FliMcstfens

AlllDl 75TMTS

Economics of

the product

certification

industry:

some

research

u s DEPARTMENT OF COMMERCE

National Bureau of Standards

National Engineering Laboratory

Office of Engineering Standards

N “QC

100

.056

80-2001

1980

NBSIR 80-2001

March 1980

aATMHAL mnnuo

ow wtiMium

LIBIIAJIT MAY 1 3 1981

NBSIR 80-2001

ECONOMICS OF THE PRODUCT CERTIFICATION INDUSTRY:

SOME RESEARCH NEEDS

Carol Chapman Rawie

Office of Engineering Standards

National Engineering Laboratory

National Bureau of Standards

U.S. Department of Commerce

Washington, D.C. 20234

March 1980

U.S. DEPARTMENT OF COMMERCE, Philip M. Klutznick, Secretary

Luther H. Hodges, Jr., Deputy Secretary

Jordan J. Baruch, Assistant Secretary for Productivity. Technology, and Innovation

NATIONAL BUREAU OF STANDARDS, Ernest Ambler, Director

Foreword

This report is one of a series of reports published by the

Office of Engineering Standards (OES) concerning the impact of

standards and certification.

The purpose of this series is to provide NBS

decision-makers and others with information that will help them

better understand the voluntary standards and certification

systems and their economic, social, and other impacts. It is

hoped that this information will increase the effectiveness of

NBS's participation in voluntary standards work and will

contribute to the improved development and use of standards.

This report should be regarded as raising, rather than

answering, questions related to the economics of

certification. It is hoped that it will stimulate further

study of this very important topic.

Joan Koenig

Group Leader

Standards Management and

Impact Analysis Project

iii
Acknowledgements

Joan Koenig read several drafts of this report and made a number of extremely valuable suggestions both as to style and

content, and I wish to express my gratitude for her

contributions.

Larry Eicher (Director of the Office of Engineering

Standards), Doug Thomas, Gene Rowland, Jim French, Norm Somes,

John McConnaughey and several others also made helpful comments

on drafts of this report which are very much appreciated, as is

the information provided by William Neissing, Bill Slattery and

Sophie Chumas.

Carol Chapman Rawie

January 1980

iv
Contents

F oreword i i i Ack no wl edgemen ts i v Abstract y

i 1 Executive Summary viii

1. Introduction 1

Purpose 1 Definitions 1

2. Overview of the Certification Industry 2

Size of the Industry 2

Applications of Certification 2

Regulation 3

Reducing Product Liability 3

Encouraging Innovation 4

Other Uses of Certification 4

Types of Certification Programs 4

Steps Leading to Certification 5

Relationship Between Testing and Certification. .. .5

Certification and Standards Writing 6

Some Examples of Certification Programs 6

Solar Equipment Certification 8

3. Accreditation Programs 10

Department of Commerce Program 10

Other Laboratory Accreditation Programs 10

ANSI Program 11

4. International Activities 12

5. Controversies 13

Whether Some Certifiers Exercise Market Power 13

Senate Hearings .13

FTC Report 14

ACIL Report 14

Certifier Reactions 14

Whether Regulatory Use Contributes to Market Power. ...15

What is "Nationally Recognized?" 16

Whether Certification Sometimes Inhibits Compet it ion. . 16

Watts Regulator 17

Lack of a Standard 17

D iscr i mi nat i on 17

Antitrust Cases 17

V
Whether Certifications Sometimes Mislead Buyers 18

FTC Proposed Trade Regulation Rule 19

Controversies Show Need for Research 19

6. Research Needs 20

Policy Questions 20

Industry Performance 20

Aspects of Performance 20

Quality of Performance 21

Baseline for Judging Performance 22

Reasons for Performance: Supply Factors 22

Market Shares 22

Patterns of Integration 23

Costs 23

Corporate Structure 23

Reasons for Performance: Demand Factors 24

Manufacturer Demand 24

Secondary Demand ,...25

Brand Preference 25

7. Conclusions ,...26

F 00 1 no tes 27

Selected References ,37

Appendix A: Partial List of Certification Programs A-1

Appendix B: FTC Proposed Trade Regulation Rule B-1
Abstract

A number of private organizations certify products for

safety and other qualities. With the increase in safety

regulation, product liability suits, and interest in

encouraging use of new technologies through certification,

certification is likely to become more and more important as a way to show conformance with voluntary or regulatory

standards. There have been a number of Federal and State

government activities related to product certification.

However, the potential impact of past and proposed government

actions is not clear. One reason may be that there has been

insufficient study of the economics of the product

certification industry. This paper asserts that such study is

needed as a basis for setting government policy and raises

issues that should be addressed concerning structure and

performance of the product certification industry.

VI

1
ECONOMICS OF THE PRODUCT CERTIFICATION INDUSTRY:

SOME RESEARCH NEEDS

Executive Summary

Purpose and Policy Issues

The purpose of this paper is to make economists and others

aware of the need for research into the market for third-party

product certification services. This research is needed to

help government and private groups make decisions about their

activities related to product certification. For example, such

research could help in answering the following questions:

1. What is the likely effect of the Federal Trade

Commission's (FTC) Proposed Trade Regulation Rule for

Standards and Certification on performance of the

certification industry?

2. What will be the effects of current or planned programs

to accredit testing laboratories or certification programs?

3. How might certification programs be designed to

encourage innovation and commercialization of new products?

Overview of the Certification "Industry"

The certification process may include product testing and

plant inspection, as well as the listing of products in a directory and/or the authorization of the use of a certification mark. There appear to be at least 100

organizations conducting certification programs, and perhaps

many more. Some of the better known certifiers are

Underwriters Laboratories (UL) (electrical, fire protection,

etc.); the American Gas Association (gas equipment); Factory

Mutual (fire control and other equipment); and the American

Society of Mechanical Engineers (ASME) (boilers).

Benefits of Certification

Two trends in the American economy seem likely to increase

the demand for product certification: the growth in safety

regulation, and the rise in product liability suits.

Government interest in encouraging innovation in areas such as solar heating and cooling may also increase use of

certification. Certification and labeling are seen as a way to

increase product reliability and provide product information.

viii
FTC Proposed Trade Regulation Rule

In 1978 the Federal Trade Commission proposed a Trade

Regulation Rule for Standards and Certification. This proposal

resulted from criticisms of the practices of certifiers and

standards-writing organizations. Under the Rule, all

certifiers would have to give buyers certain types of

information with the seal or listing for each certified or

listed product. Certain other duties would apply only to

certifiers whose certifications are relied on by government

officials and who are effectively the sole source of

certification services in the particular market.

Controversies

The proposed Rule and criticisms of certifiers suggest that

research is needed in the economics of product certification as an industry. However, to identify research needs, it is

important to understand the controversies surrounding

certi f i cat i on

.

One important issue is whether some certifiers exercise

monopoly power. Witnesses at Senate hearings and FTC staff

claimed that certain certifiers exercise monopoly power and

that this results in competent laboratories being excluded from

many certification markets. Other issues surrounding

certification include:

* Whether regulatory use of certifications contributes to

market power because building code officials tend to accept

certifications only from a few major certifiers.

* Whether certifications sometimes interfere with

innovation and competition among certified products.

* Whether certifications sometimes mislead buyers.

Organizations such as Underwriters Laboratories and the

Association of Home Appliance Manufacturers have disputed these

criticisms and argued that specific incidents cited to support

the criticisms were incorrectly described by FTC and others.

They contend that FTC has not shown that there is a need for

regul ati on.

Research Needs

Research is needed into how well various portions of the

certification industry perform. Three important aspects of

performance are:

ix
1 . 2 . Price and quality of certification services;

Effects of certification on competition among

certified products and on development and

commercialization of new products;

3. Reliability and usefulness of certifications.

One way to shed light on these questions would be to

examine industry performance in the certification industry.

In addition, research is needed into industry characteristics

underlying observed performance such as:

* Market shares.

* Patterns of integration between certification and testing.

* Costs, including scale economies, advantages of

integration between certification and testing, and their

possible effect on ease of entry into various portions of

the certification industry.

* Corporate structure, to determine whether non-prof i

t

certifiers (including trade associations) act in ways that

ordinary prof i t-mak i ng firms are expected to act.

* Manufacturer demand for certifications, including any

tendency to "shop around" for the most lenient testing

laboratories and/or certifiers.

* Demand by regulatory officials, buyers or procurement

agents, insurance companies, and consumers. Do these

groups tend to accept certifications only from major

certifiers? What types of certification or listing

information would affect their decisions?

X
ECONOMICS OF THE PRODUCT CERTIFICATION INDUSTRY:

SOME RESEARCH NEEDSi/

1. INTRODUCTION

Purpose

The purpose of this paper is to enlighten economists and

others about the need for research into the market for

third-party product certification services--especi al ly,

competitive aspects of that market and effects of that market

on innovation. This research is needed to help the Government

make decisions about those activities that affect certifying

organizations.

Definitions

For the purposes of this paper, "certification" is defined

as a testimony to the public, by way of a certification mark or listing, that a product performs in a specified way in relation

to a standard or meets some standard of quality. Often it

implies a broad approval of a product with respect to a major

aspect such as safety. Usually, certification is based on some

form of product testing or inspection, and the process may

include inspection of the manufacturer's plant as well.

Under some uses of the term, only the manufacturer

"certifies" a product; a third party "validates" the

certification.^/ However, in this paper, the "certifier" is

the organization, such as Underwriters Laboratories, whose name

appears on the seal and/or who maintains the listing of

certified products.

"Third-party certification" means certification by someone

other than the product manufacturer. The term includes cases

in which certifying organizations may be indirectly controlled

by manufacturers, such as through trade associations.

"Certification" is not recognized as a separate industry in

government census datal/, and any definition of the

"certification industry" is somewhat arbitrary. For the

purposes of this paper, "certification industry" refers to

organizations supplying third-party certification services; it

includes testing of prototype products as a basis for marking

or listing production units as well as labeling or listing of

the production units themselves. Further study might show that

some other definition of the industry would be more useful for

the purposes of economic analysis.

1
2. OVERVIEW OF THE CERTIFICATION INDUSTRY

This section provides an overview of the magnitude and

nature of the certification industry and describes several

well-known certifying organizations.

Size of the Industry

How large is the certification market? There has been

little economic study of certification as an industry. An FTC

report published in connection with a proposed Trade Regulation

Rule for standards and certification, together with statements

and reports prepared for the hearings on the proposal, provides

the most comprehensive source of information about the

economics of product certification that is available.!/

Neither this nor any other report reviewed by the author

provides a good estimate of the number of certification

programs in the U.S. or of the market value of certification

services. However, some data is available on revenues, assets,

and/or employment of individual certifying organizations. (For

some examples, see the descriptions of individual certifiers

1 ater in this paper.

)

A standardization directory published by the National

Bureau of Standards (NBS) lists over fifty organizations which

certify products, but there are many certifiers not listed.

(See Appendix A.)5/ Another NBS publication lists

twenty-three organizations which certify consumer products, but

does not include certifiers who test against standards written

by organizations other than the certifier.!/

There are a large number of product testing laboratories.

This is worth noting because of the close relationship between

testing and certification.!/ This relationship is described

later in this section.

Applications of Certification

There are two trends in the American economy which seem

likely to increase the demand for product certification. These

are the growth in health, safety, and other types of regulation

and the rise in product liability suits. Also, Government

interest in promoting innovation in such areas as energy

conservation may have implications for product certification.

2
Requi ation

There has long been health and safety regulation through

state and local building codes. Industry is often required to

obtain certification for electrical products, plumbing

products, furnaces, fire safety equipment, and other products

used in buildings, in order to comply with requirements of

these codes.

Since 1962, there has been a marked increase in health and

safety regulation at the Federal level^/, and certification

is often required as evidence that a product meets regulatory

standards. For example. Federal work safety regulations

(promulgated after the Occupational Safety and Health Act was

passed in 1970) contain various requirements for equipment to

be approved by a "nationally recognized" testing laboratory.

Welding equipment, for instance, must be of an "approved"

type.l/ Similarly, regulations for mobile homes promulgated

by the Department of Housing and Urban Development (HUD) in

1975 contain a number of requirements for certification and

listing. 10/ There are many other examples of such

requi remen ts

Reducing Product Liability

There has also been growth in product liability litigation

which may make sellers and insurers especially interested in

product testing and certification by third parties. lA/

One reason for obtaining certification is that testing and

certification can help prevent accidents. The role of

certification in hazard prevention has long been appreciated by

insurance companies, who often use certification as evidence of

safe product design in are as such as fire pro tec t i on. 11/

(However, a 1979 study suggested that availability and cost of

product 1 i ab i 1 i ty insurance are not affected by certification.

This observation should probably be verified through further

research .11/

)

Another reason for obtaining certification may be to

demonstrate, in court if necessary, that a product has met a reasonable standard of safety. Certification may be one way of

showing that a product complies with voluntary and/or mandatory

standards, and compliance with standards may be accepted as evidence that a product meets a reasonable standard of

safety--although the law is unsettled on this poi n t .11/ One

possible problem is that certification of the product model

does not prove that a particular unit of the model has ever

been tested.

3
Encouraging Innovation

Government interest in encouraging a certain technology may

cause it to set up a certification and labeling program. A

good example is a California State program to certify solar

collectors, discussed later in this report under "Solar

Equipment Certification." Such programs may encourage the

commercialization and use of new products by reassuring

manufacturers, buyers and others about their safety and

quality.

Other Uses of Certification

Certification is used in other ways as well. One way is

that certification may provide information to buyers concerning

a product's attributes so that they can choose the product that

best suits their needs--poss i bly increasing competition based

on price and actual product quality.

For example, room air-conditioners are certified as to

cooling capacity by the Association of Home Appliance

Manufacturers. 11/ Because this information is based on

testing of the product by an independent third party

(Electrical Testing Laboratories), and because competing

products are rated using consistent definitions and test

methods, such certification may be more helpful to consumers

who are comparing air-conditioners than the unverified claims

of manufacturers.

Certification can simply be a way of providing product

information to regulators, buyers, insurers, and others.

Buyers and sellers often refer to standards to facilitate their

transactions, and certification is a way to show that products

meet these standards. Also, insurers may require certification

to show that special fire safety features of buildings meet

certain standards. Or, government agencies such as the

Department of Housing and Urban Development may require

certification in connection with government funding. 16 /

Types of Certification Programs

There are certification programs for building-related

products, boilers, home appliances, fire prevention and control

equipment, medical products, and other products ranging from

vending machines, baking equipment, and industrial wipers to

granite monuments. A partial list of certification programs is

provided in Appendix A.

h
Underwriters Laboratories, Factory Mutual, and the American

Gas Association are well known for their testing and certification of home appliances, fire control equipment, and other

products, but there are also a number of other organizations

which operate certification programs. While some organizations

certify a variety of products, most apparently certify only in

a fairly narrow product area. For example, an organization

might certify nothing but oak flooring or cooling towers or model trains.

Steps Leading to Certification

Product certification may involve some or all of the

following steps: 17 /

*Testing or inspection of a prototype product. The product

may be tested to see if it meets general performance criteria

or to see if it meets a specific written standard; the criteria

or standard may or may not be disclosed in the certification

mark or listing directory.

^Periodic testing or inspection of production units from

the manufacturer's plant and review of the manuf act u rer '

s

quality control procedures. In some cases there is 100%

testing.

^Testing or inspection of samples from the open market.

*Plant inspection to assure adequate quality control in

production.

^Listing in a directory of "approved" products and/or

authorizing use of a label or mark on the product to show that

it has qualified.

Certifiers who require third party te sting and who do not

do their own testing must somehow identify qualified testing

laboratories. Some do this by operating laboratory

accreditation programs or otherwise evaluating 1 ab orator i es

.

Relationship Between Testing and Certification

Some certifiers test products, but others do not. It is

possible for an organization to operate a certification program

without actually doing any product testing itself. For

example, the certifier might accept testing by an independent

laboratory as a basis for certification, or it might accept

testing by the manufacturer with periodic third-party

validation. Thus, although testing is an important input into

certification services and is often performed by certifiers,

conceptually it is a distinct activity.

5
To understand the economics of the certification

"industry," however, it may be necessary to study that part of

the testing industry which relates to certification -- particularly since many testing laboratories are potential

suppliers of certification services.

Certification and Standards Writing

Similarly, while certification is closely related to

standards writing, it is conceptually distinct. Many

certifiers also write the standards on which their

certification programs are based, but some test exclusively

against standards written by other organizations. While

certification is often (perhaps usually) carried out against an existing written standard, some organizations, such as Fac to ry

Mutual Research Corporation and Underwriters Laboratories, are

willing to test and certify without a written standard. 18 /

Some Examples of Certification Programs

The following descriptions may give some feeling for the

scope and variety of certification programs. The reader should

note that these descriptions cover only a very small proportion

of certification programs and do not necessarily include all of

the most important ones.

Underwriters Laboratories (UL), a not-for-profit

corporation, is one of the major American product certifying

organizations. At year end 1977, UL had about 2300 employees

and assets of about $58 million.!^/ According to UL's

testimony at Senate hearings, its 1975 revenues were $41.5

million.l^/ UL tests products for safety at its laboratories

in several locations around the country, provides a listing

service, and authorizes use of its mark on products which meet

UL's requirements for safety or performance. To determine

whether products are to be listed, UL generally tests on the

basis of published standards; but it can also evaluate products

for which no standard has been written. It also inspects

factories where the listed devices are manufactured. Besides

its listing service, UL offers other services, such as a "classification" service in which it evaluates industrial and

commercial products with respect to certain specified hazards,

conditions, regulatory codes, and/or standards. According to

UL, many insurance underwr i te rs , government authorities, and

others recognize UL listing as evidence of product

safety.

U

l/ Underwriters Laboratories is best known for

certifying electrical products, but it also tests

non-electrical equipment. Products tested include equipment

for burglary protection, fire protection, heating,

air-conditioning, refrigeration, and marine use

6
The American Gas Association (AGA), a trade association for

the natural gas distribution industry, operates a certification

program for gas equipment through its AGA Laboratories. The

AGA Laboratories tests gas equipment such as home furnaces

using standards published by the American National Standards

Institute (ANSI); certifies designs that comply with the standards; and inspects production models to make sure they conform

to the design certified. The products certified are listed by

AGA and carry its "blue star" seal.^/

Factory Mutual Engineering and Research (FM), also a major

certifier, is owned by the Factory Mutual System of insurance

companies. FM is concerned with preventing property damage.

It develops standards for, tests, and approves products such as fire control equipment. Items meeting FM standards are listed

by FM and usually carry a symbol indicating approval. It has

standards for installing automatic sprinklers, safeguarding

flammable liquids, gases, dusts, industrial ovens, and dryers,

and protection of buildings against wind damage, to give a few

examples.^/

The Air-Conditioning and Ref riqerat ion Institute (ARI), a trade association, operates certification programs for certain

types of air-conditioning, heating, and refrigeration equipment. Recently it has set up a program to certify solar

collectors. The programs involve the use of an ARI seal, with

validation of manufacturers' ratings by independent

laboratories that have been evaluated by ARI.l^/

The Association of Home Appliance Manufacturers (AHAM) is a trade association which, among other activities, sponsors

product certification programs. The 1979 budgets for its

certification programs were as follows: refrigerator/freezers,

$96,500; room air-conditioners, $211,000; dehumidifiers,

$33,000; and humidifiers, $36,000. In AHAM's air-conditioner

program, described in a Department of Energy report. Electrical

Testing Laboratories is responsible for inspecting

manufacturers' testing facilities and quality control

procedures. It is also responsible for testing

randomly-selected units. 26/

The American Society of Mechanical Engineers (ASME)

develops a boiler code and authorizes complying manufacturers

to put the ASME seal on their products. ASME does not test

boilers itself, but it requires in-plant inspection by a qualified, neutral, third-party i nspec tor .IZ/

The National Sanitation Foundation is a non-profit

organization which operates testing and certification programs

for a number of heal th- rel ated products, including plumbing

products such as plastic pipe. Its 1978 revenues from "Listing

and Inspection Fees" were $1.3 million.Z^/

7
Model building code organizations such as the Southern

Building Code Congress, the International Conference of

Building Officials, and the Building Officials and Code

Administrators International have listing programs under which

they approve and list products, for a fee. The listing is

based on test results and other information submitted with an application. Local building officials may require this listing

as a condition for approving a product in their

jurisdiction.

Solar Equipment Certification

Federal, state, and industry interest in promoting solar

energy has led to efforts to develop standards and

certification programs for solar heating and cooling

equipment. The first certification programs are for solar

col 1 ec tor s .11/ These efforts are described here as an example of certification in an area which has aroused much

public interest in the past few years. There are several

reasons for certifying solar equipment:

1. The Federal government requires certification to show

that solar installations comply with Minimum Property Standards

of the Department of Housing and Urban Development (HUD).

Compliance with these standards is required to receive Veterans

Administration (VA) and Federal Housing Administration (FHA)

financing and to receive funding under the HUD Solar Heating

and Cooling Demonstration Program, which aims to encourage use

of solar energy in buildings. 11/

2. Certification is sometimes required to show compliance

with requirements for solar installations which state and local

governments are beginning to put into their building codes. 11/

3. At least one state, California, plans to eventually

require certification for solar installations eligible for a state tax credit. 11/

4. Insurance companies look for certification as assurance

that solar equipment is safe. (Some solar systems use

flammable liquids which could present a fire hazard. 11/)

5. Certifications can be used in marketing. Certification

may assure architects, builders, and consumers that solar

equipment meets some minimum standard of performance and

safety; and, through labeling, it can help them compare

competing products. It may be a way to avoid unverified and

perhaps misleading claims by suppliers of solar equi pmen t.ll/

A number of organizations are setting up programs to

accredit solar equipment testing laboratories or certify solar

equ i pmen

t

. 11/ For example:

8
* The Air-Conditioning and Refrigeration Institute has

established a program to certify solar collectors for

thermal perf ormance;lZ/

* The Solar Energy Industries Association (SEIA) is

offering to certify thermal performance ratings of solar

collectors, using data from tests performed by labs

accredited under SEIA's laboratory accreditation program.

SEIA's program is primarily based on documents developed by

the Solar Energy Research and Education Foundation,

(SEREF), SEREF has received Federal funding to develop a certification program, including guidelines for labeling

collector performance;!^/

* The State of Florida has a program for testing and

certifying solar collectors;!!/

* California certifies solar collectors which have been

tested by labs accredited under a State program!!/; and

* UL tests solar collectors and water heaters for

safety.!!/

9
3. ACCREDITATION PROGRAMS

There has been growing interest over the past few years in

accrediting laboratories which test products (for certification

or other purposes) and in accrediting certification programs.

A 1979 report identified a number of U.S. laboratory

accreditation programs and suggested that there were many other

programs not identified in the report. These programs aim to

improve the reliability of testing conducted for product

certification or other purposes. Often, one purpose of such

programs is to improve competition among laboratories by

helping lesser-known but technically competent laboratories

compete with better-known ones. Another is to reduce the

number of evaluations a testing laboratory must undergo for its

results to be accepted by various government and private

bodies. A third purpose is to improve acceotance of local

testing by other states or other countries.

One important accreditation activity is a Commerce

Department program, described below. 11/

Department of Commerce Program

The Department of Commerce (DoC) has initiated a voluntary

program to accredit laboratories' testing capabilities. It was

established in response to the "need to identify technically

competent testing laboratories in a more consistent and uniform

fashion. " 11/ As of June, 1979, most of the activity had been

in the areas of thermal insulation and concrete. Although the

DoC program would accredit only testing capabilities (not other

things related to certification, such as ability to carry out

factory inspections), it could affect the certification

"industry" because testing is a major element in most

certification programs.

Other Laboratory Accreditation Programs

Some other types of accreditation programs are as foil owsll/:

* Private HUD "administrators" approve laboratories to

test building products (e.g., carpeting) for acceptance

under HUD standards.

* The Defense Department, General Services Administration,

and other Federal agencies accredit laboratories to test

products for conformance with procurement specifications.

* States accredit laboratories to test for compliance with

regulatory requirements such as electrical codes.

* States accredit laboratories to test the purity of water

supplies.

10
* Industry associations operating certification programs

accredit laboratories to test products for certification

purposes. Products tested include air movement and control

equipment, motor vehicle safety equipment, and boiler and

pressure vessel relief devices.

