Proposal for a COUNCIL DECISION on suspending the Community obligations under the Sectoral Annex for Electrical Safety of the Agreement on Mutual Recognition between the European Community and the United States of America

(presented by the Commission)

EXPLANATORY MEMORANDUM

1. Background

1. The Agreement on Mutual Recognition (MRA) between the European Community (EC) and the United States of America (US) entered into force on 1 December 1998. Its objective is to facilitate EC-US trade by providing effective market access with regard to conformity assessment for products covered by the Agreement. This is achieved by permitting manufacturers to test and certify their products with a domestic conformity assessment body (CAB) according to the requirements of the other Party. The MRA also aims at promoting regulatory simplification and efficiency since the authorities of one Party will no longer have to carry out assessment and monitoring of CABs located on the territory of the other Party.

2. CABs play a key role in the successful operation of the MRA since they offer the testing, certification and approval services needed by manufacturers to take advantage of the MRA. Without an adequate availability of CABs exporters will have difficulty in taking advantage of the trade facilitation offered by the MRA. In this respect it should be kept in mind that the use of the MRA by both manufacturers and CABs is voluntary.

3. A general principle of the MRA is that a Designating Authority (DA) is responsible for the assessment, designation and continuos surveillance of the technical competence of the CABs located on its territory. In recognising a CAB under a Sectoral Annex, the MRA foresees a procedure whereby a party is to give its consent or objection to a CAB designated by the other party. The MRA also offers the possibility for a party to propose the suspension or withdrawal of a CAB on the grounds that it no longer fulfils the applicable requirements on technical competence. Furthermore, the MRA foresees, in view of maintaining confidence, that the parties exchange information on each other's systems for assessing and monitoring CABs and can by mutual consent participate in joint audits/inspections of CABs.

2. Problems in implementing the Sectoral Annex for Electrical Safety

4. The Sectoral Annex for Electrical Safety (hereafter referred to as "the Annex") lays down in its Section VI the procedures to be followed with regard to the designation, listing, suspension and withdrawal of CABs. According to the text of the Annex the following procedure applies with regard to the designation and listing of an EC CAB:

i. The DA of the Member State in which the CAB is located shall designate a CAB by filing a properly prepared proposal for listing, which includes a complete laboratory assessment under the procedures of the US Occupational Safety and Health Administration (OSHA). OSHA would notify the DA within 30 days whether the proposal was complete or whether additional information was required. In reviewing the application OSHA shall rely on the Member State DA for conducting on-site reviews of the CAB.

ii. Upon receiving a complete proposal, the US shall give consent or objection to listing the proposed CAB in Section V of the Annex.

iii. The CAB is listed in Section V of the Annex by a decision of the Joint Committee and has thus the status of Nationally Recognised Testing Laboratory (NRTL).

5. These procedures clearly lay down the role and responsibility of, on the one hand, Member State DAs, which is to prepare the complete application including on-site assessments done according to the requirements in OSHA's regulation and procedures, and on the other hand, OSHA which is to review the application and give its consent or objection to the proposed CAB.

6. However, the responsible US authority, OSHA, has refused to acknowledge and follow the procedures set out in the MRA and recognise the role and responsibility of Member State DAs. OSHA has insisted that only they can carry out the on-site assessment of EC CABs, since this is prescribed in their regulations (29 CFR 1910). OSHA views the MRA as simply the mechanism needed for them to recognise foreign bodies (in this case from the EC) to be eligible to be recognised under the Nationally Recognised Testing Laboratory (NRTL) programme (see 29 CFR 1910 Appendix A I.A.1.b). Thus, OSHA does not view the MRA as offering anything more in terms of facilitating the recognition of CABs, by relying on the assessments made by Member State DAs.

7. Another element that needs to be taken into consideration is that OSHA has introduced fees for the processing of NRTL applications and on-site assessments. The introduction of fees in itself is not objectionable, however it would lead to a situation where EC CABs would have to pay fees to both their Member State DA, which are responsible for the designation (including any on-site assessment) under the MRA, and OSHA, which consider themselves responsible for the on-site assessment according to their regulations. In this respect, it should be noted that Article 18 of the MRA clearly states that a Party shall not charge fees with respect to conformity assessment services provided by the other Party. The same situation would not apply to US CABs since the Community is in principle ready to recognise them according to the procedures set out in the Annex and thus rely on the assessment and designation made by the US DA.

