Proposal for a COUNCIL DECISION on the signature on behalf of the Community of an Agreement between the European Community and Japan on Mutual Recognition in relation to Conformity Assessment

(presented by the Commission)

EXPLANATORY MEMORANDUM

I. The Agreement

On the basis of the negotiating directives issued by the Council on 21.9.92. the European Commission has negotiated and initialled an agreement on the mutual recognition of conformity assessment (Mutual Recognition Agreement, or MRA) with Japan. A Text of the Agreement initialled in December 2000 is annexed.

This memorandum provides an assessment of the Agreement in the light of the negotiating directives approved by the Council, and recommends that the Council decide to approve the signature and the conclusion of the Agreement by means of Council decisions to that effect.

I.1 Assessment of the Agreement

The Commission considers that the initialled Agreement is in conformity with the Council's negotiating directives, takes account of the views expressed by the 133 MRA Working Group, which gave detailed advice to the Commission during the negotiations, and provides benefits to the European Community.

Sufficient confidence exists between the Parties to the Agreement to allow them to proceed.

I.1.1 Framework Agreement

The Agreement consists of a framework agreement and a series of sectoral annexes. An article-by-article assessment of the framework follows:

Pre-amble : This sets out the principal objective of the mutual recognition agreement, which is thefacilitation of trade between the parties.

Article 1: Definitions: these are self-explanatory. One should note, however, that there are separate sets of definitions for the GMP and GLP annexes.

Article 2: General Obligations: this sets out the obligation of each Party to accept the conformity assessment results carried out to its requirements by the other Party, according to the terms of the sectoral annexes. Notably, the provision establishes acceptance of product certifications of each Party. This Article also establishes the link between the basic obligations of the Agreement and its sectoral annexes.

Article 3: Sectoral Coverage: this Article provides that the conformity assessment procedures to which the Agreement applies are specified in the individual sectoral annexes, and describes the content of the annexes.

Article 4: Designating Authorities: this is a key provision requiring designating authorities to have the necessary formal powers over the bodies they designate. This article thus provides a treaty guarantee that Japan has the necessary authority to designate, suspend or withdraw bodies.

Article 5: Verification of Compliance By Conformity Assessment Bodies: this Article establishes the right for one Party to challenge the compliance of bodies in the other Party. Verification will be carried out by the Party in whose territory the CAB is located. This article also ensures that bodies of each Party are monitored so as to be able, continuously, to correctly interpret the regulatory requirements of the other Party.

Articles 6 and 7: A CAB will be suspended where disagreement over its status has been confirmed by the Joint Committee, unless otherwise decided by that Committee. As advised by Member States in the 133 Committee MRA Group, the right of verification has been closely circumscribed to prevent it from being carried out routinely or unilaterally.

Article 8: Joint Committee: this Article requires the establishment of a Joint Committee to administer the Agreement on behalf of the Parties. Duties of the Joint Committee include formally adopting changes to the Sectoral annexes to add or remove conformity assessment bodies, and discussing divergences of view. This article also contains provisions on exchange of information.

Article 9 sets out detailed procedures for designation of bodies and the right of the other Party to contest such designations according to certain rules.

Article 10: Safeguards: this Article provides that an importing Party retains all powers under its domestic law, and within its territory, to take measures to protect health, safety or the environment. These powers must be exercised in accordance with the principle of non-discrimination. This article also provides for emergency verification of GMP and GLP facilities.

Article 8, 9 and 15: Market Access: New conformity assessment procedures applying to covered products or requirements will be brought within the scope of the Agreement, unless jointly decided otherwise, so as to preserve negotiated market access benefits.

Article 11: Agreements with other countries: this Article provides that Mutual Recognition Agreements between Parties to this Agreement and other countries shall have no force in regard to the other Party to this Agreement.

Article 13: Confidentiality Clause: this is a standard clause

Articles 12 and 14: these are standard institutional and legal provisions. It should be noted that the Agreement is of unlimited duration, and that there is no scope for a Party unilaterally to terminate an individual sectoral annex.