* The American Association for Laboratory Accreditation

has proposed a voluntary laboratory accreditation program

which would use ASTM's criteria for evaluating testing

laboratories. 46 /

ANSI Program

In 1974, the American National Standards Institute, a private standards organization, published procedures for the

voluntary accreditation of product certification programs. So

far there has been little activity under this program; the only

certification programs accredited are in the areas of aluminum

windows and sealed glass for use in buildings.^/

11
4. INTERNATIONAL ACTIVITIES

While this paper has focused on domestic effects, product

certification may also significantly affect international trade

in some products. Certification programs of various countries

have been criticized as creating barriers to international

trade, since non-complying importers have trouble marketing if

they do not meet local certification requirements.

Title IV - Technical Barriers to Trade (Standards), within

the Trade Agreements Act of 1979, was approved by the U.S. to

implement multilateral trade agreements negotiated under the

Trade Act of 1974. The purpose of this title is to prevent

standards and certification requirements from creating

unreasonable trade barriers. Among other things, it calls for

its adherents to avoid setting up certification systems which

create unnecessary obstacles to trade and to ensure

non-d iscri mi natory access to certification programs for foreign

suppliers.

Laboratory accreditation has also been a subject of

international attention. Foreign laboratory accreditation

efforts were described at three conferences sponsored by the

International Conference on Recognition of National Programs

for Accrediting Testing Laboratories (ILAC), the first in

Copenhagen in 1977, the second in Washington, D.C., in 1978,

and a third conference in Sydney in 1979. At the 1978

conference, participants discussed ways to reduce trade

barriers due to certification requiremen ts .11/

12
5. CONTROVERSIES

Controversies concerning certification, and some of the

allegations which stimulated them, are described in this

section.

Product certification can provide important safety and

other benefits. However, criticisms of product certification

have led to a proposal by the Federal Trade Commission to

impose certain requirements on cert if i ers.l^/ The existence

of such criticisms and the growing use of product certification

suggest that research concerning the structure and performance

of the certification industry might be very useful. The

controversies are described here because they show areas where

research may be needed before setting public policy.

Controversial issues include the following:

* Whether some certifiers exercise market power;

* Whether regulatory use of certification contributes to

market power;

* Whether certification sometimes interferes with

innovation and competition; and

* Whether certifications sometimes mislead buyers.

Each of these controversies is discussed below.

Whether Some Certifiers Exercise Market Power

Senate Hearings

There has been much debate concerning how much market power

the major certifiers have and whether they exercise it in

potentially harmful ways. Debate on this issue took place at

several sets of hearings on standards and certification before

the Senate Antitrust Subcommittee. These hearings led to a bill introduced in Congress (but not passed) which would have

imposed certain requirements on standards writers and

certi f i ers .11/ Senator James Abourezk, who chaired the

hearings, expressed the view that practices of product

certifiers could lead to anticompetitive consequences. In

1977, he told the Senate that three or four laboratories do the

bulk of the testing and certification work. To quote:

"... (O)ver the years these laboratories have gained a quasimonopoly position. Government has played a large role

in creating this monopoly by writing the names of specific

labs into codes, regulations, and procurement specifications . . . Today, a manufacturer of electrical appliances

cannot market its product nationally without the UL seal;

the same is true for the AGA seal in the gas appliance

field."

13
He went on to say:

The bottleneck in testing and certifying labs . . . serves

as a convenient way not only to restrain trade, but also to

keep products off the market, because of a 'lack of

available testing laboratories.'"^/

FTC Report

In 1978 the FTC published a proposed Trade Regulation Rule

for standards and certification which was accompanied by a lengthy report. 11/ This FTC action was the culmination of a long period of FTC concern about standards development and

certi f i cat i on. 11/

Among other things, the Report describes particular

certifier practices which FTC staff believe deceive consumers

or hurt competition. According to the Report , some certifiers

exercise monopoly power, and competent laboratories are

excluded from many certification markets. In the view of the

authors, the lack of competition may result in higher testing

prices, lower quality services, and the exclusion of products

from the market. This and other conclusions of the report

appear to be based on individual incidents rather than overall

industry data. About twenty or so incidents involving

certification are mentioned, many of them involving products

which are regulated under building codes. 11/

ACIL Report

A 1979 report prepared on behalf of the American Council of

Independent Laboratories (ACIL) and funded by the Federal Trade

Commission also concluded that at least some certification

markets -- particularly those involving safety certification of

electric products and fire protection equipment -- are "closed"

to compet i t ion.ll/ The conclusions were based on views of

people who provide or use certification services, rather than

on market share data. In determining whether a market was

"open" or "closed," the report focussed on the number of firms

providing testing for certification rather than on the number

of firms providing the certification (labeling or listing)

service itself.

Certifier Reactions

Underwriters Laboratories, the Association of Home

Appliance Manufacturers, and others have disputed the general

charges concerning monopoly power and have argued that specific

incidents cited in support of the charges were incorrectly

described by FTC and others. They contend that FTC has not

Ih
shown problems significant enough to warrant regulation such as would be put into effect by the proposed Rule. At Senate

hearings, UL argued that its leading position came from

providing good service, not from anticompetitive activities;

and it disagreed with the view that electrical equipment can't

be successfully marketed without UL approval. IZ/

Whether Regulatory Use Contributes to Market Power

A question related to the issue of market power is whether

regulatory requirements that certain products be certified are

a source of market power for the larger certifying

organizations. Building codes and other regulations sometimes

require products to be certified by an "approved" or "nationally recognized" organization. For example, the

Building Officials and Code Administrators International (BOCA)

publishes the Basic Mechanical Code--a model building code upon

which local codes are often based. This code requires that:

"All heating furnaces shall be approved and bear the label of a nationally recognized testing or inspection agency."^/

Thus, certification by such organizations may have the force of

law. Furthermore, it is claimed that regulatory officials

often interpret "approved" or "nationally recognized" to mean

only well-known organizations such as UL and AGA.1£/

A number of arguments have been made on both sides of the

question of whether regulatory officials accept only

certifications from a few major certifiers. Claims that lack

of regulatory acceptance is a barrier to lesser known

certifiers are based on arguments such as the following:

* According to FTC's 1978 Report , Occupational Safety and

Health Administration (OSHA) "laboratory accreditation

regulations specifically name Underwriters Laboratories and

Factory Mutual Research Corporation, a reference that has

led in practice to the virtual exclusion of other

laboratories from OSHA compliance testing, despite efforts

for several years by other experienced laboratories to

enter this testing market."

* The FTC Report also states: "Several states required

that all mobile homes be UL certified. Any producer who

wanted to sell in those states had to get UL

certification. "M/

UL' s response to the latter quote was: "This statement is not

true. UL has never been the exclusive recognized agency for

mobile homes in any state. All states that had a program

recognized at least three agencies and some states recognized

more (e.g. Iowa - 12 or 13; Pennsylvania - 15 or 16)."^/

15
* A National Sanitation Foundation brochure states:

. in many U.S. regulatory jurisdictions, products in

categories covered by NSF standards are required by 1 aw,

regulation, or departmental policy to have the NSF

seal."i^/

* The head of a small testing laboratory claimed at Sen ate

hearings that with respect to consumer electrical products,

safety products including fire, and gas appliances, "one or two laboratories control the entire marketplace due to the

reliance on their data by thousands of 'local authorities

having jurisdiction.'"^/

On the other hand, a Department of Commerce report lists

several state and local government programs for accrediting

laboratories to approve products for electrical safety, and

suggests there may be many more such programs. ^/

In its 1977 testimony before the Senate Antitrust

Subcommittee, Underwriters Laboratories disagreed with the view

that regulatory requirements help create monopoly certifiers.

It believes that there has been broad acceptance or preference

for UL's findings because UL has provided a "public service in

a way that other organizations seldom equal" and not because

codes or code authorities exclusively specify UL

certification. UL testified that of eighteen states which had

formally interpreted "approved equipment," all but one

recognized testing labs other than UL for certification of

electrical equipment.!^/

What Is "Nationally Recognized?"

It has been suggested that an important reason

certifications from smaller organizations aren't recognized by

regulatory officials is that the officials don't have detailed

criteria for determining what should be considered a "nationally recognized" or "approved" certifying organization.

(One set of criteria is available -- the criteria set forth by

HUD for approving "validators" and testing laboratories under

its building materials certification programs . 66/

)

Whether Certification Sometimes Inhibits Competition

There has been much dispute over whether certification

requirements sometimes inhibit competition and innovation for

certified products.

l6
Watts Regulator

Watts Regulator, which manufactures backflow preventers,

claimed that the University of Southern California Foundation

for Cross Connection Control (USC/FCCC) had wrongfully kept

Watts Regulator's improved plumbing product out of many

markets. (The USC Foundation certifies plumbing devices called

backflow preventers.) The effect. Watts believed, was to

reduce competition and increase the price of backflow

preventers in the markets influenced by USC/FCCC approval. £Z/

The Foundation disputed Watts Regulator's arguments and

asserted that people in States approving the Watts' device were

not being given minimum protection against contamination.!^/

Lack of a Standard

In a 1977 report for the Department of Energy, a private

consulting firm examined barriers to the introduction of new

energy saving technologies in buildings. Specifically, it

looked at barriers connected with certifying and listing. It

concluded that certification practices sometimes created such

barriers. One type of barrier mentioned was the requirement

that a standard be in existence in order for a certifier to

test and approve a product.!!/ The FTC Report also saw this

as a problem, giving as an example AGA's refusal to certify

products without an ANSI standard.!!/

However, at least two major certifers--Underwri ters

Laboratories and Factory Mutual--have stated that they are

willing to test and certify products without a written

st andard .21/

Discrimination

The authors of the FTC Report also contended that

certifiers with monopoly power may engage in various types of

discrimination which may inhibit competition.!!/ The Report

asserts that certifiers may favor domestic producers over

foreign, trade association members over non-members,

f ac tory- i nstal 1 ed components over retrofit items, or large

customers over small. Many of the specific examples given to

back up these claims have been strongly disputed by certifiers

in their comments made for the hearings on the proposed Rule.

Antitrust Cases

Standards and certification programs have been mentioned in

a few antitrust cases. When they have been attacked legally,

it has almost always been because they were part of a larger

effort to restrain trade. These cases may provide some

information about possible anticompetitive effects of

certi f i cation.!!/

IT
Whether Certifications Sometimes Mislead Buyers

The FTC Report asserts that certifications may mislead

buyers, code officials, and others who (according to the

Report ) often rely heavily (even "blindly") on

certi f i cati on.Zl/ The authors concluded that such reliance

may lead to problems for several reasons:

(1) Standards underlying the certification, including

standards developed by the certifier itself, may be

inadequate. For example, they may not provide the level of

safety the buyer expects. One case which FTC staff thought was

an example of this concerned UL certification of alumimum

electrical wire for use in buildings, which the Report said may

create a fire hazard. UL criticized FTC's description of the

situation, saying that the staff report "inaccurately

summarizes unsupported hearsay statements concerning UL's

Listing of aluminum conductors." UL stated that aluminum wire

does not present unreasonable hazards when properly installed,

and that UL had taken steps to improve the safety of aluminum

wi re .13-f

(2) Information about standards that underlie

certification may not be provided to buyers, according to the

Report . One problem mentioned is that the certification seal

or listing may fail to state limitations of the standards used

and of the resulting certification. An example given in the

Report concerns standards of the National Ornaments and

Electric Lights Christmas Association (NOEL). The Repor t

states that buyers may have believed that lighted Christmas

ornaments represented as meeting NOEL standards were safe when,

in fact, NOEL standards applied only to the electrical wiring.

Other hazards were not covered. Tests showed that portions of

the ornaments were highly f 1 ammabl e.Z£/

(3) Seals and listings might also deceive buyers where

certifiers fail to control the use of their certifications, in

the view of the Report ' s authors. As an example of this, the

Report states that a manufacturer of building insulation had

his product listed at an erroneously high value for insulating

capability because a model code organization accepted the

manufacturer's test reports without question. ZZ/

Another example cited in the Report concerned misrating of

air-conditioners, a product certified by AHAM.Z^/ However,

in its comments on the proposed rule, AHAM quoted an FTC

attorney as evaluating the problem of misrating as "de

minimus." AHAM said that reratings are made promptly as needed .ZJ./

18
FTC Proposed Trade Regulation Rule

As was mentioned earlier in this paper, in 1978, FTC

proposed a Trade Regulation Rule for Standards and

Certification which would impose requirements on both standards

writers and cert i f i ers .M/

Under the proposed Rule, all certifiers would have to give

b uyer s certain types of information with the certification seal

or listing. For example, they would have to reveal what

standards underlie the certification and the li mi tat ions of

these standards. They would also have to police the use of

their seals and listings, and keep certain records. 11/

Certain "additional duties" apply only to a certifier

"whose certification in a particular product area is relied on

either in law or in fact by any government entity and who is

effectively the sole source of certification services in that

product area and market. "11/

These "additional duties" include following written

procedures and setting up appeals mechanisms. The certifiers

subject to these duties are forbidden to (1) discriminate

unreasonably against certain customers (four types of

discrimination are named), (2) to deny certification based on

irrelevant requirements, or (3) to require unnecessary

retest i ng .11/

Certifiers who also develop standards would have to follow

some of the standards-wr i ti ng requirements of the proposed

Rule. For example, they would have to take appropriate

remedial action if they receive valid complaints about

anticompetitive effects of standards which they have

deve 1 oped .11/

Controversies Show Need for Research

It is difficult to determine which criticisms of certifiers

are warranted and what, if any, problems arise from lack of

competition among certifying organ i z at i ons . Controversies like

the ones described here, together with the Federal Trade

Commission's proposed Rule, point up the need for research to

find out more about the performance of various portions of the

certification industry, reasons for that performance, and the

likely effect of government actions related to product

certification. The next section of this paper describes

research needs in more detail.

19
6. RESEARCH NEEDS

Despite the rising importance of product certification and

current and proposed government activities related to

certification, there has not been a comprehensive study of how

well the certification "industry" performs or what influences

its performance. Such study is needed to help the government

make decisions affecting product certification. This section

suggests several topics that need study.

Policy Questions

There are several policy questions that need answering,

including the following:

(1) What is the likely effect of FTC's Proposed Trade

Regulation Rule on performance of the certification industry?

(2) What will be the effects of current or planned

programs to accredit testing laboratories or certification

programs? For example, how might testing laboratory

accreditation affect the reliability of certifications and

their acceptance by state and local regulatory officials?

(3) How might certification programs be designed so as to

encourage beneficial innovation and use of certified products?

For example, how should certification of solar collectors be

conducted so that it will assist buyers in their purchasing

decisions and promote innovation?

(4) For what products should certifications be required to

show compliance with government standards such as HUD Minimum

Property Standards, i.e., when are the costs of obtaining

certification justified by the benefits?

Industry Performance

Aspects of Performance

To answer these policy questions, it is necessary to

understand more about what determines performance in various

parts of the certification industry. "Performance" in this

context is a measure of how well the industry contributes to

the public good. There are three aspects of certification

industry performance:

20
1. The reliability of certifications, i.e., the accuracy

with which they describe the product characteristics

they purport to cover;

2. Price and quality (e.g., speed) of certificaton

services; and

3. Effects of certificaton on development and

commercialization of new products.

Research is needed to determine how well the industry

performs with respect to each of these three aspects.

In analyzing the first aspect of performance, we need to

ask whether adequate information is provided with certification

seals and listings; whether listed products and products

displaying certification seals actually conform to the

requirements underlying their certification; and whether these

requirements are "reasonable." (Of course, what may be

"reasonable" to one person may be unreasonable to others.

Criteria are needed for deciding what certification

requirements are reasonable.^/)

Quality of Performance

The FTC staff alleged in its 1978 Report that there are

serious problems in the performance of certifiers. But these

charges appear to be heavily based on descriptions of

particular incidents, many of which have been challenged by

those commenting for the hearings record on the Proposed

Rule.M/ One way to learn more about the performance of the

certification industry is to find out what actually happened in

these cases and to estimate the social cost of any associated

problems. It would also be useful to study the industry

further to see whether there are problems in other areas. This

means that study of certification programs which have not

become the center of controversy is also needed.

After identifying specific problems, it would be useful to

determine the frequency of the problems with respect to the

size of the industry and to identify common factors among the

incidents. Are problems frequent or rare in light of the

number of products certified? Are there a disproportionate

number of problems where there is regulatory reliance on the

certification, where one certifier has a high market share, or where other specific demand or supply conditions prevail?

Solar equipment is one example of a possible research

area. To learn more about possible effects of certifying solar

heating and cooling equipment, it would be useful to study not

only solar equipment certification, but also certification

programs in other industries similar to the solar equipment

i ndu stry

.

21
Baseline for Judging Performance

In analyzing the effects of product certification, it might

be useful to identify industries whose products are not

certified, but which are otherwise similar to industries whose

products are certified. This might help show to what extent

product buyers and manufacturers are better off with a certification program than without one.

Reasons for Performance: Supply Factors

If specific policy actions are to be considered by

government groups and others, research is needed to find out

how well the certification "industry" performs. However, it

would be difficult to judge how well the industry is performing

simply by looking at the end result. Therefore, it may be

necessary to infer adequacy of performance from certain

industry characteristics, which need to be studied. Some

important industry characteristics are described below.

Market Shares

Economic theory says that firms facing little competition

may lack incentives to offer good service at reasonable

prices. This suggests that certifiers facing little

competition may lack such incentives. However, another line of

reasoning suggests that where there are many sources of

certification, there may be incentives to degrade the

stringency of certifications. This might happen if

manufacturers "shop around" to find certifiers offering the

most lenient requirements.^/ Whichever line of reasoning is

true, it would be useful to determine the market shares of both

major and lesser-known certifiers in order to gain insight into

how much competition they face. To do this, it would be

necessary to determine what definitions of "market" are

appropr i ate

.

To understand the implications of large or small market

shares, other research is also needed -- research concerning

patterns of integration between testing and certification, the

nature of costs, the corporate structure of certifiers, and the

nature of demand for certification services. Each of these

aspects of industry structure will be discussed in turn.

22
Patterns of Integration

What are the patterns of integration between testing and

certification? That is, to what extent do the same firms

provide both certification and testing services? These

patterns may affect the usefulness of some government

activities related to certification. For example, efforts to

accredit testing laboratories may be particularly needed to

help assure reliability of certifications where certification

programs are open to any testing laboratory and the "shopping

around" effect mentioned earlier may occur.

Similarly, what are the patterns of integration between

certification and standards writing?

Costs

The nature of costs may have an important effect on

industry performance. One reason is the presence or absence of

scale economics helps determine whether major certifiers must

be concerned with the possibility of competition from new

entrants. If there are few scale economics, then newcomers

(such as firms already certifying other types of products) may

be able to set up and operate a certification program at costs

comparable to those of existing certifiers. In such cases,

threat of entry may stimulate more competitive behavior on the

part of certifiers with high market shares.

On the other hand, if there are important scale economies,

then public policies aimed at increasing the number of

certifiers should take into account possible losses of

efficiency, i.e., an increase in costs which may or may not be

passed on to users of certification services in the form of

higher prices. The loss of efficiency could occur if a smaller

scale of operations for each certifier increased costs.

Another possible source of entry barriers is brand

preferences, discussed below under "Demand."

Corporate Structure

Corporate structure, including type of control, may affect

the performance of certifiers. The corporate structure of many

certifiers is different from that of the independent

profit-maximizing firm economists generally have in mind when

they predict corporate behavior. Many certifiers are

non-profit organizations; some are also trade associations.

How do such organizations behave in the marketplace? It would

be useful to develop and test a theory to answer this

question. For example, if non-profit certifiers don't maximize

profits, then what do they maximize? In the absence of

competition, will they raise prices, as we would expect

23
pr of i t -max i mi z i ng firms to do? How does a trade association or certification council's connection with industry affect its

incentives to certify innovative products? To certify products

of questionable quality?

Reasons for Performance: Demand Factors

Understanding the nature of demand for certifications can

shed light on a number of important issues:

* Whether certification seals and listings can aid

informed choice and improve competition among products;

* What types of labeling would most help those who rely on

cert i f i cati ons

* How certification might be used to encourage the

commercialization and use of relatively new technologies,

such as solar heating and cooling equipment;

* Effects of programs to accredit laboratories or certification programs; and

* To what extent certifications (or lack thereof) may

cause problems of the sort alleged by FTC in its Report , including problems arising from certifier market power.

There are two layers of demand for certification services:

(1) direct demand by the manufacturers who pay for the

certifications; and (2) indirect demand by product buyers,

regulators, insurance companies, and others. Some questions

related to the two types of demand are discussed below.

Manufacturer Demand

When manufacturers obtain certification of their products,

and in particular, when they obtain certification from major

certifiers, are they responding to requirements of regulators,

product buyers and others? If so, there may be no need to

study manufacturers as an independent source of demand for

certification services.

On the other hand, manufacturers may choose to enter a certification program even though it is not absolutely

essential for marketing. If this is true, then more study of

manufacturers as an independent source of demand for

certification services may be needed.

One important question is: Do manufacturers shop around

for the most lenient certification requirements or the most

easy-going testing laboratory? "Shopping around" could mean

that certifiers or testing laboratories relax their

requirements in order to attract business, and that some

activity such as laboratory accreditation is needed to reduce

variability of testing. This suggests that, in some cases, the

government should not try to increase the number of product

certification programs.

2h
Secondary Demand

An important source of demand for certifications is

reliance on them by the following groups:

* regulatory officials

* insurance companies

* retailers and other buyers

* procurement officials

* consumers

It would be useful to know how certifications influence

decisions of each of these groups, and why. For example, to

what extent do insurance companies use certifications in making

decisions on providing product liability insurance? It would

be useful to know what kinds of labeling and listing

information regulators, buyers, insurers, consumers and others

really use (as opposed to what they might "need"). For

example, would they pay attention to the types of information

the FTC would require to be disclosed under its Proposed Rule?

Would their decisions be influenced by the information that a certifier is accredited?

Brand Preference

It would also be useful to determine how much "brand

preference" there is for certifications by major certifiers.

For example, in actual practice, what certifications are

accepted by regulatory officials? A preference for

certifications from a few established firms may make it

difficult for small certifiers to compete with large ones. It

may also make it difficult for new firms to set up

certification programs to compete with existing programs,

creating an entry barrier that takes away a source of potential

competition. Where brand preference exists, is it because of

any legitimate advantages of major certifiers, or because of

ignorance? If the latter, then further study of demand might

show whether it would improve competition among certifiers to

accredit certifiers, write guidelines to help regulatory

officials decide whether a certifier should be considered

"nationally recognized," or undertake a program to educate

regulatory officials as was recommended by the American Council

of Independent Laboratories at FTC's 1979 hearings. M'

25
7. CONCLUSIONS

This paper has urged that research be done to evaluate the

structure and workings of the product certification

"industry." Such research should be helpful in setting

government policy toward certifying organizations, in planning

activities which use product certification as a tool to

accomplish other public goals, and in carrying out programs

which have possible effects on product certification, such as testing laboratory accreditation.

The research could also have broader implications. First,

as with brand names, certification seals and listings are one

way to convey product information to users. Thus, a study of

the certification industry could provide information about the

economics of information and buyer choice in general.

Second, many of the pros and cons of product certification

may also arise with respect to "certification" of peop 1

--f or example, certification of elevator safety inspectors or lawyers. Research into product certification may help in

predicting the effects of other kinds of certification.

Third, since many certification programs are operated by

trade associations and other non-profit organizations, study of

certifiers would shed light on the economics of the non-profit

sector of the economy.

And, finally, as was pointed out in this paper, third-party

product certification is closely involved with various kinds of

government regulation. Certification may be an aid to

enforcing mandatory standards such as building codes, or it may

be a method of giving consumers information which will make

mandatory standards unnecessary. Thus, a study of

certification may help in devising strategies toward regulation

in gene ral

26
Footnotes

1. The author is an economist at the National Bureau of

Standards; however, the views presented here are those of the

author and not necessarily those of NBS.

2. In its building products certification program, the

Department of Housing and Urban Development uses the term

"administrator" for firms which authorize use of their labels

on products which comply with HUD standards. The administrator

"validates" the manufacturer's certification, based on testing

by approved laboratories and quality control inspections. (See

HUD, 24 CFR , Part 200, and "Administrator Qualifications and

Procedures for HUD Building Products Certification Programs,"

Federal Register , Vol. 44, No. 65, April 3, 1979, pp. 19394-7.)

3. There are several S.I.C. code groups in the 1972

Standard Industrial Classification Manual , published by the

U.S. Office of Management and Budget, which might include third

party certifiers. See SIC codes 6411 (Insurance), 7397

(Commercial Testing Laboratories), 8611 (Business Assoc.), and

8621 (Professional Membership Assoc). Some organizations

providing third-party certification services may also be

included under other SIC codes.

