Thursday, 19 October 2017

Leaving the Single Market - Product Rules


In my previous posts, I looked at the issues associated with leaving the EU's Custom Union. These issues are not related to leaving the Single Market and so are not mitigated by the EFTA EEA option:
As a third country, UK exports will also face potential regulatory barriers at the border, as set out in the EU Blue Guide "on the implementation of EU product rules", notably in sections 2.4 (products imported from countries outside the EU) and 7.3 (Control of products from third countries by customs).


Definition of  Third Country

Note that the Blue Guide refers to the “Union market”. However, section 2.8.2.1 of the Blue Guide states:
"For the purpose of the EEA Agreement references to the Community (now Union) or the common market in the EU/EEA acts are understood to be references to the territories of the Contracting Parties. Accordingly, a product is not only placed on the Union market, but on the EEA market (i.e. the national markets of the Member States and Iceland, Liechtenstein and Norway)"
In other words, the EEA agreement extends the "internal market" of the EU-28 to the three EFTA EEA states. With regards to EU product rules (as defined in the Blue Guide), EFTA EEA states are not treated as third countries. Hence, we are now looking at regulatory barriers that arise from leaving the Single Market, rather than leaving the Customs Union.


Presumption of conformity

The Blue Guide states that compliance with European harmonised standards is the basis for lawfully placing products on the market, whether they are EU products or third-country products:
"The basic principle of EU product rules is that irrespective of the origins of the products, they need to be compliant with the applicable Union harmonisation legislation if they are made available on the Union market. Products manufactured in the EU and products from non-EU countries are treated alike."  (Section 2.4, page 20)
products manufactured in compliance with harmonised standards benefit from a presumption of conformity with the corresponding essential requirements of the applicable legislation” (Section 1.1.3, page 8)
Products from third countries benefit from “presumption of conformity” if they are manufactured in compliance with European harmonised standards (as produced by CEN, CENELEC or ETSI). There is no requirement for third countries to implement the EEA acquis or even adopt European harmonised standards (EN standards) as their national standards. This is highlighted in the US Trade Department Report for 2016 (page 140):
"Products sold in the EU must comply with the essential requirements of relevant European legislation ... conformity with European regional standards (called European harmonized standards or ENs) provide the method by which such requirements can be fulfilled. If a manufacturer uses the ENs referenced in the Official Journal of the European Union under the relevant legislation, its products are presumed to be in compliance with the requirements. The CE mark is applied ... and ... is a key indicator that the product complies with EU legislation, enabling the free movement of products within the European market."
In theory, it is possible to show compliance with the essential requirements of European legislation bu using other recognised international standards (in line with Article 2.4 of the WTO TBT Agreement).  In practice, as the US Trade Department Report for 2016 also highlights, the EU imposes barriers to use of alternative standards:
"..if a manufacturer chooses not to use an EN, it needs to assemble a technical file through a costly and arduous process indicating how the product meets the essential requirements ... there is no predictability that EU or Member State authorities will treat the product as conforming with essential requirements on the basis of that file. As a result, U.S. producers often feel compelled to use the relevant EN for products they seek to sell on the EU market, even if the U.S. products are produced according to relevant international standards providing similar or even higher safety levels."
By virtue of membership of the EU and CENELEC, the UK already has harmonised EN standards as national standards. Even after leaving the Single Market, UK manufacturers will continue to benefit from presumption of conformity from continued use of EN standards.



Declaration of Conformity


The topic of conformity assessment and EU product rules is covered in great detail in a series of excellent posts by @andrewchapman50 on his "Door To Freedom" blog.


Chapman's post "conformity assessment and the wto option (part 1)" describes how EU product Directives and Regulations all use the 8 basic Modules (A – H), defined in Framework Decision 768/2008/EC.  The great majority of products (possibly as high as 95%) are covered by Module A, where the manufacturer performs conformity assessment, self-certifies and attaches the CE mark. The remaining modules (covering the small minority of remaining products) require the involvement of a Notified Body in the assessment procedure.

Chapman's second post on WTO option & conformity assessment demonstrates that for the great majority of products (i.e. covered by Module A), UK manufacturers will still be able to self-certify, attach the CE Mark and issue a Declaration of Conformity after leaving the Single Market, just as they do today. 

Chapman's third post on WTO option and conformity assessment addresses the small minority of products which require the involvement of a Notified Body. The manufacturer still attaches the CE marks and issues a Declaration of Conformity, but must also declare the details of Certificates issued by Notified Bodies. 

