SECTION || PAGE

|| Glossary and use of terms || 3

1. || Introduction and background || 6

|| 1.1 Evaluation aims 1.2 Evaluation scope and methodology 1.3 Recent developments in Union harmonisation legislation || 6 7 13

2. || Evaluation framework and typology of regulatory simplification || 17

|| 2.1 Evaluation questions 2.2 Intervention logic 2.3 Typology of simplification and support measures || 17 19 24

3. || Relevance and coherence of Internal Market Legal Framework || 34

|| 3.1 Relevance 3.2 Coherence of instruments 3.3 Coherence of definitions || 34 36 49

4. || Efficiency of the implementation regime || 53

|| 4.1 Overall picture 4.2 Conformity assessment of products 4.3 Notified Bodies 4.4 Accreditation 4.5 Declaration of Conformity 4.6 CE marking 4.7 Role of support and coordination mechanisms 4.8 Market surveillance || 53 54 56 67 70 74 78 79

5. || Costs of compliance and scope for simplification || 90

|| 5.1 Introduction and approach taken 5.2 Costs of compliance for firms 5.3 Scope for regulatory and administrative simplification 5.4 Benefits of simplifying administrative requirements 5.5 Quantification of the benefits from simplification of Union harmonisation legislation 5.6 Macro-economic impacts of simplification on growth and jobs || 90 93 106 110 114 117

6. || Effectiveness and fitness for purpose || 121

|| 6.1 Regulatory and non-regulatory barriers 6.2 Barriers to the free movement of innovative products 6.3 Barriers to the free movement of green products 6.4 Effectiveness in responding to the challenges of e-commerce 6.5 Effectiveness in allowing SMEs to operate across EU28 6.6 Effectiveness in handling the relationship between services and products 6.7 Effectiveness with respect to business-to-business products 6.8 Impact of IM legislation on the internal market 6.9 Impact of IM legislation on health and safety and consumer protection 6.10 Impact of IM legislation on environmental protection || 121 126 130 132 136 138 142 144 153

7. || Conclusions and recommendations || 158

|| 7.1 Conclusions 7.2 Recommendations || 158 163

Glossary

AB                  Accreditation Body

ADCO                        Administrative Co-operation

ADR               Alternative Dispute Resolution mechanism

BAU               Business-as-usual

CA                  Conformity Assessment

CAB                Conformity Assessment Body

CE                   Conformité Européenne

DoC                Declaration of Conformity

EA                   European co-operation for Accreditation

EO                   Economic operators

EQ                   Evaluation question

ESO                European Standardisation Organisation

EU                   European Union

FTE                 Full-time equivalent

IA                    Impact assessment

ICSMS            Information and Communication System on Market Surveillance

IM                   Internal market

MSAs              Market Surveillance Authorities

NANDO         New Approach Notified and Designated Organisations Information System

NB                  Notified Body (Bodies)

NBGs              Notified Bodies Groups

NLF                New Legislative Framework

NRTL              Nationally Recognized Testing Laboratory

ODM               Original design manufacturer

OEM               Original equipment manufacturer

PCP                 Product Contact Point

PSMSP            Product Safety and Market Surveillance Package

R&D               Research and Development

SCM                Standard Cost Model

SDoC              Supplier’s Declaration of Conformity[1]

SME                Small or medium-sized enterprise

TD                   Technical Documentation

TFEU              Treaty on the Functioning of the European Union

UK                  United Kingdom

Internal Market Directives/ Regulations

ATEX             Directive on Equipment and protective systems intended for use in potentially explosive atmospheres

CPR                Construction Products Regulation

EMC               Electromagnetic Compatibility Directive

GAD               Gas Appliances Directive

LD                  Lifts Directive

LVD               Low Voltage Directive

MD                 Machinery Directive

MID                Measuring Instruments Directive

OED               Outdoor Equipment Directive

PED                Pressure Equipment Directive

PPE                 Personal Protective Equipment Directive

REACH          Registration, Evaluation, Authorisation and Restriction of Chemical substances Regulation

R&TTE           Radio and Telecommunications Terminal Equipment Directive

RoHS              Directive on the restriction of the use of certain hazardous substances in electrical and electronic equipment

SPVD             Simple Pressure Vessels Directive

A full list of Internal Market directives and regulations within study scope is provided in Table 1.1.

Notes on the use of terminology

· The terms: internal market legislation for industrial products and Union harmonisation legislation have been used interchangeably in the report.

· When referring to specific internal market legislation, a distinction has been made between (i) product-specific harmonisation legislation and (ii) horizontal harmonisation legislation.

This Staff Working Document builds on the Evaluation of Internal Market Legislation for Industrial Products was carried out for the European Commission’s DG Enterprise and Industry by the Centre for Strategy & Evaluation Services (CSES)[2], supported by our partner organisations, Panteia and Oxford Research.

Drawing on evidence gathered through the research, the evaluation provides an independent evaluative judgment on the current state of play in the development and modernisation of the body of internal market legislation for industrial products. It does not represent the official view of the European Commission.

1. Introduction and background

Section 1 provides an overview of the evaluation’s objectives and scope and outlines the methodology adopted. The subject of the evaluation, the overall policy and legal context and recent developments in the regulatory architecture are then set out.

1.1 Evaluation aims

The objectives of this evaluation are, in summary, to:

· Examine how far the overall body of internal market (IM) legislation for industrial products and the regulatory approach is fit for purpose and to what extent they constitute an effective means of addressing barriers to the functioning of the EU’s internal market for industrial products;

· Evaluate the relevance and coherence, efficiency, utility, effectiveness and impact of Union harmonisation legislation and address a series of specific evaluation questions[3];

· Identify and analyse any gaps, loopholes, inconsistencies and duplication in IM legislation for industrial products or in administrative requirements for economic operators;

· Assess the costs and benefits of Union harmonisation legislation for economic operators and the impact on strengthening industrial competitiveness;

· Assess the cumulative impacts of, and interaction between legislation and compliance requirements[4].

· Make recommendations as to how the efficiency and effectiveness of IM legislation for industrial products (including structures and institutional actors to support its implementation) could be improved so as to strengthen industrial competitiveness and to create more favourable conditions for growth and jobs;

· Identify possible simplification measures through a preliminary analysis of the potential impacts, and a comparison of the appropriateness and feasibility of the different options to feed into a possible future impact assessment.

Since the mid-1980s, the EU acquis for industrial products has gradually expanded, and there are currently more than 30 directives and regulations covering specific areas of industrial products (e.g. pressure equipment, gas appliances) and horizontal directives that apply across many different product groups, such as the RoHS (hazardous substances), REACH (chemicals) and Ecodesign. A distinction can be made between two different types of legislation falling within scope:

· Product directives – Directives that address specific types of products, such as the Pressure Equipment Directive (PED) and the Recreational Craft Directive; and

· Horizontal directives – that cover a broad range of product groups. Examples are the Low Voltage Directive (LVD), the Machinery Directive and the RoHS Directive.

Although evaluations of individual pieces of IM legislation (directives and regulations) have been undertaken, this study is the first overarching strategic review of IM legislation for industrial products in 25 years. As such, it provides an opportunity to: assess the fitness for purpose of the regulatory architecture for ensuring the free movement of industrial products; consider the extent to which further improvements could be made to strengthen coherence, efficiency and effectiveness and to take stock of progress already being made through the New Legislative Framework’s (NLF’s) modernisation agenda.

There is a strong backwards-looking aspect to the evaluation. Progress to date has been reviewed and any problems have been identified and analysed, either in the legal framework itself, or in the implementation regime. There is equally an important forward-looking element, since the study has examined the extent to which Union harmonisation legislation is fit for purpose for the internal market of the 21st century, and whether any simplifications or further changes are necessary.

Strengthening the effectiveness of the internal market for industrial products was identified as a priority in the October 2012 update on an Integrated Industrial Policy[5]. The European Commission therefore committed to carrying out an evaluation of the EU acquis in the area of industrial products to assess the coherence and ‘fitness for purpose’ of the regulatory framework. The study is especially timely because 2012 was the 20th anniversary of the establishment of the internal market. The study will make a contribution to the objectives set out in the Single Market Act I[6] and follow-up Communications[7] to maximise the contribution of the internal market in industrial products to achieving the Union’s growth and employment objectives, in line with the Europe 2020 strategy for smart and inclusive growth. In particular, the evaluation provides a technical input to the Roadmap for the Reform of the Internal Market for Industrial Products[8] expected in late 2013.

1.2 Evaluation scope and methodology 1.2.1 Evaluation scope

The study is ambitious in scope, since it covers not only most pieces of IM legislation, but also the workings of the regulatory regime, including European and national implementation structures. The focus of the study is on Union harmonisation legislation, although the specifications also required consideration of some issues relating to non-harmonised products.

The majority (though not all) pieces of IM legislation were within the study scope, as set out in the following table:

Table 1.1: Union harmonisation legislation within study scope

No || Year || Directive

1 || 1989 || Directive 89/686/EEC on personal protective equipment (PPE)

2 || 1992 || Directive 92/42/EEC on efficiency requirements for new hot-water boilers fired with liquid or gaseous fuels

3 || 1993 || Directive 93/15/EEC on explosives for civil use

4 || 1994 || Directive 94/9/EC on equipment and protective systems intended for use in potentially explosive atmospheres (ATEX)

5 || 1994 || Directive 94/25/EC on recreational craft

6 || 1994 || Directive 94/62/EC on packaging and packaging waste

7 || 1995 || Directive 95/16/EC on lifts

8 || 1996 || Directive 96/98/EC on marine equipment

9 || 1997 || Directive 97/23/EC on pressure equipment (PED)

10 || 1999 || Directive 99/5/EC on radio and telecommunications terminal equipment (R&TTE)

11 || 2000 || Directive 2000/9/EC on cableway installations designed to carry persons

12 || 2000 || Directive 2000/14/EC relating to the noise emission in the environment by equipment for use outdoors (OED)

13 || 2004 || Directive 2004/22/EC on measuring instruments (MID)

14 || 2004 || Directive 2004/108/EC concerning the electromagnetic compatibility electrical and electronic appliances, systems and installations (EMC)

15 || 2006 || Directive 2006/42/EC on machinery (MD)

16 || 2006 || Directive 2006/95/EC on low voltage devices (LVD)

17 || 2007 || Directive 2007/23/EC on pyrotechnic articles

18 || 2009 || Directive 2009/23/EC on non-automatic weighing instruments

19 || 2009 || Directive 2009/105/EC on simple pressure vessels (SPVD)

20 || 2009 || Directive 2009/125/EC establishing a framework for the setting of ecodesign requirements for energy-related products (Ecodesign)

21 || 2009 || Directive 2009/142/EC on gas appliances (GAD)

22 || 2010 || Directive 2010/35/EU on transportable pressure equipment

23 || 2010 || Directive 2010/30/EU on the indication by labelling and standard product information of the consumption of energy and other resources by energy-related products (Energy Labelling Directive)

24 || 2011 || Directive 2011/65/EU on the restriction of the use of certain hazardous substances in electrical and electronic equipment (RoHS)

Some IM legislation was excluded because it has recently been subject to major revision, such as the Construction Products Regulation (2011) and Medical Devices Regulation (2012)[9]. It should also be noted that a further legislative initiative aimed at simplifying four IM directives is under consideration as part of a separate study[10]. Sectoral legislation is also outside the scope, since regulation in areas such as the chemicals and automotive sectors has recently been evaluated. The transposition of Union harmonisation legislation into national legislation was formally outside the scope. However, since one of the issues examined was whether directives or regulations are a more effective instrument in achieving internal market goals, some consideration was made as to the extent of divergence in the implementation of directives.

While environmental legislation falling outside the scope of Article 114 was beyond the scope, as part of the assessment of cumulative regulatory effects, through the case studies, it was necessary to consider the interaction between IM legislation for industrial products and other legislation applicable to products. A series of EU regulations have been adopted in the past 10 years that impose additional costs on industry, such as the WEEE Directive (2012/19 EC), the Energy Performance of Buildings Directive and product--specific regulations such as the F-gas regulation (842/2006 EC).

