulation:

oblig

and the second summarises what is involved in doing that, namely, to draw up the technical documentation for the product, carry out (or have carried out by others) the requisite conformity procedures and, if compliance is demonstrated, draw up a Declaration of Conformity and affix the CE mark:

draw

Obligations of importers

The obligations of importers, given in Article 10, begin with a remarkably bald statement that the products that they put on the market should comply with the regulations:

compliant

As I said above, this rather begs the question as to what lengths importers are expected to go to, to makes sure that the product is compliant. Are they to test it physically themselves? The answer is that, as previewed above in Section 15 of the preamble, the main emphasis of their responsibilities is on ensuring that the manufacturer has carried out the appropriate conformity assessment procedures:

importers-ppe

If the importer becomes aware of something wrong with the product then he is of course obliged to refrain from putting it on the market. But there is no indication that he is expected to carry out physical testing himself. The Commission’s Blue Guide, in its section on importers (p. 33), makes it explicit that there is no such obligation:

obliga

The footnote is helpful too in giving further indication of what is expected of the importer, with the emphasis again being on reasonable steps he can take to ensure that the manufacturer fulfils his obligations:

light

The importer needs (Article 10(3)) to place his name, trade name or mark, and address on the product or packaging, keep (Article 10(8)) a copy of the manufacturer’s Declaration of Conformity and be able to obtain the technical documentation from the manufacturer if requested to do so by competent national authorities of the Member States.

Sample testing of marketed products

Both manufacturers (Article 8(4), 2nd para) and importers (Article 10(6)) have a potential obligation, expressed in identical terms, to carry out testing of samples of products that they have placed on the market:

ppe-man-testing

ppe-sample-testing

Manufacturers have this potential obligation, whether based in the EU or not. The legislation appears to be designed so that importers can if necessary take over the responsibility when the manufacturer is located outside the market.

The Commission offers explanatory guidance on the equivalent clause in the Safety of Toys Directive 2009/48/EC which latter reads (Article 6(6)):

toy

The Commission advises, first, that they do not have to test every product that they place on the market but rather, should focus on risky products. Second, they are recommended to cooperate with manufacturers so as to avoid duplication. It may be doubted therefore whether there would be any greater overall burden: 2

not-require

It may be added that the primary responsibility for testing marketed products lies with the market surveillance authorities, as laid down in Sections 1 and 2 of Chapter III of Regulation 765/2008, with the general obligation upon Member States being stated in Article 16:

general

Overall, it seems to me that the obligations of importers under the legislation are modest in scope and scale.

Three categories of risk

One reason I chose the PPE Regulation as an example is that it provides a very clear and easy to understand illustration of how the EU safety legislation tends to distinguish between products associated with low risk, for which the manufacturer carries out the conformity assessment on his own responsibility, and those associated with high risk, for which the involvement of a third party testing and certifying body is required. Thus, Annex I lays down three risk categories of which the first, as the interested reader may confirm from the current Guidelines to the 1989 PPE Directive (pp. 89, 98), includes items as prosaic as ski goggles, gardening gloves and washing up gloves:

risk-1

while the third category concerns PPE, including for example safety harnesses for those working at a height, breathing apparatus, and chemical suits (Guidelines pp. 90, 93), to protect against risks associated with death or permanent injury, of which I show a few below:

height

and Category II simply covers intermediate risks:

cat-2

5 types of procedure

Five types of conformity assessment procedure are given in Annexes IV-VIII, labelled Modules A, B, C, C2 and D. There are normally two aspects to the whole process, first the assessment of a single specimen of the product to establish whether it conforms to the requirements of the legislation, and second the assessment of the process of production to ensure that the manufactured PPE conforms to type. Under Module A, the manufacturer takes responsibility for both aspects:

mod-a

Although at first sight the Module may not seem to contain any requirement to carry out physical testing of the product, this obligation is in fact contained within that to establish the technical documentation, since the latter must include, inter alia (Annex III):

h-i

as well as:

j

In contrast, the Module B procedure (‘EU type-examination’) covers only the assessment of the model or ‘type’, and is undertaken not by the manufacturer but by a ‘notified body’, called such because, having been approved by the relevant authority, normally a government department, of the Member State in which it is established, it is notified by that authority to the Commission and the other Member States. In the UK, the notifying authority for the PPE Directive is the Department for Business, Energy and Industrial Strategy, and there are currently 14 testing and certifying bodies in the UK which are notified under the Directive, including BSI, Lloyds Register Quality Insurance, INSPEC International, SATRA, and UK subsidiaries of the Swiss SGS and the American Underwriters Laboratories. I show some of them below, as they are listed at the Commission’s Notified Body database NANDO:

nbs

Under the Module B procedure, the notified body examines at least one specimen of the product and the technical design as presented by the manufacturer in the technical documentation:

mod-b

If the type meets the essential requirements of the PPE Regulation, then the notified body issues an EU type-examination certificate to the manufacturer, valid for up to five years:

