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Clearing Up Telecom Trade Barrier Dust
Gene Panger
As nontariff trade barriers for telecom products are ground ever-lower, dust clouds are swirling up. While they will bring periods of disorientation and blurred vision, they will eventually be blown aside. What will remain is a clearly different world with real benefit to consumers, manufacturers, and the participating economies.
Swift Changes in Conformity
Telecom conformity assessment is evolving rapidly around the world due to a confluence of trends and events. There are a number of contributors toward this accelerated pace.
The European Union established its New Approach to Technical Harmonization in the late 1980s to expedite the formation of the Single Internal Market. As part of this effort, the Modular Approach to Technical Harmonization described a continuum of eight risk-differentiated paths by which suppliers could place products onto the European Union (EU) market. As legislation was passed in Europe, product types were risk-matched against the eight modules and the relevant paths were referenced in laws affecting those products. Options included, among others, supplier declaration, type testing with surveillance, and a quality assurance approach that relies on the manufacturer's internal systems.
To simplify recognition of products that have a right to be traded throughout the EU, the global approach to technical harmonization created CE marking. This sole marking appears on low-risk, supplier-declared products. For products involving more risk, mandated third parties are involved and their identification numbers appear next to the CE marking in what can be thought of as legal certification. In all cases, the CE mark is not intended to communicate anything other than the product's legal right to be on the EU market.
The European system created a whole series of new ideas about how conformity assessment could be structured. In doing so, it contributed to a richer set of conformity alternatives that nations around the world are adapting for their own regulatory systems.
A primary element of the European New Approach is the negotiation of bilateral mutual recognition agreements (MRAs) with the European Union's major trading partners. The U.S. Department of Commerce started an early dialog with Europe. Though progress was initially slow, the department was persistent. The Trans-Atlantic Business Dialog added momentum to the U.S.-EU negotiations by gathering and focusing commercial support for MRAs. From 1995 though 1998, the Europeans negotiated MRAs with the United States, Canada, Australia and New Zealand.
In parallel developments, the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) talks delivered a Final Act, which provided a strong impetus to continue making changes in telecom conformity systems. The Uruguay Round produced the GATT's successor, the World Trade Organization (WTO), and the Agreement on Technical Barriers to Trade (TBT).
The TBT imposes obligations upon WTO parties as contracting parties to reduce nontariff barriers to trade by making technical requirements transparent, nondiscriminatory, and justifiable, and basing them on international standards. It also encourages these contracting parties to enter into negotiations intended to conclude agreements for the mutual recognition of each others' conformity assessment procedures.
During this same period, the Asia-Pacific Economic Cooperation (APEC) initiated the Osaka Agenda (1995), which led to a task force and then a project with the intent of developing a mutual recognition arrangement for telecom equipment. The APEC mutual recognition arrangement is a voluntary scheme endorsed by APEC members and implemented via a series of letter exchanges.
These contributors to global telecom market reform were catalyzed by three more factors. The first was the in-depth conformity knowledge held by the government staff involved in the process. The evolution of conformity is made possible by many people, yet a few well-informed players have been common to the many developments around the world. The second was steady, globally minded direction from the U.S. trade associations, which have kept resources focused on key issues and have become conduits for progress on international conformity concerns. The third was a cadre of multinational telecom manufacturers with staffs involved in each of the regional activities taking place around the world. Cross-regional experiences and communications between staff in these areas were also important factors.
Changing Public Policy Viewpoint
A number of public policy trends that are either being incorporated into telecom trade agreements or developing alongside of these agreements promise a simpler regulatory future for a large number of telecom products.
First, the European Union's conformity assessment procedures embrace privatization of both test and certification across the entire range of technical harmonization. While not the only economy choosing this approach, it represents the broadest effort to privatize conformity assessment. With a strong, competitive conformity provider industry, the EU could focus on strong accreditation structures to assure consistent and credible results, as well as on market surveillance to assure that products circulating within the economy meet EU requirements. Today's telecom trade agreements rely on this kind of broad privatization framework.
In this approach, the government sets market access requirements and procedures, qualifies the players, then relies on competition and stringent market surveillance to weed out noncompliant products. The government uses its resources and industry competition to initiate and sustain a kind of macrophagic public-policy function, protecting the body politic's economy from products deemed "foreign" by virtue of their failure to meet the economy's public-policy requirements.
In such an environment, the dominant force in the trade of telecom equipment becomes the private commercial arrangements between the manufacturers and their customers. Within the carrier segment, these arrangements often have clear technical requirements that are applied with the intent to protect a carrier from customer complaints over equipment that does not perform as intended. There are clear liability elements to these arrangements, as is consistent with business law practiced around the world.
