Proposal for a COUNCIL DECISION on the signature on behalf of the Community of an additional Protocol to the Europe Agreement establishing an Association between the European Communities and their Member States, of the one part, and the Republic of Hungary, of the other part on Conformity Assessment and Acceptance of Industrial Products

(presented by the Commission)

EXPLANATORY MEMORANDUM

I. Explanatory Memorandum

On the basis of negotiating directives adopted by the Council on 21.9.92 and of the specific decision issued by the Council in June 1997 addressing guidelines to the Commission for the negotiation of European Conformity Assessment Agreements with Central and Eastern European Countries, the Commission has negotiated and initialled an additional protocol to the Europe Agreement with Hungary (Protocol to the Europe Agreement on Conformity assessment and Acceptance of industrial products, hereinafter referred to as "PECA").

The text of this Protocol is attached to this Communication. The following provides an assessment of the Protocol in the light of the negotiating directives approved by the Council, and proposes that the Council authorises the signature of the additional Protocol to the Europe Agreement and decides to approve its conclusion on behalf of the Community.

I.1 Assessment of the Agreement

Considering that this agreement is intended to work only during the pre-accession period, and that an appropriate legal framework was offered by the Europe Agreement, it was decided, in consultation with the 133 Committee, to adopt this agreement as a Protocol to the Europe Agreement rather than an stand alone agreement as foreseen previously.

The draft PECA follows the general principles laid down in the Commission's communication on Community External Trade Policy in the field of standards and conformity assessment [1] under its paragraph 49.

[1] COM (96) 564 - final. 13.11.96.

The PECA provides for an extension of certain benefits of the Internal Market in sectors already aligned. The PECA thus facilitates market access by eliminating technical barriers to trade with respect to industrial products. To this end, the PECA provides for two mechanisms, a) for the mutual acceptance of industrial products which fulfil the requirements to be lawfully placed on the market in one of the Parties, and b) the mutual recognition of the results of conformity assessment of industrial products subject to Community law and to the equivalent national law.

The first mechanism, i.e. the mutual acceptance of industrial products, confirms that Articles 9.4 and 10.4 of the Europe Agreement with Hungary apply without other restriction as referred to in Article 35 of the Europe Agreement. This provision adds the predictability that is necessary to manufacturers and exporters, confirming in advance that industrial products under this mechanism may freely move between the Parties. The annexes making this mechanism operational have still to be negotiated.

The second mechanism is a particular type of mutual recognition agreement (MRA) in which the mutual recognition operates on the basis of the acquis communautaire. It allows industrial products certified by Notified Bodies in the European Union to be placed on the Hungarian market without having to undergo any further approval procedures, and vice-versa. The following sectors are covered: machinery, electrical safety, electromagnetic compatibility, gas appliances, hot water boilers, medical devices, good laboratory practice (GLP) for medicinal products for human use and medicinal products good manufacturing practice (GMP) inspection and batch certification.

Hungary has taken over the Community technical legislation in the sectors covered by the Protocol and participates in the European organisations in the field of standards, metrology, testing laboratories and accreditation.

The PECA consists of a framework agreement and a series of annexes as referred to above. A unilateral Community declaration inviting the Hungarian representatives to experts meetings and committees established under the Community law referred to in the annexes is attached to the Final Act, making it clear that this will not entail any participation in the Community decision-making process. An assessment of the PECA is made in the next paragraphs.

I.1.1 Framework Agreement

An article-by-article assessment follows:

Pre-amble. This sets out the basic objective of the PECA which is that, as the application for membership of the European Union implies the implementation of the acquis communautaire by the applicant country, it provides the opportunity to extend certain benefits of the Single Market in certain sectors already aligned before.

Article 1: Purpose. This article establishes the purpose of the PECA, namely the elimination of technical barriers to trade in respect to industrial products. The PECA provides for two mechanisms, a) for the mutual acceptance of industrial products which fulfil the requirements to be lawfully placed on the market in one of the Parties, and b) the mutual recognition of the results of conformity assessment of industrial products subject to Community law and to the equivalent national law.

Article 2: Definitions. This is self-explanatory. Definitions of industrial products, Community and national law have been included. All pieces of legislation and implementation measures (administrative provisions, guidelines and other means of implementation of the legislation) are covered by the definitions of Community and national law.

Article 3: Alignment of legislation. This contains a commitment for Hungary to take appropriate measures in order to maintain or complete the take-over of Community law, namely in the field of technical legislation and for the purpose of the PECA. Together with the 4th whereas, it means that the alignment is an ongoing process and the Parties agree to iron out any problems of transposition that could appear later.