Chapman points out that on leaving the Single Market, UK Notified Bodies will no longer be recognised by the EU, but suggests it is highly unlikely that existing certificates will suddenly lose their validity at Brexit (re-confirmed in Chapman’s response to Richard North’s blog).  Chapman also points out that UK Notified Bodies could still continue to assess products for the EU market, provided they have a subsidiary or sub-contract relationship with a Notified Body located inside EU territory (which most already have). This is of course assuming the EU will not enter into a Mutual Recognition Agreement (MRA) on conformity assessment, which means UK notified bodies and their certificates would continue to be recognised in the EU (and vice versa).

On leaving the Single Market, conformity assessment activities within the UK for manufactured products exported to the EU will remain essentially unchanged.

Role of Importer

A key difference for manufactured products from third countries is the requirement to use an EU-based importer : 

"For products imported from countries outside the EU, Union harmonisation legislation envisages a special role for the importer. The latter assumes certain obligations which to some extent mirror the obligations of manufacturers based within the EU" (Blue Guide section 2.4, page 20)
"The importer is a natural or legal person established in the Union who places a product from a third country on the EU market" (Blue Guide section 3.3, page 33)
The importer ensures that the third country manufacturer has: (i) undertaken appropriate conformity assessment procedure; (ii) provided relevant technical documentation; (iii) affixed CE marking including product & serial numbers; (iv) provided instructions and safety information.

The importer must also: (i) ensure his own name, trade name/mark & address is on the product, packaging or documentation; (ii) retain a copy of the manufacturer’s Declaration of Conformity (typically for up to 10 years); (iii) provide the manufacturer's technical documentation upon request.

The Blue Guide (page 33) states that importer obligations do not imply importers undertake physical control/testing of the products themselves.  In a few cases, EU harmonised regulations require sample testing of products already placed on the market - this is normally an obligation on the manufacturer, but in the case of third country imports, sample testing is arranged by the importer, or if necessary, can be undertaken by the importer.

These points are also covered in detail in Chapman's blog posts on conformity assessment.  On leaving the Single Market, UK exporters will need to use an EU-based importer. But the obligations of an importer (described in Article R4 of Framework Decision 768/2008/EC), do not seem onerous and could be fulfilled by an import agent, a freightforwarder, an EU-based office or subsidiary of the manufacturer, or even the purchaser himself.


Control of products from third countries

Manufactured goods from third countries are subject to controls at the border under EU product rules: 

Customs authorities and market surveillance authorities have the obligation and the power, based on risk analyses, to check products arriving from third countries and intervene as appropriate before their release for free circulation. (Blue Guide Section 2.4 page 20)
Market surveillance ensures products placed on the market are compliant with product rules. Whereas EU/EEA manufactured goods are subject to market surveillance by the relevant national market surveillance authority when first placed on a national market, manufactured goods imported from a third country are subject to market surveillance at the border, as set out in Regulation (EC) No 765/2008 (requirements for accreditation and market surveillance) :
  • Article 19(1) requires market surveillance authorities in member states to undertake checks on products placed on the market - taking account of established principles of risk assessment, complaints and other information.
  • Article 27 “Controls of products entering the Community market”. Article 27 (1) requires customs authorities to undertake checks on products from third countries entering the EU in accordance with Article 19(1).
  • Article 27 (3) requires customs authorities to suspend the release of products imported from third countries when:
    • they suspect a serious risk to health, safety, environment or other public interest;
    • and/or products do not fulfil documentation and marking requirements;
    • and/or the CE marking has been affixed in a false or misleading manner.
The important point to note here is that customs inspections are intelligence led - consignments are selected for inspection based on risk assessment. Even EU origin consignments may be subject to inspection based on a risk assessment of fraud and criminal activities. Consignments from outside the Single Market are also assessed for the risk of non-compliance with product rules.

Current non-EU imports to the UK provide a useful measure: Customs Declarations are 99% electronic with 96% cleared in seconds; 4% are subject to checks, with clearance standards of 2-3 hours (maximum); the vast majority of checks are documentary checks rather than physical inspections (See HMRC evidence to the House of Commons Treasury Committee). At Dover today, Lorries carrying goods from outside the EU that are subjected to checks are cleared within 45 minutes on average (see Oxera report on Brexit impact on ports).

Non-EU imports come from a range of countries with differing national product standards and enforcement regimes. It should be emphasised that EU member state national authorities administer their own customs regime and make their own decisions regarding risk assessments and frequency of checks - this is not dictated by EU regulations. Under the current risk assessment process, customs and market surveillance authorities focus their attention on consumer goods from the Far East and Africa, considered to be high risk for illegal and non-compliant products.

So will UK & EU member state authorities decide that a high rate of consignment checking for each other's manufactured goods is required the day after Brexit ? When both parties remain harmonised on EN standards ? When manufacturers / traders have an established track record of product compliance ? Will goods that were acceptable the day before suddenly be deemed high-risk, requiring diversion of customs/market surveillance resources away from "high-risk" prducts from Asia/Africa at the same time impacting on supply chains your own country relies upon ? It seems unlikely to me that existing UK-EU trade in manufactured goods will face a sudden cliff-edge of increased consignment checking at the border.