Another trend developing in telecom conformity is that of supplier-declared conformity systems. Australia operates under such a system now; the European Union recently passed its next-phase legislation, in which the predominant regulatory conformity mechanism is a supplier-declaration option.
Privatization of the network operators is presumed under WTO guidelines. This enables nontariff barriers to be limited to a minimum set of essential safety, health and environmental requirements rather than prescriptive regulatory requirements promulgated with a public good (service) or asset (operator network) in mind. Brazil is a recent example of government implementing new conformity systems that separate regulatory requirements aimed at serving public policy from carrier-driven requirements aimed at improving quality or efficiency.
In looking for other changes in viewpoint, perhaps the best, if idealized, view of the future can be seen in New Zealand, where there are no regulatory requirements specific to telecom products. In this market, it is carriers who promulgate the technical requirements for connecting equipment to their networks. (Public policy may still mandate that telecom equipment meet product requirements related to electrical safety, electromagnetic compatibility, and packaging, among other issues.)
This approach contrasts with a traditional view of communications systems as public assets. As the revenue from telecom operations shrinks in comparison to the benefits of continued WTO membership and expanding world trade, expect more nations to change their telecom public policy.
In this environment, market access depends on meeting requirements set by network operators serving the market. When equipment and networks do not work well together, the operator's customers see the carrier as well as the equipment manufacturer as responsible. As markets evolve and network uses stratify, carriers will increasingly have an interest in delivering predictable levels of quality that can address market segmentation. They will also have little difficulty protecting their business interests using what leverage is available.
As regulatory barriers are driven downward, what remains is an environment where the underlying relationship between carriers and equipment manufacturers will become the primary driver of market access requirements. In place of obtaining approval in scores of countries, manufacturers will be trying to get access to dozens of operator networks.
Limits Of Regional Trade Pacts
Regional trade pacts that use combinations of geography and politics to define boundaries have expanded rapidly, particularly since the mid-1990s. The European Union has 18 member economies, with more waiting to join, while APEC has 24 participating economies. The United States, Canada, and Mexico make up the North American Free Trade Agreement (NAFTA).
The Inter-American Telecommunications Commission (CITEL) is currently leading an effort for an MRA between its South American members and the United States. If efforts to expand this into a Free Trade Agreement of the Americas (FTAA) are successful, another 20 economies in Central and South America will be linked. Yet another evolving trade arrangement is Mercosur, between South American economies and the EU.
The South African Development Community (SADC) Protocol on Telecommunications has organized 12 African member states so far with the intent of harmonizing interconnectivity and interoperability of telecom networks and services as well as harmonizing technical standards for network architecture and equipment. Furthermore, the Telecommunications Regulators Association of Southern Africa (TRASA), a body within SADC, is intent on harmonizing regional standards.
SADC will have the distinct advantage of starting with a fresh landscape and drawing on the forward edge of conformity system developments. The existing mutual recognition agreements and arrangements address mutual recognition of conformity processes and outcomes without harmonizing national regulatory approaches or underlying technical standards. SADC will be able to execute a more cohesive market with low internal interaction costs while evolving into another powerful economic region with low barriers to entry.
All told, more than 60 economies are evolving trade links with telecom conformity assessment implications. Clearly the WTO and its TBT have created considerable progress. Are there any drawbacks to this approach?
General welfare is maximized when free and open trade is practiced globally. From this perspective, regional trade pacts limit achievable benefits, since discontinuities remain between regions. But regional pacts are a profound improvement over the extremely fractured, barrier-intense past.
To best judge the overall benefit of regional trade agreements, the world community must be mindful of the congruity between them.
In some areas there is a high degree of congruity because a common group of people helped develop the conceptual underpinnings as well as the language and definitions used in the accords. High congruity can be found in the Canadian and U.S. implementation of MRAs since a single legislative or administrative action accommodated both the EU MRA and the APEC mutual recognition arrangement.
In other areas, the degree of congruity is lower and distortions can arise. An economy may choose to accept this cost in order to serve a public policy outcome. For example, under the U.S.-EU MRA, the European Union will accept electromagnetic compatibility, radio frequency, and telecom results from a U.S.-accredited U.S. conformity assessment body (CAB). The same applies in reverse: the United States will accept electromagnetic compatibility, radio frequency, and telecom results from an EU-accredited EU CAB. But for electrical safety, EU CABs must gain a U.S. accreditation. OSHA is not bent on complicating trade matters, but is simply following its public policy objective of worker safety.