The second main area of focus has been on assessing how well the regime works to support the implementation of Union harmonisation legislation at European and national level, including the role played by different institutional actors, coordination mechanisms and support structures.

The scope also included a review of progress made through recent initiatives to help modernise Union harmonisation legislation such as the New Legislative Framework (2008), the Alignment Package of 9 Directives that forms part of the NLF’s implementation (2011) and the proposals set out in the "Product Safety and Market Surveillance Package" (2013). These and other recent relevant developments are set out in Section 1.4. This was essential given the need to take stock of what simplification measures have already been undertaken, or are planned in the near future, before considering what further simplification measures might also be considered.

1.2.2 Methodological approach

The research has been carried out using a number of different research tools that have allowed us to verify and to cross-check the evidence in accordance with triangulation principles. These include: extensive desk research, two different online surveys, carrying out a major interview programme with more than 200 stakeholders, undertaking product-based case studies across 10 selected product categories, and analysing the results of DG ENTR’s Your Voice online consultation.

The following diagram shows the interconnection between the different phases and elements of the study.

Figure 1.1: Methodological framework by phase and research and data analysis tools

Desk research involved a review of a wide range of documents and a bibliography is provided in Appendix B. Among the documentation reviewed were key EU legal texts and non-binding guidance produced by the Commission to support the implementation of Union harmonisation legislation overall, and guidance on specific Directives and Regulations. Relevant findings from evaluations and impact assessments carried out focusing on individual pieces of IM legislation have also been reviewed[11].

Two online surveys were carried out with (i) Notified Bodies and members of Notified Body Groups and (ii) Accreditation Bodies. The survey of Notified Bodies received 128 responses, which equated to 11.4% of the total viable sample of 1116 Notified Bodies contacted. The number of responses achieved represents a 95% confidence level with an 8% margin of error. The response level was positive given the problem of survey fatigue and contact problems[12].

The distribution of responses from NBs by country in the sample broadly reflects the distribution in the total population of NBs across Europe (distribution by country is provided in Section 2) and was representative by size of the NB in terms of the number of employees. Certain smaller EU countries (e.g. Bulgaria and Czech Republic) are over-represented, while a few countries (e.g. France) are comparatively under-represented in the sample.

In terms of the pieces of legislation covered by the NBs that responded to the survey, the participating NBs cover all pieces of IM legislation under investigation. The most common are the Personal protective equipment (27% of respondents), the Machinery Directive (24.6%), the Pressure equipment Directive (18.9%), the Low Voltage Directive (18.9%). Good coverage of all conformity assessment procedures (Modules) has also been achieved, with all procedures covered by at least 35% of participating NBs. EC-type examination (Module B) is the most common procedure (84% of respondents).

While the majority of Notified Bodies primarily serve their national markets (67% indicate that national market represent more than 50% of the their turnover from conformity assessment services), there are also NBs with a more international character (43% indicated that firms in other EU countries represent more than 10% of the turnover and 34% referred to a similar share of turnover for firms in non-EU countries).

The survey of Accreditation Bodies attracted 20 responses out of a total of 32 contacted[13] 62.5%) including all Member States with a large manufacturing base as well a range of smaller Member States. It is provides a broad geographical coverage. Additionally, a few Accreditation Bodies were interviewed, which ensured a high level of coverage of this stakeholder group.

201 interviews have been carried out[14]. The extensive interview programme with key stakeholders included the broad spectrum of stakeholders such as national competent authorities, market surveillance authorities, Notified Bodies and members of NB groups, ADCOs, Product Contact Points, industry associations and individual firms. An overview is set out in the table below:

Table 1.2: Interview programme – Number of interviews completed

|| Total

EU industry associations and stakeholders || 31

National industry associations || 9

Individual firms (e.g. manufacturers, importers, large/small firms) || 62

European Commission officials || 12

National authorities (market surveillance authorities, Accreditation Bodies, and chairmen/women of the ADCO groups). || 77

Notified Bodies Groups/ organisations at EU level || 4

Notified Bodies || 1

Consumer, environmental organisations and trade unions representatives || 1

Standardisation organisations || 1

Total || 201

A total of 62 firms were interviewed, together with 19 industry associations for the product-based case studies, out of a total of more than 220 firms contacted. It should be stressed that only a small number of Notified Bodies Groups were interviewed and Notified Bodies because as noted above, a large-scale survey was undertaken with Notified Bodies.

CSES also carried out an analysis of the 144 responses to the Your Voice Consultation[15] organised by the European Commission carried out between January and April 2013 as part of the roadmap initiative "Reforming the internal market for industrial products". The consultation received response from industry associations and individual firms across a broad range of sectors such as manufacturing and ICT, and from public authorities, organisations providing professional, scientific and technical services, wholesale and retail, consumer organisations and individual citizens. The findings have been integrated into this report and CSES provided DG ENTR with a summary analysis of the consultation results. The analysis has also been integrated into the various parts of the report.

Last but not least, in consultation with the Commission, the project team selected 10 product categories for the case study research, eight in harmonised sectors and two in non-harmonised sectors (ski/Snow footwear and bicycles). A number of selection criteria were used, such as ensuring that the product included professional users, products in which SMEs have a strong presence among manufacturers, the need to include intermediate not only final end products, etc. The case studies selected were:

• Electric motors

• Laptops

• Domestic Refrigerators and freezers

• Lifts for persons

• Gardening equipment

• Instruments & appliances for measuring, testing and navigation

• Air conditioners

• Integrated circuits

• Ski/Snow footwear (non-harmonised)

• Bicycles (non-harmonised)

The full versions of the 10 case studies are in Appendix C. These were carried out using a combination of desk research, statistical analysis and interviews with relevant firms and industry associations. For each case study, we analysed relevant data sources (e.g. Eurostat Prodcom and SBS data, industry data). Section 5 provides a summary overview of the findings through the case study research.

1.3 Recent developments in Union harmonised product legislation

Since Union harmonisation legislation is complex and there have been a number of significant developments in the legal framework since the mid-1980s, it is necessary to provide a factual overview as to how the basic regulatory architecture works, and to summarise steps taken by the Commission to improve and modernise the regime supporting its implementation (e.g. the legal framework on market surveillance and accreditation.

1.3.1 Introduction

Since January 1993, the Internal Market (“IM”) has ensured the free movement of goods, services, people and capital within the European Union (EU). Article 114 of the Treaty on the Functioning of the European Union (TFEU)[16] provides the legal basis for Union harmonisation legislation for industrial products. The objectives are to promote approximation through technical harmonisation measures and to ensure high levels of protection for safety and health, consumers and the environment. An assessment of the intervention logic is set out in Section 2.2.

1.3.2 Harmonised products and the New Approach Directives

In 1985[17], the New Approach was adopted as the principle regulatory mechanism for harmonised product legislation under which the “essential requirements” in respect of safety and health are set out in the applicable internal market legislation.

The legislative framework is non-prescriptive and technology-neutral with detailed technical implementation dealt with through standardisation. Economic operators are then free to determine how they demonstrate compliance with the essential requirements, typically following European harmonised technical standards, or an alternative means of showing that presumption of conformity has been achieved.

After two decades, the “New Approach” gained recognition and acceptance across many industrial sectors as a method for achieving the effective operation of the internal market in industrial products, while ensuring that minimum common technical standards are met. In order to improve the effectiveness of the regulatory framework under the New Approach Directives, the New Legislative Framework (NLF) was adopted in 2008. The aim was to retain the central tenets of the New Approach but to reinforce the regulatory system’s effectiveness, improve transparency and remove any remaining obstacles to the free movement of industrial products. In 2008, in order to support the NLF’s implementation, two EU regulations and a decision were adopted as part of a broad package of measures. In the area of harmonised products, the “Goods Package” consists of:

· Regulation (EC) No 765/2008 sets out the requirements for accreditation and market surveillance relating to the marketing of products and Decision 768/2008/EC on a common framework for the marketing of products. The Regulation applies to harmonised products; and

· Decision 768/2008/EC on a common framework for the marketing of products. The Decision lays down common principles and reference provisions. This includes harmonised definitions and general obligations for economic operators, rules for CE marking and a “menu” of conformity assessment procedures. The Decision provides a general framework for future legislation which will harmonise the conditions for placing products on the market.

1.3.3 The Alignment Package

On 21 November 2011, the Commission adopted an “Alignment Package” to align nine Directives with the common rules and approaches outlined in the NLF, taking into account the “toolbox” set out in Decision 768/2008/EC, namely: Low Voltage Directive (2006/95/EEC), Electromagnetic Compatibility Directive (2004/108/EC); ATEX Directive (94/9/EC); Lifts Directive (95/16/EC); Simple Pressure Vessels Directive (2009//105/EC); the Measuring Instruments Directive (Directive 2004/22/EC); Non-automatic Weighing Instruments Directive (2009/23/EEC); Civil Explosives Directive (93/15/EEC); and Pyrotechnic Articles Directive (2007/23/EC). In addition, there are a number of other Directives subject to a broader revision that includes an alignment to the model provisions of Decision 768/2008/EC.[18].

1.3.4 Non-harmonised products

Until 2008, the mutual recognition principle was implemented under Decision 3052/95/EC. Regulation (EC) No 764/2008, also known as the Mutual Recognition Regulation, provides a common framework for mutual recognition in the area of non-harmonised products. This relates to the application of the mutual recognition principle in the area of non-harmonised products. Regulation 764/2008 complements two other pieces of EU legislation:

· Directive 98/34/EC[19] and the TRIS notification procedure - which requires the Member States to notify the Commission and each other of any draft ‘technical regulations’ for products before they are adopted in national law; the Directive is a preventive measure that allows the Commission and Member States to verify that any new technical rule is compatible with EU law before it is adopted; in contrast, the Regulation 764/2008 is a corrective measure that ensures the correct enforcement of national rules on a case-by-case basis; and

· The General Product Safety Directive,[20] which requires the safety of all consumer products to be assessed in accordance with European standards, Community technical specifications, codes of good practice, the state of the art and expectations of consumers; except where national rules apply, the Directive applies to all consumer products (whether harmonised or not), whilst Regulation 764/2008 applies to all non-harmonised products (whether likely to be used by consumers or not). Through the new Product Safety and Market Surveillance Package, a new proposed regulation is expected to replace the 2001 GPSD by 2015.

Approximately 25% of intra-EU trade is in the non-harmonised product area. In the absence of Union harmonisation legislation, each Member State can adopt its own national technical rules in relation to issues such as weight, size, composition, labelling and packaging or, indeed, to apply no rules at all. National legislation must still comply with the requirements of Articles 34–36 of the Treaty on the Functioning of the European Union (TFEU).  In order to prevent national technical rules from inhibiting trade, the TFEU also forms the basis of the “mutual recognition” principle. According to Articles 34-36, Member States are obliged to accept products lawfully marketed in another Member State (and which are not subject to EU harmonisation legislation) even when the product does not fully comply with the technical rules of the Member State of destination.  Since 2008, the NLF has helped to drive the modernisation agenda to ensure that IM legislation for industrial products is fit for purpose and that present inconsistencies are eliminated. Following the adoption of the two Regulations and Decisions mentioned earlier concerned with setting out a common regulatory framework and common arrangements for market surveillance and accreditation measures, there have been a series of further developments that form part of the NLF and its follow-up.

1.3.5 Product Safety and Market Surveillance Package

In order to improve consumer product safety and to strengthen market surveillance of products on the internal market, the Commission proposed a new package of legislative and non-legislative measures, the “Product Safety and Market Surveillance Package” on 13 February 2013. This builds on the overarching framework provided by the NLF.