I.1.2 The Sectoral Annexes

In the following, an assessment is given of the content of each sectoral annex in terms of its coverage, the type of mutual recognition arrangements envisaged for the sector, and the trade and other implications. In making this assessment, the Commission has kept in mind the following elements:

a) whether the sectoral annex provides for genuine mutual recognition, i.e. whether all relevant conformity assessment procedures for a particular sector have been captured;

b) the level of trade between the Community and Japan for the sectors and products covered;

c) the views expressed by Member States and European industry groups on the benefits of mutual recognition;

d) the precedential nature (if any) of arriving at a mutual recognition agreement with Japan in the sectors covered;

e) overall consistency with Community policy objectives in the field of standardisation, certification, designation of conformity assessment bodies and the removal of technical barriers to trade.

The sectoral assessment is followed by an overall appreciation of the benefits of the Agreement.

The Commission draws Member States' attention to the trade figures for each covered sector in the Annex to this note. These figures show that for every sector concerned, the Community has a rough trade balance with Japan. Third party certification (the subject of the MRA) applies most commonly to industrial products at the higher end of technology, in respect of which both the Community and Japan are major exporters.

A priori, this may indicate that the trade facilitation benefits of the Mutual Recognition should accrue to both the Community and Japan. We note however, that trade flows only give a partial picture of the likely benefits. The balance of benefits depends on additional factors, in particular the following:

a) the range of products within a sector subject to third party certification. Obviously, if in a given sector one Party has more comprehensive certification requirements, the trade facilitation benefits to the other i.e. exporting Party may be proportionately greater;

b) the complexity and accessibility of the conformity assessment requirements of each Party, including the extent to which each Party applies internationally recognised standards or technical requirements for the sector in question. Generally, this is not a major issue in the case of Japan which has adopted international standards and regulations fairly systematically.

The Commission notes that industrial groups consulted throughout the negotiations, such as Eurobit and Orgalime, while supporting the agreement, have not always been able to quantify the costs or time taken to obtain conformity assessment of their products in third countries, including Japan. It is therefore not feasible in every case to determine the extent of savings in time, cost or market opportunity of the arrangements set out in this agreement. This may only be possible once the agreement has been in operation for some time. What can be ascertained however is whether we have addressed industry's concern that any agreement provide reciprocal levels of market access, in terms of conformity assessment procedures.

The Agreement also presents important advantages from the point of transparency, market access, avoidance of duplication especially of cost, and general facilitation of trade. This is of particular importance for small and medium sized companies.

On the basis of a rough calculation it is estimated that this Agreement will create cost savings for the exporting industry of at least 20 M Euro and an equivalent amount in terms of cost savings to exporters to the EC, some part of which will be passed on to European importers or consumers.

Where relevant, the above factors are taken into account in the assessment of each sectoral annex.

Pharmaceuticals Good Manufacturing Practice (GMP)

This annex establishes mutual recognition of each Party's inspections of pharmaceutical sites according to the GMP standards of each, which are effectively equivalent.

Recognition of inspection results and the ensuing certificate of GMP compliance removes the need for companies in each Party to be inspected by the authorities of the other Party. Each party accepts the GMP certificate issued by the exporting Party's authority and the products traded do not need further batch testing and control upon import.

European industry and Member States' inspection authorities (Working Group on Inspection and control of medicinal productsand the Pharmaceutical Committee) have been consulted at every step of the negotiation and support the arrangements negotiated. The Community is an important exporter to Japan (see Annex).

The scope of the Agreement is as broad as possible and covers all medicinal products, which have undergone one or a series of manufacturing processes, e.g. fabrication, repackaging, labelling, testing, wholesaling to which GMP applies. Veterinary immunologicals are not covered.

The sectoral annex applies to all pharmaceutical products subject to GMP in either Party. This permits inspections to be carried out against each Party's domestic GMP requirements in most cases. In (marginal) cases where a product is classed as a pharmaceutical in one Party but not the other, the agreement enables the exporting party's inspection authority to certify GMP to the importing Party's requirements on a voluntary basis.