5-years

The remaining Modules all concern the production process for a product which has received such an EU type-examination certificate. Under Module C, the manufacturer takes responsibility for production control; under C2, product checks at random intervals by a notified body on a statistical sample of the manufactured PPE are added to the procedure; under D, the manufacturer operates a quality system for production, final product inspection and testing of the PPE, and subjects it both to approval and then supervision by a notified body.

Where Module B is specified for the assessment of the type, therefore, a second Module is required for the production process, as can be seen in Article 19 below, which sets out the conformity assessment procedures to be employed for each of the three categories of risk:

cap

It can be seen that Category I PPE is assessed by the manufacturer alone, while Categories II and III require the involvement of a Notified Body.

Preponderance of the Module A procedure

All the New Approach Directives and Regulations draw from the same set of 8 basic Modules (A – H), which are defined in the framework Decision 768/2008/EC. The use of PPE as an example, because the sector is by nature associated with high risk and hazard, may give the reader a misleading impression of the relative frequency with which manufacturers are allowed to carry out the entire conformity assessment procedure themselves under Module A.

In fact, for most of the products which are covered by the New Approach, Module A suffices. Indeed, a study (p. 12) commissioned by EFTA at one point places the proportion, with construction products excluded, as high as 95%:

95

but then follows immediately (p. 12) with a more conservative estimate that the majority of products, with construction products again excluded, come under Module A:

mod-a-maj

The first sentence is imprecise as the manufacturer draws up a Declaration of Conformity (DoC, also known as a Supplier’s Declaration of Conformity, SDoC) under all procedures, as can be seen from Section 7 of the skeleton DoC at Annex III, Decision 768/2008/EC:

doc

What was perhaps meant in the EFTA report was that under Module A, the drawing up of a DoC is sufficient, without the involvement of a notified body.

All products which are covered by the New Approach legislation must carry the CE Mark. Products which are not covered should not carry the CE Mark. It follows that ‘CE products’ is a convenient shorthand for those covered by the legislation. I will use ‘Module A products’ and ‘NB products’ to distinguish further between those that can be assessed by the manufacturer alone, and those which require the involvement of a notified body. 3

In my next post I will begin to assess what might be the consequences, with regard to conformity assessment of their products, of the WTO Brexit option for UK exporters of CE marked products to the EU.

The photograph is said to be of helmet testing in 1913.

Notes:

  1. for which see my earlier post under heading ‘The Old Approach and the New Approach’
  2. ‘Toy Safety Directive 2009/48/EC: An explanatory guidance document’ (Commission; Ares(2016)1594457) p. 147. Link.
  3. For the purposes of this analysis of the WTO option, Modules A1 and A2 should not be included with Module A, even though they do not require the involvement of a notified body. These sub-modules require the existence of an accredited in-house body, the requirements of which, under Article R21 of Decision 768/2008/EC, cannot be met by a non-EU manufacturer, so far as I can see.

9 thoughts on “Conformity assessment and the WTO option (part 1)

  1. Very impressive Andrew – now that is what I call detailed research ! I already had a “gut-feeling” that conformity assessment would not be a big deal, based on (i) the NANDO database already listing all UK conformity assessment bodies (ii) WTO TBT agreement article 6.3 which “encourages” members to enter into MRA’s. But your post take this to many more levels of understanding. Excellent and really vital work.

  2. Thanks, Paul. Is your first point that since they are already notified, it shouldn’t be too hard for r-EU to accept their certificates, as they already do? But it would take an MRA or a chapter in an FTA, or some other agreement or arrangement, for this to happen.

    An MRA on conformity assessment seems natural, but it should be noted that the Commission has made something of a policy decision not to enter into them any more. They prefer equivalence of regulations, and for neighbouring countries they rather think that it should be on the basis of the EU acquis. We must avoid this, and work on the principle of abiding by global regulations where they are good, while maintaining our right to make our own if we prefer. Most chapters of the Swiss MRA are based on equivalence, which means in practice that the Swiss have to keep changing their national regulations when the EU does. It’s much like EEA-EFTA but more of a semblance of national sovereignty.