4. U.S. Federal Trade Commission, Standards and

Certification: Proposed Rule and Staff Report , GPO, Washington,

D.C., December 1978. A report prepared on behalf of the

American Council of Independent Laboratories examined

competitiveness of certification markets, based on interviews

with users and suppliers of certification services. See James

French, George Lawrence, Joseph O'Neil, and John Rogers,

Product Certification in the United States: I Structure of the

Process; II Anticompetitive Aspects: A Study Prepared for the

American Council of Independent Laboratories , May, 1979. See

also the hearings record for the Proposed Rule, including

comments of Underwriters Laboratory and the Association of Home

Appliance Manufacturers. A report by David Hemenway, Standards

Systems in Canada, the U.K., West Germany and Denmark: An

Overview , U.S. National Bureau of Standards, GCR 79-172, 1979,

describes certification in four countries and raises some

economic issues with respect to certification which may apply

in the U.S. as well. A report being prepared by Ileana

Martinez of the National Bureau of Standards describes the

French certification system. A paper being written by

Anastasios Papathanasis of Northwest Missouri State University

and Sylvia Lane of the University of California/Davis,

"Economics of Private Sector Certifying Agencies," takes a statistical approach to examining economic effects of

certification.

27
5 . Directory of United States Standardization Activities , edited by S. J. Chumas, National Bureau of Standards,

Washington, D.C., 1975. Not all organizations responded to the

survey taken in order to prepare this Directory . Furthermore,

the purpose of the Pi rectory was to describe organizations

involved in standards development, rather than certifying

organizations per se. As a result, many organizations which

certify products but which are not involved in standards

development may not be included. Conversation with Sophie

Chumas, January 1979.

6. William Slattery, Tabulation of Voluntary Standards and

Certification Programs for Consumer Products , U.S. Nat'l Bureau

of Standards, Tech. Note 948, 1977. According to this

tabulation, the number of pr oduct-types certified was as foil ows

Underwriters Laboratories 212

American Gas Association 20

Glass Tempering Assoc. 8

Amer. Soc. of Sanitary Egrg. 8

Assoc, of Home Appl. Mfctrs 5

Air-Cond. & Refrig. Inst. 5

Architectural Alum. Mfct Assoc. 5

The 16 other organizations listed each certified three

products or less.

7. The American Council of Independent Laboratories (ACIL)

lists 200 laboratories in its 1978 Directory , published by ACIL

in Washington, D.C. The 1972 U.S. Census of Manufacturers

listed 1813 firms as Commercial Testing Laboratories (S.I.C.

7397) and gave annual revenues from commercial testing as $383

million. (These figures were quoted in U.S. Department of

Commerce, First Annual Report: National Voluntary Laboratory

Accreditation Program , 1977, pT 15.)

8. Murray Weidenbaum describes the growth in Federal

regulation since the 1962 Food and Drug Amendments in his book,

Government-Mandated Price Increases , published by the American

Enterprise Institute, Washington, D.C. 1975.

9. 29 CFR 1910.251-2. (The Code of Federal Regulations , published by the U.S. Office of Federal Register, is cited

throughout this paper as CFR .

10. 24 CFR 3282, promulgated under the National Mobile

Home Construction and Safety Standards Act of 1974.

28
11. This growth was described in the Final Report of the

Interagency Task Force on Product Liability, published by the

U.S. Department of Commerce in 1978 (p. 11-47). The report

discusses the role of industry standards in litigation. See

also the Task Force's Industry Report , and William Rockwell's

background paper for the Task Force called "Standards,

Certification, Quality Assurance, and the Products Liability

Problem," October, 1976. On the other hand, a 1979 study based

on interviews concluded that availability and cost of product

liability insurance are not affected by certification. (French ^

aj[, 1979 , p. 39) Since insurance demand for certification

appeared to be a topic of lesser importance in the study, this

observation should probably be considered one data point rather

than conclusive evidence. Later on, this paper recommends

further research into insurance demand for certification.

12. According to Underwriters Laboratories: "Inspection

authorities, insurers, consumers, and others, often accept UL's

mark as an indication of acceptable product design from a safety standpoint or as evidence that the product will perform

in a specified manner." (Testimony of Underwriters

Laboratories, U.S. Senate, Subcomm. on Antitrust and Monopoly,

Hearings on S.3555: Voluntary Standards and Certification Act

of 1976 (Part 1), 94th Cong., 2d Sess., June and July, 1976 , p.

252. )

13. French ^

a1. Product Certification in the United

States , 1979, p. 39 (see footnote 4, above )

.

14. See Interagency Task Force, Final Report , 1978, pp.

VII-33 through 37 (footnote 11, aboveTl R al ph Manaker , "The

Legal Defense of Compliance with Standards," ASTM

Standardization News , September 1977, pp. 8-10+; Richard

Finegan, "The Product Liability Situation in the United States

Has Reached Crisis Proportions," Standards Engineering , April

1977, p. 28; and Department of Commerce, "Draft Uniform Product

Liability Law," Federal Register , v. 44, no. 9, Jan. 12, 1979,

pp. 2996-3019. Concerning liability risks of certifiers, see

ANSI, Products Liability of Members of S tandards-Wr i ti ng

Committees , ANSI, New York, 1975, pp. 6-7; and Advertising Age , "Jury Exonerates 'Good Housekeeping' in Seal Litigation," Feb.

1, 1971, pp. 3+.

15. Behrens, C.W., "Testing for Consumers," Appl i ance

Manufacturer , May 1973.

16. French ^a_[. Product Certification in the United

States , 1979, p. 38 (see footnote 4, above) ; and HUD,

"Administrator Qualifications," 1979 (see footnote 2, above).

29
17. See National Business Council for Consumer Affairs,

Safety in the Marketplace: A Program for the Improvement of

Product Safety , Government Printing Office, Washington, D.C.,

1973, p. 50; Underwriters Laboratories, Testing for Public

S af ety , UL, Chicago, 1974 (pamphlet); American National

Standards Institute, The American National Standards Institute

Policy and Procedures and Manual of Operations for

Accreditation of Certification Programs , ANSI, New York, 1976;

and FTC Report , 1978, pp. 76-7 (footnote 4, above).

18. U.S. Congress, Senate Antitrust Subcomm., Hearings on

S.825, “The Voluntary Standards and Accreditation Act of 1977” , 95th Cong., 1st Sess., April and May, 1977, p. 243; and

Underwriters Laboratories, Method of Development, Revision and

Implementation of Underwriter Laboratories' Standards for

Safety , UL, 1978, p. 14.

19. Underwriters Laboratories, 1977 Annual Report , UL,

Chic ago.

20. U.S. Senate, Hearings on S.3555 , 1976, p. 260

(footnote 12, above).

21. Ibid , p. 252.

22. See UL, Testing for Public Safety , 1974, and 1977

Annual Report ; Robert O'Bannon, Building Department

Administration , International Conference of Building Officials,

Whittier, Ca., 1973, pp. 116-8; U. S. Senate, Hearings on

S.3555 , 1976 (footnote 12, above), pp. 251-4; and Chumas,

Directory , 1975, (footnote 5, above) pp. 161-2. The U.S.

National Commission on Product Safety also described UL in its

Final Report , 1970, pp. 55-7.

23. Chumas, Director y, 1975, pp. 21-2 (footnote 5, above);

U.S. Senate, Subcommittee on Antitrust and Monopoly, Vol untary

Industrial St andards--1976 : Hearings , 94th Cong., 2d Sess.,

March 1976, pp. 593-5; and O'Bannon, Building Dept. Admin ., 1973, (footnote 22, above) pp. 118-123.

24. Chumas, D i rectory , 1975, pp. 77-8 and O'Bannon,

Building Department Administration , 1973, pp. 125-8.

25. Behrens, "Testing for Consumers," 1973 (footnote 15,

above); Chumas, Pi rector y, 1975 , (footnote 5, above) p. 5; U.

S . Senate, Hearings on S.825 , 1977, p. 88; Vitro Laboratories,

Appliance Certification Program , 1979, p. 2-35; and Alwin B.

Newton , "Certifying Solar Equipment," Solar Age , Dec. 1978.

30
26. Conversation with Mr. Phillips, AHAM, April 16, 1979;

and Vitro Laboratories, Appliance Certification Program: Task 1 Report , prepared for U.S. Department of Energy, February, 1979,

pp. 2-29 through 2-33. This report represents part of a research project expected to be completed in 1979.

Conversation with Bill McFarland, Vitro Laboratories, April,

1979 .

27. American Society of Mechanical Engineers, Boiler and

Pressure Vessel Code , Sec. VIII, Div. 1, "Pressure Vessels,"

ASME, New York, 1977, par. UG 90, 91; Chumas, Directory , 1975,

p. 43; U. S. Senate, Hearings on S.3555 , 1976, p. 200; and U.

S. Senate, Hearings on S.825 , 1977, pp. 473-4. The 1976

hearings testimony suggests that inspection is freguently, but

not always, carried out by an inspector certified by another

voluntary association, the National Board of Boiler and

Pressure Vessel Inspectors, (p. 541)

28. Chumas, Directory , 1975, (footnote 5, above) pp.

131-2; O'Bannon, Building Department Administration , 1973, pp.

123-5; and National Sanitation Foundation, 1978 Annual Report , NSF, Ann Arbor.

29. O'Bannon, Building Department Administration , 1973

(footnote 22, abovey!

30. See D. Waksman £t aj^. Plan for the Development and

Implementation of Standards for Solar Heating and Cooling

Applications , 1978. (NBSIR 78-1143A)

31. The HUD program is authorized in the Solar Heating and

Cooling Demonstration Act of 1974 (PL. 93-409). Also, most of

the ten states involved in the HUD Hot Water Initative rely on

the Minimum Property Standards and a list of gualified systems

developed by the Po ly techn ical Institute of New York. See

Susannah Lawrence, "An Overview: The Development of Solar

Standards and Its Effect on Consensus," in Federal Trade

Commission, The Solar Market: Proceedings of the Symposium on

Competition in the Solar Energy Industry , U.S. GPO, Washington,

1978, p. 86.

32. For example, some juris idictions use the Uniform Solar

Energy Code of the International Association of Plumbing and

Mechanical Officials (lAPMO, Los Angeles, 1979), which reguires

collectors manufactured as a complete component to be listed.

(1979 edition, p. 43) And some Florida counties are adopting

solar collector certification reguirements into building codes.

Lawrence, "An Overview," p. 81.

33. Richard Maullin, "Remarks," in FTC, The Solar Market,

1978.

31
34. Sheldon Butt, "Standards for the Solar Industry," in

FTC, The Solar Market , 1978, p. 13.

35. Butt, "Standards," 1978, pp. 11-12; Lawrence, "An

Overview," 1978, (footnote 31, above) p. 80; and FTC, Report , 1978, (footnote 4, above) pp. 52, 97.

36. See Waksman, Plan , 1978 (footnote 30, above).

37. Newton, "Certifying Solar Equipment," 1978, (footnote

25, above) p. 28.

38. Conversation with J. E. Cottongim, SEIA, April 13,

1979; Lawrence, "An Overview," 1978, p. 82; and Butt,

"Standards," 1978, pp. 17, 51-55.

39. Lawrence, "An Overview," 1978, (footnote 31, above) p.

81.

40. See Maullin, "Remarks," 1978, (footnote 33, above) pp.

100-101, and W.J. Neissing, Laboratories Technically Qualified

to Test Solar Collectors in Accordance with ASHRAE Standard

93-77; A Summary Report , 1978 (NBS-IR 78-1535TT

41. Conversation with Hank Collins, UL, April 13, 1979.

42. See Charles Hyer, Principle Aspects of U.S. Laboratory

Accreditation Programs , prepared for U.S. Department of

Commerce, Washington, D.C., January 1979.

43. For background on this program, see U. S. DoC,

"Procedures for a National Voluntary Laboratory Accreditation

Program," Federal Register , Feb. 25, 1976, (38), pp.

8163-68, S ect . 7.7(c)(3). ( al so in 15 CFR 7); and DoC, First

Annual Report , 1977

44. National Laboratory Evaluation Program, Annual Report,

1977, p. 3.

45. See Hyer, L aboratory Accreditation , 1979 (footnote 42,

above )

46 . Standard Recommended Practice for Generic Criteria for

Use in the Evaluation of Testing and/or Inspection Agencies

( E548-76 ) , 1976 ; Hyer, Laboratory Accreditation , 1979 , (footnote 42, above) p. 52.

47. ANSI, Manual of Operations for Accreditation , 1976;

and ANSI Reporter , "Certification Group Working on Manual,"

Feb. 14, 1975; and conversation with William Rockewell, August,

1979 .

32
48. Jimmy Carter, "International Trade Agreements,"

Federal Register , January 8, 1979, at pp. 1938-9; and U.S.

Congress, House, Trade Agreements Act of 1979: Statements of

Administrative Action , June 1979. See "Title IV-Technical

Barriers to Trade (Standards) .

49. U.S. Department of Commerce, Office of Product

Standards, Summary of Proceedings: Second International

Conference on Recognition of National Programs for

Accredi dat ion of Testing Laboratories , 1978. For another

description of foreign certification activities, see Hemenway,

Standards Systems in Canada , 1979 (footnote 4, above).

50. U.S. Federal Trade Commission, "Standards and

Certification: Proposed Trade Regulation Rule," Federal

Register , 43, Dec. 7, 1978, pp. 57269-84.

51. U. S. Congress, Senate Antitrust Subcomm., Vol unt ary

Industrial Standards: Hearings , 94th Cong., 1st Sess., March

1975; Voluntary Industrial S tandards--1976 , March 1976;

Hearings on S.3555 , 1976; Heari ngs on S .825 , 1977; and U.S.

Congress, Voluntary Standards and Accreditation Act of 1977 , Congressional Record , March 1, 1977 (S. 825 and H. R. 8184, a proposed law).

52. James Abourezk, U. S. Senator, "Statements on

Introduced Bills and Joint Resolutions," Congressional

Record-Senate , May 1, 1977, p. S3158.

53. FTC, Report , 1978 (footnote 4, above).

54. FTC has previously investigated the area and published

a study called: Preliminary Staff Study (Precis):

Sel f-Regul at ion--Product Standardization, Certification and

Seals of Approval . An FTC investigation following completion

of the Precis resulted in a 1200-page public record and in a final report which focused on the use of standards and

certifications as a basis for providing point-of-sale

information to consumers: Final Report of the Task Force on

Industry Self Regulation, Performance Information, Standards

and Certification Progr ams--Ach i evi ng Socially Desirable

Objectives , July, 1972 . (See FTC Report^ 1978, p^i 109.) FTC

has also published advisory opinions concerning standards and

certifications, at 16 CFR 15.4, .96, .350, and .457. (See FTC

Report , 1978, pp. 102-7.

33
55. FTC, Report , 1978, (footnote 4, above) p. 203, 271-2;

Underwriters Laboratories, Statement of Underwriters

Laboratories Inc, on FTC Proposed Trade Regulation Rule on

Standards and Certification , May 1979, p. 9; and Association of

Home Appliance Manufacturers, Comments on Proposed Federal

Trade Commission Trade Rule on Standards and Certification , March 1979, p. 1-2.

56. French £t a1. Product Certification in the United

States , 1979, (footnote 4, above) p. 4^^

57. U. S. Senate, Hearings on S.3555 , 1976, p. 258; and U.

S. Senate, Hearings on S.825 , 1977, p. 497, 500.

58. Building Officials and Code Administrators

International, The BOCA Basic Mechanical Code, BOCA, Chicago,

1978, p. 54.

59. See U. S. Senate, Voluntary Industrial

S tandards--1976 , March 1976, p. 516; U. S. Senate, Hearings on

S.3555 , 1976, pp. 211 and 184-5; Hittman Associates, Inc.,

Barriers Connected with Certifying or Listing of Energy

Conserving Products Used in Buildings, U.S. Department of

Energy, Washington, D.C., May 1977, p. C-6; Business Week , "Product Standards Under Seige," Sept. 12, 1977, pp. 122E+;

U.S. Senate, Hearings on S.825 , 1977, pp. 168, 194; O'Bannon,

Building Dept. Admin . ~ 1973 , Tfootnote 22, above) pp. 118,

122-3; FTC, Report , 1978, pp. 28, 33, 72 , 75; and French £t al , Product Certification in the United States , 1979, (footnote 4,

above) pp. 4, 20~i and 21

60. FTC, Report , 1978, (footnote 4, above) p. 85; OSHA,

"Accreditation of Testing Laboratories," 29 CFR Section 1907;

and FTC, Report , 1978, p. 216.

61. Underwriters Laboratories, Statement, 1979, Exhibit

IV-15.

62. The National Sanitation Foundation, In Quest of

Environmental Quality , NSF, Ann Arbor, 1976, p. 8.

63. U.S. Senate, Hearings on S.825 , 1977, p. 193.

64. Hyer, Laboratory Accreditation Programs , 1979

(footnote 42, above)

65. U.S. Senate, Hearings on S.825 , 1977, p. 508.

34
66. 1978 conversation with Gene Rowland, former Director

of the NBS Office of Engineering Standards; French ^

al , Product Certification in the United States , 1979, pp. 4, 27,

29, and 30; 29 CFR 1907; Hyer, Laboratory Accreditation , 1979

(footnote 42, above); and HUD, "Administrator Qualifications,"

1979 (footnote 2, above). OSHA sets forth criteria for

accrediting testing laboratories, but its accreditation program

had not been put into operation as of June, 1979.

67. See Testimony of Robert Tesar in U. S. Senate,

Voluntary Industrial Standards, 1975, and Hearings on S.3555,

1976 .

68. U. S. Senate, Voluntary Industrial Standards , 1975,

Testimony of Kent Springer, especially p. 121.

69. Hittman, Barriers Connected with Certifying , 1977,

(footnote 59, above! ppT II-l and II -2.

70. FTC. Report , 1978, (footnote 4, above) p. 220.

71. U.S. Senate, Hearings on S.825 , 1977, p. 243; and UL,

Standards for Safety , 1978, p. 14.

72. FTC, Report , 1978. pp. 206-7.

73. Ibid , 1978; Joel Hoffman, "Antitrust Issues in Setting

and Enforcing Product Standards," FTC, The Solar Market , 1978;

Jon E . King, Antitrust Laws and Standardization -- What Role

the Trade Association? (unpublished ms.). Federal Trade

Commission, circa 1972; Carol Chapman Rawie, A Guide to Papers

Citing Antitrust Cases Involving Standards or Certification , U.S. National Bureau of Standards, forthcoming.

74. FTC, Report , 1978, pp. 221 and 478 An article

referenced on p. 83 of the FTC Report suggests that

certifications play a significant role in consumer

decision-making. See Thomas L. Parkinson, "The Role of Seals

and Certifications of Approval in Consumer Decision-Making,"

Journal of Consumer Affairs , Summer 1975. (The study described

in this article involved only eight seals, plus a fictitious

seal, including many which would not be considered third-party

certification -- e.g. government, manufacturer, and retailer

seals.

)

75. FTC Report , 1978 (footnote 4, above), pp. 191-2, 202,

and UL, Statement , 1979.

76. FTC, Report , 1978, p. 224.

35
77. I_bJ_d, pp. 227-8.

78. Ibid , pp. 226-7.

79. AHAM, Comments , 1979 (footnote 55, above). Exhibit

III-6.

80. FTC, "Proposed Rule," 1978 (footnote 50, above).

81. Ibid , Sections 457.12. and 457.14.

82. Ibid , 457.13(a).

83. Ibid , 457.13.

84. Ibid , see 457.6 and .7 and 457.11.

85. We might call for the certification requirements that

would be expected by a "reasonable buyer." Under Section

457.13(d) of FTC's proposed Rule, certain certifiers would not

be allowed to set requirements which are unnecessary in light

of expectations of a "reasonable buyer" (where buyer is defined

on page 492 of the accompanying report to include insurance

companies and regulators). But various definitions of

"reasonable buyer" seem possible. For example, criteria for

what is reasonable might be: (1) court opinions expressed in

liability cases; (2) regulatory agency standards; (3) the

optimum indicated by economic analysis; (4) what i nf ormed

buyers and regulators expect; or (5) what most buyers and

regulators expect. These criteria may conflict.

86. See UL, Statement , 1979; and AHAM, Comments , 1979

(footnote 55, above )

87. See U.S. Senate, Hearings on S. 3555 , 1976, p. 320.

88 . Testimony of Gerald McBean on Behalf of the American

Council of Independent Laboratories, Inc., on Proposed Trade

Regulation Rule on Standards and Certification , Washington,

D . C . , June 25 , 1979 .

36
SELECTED REFERENCES

General

Association of Home Appliance Manufacturers. Comments on

Proposed Federal Trade Commission Trade Rule on Standards and

Certification , 1979.

Behrens, C.W. "Testing for Consumers," Appliance Manufacturer , May 1973.

Business Week , "Product Standards Under Seige," Sept. 12, 1977,

pp . 1 22E+

Carter, Jimmy. "International Trade Agreements," Federal

Register , January 8, 1979.

Chumas, S.J., Ed. Directory of United States Standardization

Activities. U. S. National Bureau of Standards, Washington,

D.C., 1975.

French, James, George Lawrence, Joseph O'Neil, and John Rogers.

Product Certification in the United States: I Structure of the

Process; II Anticompetitive Aspects: A Study Prepared for the

American Council of Independent Laboratories , M ay 1979 . Hemenway, David. Standards Systems in Canada, the U.K., West

Germany and Denmark: An Overview . U.S. National Bureau of

Standards , 1979 (forthcomi ng)

Hittman Associates, Inc. Barriers Connected with Certifying or

Listing of Energy Conserving Products Used in Buildings . U.S.

Department of Energy, Washington, D.C., 1977.

Hoffman, Joel. "Antitrust Issues in Setting and Enforcing

Product Standards," FTC, The Solar Market , 1978.

King, Jon E. Antitrust Laws and Standardi zat i on--What Role the

Trade Association ? Unpublished ms., U.S. Federal Trade

Commission, circa 1972.

McBean, Gerald. Testimony of Gerald McBean on Behalf of the

American Council of Independent Laboratories, Inc, on Proposed

Trade Regulation Rule on Standards and Certification , Washington, D.C., June 25, 1979.

National Business Council for Consumer Affairs. Safety in the

Marketplace: A Program for the Improvement of Product Safety . GPO, Washington, D.C., 1973, p. 50.

National Sanitation Foundation. 1978 Annual Report . NSF , Ann

Arbor

37
O'Bannon, Robert. Building Department Administration . Int'l

Conference of Building Officials, Whittier, Ca., 1973.

Parkinson, Thomas. "The Role of Seals and Certifications of

Approval in Consumer Decision-Making," Journal of Consumer

Affairs , Summer 1975.

Slattery, William. Tabulation of Voluntary Standards and

Certification Programs for Consumer Products . U.S. National

Bureau of Standards, Tech. Note 948, 1977.

Underwriters Laboratories. Method of Development, Revision and

Implementation of Underwriter Laboratories' Standards for

S af ety . UL, Chicago, 1978

. Statement of Underwriters Laboratories Inc, on

Federal Trade Commission Proposed Trade Regulation Rule on

Standards and Certification . May 1979.

. Testing for Public Safety. UL, Chicago, 1974.

{ P amphl et

)

. 1977 Annual Report . UL, Chicago.

U. S. Federal Trade Commission. Final Report of the Task Force

on Industry Self Regulation, Performance Information, Standards

and Certification Programs--Achi evi ng Socially Desirable

Object i ves . FTC, Washington, D.C., 1972

. Preliminary Staff Study (Precis):

Sel f-Regul at i on--Product Standardization, Certification and

Seal s of Approval . FTC, Washington, D. C., 1971.

. Standards and Certification: Proposed Rule and

Staff Report . GPO, Washington, D.C., December 1978.

. "Standards and Certification: Proposed Trade

Regulation Rule," Federal Register, December 7, 1978, pp.

57269-84 (43 FR 572WT^

U.S. National Commission on Product Safety. Final Report . GPO, Washington, D.C., 1970.

Vitro Laborator ies. Appliance Certification Program: Task 1 Report . Prepared for U.S. Dept, of Energy, February, 1979.

Senate Hearings and Bill (Chronological Order)

U.S. Congress, Senate Antitrust Subcomm. Voluntary Industrial

Standards: Hearings . 94th Cong., 1st Sess., March 1975.

38
. Voluntary Industrial S tandards--1976 ; Hearings . 94th Cong., 2d Sess., March 1976.

. Hearings on S.3555: Voluntary Standards and

Certification Act of 1976 (Part l) . 94th Cong . , 2d Sess . , June

and July, 1976.