8. This situation has led to considerable uncertainty among potential EC CABs as to whether they would be recognised and in particular under what conditions. To date no EC CABs have been recognised under the Annex. A CAB designated by Germany has been recognised as a NRTL by OSHA. However, this was done according to OSHA's own procedures and not according to those of the MRA. The German CAB has consequently not yet been listed in Section V of the Annex.

9. The Commission services and the US administration have, in accordance with the third sentence of Article 2 of the Agreement, held numerous consultations and made several attempts to find solutions to the implementation problems described above. The Commission services have made numerous proposals for ways of implementing the Annex and for confidence building activities that aimed at addressing the concerns of all parties involved. All proposals have been rejected by OSHA. The confidence building measures proposed by OSHA were of such a nature that they contradicted both the spirit and text of the MRA and would have thus required a re-negotiation of the Annex.

3. Proposed course of action

10. The conclusion from the situation described above is that the US has, by refusing to abide by the procedures laid down in the Annex, failed to fulfil its obligations under the Agreement.. It is also clear that this situation has led to that no EC CABs have been recognised under the Annex and thus EU industry has no means of using the Agreement as an instrument for facilitating trade and market access. As a consequence the EC has lost market access, as provided for in Article 2 of the Agreement, for its products. In this context, it can also be considered that the US has failed to maintain legal and regulatory authority capable of implementing the provisions of the Annex, in particular as it relates to the reliance of the OSHA on the on-site assessment carried out by Member State Designating Authorities of the Conformity Assessment Bodies located on their territory

11. At the same time the EC has, unless appropriate measures are taken in accordance with the Agreement, the obligation to recognise CABs designated by the US and thus the Commission has the legal responsibility to take the necessary measures to ensure that this obligation is implemented. Maintaining such a situation would contradict the reciprocity and mutual recognition that underpin the MRA.

12. From this it follows that the EC has not only the right to suspend or terminate its obligations under the Annex, but is also obliged to do so in view of its implementation obligations under Community law.

13. A suspension of the Community obligations under the Annex, according to article 16 of the Agreement, would mean that the Annex as such is maintained in the MRA, but the EC would no longer be bound to recognise US CABs. If circumstances develop in such a way that would allow an implementation of the Annex according to the procedures foreseen therein, the Annex could quickly be made effective again by repealing the suspension of Community obligations.

14. Termination of the Annex, according to article 21(3) of the Agreement, would entail that the Annex is removed from the Agreement. If the EC would give notice of termination of the Annex, consensus must be reached with the US to amend the Agreement accordingly. Failing such a consensus, the Agreement in its entirety would be terminated. It should also be kept that if the Annex is to be re-introduced into the Agreement, this would require a new negotiation between the parties.

15. In conclusion, the Commission considers that the suspension of the Community obligations under the Annex is the appropriate and necessary action to take for the following reasons:

- The US has failed to fulfil its obligation and this resulted in a loss of market access as is provided for by the Agreement.

- The balance of rights and obligations under the Annex would be ensured.

- The Annex should not be terminated since it represents a market access advantage for the EC and should be made effective again as soon as circumstances permit.

- Suspension, compared to termination, would allow a quick resumption of the Annex.

16. The Commission would endeavour to take the appropriate actions, consistent with the Agreement, in view of creating the conditions under which the Annex can be implemented in accordance with its provisions.

17. Suspension of Community obligations requires, according to Article 3(3), second sentence, of Council Decision 1999/78/EC [1], a decision of the Council, acting by qualified majority on a proposal from the Commission.

[1] OJ L 31, 4.2.1999, p.1

4. Impact assessment

4.1. Impact on the Community budget

18. This proposal has no impact on the Community budget.

4.2. Impact on business

19. The inclusion of the Annex in the MRA was, from the EC point of view, a major success since this sector is, compared to the EU, heavily regulated in the US with mandatory use of specified US standards and third party certification bodies. The Annex is also closely linked to the Sectoral Annexes of Telecommunication Equipment and Electromagnetic Compatibility since most electrotechnical products are covered by regulations referred to in at least two of these three annexes. In this respect, the suspension of the Annex could be seen as being to the disadvantage of EU industry. However, since the Annex is at the moment not operational in practice - no EC CABs have been recognised under the Annex - EU exporters cannot take advantage of the trade and market access facilitation offered by the MRA in this sector.