The PSMSP consists of a number of elements, namely a Proposal for a Regulation on consumer product safety, replacing Directive 2001/95/EC on general product safety; a Proposal for a Regulation on market surveillance of products, a Multi-annual plan for market surveillance until the expected coming into force of the Regulations in 2015. The final part is an implementation report on Regulation (EC) No 765/2008 setting out requirements for accreditation and market surveillance relating to the marketing of products. Overall, the Package is intended to enable better coherence of the rules regulating consumer products identification and traceability and improved coordination of the way authorities check products and enforce product safety rules across the European Union. More specifically, the Commission highlights a number of key changes to be introduced by the Package:

· Alignment of the general obligations of economic operators to ensure the safety of consumer products with clearer responsibilities for manufacturers, importers and distributors;

· More effective tools to enforce safety and other product-related requirements and to take action against dangerous and non-compliant products through a single set of rules for market surveillance;

· Creation of a more co-operative system of market surveillance across the EU; and

· Streamlined procedures for the notification of dangerous products and synergies between the existing Rapid Alert Information System (RAPEX) and the Information and Communication System for Market Surveillance (ICSMS).[21]

The proposed Regulation on the Market Surveillance of Products responds to the confusion said to be caused by the current “three-tier” system of market surveillance which results from the fact that market surveillance rules and obligations for economic operators are laid down in several different pieces of EU legislation. For example, the General Product Safety Directive[22] creates overlaps in relation to harmonised products intended or likely to be used by consumers. Such overlaps have been criticised by the European Parliament and stakeholders in industry and national administrations. In order to improve the effectiveness of the regulatory regime, the proposed Regulation would merge the rules on market surveillance of the General Product Safety Directive, Regulation (EC) 765/2008 and many sector-specific pieces of Union harmonisation legislation into a single legal instrument that applies horizontally across all non-food sectors. There would be no distinction between consumer and professional products or between harmonised products and non-harmonised products for the purposes of market surveillance.

2. Evaluation framework and typology of regulatory simplification 2.1 Evaluation questions

The specifications for this evaluation set out a number of high-level evaluation issues under the headings of (i) relevance and coherence (ii) efficiency (iii) effectiveness and fitness for purpose and (iv) impacts. In the following table, we summarise the evaluation questions (EQs) that have been considered by the evaluation. In order to address the overall objectives of the evaluation, it has been necessary to revise some of the questions set out in the task specification and to introduce additional questions.

Table 2.1: Evaluation Questions

No. || Evaluation Question

|| Relevance and Coherence – Section 3

EQ1 || · Is harmonised product legislation (supported by voluntary technical standards) a relevant response to the problems and needs identified in the intervention logic?

EQ2 || · Are directives the most suitable legal instruments for the purposes of technical harmonisation in the relevant fields or should directly applicable regulations (requiring little or no transposition) be used?

EQ3 || · Is there evidence of gaps, loopholes, inconsistencies and duplication across Union harmonisation legislation and in the corresponding administrative requirements for economic operators?

EQ4 || · How coherent is the approach to definitions and product scopes in the various legal texts? (e.g. components, spare parts)

|| Efficiency of the implementation regime – Section 4

EQ5 || · What is the overall picture in relation to the efficiency of IM procedures, mechanisms and structures to support its implementation?

EQ6 || · How efficient is the conformity assessment process?

EQ7 || · How well do Notified Bodies serve the conformity assessment process

EQ8 || · Are conformity assessment bodies sufficiently regulated or are more stringent rules are needed?

EQ9 || · Is it appropriate to allow different elements of a conformity assessment to be performed by different bodies?

EQ10 || · What are the challenges for national competent authorities in monitoring the activities of Notified Bodies located outside the EU? How far is it appropriate – if at all – to open up Europe’s conformity assessment market to third countries?

EQ11 || · Should third-party conformity assessment be required for all industrial products?

EQ12 || · What are the benefits of accreditation for enhancing the single market for products (and services) and how could it best be used to support single market initiatives?

EQ13 || · Should accreditation be made compulsory for the purposes of demonstrating the technical capacity of conformity assessment bodies in the regulated sector?

EQ14 || · Is the current regime for the Declaration of conformity satisfactory?

EQ15 || · Is the current regime of CE marking satisfactory? Are there ways to improve the interaction between CE marking and other compulsory and voluntary markings enshrined in EU legislation?

EQ16 || · What contribution is made by support and co-ordination mechanisms such as Administrative Co-operation Working Groups and Product Contact Points?

EQ17 || · What are the main challenges facing market surveillance authorities?

EQ18 || · How effective is the co-operation between market surveillance authorities?

EQ19 || · Should non-harmonised/non-consumer products be covered by common EU market surveillance rules?

|| Costs of Compliance and Scope for Simplification - Section 5

EQ20 || · What steps do firms take to ensure compliance with IM legislation? What costs do they incur?

EQ21 || · How far is there scope for administrative and regulatory simplification of Union harmonisation legislation? To what extent is there scope for merging different directives?

EQ22 || · How far will administrative simplification bring about benefits for economic operators in terms of reduced administrative burdens?

EQ23 || · To what extent can the benefits of administrative simplification be quantified?

EQ24 || · What benefits from simplification can be identified for the wider economy?

|| Effectiveness and Impacts – Section 6

EQ25 || · What, if any, are the barriers (regulatory/ non-regulatory) to the effective functioning of the internal market for industrial products stemming from IM legislation for industrial products?

EQ26 || · Are there specific regulatory barriers to the development and free movement of innovative products, including products integrating key enabling technologies (KETs)? Are there any legal gaps not already covered by IM legislation for industrial products?

EQ27 || · Are there specific regulatory barriers to the development and free movement of green products? Are there any legal gaps not already covered by IM legislation for industrial products?

EQ28 || · To what extent is legislation adapted to the challenges presented by e-Commerce?

EQ29 || · How are SMEs (micro, small and medium-sized) affected by IM legislation for industrial products and how do they cope with the requirements? Is there scope to alleviate the burden on the different SME categories without compromising the overarching objectives of the legislation?

EQ30 || · Are there barriers to trade stemming from the way legislation handles the relation between services and products which are part of the same value chain?

EQ31 || · The specific situation of business-to-business (B2B products) which are developed and supplied to be used by professionals for the development of other products: Do these products require a special treatment?

EQ32 || · Overall, how effective is IM legislation for industrial products as a mechanism and means to achieve the objective of improving the functioning of the internal market?

EQ33 || · Overall, how effective is IM legislation for industrial products as a mechanism and means to achieve the objective of ensuring a high level of health and safety and consumer protection?

EQ34 || · Overall, how effective is IM legislation for industrial products as a mechanism and means to achieve the objective of ensuring a high level of environmental protection?

2.2. Intervention logic 2.2.1   Problem definition and identification of needs

The starting point was to define the problems and needs that Union harmonisation legislation seek to address. The counterfactual situation prior to the introduction of harmonised technical product regulations at EU level was also considered. Prior to the introduction of the internal market for industrial products, there was significant market fragmentation due to there being different national legislation and technical standards in different Member States. There were regulatory barriers to cross-border trade and customs tariffs. There were practical barriers to exporting industrial products, and it was more difficult to find out what national legislation was applicable in another Member State.

Prior to the advent of an internal market in industrial products, there was a lack of a level playing field and fair competition since national regulations and administrative requirements were more burdensome in some EU countries than in others. In some cases, such as machinery, there was the absence of a national equivalent to the Machinery Directive. In order for industry and SMEs to benefit from the potential economies of scale that stem from the elimination of barriers to cross-border trade, there was a need for technical harmonisation measures.

2.2.2 General, specific and operational policy objectives

The general objectives underlying IM legislation for industrial products are set out in Article 114 of the Treaty (TFEU). This provides the legal basis for the adoption of approximation measures. In adopting such approximation measures, Union harmonisation legislation should ensure a high level of protection as regards safety and health, environmental and consumer protection.

A number of specific objectives then relate back to these overarching general objectives, such as in the case of harmonised products: ensuring access to the internal market and fair competition; developing harmonised rules across the EU for placing products on the market, preventing unsafe and unhealthy products entering the market, etc. The circulation of non-harmonised industrial products is intended to be ensured by the application of the mutual recognition principle. Under the goal of environmental protection, the Industrial Policy Communication (COM(2010) 614) also mentions the role of IM legislation in promoting a more resource-efficient and sustainable European economy.

Balancing the economic objectives relating to the internal market are the social and environmental objectives within Article 114 relating to the prevention of unsafe and unhealthy products from entering the market and the minimisation of harmful environmental impacts. Whilst not incompatible with the internal market objectives, these objectives reflect the need to protect against a “race to the bottom”, whereby producers of harmful products are able to undercut other producers. Here, clearly the adoption of recent IM Directives such as the Ecodesign Directive and energy labelling requirements has potential to contribute to this objective.

Although Article 114 provides the sole legal base for Union harmonisation legislation, the effective implementation of Union harmonisation legislation should also contribute – albeit indirectly - to the achievement of EU industrial policy objectives. Article 173 (TFEU) provides the basis for EU industrial policy and is an important part of the wider policy backdrop. However, since IM legislation does not differentiate between European economic operators and those from third countries, since it is concerned with ensuring a level playing field within the internal market, industrial competitiveness is a subsidiary objective.

Operational objectives provide the basis for evaluating the immediate activities and effects associated with Union harmonisation legislation. They relate to concrete actions taken at EU level, including formal activities, namely i.e. introducing directives and regulations and setting standards, as well as defining administrative requirements. For instance, Regulation (EC) 764/2008 establishes a framework for the implementation of the mutual recognition principle and mechanisms for non-harmonised products to be recognised, Decision 768/2008/EC provides a common framework for the marketing of products. They also include “soft” interventions, including providing practical support to industry and promoting harmonisation with global trading partners.

2.2.3 Intervention logic mapping diagram

An intervention logic diagram is provided on the following page (Figure 2.1) setting out the hierarchy of objectives. This ranges from the general (strategic) policy objectives through to specific and operational objectives. In the next sub-section, we describe the specific mechanisms by which the objectives are pursued.

Figure 2.1: Intervention logic - IM legislation for Industrial Products

2.2.4 Division of competence between the EU and national levels

At EU level, the European Commission is responsible for the development of Union harmonisation legislation for industrial products and its periodic review and revision. It also has an important overarching role in monitoring and evaluating its implementation. The Commission is also responsible for mandating EU standardisation bodies to develop technical standards and for setting up appropriate mechanisms and support structures to ensure its effective implementation. It is also responsible for coordination aspects relating to market surveillance.

In order to strengthen the effectiveness of IM legislation and its implementation, a number of different institutional mechanisms have been set up at EU level, such as ADCO Groups and Notified Bodies Groups. These promote information exchange and facilitate the discussion of the main challenges in the implementation of Union harmonisation legislation. In addition, information tools have been developed to support the implementation regime, such as the NANDO Database of Notified Bodies across EU28 and the ICSMS, the internet-supported information and communication system for the pan-European market surveillance. Furthermore, EU guidance documents have been developed for economic operators as to how to ensure more effective compliance with IM regulations (Blue Guide, specific legislation).

Turning to the national level, a number of mechanisms and structures that support the implementation of Union harmonisation legislation are the responsibility of the Member States. Member States are responsible for the development of national implementing rules and for nominating the necessary competent authorities, and have responsibility for designating Notified Bodies – including determining whether accreditation mechanisms are required and for monitoring the operation of NBs. Further responsibilities include the provision of support and guidance to economic operators to ensure effective implementation, market surveillance and enforcement.

In the non-harmonised area, Member States are required to follow a notification process where they consider that products should not enter their national market, to establish national product contact points and to submit an annual report on implementation. Product Contact Points also provide information and guidance since 2008.

Finally, manufacturers and other economic operators are expected to comply with requirements and follow the various conformity assessment procedures while at the same time – mainly through the industry associations – participate in the development of technical standards and the working groups set up to monitor the implementation of IM legislation. Other relevant stakeholders – e.g. consumer, environmental groups and trade unions – also participate in this process.

For all these activities, the Commission, the Member States, industry and stakeholders all dedicate certain resources in the form of human and financial inputs. The level of these inputs has a significant effect on the overall efficiency of the legal framework. An assessment of how effective a role is being played by the various institutional actors involved in supporting the implementation of Union harmonisation legislation is provided in Section 4 (efficiency).