U.S. Congress. "Voluntary Standards and Accreditation Act of

1977," Congressional Record , March 1, 1977 (S. 825 and H. R.

8184, a proposed law).

Abourezk, James. "Statements on Introduced Bills and Joint

Resolutions," Congressional Record-Senate , May 1, 1977.

U.S. Congress, Senate Antitrust Subcomm. Voluntary Standards

and Accreditation Act of 1977, S.825: Hearings . 95th Cong.,

1 St Sess . , 1977 .

Laboratory Accreditation

Amer i can National Standards Institute. The American National

Standards Institute Policy and Procedures and Manual of

Operations for Accreditation of Certification Programs. ANSI,

New York, 1976.

Amer i can Society for Testing and Mate rials. Standard

Recommended Practice for Generic Criteria for Use in the

Evaluation of Testing and/or Inspection Agencies (E548-76 )

,

ASTM, Philadelphia, 1976.

ANSI Reporter, "Certification Group Working on Manual," Feb.

14, 1975.

Hyer, Charles. Principle Aspects of U.S. Laboratory

Accreditation Programs . U.S. Department of Commerce,

Washington, D.C., January 1979.

U.S. Department of Commerce. First Annual Report; National

Voluntary Laboratory Accreditation Program. DoC, Washington,

D.C., 1977.

. "Procedures for a National Voluntary Laboratory

Accreditation Program," Federal Register, Feb. 25, 1976, 41

(38), pp. 8163-68 (also in 15 CFR TT^

, Office of Product Standards. Summary of

Proceedings: Second International Conference on Recognition of

National Programs for Accredi dat ion of Testing Laboratories . DoC, Washington, D.C., 1978.

39
Solar Equipment Certification

Butt, Sheldon. "Standards for the Solar Industry," in U. S.

Federal Trade Commission, The Solar Market: Proceedings of the

Symposium on Competition in the Solar Energy Industry , GPO,

Washington, 1978.

Lawrence, Susannah. "An Overview: The Development of Solar

Standards and Its Effect on Consensus," in FTC, The Solar

Market , 1978.

Maullin, Richard. "Remarks," in FTC, The Solar Market , 1978.

Neissing, W.J. Laboratories Technically Qualified to Test

Solar Collectors in Accordance with ASHRAE Standard 93-77: A

Summary ReporF! (NBS IR 78-1535) 1978

Newton, Alwin B. "Certifying Solar Equipment," Solar Age, Dec.

1978.

U. S. Federal Trade Commission. The Solar Market: Proceedings

of the Symposium on Competition in the Solar Energy Industry . U.S. GPO, Washington, 1978

Waksman, D., J.H. Pielert, R.D. Dikkers, E.R. Streed, W.J.

N i e s s i n g . Plan for the Development and Implementation of

Standards for Solar Heating and Cooling Applications. (NBS IR

78-1143A) 1978.

Product Liability

Amer i can National Standards Institute. Products Liability of

Members of Standards-Wri ting Committees . ANSI, New York, 1975,

pp. 6-7.

Advertising Age , "Jury Exonerates 'Good Housekeeping' in Seal

Litigation," Feb. 1, 1971, pp. 3+.

Finegan, Richard. "The Product Liability Situation in the

United States Has Reached Crisis Proportions," Standards

Engineering , April 1977, p. 28.

Manaker, Ralph. "The Legal Defense of Compliance with

Standards," ASTM Standardization News , September 1977, pp.

8

- 10 +. Rockwell, William. "Standards, Certification, Quality

Assurance, and the Products Liability Problem." (Background

paper for the DoC Interagency Task Force on Product Liability).

October, 1976.

Lo
U.S. Congress, Senate. National Product Liability Insurance

Act (S. 403, a proposed law). I n tr oduced by Mr. Pearson,

January 24, 1977

U. S. Department of Commerce. "Draft Uniform Product Liability

Law," Federal Register, v. 44, no. 9, Jan. 12, 1979, pp.

2996-3019.

U.S. Department of Commerce, Interagency Task Force on Product

Liability. Final Report and Industry Report, DoC, Washington,

D.C., 1978

hi
JL . ’

‘ j *0 .'fo

i ‘

1 A
APPENDIX A:

PARTIAL LIST OF CERTIFICATION PROGRAMS

A-l
PARTIAL LIST OF CERTIFICATION PROGRAMS (a)

Air-Condi. and Refrig. Inst.

Air Diffusion Council

Air Movement & Control Assoc.

Akron Rubber Devel. Lab.

Am. Assoc, of Motor Vehicle Admin's

American Bowling Congress

American Bureau of Shipping

American Dental Association

American Gas Association

Am. Inst, of Timber Construction

Am. Lumber Standards Committee

Am. Petroleum Institute

American Plywood Association

Am. Society of Mechanical Egrs

Am. Society of Sanitary Egrg

American Water Works Assoc.

American Wood Inspect. Agency

American Wood Window Institute

American Wood-Preservers Bur.

Applied Research Laboratories

Approved Engineering Testing Lab.

Architectural Aluminum Mfctrs Assoc.

Associated Certifiers, Inc.

Associated Dallas Laboratories

Assoc, of Home Appliance Mfctrs

A. W. Williams Inspection

Air cond i tioner s

,

humidifiers, furnaces,

solar collectors ( b)

Air diffusion equipment

Fans, heaters (c)

Plywood flooring (HUD)

(d)

Motor vehicle safety

equi pmen t

Bowling pins

Vessels

Dental materials and

devices

Gas equipment

Laminated timber

Lumber (for HUD) (d)

Petroleum industry stds

Plywood

Boilers, pressure

vessels & nuclear plant

components; safety &

poll, control equip. (e)

Washing machines, other

pi umbi ng- rel ated

Paint systems for steel

water storage tanks

(under devel. in 1975)

Wood products

Windows (for HUD) (d)

Wood preservative

tre atmen ts

Doors (for HUD) (d)

Aluminum windows and

doors (for HUD) (d)

Glass doors, storm doors

and windows

Mobile home windows (f)

Windows, aluminum

doors, carpets, (for

HUD) (d),

Ai r-cond. , refrig.

,

other appliances

Lumber, plywood (HUD) (d)

Baking Industry Sanitation Stds.

Barre Granite Association

Bicycle Mfctrs Assoc.

Biological Stain Commission

Builders Hardware Mfctrs Assoc.

Biding Officials & Code Admins.

Comm. Baking equipment

Granite monuments

Bicycles

Biological stains

Cabinet hardware (with

Electrical Testing Labs)

Int'l Lists bldg. prod, (g)

A-2
Certified Ballast Mfrs

Chain Link Fence Mfctrs. Inst.

Cooling Tower Institute

Crayon, Water Color & Craft Inst.

Fluorescent lamp

ballasts (r)

Fences (h)

Cooling towers

Children's art materials

El Paso Testing Laboratories

Electrical Testing Laboratories

Facing Tile Institute

Factory Mutual Egrg & Research

Glass Tempering Association

Hardwood Dimensions Mfctrs. Assoc.

Hardwood Plywood Mfctrs Assoc.

Hockey Equipment Certif. Council

Home Ventilating Institute

Houston Chemical Service

Wood doors (for HUD)(d)

Conducts and publishes

guides for operating

certif. programs for

products such as consumer appliances (for

AHAM) (i); a/c equip.

(ARI) (i); cabinet

hardware (BHMA); &

carpet (HUD) (d).

Tile & glazed brick

Loss prevention equip. &

services, incl. fire

prevention & control

equ i pment

.

G1 ass shower doors,

glass tables, other

glass items, (h)

Hardwood dimension parts

Plywood, doors (HUD)(d)

(r)

Vented range hoods,

exhaust fans

Lumber & plywood (HUD)(d)

Industrial Testing Laboratories

Insulating Glass Certif. Council

Int'l Conf. of Bldg. Officials

Int'l Assoc, of Plumbing

and Mechanical Officials

Int'l Commission on Rules for

Approval of Electrical Equip.

Int'l Mobile Air Condit. Assoc.

Plywood floors (HUD) (d)

(r)

Lists building products

Plumbing products

Drills, Sanders, grinders

Mobile a/c equipment

Juvenile Products Mfctrs Assoc. High chairs, playpens (j)

Maple Flooring Mfctrs Assoc.

Metallurgical Engineers of Atlanta

Maple, birch & beech

flooring

Carpet (for HUD) (d)

Int'l Assoc, of Wiping Cloth Mfctrs Self-cert, of industrial

wipers
NAHB Research Foundation

Nat'l Autom. Merchandising Assoc.

Nat'l Board of Boiler and

Pressure Vessel Inspectors

Nat'l Cargo Bureau, Inc.

Nat'l Fluid Power Assoc.

Nat'l Hardwood Lumber Assoc.

Nat'l Kitchen Cabinet Assoc.

Nat'l Mineral Wool Assoc.

Nat'l Model Railroad Assoc.

Nat'l Oak Flooring Mfctrs Assoc

Nat'l Particleboard Assoc.

Nat'l Sanitation Foundation

Nat'l Swimming Pool Inst.

Nat'l Woodwork Mfctrs Assoc.

Northeastern Lumber Mfctrs Assoc.

Northern Hardwood & Pine Mfctrs Assoc.

Glued plywood flooring,

plastic plumbing

fixtures (for HUD) (d)

Vending machines

Boilers and pressure

vessel

Loading of dangerous &

other cargo

Fluid power components

Hardwood lumber, cypress

Kitchen cabinets (k)

Home insulation (e)

Model trains

Oak flooring

Stairtreads (for HUD) (d)

Food equip., plastic

plumbing, water

treatment equip, for

swimming pools, and

other products.

Swimming pools

Doors (h), windows (for

HUD) (d)

Lumber

Lumber

Outdoor Power Equipment Institute (r)

Pittsburgh Testing Laboratories

Plumbing & Drainage Institute

Plywood Fabricator Service

Polytechnical Institute of New York

Plywood (for HUD) (d)

Water hammer arresters

Floors (for HUD) (d)

Solar energy equip. (1)

Recreational Vehicle Industry Assn.

Red Cedar Shingle and

Handsplit Shake Bureau

Redwood Inspection Service

(r)

Shingles

Lumber

Safety Glazing Certification Council

Safety Helmet Council of America

Skeist Laboratories

Snowmobile Safety & Certif. Comm.

Solar Energy Industries Assn.

Southern Building Code Congress Int'l

Southern Cypress Mfctrs Assoc.

Southern Pine Inspection Bur.

Southwestern Laboratories

Sump Pump Mfctrs Assoc

Glazing materials (m)

Helmets (h)

Flooring (for HUD) (d)

Snowmobiles (h)

(r)

Building products (g)

Red cypress lumber

Lumber

Lumber & plywood (for

HUD) (d)

Sump pumps

A-k
Tile Council of America Tiles (h)

Timber Engineering Co. Plywood (for HUD (d)

Timber Products Insp. & Testing Svcs. Lumber, plywood (for HUD

(d)

Underwriters Laboratories

U . S . Auto Cl ub

U.S. Consumer Testing Inst.

U.S. Olympic Committee

U.S. Testing Co.

Large range of

electrical and other

pr oduct s

.

Auto products (n)

if)

( 0 ) Tests a range of goods

for certif. & labeling,

i nc 1 . cel 1 ul ose

insulation (q) and

plastic plumbing (for

HUD) (d)

use Found, for Cross Connect. Control Backflow proven ters( p)

Warnock Hersey

Water Conditioning Foundation

Water Quality Assoc.

Water Systems Council

West Coast Lumber Inspect. Bur

West'n Wood Moulding & Millw'k

Western Wood Products Assoc.

Williams Grademarking Services

Zinc Institute

Doors (for HUD) (d)

Water filters and

softeners

Water conditioners,

filters, & softeners (h)

Pumps (h)

L umber

'rs Wood moulding

L umber

Lumber & plywood (for

HUD) (d)

Galvanized roofing sheets

a. In drawing up this list, certifications for occupations

and agricultural products (except lumber) were excluded. For

products covered, this should be considered only a partial list

of programs, and some entries may be out of date. This list is

drawn from several sources. Unless otherwise noted, entries

are from Chumas, Directory , 1975, which covers certification

programs conducted by standards-writ i ng organizations.

b. Newton, "Certifying Solar Equipment," 1978.

c. Hyer, Laboratory Accreditation , 1979, p. 51.

d. TMO Update , Vol. 3, No. 4, June 15, 1978 (The Marley

Organization, Ridgefield, Ct.).

e. Hyer, Laboratory Accreditation , 1979, p. 57.

f. FTC, Report , 1978, pp. 70, 71.

g. Ibid , p . 2 1 7

.

h. Slattery, Tabulation , 1977. (See footnote 6)
i. Behrens, "Testing for Consumers," 1973.

j. Phone call to JPMA, 4/16/79.

k. Hyer, Laboratory Accreditation , 1979, p. 62.

l . FTC, The Solar Market , 1978, p . 86.

m. Hyer, Laboratory Accreditation , 1979, p. 65.

n. FTC, Report , 1978, p. 225.

0. Ibid , p. 224.

p. FTC Report , 1978, p. 212.

q. U.S. Testing Co., 1978 Annual Report , U.S. Testing,

Hobok en , , N . J

.

r. French, ^ aj. Product Certification in the United

States , 1979, pp. 8, 9, and 12.

A-6
APPENDIX B:

FTC PROPOSED TRADE REGULATION RULE

B-l
FEDERAL TRADE COMMISSION

WASHINGTON. D. C. 20580

(The following has been reprinted from the

Federal Register of December 7, 1978 - 43 FH 57^269)

[6750-01-M]

(16 CFR P«ft 457]

STANDARDS A»« CERimCATION

Ra^uhrtiwi Rul* AGENCY: Federal Trade Commission.

ACTION: Notice of Proposed Rule*

making.

SUMMARY: This proposed rule would

establish prohibitions and require*

ments for standards developers, certl*

fiers, and persons who reference

standards or certifications in the marketing of products.

This notice sets out the rulemaking

procedures to be followed, the text of

the proposed rule, a list of general

questions upon which the Commission

particularly desires comment and tes- timony, an invitation for written comments. and instructions for prospective witnesses and other persons who

desire to testify or otherwise participate in the proceeding.

DATES: Notification of interest in Questioning witnesses must be submitted on or before Marfch 2. 1979. Written comments must be submitted on or before March 16, 1979. PrepEired statements of witnesses

and exhibits (if any) must be submitted on or before March 26, 1979 for

witnesses at the San Francisco hearings and April 30. 1979 Ifor witnesses at the Washington. D.C. hearings.

Public hearings commence at 9:00 a.m. on April 16, 1979 in San Francisco

and at 9:00 a.m. on May 21, 1979 in Washington. D.C. ADDRESSES: Notifications of interest. vnitten comments, prepared state- ments of witnesses and exhibits should

be submitted, when feasible and not burdensome, in five copies, to Heru^^

B. Cabell, Presiding Officer (PU). Federal Ttade Commission, Washington.

D.C. 20580, 202-724-1045. The public

hearings will be held in Room 15022,

Federal Building. 450 Golden Gate

Avenue, San Francisco, Cedifomla and

in Room 332, Federal Trade Corrunisslon Building,' Pennsylvania Avenue

and 6th Street. N.W., Washington.

D.C.

FOR FURTHER INFORMATION

CONTACT.

Robert J. Schroeder. Bureau of Con- sumer Protection, Federal Trade

CoRunission. Washington. D.C.

20580. 202-523-3936.

SUPPLEMENTARY INFORMATION:

The proposed rule would apply to the

development and use of product standards, to the related activity of product

certification, and to the referencing of

product standards and use of certifica- tions by sellers in the marketing of

their products. The proposed rule re- quires standards developers to notify

specified classes of persons of a standards development proceeding. The

notice must describe the proposed

action in sufficient detail to enable

persons to determine whether they

should participate in the proceeding.

A general right to participate in all phases of standards iwoceedings is es- tablished. The proposed rule requires

standards developers and certifiers to

disclose any serious hazards that are not immediately apparent to users. The rule also establishes a redress

system that private parties can use to challenge unfair, deceptive or anticompetitive standards. Certain product

standard areas are proposed as exempt

from the rule, including food and drug

standards and certain certifier test methods. In addition, comment is specifically requested as to whether procedural. challenge, and other rights

and benefits should be granted only to persons from countries which grant re- ciprocsd rights to United States interests. Nonproduct standards, such as standards of professional competence

or financial accounting standards, are

considered beyond the scope of this proceeding. - -- Private standards development and

certification activities are in the nature of an intermediate service in commerce. Standards and certifica- tions are relied on extensively in com- merce to facilitate communication be- tween sellers and buyers, promote the

interchangeability of products and

components. transfer technology,

assure the safety, fitness and energy

efficiency of products, and help

achieve efficiencies in design, production and inventory. Despite these

benefits, standards development and

certification activities have frequently

caused or contributed to substantial consumer and competitive injuries.

The injuries include, among others,

-denial to consumers of the benefits of

(aiperior or lower cost technology,

denial to businesses of the opportunity

to enter and compete in profitable in- dustries, inadequate product safety

levels, unnecessary costs, and failure to provide for disclosure of important

product hazard or use information.

The following discussion is intended

only to highlight the major provisions

of the proposed rule, and to explain

the reasons for the rule provisions and

their anticipated effect. The full staff report contains a detailed analysis of

the proposed rule and the reasons for

each rule provision. Copies of the staff report are available in Room 130,

Public Reference Room, Federal

Trade Commission, 8th Street and

Pennsylvania Avenue. N.W., Washington. D.C.- 20580, and may be obtained

in person or by mail.

Subpart A sets forth the rule's scope

and defines relevant terms. Subpart B imposes procedural safe- guards on the standards development

process and creates a framework for

principled decision-making. Section

457.3 requrles that the standard.^ de- veloper establish and follow written

procedures. Section 457.4 requires that

the standards developer notify specified persons 30 days prior to com- mencement of any proceeding to develop. revise or withdraw a standard

This notlfimtlon must contain infor- mation describing the purpose of the

proceeding and how interested persons

may participate. The information that

standards developers currently include

In their general notices is insufficient to permit persons to make an in- formed decision as to whether they

want to participate in the proceeding.

Section 457.4 requires that the

standards developer also notify specified persons of its Intention to adopt,

revise, or withdraw a standard at least 60 days prior to a final decision. This

notification must contain, among

other items, a copy or summary of the

proposal, and a statement of the

B-2
57270 PROPOSED RULES

major substAntlve disputes that oc- curred during the proceeding and the

reasons these disputes were decided as they were. The purpose of this re- Qulrement is to provide Interested parties with enough Information to judge

the action prior to reliance on the

standard In the market. The state- ment of major disputes and .the rea- sons for decisions on them is intended

to aid Interested parties in formulating their input into the process. The

section also requires that the standards developer notify specified persons

30 days prior to the effective date of

the action.

The time limits that are set throughout the section are necessary to enable

recipients of the notices to make use

of the Information pro\ided. These

time limits do require that a standards

developer will spend a certain minimum amount of time in the standards

proceeding; however, this will not slow

the process, as most proceedings

appear to take far longer. , The proposed rule specifies classes of persons that must receive notice. These classes include producers, insti- tutional and Individual consumers, government procurement and code officials, certifiers," environmental and

energy conservation groups and others

who may have an interest in the pro- ceeding. Standards developers have

often failed to give adequate consideration to all interested parties. To pre- clude full participation by interested

parties is to run the risk of making a

dicision on incomplete data and with- out consideration of all viewpoints on

critical issues.

It is expected that direct mailings

will be the dominant mode of providing the required notice to all interest- ed persons, although the standards de- veloper is free to use other means to achieve actual notice to the required

parties. The notice provisions in this section may impose some costs associ- ated with printing and mailing. The

costs are limited, however, by the re- stricted imiverse of recipients. The

provision may also, in some instances,

permit fewer notices than are currently provided.

Section 457.5 establishes a general

right to participate in all phases of all standards proceedings to all persons. The term participate includes such

things as direct involvement in oral deliberatiorxs, submission of written materials, and receipt of agenda and minutes. The purpose of the requirement

is to expand the universe of inquiry by

ensuring that all interests have the op- portunity to present their arguments

during a standards development pro- ceeding.

Sections 457.6 and 457.7 create a

complairit mechanism which private

parties can use if they believe that

they are being harmed by unfair, deceptive or anticompetitive standards.

S^tion 457.6 permits a complainant to

test standards sigainst the following

basic principles:

1. Standards should have logical and

technical Justification in light of their

stated or implied policy goals;

2. Standards should not exclude

products that are equivalent to products not excluded;

3. Rather than excluding products,

standards developers should choose

the least restrictive alternative, l.e., one which preserves or Increases buyer

options and the opportunity of sellers to compete;

4. Standards should avoid raising

false presumptions that two or more

conforming products are homogeneous

In performsmce or safety;

5. Standards should not be drawm to cause misreliance that results in eco- nomic loss to buyers or exposes product users to unforeseen risks. While the notice and participation

requirements of the proposed rule do

provide that all viewpoints may be

heard, they do not guarantee that the

decision will reflect consumer protection and competition policies. The pur- pose of § 457.6 is to enable private parties to raise these issues to a standards

developer and receive consideration.

The standards developer is required

under § 457.7 to take appropriate

action when a complainant prevails in a challenge under § 457.6. Appropriate

action consists of actions necessary to cure the harm and must be completed

within a reasonable time period. If a

standards developer detemiines that it

is not required to take appropriate

action, it must notify the complainant

of the reason for the decision, and of

the existence of an appeal board es- tablished under §457.10 of the pro- posed rule. Section 457.8 requires that every

standard that is promulgated must dis- close its intended scope, and warn of

any serious hazards or limitations in

conforming products that are not immediately apparent to users. These

disclosures are intended to insure in- formed use of standards and guard

against deception and misreliance that

might occur in their absence.

Section 457.9 imposes a recordkeeping obligation on standards developers.

The provision merely requires retention of written materieds compiled in

the course of a proceeding. Records

would be open to the public.

Section 457.10 requires the standards developer to establish an impartial appeal board to hear disputes re- lating to procedural matters, or to

unfair, deceptive or restrictive standards. tinder the section the standards

developer caimot unreasonably refuse

to abide by appeal board decisions. Section 457.11 sets out several cate- gories of standards and standards development activities that are being

proposed as exemptions under the

rule. They include certain certifier test methods and standards relating to food, dimgs, and other products regulated by the Pood and Drug Administration. The exemptions generally re- flect an intent either to shield certain

standards development activity from

procedural or other rule burdens, or to

limit the scope of the rule. The rule proceeding will attempt to discern the

proper scope of the exemptions. In light of existing practices, costs, and

the public Interest. One of the questions on which comment is sp>ecifically

requested is whether an exemption

should be included which would limit

the ability of a person from a foreign

covmtry to exercise rights created by

the rule if similar rights were not

granted to United States interests in their coimtry.

Subpart C sets out the duties of certifiers. Section 457.12 requires the certifier to use standards properly by fol- lowing the requirements in the standards and any later requirements issued

by the standards developer.. Further,

under §457.12 the certifier must re- quire a seller who uses its seal of ap- proval to disclose specified information on or near the seal. The disclo- sure must include a statement of the

product attributes that are covered by

the certification, and a statement

warning of any serious risks or limita- tions associated with use of the prod- uct which are disclosed in standards as required by § 457.8. In addition, the section requires a

certifier to take action against producers that abuse its seal or listings. This can occur, for example, when products

represented as being certified do not

comply with relevant standards. The

certifier’s action may consist of withdrawal of the certification, probation,

retesting or other appropriate action. A certifier that has knowledge that a

standard it is using in certification vio- lates the §457.6 complaint criteria must request action on it by the standards developer. The required disclo- sures and obligations are intended to prevent uninformed use of a product

and to prevent deception and consumer misreliance.

Section 457.13 applies only to certifi- ers who are relied on to such an extent

in a market that they, in effect, control access of products to that market.

The section prohibits granting or denying certification, or discriminating in the quality of service, based on

such factors as a producer’s trade asso- ciation membership, size of the pro- ducer, product origin, and whether a

product is intended for retrofit rather

than installation as original equipment.

The section also prohibits certifiers from imposing test requirements that

FCDERAl KEGISTER, VOL 43, NO. 234—THURSDAY, DECEMBER 7, 1978 B-3
PROPOSED RULES 57271

are unnecessary In terms of buyer expectations. Superfluous retesting re- quirements on products tested by competent laboratories or on product

changes that do not affect safety or performance are also prohibited. One

other requlrwnent for certifiers subject to $457.13 is that they establish an Impartial appeal board to hear dis- putes relating to duties under that section.