Regional trade agreements are a profound improvement over the past, and they have at least started the world in the right direction. The agreements themselves will evolve, and gradually improve and simplify. Not since the EU took on the effort to draw twelve economies together have so many governments implemented new systems at the same time and with the intent of implementing a common process. As trade benefits blossom and world trade grows, regional trade accords will soon give way to inter-regional agreements. The process may not be smooth, but it is sure.
Areas To Watch
As the world implements these trade accords, the following areas bear monitoring.
Accreditation. The WTO's call to remove nontariff trade barriers is dependent upon trade agreements and accreditation of the players providing services involving technical regulations. Striking mutual recognition agreements among the growing number of accreditation forums around the world is a process that will shadow the telecom trade agreement implementation efforts.
Accreditation bodies range in structure from quasigovernmental entities to private nonprofit organizations, but all accreditation systems operate under the aegis of public policy. In the European Union, the European Commission's Directorate General (DG) III is responsible for legislation and standardization, quality policy, and certification and conformity marking.
The following statement is taken from DG III's Accreditation and the Community's Policy in the Field of Conformity Assessment: "As the technical arm to public administration, accreditors should see themselves as being at the service of society. Competition between and unnecessary separation or even duplication of accreditation services must be avoided since this can lead to undermining their independence and credibility, two significant factors that determine if accreditation is to provide confidence to the market or just added cost."1 Indeed, we have already seen circumstances that require conformity assessment bodies to acquire multiple accreditation for a common technical scope because of differing public policy agendas.
Before trade agreements, manufacturers went through the legal certification process multiple times for multiple national markets. It is certainly an improvement to have manufacturers turning to a single test and certification organization that has obtained multiple, common-scope accreditations in order to serve its clients' target markets. But this is inconsistent with the intent of the WTO TBT Agreement, since it adds unnecessary duplication.
If accreditation is fundamental to the effective functioning of these telecom trade agreements, then the International Organization for Standardization (ISO) Guides are the critical procedural resource that forms a common reference point for dialog, action, and subsequent surveillance and improvement. It will be important that the application of these guides be consistent around the world, particularly where multiple accreditation may still be required. Training and coordination needs within the accreditation service sector will also increase.
Finally, accreditation bodies may face a challenge in attempting to meet the conformity industry's needs in the short run. Finding qualified people with quality systems and technical backgrounds is already a challenge for manufacturers and conformity providers. Accreditation bodies may find themselves initially swamped with requests for accreditation, only to be forced to mete out scarce resources. The result could be providers waiting behind their competitors to have a chance to enter a market that has room for only so many.
Interpretations. Working out trade agreements is challenging work; herding tigers is simpler. But assuring that technical regulations are consistently applied is the focus of much work currently being done around the world. If a government's regulatory approval process is run by a single government body, with all interpretations coming from one or two sources within it, consistency is high. When this process is moved to multiple players competitively serving the same market, consistency will be threatened.
Maintaining that consistency will require a tool that provides a common source of interpretations. This tool could also assure that global competition among CABs will be based on commercial issues such as service, provider strategy, network, expertise, location, and price. The actual tool that enables access to common interpretations can be a straightforward Web-enabled data warehouse. Creating the tool, however, will require significant resources.
An ideal ombudsman and repository for such a tool would be the industry associations serving manufacturers or the conformity assessment industries. Associations provide existing, due-process structures financed by membership fees. They are an effective platform to gather regulatory, manufacturer, and conformity-provider viewpoints.
At the same time that this tool is developed, a transfer of knowledge and expertise from each economy's regulatory authority to the pool of conformity-provider test labs will be required in those economies where this knowledge has been concentrated within the regulator. Regulators taking their systems through privatization will also stay close to the process and players during its early stages.
Surveillance. As governments shift resources from gatekeeping during market access to policing during market circulation, surveillance takes on a higher profile. A critical issue to follow will be what role, if any, CABs have in the surveillance process. This matter is before the United States conformity community and has potential for conflicts, depending on what this means and how it is implemented.
There are a number of internationally recognized definitions for certification. With few exceptions, certification involves some form of follow-up to assure that what was claimed to be compliant is also what is being placed on the market. This follow-up can be in many forms, including inspections, system audits with product-specific elements, product retests, and statistical sampling. Because market surveillance is implicit in this definition of certification, it is in harmony with the contract between the CAB and manufacturer.