Article 4: Mutual acceptance of industrial products. The principle under Article 1.1) is detailed in this article. It provides that listing industrial products in such annexes will confirm that these products can freely circulate between the Parties. As already stated, no such annex has been negotiated yet.

Article 5: Mutual recognition of the results of conformity assessment procedures. This provision expands the principle under Article 1.2). This kind of recognition is similar to the one in Mutual Recognition Agreements, with the special feature that all legislation and standards are aligned. The sectoral annexes will contain the references to the relevant Community and national legislation.

Article 6: Safeguard clause. This sets up the right of each Party to deny market access when such Party is able to demonstrate that a product might endanger the legitimate concern which is protected by legislation listed in the annexes (safety and/or public health of users or other persons mainly). The annexes provide for the detailed procedures to be used in such cases.

Article 7: Extension of coverage. The Parties may modify the scope and coverage of this Protocol through an amendment of the annexes or by the addition of new annexes as soon as all alignment conditions are met.

Article 8: Origin. This provides that the Protocol will apply to industrial products originating in the Parties according to non-preferential rules of origin. This origin can be certified by presentation of a certificate of origin or by a proof of origin according to Protocol 4 of the Europe Agreement.

Article 9: Obligations of Parties as regards their authorities and bodies. This article obliges the Parties to ensure that their respective authorities continuously monitor the technical competence and compliance of the notified bodies and have the necessary power and expertise for designating, suspending, and withdrawing their bodies. In addition, it obliges the Parties to ensure that their respective notified bodies continuously comply with the requirements of Community or national law and maintain their technical competence to carry out the tasks for which they have been notified.

Article 10: Notified bodies. This describes the procedure for the notification of bodies to assess conformity in relation to the legal requirements specified in the corresponding annexes. The procedure is simplified and similar to the one applied within the Community. The second paragraph sets out the procedure for the removal of notified bodies.

Article 11: Verification of notified bodies. This article gives the right to one Party to request a verification of a body notified by the other Party. The verification may be done either by the authorities which have designated the body or together by the authorities of both Parties. If the Parties do not agree on appropriate steps to take, they may notify the Chair of the Association Council of their dissent, and leave to the Association Council to decide on appropriate action. The notified body would then be suspended from the notification of the Association Council until a final decision is taken.

Article 12: Exchange of information. A transparency provision to ensure a correct and uniform application and interpretation of the Protocol. The Parties are advised to encourage their bodies to cooperate in order to establish mutual recognition agreements in the voluntary sphere.

Article 13: Confidentiality. A classical provision to avoid disclosing information acquired under this Protocol.

Article 14: Management of the Protocol. The Association Council will be responsible for its effective functioning and may delegate its duties in conformity with the relevant Articles of the Europe Agreement.

Article 15: Technical cooperation and assistance. This confirms the Community policy on technical cooperation and assistance with a view to properly implementing this Protocol.

Article 16: Agreements with other countries. This confirms that, unless otherwise agreed, the PECA does not entail any obligation, for one Party, to accept conformity assessments carried out in another country, even if there is an agreement on recognition of conformity assessment between the other Party and any other third country.

Article 17: Entry into force. This is a standard provision that provides the arrangement for the entry into force.

Article 18: Status of the Protocol. This establishes the fact that the PECA is an integral part of the Europe Agreement.

I.1.2 The Annexes to the Protocol

I.1.2.1 Annexes on Mutual Recognition of Results of Conformity Assessment

There follows an assessment of the content of the annexes in terms of their coverage, and other implications where relevant. In making this assessment, the Commission has kept in mind the following elements:

a) the overall consistency with the Community policy objectives in the field of standardisation, certification and conformity assessment for the sectors and industrial products covered;

b) the overall consistency with Community policy objectives in the field of the removal of technical barriers to trade;

The sectoral assessment is followed in item I.2 by an overall appreciation of the benefits of the Protocol.

Annexes on Machinery, Electrical Safety, Electromagnetic Compatibility, Hot Water Boilers, Gas Appliances and Medical Devices.

These annexes on mutual recognition of results of conformity assessment cover a range of industrial products subject to third party conformity assessment under the New Approach Directives in the relevant sectors All these annexes present the same structure.

Coverage is determined by the relevant Community or national law, listed under Section I of each annex. Section II, on notifying authorities, lists the authorities responsible for the designation of bodies in the Member Sates and Hungary. Section III, on notified bodies, makes reference to the notification of all Conformity Assessment Bodies notified by the Member States and by Hungary. Section IV, on specific arrangements, fixes the two procedures for the safeguard clause, relating to industrial products and to harmonised standards.