    Andrew

  3. I’m certainly aware of the Swiss deal being like the EEA in that the Swiss effectively keep their regulations in harmony with the relevant elements of the EU acquis. I’m also aware that the EU views the Swiss arrangement as unsatisfactory, because it is not automatic enough and has no independent court.

    I wasn’t aware of the commission’s unwillingness to entertain MRA’s any more, although it fits their behaviour of wanting legislative control. My point was that in the light of (i) UK’s current regulatory harmonisation and notified bodies (ii) WTO TBT 6.3 (which encourages WTO members to enter into MRA’s) it would be “unreasonable” for EU not to agree an MRA. But then I would expect even a hard-nosed EU to at least agree an FTA covering goods.

    The good news from your research is that even without an MRA, most trade in goods will be able to continue. I see this as establishing a baseline from which the UK government will negotiate. It would then have to be considered a negotiation failure on the EU’s part not to agree to something better.

    • Perhaps it would be easier to achieve mutual recognition of conformity assessment (ie traditional MRA) as a chapter within an FTA, rather than stand-alone? Andrew

  4. Have just read your post of 10th June which covers MRA’s and the EU commission’s desire to move away from “traditional” MRAs. As you indicated above, we should ensure we enter into an MRA based on “equivalent rules” (namely international standards) and not an MRA based on “common rules” (where EU regulations are copied into national law). Excellent and very helpful info on MRA’s in that post too – thanks!

  5. Paul, I think you are right to keep drawing attention to TBT 6.3. One thing I had rather missed is that while it does not seem to create any obligation to actively pursue MRAs, but it does seem to create some sort of obligation to be willing to respond positively from a request from another party to enter into an MRA.

    Therefore, while the Commission may be within their rights to say that ‘It is not worth pursuing new negotiations on this type of MRA’ (SEC(2004) 1072) – if ‘pursuing’ is understood to imply seeking actively – this does not mean that they could so easily refuse a request from another WTO member to negotiate an MRA. The criteria of TBT 6.1.1 and 6.1.2 are rather obviously met in the case of a UK-EU MRA, it seems to me, so on what basis could they refuse to enter into negotiations to conclude one?

    Andrew

  6. ” I conclude therefore that the WTO Option is achievable without too much difficulty, so that we may proceed to an assessment of it, with regard to one particular aspect.”

    The idea that rectification can be used to create a schedule for the UK is very contentious. It was discarded by the director-general of the WTO, and in general seems far-fetched for several reasons. Technically, there will be dramatic changes in the EU and UK trade quota, as they have to create quota for bilateral trade and they may want to adjust quota for trade with other WTO members. More info is available at https://tradebetablog.wordpress.com/.

    It’s important to realise that many other WTO members have to change their schedules too. All those discussions will be trilateral, as they affect the EU’s trade with those members as well, and most are going to be very difficult. The trade patterns between the EU and UK are expected to change, and change rapidly, so even knowing what reasonable quota are, or how a particular schedule would affect the economy is going to be hard.

    One thing that is not discussed on tradebetablog is that any nation can tie up the UK’s negotiations. The prize for that is of course that eventually the UK will be forced to give in so it can leave the customs union, but for some nations (like Russia), merely weakening the UK, the EU and the WTO may be quite enough reason.

    When Eglin says that the WTO will not allow a chaotic situation to exist, he is correct. But letting the UK pick any old schedule it wants as a starting point is not a fair solution, and it isn’t the only solution. A much more likely one is that the UK will simply be “asked” to stay in a custom union with the EU, where it can continue to trade under the EU schedule. It isn’t a coincidence that the idea of staying in the customs union was revived by Liam Fox last year. This will allow the UK to negotiate its schedule for years if it must. It is worth pointing out that the person responsible for the WTO negotiation is Fox, and according to the autumn statement, his department does not get full funding until 2019.

  7. Thank you, sir, for your comment. What do you think of Lorand Bartels’ position on this: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2841747 ?

    I will try to read some of your articles and come back to you. I had formed the impression that the process of attaining independent trading under WTO rules would not be too difficult if we retain existing EU tariffs (but also the freedom to negotiate FTAs), and submit reasonable proposals for quotas etc. – I think Bartels proposes basing them on the UK’s share of total imports in the previous three years, or something along those lines.

    Andrew

Leave a Reply

Your email address will not be published. Required fields are marked *