If, however, surveillance means sampling the economy for products made by a client, then testing to ascertain compliance with the intent to report results to a regulatory authority, the provider's responsibility is to public policy. This places the commercial contract between manufacturer and conformity provider in a state of conflict.
Subcontracting. Over the last few years, as changing conformity systems bumped up against each other, the issue of subcontracting at the laboratory level has often arisen. There have been two schools of thought on subcontracting. The first holds that if a conformity assessment system requires accredited test results, then only labs accredited to the ISO Guide for test labs (Guide 25) can perform testing.
The second school of thought says that the body with standing in the economy in question-either an accredited test lab or an accredited certification body-may subcontract work to another party, provided that it takes full responsibility for the results. ISO Guide 25 incorporates this viewpoint but it does not preclude the first. (Serial subcontracting is not allowed since the commercial arrangement must be directly between the party producing the data and the party holding standing and final responsibility.)
It is important that this second school view be maintained if manufacturers are to effectively utilize internal labs without the added burden of formal accreditation. This view also supports efficient and effective service networks for conformity providers. It is common in the voluntary certification sector to internally authorize manufacturer labs and partner laboratories via a positive audit against the principles of ISO Guide 25. (The outcome of this audit should not be confused with accreditation. Certification bodies and test labs cannot perform accreditation.) Thus far, this viewpoint is taking precedence as trade accords are implemented.
Implications
Distilling all the information above to practical advice can be challenging. The following observations may help.
- Change your definition of conformity assessment. Manufacturers are used to thinking of conformity assessment in terms that only apply to technical regulations. In fact, access requirements have always included customer requirements and performance enhancements.
- The structures and processes used to overcome nontariff barriers can be simplified, tailored, and redeployed to help your company meet its market access goals.
- Survey your existing conformity structures and then survey where you ship what kind of products. Next, compare the resulting information with the trade pacts. Does your current approach take advantage of these accords?
- Think about how you can build conformity assessment into your strategy and processes up front. Now more than ever, investments of time in this area will increase speed to market and lower internal costs.
- Determine how many vendors and facilities you currently use around the world for how many different conformity assessment functions. The future promises a reward for those who consolidate, but there are as many strategies as there are firms. Be sure your conformity assessment resources benefit from planning, rather than accepting what has risen up haphazardly as business grew. If you intend to use your own internal facilities, look for partners that have multiple standings so you can take advantage of internally authorized test results. There are plenty of providers who can help.
- Review your distributor arrangements. Is now the time to move your technical regulation documentation and certificates to a party that is always directly linked to your interests? Placing files with in-country agents means your destiny is not solely in your distributors' hands.
- Expect surveillance information to be quickly shared among the regional trade-pact partners.
- Be ready. You should expect to have your own systems evaluated, modified and running smoothly by the real end of the millennium, 31 December 2000. Early birds will be ready a year in advance, provided all structures and resources are ready. Remember that 25% of the APEC economies will implement the APEC mutual recognition arrangement by the end of 1999.
A New World
What will this new world look like when the dust clears? Here's one possibility.
This new world will be characterized by a strict-liability, commercial environment with a high degree of trust in suppliers. Nearly half of the world's economies are bound together in trade pacts. Technical regulatory policy in any economy is supported by a strong surveillance system, which relies on active government policing, competitors turning on one another, and consumer complaints.
Violations of the world's regulations will be more severely punished, given the general trend toward supplier-declared systems. If a company finds its products caught in the surveillance web, half the world's economies will be prepared to block product from access and they will all find out at once. Manufacturers will begin planning conformity assessment from a global perspective. Most of this will involve meeting a composite of carrier requirements around the world and maintaining TL 9000 status.
In the past, manufacturers went to the conformity providers wherever these providers were located. Now, the telecom conformity business will redistribute itself to be closer to its clients all around the world. If a product is designed in Japan, a local provider can be used to gain access to half the world's economies. If halfway through the project a design group in the United States takes it over, that group can use U.S. labs to get the same access.
Finally, voluntary certification schemes will spread in parallel with the few legal certification schemes remaining, providing value and assurance for all parties: consumers, carriers, regulators, and manufacturers.
Indeed, much of what is described here is already happening. Are you ready?
References
1. European Commission Directorate General III, "Accreditation and the Community's Policy in the Field of Conformity Assessment," Certif 97/4-EN Rev. 2, 15 December 1997, III/B/4/AJ, pp 4-5.
Gene Panger is a member of the Telecommunications Industry Association's Technical Regulatory Reform Task Force and has monitored global conformity assessment developments for the last decade. He can be reached at GenePanger@aol.com.
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