2.2.5 Mechanisms and structures

The implementation of Union harmonisation legislation is underpinned by a number of mechanisms and structures that help to ensure effective implementation. These are summarised below, with a distinction between EU and national level implementation, monitoring and enforcement activities:

EU level - Harmonised products

· Mandate EU standardisation bodies to develop technical standards

· Review and evaluate implementation of legislation and propose amendments /changes to Directives and Regulations to reflect technological developments, address implementation problems and economic and technical feasibility

· Create Notified Body coordination groups

· Develop information/support structures to assist industry and stakeholders in implementation of legislation (e.g. NANDO, ICSMS online information and communication system for pan-European market surveillance)

Non-Harmonised products

· Third countries

· Conclude Mutual recognition agreements to reduce costs of testing and certification in other markets

National Level (Member States)

· Appoint national competent authorities in respect of specific IM legislation

· Appoint national Accreditation Bodies

· Transpose EU Directives into national legislation

· Designate Notified Bodies to carry out conformity assessment

· Establish national Accreditation Bodies to accredit Notified Bodies

· Conduct monitor and enforcement activities to ensure compliance with the legislation

· Communicate to other Member States decisions (notify) for approval, withdrawal of products

· Lay down rules and penalties for non-compliance

· Participate in support/coordination structures/groups (ADCOs)

· Develop support structures for industry (industry)

Non-harmonised products

· Operating Product Contact Points

· TRIS notification system (98/34 notification procedure)

· Submit annual reports on implementation of Regulation 764/2008

Industry and stakeholders

· Comply with legal requirements

· Participate in support structures for development of technical standards

· Participate in working groups monitoring the implementation of legislation (e.g. ADCOs, Notified Bodies Groups)

The human resources required at EU and national level in order to promote an effective internal market in goods form an important part of the intervention logic since they are the processes that need to be implemented efficiently in order to bring about the effective implementation of IM legislation. An assessment as to how effective some of the different aspects of the framework for the implementation of IM legislation for industrial products (including the role of different institutional actors) is explored in Section 3 of this report (efficiency).

2.2.6 Effects and impacts

The final stage in the logic mapping was to assess the full and effective implementation of IM legislation for industrial products in order to check what sort of effects and impacts should materialise at different levels, namely:

· Effects on economic operators - strengthened access to the internal market and global markets, leading to greater economies of scale and enhanced firm-level competitiveness, cost-efficiencies through regulatory and product convergence at European level and to some extent also globally.

· Effects on users and consumers - reduce incidence of non-compliant products placed on market, promoting more sustainable consumption

· Impacts on the internal market – such as promoting an increase in intra-EU trade, strengthening market access, promoting fairer competition and a level playing field

· Impacts on health, safety, the environment and consumer protection – through the setting of essential requirements, IM legislation’s effective implementation should help to prevent unsafe and unhealthy products from being placed on the market, and the environmental impacts of products should be minimised.

· Wider impacts on industrial competitiveness and innovation – although not explicit objectives in the legal base, Union harmonisation legislation has the potential to strengthen competitiveness, e.g. through the promotion of industry consolidation with manufacturing firms being able to operate across the internal market, rather than in national markets, with greater economies of scale, effects from the development of a body of Union harmonisation legislation in promoting global regulatory convergence and convergence in technical standards, enhanced take-up of innovation and RTD results (through a technology-neutral approach).

The extent to which the different types of effects identified through the logic mapping have been substantiated through the research is examined later in this report, in particular in Section 6 (effectiveness and impacts).

2.3 Typologies of simplification and support measures

The Commission has sought to make improvements to strengthen the coherence and effectiveness of internal market legislation and the support structures and mechanisms that support its implementation at EU and national levels. This has been achieved through the framework of the NLF (and the current Alignment Package) with an effort to modernise the legal framework and to promote greater consistency between different IM legislation in order to reduce administrative burdens for economic operators. In addition, through periodic reviews and recasting of individual IM directives and regulations, efforts have been made to promote regulatory simplification.

A typological framework was developed in order to assess what steps have already been taken towards regulatory and administrative simplification, and to strengthen the implementation of Union harmonisation legislation through measures and support actions. This was an essential step in order to be able to examine the future scope for further simplification measures and possible measures to strengthen efficiency and effectiveness more generally. The typology consists of three main aspects:

· Regulatory simplification measures relating to Union harmonisation legislation for industrial products (horizontal and vertical/ sectoral legislation);

· Administrative simplification measures (for economic operators, national authorities and market surveillance actors); and

· Non-legislative support actions that strengthen the efficiency and effectiveness of regulatory implementation and the enforcement and monitoring of IM legislation.

The validity of this typological framework has been tested through the research. Examples of existing simplification measures have been identified and analysed in the sections dealing with efficiency and effectiveness respectively (Sections 4 -6). The mapping was a crucial starting point in exploring the potential scope for further simplification. The typology provides a framework for presenting the conclusions and recommendations relating to simplification measures.

2.3.1 Regulatory simplifications and clarification measures

Regulatory simplifications can take different forms such as:

· Changing the structure of legislation relating to the internal market for industrial products - the possibility of a horizontal regulation to replace Decision 768/2008; overcoming regulatory fragmentation in market surveillance by combining different pieces of legislation;

· Merging different directives or regulations – combining different directives or regulations where there is scope to do so e.g. Machinery Directive and Outdoor Noise Equipment Directive;

· Updating IM legislation for industrial products using the same regulatory instrument – periodic reviews of legislation leading to the codification and recasting of individual directives and regulations, or groups of legislation aligned in parallel;

· Updating IM legislation through the use of a different regulatory instrument – transition from an EU regulation to a directive;

· Repealing EU legislation –in cases either where legislation has proven to be obsolete altogether, or where Union harmonisation legislation has been replaced by recast or codified IM legislation.

Simplifications and clarification measures can either be applied to individual pieces of legislation or to groups of regulations and directives through recasting and codification[23] exercises. Through the NLF, an effort has been made to promote regulatory simplification through the adoption of the common elements set out in Decision 768/2008 within the Alignment Package, without any major changes to the substance of the legislation. Where legislation has been updated, opportunities have been taken to provide clarity as to definitions, the scope (for instance, whether spare parts and components are included) and in making administrative requirements more consistent. The proposed typology of regulatory simplification measures relevant to IM legislation for industrial products is set out in Table 2.2, and is supported by concrete examples:

Table 2.2: Typology of regulatory simplification and clarification measures

Type of simplification measure || Simplification – short description and key benefits || Union harmonisation legislation

Changes to structure of IM legislation (horizontal) || Proposal for a horizontal Regulation on the Market Surveillance of Products (PSMSP). The proposal would bring into a single piece of legislation applying across all non-food sectors rules on market surveillance. Making the rules more accessible. Benefits Simplification of Union rules on market surveillance and reduced market fragmentation – combining market surveillance rules scattered across different legislation e.g. General Product Safety Directive, Regulation 765/2008 and sector-specific legislation into a single Regulation. || PSMSP - COM(2013) 74 final

Changes to structure of IM legislation (vertical) || Merging IM directives and regulations Merging IM legislation could help to maximise synergies, minimise overlaps and inconsistencies and reduce administrative burdens for economic operators. || · Machinery Directive (2006/42/EC) and Outdoor Noise Efficiency Directive (2000/14/EC)[24] · PED (97/23/EC) and SPVD (2009/105/EC) Directives · PED (97/23/EC) and transportable pressure equipment (99/36/EC) Directives

Updating IM legislation (using same regulatory instrument) || Recasting and codification of directives There is no fixed timetable for reviewing and recasting legislation. Periodic reviews of IM legislation provide an opportunity to review and simplify legislation and to apply lessons from practical experiences of the legislation’s implementation through recast directives. The New Legislative Framework (NLF) and alignment of groups of IM regulations Decision 768/ 2008 introduced a common framework for marketing products to ensure greater consistency between IM legislation. The Alignment Package will implement the NLF’s common approach across 9 directives (common definitions of economic operators, their obligations and responsibilities). || · Machinery Directive 89/392/EEC recast in 2006/42/EC · RoHS Directive 2002/95EC, recast (2011/65/ EU)[25] · PPE Directive 89/686/EEC, revision process on-going · R&TTE Directive 1999/5/EC revision process on-going with proposal for new “Radio Equipment Directive”

Updating IM legislation (using a different regulatory instrument) || Replacing directives with directly applicable regulations Benefits: no national transposition requirements with reduced scope for differences in interpretation between Member States, uniformity across the internal market, legal certainty for economic operators. || Examples of industrial product legislation where Regulations have replaced Directives: · Cosmetic Products Regulation (1223/2009/EC) · Construction Products Regulation (305/2011/EC) · Proposal for a Regulation on medical devices (COM(2012) 542

Repealing EU legislation || EU regulations can include periodic review clauses so that any which are no longer relevant or have become obsolete can be repealed. || IM legislation under the New Approach covers broad harmonised product areas

The updating of Union harmonisation legislation, through recasting and codification allows for clarifications to be made. This may include, for instance, clarifying the demarcations between directives, a clearer presentation of the scope and definitions of key terms, and updating the list of product groups falling within scope, widening and clarifying product exclusions, and taking into account industry developments and innovation, for instance, accommodating new product groups that did not exist when the legislation was first drawn up.

Given that there has already been a substantial amount of legislative revision across IM legislation for industrial products, it is worth an assessment as to the value of legislative review processes. Such improvements are not always concerned with simplifications, but are rather part of on-going efforts to improve the overall coherence and effectiveness of the regulatory framework.

Table 2.3: Clarifying legislation

Clarifying the borderline and delineation between Directives || The MD 2006/42/EC clarifies the borderline between the scope of the Machinery Directive and the Low Voltage Directive to provide greater legal certainty. It also sets out clearly the delineation between the MD and the Lifts Directive and ensures mutual exclusivity.

Clearer presentation of scope and definitions of the key terms || NLF: provides a clearer definition of the obligations for different economic operators e.g. manufacturers, importers and distributors. Previously, responsibility for product safety was entirely on manufacturers.

Widening and clarifying exclusions of products || EMC: the Directive allows the display & demonstration of non-compliant equipment at trade fairs, exhibitions etc. provided that a sign indicates that the equipment may not be marketed or put into service until it has been brought into compliance and that electromagnetic disturbances are avoided. EMC: Apparatus intended for a fixed installation and not otherwise commercially available may be exempt from the Declaration of Conformity, CE marking, etc. EMC: Where new editions become available and are to be applied it does not necessarily mean that a complete EMC re-assessment of an existing product is necessary. The evaluation may be restricted to those modifications directly affecting the apparatus concerned. R&TTE: radio receivers and fixed-line telecommunications terminal equipment will be excluded from the proposed new Directive and will instead fall within the scope of the EMC Directive and, depending on power supply voltage, either the Low Voltage Directive or the General Product Safety Directive. R&TTE: - the proposed new “Radio Equipment Directive” will introduce an exemption for components used for pre-production purposes not placed on the market.

2.3.2 Typology of administrative simplification measures

In order for the overall regulatory regime to work effectively, economic operators need to demonstrate that they have complied with the essential requirements set out in Union harmonisation legislation in order to achieve presumption of conformity. Since the adoption of the New Approach, and its subsequent evolution through the NLF, which will help to modernise Union harmonisation legislation itself, administrative requirements for economic operators have been set out in the legislation. Examples are CE marking requirements, which have been in place since 1993 indicating a product's conformity with EU legislation and the obligatory steps before a product can bear CE marking, such as producing a Declaration of Conformity (DoC).

Although in principle, administrative requirements for economic operators are clear (CE marking, DoCs, self-certification or third party conformity assessment depending on the IM legislation and safety risk involved), in practice, anomalies and differences between EU legal texts have emerged. This is partly due to the fact that the overall volume of legislation has increased, and the fact that legislation has evolved piecemeal. This was explicitly recognised through the adoption of the NLF in 2008, which provides a framework for coordination and ensuring a more common approach.

Requirements for DoCs currently vary between Directives in relation to information that needs to be provided, and whether the DoC needs to be placed together with the product or can be in the accompanying manual alone. The date when a product is considered as having been placed on the market may also vary. In some instances, products are considered as being on the market from the date of publication of an information notice in the EC Official Journal (OJ) whereas for other IM legislation, presumption of conformity applies from the date when the DoC is signed off by the manufacturer. The review allowed us to identify different types of administrative simplification measures. The typology includes examples of simplifications that have been introduced through the NLF, and examples of administrative simplifications specific to particular IM directives or regulations.