The Agreement also lists the applicable legislation and relevant certifying authorities. It sets up a Joint Sub Committee to oversee preparatory work which must be completed and agreed before this sectoral annex can come into effect; This is the equivalent of confidence building period.

While providing mutual benefits to pharmaceutical companies, and some savings to inspection authorities, the present agreement also establishes mechanisms for longer-term cooperation between respective inspection authorities which will not only ensure the agreement continues to be properly applied, but will stimulate further harmonisation initiatives in other fields of medicines controls, such as Good Clinical and Laboratory Practices

Industrial Chemicals, Good Laboratory practice (GLP)

This annex establishes mutual recognition of studies and data generated therefrom produced by the test facilities of the other Party provided that these facilities are recognised to be in conformity with the OECD principles of Good Laboratory Practice and participate in the compliance monitoring programme of that party. To that end the Parties also recognise the equivalence of each other's compliance monitoring programmes. Recognition of inspection results and the ensuing compliance with the GLP principles removes the need for companies in each Party to be inspected by the authorities of the other Party. Both Parties have accepted the decisions and recommendations of the OECD Council on Mutual Acceptance of Data (MAD) in 1981 and on compliance monitoring for Good Laboratory Practice in 1989 and have co-operated closely in the relevant OECD Working Group.

The Parties will exchange annually lists of recognised test facilities which specify the area of expertise of each test facility for which GLP compliance has been established. Only the studies and data generated therefrom in the areas for which compliance with GLP is certified will have to be recognised.

The studies and data generated therefrom are used by the parties for administrative purposes during the evaluation process before the marketing and use of the substances for which the studies have been carried out. The MRA thus reduces the costs and time delays due to the testing of chemical substances and preparations and facilitates market access. The Annex covers all non-clinical health and environmental safety studies for the products which are explicitly specified: industrial chemicals, pesticides, medicinal products, veterinary drugs, food additives, animal feed additives, cosmetics. The Commission considers that the MRA is to the advantage of manufacturers and Exporters of the Community intending to placing their products on the Japanese market.

The proposed arrangement also supersedes and extends to all Member States the coverage of what were some limited 'memoranda of understanding' between some individual Japanese ministries and a number of Member States for certain chemical products.

Electrical Safety

This Annex covers the testing and certification requirements set out in the EC's Low Voltage Directive and corresponding Japanese legislation and regulations.

European industry groups have been consulted on the proposed MRA and have expressed support provided that we ensure that any agreement provide for reciprocity of market access and not lead to the introduction of new and more onerous requirements. Given the existing openness of the EC regime, and the fact that the necessary Japanese legislation is covered under the sectoral annex, these requirements have clearly been met. While manufacturers self certification exists in the EC third party certification is required for certain categories of products in Japan. As a result of the Agreement one certificate issued by a designated European CAB will now suffice. There are therefore clear advantages in the Agreement from an EC perspective.

Electromagnetic Compatibility (EMC)

In view of the "horizontal" application of EMC requirements to a wide range of electrical, machinery and telecommunications products, coverage of the EMC phenomenon in the MRA is necessary to achieve the objective of covering all relevant conformity assessment procedures.

Each Party agrees to recognise all of the other Party's reports, certificates and Technical Construction Files, as required under their respective legislation, without any further assessment of the products. Both Parties also agree to recognise each other's suppliers declaration of compliance as required under their respective legislation.

Telecommunications Terminal Equipment

There is a special annex on Telecommunications equipment but both sectoral annexes on electrical safety and electromagnetic compatibility also apply. These annexes apply to all telecommunications terminal equipment (TTE) regulated under the relevant Community RTTE Directive and the corresponding Japanese legislation.