If a certifier refuses to do business

with one producer, but not other pro- ducers of the same product, the first producer will be excluded from markets that require the certification. Even if the certification is not an absolute requirement, the excluded pro- ducer will have a marketing disadvantage to the extent that buyers view

the absence of certification as connoting an inferior or unsuitable product.

The purpose of the prohibition is to eliminate unfair discrimination in the

certification process and thereby

expand producer and consumer options. Section 457.14 imposes a recordkeeping obligation on certifiers. The provision requires that the certifier keep

records relating to the certification of

individual products, as well as any

complaints it receives about deceptive

or otherwise improper use of its seal of

approval by seUers. The records must

be made available to a client in a certi- fication action for inspection and

copying. Records are not required to be made available to the general

public because of the need to protect

trade secrets. The recordkeeping provisions should not be unduly burden- some in that it appears to follow cur- rent certifier practices.

Section 457.15 sets forth several cat- egories of certification that are being

proposed as exemptions under the

rule. These include, among others, cer- tifications relating to food, drugs, and

other products regulated by the Pood

and Drug Administration, and repre- sentations such as endorsements

which consumers are likely to believe are subjective or not based on controlled testing.

One of the questions on which com- ment is specifically requested is whether an exemption should be in- cluded which would limit the ability of a person from a foreign country to exercise rights created by the rule if similar rights were not granted to United

States interests in their country.

Subpart D, $ 457.16, sets forth re- quirements for the impartial appeal

board that must be established by

standards developers and certifiers pursuant to §§457.10 and 457.13(e) re- spectively. It outlines certain requirements that the appeal board must ob- serve to ensure that the parties are

given a fair hearing. These include,

among others, that the board be independent of the sponsoring organizations and that members have no conflicts of interest relating to the appeal.

The appeal board must render a deci- sion aithin 60 days of its receipt of a

complaint.

Subpart E, § 457.17, contains several prohibitions and requirements applying to seUers who represent conform- ance with standards In the marketing

of their products. It requires the marketer to disclose Information relating to product attributes covered by the

standard and any product hazards or

limitations. It prohibits the marketer

from marketing a product in a manner

contrary to requirements contained in the standard or imposed by the certifi- er. The purpose of the provision is to

' ensiure that standards are complied

with, and that buyers receive the in- formation required in other sections of

the rule. Section A. Proposed Tradx

Regulation Rule

Notice is hereby given that the Federal Trade Commission, pursuant to the Federal Trade Cominission Act, as amended. 15 U.S.C. 41, et seq., the provisions of Part 1, Subpart B of the

Commission’s procedures and rules of

practice, 16 CTO 1.7, et seq., and sec- tion 553 of subchapter II. Chapter 5, U.S. Code (Administrative Procedure),

has initiated a proceeding for the pro- mulgation of a trade regulation rule concerning the development of standards. certification of products, and use

of standards and certifications in marketing.

Accordingly, the Commission pro- poses the following Trade Regulation

Rule and would amend Subchapter D,

Trade Regulation Rules, Chapter I of

16 CTO by adding a new Part 457 as

follows: rART 457—STANDARDS AND CERTIFtCATION

Subpart A—Scop* on4 OvHnMon*

Sec.

457.1 Scope.

457.2 Definitions.

Subpart >—Stawdar^t 457.3 Written procedures.

457.4 Notice. 457.5 Participation. 457.6 Duty to act. 457.7 Appropriate action. 457.8 Required disclosures. 457.9 Recordkeeping and access. 457.10 Appeals.

457.11 Exemptions.

. Subpart C—Cartiflcatiaa 457.12 Genera) certifier duties. 457.13 Additional certifier duties. 457.14 Recordkeeping and access. 457.15 Exemptions.

Subpart D—Appaol laard 457.16 Appeal board.

Subpart S Maihatirr^ 457.17 Use of standards and certifications.

Subpart S rNataa Authoritt: 38 Stat. 717. as amended, IS

UJS.C. 41, et teq.

Swbpart A Scopa and Dafinttions

$457.1 Scope.

(a) This part shall apply to the de- velopment of standards, the certifica- tion of products, and the use in marketing of standards and certifications. In or affecting commerce, as "commerce” is defined in the Federal Trade

Commission Act. 15 U.S.C. 41, et seq. (b) It is an unfair method of competition and an unfair or deceptive act or

practice, within the meaning of sec- tion 5(a)(1) of the Federal Trade Commission Act. 15 U.S.C. 45(a)(1), for any

standards developer, certifier, or marketer to violate any applicable provision of this part.

$ 457.2 Definitions. (a) Certification. The grant of a

form of approval, as well as the process on which the grant (or denial) is based. The process may Include sampling, testing, inspection, followup,

and related activities. Certification

does not include self-certification, or

official governmental acts. (b) Certifier. A person who engages

in the process of granting forms of approval. Certifier does not include a governmental entity acting in its offi- cial capacity.

(c) Evidence. Materials of any kind

dr written arguments (whether or not

accompanied by supporting materials),

that are offered In. support of a proposition. (d) Form of approval. A seal, state- ment of conformance, label, classifica- tion, listing in a directory, and any

other affirmation that a product complies with, or performs in a specified manner in relation to, a standard or other requirement.

(e) Marketer. A manufacturer,

wholesaler, retailer, or other person

who engages in marketing.

(f) Marketing. The sale, offering for

sale, advertising, or promotion of products.

(g) Person. An individual, proprietorship. partnership, corporation, associ- ation. federal, state, and local govern- ment agency, and any other entity.

(h) Product A finished product,

components, equipment, materials,

and lighting, heating or other systems.

The term includes both personal and

real property, and any other consumer

or producer good.

(i) Recognized area of competence. A

product area in which the standards

developer holds Itself out as competent to do business, or in which per- sons who rely on the standards develFEOERAL REGISTER. VOL 43, NO. 23«—THURSDAY, DECEMUR 7, 1978

B-4
67272 PROPOSED RULES

oper would reasonably recognize It as competent to do business.

(J) Request for action. Any written

communication to an officer or direc- tor of a standards developer, or to the

chalmmn or other officer of a standards d^elopment committee, which call

r

into question a standard, proposed

standard, interpretation, act or practice

of a standards developer, or lack of a standard within the standards de- veloper’s reco^ized area of competence, and which requests the stand- ards developer to change its position

with respect to the matter called into question. Requests may relate to matters under consideration in a standards

development proceeding under § § 457.4 and 457.5.

(k) Self-certification. Affirmation by

the marketer of a product that the

product complies with, or performs In a specified manner In relation to, a

standard or other requirement.

(l) Standard. A prescribed set of conditions or requirements, or portion

thereof, applicable to any product In any market, established by agreement

among buyers, sellers, professional groups, standards developers, certifi- ers. or others. A standard may include

definitions: methods of test; specifications for performance, design, construction, or composition; classifica- tions; disclosures; guides; codes: and

recommended practices. Standard does

not include stand^ds which are pre- pared by one manufacturer or marketer solely for its owti procurement,

production, or marketing purposes. See § 457.11 Exemptions. , (m) Standards developer. A person

that develops standards, sponsors the

activity of developing standards, or promulgates standards. Standards de- veloper does not include a governmental entity acting in its official capacity.

(n) Standards development The

process of development and promulgation of standards. The term includes

notice, committee selection, develops

ment, review, balloting, resolution of negative votes, adoption, veto, subsequent revision, withdrawal, and all re- lated activities. Standards development does not include official govern- mental acts. (o) Testing. Evaluation, Inspection,

controlled experiments, and other

methods for determining whether or not a product complies with, or per- forms in a specified manner in relation

to, a standard or other requirement.

Subpazt B—St«iidaxd* §437.3 Written procedures.

(a) The standards developer shall es- tablish operating procedures to implement and administer the requirements

of this subpart.

(b) The procedures shall be written

and made available without charge to any person upon request.

(c) The standards developer shall follow its procedures.

§457.4 Notice. (a) Notice of proceeding. The standards developer shall provide notice of

intent to develop, revise or Withdraw a

standard to those persons specified in paragraph (d) of this section, except In Instances In which only employees of

the standards developer who have no

commercial Interest In the matter

under consideration will participate.

The notice shall be provided at least 80 days prior to commencement of the

proceeding. The notice shall contain, at a minimum, a statement of the subject matter and type of action pro- posed to be taken, reasons for the proceeding. and a summary of the rules .and time limits for participation.

(b) Notice of proposed decision. The

standards developer shall provide

notice of intent to make a final deci- sion on adoption, revision or withdrawal of a standard to those persons speci- fied in paragraph (d) of this section. The notice shall be provided at least 60 days prior to the final decision. The

notice shall contain, at a minimum, a copy or summary of the proposal, a

statement of the major substantive

disputes that occurred and the reasons

these disputes were decided as they

were, likely effects on the classes

listed in paragraph (d)(2) of this section, and a summary of the rules and

time limits for comment or other participation.

(c) Notice of final decision. The

standards developer shall provide

notice of final decision on adoption,

revision or withdrawal of a standard to those persons specified In paragraph

(d) of this section. The notice shall be

provided 30 days prior to the effective date of the action. The notice shall contain, at a minimum, a copy or sum- mary of the standard, a statement of the major substantive disputes that

occurred and the reasons these dis- putes were decided as they were, likely effects on the classes listed In para- graph (d)(2) of this section, a state- ment that all persons have the right

of access to the records of the proceeding. and a statement explaining how

requests for action In accordance with

§ 457.6 may be made.

(d) Notices required by paragraphs

(a), (b), and (c) of this section shall be

provided to the following;

(1) All persons requesting notice;

(2) A representative of each of the

classes listed below that is likely to be

affected by the action and of any

other class that is likely to be affected

by the action. Representatives shall be

selected on the basis of such factors as

their Interest in the matter, the likeli- hood that they will participate, and

their competence to adequately repre- sent the Interest of the class:

(1) Producers (and importers, if for- eign producers are not represented) of

products covered by the standard, and

producers of competing products. The

representatives shall be selected to re- flect the range of products and competing products, production processes,

size of producers, and other variations

within the Industrsr;

(ii) Individual consumers, and con- svimer groups;

(iii) Institutional and industrial con- sumers;

(iv) Federal, state, and local procure- ment officials: (V) Other persons in the chain of dis- tribution. such as retailers;

(Vi) Federal, state, and local building

code and other officials who have reg- ulatory Jurisdiction over products cov- ered by the standards;

(vli) Environmental groups;

(viil) Ekiergy conservation groups;

(ix) Certifiers.

(3)

Representatives of classes may be

chosen from those requesting notice

imder paragraph (d)(1) of this section. All representatives shall be informed

that the notice to them Is Intended to serve as notice to a class that shall be

defined as specifically as practicable.

§ 457.5 Participation.

(a) Except as provided in paragraphs

(b) and (c), the standards developer

shall provide to all persons equal op- portimity to participate In all phases

of all standards proceedingTS.

(b)(1) The requirements of para- graph (a) of this section shall not

apply to:

(1) A phase of a standards proceeding in which the only participants are employees of the standards developer

who have no commercial interest in

the matter under consideration;

(ii) A final decision on adoption, re- vision or withdrawal of a standard

(following issuance of a notice under

§ 457.4(b)) which is made by a board or committee composed of at least one

representative of each Interest (e.g., producer, small business, consumer, government regulatory, government

procurement, environmental, other)

affected by the action.

(2) Notwithstanding paragraph

(b)(1) of this section, no person shall be denied the right to present written

materials at any point in the proceeding.

(c) When the number of persons re- questing participation is so large as to be immanageable, the standards devel- oper may identify classes of persons

with the same or similar interests in. the proceeding and select a repre- sentative or representatives to exercise

attendance and oral psuticlpation

rights on behalf of each such class.

§457.6 Duty to act

(a) The standards developer shall de- termine under paragraph (b) of this

section whether It has a duty to act whenever it receives a request for

FCDERAl REGtSTER, VOL 43, NO. 236—THURSDAY, OECEMSER 7, 1978
PROPOSED RULES 57273

action accompanied by substantial evi- dence (Note 1) that one of its standards, proposed standards, interpretations, acts or practices, or lack of a

standard within its recognized area of

competence (hereinafter its “position"):

(1) Raises prices or excludes products (Note 2) and lacks factual basis

(Note 3): or

(2) Excludes a product that is at

least equivalent under actual use conditions to one or more products not ex- cluded (Note 4); or

(3) Excludes a product that is inferi- or under actual use conditions to one

or more products not excluded; and

that there is a less restrictive alternative (Note 5); or

(4) Discriminates against a product

that is superior under actual use conditions to other products that meet

the requirements of the position, by

leading reasonable buyers to assume

that the product is not superior (Note

6); or

(5) Misrepresents product attributes

to reasonable buyers, where such misrepresentations would affect their pur- chasing decisions (Note 7). (b) Whenever the standards developer receives a request for action that

satisfies the requirements of para- graph (a) of this section, it shall take

appropriate action under § 457.7 unless

it has substantia] evidence on the

record as a whole (Note 8): (1) Where the request has met the

requirements of paragraph (a)(1) of

this section, that the position is not

raising prices or excluding products, or

that there is factual basis for the position (Note 9); or

(2) Where the request has met the

requirements of paragraph (a)(2) of

this section, that the position is not

excluding the product, or that the ex- cluded product is not at least equivalent under actual use conditions to products that are not excluded by the

position; or

(3) Where the request has met the

requirements of paragraph (a)(3) of

this section, that the position is not

excluding the product; or that the sug- gested alternative is not less restrictive or cannot be implemented; or that the

excluded product is one which a rea- sonable person would not purchase or which presents an unreasonable risk of injury (Note 10); or

(4) Where the request has met the

requirements of paragraph (a)(4) of

this section, that the product is' not su- perior under actual use conditions to other products that meet the requirements of the position, or that the posi- tion does not iead reasonable buyers

to assume that the product is not superior; or

(5) Where the request has met the

requirements of paragraph (a)(5) of

this section, that the position does not

misrepresent product attributes to rea- sonable buyers; or that the misrepresentation(s) would not affect the

purchasing decisions of reasonable

buyers: or

(6)

That the higher prices, product

exclusions or misreliances complained

of are de minimis; except that this re- buttal shall not be available where the

(x>st of corrective action is less than

the magnitude of the injury (Note 11). (c)(1) When the standards developer

determines under paragraph (a) or (b)

of this section, that it does not have a

duty to act. it shall notify the request- er of its decision and the specific rea- sons therefor and of the existence of

the appeal board established piursuant

to S 457.10.

(2)

The standards developer’s deter- mination under paragraph (a) of this section and, where applicable, para- graph (b) of this section, and either

the pau^graph (c)(1) of this section notification or commencement of appropriate action, shall occur within 60

days of the receipt of the request.

Where complainant offers additional

evidence on the same request within

the 60 day period, the standards devel- oper shall have such additional time

as necessary to complete the review of

the evidence, but tn no case shall the

additional time exceed 60 days from

the receipt of the additional evidence.

§457.7 Appropriate action. When the standards developer has a duty to take appropriate action under

§ 457.6(b), it shall take such actions

which appear from the record to be

necessary to correct or prevent higher

prices or product exclusions, or to cure

misrepresentations, to the extent that

such actions are supported by showings under § 457.6(a) and are not re- butted by showings under § 457.6(b).

Appropriate action shall be completed

within a reasonable period [Note 121. (b) When withdrawal of a standard

is the appropriate action, the standards developer shall withdraw by issu- ing a notice complying with § 457.4(c)

within 60 days of receipt of the re- quest.

(c)When development or revision of a standard is the appropriate action,

the standards 'developer shall, within

60 days of receipt of the request;

(1) Commence development or revi- sion in compliance with §§457.4 and

457.5, prepare a timetable for completion of the action, and Include the

timetable in all notices provided under

§457.4; or

(2) Issue a notice complying with

paragraph (e) of this section.

(d) Whenever the standards developer. under paragraph (c)(1) of this section, undertakes development or revi- sion of a standard and then deter- mines that it cannot complete such

effort in accordance with its paragraph (c)(1) of this section timetable,

it shall issue a notice complying with

paragraph (e) of this section.

(e) A notice required under para- graph (c)(2) or (d) of this section shall be provided to the persons described in

§ 457.4(d) and diall contain the following:

(1) The designation of the standard

(if a standard exists), and a description

of the product area in which the harm

is occiuTing and the attributes that

are or would be addressed by the

standard [Note 13].

(2) A statement of the problem and

harm alleged;

(3) A statement of the course of

action determined to be appropriate,

and a description of any action taken

to date;

( 4) As applicable, a statement that

the stand^ds developer has elected not to undertake a development or re- vision effort, or that it is unable to complete the effort in accordance with

its paragraph (cKl) of this section

timetable;

(5) A list of standards in the product

area, and a statement that the listed standards are withdrawn and should no longer be considered as falling

within the standards developer's rec- ognized area of competence and that

persons who do or would rely on them

should determine the acceptability of

products on some other basis.

(f) The standsurds developer shall withdraw by issuing the paragraph (e)

notice, and shall cease distributing any

of its standards required to be listed under paragraph (e)(5) of this section,

and shall cease representing in any

way that such standards and the product area in which the harm is occurring are within its area of competence.

(g) Notwithstanding paragraphs

(e)(5) and (f) of this section, a standards developer that has determined

that it cannot complete a development

or revision of a standard in accottlance

with its paragraph (c)(1) timetable

may continue the action after the ex- piration of the timetable without

withdrawing from the product area in- volved if:

(1)

(i) There has been a reasonable

attempt to complete the action within

the paragraph (c)(1) timetable;

(ii) There has been substantial progress towards completing the action; and

(ili) There is a high degree of cer- tainty that the action Will be completed within 60 days; and

(2) The notice required by para- graph (d) of this section provides, in addition to the information required

by paragraphs (e)(l)(4) of this section, a revised timetable not exceeding 60

additional days for the completion of the action.

FEDERAL REGISTER, VOL 43, NO. 236—THURSDAY, DECEMRER 7. 1970 B-6
57274 PROPOSED RULES

f 457.8 Required disclMum.

A standard shall contain the following:

(a) A statement of Its Intended scope

and use, Including products and prod- uct attributes Intended to be covered

by the standard:

(b) A disclosure of any products or product attributes not covered by the

standard that users of the standard

would reasonably presume were covered;

(c) A disclosure of any serious risks or limitations associated with use of

products that conform to the standard. when such risks or limitations

would not be apparent to reasonable

buyers: and

(d) A statement as to how persons

voted on the standard if a list of per- sons who participated in the development proceeding is printed with the

standard.

S 457.9 Recordkeeping and access. (a) The standards developer shall compile the following records in each

standard proceeding:

(DA copy of each notice given pur- suant to $457.4 and a list of persons

and publications to whom notices were

sent:

(2) A list' of participants under

§ 457.5;

(3) All written^, comments under

§ 457.5; and

(4) All other written materials i^om- piled in the proceeding.

(b) The standards developer shall compile the following records relating to each request for action under

§457.6: V (DA copy of the request:

(2) Evidence submitted, or generated, relating to the request;

(3) A copy of any notiee issued pur- suant to $ 457.6(c)(1) or § 457.7 (b), (c), or (d): and

(4) A statement describing any

action taken in response to the re- quest.

(c) The records specified In para- graphs (a) and (b) of this section shall be retained for at least 5 years from

final decision In a matter.

(d) The standards developer shall:

(1) Make available all records speci- fied in paragraphs (a) and (b) of this section to any person for inspection

during regular business hours; and

(2) Promptly provide to any person

upon request copies of the records at no more than actual cost.

§ 457.10 Appeals.

(a) The standards developer shall es- tablish and maintain an appeal

board that meets the requirement of

$ 457.16. to hear and decide complaints

relating to requirements under

§§ 457.3-457.9.

(b) The standards developer shall act reasonably in determining whether

and to what extent it wUl abide by a

decision of the appeal board.

(c) The standards developer shall conspicuously include in every standard. and shall provide to esich person

with a complaint relating to requirements under $$457.3-457.9, a state- ment that the appeal board exists, and

the name and address of the person to whom an appeal should be sent or in- formation on any other method of ini- tiating an appeal.

$457.11 Exemptions.

Subpart B shall not apply to: (a) the drafting of a standard by a

person solely for the purpose of trans- mitting the draft standard to a standards developer for a proceeding that is in accord with §§457.4 and 457.5 end

that does not utilize the “employee”

exception of f§ 457.4(a) and

457.5(b)(1); except that if any such

standard is used in marketing prior to such a proceeding for purposes not. otherwise exempt under this section,

then the drafter of the standard shall,

for purposes of this one standard, be

con^sidered a standards developer subject to §§ 457.6. 457.7, 457.9. and 457.10;

(b) the establishment of test methods or other requirements by a certifi- er for use In its certification program,

when the only participants are emloyees of the certifier who have no

commercial interest In "the matter

under consideration; except that the

certifier shall be considered a standards developer subject to §§ 457.6,

457.7, 457.9, and 457.10 to the extent

that such test methods or require- ments. or certifications based on them,

are used in the marketing of products;

(c) Standards, or development of

standards, relating to drugs as defined

In 21 U.S.C. 321(g) (but not devices as defined in 21 U.S.C. 321(h)); cosmetics

as defined in 21 U.S.C. 321(1); and food

as defined in 21 U.S.C. 321(f), including poultry and poultry products as defined in 21 U.S.C. 457 (c) and (f). meat and meat food products as de- fined in 21 U.S.C. 60KJ), and eggs and

egg products as defined in 21 U.S.C.

1033.

Subporl C—

$ 457.12 6«neral certiTier duties. (a)(1) Except as provided in para- graph (a)(2) of this section, whenever

the certifier represents that products

comply with a standard, the certifier shall not use the standard in a manner

contrary to requirements contained in the provision stating its scope, the

body of the standard, or an “appropriate action” notice that it has received

from the standards developer acting

pursuant to $ 457.7.

(2) If the certifier deviates from a

standard covered in paragraph (aXD.

of this section it shall require disclosure of the deviation under paragraph

(b)(2) of this section. The certifier that deviates from a standard shall be

considered a standards developer to the extent of the deviation as provided

by $ 457.11(b).

(b) The certifier shall -disclose on or

in close proximity to the form of approval. and shall require the marketer

using its form of approval to disclose on or in close proximity to the form of

approval, the following information:

(1) Name of certifier; (2) Designation of the stsmdards and

other criteria on which the certifica- tion is based;

(3) A statement of the product attri- butes that are covered by the certifica- tion; (4) A statement warning of any seri- ous risks or limitations associated with

use of the product which are disclosed

in the standard as required by

§ 457.8(c):

(5) A statement describing the

nature of the testing, including whether and to what extent prototype test- ing, factory insi>ection, and follow-up

testing and inspection were done.

(c) Whenever the certifier has actual

knowledge or knowledge fairly implied on the basis of objective cricumstances

that a producer of a certified product:

(1) Is producing or marketing units

that do not comply with relevant

standards or other requirements [Note

14]; or

(2) Is using its name or form of ap- proval in an unauthorized manner;

the certifier shall take such actions as are appropriate to end the abuse,

which may include withdrawal of certification, probation, retesting, or other actions.

(d) Whenever the certifier has

actual knowledge or knowledge fairly

Implied on the basis of objective cir- cumstances that a producer of a noncertified product is using its name or form of approval, it shall inform the

producer that it is in violation of

$ 457.17 and must cease the unauthorized use.

(e) Whenever the certifier has actual

knowledge or knowledge fairly implied on the basis of objective circumstances

that a standard it is using in certifica- tion violates the $ 457.6 complaint cri- teria, it shall submit an appropriate

request for action to the standards de- veloper.

$ 457.13 Additional eertirier duties. (a) This section shall apply only to a

certifier whose certification in a particular product area is relied on either

in law or In fact by any government

entity and "who is effectively the sole source of certification services in that

product area and market. The section

shall apply only to certification ac- tions in the affected product area and

market [Note 151.

RD€RAl AEGiSTtR, VOL 43, NO. 236—THUftSCAY, DECEMBER 7, 1978 B-7
57275

(bKl) The certifier shall establish

operatixxs procedures which shall in- clude. at a minimum, the steps which

must be taken by one seeking: certification. the steps the certifier will follow

in determining whether to grant, deny

or withdraw certification, and other

procedures to Implement and adxnlnis* ter the requirements of this section.

<2) The procedures shall be written

and made available without charge to any person upon request.

(S) The certifier shall follow its procedures.