20. The Commission has consulted with the relevant European industry federations, which for the most part consider that the Annex has a value and would prefer that it not be suspended, since they believe that it can be used as an instrument for wider regulatory co-operation with the US. However, the Commission considers that the objectives which industry want to be pursued are outside the scope of the MRA and could be better accomplished within a more appropriate framework, e.g. the Action Plan for the Transatlantic Economic Partnership. A suspension of the Annex would not prejudice such a co-operation.

5. Conclusion

21. For the reasons outlined in this explanatory memorandum, the Commission proposes to the Council to adopt the attached decision.

Proposal for a COUNCIL DECISION on suspending the Community obligations under the Sectoral Annex for Electrical Safety of the Agreement on Mutual Recognition between the European Community and the United States of America

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Decision 1999/78/EC, of 22 June 1998, on the conclusion of an Agreement on Mutual Recognition between the European Community and the United States of America [2], and in particular Article 3(3), second sentence, thereof'

[2] OJ L 31, 4.2.1999, p.1

Having regard to the proposal from the Commission [3],

[3] OJ C , , p. .

Whereas:

(1) According to Article 16 of the Agreement on the conclusion of an Agreement on Mutual Recognition between the European Community and the United States of America, hereinafter referred to as the "Agreement", a Party may suspend its obligations under a Sectoral Annex.

(2) The United States of America has failed to fulfil its obligation under the Agreement, in particular with regard to procedures to be followed for the recognition of Conformity Assessment Bodes designated by the Community.

(3) This has led to that Conformity Assessment Bodies designated or to be designated by the Member State Designating Authorities cannot be assessed, monitored and recognised as foreseen by the Agreement.

(4) As a consequence the Community has lost market access with regard to conformity assessment for its products covered by the Sectoral Annex for Electrical Safety.

(5) It is also considered that the United States has failed to maintain legal and regulatory authorities capable of implementing the provisions of the Sectoral Annex for Electrical Safety, in particular as it relates to the reliance of the Occupational Safety and Health Administration on the on-site assessment carried out by Member State Designating Authorities of the Conformity Assessment Bodies located on their territory.

(6) The Community and the United States have held, in accordance with the third sentence of Article 2 of the Agreement, numerous consultations without leading to a satisfactory solution,

HAS DECIDED AS FOLLOWS:

Article 1

The Community obligations under the Sectoral Annex for Electrical Safety of the Agreement on Mutual Recognition between the European Community and the United States of America are hereby suspended in whole.

Article 2

The President of the Council is authorised to designate the person empowered to send, on behalf of the Community, the attached note to the United States of America.

Article 3

The Community may repeal the suspension of its obligations if the Sectoral Annex for Electrical Safety can be implemented as prescribed in the Agreement. In such a case, the decision shall be taken by the Council in accordance with the second sentence of Article 3(3) of Council Decision 1999/78/EC.

The Commission shall endeavour to take the necessary measures, consistent with the Agreement, in view of ensuring that the Sectoral Annex for Electrical Safety can be implemented in accordance with its provisions.

Done at Brussels,

For the Council

The President

ANNEX

The Council of the European Union presents its compliments to the Mission of the United States of America to the European Union and notifies it that the European Community has decided, in accordance with Article 16 of the Agreement on Mutual Recognition between the European Community and the United States of America, to suspend its obligations in whole under the Sectoral Annex for Electrical Safety of the Agreement.

The reason for the suspension of Community obligations is that the United States of America has failed to fulfil its obligation under the Agreement, in particular with regard to procedures to be followed for the recognition of Conformity Assessment Bodes designated by the Community. This has led to that Conformity Assessment Bodies designated or to be designated by the Member State Designating Authorities cannot be assessed, monitored and recognised as foreseen by the Agreement.

As a consequence the Community has lost market access with regard to conformity assessment for its products covered by the Sectoral Annex for Electrical Safety.

It is also considered that the United States has failed to maintain legal and regulatory authority capable of implementing the provisions of the Sectoral Annex for Electrical Safety, in particular as it relates to the reliance of the Occupational Safety and Health Administration on the on-site assessment carried out by Member State Designating Authorities of the Conformity Assessment Bodies located on their territory.

The Community and the United States have held, in accordance with the third sentence of Article 2 of the Agreement, numerous consultations without leading to a satisfactory solution.

The suspension of Community obligations as specified above is effective from the date of this note.

The Council of the European Union takes this opportunity to renew to the Mission of the United States of America to the European Union the assurance of its highest consideration.