The Agreement provides for recognition of the conformity assessment certificates of Conformity Assessment Bodies designated by the Parties in so far as applicable. The Conformity Assessment Bodies will be required to comply with the criteria and standards set out in the regulatory requirements of the other Party (a list of Designating and Approval Bodies and Designated Bodies with an indication of the products and procedures for which the latter have been designated, have or will be set out in the sectoral annex).

European industry organisations have been consulted extensively on the MRA negotiations and have supported the objectives provided that access by means of recognition to all Japanese conformity assessment systems, including product approvals, is achieved. In this connection, the agreement provides for reciprocal recognition of all conformity assessment procedures including final certification without further product assessment by the importing party.

I.1.3 Relations with EFTA States, members of the European Economic Area

In accordance with the general information and consultation procedures set out in the EEA Agreement and Protocol 12 of the said Agreement, the Commission has kept EFTA / EEA States regularly informed about developments in the negotiations and has informed them on the final result of the negotiations. Japan has not at this stage accepted to negotiate a similar agreement with EEA / EFTA.

I.1.4 Overall Appreciation

The Commission considers that the proposed MRAs create an acceptable balance of benefits for all parties overall, when all sectors are taken together. The overall trade balance with Japan would also suggest that the Agreement will work in favour of EC exporters. In all sectors the Community has secured effective market access - in terms of access to all mandatory procedures of the other party. Japan has accepted the Community's approach of reciprocally recognising not only testing, but also certificates and approvals of conformity to the other's requirements. This is a significant development. The agreement will allow Community exporters, if they so choose, to test and certify their products to Japanese requirements prior to export, and then access those markets without any further conformity assessment requirements. This will facilitate Community exports. European industry federations have been consulted on the agreement and have supported them.

The Commission has received indications that a large number of EC conformity assessment bodies would be interested to work in the framework of this Agreement, and this indicates both their technical capacity and economic interest in the Agreement.

In several sectors the agreement caters for the further development of the parties' regulatory regimes, with the aim of ensuring that future rules do not undermine the benefits of the agreement. And in several sectors, the agreement will help to promote wider acceptance of the Community's or an international regulatory approach and technical requirements.

II. The Draft Council Decisions

A proposal for two Council decisions on the signature and the conclusion of the Agreement is attached.

The legal basis for both decisions are Articles 133 and 300 of the Treaty.

The decision concerning the conclusion of the Agreement must also establish the appropriate Community procedure to enable the Commission, assisted by the 133 Committee (Mutual Recognition), to represent the Community in the Joint Committee and where appropriate in the Joint Sub-Committee established by the Sectoral Annexes. It should furthermore provide that the Community position in that Joint Committee and in the Joint Sub-Committee in case of certain technical decisions, including in some cases the amendment of the annexes, be determined, in conformity with Article 300, paragraph 4 of the Treaty, by the Commission in consultation with the 133 Committee.

Such decisions are limited to issues concerned with implementation over time, in particular amending the references to the regulations applicable to covered sectors; amending the annexes further to decisions to recognise, suspend, remove, or alter the scope of activity of conformity assessment bodies or designating authorities in the Agreement. In all other cases, the position of the Community shall be established by the Council, acting on the basis of a proposal from the Commission.

The Commission therefore proposes that the Council adopts the appended decisions.

2001/0036 (ACC)

Proposal for a COUNCIL DECISION on the signature on behalf of the Community of an Agreement between the European Community and Japan on Mutual Recognition in relation to Conformity Assessment

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 133, in conjunction with the first sentence of the first subparagraph of Article 300 (2) thereof,

Having regard to the proposal from the Commission [1],

[1] OJ C [...], [...], p. [...].

Whereas subject to its possible conclusion at a later date, the Agreement on Conformity Assessment initialled in Brussels on 11 December 2000 should be signed,

HAS DECIDED AS FOLLOWS:

Sole Article

Subject to a possible conclusion at a later date, the President of the Council is hereby authorised to designate the person empowered to sign, on behalf of the Community, the Agreement with Japan on Mutual Recognition in regard to Conformity Assessment.

Done at Brussels, [...]

For the Council

The President

[...]