Table 2.4: Typology and examples of administrative simplification measures

Type of administrative simplification || Examples

Common approach to conformity assessment || The NLF (Decision 768/2008): common approach across Union harmonisation legislation to conformity assessment through a standard suite of modules with a new more consistent lettering system. These are gradually being integrated into IM legislation, for instance through the Alignment Package Legislators can choose from these modules in drawing up IM legislation. Art. 4 refers to the need to “avoid imposing modules which would be too burdensome in relation to the risks covered by the legislation concerned”.

Standardised template and information requirements for DoCs || The NLF (768/2008) sets out common procedures for producing DoCs and a standard format across different applicable IM legislation.[26] The NLF also provides a suggested standard template for a DoC.

Removal of requirement to notify placing on the market || R&TTE: a revision in the proposed new Radio Equipment Directive to remove the requirement to notify the placing on the market of equipment using frequency bands which are not EU-wide harmonised.

Identification of apparatus || EMC: There is flexibility in the requirement that apparatus be identified by “type, batch, serial number or any other information allowing for the identification of the apparatus”, allowing the manufacturers to choose their own means of identifying an apparatus for regulatory purposes.

Unused administrative provisions (i.e. choosing not to enforce them) || R&TTE: the relevance of some of the administrative provisions in the Directive has been questioned, e.g. various kinds of small equipment such as RFID tags or cochlear implants, emit radio signals that are unlikely of causing harmful interference.[27]

Lighter regime for SMEs || CPR: offers simplified procedures for the drawing up of declarations of performance for SMEs. However, concerns about how this operate in practice.

Lighter requirements on technical documentation || EMC: Declaration of Conformity and technical documentation to be made available on request does not need to be an original document but can be a copy. Technical documentation can be kept in any format, for example as a hard copy or CD-ROM.

Electronic processes, e.g. forms, reporting, notification procedures, NANDO || CPR: allows use of electronic forms for the submission of information and of online databases for registering products.

2.3.3 Typology of non-legislative support actions

The third strand of the typology (in addition to regulatory and administrative simplifications) is non-legislative support actions. There are many examples of support actions and these help to promote the efficient and effective implementation of Union harmonisation legislation. These are essential in closing the “gap” between formal legislative texts and the situation on the ground. The table below provides a typology of non-legislative support actions, supported by examples.

Table 2.5: Typology of non-legislative support actions

Types of non-legislative support actions || Examples

Information, guidance, advice and publicity (customised to difference audiences) || · Guidance and handbooks, e.g. EU Blue Guide covering Union harmonisation legislation (2000, with revision during 2013) · Guidance on individual harmonised directives and regulations (EU, sometimes also national) · Website information – e.g. DG ENTR and national competent authority websites responsible for specific harmonisation legislation · Expert groups · Technical assistance visits and consultations · Communication campaigns

Coordination of activities between Member States || · GRAS-RAPEX · Coordination of cross-border surveillance activities · Joint enforcement · European cooperation on market surveillance (e.g. ADCO)

Pooling of information, experience and expertise || · EU-level dialogue bodies · Portability of test reports · Collection of information on enforcement, etc. · Databases, e.g. ICSMS, public platform for complaints and injuries · Traceability systems and information · Exchanges of officials, e.g. market surveillance authorities

Common methodologies || · EU general risk assessment methodology for products · Common approach to market surveillance of e-commerce · Common risk-based approach to customs product safety and compliance controls

Benchmarking || · Performance Benchmarks for market surveillance

Studies and research || · Feasibility studies · Impact assessments and evaluations · Stakeholder and public consultations

A number of stakeholders at EU and national level have an important role to play in implementing support actions. These may be taken by the Commission at EU level or by national authorities at Member State level. The Commission has a vital role in terms of ensuring overall coordination of support actions. It is also directly involved in some activities, such as the development of non-binding guidance on the application of IM legislation and in ensuring that cumulative experiences of implementing legislation are built into this guidance (e.g. Blue Guide, specific guidance).

National authorities, notably competent authorities and market surveillance authorities are also involved in implementing support actions on the ground, for instance in communication, awareness-raising and information campaigns about administrative requirements for economic operators (manufacturers, distributors & importers), especially SMEs. Market surveillance authorities may also launch dedicated campaigns about specific issues, for instance, problems relating to non-compliant products and/ or documentation, awareness-raising about impending deadlines e.g. timescales for different thresholds of chemical products within the REACH Regulation coming into force.

Sectoral bodies and industry associations may also implement actions in support of their members. One of the advantages of non-legislative support actions is that they do not need to be negotiated or require legislative changes. Some care is needed in their design and use, since support actions do not replace the requirements of the legislation; they should help clarify rather than contradict the legislation. Among the wider target audience of such measures are: end-users & consumers, researchers and the media.

In Sections 3 – 6, we set out the detailed findings from the evaluation research. The analysis draws on a number of data and information sources, namely desk research, online survey work, an analysis of the results of the Your Voice Consultation, an extensive interview programme and ten product case studies. At the end of each sub-section, we list the main Research Findings (RFs) that have emerged from the analysis of the evidence presented. These numbered RFs have in turn informed the overall conclusions in Section 7, thus ensuring that each conclusion is evidence-based.

3. Relevance and coherence of Internal Market Legal Framework

The relevance and coherence of Union harmonisation legislation were assessed through the evaluation. Among the issues considered were whether the intervention logic is appropriate and meets the identified needs of economic operators, consumers and end-users, whether directives or regulations are the most appropriate regulatory instrument for IM legislation for industrial products to achieve key objectives, and the overall coherence of the regulatory framework.

3.1 Relevance

EQ1: Is harmonised product legislation a relevant response to the problems and needs identified through the assessment of the intervention logic?

Technical product harmonisation legislation which sets essential requirements that avoid being too prescriptive, supported by voluntary harmonised technical standards, has been a highly relevant mechanism for the achievement of the objectives set out in Article 114 of the TFEU. Technical approximation measures were viewed by industry and national authorities as an appropriate mechanism for ensuring an effectively functioning internal market with high levels of product safety and health, environmental and consumer protection. However, ensuring that the implementation of legislation leads to the achievement of such objectives relies on effective market surveillance to ensure that non-compliant products are not placed on the market (see sections on efficiency and effectiveness).

In assessing the relevance of technical product harmonisation legislation, the “counterfactual” situation was considered i.e. problems that existed prior to the adoption of Union harmonisation legislation under the New Approach and the establishment of an internal market in industrial products. As is well documented in the seminal Cecchini studies in the late 1980s[28] and in subsequent studies to assess the benefits of the internal market[29], the situation prior to the adoption of the internal market was characterised by regulatory fragmentation and legal uncertainty for economic operators, with different national technical regulations and standards for industrial and consumer products across EU12[30]. The New Approach Directives provided a mechanism for addressing these problems through a common, harmonised EU-wide approach to meeting the essential requirements. This was highly relevant to achieving the objectives of an effectively functioning internal market in products, with a level playing field and fair competition for economic operators.

Prior to the adoption of Union harmonisation legislation, each Member State imposed obligations on economic operators in the interests of safety, health and consumer protection. This meant that there were considerable regulatory and non-regulatory barriers to trade in goods because of the different requirements in different countries.

This meant that economic operators had to treat each EU Member State as a separate market, with its own rules. Although difficult to quantify, doing business on a cross-border basis in this operating environment imposed considerable regulatory compliance costs on economic operators. The adoption of successive vertical and horizontal Union harmonisation legislation was therefore highly relevant to addressing the identified needs of European industry. IM legislation for industrial products has been a highly relevant instrument to address the needs of economic operators. The approximation of product legislation through internal market legislation has been relevant in promoting industrial competitiveness because regulatory convergence at EU level (supported by voluntary technical standards) has made it easier for economic operators to access the whole internal market. It has promoted access to new markets within the internal market, promoted economies of scale and industry consolidation, led to fairer competition and a level playing field between economic operators.

In some instances, no national regulatory frameworks were in place prior to the adoption of EU legislation, therefore harmonised IM legislation addressed regulatory gaps enabling economic operators to develop a larger market for their products, while ensuring high levels of product safety and protection. For instance, until the adoption of the Machinery Directive in 1989, many national legal frameworks did not sufficiently regulate the safety and usage of electrical and mechanical machinery, despite the high level of risk involved for those operating such machinery. In these sectors, EU legislation largely preceded the development of national legislation, which was relevant in preventing the emergence of different national regulations which would otherwise have led to higher administrative burdens for regulatory compliance for economic operators.

Feedback through the interview programme from across the broad spectrum of stakeholders in the area of internal market legislation for industrial products confirmed that overall, there was broad satisfaction with the overall regulatory framework and with recent efforts to modernise and strengthen it, most notably through the NLF. An industry association commented that “IM legislation is effective because it sets out common requirements for placing products on the market and eliminates barriers to the free movement of the products. It is also very effective in ensuring common minimum standards”. While there is always scope to improve the efficiency and effectiveness of IM legislation for Industrial Products, from a relevance perspective, the regulatory framework is considered to be relevant to identified needs in that it is flexible, responsive and often used as a model for the development of industrial product regulation globally.

Overall, the intervention logic underpinning the regulatory framework - and the link between different levels of objectives - is broadly coherent. It allows the development of appropriate pieces of legislation that can facilitate the functioning of the internal market whilst offering protection for consumers, health and safety and the environment. Since the internal market in industrial products is crucial to the creation of growth and jobs, there may be scope to include broader policy objectives relating to competitiveness and innovation. An area of the logic behind Union harmonisation legislation that is less coherent is the lack of a policy as to whether directives or regulations are the most appropriate mechanism for achieving objectives. This question is addressed in detail below.

Research Findings (RFs):

· (RF1) The situation prior to the adoption of Union harmonisation legislation was characterised by regulatory fragmentation with different national regulations and technical standards for industrial products across EU12.

· (RF2) Prior to the adoption of Union harmonisation legislation, there were many gaps in the regulation of products posing a potential risk to health & safety, consumer protection or environmental protection.

· (RF3) In the absence of Union harmonisation legislation, economic operators would face barriers to trade and higher costs as a result of different national regulatory regimes for many products.

· (RF4) In the absence of Union harmonisation legislation, there would be potential risks to health & safety, consumer protection or environmental protection, in cases where national regulatory regimes were inadequate.

3.2 Coherence of instruments 3.2.1 Directives or regulations? EQ2: Are directives the most suitable legal instrument for the purposes of technical harmonisation or should directly applicable regulations be used?

Introduction

Since the New Approach[31] was adopted in 1985, more than 30 harmonised pieces of internal market legislation have been adopted, the majority of which were EU directives, which were the preferred regulatory instrument during the early stages in the development of Union harmonisation legislation, when the internal market for products was less integrated, and there was a need to allow for greater flexibility during national transposition. In the past 10 years, however, the use of regulations has become more common when new legislation has been introduced (e.g. REACH Regulation, 2006, Fertiliser Regulation, 2003).  Moreover, following periodic legislative revision processes to recast legislation, a number of pieces of internal market legislation that were formerly Directives have been recast as Regulations. Examples of Directives that have evolved into Regulations are the EU Cosmetic Products Regulation (1223/2009/EC), the Construction Products Regulation (305/2011/EC) and the Proposal for a Regulation on Medical Devices (COM(2012) 542).

According to feedback from the Commission obtained through this study, among the reasons for this trend are that there is now longstanding experience of implementing New Approach Directives under harmonised product rules and the internal market for industrial products is much better integrated. There is consequently greater support among stakeholders for harmonisation to be supported by an appropriate regulatory instrument that avoids minor divergence in transposition when directives are transposed into national legislation. The use of regulations rather than directives by the Commission has not explicitly been stated as a Commission policy due to the need to retain flexibility. The most appropriate regulatory instrument is given due consideration as part of impact assessment processes prior to the introduction of new, and the revision of existing legislation. 