(c> The certifier shall not grant or deny certification, or discriminate

with regard to the qiiality of its bervioes. solely on the basis of factors such

as:(1) Membership of the producer In a

trade association or other group;

(2) Size of the producer;

(3) Country of origin of the product;

(1) Whether a product submitted for

certification is Intended for retrofit rather than installation as original

equipment.

(d) The certifier shall not deny certi- fication based on:

<11 Requirements not relating to product attributes that reasonable

buyers would presiime are addressed

by the certification, or requirements

not necessary to insure that the product meets reasonable buyer expectations relating to those attributes [Note

161:(2) Requirements that product attri- butes already addressed in the test report of another laboratory be retested. urdess there is substantial evidence on the record as a whole that the re- ported results tire iinreliable [Note

173; or

(3) Requirements that a product be

retested because of a design, component. or other change in the product,

or a change in the underlying standards or other requirements, when such

retesting would not result in a more

accurate representation of the product’s actual safety or performance to persons who rely on the certification [Note 181,

<eKl) TTie certifier shall establish

and maintain an appeal board that

meets the requirements of S 457.16, to hear and decide complaints relating to requirements under this section.

(2) The certifier shall act reasonably

in determining whether and to what

extent It will abide by a d^ision of the

appeal board.

(3) The certifier shall conspicuously

Include In every certification contract

to which this section applies, and shall provide to each person with a complaint relating to requirements under

this section, a statement that the

appeal board exists, and the name and

address of the person to whom an

appeal should be sent or information

PROPOSED RULES

on any other method of inltiatLog an

appeaL

457.14 Secordkecj^inf mad aocenu

(a) The certifier shall compile the

following records:

. (1) For each certification action:

(1) Name and model number of the

product;

<il) Designation of standards used to

test the product;

' (111 ) Description of any other criteria on which grant or denial of certifica- tion Is based; and

(Iv) Reports of results on any testing

pursuant to standards or other criteria used;

(2) Notices referred to tn ) 457.12(a);

(3) Information that a product that

it has certified does not comply with

relevant standards or other criteria,

that its name or form of approval is being used in an unauthorlz^

manner, or that a standard it is usizxg violates the { 457.6 complaint criteria;- together with such records as will show any action taken by the certifier in response: and

<4) Any complaints received by the

certifier relating to requirements

under 5 457.13; together with such rec- ords as will show any action taken by

the certifier In response.

(b) The records specified in para- graph (a) of this section shall be re- tained for at least 5 years.

(c) The certifier shall:

(1) Make available all records speci- fied in paragraph (a) of this section to the client tn the particular certifica- tion action for Inspection during regular business hours; and

(2) Promptly provide to the client upon request copies of the records at no more than actual cost

9 457.15 Exemptions.

Subpart C shall not apply to: (a) A representation which reasonable buyers are likely to believe Is subjective, based on personal experience, or not based on controlled testing of

the product pursuant to standards or

other requirements:

(b) A certification procured by the

purchaser of a product which is not

for any purpose connected with resale of the product;

(c) Certifications relating to drugs as defined In 21 U.S.C. 321(g) (but not devices as defined In 21 U.S.C. 321(h));

cosmetics as defined in 21 UJS.C.

321(1); and food as defined in 21 U.S.C.

321(f). Including poultry and poultry

products as defined in 21 U.S.C. 457 (c) and (f), meat and meat food products

as defined in 21 U.S.C. 60KJ), and«ggs

and egg products as defined in 21 D.S.C. 1033.

9 457.16 Appeal board.

(a) The standards developer or certi- fier shall establish and operate an

appeal board which complies with this section as required by 99 457.10 and

457.13(e). A standards developer or

certifier may establish and operate its own appeal board, or may Jointly es- tablish and oi>erate an appeal board

with other organbpitions.

(b) The appeal board shall be suffi- ciently independent of sponsoring

standards deVelopers and certifiers,

and of other interest groups, so that it can render fair and Impartial deci- sions.

(c) One or more members of the

appesd board, each of whom is competent to decide the appeal and has no

affiliation that would create a conflict of interest relating to the appeal, shall hear and decide each appeal.

(d) In establishing the appeal board

the standards developer or certifier may reserve the right to have a rea- sonable opportunity to act on a complaint before it is heard by the appeal

board. A reasonable opportunity shall not exceed 60 dasrs from the date the

standards developer or certifier re- ceives or is informed of the complaint.

^(6) The appeal board shall establish

f^d follow written procedures, copies

of which must be made available with- out charge to any person upon re- quest. These procedures shall contain,

at a minimum, the following:

<1) Upon receipt of a complaint, the

appeal board shall notify the complainant and all pentons whose con- duct is the subject of the complaint

that the complaint has been received.

(2) Meetings at which oral testimony

is received shall be open to observors; except that this requirement shall not

apply to an appeal brought against a

certifier unless the person making the

appeal requests that it apply.

(3) Within a reasonable period of

time not to exceed 60 days from re- ceipt of the complaint, the appeal

board shall render a written decision

based on the record and supported by

reasons. A copy of the decision shall be sent to the complainant and to all persons whose conduct was the subject

of the complaint.

(4)

(i) The appeal board shall compile

in each appeal, and retain for at least 5 years, the complaint, evidence gathered by the appeal board, including

copies of written material and summaries of oral testimony, and the decision.

(11) The appeal board shall make

available all records specified In para- graph (e)(4Ki) of this section to any

person for inspection during regular

business hours, and shall promptly

provide to any person, upon request,

copies of records at no more than

KOHtAi KiOtSTiR. VOL 43. NO. 234—THURSDAY, DCCiMMR 7. 1R7R B-8
57276 PROPOSED RULES

actual cost; except that access to rec> ords in an appeal brought against a

certifier shall be granted only to the

complainant and the certifier.

(f) If the appeal board finds that the

standard, act. practice, or failure to

act constitutes a violation of the applicable rule provision, then it shall notify the standards developer or certifier of the actions that must be

taken to comply with this rule.

Sttfcpwt E —Moftetiog

{457.17 Dm of ftaiHiards and certifica^ Uons.

(a)(1) Except as provided in para- graph (a)(2) of this section, the marketer shall not use a standard in a manner <x>ntrary to requirements con- tained in the provision stating its scope, the body of the standard, or an

“appropriate action" notice issued by

the standards developer acting pursu- ant to { 457.7, when it has actual

knowledge or knowledge fairly implied on the basis of objective circumstances

of the requirements.

(2) If the marketer deviates from a

standard covered in paragraph (a)(1)

of this section, it shall disclose the de- viation as part of the information re- quired under paragraph (c) of this section. (b) The marketershall not use a cer- tification in a manner contrary to re- quirements issued by the certifier Re- lating to the certification, when it has

actual knowledge or knowlege fairly

implied on the basis of objective cir- cumstances of the requirements. / (c) The marketer shall not use\ in marketing a certification or self-certi- fication -without disclosing on or in close proximity thereto the information specified in { 457.12(b).

(d) Whenever the marketer has

actual knowledge or knowledge fairly

Implied on the basis of objective cir- cumstances that it is producing or marketing units of a self-certified product that do not comply with the

underlying certification requirements,

it shall cease using the self-certifica- tion (see Note 14).

Svbp«rt F—Netat Note 1.—As used In § 457.6(a), “substantial evidence" is such technical, scientific, statistical, economic, theoretical, or other evi- dence as could lead a person knowledgeable

in the area of technology to reasonably con- clude that a propdsition is true. Evidence

may be "substantial" even though other

similarly knowledgeable persons could rea- sonably conclude that the proposition is not

true. "Substantial evidence" consists only of such materials that complainant chooses to

offer. By contrast, substantial "evidence on

the record as a whole" (Note 8) Includes this evidence plus any evidence offered by the standards developer.

The purpose of this test is to establish an

evidentiary threshold that the person re- questing action must meet In order to

compel the standards developer to take cog- nizance of a claim. It can be expected that on many questions probative evidence will consist of (1) scientific tests, (ii) engineering

evaluations and analyses, (ill) field experience, (Iv) accident reports, (v) Insurance loss experience, (vl) expert opinion, (vli) statisti- cal analyses, (vlli) economic, scientific, or other theory, (lx) laws, codes, procurement

specifications, and regulations, (x) reasoned

approval or disapproval by government code

or procurement officials, (xl) consumer surveys. or (xil) price lists. This list is not ex- haustive. In other : Instances a commonsense

judgment reduced to writing will suffice. Note 2.—As used In 5457.6(a)(1). a posi- tion of the standards developer raises prices or excludes products when, but for reliance on such position by consumers, code officials. architects. Insurers, certifiers or

others, such effects would! not have oc- curred. The term may Include a showring that a position xcUl raise prices or exclude

products. A necessary part of such a showing would be that, at the time of the complaint, the position was in a form or status that would not be subject to change by the

time Injury was exp>ected to occur. Where

such a complaint involves potential exclu- sion of an item not yet In production, complainant would only have to show that pro- duction of the item Is feasible. Higher prices Includes higher costs to con- sumers related to selection, purchase, instal- lation, maintenance, energy use, insurance

or replacement of products than would oth- erwise prevail. Showings of higher production. testing, sale or other related costs for

sellers constitute showings of higher prices for purposes of § 457.6(aKl). Product exclusions include situations in which the sale of a product in any market is barred or to any extent restricted or impeded as a results of the reliance of buyers, code officials, architects, insurers or others on a position of a standards developer. Products may be totally excluded from some markets, as where under local law only

products meeting a standard's requirements

are permitted to be marketed. Where l(XaJ laws do not mandate conformity with standards, voluntary reliance on standards by

buyers may result in at least partial exclusion from the market of nonconforming

products, especially when buyers caimot

easily determine safety or performance at- tributes of complex products. Marketers of such products may thereby lose sales to substitute products encompassed by such standards. A standard may cause product exclusions even for conforming products which exceed

the standard's minimum requirements. For

instance, buyers might assume in certain cases that the standard's failure to differentiate among the conforming products is evi- dence of their functional equivalence (for examples, see Note 6). Another example

might be where a standard incorrectly ranks

or grades product types, and complainant is able to show that this impedes the sale of

particular products. In sum, a complainant

may show any type of restriction of product

sales that is caused or will be caused by a

standards developer's position.

Note 3.—As used in 5457.6(a)(1), “factual

basis" is the foundation In logic and fact for that portion of standards developer's posi- tion (l.e., standard, proposed standard. In- terpretation. act or practice, or lack of a

standard within its recognized area of competence) that Is the subject of a request for

action. The distinctions drawn In a standard

are necessarily based on certain logical and

factual conclusions. A position lacks factual

basis whenever any of these necessary conclusions Is incorrect, illogical, or not sup- ported by the existing technical, scientific,

statistical, economic, theoretical, or other

factual evidence. This inquiry may concern

facts explicitly asserted in the standard—

e.g., a table in the dcKument that ranks cer- tain products—or implicit assumptions—e.g., that cost-adding or exclusionary features are necessary to promote the safety or per- formance of the product.

Lack of factu^ basis may be shown by

simply showing lack of documented or credi- ble support.

Example 1: A standards developer has pro- mulgated room environment standards call- ing for specific levels of cooling, light, and

ventilation for public school buildings. The

stated or implied purpose of these levels is to ensure that Jf level' of healtn ^d reading

proficiency is achieved. Ini 'addition to showings of excessive energy costs, (i.e., higher

prices), consumer complainant claims that

there is no documentation proving a rela- tionship of the health/proflcJency levels to the standards set. Although complainant

has not proven there is no relationship, it can nevertheless show lack of factual basis under 5 457.6(a)(1). Where the requirement is not arbitrary on

Its face, the complainant may have to identify its purpose In specific terms. If the pur- pose is unknown or ill-defined, complainant

can nevertheless proceed by positing a ratio- nale which relying parties reasonably pre- sume supports the requirement. In any

paragraph (a)(1) complaint, the only rele- vant subject is the position's factual or logi- cal relation to the purpose. The underlying

policy or value elements are not within the

factual basis inquiry.

Example 2: A prominent canoeing associ- ation writes a standard for canoes. One of the standard's provisions requires use of a

puncture-proof new material. Canoes using

this material cost, on the average, $300 more than other canoes. Complainant seller of aluminum canoes shows that its product

Is excluded inasmuch as many recreation areas require use of equipment that meets

association standards. In the absence of a documented purpose, complainant posits that recreation owners reasonably assume

that use of the standard will “save lives” and that there Is no factual basis for this as- sumption. All reported drownings were from

overturned canoes in fast water, as to which

the new canoes are equally susceptible.

Complainant has met its burden. The asso- ciation rebuts, however, that its purpose was not to “save lives.” but to “avoid wet equipment and Inconvenience” where

canoes take on water due to ruptures. It proves that the new material does in fact rupture less easily. Though a $300 per canoe

price increase might appear unreasonable from a performance/co.st standpoint, this is a value Judgment that is not part of the fac- tual basis inquiry. (It can be challenged

wder paragraph (a)(3), however.)

Another variety of action that can be

challenged in paragraph (a)(1) is the arbi- trary elimination of product tjTses. for rea- sons unrelated to the performance or safety of those pmlcular types. Example 3: Heavy cable used in construction is customarily sold in three grades based on strength. A number of sellers have

FEDERAL REGISTER, VOL 43, NO. 236—THURSDAY, DECEMBER 7, 1978

B-9
norosB) tuLEs

fiArfcetins cslale in eradcs that tail between the existing three. An industry

standard, incorporated in local building

codes, only specifies the traditional three

grades. Buyer oomplalns that (1) pricsea are

raised since buyers who need only In-be- tween grades must “step up" to sixes of excessive strength and price, and (li> that

there is no factual basis for the proposition that restriction of grades promotes the

safety, performance. fnterchangeahiUty, or

Interconnectability of cabie. Complainant

has carried its burden under paragraph

taMl). Note 4: Under 9457.6<aK2) complainant must show that an excluded product is at

least equi.valent. as to the perfonnance or

safety characteristics subject to dispute, to other products which standards developer

treats mca-e favorably. Complainant need

only show functional eqtihrml«tce. The product's price or other characteristics are Irrel- evanL (Nor is it necessary to prove equivalence with conforming brarj^ actually

being sold. For Instance, where the complaint regards a product treated as nonconforming under a standard, it is enough that

the product is equivalent to hypothetical

products that would meet the minimum re- quirements.)

In certain Instances conforming products

may be "over-engineered” for the uses to which they are normally put. Complainant

need only show that its product is equivalent to conforming products "under actual

use conditions." Example 1: A trade association standard

for public address systems in schools re- quires that speakers be able to transmit sound of a specified decibel level without

distortion. Complainant proves that (i) its own product transmits, without distortion, sounds having two-thirds the specified decibel level, and (it) that state health laws uni- formly forbid the generation of more than

one-half the specified decibel level within

school buildings. Complainant has proven

that "under actual use conditions." its product is equivalent to those meeting the mini- mum requirements. Note 5: The general effect of {457.6(aK3)

is to enable complainants to test whether

the standards developer could adopt a “less

restrictive alternative," l.e., a position that would Increase buyer options or the opportunity of sellers to compete.

In addition to showing product exclusions,

complainant must (i) identify the proposed

alternative in general terms, and (ii) show

that the alternative would equally promote

the purpose or would adequately inform

parties of the safety, performance, or other

relevant attributes of the product in question. Section 4S7.6(b)<3) indicates how these showings may be.rebutted. Example 1: Standards developer requires

that each length of metal used for supporting beams in construction be tested under a new stress test. This change was instituted

In response to reports of a 2 percent failure rate in the field. The new test requires ex- pensive equipment only possessed by the

very Largest sellers. Complainant shows that

smaller sellers will be put at a disadvantage

In having to spread costs of the equipment

Over fewer units and that the standard will thereby cause product exclusions. ComIdalnant also demonstrates that (1) the al- ternative Of requiring present test methods

to be conducted at closer Intervals can as ef- fectively reduce the failure rate, and (II) Utat la any event, the failure rate of the old

saethad la wHl enough known that weBers

using that method could be required to dls- dcse its disadvantage. Under either showing

complainant has oairled Its burden under

paragraph (aX3). In Gome cases a nonconforming imoduct

may not be equivalent to conformlDg products under actual use oonditions. but may

nevertheless meet the needs of some buyers.

Where complainant requests that the ex- cluded product be treated as conforming,

the following specific application of the

twb-part showing will suffice. Complainant

must (1) identify the proposed alternative in ^neral terms, and <ii) submit evidence

'Which accurately describes the safety, per- formance, or other problems which differen- tiate the excluded product from conforming

products under actual use conditions. As In

all paragraph (aK3) requests, complainant Is not requir^ to initially prove the practicality of implementing the alternative. Example 2: Seller makes a water pipe that

uses a new plastic compound not permitted

tmder the relevant water pipe standard. The

only documented problem with the new ma- ter^ is that It cannot be molded to form

the simple joint used in competing pipe. Seller (i) states in general terms that it would be less restrictive to treat its product

as conforming together with a requirement

that the problems with Its Joint be disclosed on the pipe itself, and (ii) provides evidence that the pipe can be Joined according to a method which produces a joint that Is as reliable as a simple joint, but lasts only 30

years as opposed to the 50-year life of other

joints. Seller has carried Its burden under

pasagraph (a)(3). Another variant of the above Is where

products are excluded for interchangeability or interconnectability purposes, or as part of a simplification program to reduce

sizes and designs. Complainant must prove

that a less restrictive alternative, such as re- quiring disclosures, could also enable buyers

to avoid confusion, unnecessary stocking of

parts, or the other problems the standard was Intended to correct. Example 3: The majority of water heater

tanks for industrial use can be directly

fitted with only one of two basic sizes of pressure relief valves. A standard covering

relief valves only encompasses the two sizes permitting a direct fit. The rationale is that the stocking of adaptors can thereby be

avoided. Seller of odd-size valves states in general terms that it would be less restric- tive to encompass all sizes in the valve standard but require the size of any con- forming vidve to be stamped on the product •o that purchasers could decide for themselves whether they would have to stock

adaptors. Seller has carried ito burden

under paragraph (a)(3). Another type of leas restrictive alternative may be the imposition of a marketing segre- gation acheme as an alternative to treating a product as conforming. For instance,

where a product poses a safety risk only if installed by nonexperts, the standard could

require conforming products to be sold only

to outlets which use qualified installers. Note 6: Section 457.6(aK4) applies where

the standards developer's position misleads buyers into assuming that all conforming

products are. for all practical purposes, equivalent Aside from the product exclu- sion showing (see Note 2), complainant must show that its product is in fact functionally

Huperlor imder actual use conditions to

57277

other wnfonolng products wMefa buyen believe are its equivalent

The mere fact that the standard does not

classify or "grade” products does not raise a

jrresumpUon that buyers will assume con- forming products are homogeneous. Jt is necessary to show that the position raises false assumptions. Section 457.6(bM4) indi- cates how these showings tns^ be rebutted. Example J:A. furnace standard establishes

pass-fail requirements tor all furnaces u^g

a particular t}^ of fuet A seller claims that

Its furnace is superior to other furnaces that also conform to the standard, hut that the standard mistakenly leads housing contractors to assume that all corrforming fur- naces have the same essential quality or

safety attributes. Seller claims that it loses business to cheaper competitors as a result. Seller proves the superiority of Its product

with test results. However, because of buyers' exposure to adverUstng. wide price ranges, and product variations, it cannot show that the standard leads these buyers

to assume that all conforming furnaces are homogeneous. Seller has failed to carry its burden under paragraph (aX4 ). Example 2: Standards developer custqmarOy dassifies or ranks water safety equipment on a scale of I-'V. The higher the number, the safer the pnxiuct. Its life pre- server standard does not adopt this system, but rather adopts a two-tier system. Seiler of the most expensive life preserver proves

(1) that its preserver will retain the required

bouyancy for twm seasons longer than the

low-priced Class II products; (11) that there

is evidence that retailers believe that the

standards developer would have assigned

the product a special ranking if that were

true, given tts past practice, and (ill) that, given its higher price, it cannot sell its product as it could have absent the standard. Complainant has carried Its burden under

paragraph (a)(4). Note 7: Section 4S7.8(aXS) applies where

the standards developer's position In effect "oversells" the performance of a conforming product. Complainant wUl have to prove

that the position raises expectations in the

buyers’ minds, and that the underlying facts do not support these expectations.

The standard may be a source of misreliance in numerous ways. A partial list In- cludes (i) misleading scope notes which

prompt certifiers to apply its requiraments

to the wrong product; (ii) faulty test methods, or requirements which "pass" products not fit for their purpose; (til) misleading la- beling or marking requirements; (iv) ambiguous provisions which result in certifica- tion of unfit products; or (v> faUure to effectively communicate instructions or warnings

necessary to offset false assumptions of safety or performance raised by the standard. The test of effective communication is whether reasonable buyers would receive, read, and understand the information, and

be able to use It to their advantage. In cer- tain instanoea the oertlftcatlon of unfit products may be due to certifier or marketer failure to carry out understandable re- qulrementa In the standards document.

TThese casea are not the subject of para- graph (aX5) complaints.

Complainant must show that the position deceives reasonable buyers. If complainant can show that deception will occur In other than Isolated, atypical cases, it has met this burden. Thus, a oomplairuuit may test whether the standards developer took into account the rariatlons in InteUigenoe. motinoeitM tKumit. voi. 43, no. 23a—Thursday, occemau r. iyts

B-10
57278 PROPOSED RULES

v»Uon, expertise, and knowledge of stand- ards among the parties that rely on the particular standard. Complainant must also show that the mis- representation would affect the purchasing

decisions of reasonable buyers. It is not nec- essary to demonstrate actual instances of purchases which would not have occurred absent the standard. The following Illustrate the operation of paragraph (aKSK

Example 2: A standard for a building material allows products which meet a certain

level of performance on tests to be stamped

as acceptable for exterior use. Complainant

proves that complying products may dete- riorate rapidly when exposed to the ele- ments. Complainant has carried its initial burden under paragraph <aK5).

Example Z* A standard for a product

which is marketed as an energy saving

de\'ice covers only the safety attributes of the product. Complainant proves that rea- sonable buyers assume that representations

by sellers of conformance to the standard

validate , the seller’s safety and energy

saving claims. The product is proven not to save energy. Complainant has carried its Initial burden under paragraph (a)(5). Example 3: A type of home insulation pre- sents severe fire hazards if laid on attic floors close to recessed light fixtures. This hazard can be controlled by constructing a

special guard around the light fixtures. The

standard requires Instructions concerning

this safeguard to bg^disclosed on the Insula- tion package. Complainant shows (i) that buyers assume that (onformity to the stand- ard means there is no problem with flatj^ability, and (li) that although contractors read and understand the instructions, even

reasonable homeowners who also purchase

and install the Insulation themselves cXnnot understand the iivstructions. Complmnant

has carried Its Initial burden under para- graph (a)(S>. Note 8: As used in f 457.6(b), “substantial evidence on the record as a whole" is “substantial evidence" fNote 1], taking together

complainant’s evidence, evidence in the standards developer's file, plus any other evidence the standards developer may pro- duce. Note 9: The 1457.6(b)(1) rebuttal to a

|457.6(aXl) showing simply requires the standards developer to refute complainant's

evidence. In certain instances, the standards developer may have to state the purpose of

Its requirement with sufficient specificity so that its factual basis can be tested, f 457.6(cKl). (See Note 3. Example 2.) If the purpose of the requirement has been docu- mented in prior proceedings, standards de- veloper is not permitted to rebut that it now

serves a different purpose, e.g., a higher

level of safety warranting its cost-adding

features. In certain instances the basis for require- ments can be explained only as engineering

“conservatism.” For purposes of paragraph

(bHl). this can be defined as the requirement of certain product features to supply a margin of safety or reliability not strictly required by available evidence. To Justify a

feature on engineering conservatism

grounds, the standards developer must show

(I) plausible contingencies whose precise

Impact cannot be anticipated, or (11) inability to strictly extrapolate from existing

data, given the data’s unreliability, limited applicabUlty. or incompleteness.

Example 1: Standard “A" covers all steam

pressure vessels and specifies minimum wall

thicknesses. Standard “B" covers only steam

vessels used in electrical generating plants,

and requires 50% thicker walls. A number of

states have adopted standard "B", thereby

forcing vessel manufacturers to retool, which raises costs statewide. Complainant

has successfully shown that there is no positive documentation that thicker walls are

required for electrical generation uses. Standards developer rebuts (i) that data for standared “A" did not test for the long peri- ods of cyclical stress sometimes occurring in

electrical generation; (ii) that unexplained

failures of standard "A” vessels have been

reported; and (iii) that data does not exist which explains how extended cyclical stress affects wall strength. Standards developer

has successfully rebutted under paragraph

(bKl).