Market Surveillance co-operation

Co-operation is promoted within the Single Market to strengthen Market Surveillance. Regulation (EC) No 765/2008 requires "efficient cooperation and exchange of information" between member states and also with the Commission and relevant agencies (Article 24); between customs and market surveillance authorities within a member state (Article 27). Better information will allow better targeting of "high-risk" consignments from third countries.


Interestingly, Article 26 provides for national authorities to cooperate and exchange information with authorities of third countries to promote and facilitate "access to European systems" and "activities relating to conformity assessment, market surveillance and accreditation". 

The EU views ”compatibility of market surveillance measures and supervision practices” as a condition for open international trade. For example, the Canada-EU Trade Agreement (CETA) Ch 6 Article 3 states “The Parties shall strengthen their co-operation in the areas of technical regulations, standards, metrology, conformity assessment procedures, market surveillance or monitoring and enforcement activities in order to facilitate the conduct of trade between the Parties, as laid down in Chapter XXX (Regulatory Co-operation).”


By virtue of current EU membership, the UK already has close co-operation with other national authorities and is aligned in conformity assessment procedures, market surveillance,  monitoring / enforcement activities. Continued co-operation post-Brexit would aid in risk-analysis targeting and maintaining mutual trust - assuming the EU is willing to reach agreement.


Exceptions

While the Blue Guide applies to most products covered by EU regulations, there are some exceptions: "The Guide does not attempt to cover ... Union legislation on motor vehicles, construction products, REACH, and chemicals" (section 1.5).

Similarly, Regulation (EC) No 765/2008 (requirements for accreditation and market surveillance) applies only where EU regulations do not contain specific provisions, for example: "drug precursors, medical devices, medicinal products for human and veterinary use, motor vehicles and aviation." (para (5) of preamble).

In these exceptional cases, typically product registration is required with an EU agency or a notified UK authority recognised by the EU. Outside the Single Market (and assuming EU do not agree to mutual recognition of registrations), UK exporters will need to use an EU-based operator/representative to register products  (not dissimilar to the role of importer described above). 


Conclusions

In summary, navigating the EU's product rules from outside the Single Market is relatively straightforward: continue using EN standards; use an EU-based importer; UK Notified Bodies should establish sub-contractor or subsidiary relationships with EU-based bodies. Agreements with the EU for continued co-operation on market surveillance and an MRA on conformity assessment would be beneficial to both parties - but the lack of them does not provide an insurmountable barrier. There is no reason to expect UK-EU manufactured products to be classified as "high-risk" for non-compliance, hence no reason to expect an upsurge in consignment checking for manufactured products on Brexit day one.

While there are some exceptions to the general approach laid out in the Blue Guide, similar mitigation is available for these cases. The details of navigating these exceptions from outside the Single Market will be the topic of my next post.

3 comments:

  1. Interesting piece Paul. It's interesting reading this and comparing it with the blood-curdling but often vague warnings about NTBs from the other side.

    Most academic studies that don't have an axe to grind support your view rather than the Remainer one, by implying that NTBs facing exporters to the EU are modest in scale.

    There is a lot of variation across sectors though, which I think allows the other side to cherry pick the data to build nightmare scenarios. Richard North is of course the classic example of this with his obsession with trade in meat products - a pathetically small part of UK foreign trade. But there are many others.

    From the industry side, I can't help feeling that some of the mutterings relate less to the risk to exports to the EU than the danger that, when outside the single market, import competition from ROW will become sharper.

    Complying with EU regulations is largely a sunk cost for UK producers, so claiming that there will be NTBs post-Brexit related to this facing UK exporters is dubious. But of course having taken the cost of this compliance on, UK producers will be unhappy about some of these regulatory barriers being dismantled allowing Korea, Japan etc. easier access to UK markets.

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  2. Paul - you should also read and share this. A good article which comes up with rather a small effect on UK exports from a WTO/MFN trading arrangement.

    http://voxeu.org/article/short-term-impact-brexit-uk-exports

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  3. Thanks for your comments.

    With regard to industrial products, I do not see leaving the Single Market as a major problem - leaving the customs union is the impact to pay attention to.

    I aim to cover remaining industrial sectors where "prior approval" is needed in next post.

    Agricultural products is different as outside the Single Market (+ Swiss) SPS regime, border inspections are required (~20% for meat). But then outside EU SPS regime means we can be more open to RoW (Canadian beef for example). Again I hope to cover that in future post.

    Plus thanks for the voxeu link. I have seen that before and it does make a welcome contrast to the apocalyptic predictions, which are the ones that seem to get MSM attention.

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