Advantages and disadvantages of Directives

Harmonisation directives set out the legal framework and essential requirements while leaving Member States flexibility to adopt national implementing rules to achieve the legislation’s general objectives. A summary of the advantages and disadvantages of directives is now provided, followed by examples of stakeholder feedback as to the merits and drawbacks of using directives:

Table 3.1: Advantages and disadvantages of directives

Directives - advantages

Flexibility for Member States as to how European legislation should be transposed into national legislation, for instance as regards: · Whether national implementing provisions should be incorporated into new legislation at national level, or through the modification of existing legislation. · The form and national legal instrument used in transposition, which is left up to Member States (Article 288 TFEU). There is no obligation to create a single national measure where all the provisions are located. · The transposition process into national legislation provides an opportunity for national competent authorities to strengthen their knowledge about the specific implementation details of each Union harmonisation directive. This helps to build capacity before legislation is implemented, since national implementing rules are needed irrespective of which regulatory instrument is used. · Flexibility for Member States as to whether particular product groups designated as being of lower risk should be excluded from scope (e.g. optionality clause under the MID). This would be difficult to achieve through regulations.  

Directives - disadvantages

· Minor regulatory divergences - directives help to ensure a minimum level of harmonisation across the EU, but there is minor divergence in the interpretation and application of legislation between Member States in some instances.  · Lack of synchronised timing across EU28 of the entry into force of Union harmonisation directives. · Most manufacturers do not use national legal texts but refer to European legislative texts on product safety and to the applicable European technical standards. This was seen as leading to duplication in legal texts, whilst resources could be better used elsewhere. · There is a perception – albeit a largely erroneous one - among some economic operators, that some Member States impose additional national requirements through gold-plating · The risk that a two tier approach as regards consumer and safety protection may emerge if Member States use the ‘optionality clause’[32].

The feedback gathered through the research in relation to the advantages and disadvantages of Directives are now examined in further detail.

Stakeholders in some Member States were in favour of retaining Directives as the main regulatory instrument to implement Union harmonisation legislation. For instance, a market surveillance authority in Germany commented that “Directives provide extra room for manoeuvre through the transposition process into national legislation and the development of national implementation rules. Directives work well for sectoral (or “vertical”) Directives such as the Machinery Directive, LVD and the Outdoor Noise Directive”. A market surveillance authority in France commented that “Directives are a better legal instrument, since national implementing rules are required for the effective application of internal market legislation at national level. Regardless of the instrument, public administrations still need to be nominated as competent authorities".

A national body in charge of metrology in Spain commented that Directives are preferable for the MID. “The optionality clause is useful since it provides the option of not regulating products that are not considered to be of serious concern to safety and consumer protection in each EU country”.  The same interviewee also stressed that the transposition process provides an opportunity to build knowledge and capacity among relevant national competent authorities about forthcoming Union harmonisation legislation.

 A government Ministry interviewed in the Netherlands stated that the question of the relative merits and drawbacks of directives and regulations respectively is complex. Whilst at first sight, regulations appear to be a more effective instrument because they are directly applicable, national legislation still sometimes has to be adjusted and national implementing regulations drawn up.

As regards the disadvantages of using directives, a number of interviewees have pointed to regulatory divergence in the application of Union harmonisation legislation due to minor differences following national transposition processes in the interpretations and/ or application of the law.  A detailed assessment as to the effectiveness of national transposition was outside the study scope (see Section 1.2). However, since the issue of the merits and drawbacks of the use of regulations and directives was one of the evaluation questions, we have considered this issue in general terms.

Evidence from the interview programme, Your Voice Consultation and CSES online surveys found that stakeholders perceive there to be regulatory barriers due to differences between Member States in national interpretation and in the application of IM rules[33] However, only a few detailed examples were provided as to these barriers (see Section 4 – efficiency).

  Some national competent authorities stated that there was less scope for divergent interpretation in the national transposition of Union harmonisation directives than in other areas of EU legislation due to the nature of such approximation laws. Moreover, those that downplayed the significance of minor divergences in the transposition and interpretation of legislation pointed out that many Member States have transposed European legislation in a way that text that remains close to the original spirit and intention of the law.

A major industry association in the electronics and IT sectors commented that “The transposition process can create problems, and requires industry to engage in active monitoring of how legislation has been implemented into different national laws, and any translation issues that may result in misapplication of IM legislation. However, the internal market should be a single legal jurisdiction”.A further drawback mentioned by interviewees relating to the use of directives is the difficulty in ensuring synchronised timing of the entry into force of IM legislation, since transposition processes mean different timelines in each Member State. This was mentioned by stakeholders such as some national competent authorities, industry representatives and individual manufacturers.  National transposition processes also take time and require human resources yet the research found that many manufacturers do not even read national legislation, but take European legal texts as their reference point. A number of market surveillance authorities suggested that resources currently used by national competent authorities to transpose directives into national legislation could instead be redirected towards improving the effectiveness of market surveillance.

Advantages and disadvantages of regulations

EU regulations are directly applicable, although they still require the development of national implementing rules.  The research found that the use of regulations rather than directives can have a number of benefits in contributing to the achievement of internal market objectives. A summary of the advantages and disadvantages of regulations is now provided, followed by an assessment of some of the stakeholder feedback received:

Table 3.2: Advantages and disadvantages of regulations

Regulations - advantages

· Regulations are directly applicable and do not require transposition (with the exception of the need to develop implementing rules) · Synchronised timing of the entry into force of regulations across the internal market · Uniformity in application with reduced scope for differences in interpretation, thereby ensuring greater legal certainty and a level playing field for economic operators · Potential to reduce the overall volume of Union harmonisation legislation by eliminating the need for transposition into one or more pieces of national legislation (most economic operators follow European legislation anyway). · Potential scope for cost savings and the use of human resources among national competent authorities for alternative purposes if civil servants are not tied up in national transposition processes. · Regulations may be a more appropriate instrument for pieces of horizontal Union harmonisation legislation, such as common rules on market surveillance and for placing products on the market (the latter is currently in the form of a decision). 

Regulations  - disadvantages

· There would still be a need for a minimum set of national implementing regulations to be developed, but arguably with less scope than is the case for directives to tailor these according to national-specific situations. · Less flexibility to accommodate national-specific interpretations, although generally there is only limited room for manoeuvre in this regard (e.g. optionality clause within the MID).

The research identified support among some stakeholders for the greater use of regulations to implement Union harmonisation legislation in future.

Some Member State authorities appear to be more willing than in the past to use EU regulations as a mechanism for regulating harmonised products over time. This reflects strengthened confidence in the regulatory framework for harmonised industrial products and the level of integration of markets.

Support was especially strong among industry associations and individual firms, since industry has a clear interest in internal market legislation for industrial products being implemented on as uniform a basis as possible since divergences in application and interpretation between Member States - albeit minor - causes legal uncertainty for economic operators. A number of companies interviewed stated that regulations help to reduce the risk that unexpected regulatory barriers are experienced in particular national markets within the internal market. An EU industry association in the field of safety noted that industry tends to prefer regulations over directives because “Regulations are clear, and there is no need for national transposition. This means that all actors are on the same playing field”.

There was support among many national competent authorities for the greater use of regulations, although this view was not shared by all Member States (see comments under the advantages of directives). A number of competent authorities noted that regulations could help to reduce the overall volume and administrative costs of legislation since national legislation transposed from Union harmonisation legislation is largely duplicative. Moreover, the majority of economic operators follow European legislative texts and harmonised technical standards in managing compliance with IM legislation, often in conjunction with European guidance on IM legislation. This renders national legislation somewhat redundant, although there remains a need to develop national implementing regulations, regardless of which regulatory instrument is used.A national Ministry in Romania commented that "EU Regulations would eliminate the administrative costs of the transposition process by significantly decreasing the resources needed to transpose and implement legislation and in the application of particular terms and concepts”. A market surveillance authority in Slovenia noted that "Regulations lead to more coherent and uniform application, especially in respect of horizontal issues such as market surveillance and general product safety". Support for the adoption of regulations across IM legislation was not universal.

Among the potential disadvantages of using regulations identified by a small number of stakeholders were the lack of flexibility for Member States to take national-specific contexts into account.  For instance, under the Measuring Instruments Directive (MID), there is an ‘optionality clause’ which allows scope for Member States to opt out of EU requirements to regulate particular product groups, if they classify them as low risk, or if a particular market segment is not present.

Although there is no universal consensus among stakeholders on this matter, the evidence points to the conclusion that in future, the Commission should consider using regulations as the preferred legislative instrument for Union harmonisation legislation so as to ensure synchronised timing in Directives coming into force.

A number of national authorities suggested that a gradual transition to using regulations rather than directives would help to avoid regulatory fragmentation within the internal market due to differences in the interpretation and application stemming from national transposition.  At the same time, there are likely to be product groups such as measuring instruments for which directives are more appropriate. The possibility of using directives should be retained.

Research Findings:

· (RF5) Directives allow a minimum level if flexibility for Member States to ensure that national-specific operating contexts are taken into account during the transposition process into national legislation. However, in many cases, Member States transpose the Directives very close to the original European legal texts. Economic operators typically refer to the text of the Directive rather than to the relevant national legislation.

· (RF6)  Among the advantages of Regulations are the synchronised timing of their entry into force.

·  (RF7) The rationale for using Regulations rather than Directives has not been explicitly stated by the Commission.

· (RF8) The EU should retain the possibility of using both regulatory instruments to maximise flexibility, but clarify the criteria for determining the choice of regulatory instrument.

3.2.2 Gaps, loopholes, inconsistencies and duplication EQ3 - Is there evidence of gaps, loopholes, inconsistencies and duplication across Union harmonisation legislation and in the corresponding administrative requirements for economic operators?

Over a 30 year period, the gradual accretion of IM legislation has resulted in inconsistencies arising between the different requirements set out in some IM legal texts and in the administrative requirements set for economic operators. This does not appear to be a universal problem that affects the overall body of IM legislation. Indeed, only 16% of Notified Bodies responding to the study suggested that there were any such problems related to those Directives for which they had been notified. However, where gaps, loopholes, inconsistencies and duplication do exist, they can cause significant difficulties for those operating in the relevant sectors. The can include:

· Legal uncertainty for economic operators;

· Inconsistences in administrative requirements leading to unnecessary minor differences in the templates produced for CE marking; and

· Higher administrative costs not only in complying with these requirements but also in terms of familiarisation with the requirements.

Examples of inconsistencies and duplication were identified through the interview programme and Your Voice consultation and are provided in the following table.

Table 3.3: Examples of gaps, loopholes, inconsistencies and duplication in IM legislation

Product area || Applicable directives || Problem type || Examples of gaps, loopholes, inconsistencies and duplication

Printers || LVD and Machinery Directive || Gap || Unclear demarcation between the LVD and the MD with regard to the definition of industrial printers. Lack of text in LVD as to when printers should be considered as being within the scope of the LVD Such text is however provided in the MD, which explains clearly that the Directives are mutually exclusive.

Pressure equipment || PED || Gap || Since the Directive was adopted, new product groups have come to market with evidence of new innovations. The definition of product groups consequently remains unclear and as to whether particular spare parts and components are within scope. Over-reliance on guidance for legal interpretation on product scope leading to legal uncertainties.

Non-road mobile machinery || Machinery Directive || Gap || Mobile machinery is within the scope of the MD, but the MD does not include requirements for road circulation of this machinery. These remain non-harmonised and subject to national requirements.

Cables || EMC Directive || Gap || Cables are not currently included within the scope of the EMC-directive

Electrical appliances under 50V || LVD Directive || Gap || Under the LVD, appliances under 50V are not covered. In practice, the GPSD provides a framework, but safety is not covered through harmonised requirements. There is no need for a declaration of conformity and CE marking. Doubtful whether voltage should be the most appropriate criteria. Energy usage of a product is today more important, but low voltage products presently excluded from the LVD with high energy-efficiency may not necessarily be safe.

Multiple products || R&TTE and Medical Devices Directive || Inconsistencies in requirements || Products where multiple legislation is applicable may face differences in CE marking requirements. This can result in conflicting requirements for integrated products. Problem should be solved since the proposed Medical Devices Regulation requires CE marking. See evaluation question on “CE marking” in efficiency section.

Multiple products || Declarations of Conformity Examples: MD, LVD, R&TTE and EMC Directives || Inconsistencies in requirements || Differences in CE marking requirements between the MD, LVD, R&TTE and EMC Directives (where the CE marking must be placed on product, detailed addressee information that has to be provided on the DoC).  Where multiple legislation is applicable to a given product, problems in terms of differences in requirements for the format / layout of the DoC, and whether the DoC has to be provided along with the product/ product documentation.