In the medical devices annex, Section IV includes three additional provisions which provide for the registration of the person responsible for placing devices on the market, for the labelling of medical devices and for specific exchanges of information between the Parties.

Annex on good laboratory practice (GLP) for medicinal products.

This annex establishes the mutual recognition of each Party's compliance monitoring programmes on good laboratory practice (GLP) that are in accordance with the OECD decisions and recommendations, and the mutual acceptance of studies, data generated, study audits and test facility inspections of the other Party.

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 remove 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 the definition of terms and on compliance monitoring procedures for Good Laboratory Practice.

This annex applies to the non-clinical testing of medicinal products, being either substances or preparations, which are explicitly covered by the legislative, regulatory and administrative requirements, listed in Section I.

In this annex, "notified test facilities" means the test facilities recognised under each Party's GLP monitoring programme. Section II, on notified test facilities, establishes the notification procedure of test facilities for which GLP compliance has been established. The Notifying Authorities listed in Section III are the GLP monitoring authorities of each Member State and Hungary.

Section IV, on specific arrangements, contains clauses on test facility inspections, safeguard mechanisms, and cooperation between the Parties.

This annex will enter into operation upon decision of the Association Council. This decision will be taken in light of the Mutual Joint Visits (MJV) carried out in Hungary according to the OCDE Pilot Project on Examination of National GLP Compliance Monitoring Programmes.

The Annex gives industry the necessary predictability in terms of acceptance of their data and removes needless duplication of inspections.

Annex on medicinal products GMP inspection and batch certification

This annex establishes the mutual recognition of the conclusions of each Party's Good Manufacturing Practice (GMP) inspections, of each Party's manufacturing authorisations, and of manufacturers' batch certificates. All medicinal products for human use are covered.

Section I lists the relevant Community and national law. Section II lists the official GMP inspection services of each Member State and Hungary.

Section III include provisions concerning common definitions of terms in conformity with their respective legislation, and the scope and coverage of this annex. A pre-operational phase of 6 months is foreseen. The Association Council will decide on its termination or prolongation. The operation of this Annex will start immediately after the successful termination of the pre-operational phase.

Additional provisions include mechanisms for cooperation (transmission of reports, exchange of information, training of inspectors, joint inspections, alert system, contact points) between the respective inspection authorities. A safeguard clause for inspections is included to reserve each Party's right to conduct exceptionally its own inspections for reasons identified in advance to the other Party. The Parties are supposed to use their best endeavours to resolve any divergence of views which could occur. Unresolved divergences of views may be referred to the Association Council.

This Annex will remove the need for duplicating batch release procedures and thus save important analysis costs for each imported batch. In addition, recognition of inspections will permit to avoid duplication inspections by authorities. This should lead to important savings in terms of time to access the market and other fees and inspection costs.

I.1.2.2 Annexes on Mutual Acceptance of Industrial Products

No such annexes have been negotiated for the moment. The PECA, in line with the Europe Agreement, provides nevertheless the basis for such acceptance of products, similar to the one which operates in the Community.

I.1.2.3 Unilateral Declaration

This is attached to the Final Act and is annexed to this Communication.

a) Unilateral Community Declaration relating to attendance of the Hungarian representatives to Committees. Through this declaration, Hungary is invited to send observers to the meetings of the Committees established or referred to under the Community legislation included in the annexes. This declaration follows the principles of the Commission Communication on "Participation of candidate countries in Community programmes, agencies and committees" [2].

[2] Point 4.2.b). COM (99) 710 - final. 20.12.1999.

I.1.3 Relations with EFTA /EEA Member Countries

In accordance with the general information and consultation procedures set out in the European Economic Area-Agreement and Protocol 12 of that Agreement, the Commission kept EFTA/EEA Member Countries regularly informed on the progress of the negotiations and informed them on the final result thereof. The EFTA/EEA Member Countries are in the initial stage of negotiating a parallel mutual recognition agreement with Hungary.

I.2 Overall Appreciation

The Commission considers that the proposed PECA creates an acceptable balance of benefits for all parties in the pre-accession framework. In all sectors the Community has secured effective market access - in terms of access to all mandatory procedures of the other party. The PECA confirms that Hungary has taken over the Community legislation in certain sectors before its accession. Both political and commercial benefits are achieved with the PECA.