Note 10; In $457.6(bK3), there are several

distinct lines of rebuttal, anyone of which

may be sufficient. In addition to disproving the claim of product exclusions, the stand- ards developer may show that “the suggest- ed alternative is not less restrictive or cannot be implemented; or that the ex- cluded product is one which a reasonable person would not purchase or which pre- sents an unreasonable risk of injury."

That the alternative ts not less restrictive or cannot be implemer.teiL The alternative

is not less restrictive if in general, the alter- native does not Increase buyer options or the opportunity of sellers to compete, whatever its effect on complainant. The rebuttal

as to implementation concerns the practical

limits to the standards developer’s power to make the alternative work in actual practice. The standards developer can successfully rebut if. as a practical matter, the al- ternative cannot be implemented to have its intended effect. A specific subset of this rebuttal is the sit- uation where a complainant claims that a nonconformmg product could be treated as conforming if. the standard required disclo- sures to relying parties. (See Note 5, Example 2.) The specific showing on rebuttal is that reasonable buyers would not receive, read, understand, or be able to use the in- formation to their advantage. In general, if the alternative would fail in these respects only in isolated, atypical cases, the stand- ards developer cannot rebut on these

grounds. ’The receive, read, and understand

elements are self-explanatory. ’The “use in- formation to their advantage” criterion is designed to anticipate situations where, eVen if buyers understand the disclosures, they may not have the expertise, education, or wherewithal to make use of them. This

does not imply that the buyer need be able

to perform all necessary installation or other steps without assistance. Example 1: A standard for automobile

fuel-saving devices only treats factory-installed devices as conforming. Seller of retrofit devices proves that the steps for safe and effective retrofit installation are knowTi

and can be followed by any minimally

knowledgeable auto mechanic. The device can save 15 percent of fuel used in older

automobiles. Standards developer shows

that substantial numbers of automobile owners cannot reliably perform the required

installation steps. However, it cannot show

that it could not treat the retrofit items as conforming with the condition that sellers disclose at i>otnt>of-sale that the devices are only safe or effective If installed by a competent mechanic. Standards developer has

failed to rebut. Reasonable persons would not purchase

the product ITils rebuttal is met where no

reasonable buyer would purchase the prtxl- uct if fully informed of its attributes. “Reasonableness’’ in this context need not be

limited to purely economic concerns. Aesthetics. ethics, experimentation, and other

factors may be legitimate considerations for the reasonable i>erson. The product presents an unreasonable risk of infury. An unreasonable risk of injury is presented where the product’s utility is outweighed by the likelihood and severity of injury associated with that product’s use. Unreasonable risk may exist even when

users are fully informed of the product’s

safety risks. In certain instances, the utility of the product may not, from a value perspective, outweigh the inordinate number of

injuries that would result from its use. Persuasive evidence that a product poses such

risks is that under rules promulgated pursu- ant to the Consumer Pn^uct Safety Act, it could be classified as a “banned hazardous consumer product,” 15 U.S.C. 2057.. or an

“imminently hazardous (»nsumer product,"

15 V.S.C. 2064(a), or that it presents a “substantial product hazard,” 15 V.S.C. 2052(aK3), or an “unreasonable risk of

injury,” 15 V.S.C. 2057. Note 11: The 5457.6(b)(6) rebuttal per- mits the standards developer to assert that the higher prices or dollsir amounts are in- significant. This rebuttal is available only

where (i) injury is only short-term and (ii) (ximplainant cannot prove that the competitive position of sellers is appreciably affect- ed or dollar or safety injuries to buyers or

users are more than negligible. Even if the

injury does not exceed this threshold, this rebuttal is unavailable if the cost of corrective action is lower than the injury, as where an explanatory letter would be suffi- cient. Note 12: ’The basic test of appropriate

action as stated in § 457.7(a) is that it "cor- rect or prevent higher prices or product exclusions. or • • * cure misrepresentations

• • “The standards developer is free to choose the course of action that will satisfy this requirement. If withdrawal, revision, or development of a standard is required, the

particular duties are set out under provi- sions in 5§457.7(b)-<f). Once development or

revision of a standard is eommenced, the standards developer is not constrained to model its solution only on the evidence sub- mitted In the 60-day oomplaint/rebuttal - period of § 457.6(c). It may consider any evi- dence that will enable it to successfully rebut subsequent complaints by either the

original complainant or other parties.

To discharge its duty under § 4S7.7(a), the

standards developer need only correct or prevent the harm “to the extent which such

actions are supported by showings under

5 457.6(a) and are not rebutted by showings

under 5457.6(b).” This caveat recognizes that there may be times when complainants

will request total elimination of their harms, when they have not proven that full relief is Justifiable. Example 1: A standard requires that a

transparent shield for welder’s masks be made of a certain material and have no more than a specified curvature. A mask

using a different material is designed to wrap around the side of the face, thereby

providing greater protective coverage. However. the curvature exceeds the maximum

FEOEKAL tEGISTER, VOL 43. NO. 236—THURSDAY, DECEM8ER 7. 1978 B-11
PROPOSED RULES 67279

established under the standard. Complain*

ant seller shows that the curvature require*

ment has no documented support. Stand*

ards developer falls to rebut, seta a timetable for reconsidering the evidence, and

within the time limits produces evidence which supports a modified curvature re- quirement. However, even the modified re- quirement excludes complainant's product.

Despite this continuing exclusion, tlie standards developer has satisfied {457.7(a).

Complainant had not submitted evidence which proved that the standards developer

would Justified in treating the product as equivalent to other conforming piquets (as

It might have under the "equivalence" provision. 1 457.6(aK2)). Paragraph (a) does not establish any one

time period as a presumptive "reasonable

period." Calculation of this period Is. for purposes of this requirement, assumed to be a two-step process. First, a reasonable

period is preliminarily determined, based on

two assumptions: (i) Commitment of time of

Individual participants is less than full-time, and (U) the task involves only drafting,

review, or criticism or proposals, plus marshalling evidence and position papers. Any

figure that exceeds a time period that is rea- sonable in light of the above, must be sup- ported on the basis of at least one of four

criteria: (1) The necessity for generating new

data; (ii) the necessity for advancing the

"state of the art", e.g., for devising new test methods; (iii) the number of issues to be re- solved and their complexity, and (iv) the necessity of obtaining data or policy approval

from governmental bodies. The latter ele- ment recognizes that in certain Instances

collaboration with bodies such as Congress,

CPSC, Occupational Safety and Health Administration (OSHA), state agencies, etc. may be desirable. Failure of committee

members to provide necessary personnel or resources to the task is a permissible factor only when the failure relates to one of the

four criteria The standards developer cannot lengthen the timetable to accommodate uncooperative members.

Where the appropriate action is development or revision of a standard, {457.7(cKl)

requires the standards developer to propose a timetable in advance. The reasonableness

of the period stated in the timetable Is gov- erned by the same criteria as those listed above. Notx 13: As used in {457.7(e)(1), "product

^juea” is that category of products which

'perforin the same specific function and can

be substituted for each other. Products may

be in the same product area irrespective of such differences as (i) their mode of instal- lation or servicing, e.g., factory installation versus retrofit; (11) their ease of application,

e.g., use of adaptojs, special safeguards; (iii) the materials from which they are made;

(iv); the engineering theories that are their

basis; or (v) their particular level of safety or efficiency.

Note 14: Section 457.12(c)(1) requires the

certifier to take corrective action when a

certified producer Ls producing and marketing noncomplying product units. This is not intended to mean that there can be no product failures. The Intent is to require action when the failure rate reaches such a level as

to be unacceptable in terms of general practice In the product area. General practice in the product area can be determined from

such sources as the standard or testing pro- cedures. which may specify a failure rate.

generally accepted aarapling techniques, or accepted maniifacturing practices.

Note 15: Section 457.13(a) states that

{ 457.13 applies only to a certifier whose cer- tlflcationa in a "product area" are relied on

by a “government entity." "Product area" is used with the same meaning In {457.7(dKD

and Is defined in Note 13. The market In which reliance is occurring is limited to "government entities." which include local, atate, and federal Jurisdictions, and agencies

and officials thereof. For example, the UH.

Air Force would be considered a government

entity, so a certifier exclusively relied on in Air Force base purchasing decisions would

fall within paragraph (a). Another example

would be a city which specifies one certifier in its building code. The operation of this section is further

limited to those situations in which the certifier is "effectively the sole source of certi- fication services" in the affected product

area and market. This does not mean that the certifier must be the only one who Is relied on in the market, but it must substantially control the area. This may occur be- cause other laboratories which are relied on

by the government entity do not do certifi- cation in the particular product area, or only have facilities to handle a few clients. It may also occur because, even though the government regulation specifies several ac- ceptable laboratories, the officials enforcing the regulation in practice will accept only the one certifier. For these and other rea- sons, it may appear that two or more certifi- ers are providing certification services, when

in fact producers are effectively limited to one certifier if they want to sell their products in the market in question. In this situa- tion the certifier would be covered by the requirements of { 457.13. Note 16: Section 457.13(d)(1) addresses the imposition by certifiers of test require- ments that axe unnecessary in terms of buyer expectations.

The first category of proscribed require- ments includes those “not relating to product attributes that reasonable buyers would presume are addressed.” "Attribute” may

have a broad meaning—e.g., safety versus performance. For Instance, where a certifier

Is testing only for fire hazards, it could not

require radios to be tested for range, clarity or other performance attributes, or for easy

connect.^bilIty with both auto batteries and

hou.se receptacles. "Attribute” can also have

a narrower construation—e.g., various

i “safety ' attributes.” For Instance, unless a

certifier' disclosed the fact, most buyers

would not assume that resistance .of an auto

tire to deliberate slashing of the tire wall is covered by a certification assuring tire durability. Absent such disclosure, the imposition of tests which simulate such vandalism

would be prohibited.

A second category is made up of require- ments "not necessary to ensure that the product meets reasonable buyer expectations relating to those attributes." Thus, In the above example buyers would expect

tires to be tested for safety under normal or even hard driving conditions. However, a

test exposing the tire to open flame for a

prolonged period prior to road tests may be

excessive, even if an extraordinarily durable

tire can be singled out in this marmer. Such

requirements would mislead buyers and unnecessarily restrict consumer choice since they "are not necessary to ensure that the product meets reasonable buyer expectations."

Note 17: The definlUoa of "substantial evidence on the record as a whole" is the same under { 457.13(d)(2> as it is in the

standards developer context—"such technical. scientific, statistical. * * * theoretical, or other evidence as could lead a person knowledgeable in the area of technology to reasonably conclude that a proposition Is true. Evidence may be substantial even though other similarly knowledgeable and

- reasonable persons could cotKlude other- wise" (Note 1). Where a marketer desiring

-certification carries iu burden of providing evidence of the reliability of a test report, the certifier must either (i) omit retesting or (li) provide such rebuttal evidence that a

reasonable person would no longer (xmclude

that the report is reliable. WhUe a time

limit for this determlxuiUon is not stated, the time taken is governed by a general standard of reasonableness. The issue of reliability will turn on a number of fsetora, including: (i) Whether

the laboratory is independent of manufacturers and vendors of the product tested: (ii) whether the laboratory has adequate stsif and test facilities for purposes of such test- ing; (iii) whether the laboiatory employs ap- propriate standards or other test require- ments in such tests: (tv) the laboratory's

reputation or record of problems in this area of product testinr, and (v) whether the

test report itself Is based on scientific and

well-controlled testing (where scientific and

well-controlled testing would be required to

establish a product’s conformance to rele- vant standards). The certifier may charge

the marketer desiring certification the rea” sonable costs associated with determining

test report reliability. Note 18: Section 457.13(d)(3) prohibits re- testing that is unnecessary given the ade- quacy of prior tests by the same certifier. Where, for instance, the materia] in the exterior of a television set is changed from one

plastic compound to another, retesting of the model for electrical safety would be unnecessary. absent a showing of causal rela- tionship. Similarly, if a portion of the underlying standard for testiiw television seta which applies only to 100% solid state models was modifira and the certified model

is not 100% solid state, the validity of the

prior test is not undermined. In neither of

these cases would retesting “result in a more

accurate representation of the product’s

actual safety or performance to persons who

rely on the certincatioo. ** Sxcnoif B. STATEMXirT or Tin Commission's Reasons

Pursuant to the direction of the Commission, the staff of the Bureau of Consumer

ProflSMion initiated an investigation to de- termine whether persoiu and organizations

involved in standards development and certification. and in marketing with reference

to standards, are engaged in acts or practices in violation of section 5 of the Federal Trade Commission Act. The Commission s determination to commence this rulemaking

proceeding Is based on consideration of the

report of the staff Investigation.

The Commission’.^ directive to commence

the investigation was given at the time that the Commission provisionally accepted con- sent orders in a. matter involving alleged

marketing misrepresentations relating to the flammability of foam plastics used as In- sulation in buildings.' These alleged mlsrepfesentations were based on smsdl .scale

•In re Society of the Plastics Indus, 84

P.T.C. 1253 (1»74).

FEDERAL REGISTER, VOL. 43, NO. 236—THURSDAY, DECEMMR 7, 1978 B-12
57280 PROPOSED RULES

•tand&rd test methods of the American Society for Testing and Materials, which did not accurately predict nammabUity hazards under actual use oonditlons. In announcing

Its provisional acceptance of the consent

orders, the Commission reported that It had

•‘directed the staff to continue an Investiga- tion of ASTM and others engaged In standards-settlng and product certification activities that may result In deceptive or unfair standards and certifications.’’ In response to the Commission’s directive the staff ooirducted a broad Inquiry Into the

full range of factual and legal Issues pre- sented by private standards and certifica- tion activities. The staff has set forth the

results of Its investigation In a publicly

available docximent entitled Staff Report on

Standards and Certification.* In the course of its investigation the staff reviewed nunterous specific complaints In which the actions of standards developers

and certifiers appeared to raise questions of

illegality under section 5 of the Federal Trade Commission Act. Allegations have re- lated to a broad spectrum of products and

industries, and to many tyt>es of consumer and competitive injury. Staff also made a

comprehensive survey of current standards development and certification practices, and

attempted to assess their role and importance In commerce. Information and \iews were solicited from producers, consumers,

representatives of federal, state and local govenunent agencies which rely on stand- ards in procurement and regulation, stand- ards development organizations, testing lab- oratories. trade associations, technical experts, and others. In addition, staff relied on

the reports and pubfif record compiled by

the FTC Task Force on Industry Self-Regulation.* Which had been established by the Commission in December. 1971. ' The Staff Report cites numerous allega- tions that were re\'lewed In the investigation, including the following: Lack of ade- quate notice to consumers, small businesses and others who might wish to participate. In a standards proceeding; lack of opportunities for participation; high costs and complex procedures that favor participation and

dominance by established firms; failure to update standards in a timely manner; ten- dency to use narrow design standards rather than performance standards; tendency to use pass-fall standards rather than graded

standards: inadequate disclosures in stan- dareds of critical product use or hazard in- formation; lack of avenues to challenge de- ceptive or restrictive standards: the use by

•Federal Trade Commission Order Settles Proceeding Involving Marketing of Plastics Presenting Pire Hazards; Rule Making Pro- ceeding Instituted. FTC Press Release (July

29. 1974). 'Copies of this Report may be obtained

either in person or by mall from Room 130, Public Reference Room. Federal Trade

Commission. €th Street and Permsylvania Avenue. N.W.. Washington. D C. 20580. •Federal Trade Commission Preliminary

Staff Study (precis) regarding Industry

Self-Regulation—Product Standardization,

Certification and Seals of Approval (Nov.

1971); FTC. Pinal Report of the Task Force on Industry Self-Regulation: Performance

Information, Standards and Certification Programs—Achieving Socially Desirable Objectives (July. 1972); Public Record compiled by the Task Force In Industry Self- Regulat'on (FTC File Nos. 209-1-1. 209-2-1.

209-1-2-2).

eertlflers of deceptive or restrictive standards; arbitrary or discriminatory treatment by certifiers of some sellers; excessive certi- fication fees; Inadequate disclosure to con- sumers of the meaning and limitations of

seals of approval; and failure of certifiers to

police sellers who falsely represent conformance of their products to standards. The Report states that these practices

have been asscKiated with complaints of various Injuries to consumers and competition,

which Include denying consumers the benefits of superior or lower cost technology,

denying businesses the opportunity to enter and compete in profitable industries, inad- equate product safety levels, inflated prod- uct prices, and deception or nondisclosure of

materia] product information. Staff has

concluded that the practices may be unfair and deceptive acts and practices and unfair methods of competition within the meaning

of section 5 of the FTC Act, requiring ap- propriate remedy.

The Commission has carefully and delib- erately considered the Report and recom- mended Trade Regulation Rule. Based upon

that Report, the Commission believes that the initiation of a rulemaking proceeding

would be In the public interest. The public is advised that the Commission

has not adopted any findings or conclusions

of the staff. All findings In this proceeding

shall be based solely on the rulemaking

record. Accordingly, the Commission invites comment on the advisability and manner of implementation of the proposed rule. •fhe Commission s Rules of Practice shall govern the conduct of the rulemaking proceeding. except that, to the extent that this notice differs from the rules of practice, the

provisions of this notice shall govern. This

alternative form of proceeding is adopted in accordance with 5 1-20 of the rules of prac- Uce (16 CFR 5 1.20). Section C. Invitation To Cojocent

AH' Interested persons are hereby notified that they may submit data, views, or argu- ments on any issue of fact, law or policy

which may have bearing upon the proposed

rule. Such comments may be made either in writing or orally. Written comments should

be addressed to Henry B. Cabell, Presiding

Officer (PU). Federal Trade Commission,

Washington. D C. 20580, 202-724-1045; they

will be accepted until March 16, 1979. To

assure prompt consideration, comments

should be identified as "Standards and Certification Rule Comment" and furnished when feasible and not burdensome in five (mpies. Instructions for persons wishing to present their views orally are found in Sections E and F. While the Commission welcomes com- ments on any issues which you feel may

have bearing upon the proposed rule, listed

In Section D are questions on which the Commission particularly desires comment.

All comments and testimony should be ref- erenced specifically to either the Commission's Questions or the section of the pro- posed rule being discussed. Comments

should Include reasons and data for the position. Comments opposing the proposed

rule or specific provisions should, if possible,

suggest a specific alternative. Proposals for

alternative regulations should Include rea- sons and data that indicate why the alternatives would belter serve the purposes of the proposed rule. Comments should be sup- ported by a full discussion of al! the rele- vant facts and/or be based directly on firsthand knowledge, personal experience or

genera] understanding of the particular

issues addressed by the proposed rule. Sbction D. Questions and Issues

Interested persons are urged to consider

carefully the following questions. Although

the proposed rule was drafted in specific

language, the Commission retains its authority to promulgate a final rule in ways

suggested by these questions and based upon the rulemaking record.

1. In the accompanying statement of reason for the proposed rule (Section B) the Commission has described the consumer

protection and competitive problems that may arise from private standards and certi- fication activities. How prevalent are the

challenged practices set forth in the state- ment, and in what manner and context are such acts and practices unfair, deceptive or

anticompetitive?

2. Are there benefits that flow from pre- sent industry practices that would be lost if the rule is promulgated as presently pro- posed? Does the proposed rule set out the

least restrictive alternatives to achieve the

intended goals?

S. What would be the cost of compliance

for each of the groups covered by the pro- posed rule? To what degree would each of the requirements of the proposed rule raise

costs, delay the adoption of new standards, or delay the introduction of new products?

Might the rule discourage smaller standards

developers and certifiers from staying in the market? Would this have any Averse ef- fects in the market? How might the proce- dures themselves be used by incumbent

firms and/or standard setters to deter, delay, or raise the cost of entry for new

products?

4. What economic or other effects upon

small businesses and coimuners. If any, would result from implementation of the proposed rule?

5. Should the definition of •‘standard*’ be expanded to include nonproduct standards? Are there additional categories of either product or nonproduct standards that should be excluded or includeci in the rule?

Is the definition of standard overly broad? Might it inadvertently include newspaper

stories and other statements about products

that do not raise the same problems as in- dustry standards?

6. Do the notice requirements of |457.4(aMc) insure that consumers, small

business, and others will receive enough in- formation to decide whether their participa- tion in a proceeding Is necessary? For in- stance, should the f 457.4(a) “notice of pro- ceeding" include a statement of the likely effects of the proposed action on various

parties? How specific could such a state- ment be, given the early stage at which this notice is given?

Do the notice requirements of § 457.4(a)-

(c) impose an unnecessary burden on stand- ards developers? Would interested parties.

Including small business and consumer in- terests, receive adequate notice if the notice requirements were lessened? For iristance, could the $ 457.4(a) notice be eliminated without unduly reducing the effectiveness of the rule? Alternatively, could the

5 457.4(c) notice be combined with the earli- er notice required by § 457.4(b) without

unduly reducing the effectiveness of the

rule? In what ways could the notice requlreri;ents be made less burdensome while still conveying necessary information to persons

ffOERAl tEGtSTIit, VOL 43, NO. 236—THURSDAY, DECEMBER 7, 1978

B-13
PROPOSED RULES 57281

or Interests who might want to participate

in a standards proceeding?

7. Are the time limits for the provision of notice established by { 457.4 (a), (b). and (c). (30, 60. and 30 days respectively), approprl*

ate? Are there instances where these time

limits will unduly delay a standards pro*

ceeding? If so. how should such Instances be

handled?

E. To Insure that consumers, small busi- nesses, and other Interested parties with

limited financial resources have an equal

and meaningful opportunity to participate

in standards proceedings, is it necessary

that their costs of participating be borne in whole or in part by other persons or groups?

What has l^n the experience where con- sumers and small business have had the

right to participate but have not been pro- vided funds? Does the Commission have authority under section 5 of the FTC Act to order standards developers, industry members. or others to bear these costs? Should

the Commission require the funding? If so, how much funding is necessary and what

method should be used to compute the indi- vidual obligations of contributors? What cri- teria should govern allocation of funds, and

what types of costs should be funded? What

are other possible governmental or private sources of funding for unrepresented interests in standards proceedings?

To what degree would a funding require- ment increase participation by small busi- ness and consumer . interests in standards development, process? Should funding be

available only to producers or potential pro- ducers that would suffer direct economic

injury and whose interests would not other- wise be represented? Would limitation of funding to such participants adequately

protect consumer and other interests that would not otherwise be represented? If not, what parties should be able to receive funding?

9. Section 457.6 and related provisions set up a mechanism, w hich includes substantive

criteria, for handling standards complaints.

Suppose these sections were eliminated, and

the proposed rule provided only procedural

rights to directly affected parties—l.e., right

of notice, opportunity to be heard, ^ess to

a' meaningful summary of rea^ns for

action, and perhaps a right of appeal to an

independent board established by the stand- ards maker or certifier. Would that ade- quately deal with most or all unfair or anti- competitive practices that may exist in standards making and certification? What

evidence is there that unfair or anticompetitive practices would continue to exist if standards development processes contained adequate procedural safeguards? Are pri- vate rights of action available to deal with any problems which would remain?

Would such procedures as outlined above,

in addition to a requirement that standards

developers numerically “balance" some or

all standards development committees so

that viewpoints of all affected parties are

fully represented, prevent most or all unfair, deceptive, or anticompetitive practices that may exist? Even if provisions pro- viding for a challenge mechanism were not

eliminated from the proposed rule, are "bal- ancing" and "consensus” procedures neces- sary to prevent standards developers from

drafting standards which Injure (xsnsumers

and/or small businesses? If “balancing" is necessary, what criteria and procedures should be tised to determine the interests represented by various members of committees? Conversely, in light of the possible

costs of compliance with {§ 457.3. 457.4, and

457.5, would reliance solely on the J 457.6 challenge procedures be sufficient to ensure adequate remedies for unfair, deceptive, and

anticompetitive standards?

ir>. Should standards developers be re- quired to develop all standards in accord- ance with the principles of $457.6, rather than having only to evaluate specific stand- ards with respect to those principles when

challenged?

11. If the proposed rule were to go into

effect, approximately how many requests

for action per year would be submitted to the FTC for violations of the provisions of $457.6? In the first year? In the fifth year

after the proposed rule went into effect? Approximately how many of the complaints

would come from parties who currently

have no leg^ way (by antitrust sultr^Tr otherwise) to seek redress for alleged injuries?

12. Are there alternative mechanisms

which would provide a means for resolving

complaints without the necessity of specifying evidentiary burdens and substantive cri- teria? For example, would a requirement

that a standards developer that receives a

complaint about a standard set out in detail

its evidence and reasoning in the matter

result in resolution of most or all complaints?