Multiple products Example: Pressure equipment || Spare parts and components Pressure Equipment Directive, ATEX Directive || Gaps and loopholes || Lack of legal clarity as to whether spare parts and components are included within IM legislation Inadequate definitions of spare parts and components. Confusion as to whether spare parts and components are distinct from one another or synonymous within scope of Directives. See evaluation question on spare parts and components.

Equipment and noise-emitting machinery || Machinery Directive, Outdoor Noise Emissions Directive and EMC Directive || Overlaps || There is a dedicated Directive on noise (Directive 2000/14/EC). However, the MD also covers issues relating to noise, pressure and electromagnetic compatibility. This raises the possibility of these IM regulations being merged.

OSH vehicles || Machinery Directive || Overlaps || Overlaps between requirements in the Machinery Directive concerning OSH vehicles that need to be EC-type approved

|| || ||

Non-road mobile machinery || Non-Road Mobile Machinery Directive and ATEX Directive || Conflicting requirements || Technical conflicts between Directive 97/68/EC (non-road mobile machinery) and the ATEX Directive. Stage IIIB engines are unable to be manufactured or adapted to conform to the technical requirements of both directives.

Construction Products || ATEX Directive, Construction Products Regulation || Unclear demarcation || Unclear demarcation between the ATEX Directive, and the Construction Products Regulation

Multiple products || PED and Simple Pressure Vessels Directive || Unclear demarcation || Unclear demarcation between the PED and Simple Pressure Vessels Directive

Whilst these specific issues do cause difficulties, some of these problems are already being tackled through the NLF, which has the potential to eliminate inconsistencies between IM regulations, for instance, through the introduction of a common approach to definitions, a clear explanation of the responsibilities and obligations of different economic operators in the distribution chain, and greater standardisation of administrative requirements, for instance in relation to CE marking and the development of DoCs.

It was, however, recognised that the horizontal provisions of the NLF (Decision 768/2008/EC) have not yet been implemented in full. There remains unnecessary duplication of administrative tasks to ensure compliance with differing requirements relating to the definitions of common concepts (e.g. placing on the market, manufacturer), the obligations of economic operators, conformity assessment procedures, CE marking, DoCs, etc. There are also differences between IM directives as to when the presumption of conformity becomes effective (e.g. first national publication or in official journal).

Stakeholders were therefore in broad agreement about the importance of the Alignment Package which was seen as a critical part of implementing the NLF through standardising the format and requirements for producing DoCs in line with Decision 768/2008/EC. Likewise, CE marking requirements are being made more common through the common framework which is gradually being introduced across more Union harmonisation legislation. The on-going process of alignment is gathering pace and this will gradually eliminate inconsistencies.

It was interesting that there was sometimes a perception among industry that there were problems as regards overlaps between different pieces of legislation, which on closer inspection were found not to be the case in practice. For instance, in respect of the Ecodesign Directive, there were perceived among some industry stakeholders to be overlapping and conflicting energy efficiency requirements between the implementing regulations concerning motors and fans within the Ecodesign Directive. However, upon investigation, it was found that there are no “overlapping and conflicting” requirements for electric motors (under Regulation 640/2009) and fans (under Regulation 327/2011).

Regulation 640/209 establishes minimum energy efficiency requirements for electric motors (sold alone or integrated into products). These requirements address the minimum energy efficiency class of the motor according to an internationally used IEC standard. Regulation 327/2011 addresses the minimum efficiency of fans, understood as products composed by an electric motor combined with an impeller. If the impeller is sold alone it is assumed that a motor complying with its relevant legislation will be used. The Regulation on fans calculates the efficiency of this product as the quotient between the energy transmitted to the gas and the electric energy used. Both Regulations appear to be complementary since they address different aspects of the typical systems used. Moreover, industry was consulted during the development of both Regulations and has not contested them.

The recasting of individual pieces of legislation also provides an opportunity to accommodate industry developments and changes in product groups. For instance, as noted earlier, problems relating to product scope (for instance, new products not being covered other than through supporting guidance to the legislation rather than in the legislation itself) and to the inclusion or exclusion of spare parts and components can be addressed through legislative revision processes. However, some industry stakeholders, especially for older Directives such as the PED believe that such a recasting exercise is long overdue.

Another important issue is whether the common framework for the marketing of products (as set out in Decision 768/2008/EC) will result in unnecessary duplication in IM legislation. Although there are many benefits of introducing a more common approach to product harmonisation rules across the regulatory framework, the length of legal texts of individual IM directives will double. An alternative approach would be to adopt a legally-binding horizontal “umbrella” regulation setting out common elements across IM legislation which was advocated by some stakeholders interviewed. Several competent authorities, market surveillance authorities and industry associations were in favour of a restructuring of the legal architecture from a Decision to a Regulation.

Such a horizontal Regulation would eliminate the need to lengthen IM legislation unnecessarily, which was considered to be duplicative and not SME-friendly. Unlike Decision 768/2008/EC, it would also be legally binding. However, there were differing views on this point, with some stakeholders preferring all the relevant text to be included in each Directive (typically, operators involved in the production or marketing of products that only have to comply with a single Directive) and others preferring to have the common text presented only in a horizontal regulation or directive.

A horizontal national regulation has already been adopted based on Decision 768/2008/EC in Germany. This provides a regulatory umbrella and overall framework under which sectoral legislation at national level stemming from IM product legislation is structured. There may be scope for other Member States to adopt such an approach, drawing on the experience of Germany.

Although this issue is not one of urgency, it would be more coherent in our view, at least in the medium term to introduce a horizontal Regulation. Although there would not be many quantitative savings (other than minor effects through reduced familiarisation time), this would strengthen the coherence of the legislation and SMEs in particular would appreciate legislation being kept as short as possible.

Research Findings (RFs):

· (RF9) There are several instances of gaps, loopholes, inconsistencies and duplication across the body of IM legislation; but these are relatively modest in number and minor in substance given the size of the body of legislation.

· (RF10) Many of the outstanding instances are being addressed by the NLF and/or the Alignment Package, e.g. standard format and requirements for DoCs and CE marking.

· (RF11) Decision 768/2000/EC has not yet been implemented in full, resulting in some duplication of tasks for economic operators. The limited legal weight of a Decision may have had some impact in this regard.

· (RF12) Recasting Directives and Regulations provides an opportunity to eliminate gaps, loopholes, inconsistencies and duplication.

· (RF13) There may be merit in a horizontal Regulation for the marketing of products based on Decision 768/2000/EC (which would be legally-binding and limit the length of subsequent Directives) compared to the inclusion of all the relevant text within a single piece of legislation).

3.3 Coherence of definitions

EQ4: How coherent is the approach to definitions and product scopes in the various legal texts (e.g. components, spare parts)?

3.3.1 Definitions of economic operators

Strong support was identified through the interview programme for the improved definitions of economic operators and their obligations set out in Decision 768/2008/EC and gradually included in the legislation, most notably through the Alignment Package. For example, Recital 20 of Decision 768 states that “it is necessary to distinguish clearly between the manufacturer and operators further down the distribution chain. It is also necessary to distinguish clearly between the importer and the distributor, as the importer introduces products from third countries to the Community market. The importer has thus to make sure that those products comply with the applicable Community requirements”. It was recognised by all interviewees that there were advantages in having common definitions of economic operators (manufacturers, importers and distributors) and in clarifying their respective responsibilities. Since different economic operators are involved at different points in the supply chain, there was strong support that they should assume their respective responsibilities for ensuring regulatory compliance with IM legislation. Ultimately, this should lead to strengthened market surveillance and improved product safety.

A number of industry associations asserted that the NLF was a significant improvement in strengthening the coherence of the implementation regime for Union harmonisation legislation because obligations for different economic operators are clearly defined. There was also seen to be a fairer sharing of the burdens between different economic operators in terms of their responsibility for ensuring that products placed on the market meet regulatory compliance requirements. Although manufacturers should continue to have primary responsibility for many aspects of product safety and health, “the implementation of the NLF will make all economic operators more diligent with regard to regulatory compliance and product safety”.

Ensuring that other economic operators take their share of responsibility for ensuring regulatory compliance was viewed as beneficial in terms of the overall fairness of the regulatory framework and the distribution of administrative costs and burdens. Market surveillance authorities also viewed the sharing of responsibility positively, since there is now greater clarity for economic operators about what their role is and their obligations including the requirement to respond promptly to requests from market surveillance authorities to provide technical information and documentation. Decision 768/2008/EC states that “Distributors and importers, being close to the market place, should be involved in market surveillance tasks carried out by national authorities, and should be prepared to participate actively, providing the competent authorities with all necessary information relating to the product concerned”.

However, the importance of a practical approach by market surveillance authorities was also stressed. A number of industry associations suggested that there could be delays and inefficiencies if market surveillance authorities first approach distributors and importers since manufacturers have much of the technical information needed that provides evidence to support the DoC. Moreover, many manufacturers are reluctant due to commercial sensitivities to release the full technical file to other actors in the distribution chain. It can therefore save considerable time if market surveillance authorities approach manufacturers directly in the first instance. Overall, the NLF was viewed as having made a significant contribution to strengthening common definitions of economic operators in legal texts, although there are some concerns about how realistic it is for importers and distributers to retain all the information needed by market surveillance authorities.

Research Findings (RFs):

· (RF14) Stakeholders support the common definitions and general obligations in Decision 768/2000, e.g. distinguishing between manufacturer, importer and distributor. (Stakeholder views)

· (RF15) Definition of responsibilities is seen as fairer, e.g. importer and distributors are required to cooperate with market surveillance authorities. (Stakeholder views)

· (RF16) The definitions within Decision 768/2000/EC should be applied consistently across the whole body of IM legislation, as and when individual Regulations and Directives are recast.

3.3.2 Product definitions and scope

Union harmonisation legislation sets out the “essential requirements” and is designed to be technology-neutral. A broad description is provided in EU legislation of the product groups falling within scope. In order to keep the legal texts concise, detailed descriptions of product sub-groups are not typically included. Non-exhaustive lists of products within scope are sometimes also provided in the annexes of IM legislation, and/ or through clarifications provided in the accompanying guidance.

Sometimes products within scope are updated annually through the activities of Working Groups on different IM directives and regulations. These consist of the Commission, Member States and industry stakeholders and discuss issues relating to the practical application of IM legislation. This allows for the updating of guidance, which although not legally binding provides practical support for economic operators as to whether their product falls within scope.

The research identified a variety of approaches across different pieces of IM legislation to the definition of products within scope. Examples of the way in which different IM legislation addresses these issues across a sample of vertical and sectoral directives are provided in the following table:

Table 3.4: Treatment of definitions and product scope

Examples of IM legislation and type || Treatment of definitions and product scope

Machinery Directive (sectoral) || Art. 2 - general definitions are provided of ‘machinery’, and other broad product areas within scope are listed (safety components, lifting accessories, interchangeable equipment and partly completed machinery). Different categories of machinery, lifting equipment, etc. are then set out in further detail in annexes.

PED (sectoral) || Any pressure equipment that consists of a pipe, vessel, safety accessory or a pressure accessory and operates at >0.5 bar is considered to fall within scope. Legislation is non-product specific so that it can capture the full range of relevant products. However, lack of clarity as to whether specific components are included within scope (see detailed example).

EMC (sectoral) || The recitals state that the equipment covered by this Directive should include electrical apparatus and fixed installations. The definitions cover broad product areas rather than specific product sub-groups, e.g. equipment, apparatus and fixed installations.

Ecodesign Directive (horizontal) || Definitions are provided in the implementing regulations for specific product groups e.g. air conditioners and comfort fans, household dishwashers, household refrigerating appliances. Since ecodesign regulations are developed in specific product sectors, the scope of products covered is clear.

RoHS Directive (horizontal) || RoHS II (2011) is very specific about the specific product groups that are exempted from RoHS and in in setting out the six banned hazardous substances.

In examining how coherent and comprehensive product definitions and scope are, it should be recalled that there is a trade-off between ensuring clarity and legal certainty for economic operators, while at the same time avoiding hindering innovation through having too detailed descriptions of product categories and sub-categories that fall within scope.