The Protocol will allow Community exporters, if they so choose, to test and certify their industrial products to the same (aligned) requirements prior to export, and then access that market without any further conformity assessment requirements. The certification procedures will only need to be carried out one time for both markets and against the same aligned requirements or standards. The recognition of certification will permit savings and stimulate exports. European industry federations were consulted and supported unequivocally the Protocol.

Industrial groups, while supporting the Protocol, have not always been able to quantify the costs or time taken to obtain conformity assessment of their industrial products in Hungary. The precise extent of savings in time, cost and market opportunity of this Protocol is therefore not feasible in every case to determine. This may only be possible once the Protocol has been in operation for some time. However, on the basis of a rough calculation, it is estimated [3] that this Protocol would create cost saving opportunities for the exporting industry of around EUR 67 millions and about EUR 83 millions in terms of cost savings to exporters to the EC, some part of which will be passed on to European importers and consumers.

[3] Working hypothesis that certification and other related costs amount to an average of 1% of trade.

Trade figures between the EC and Hungary are attached for information. The general trade balance in sectors covered by this Protocol shows a trade surplus for Hungary (factor of 1,2:1, varying from 1,4:1 in the machinery sector to 1,1:1 in the electrical sector). However, there are sectors such as pharmaceuticals, gas appliances and medical devices where the Community has a trade surplus with Hungary (factors of 5,7:1, 22:1 and 1,9:1). It is expected that trade will increase further when the PECA is in force.

In fact, most benefits are clearly not quantifiable, such as reduced time for accessing markets, better predictability, less protectionism, and harmonisation of systems. What can be ascertained is that any agreement provides reciprocal levels of market access, in terms of conformity assessment.

These advantages outweigh greatly the resources that the Commission will have to engage in maintenance activities of the Protocol, evaluated at 1.6 person per year and some travel and other expenses relating to meetings and other activities such as editing guides.

In terms of the benefits to Hungary, the PECA will facilitate access to the Community market and will give political credit for having aligned its legislation. Hungary regards the PECA as a means to develop closer industrial relations with the EU and fully to integrate certain sectors with the Single Market before accession.

II. The Draft Council Decisions

A proposal for two Council decisions is attached.

The first one is concerned with the signature of the Protocol. Signature is required by Hungary for the adoption of this Protocol. It is accordingly proposed that the President of the Council be authorised to designate the person empowered to sign the Protocol on behalf of the Community, subject to conclusion later, on the basis of Articles 133 and 300 of the Treaty.

The proposal for a second decision is concerned with the adoption of the PECA. In this context, the Council should, in line with the previous Council decisions on the conclusion of mutual recognition agreementsestablish the appropriate Community procedure for the implementation and management of the Protocol.

In particular, the Council should confer on the Commission, after consultations with the special committee appointed by the Council, the necessary powers for the management and implementation of the Protocol. Moreover, the Council should delegate to the Commission, acting in consultation with the special committee, the necessary powers to determine in certain cases the Community position with regard to this Protocol in the Association Council, or where applicable the Association Committee.

In all other cases the Community position with respect to the Protocol shall be determined by the Council, acting by qualified majority, on a proposal from the Commission.

The Commission therefore proposes that the Council adopts the attached decision on the signature and conclusion of the PECA.

2000/0302 (ACC)

Proposal for a COUNCIL DECISION on the signature on behalf of the Community of an additional Protocol to the Europe Agreement establishing an Association between the European Communities and their Member States, of the one part, and the Republic of Hungary, of the other part on Conformity Assessment and Acceptance of Industrial Products

THE COUNCIL OF THE EUROPEAN UNION,

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

Having regard to the proposal from the Commission [4],

[4] OJ C ..., ..., p. ...

Whereas:

(1) The Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and the Republic of Hungary of the other part [5], entered into force on 1 February 1994.

[5] OJ L 347, 31.12.1993, p.2.

(2) Article 73(2) of the Europe Agreement provides that co-operation in the fields of standardisation and conformity assessment shall seek to achieve the conclusion of agreements on mutual recognition.

(3) The Protocol to the Europe Agreement on Conformity Assessment and Acceptance of Industrial Products has been negotiated by the Commission on behalf of the Community.

(4) Subject to its possible conclusion at a later date, the Protocol to the Europe Agreement on Conformity Assessment and Acceptance of Industrial Products initialled in Brussels on 10 July 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 Protocol to the Europe Agreement with Hungary on Conformity Assessment and Acceptance of Industrial Products.

Done at Brussels, [...]

For the Council

The President

[...]