13. Section 457.6 requires the standards

developer to take action on a complaint (as- suming that the complainant has met its threshold burden) unless it has "substantial evidence on the record as a whole” that its current standard is correct. Is this the

proper evidentiary level that should be re- quired or should a level that shows greater deference (e.g.. some evidence) or less defer- ence (e.g., preponderance oi the evidence) to the standards developer selected?

14. Are the critiera in § 457.6(a) all of the

substantive elements which are relevant to standards decisions, or should additional cri- teria be specified?

How well do the criteria strike the correct balance between the needs of uninformed

buyers and the discouragement of unfair, deceptive, and anticompetitive standards?

In particular, do stand^ds by their very nature create possibly false presumptions of equivalence among conforming products?

Under what circumstances are disclosures preferred to exclusions or graded standards and vice versa? Will the criteria be effective in distin- guishing legitimate from illegitimate claims? How might the criteria themselves be used by incumbent firms and/or stand- ards setters to deter or delay the acceptance

of new products? How might these tactics be

stopped?

To what extent could grading criteria In standards misrepresent comparative characteristics of products with multiple attri- butes, e.g., by manipulation of attribute weighting criteria? In what other ways

might unfair, deceptive or anticompetitive standards be adopted even while satisfying the basic principles in $ 457.6(a)? How might

the rule be altered to minimize this possibility at reasonable cost?

15. Under $ 457.6, a standards developer is required to respond to a request for action within 60 days of receipt of the request. Is 60 days an appropriate length of time for a

standards developer to determine whether

or not a withdrawal, revision, or develop- ment of standard is called for?

16. Section 457.7 requires all appropriate

actions that are commenced in response to a

request under $457.6 to be completed

"within a reasonable period." If the appropriate action is development or revision of a

standard, the standarcls developer is further

required to commence action with respect to

its own timetable, and to complete action within that timetable or to withdraw from

the product area". Should the standards de- veloper be allowed to amend its timetable?

If so. for what reasons? If not. does the pro- posed rule encourage unnecessarily long ti- metables in order to avoid withdrawing

from a product area?

17. Paragraph (g) of $457.7 allows a 60 day extension of the timetable under cer- tain specified conditions. Are those conditions appropriate? Should other conditions be added? Is the 60 day extension an appropriate length? Would an extension for a

“reasonable period" allow completion of ac- tions without encouraging undue delay in ending the harm that is occurring?

18. If there are multiple complainants

about a particular position of a standards

developer, should a period of time be al- lowed to consolidate requests before re- sponding to the requests, e.g., should additional evidence on a request for action from

any complainant operate to give the stand- ards developer additional time to respond to the initial request (see $ 456.6(c)(2))?

19. Should $ 457.10 place a time limit on

the availabUity of appeal to an unsuccessful complaint?

20. Should parties who have had notice and an opportunity to pariiclc.Ue in a

standards proceeding bu? have failed to participate be allowed to challenge the result of the proceeding, by requesting action under

the challenge and appeal sections? Under

what circumstances would denial of access

to the challenge or appeal process be appropriate? Would this denial to persons who de- clined to participate in a proceeding provide an incentive for standards developers to pro- vide wider notice and opportunity to partici- pate to interested parties? Would denial of the challenge mechanism to parties that

failed to participate in a standsu’ds proceeding result in the insulation of standards in- jurious to the public from challenge?

21. Certain activities are exempted from

operation of the rule in $$ 457.11 and 457.15. Section 457.11 exempts some initial drafts of standards, some certifier test method de- velopment, and development of food, drug,

and cosmetic standards. Should these activities be exempted from the standards devel- opment sections? What other activities should be exempted? Are there standards or

industries for which this rule is particularly

appropriate or inappropriate? Should the

certification of used prc^ucts be treated in the same manner under the rule as that of new products? Section 458.15 exempts certain endorse- ments and testlmoriials, certifications pro- cured by purchasers, and certifications re- lating to food, drugs, and cosmetics. Should

these activities be exempted from the certi- fication sections? What other activities should be exempted?

22. Should there be provisions In the rule

for routine certifier duties, such as required

factory inspections and use of statistically valid sampling plans, to insure the reliabil- ity of reported resulu? Should the rule permit limited public access to certifier rec- ords? If so. how could such access be struc- tured to avoid disclosure of trade secrets?

FEDERAL REGISTER. VOL 43. NO. 236—THURSDAY, DECEM8ER 7, 1976 B-l4
57282 nOfO&W RULES

To vhai extent woutd the dlsclocuires required on oeais of approval and in product

listing direetoHes by f 457.12(b) be read and

understood by consumers, code officials, and

other vho rely on seals and llsUnss? Is all of

this information necessary? Might these dis- closures create confusion for tmlnfonned

buyers? On the other band, are there ele- ments that should be required to be dis- closed? Are there alternatives to requiring

disclosures on seals, such as having the in- formation available for those g>ersons who

request it. which would provide the neces- sary information without risking consumer

confusion?

. 2^ The certifier is required to perform

certain duties relating to policing the use of

its seal of approval by 1 457.12(c) and (d). Is, there sufficient uncorrected misuse of seals of approval to Justify imposition of these

duties on certifiers? Altemiatively. are there adequate existing incentives for certifiers to

police the use of their seals in marketing?

25^ How might the requirements of |4S7a3(d) be sidestepped by certifiers in practice? the term “reaacnable buyer ez- pectations” too vague?

26^ Franchising and trademark licensing

sire' technically certifications. However, be- cause of the esempUons of internal compa- ny standards- from the definition of stand- ard ({457.2(1)). franchising and trademark

licensing based on internal company stand- ards would not be subject to the require- ments of the certification sections of the

njJe. To what extent are franchising and

trademark licensing based on standards whjch are not inte.Tial compsny standards? Should these activities be' excluded from the

rule? If so. how can a proper line 'be drawn

between them and other forms of certifica- Uon?

27. Does the proposed requirement in {457.16 that an appeal board be “sufficiently Independent of sponsoring • • • grovus.

so that it can render fair and impartial d<^-

sions” provide adequate guidance to sponsors of appeal boards and ensure ImpaAialIty of appeal boards? What other methods

of insuring impartiality are available? What

procedures and criteria. If any. should be es- tablished to determine whether an appeal board is sufficiently independent and

whether individual members have conflicts of Interest? Should the rule specify the composition of appeal boards. e.g.. at least 51 percent public interest representatives?

28. Does the requirement that standards

developers (§457.10) and certifiers ({457.13(e)) act “reasonably” with respect

to the decision of an appeal board accord the proper amount of authority to appeal

boards and the proper degree of deference

to the standards (Seveloper of certifier? Should {{457.10 anci 457.13(e) be amended

to require standards developers and <%rttfi- ers always to comply with decisions of the appeal board? Would the Compiission have

the authority to require compliance? Conversely. should the role of the appeal board

be totally advisory? If the appeal board d^

cision is not final, should standards developers and certifiers be required to furnish a

written explanation cf the failure to abide by the decision of the appeal board?

29. Is there reason to believe that practices declared Ulegai in {457.17 (Marketing)

are numerous (compared to other frauds re- lating to misuse of endorsements), cause se- rious corvsumer or competitive harm, smd

deserve to be covered separately by a Commission rule?

Additionally, should the rule require noemufact’orers. retailers or other arsons in the

chain of product distribution to notify a certifier vrhenever its seal or listings are being used in connection with the sale of products

that do not perform as (x:rt!fled? What

means. If any. would be appropriate to

assure that consumer complaints about

tmsafe or shoddy goads sold under a seal of approval are transmitted to the certifier? 30. Section 457.17 Imposes p»iulrcments

relating to proper use of standard and cer- tifications on ali producers distributors, retailers. and others Involved fin the marfieting of products. Are there certain persons or activities covered by this section which should

be exempted? Are there persons or activities not covered which should be lidded? The section attempts to minimize iffirmatlve burdens, especially or those persons lower in the chain of product d^ribution. Are there alternatives to the method used which wbiild further rninlmhc burdens

while effectively ending laisuse of standards and certifications?

31. Does the proposed rule adequately

Insure that eonsuroer complaints to oellers relating to standards reach standards devel- opers? How might the rule increase the like- lihood that consumer complaints do reach

standards developers?

32. The rule does not apply to Individual

participants in the standards process. Should the rule prohibit sellers or others from participating In the process or from

using the resulting standards with the

Intent or effect of restralniTig trade or de- ceiving consumers?

33. How and to vrhat extent do insurance companies and insurance ’rating bureaus

affect standards development and certifica- tion activities? What are the effects on con- sumers and competition of basing Ins’jrance rates on compliance with private standards

or certification requirements?

34. 'What Is the relationship of sUus.-lards development to rates of technological

change? To what extent does the fixing of product quality through standards enhance

or Impede the introduction and diffusion of new prcxiucts and the growth of markets? To what extent do current practices en- hance or Impede competition in the quality,

availability, variety and (safety of products?

' 35. What effects upon state and local laws.

If any, would result from implementation of the proposed nrle?

36. Should exercise of the prooedural,

challenge, and other rights and benefits es- tablished by the propoised rule, by persons

or on behalf of products from foreign countries, be conditioned on the availability of

substantially eq'uivalent rights end benefits

In such countries to persons or on behalf of products from the United States? The pur- pose of such a condition would be to encour- age the elimination by other countries of

technical barriers to international trade which might operate ageJnst products from

the United States. Such a condition cculd be accomplished

by making revisions in the proposed rule such as the following. The existing para- graphs of {457.11 would be redesignated as paragraphs (aXl). (a)(2), and (a)(3), and a new paragraph (b) would be added to that

oection as foLlcws;

(b) The standards developer shall Iiave no

obligation under this subpart with respect

to persons or interests from countries In which proeedu.’-al caieguards, challenge opportunities. and other benefits substantially

equivalent to those provided under this sub- part are not available to United States interests. The standards deveioper shall also have no obligation under §{ 457.6 and 457.7 with respect to claims (from any person)

which would benefit only products which

have such countries as their country of

origin. For purposes of this section, adher- ence of a country to an international stand- ards code for preventing technical barriers to trade, to which the United States has

agreed, shall be deemed to result in the

uviiiabllit.y of substantially equivalent benefits. A new paragraph (f) would be added to

§ S57.13 as follows:

tf) The certifier shall have no obUgation

under this section with respect to persons or products whose country of origin is one in which nondisertainatory treatment, chal- lenge opportunities, and other benefits substantially eqidvalent to those provided

under this section are not available to United Stotes interests. For purpose of this paragraph, adherence of a coimtry to an in- lemational certification code for preventing

technical barriers to trade, to which the United States has agreed, shall be deemed

to result in the availability of substantially

equivalent benefits. What should be the scope of such provlr.lons? Is the Umltation. as proposed, broader thaii is necessary to encourage reciproca- tion by other cou.ntries? Would such a broad

Umltation result in added costs being im- posed on consumers and others in this country which would outweigh Its benefits? Issues to be resolved Under rule provisions

such as those above include the foUowing.

What evidence, other than adherence to an

International code, would establish that a

country provides substantially equivalent

benefits? Who would determine that coimtries are providing substantially equivalent

benefits? The standai'ds developer or certifi- er?

SI. United States participation in Internationa! standards proceedings and development of U.S. positimis for these proceedings

are currently carried out by private interests. Should these activities be subject to the rule? If so. should all of the rule’s provi- sions apply, or should the applicable provl- slons be limited cr modified? Are there other areas of international standards development and certification that should be addressed by the rule?' Ssmoif E. Ftrauc Hkaxihgs

Public hearings wlU be held commencing

on ApriJ IS, 1679 at 6:00 a.m. in Room 15022, Federal BuDding. 460 Golden Gate Avenue. San Francisco, California and May 21, 1979

at 6:00 .t-m. Jii Room 832. Federal Trade

Commission Building, Pennsylvania Avenue

sncl 8th Street, N.W., Wish’^ngton, DJ7. Per- sons desiring to present their views orally at the hearings should advise Henry B. Cabell, Presiding Officer (PU). Federal Trade Commission, Washington, D.C. 20580, 202-724-

1045. ns soon as possible.

The Presiding Officer appointed for this proceeding shall have all powers prescribed

in 16 CFR 1.13(c), subject to any limitations described In Uils notice. Sectioh F. Ikstroctjoss to Witkissks

1. Advance notice. If you wish to testify at the hearings, you must notify the Presiding

Officer of your desire to appear and fUe with him your complete, word-for-word statement no later than March 26, 1979 for

FEOSRAL tIGtSTER, VOL 43, 140. 23A—THURSDAY, DEOEM8ER 7, 1978 B-15
PSOPOSED RULES 57283

rltnesses at the San Francisco hearings and

Apnl 30. 1979 for witnesses at the Washington D.C. hearings. This advance notice is required so that other interested persons

can determine the need to ask you questiixis and have an opportunity to prepare. The

written testimony will be entered into the

record exactly as submitted. Consequently,

It will not be necessary for you to repeat

this suiement at the hearing. You may

simply appear to answer questions with

regard to your written ^atement or you may deliver a short summary of the most

Important aspects of that statement within

time limits to be set by 'the Presiding Officer. As a general nile. such oral statements »nd summaries should not exceed twenty

minutes. Prospective witnesses are advised that

they may be subject to questioning by desig- nated represenutives of groups with the

same or similar interests in the proceeding

and by members of the Commission’s staff. Such questioning will be conducted subject

to the discretion and control of the Presiding Officer and within such time limitations

as he may Impose. In the alternative, the

Presiding Officer may conduct such examination himself or he may determine that

full and true disclosure as to any issue or

question may be ach leved through rebuttal submissions or the presentation of additional oral or written statements. In all such

Instances, the Presiding Officer shall be

governed by the need for a full and true dis- closure of the facts and shall permit or conduct such examination with due regard for relevance to the factual issues raised by the

proposed rule and the testimony delivered

by each witness.

2. Use of exhibits. Use of exhibits during

oral testimony is encouraged, especially

ft hen they are to be used to help clarify technical or complex matters. If you plan to

offer documents as exhibits, file them as soon as possible during the period for submission of written comments so they can be

studied by other interested persons. Such

documents that may be unavailable to you

during this period must be filed as soon as

possible thereafter but not later than the

deadline for filing prepared statements. Mark each of the documents with your

name, and number them in sequence, e.g., Jones Exhibit 1. The Presiding Officer has

the power to refuse to accept for the public

record any heanng exhibits that are not

furnished by the deadline.

3. Expert witnesses. If you are going to

testify as an expert witness, you must

attach to your statement a resume or sum- mary of your professional background and a

bibliography of your publications. It would

be helpful if you would also include docu- mentation for the opinions and conclusions you express by footnotes to your statement

or in separate exhibits.

4. Results of surveys and other research

studies. If in your testimony you will present the results of a survey or other re- search study, as distinguished from simple

reference* to previously published studies conducted by others, you must also present

as an exhibit or exhibits in compliance with paragraph 2 above the following:

a A complete report of the survey or other research study and the Information and document* listed in (b) through (e) if they are not included in that report.

b. A description of the sampling procedure;. and selection process including the number of persons contacted, the number of

Interviews completed, and the number of persons who refused to participate in the

survey.

c. Copies of all completed questionnaires or interview reports used in conducting the survey or study if respondents were permit- ted to einswer questions in words of their choice rather than to select an answer from

one or more answers printed In the questionnaire or suggested by the interviewer.

d. A description of the methodology used

in conducting the survey or other research study including the selection of and instruc- tions to interviewers, introductory remarks

by Interviewers to respondents and a sample

questionnaire or other data collection in- strument.

e. A description of the statistical proce- dures used to analyze the data and all data

tables which underlie the results reported.

Other Interested persons may wish to ex- amine the questionnaires, data collection forms and any other underlying data not of- fered as exhibits and which serve as a basis for your testimony. This information along

with punch cards or computer tapes which

were used to conduct analyses should be made available (with appropriate explanatory data) upon request of the Presiding Officer. The Presiding Officer will then be in a

position to permit their use by other Inter- ested persons or their counsel.

6. Identification, number of copies, and

inspection. To assure prompt consideration,

all materials filed by prospective witnesses pursuant to the instructions contained in paragraphs 1-4 above should be identified

as “Standards and Certification Statement"

(“and Exhibits,” If appropriate), and sub- mitted In five copies when feasible and not burdensome.

6. Reason for requirements. The foregoing

requirements are necessary to permit us to schedule the time for your appearances and

that of other witnesses Jn an orderly manner. Other interested parties must have

your expected testimony and supporting

documents available for study before the hearing so they can decide whether to question you or file rebuttals. If you do not comply with all of the requirements, the

Presiding Officer has the power to refuse to

let you testify.

7. General procedures. These hearings will be informal and courtroom rules of evidence

will not apply. You will not be placed under

oath unless the Presiding Officer so re- quires. You are also not required to respond

to any question outside the area of your

written statement, although, if such questions are permitted, you may respond if you

feel you are prepared and have something

to contribute. The Presiding Officer will assure that all questioning Is conducted in a

fair and reasonable manner. The FTesiding

Officer further has the right to limit the number of witnesses to be heard If the or- derly conduct of the hearing so requires.

The deadlines established by this notice

will not be extended and hearing dates will not be postponed unless hardship to partici- pants can be demonstrated. Section G. Notification of Intcrzst

Interested persons who wish to avail themselves of the opportunity to question

wllne.vies must, by March 2. 1979, notify the

Presiding Officer of their position with re- spect to the proposed rule and each Individ- ual provision thereof. This notification must

be In sufficient detail to enable the Presid- ing Officer to identify groups with the same

or Imiiar interests respecting the proposed

rule. The Presiding Officer may require the submission of additional information from any applicant whose notification is Inad- equate. Failure to file an adequate notifica- tion hi sufficient detail may result in the ap- plicant not being considered for purposes of questioning. Before the hearings commence, the Presiding Officer will Identify groups with the same or similar Interests in the proceeding.

Such ^oups will be required to select a

single representative for the purpose of con- ducting questioning and, if unable to make

this selection, the Presiding Officer may

select a representative of each such group. The Presiding Officer will notify all inter- ested persons of the identity of the group

representatives at (he earliest practicable

time. Group representatives will be given an op- portunity to question each witness on any

issue relevant to the proceeding and within the scope of the testimony. Tlie Presiding

Officer may disallow any questioning which

not appropriate for full and true disclo- sure as to relevant issues. The Presiding Officer may Impose fair and reasonable time

limitations on the questioning. Given that questioning by group representatives and

the staff will satisfy the statutory require- ments with respect to disputed issues, no

such Issues will be designated by the PrKiding Officer. Section H. Compx3«sation or Witnesses and

Representatives Pursuant to section 18(h) of the FTC Act. funds may be available for reimbursement

of public participation costs Incurred in this proceeding to those who satisfy the require- ments of f 1.17 of the Commission's rules of

practice. For further information contact Bonnie Naradzay, Special Assistant for Public Participation, Office of the General

Counsel. Federal Trade Commission. 6lh

Street and Pennsylvania Avenue, NW„

Washington, D.C. 20580. 202-523-3796. Section I. Postkearinc Procedures

Interested persons will be afforded 40 days after the close of the public hearings

to file rebuttal submissions, which must be based only upon Identified, properly cited matters already in the record. The Presid- ing Officer will reject all submissions w hich

are essentially additional written comment

in contrast to rebuttal The 40-day rebuttal period is Intended to Include the time con- sumed in securing a complete transcript of the hearings. Not later than 120 days after the close of the rebuttal period the staff shall submit its report as required by { 1.13(g) of the Co.mmlssion’s rules of practice. The Presiding

Officer's report shall be submitted not later than 45 days thereafter and shall be confined to points of difference with the staff report. Post record comments, as described

in $ 1.13(h), shall be submitted not later than 30 days after (he submission of the

Presiding Officer's reporL

Section J. Rolemakinc Record

In velw of the substantia) rulemaking rec- ords that have been established in prior trade regulation rulemaking proceedings

(and the consequent difficulty In reviewing such records), the Commission urges all in terested persons to consider (he relevance of any material before placing It on the rule- making record. While the Commission enPPOERAL RECISTEII, VOL 43, NO. 236—THURSDAY, DECEMBER 7, 1978

B-l6
57284 PROPOSED RULES

courages comments on its proposed rule, the submission of material that is not generally

probative of the issues posed by the pro- posed rule merely overburdens the rulemaking record and decreases its usefulness, both

to those reviewing the record and to inter- ested persons using it during the course of the proceeding. The Commission's rulemaking stSLff has received similar Instructions. Material that the staff has obtained during the course of its investigations prior to the initiation of the rulemaking proceeding that is not placed in the rulemaking

record will be made available to the public.

From time to time during the proceeding the staff may place additional materials on

the rulemaking record, and make other additional materials available for inspection

by the public. Some of these materials may

be exempt from disclosure imder the Free- dom of Information Act. 5 U.S.C. 552. but

will have been determined by the staff to be

relevant and helpful to interested persons. Trade secrets or other sensitive exempt materials will not be made available. The rulemaking record, as defined in 18 CFR 1.18(a). will be made available for ex- amination in Room 130. Public Reference Room. Federal Trade Commission. 6th

Street and Pennsylvania Avenue. NW.,

Washington, D.C. By direction of the Commission, dated No- vember 29.-1978. Cabol M. Thomas,

Secretary. SCTARATE STATEMCKT OF COMMISSIONER Clanton

I have no difficulty supporting those as- pects of the proposed rule which deal with

procedural due-proc^^ in the standards set- ting industry. In fact, if a rule Is found to be

Justified, it may be desirable to go further by requiring consensus action, -balanced membership and a binding appeals process. However, I am opposed to the inclusion of

SS 457.6 and 457.7, which deal with the sub- stantive aspect of standards setting. It will be exceptionally difficult to defir(e end en- force substantive standards. In my opinion, the due process sections provide adequate

im^ntives to deter most of the antl-competitive problems that are likely to arise. In addition. 1 do not support inclusion of the marketing section (457.17) in the pro- posed rule. Any problems which may crop rp in this area can be adequately dealt with under existing law and Commission prece- dent. IFR Doc. 78-34140 Filed 12-6-78; 8:45 am)

B-17

OS. GOVERNMENT PRINTING OFFICE: 1978 1-1
NBS>114A (REV. s-78)

U.S. DEPT. OF COMM. T

BIBLIOGRAPHIC DATA

SHEET

1. PUBLICATION OR REPORT NO. NRSIR 80-2001

4. TITLE AND SUBTITLE

Economics of the Product Certification Industry: Some

Research Needs

5. Publication Date March i960

7. AUTHOR(S)

Carol Chapman Ravie

8. Performing Organ. Report No.

9. PERFORMING ORGANIZATION NAME AND ADDRESS

NATIONAL BUREAU OF STANDARDS

DEPARTMENT OF COMMERCE

WASHINGTON, DC 20234

11. Contract/Grant No.

12. SPONSORING ORGANIZATION NAME AND COMPLETE ADDRESS rsfreet. aty. StM^. ZIP)

Office of Standards Information, Analysis, and Development

Office of Engineering Standards

National Bureau of Standards - Gaithersburg, MD

13. Type of Report & Period Covered Final

15. SUPPLEMENTARY NOTES

I I Document describes a computer program; SF-185, FIPS Software Summary, is attached.

16. ABSTRACT (A 200*word or leas factual summary of most significant information. If document indudea a significant bibfiography or

literature survey, mention it here.) A number of private organizations certify products for safety and other qualities.

With the increase in safety regulation, product liability suits, and interest in

encouraging the use of new technologies through certification, certification is likely

to become more and more important as a way to show conformance with voluntary or regulatory standards. There have been a number of Federal and State government

activities related to product certification. However, the potential impact of past

and proposed government actions is not clear. One reason may be that there has been

insufficient study of the economics of the product certification industry. This paper

asserts that such study is needed as a basis for setting government policy and

raises issues that should be addressed concerning structure and performance of the

product certification industry.

17. KEY WORDS (six to twelve entries; alphabetical order; capitalize only the first letter of the first key word unless a proper name;

separated by semicolons)

Economics; Certification; Product Certification; Certification Industry; Government

Policy; Standardization Research Needs; Standards; Accreditation of Testing

Laboatories

.

18. AVAILABILITY 01 Unlimited 19. SECURITY CLASS

(THIS REPORT)

21. NO. OF

PRINTED PAGES

1 1 For Official Distribution. Do Not Release to NTIS UNCLASSIFIED

Order From Sup. of Doc., U.S. Government Printing Office, Washington, DC

20402, SD Stock No. SN003-003-

20. SECURITY CLASS

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22. Price

Order From National Technical Information Service (NTIS), Springfield, VA. 22161 UNCLASSIFIED

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