The research found that although the definition of products falling within scope is sufficiently clear for most technical harmonisation regulations, this is not the case for all EU legal texts. Indeed, although a given IM directive or regulation may provide a clear definition of product scope, economic operators may still face difficulties in understanding whether their product falls within the legislation’s scope, for instance, for specialised products, components and spare parts. In some instances, this may represent a gap or duplication in the text itself, in which case, there may be a need to update the text as and when the legislation is recast. In other instances, it may be sufficient to provide supporting guidance that provides the necessary clarification, without the need to revise the text of the legislation itself.

For instance, a Notified Body in Lithuania stated that there are legal gaps in relation to product scope within the PED, in terms of the types of pressure vessels covered. Some regulatory gaps have emerged because of the time that has elapsed since the Directive was adopted (1997). New types of pressure vessels have been developed since the legislation was drawn up. Although such products are addressed in PED supporting guidance, the situation is unsatisfactory because manufacturers point to the legislative text and only want to address the minimum legal requirements. For instance, there is very little in the legislation about large boilers, with manufacturers having to rely on the guidelines. The lack of legal clarity means that sometimes it is down to producers to interpret the guidance.

In a previous evaluation of the PED, a number of national authorities have stated that pressure accessories should be built according to the PED in order to enhance the safety of pressure equipment. A detailed examination of the issue may lead to the finding that safety aspects and market surveillance activities would be enhanced if the wording was amended. Although this has potential to strengthen product safety, the implications would need to be considered in terms of the overall burden on industry before changes are made.

Research Findings (RFs):

· (RF17) There has been a variety of approaches to the definition of products and scope. Product definitions are usually broad, with non-exhaustive lists sometimes provided in Annexes.

· (RF18) There is often a trade-off between providing legal clarity and allowing innovation, i.e. not having overly-detailed descriptions of product categories.

· (RF19) Whilst there will need to be a variety of approaches to the definition of products and scope, there may be potential for greater consistency. This might involve broad definitions clearly stated in the main text of legislation, with specific definitions of categories and sub-categories defined in Annexes and clarified by the various Working Groups, with suitable adjustments and fine-tuning over time.

3.3.3 Definitions of spare parts and components

A key study issue was whether there are difficulties in the regulatory framework in terms of the definition of spare parts and components.

An industry association in Germany commented that they “regularly receive questions as to whether components and spare parts placed on the market are within the scope of, and need to comply with IM legislation”. A further problem identified was that even when a definition is provided, and the intention is to cover components and spare parts through IM legislation, the scope may be narrowly defined resulting in a situation where some components and spare parts are covered, but others are not formerly covered, but are mentioned in supporting guidance documents.

Although safety components are within the Machinery Directive’s scope, other basic machinery components such as screws fall under non-harmonised legislation. This can create confusion for economic operators as to which parts of a machine are harmonised and which components are non-harmonised. A market surveillance authority in Germany (that participated in the MD ADCO at EU level) noted that the definition of “partially completed machinery” in the Directive has caused confusion among manufacturers in understanding whether their product falls within scope.

An Evaluation of the Pressure Equipment Directive (PED (97/23/EC) undertaken in 2012 identified examples of legal uncertainties in relation to product scope specifically in the area of safety and pressure accessories[34] (including components and spare parts for high pressure equipment). A number of manufacturers stated that the definition of pressure accessories in the PED is unclear which has resulted in uncertainty with regard to product scope. When the Directive was first introduced, industry understood the Directive to apply to all pressure accessories.

However, after an examination of the wording, it was found that a large proportion would no longer be covered. This was supplemented with a guideline in supporting guidance that apparently “removed up to 70% of pressure accessories from the PED’s scope”. These pressure accessories are now manufactured according to ‘sound engineering practices’ in the Member State where the manufacturer is based. Some industry representatives are consequently confused as to whether pressure accessories are within the PED’s scope and continue to manufacture according to PED requirements. In addition, some manufacturers consider that to bring consistency to the industry, the wording should be amended in order to fully cover pressure accessories.

With regard to the ATEX Directive, product definitions within scope were viewed as being generally clear and working well. However, the definition of components for explosives protection in the harmonised standard was found to differ to some extent from the definition provided in the Directive. National competent authorities interviewed did not believe however that this difference causes any particular difficulties.

Some ATEX components defined in the Directive are defined as equipment by the standard such as Ex blanking elements. However, there is arguably a good reason to do so. A component (as defined in the Directive) has to pass a conformity procedure together with the complete equipment again if it is to be used. But for some "components" the rules for their use are clear so that they can be assessed as equipment, although they do not have their own ignition source. It was recognised however by a member of the Ex Notified Body Group on ATEX that a general, clear definition is not easy to produce. This is rather a technical decision relating to explosion protection to handle some components as Ex equipment.

A further issue for the ATEX Directive is when components are incorrectly marked as equipment. Components have to be marked with the symbol "U" and to specify the certificate number. Equipment with special information for safe installation and use has to be marked with the symbol "X" following the certificate number. If a component has special conditions then these components will be marked with the symbol "U" only. But there are some components available on the market, which are marked with the symbol "X". However, this problem should be addressed by the market surveillance authorities (ADCO).

As far as feedback from industry is concerned, their assessment was that the definitions provided in IM legislation work reasonably well but are not always clear. One of the national product contact points commented that “sometimes the definitions are unclear and time needs to be spent discussing the meaning. An example is instruments used to measure electricity consumption because of fx suncells that provide electricity back to the grid”. It is unclear whether these fall within the scope of the MID.

Although the focus of regulatory compliance is on the end product placed on the market, economic operators involved in the upstream value chain are only affected indirectly. One major pan-European company producing components noted that “there is a general understanding among components and spare parts manufacturers that they must help the client to meet regulatory requirements relating to end-user products, even if it is not explicitly mentioned in IM legislation that they are covered”. Among the potential problems associated with lack of clarity on product definitions and scope are legal uncertainty among economic operators as to how to deal with these product areas and divergent practices between economic operators as to whether they consider components and spare parts as falling within the scope of IM legislation. Some may choose to ensure that they are fully compliant, whereas others may not, giving them an unfair competitive advantage.

Approaches will inevitably need to vary across different pieces of IM legislation in line with the nature of the products covered. However, there is a need to set out guiding principles for the definition and inclusion of spare parts and components in the legislation. These should aim at:

· having a safe, compliant end-product (therefore the responsibility is with the final assembler);

· facilitating the supply of components that will ease the production of compliant products (therefore, component manufacturers should be subject to the legislation in some cases);

· ensuring a clear “paper-trail” from producers of components to producers of end-products, so that manufacturers and market surveillance authorities can be sure that the end product is compliant; and

· ensuring that products remain compliant after spare parts have been fitted.

Research Findings (RFs)

· (RF20) It is not always clear whether spare parts and components are covered by the legislation or not.

· (RF21) Where spare parts and components are included, there is a lack of consistency in wording, e.g. inconsistent definitions between spare parts and components.

· (RF22) Guidance from the European Commission is crucial to facilitating understanding of definitions of spare parts and components.

· (RF23) There is a need for the Commission to set out guiding principles for the definition and inclusion of spare parts and components in the legislation, which should be applied as and when individual pieces of legislation are introduced or updated.

4. Efficiency of the implementation regime

In this section, an assessment of efficiency is provided focusing on the implementation regime underpinning the regulatory framework at EU and national levels. The extent to which procedures, mechanisms and structures are effective, and whether they represent an efficient way of achieving the legislation’s objectives, was a central feature of the assessment.

4.1 Overall picture

EQ5: What is the overall picture in relation to the efficiency of IM procedures, mechanisms and structures to support its implementation?

A number of procedures, mechanisms and structures have been put in place to support the implementation of Union harmonisation legislation, ranging from conformity assessment bodies that support economic operators by carrying out third party conformity assessment to help them achieve presumption of conformity through to national Accreditation Bodies, which play an important role in ensuring that conformity assessment services are efficient and effective.

Although the majority of stakeholders were positive with regard to the role of Union harmonisation legislation as a mechanism for achieving an internal market in industrial products, they also pointed to a number of areas where there remains scope to improve the efficiency and effectiveness of the regulatory framework and the mechanisms and structures that underpin its implementation.

The responses to our survey of Notified Bodies (NBs) and Accreditation Bodies point to some of the main weaknesses in the implementation system for Union harmonisation legislation (see table 4.1). The majority of NBs (61%) viewed market surveillance as being the weakest point in the implementation of IM legislation while 42% expressed the view that that are also problems with the development of technical standards and in the operation of Notified Bodies (38%). Accreditation Bodies were most concerned about the amount of time that it takes to develop technical standards and the transposition process of EU Directives into national legislation, which may lead to divergent interpretation and application.

Table 4.1: Most common problems indicated in relation to the implementation of IM legislation for industrial products

|| Notified Bodies || Accreditation Bodies

Answer Options || Per cent || No. || Per cent || No.

Legal provisions/requirements to place goods on the market || 17.0% || 16 || 25% || 3

Development of technical standards || 41.5% || 39 || 33.3% || 4

Transposition of EU Directives to national legislation || 25.5% || 24 || 41.7% || 5

Conformity assessment procedures || 16.0% || 15 || 0.0% || 0

Market surveillance activities || 60.6% || 57 || 33.3% || 4

Operation of Notified Bodies || 38.3% || 36 || 16.7% || 2

Answered the question || || 94 || || 12

No answer provided || || 34 || || 8

In the following section, we examine some of the above aspects in more detail on the basis of input from the interviews, the surveys and additional desk research. A more detailed assessment of regulatory and non-regulatory barriers is provided in Section 6 (effectiveness).

Research Findings (RFs)

· (RF24) Market surveillance is considered the weakest part of the implementation regime for IM legislation, followed by the development of technical standards and the operation of Notified Bodies (Survey of Notified Bodies and Accreditation Bodies).

4.2 Conformity assessment of products

EQ6: How efficient is the conformity assessment process?

Conformity assessment procedures demonstrate that a product, before being placed on the market, conform to the essential requirements of the applicable IM legislation. Conformity assessment can be carried out by public authorities, manufacturers or Notified Bodies. There has been a system of conformity assessment since 1993. The modules for the conformity assessment procedures to be used in Union harmonisation legislation were initially set out in Council Decision 93/465/EEC of 22 July 1993 concerning the modules for the various phases of the conformity assessment procedures and the rules for the affixing and use of the CE conformity marking, which are intended to be used in the technical harmonisation directives.

The conformity assessment modules have subsequently been updated as part of the NLF through Regulation 768/2008. The recitals to the Regulation state that “It is necessary to offer a choice of clear, transparent and coherent conformity assessment procedures, restricting the possible variants. This Decision provides for a menu of modules, enabling the legislator to choose a procedure from the least to the most stringent, in proportion to the level of risk involved and the level of safety required”. The conformity assessment procedure required therefore varies depending on the product in question, and across different IM directives and regulations.

Regulation 768/2008 states in the recitals that “The manufacturer, having detailed knowledge of the design and production process, is best placed to carry out the complete conformity assessment procedure. Conformity assessment should therefore remain the obligation of the manufacturer alone”. Feedback from economic operators during the interview programme confirmed that although Notified Bodies play an invaluable role within the regulatory implementation system, manufacturers are well placed to carry out their own conformity assessment, provided that self-certification is backed up by rigorous market surveillance in order to ensure that the system is not abused by rogue operators.

One of the advantages of the NLF is that it has clarified the different responsibilities and obligations of economic operators. Although it remains the case that the manufacturer is responsible for carrying out the appropriate conformity assessment procedure, importers are also responsible for playing their part by ensuring that the appropriate conformity assessment procedure has been carried out by the manufacturer, and that the technical documentation has been drawn up, that the product bears the required conformity marking or markings and is accompanied by the required documents.

The current conformity assessment system has various advantages. It provides for a suite of different modules for EU legislators for individual IM regulations. Once the legislation has been drawn up and the relevant modules selected, then the overall system of conformity assessment and the different conformity assessment procedures involved are well known by economic operators, Notified Bodies and market surveillance authorities since they have been in operation since 1993.

Many IM regulations allow economic operators to adopt Module A, self-certification, which allows manufacturers the flexibility either to carry out conformity assessment themselves or to have an independent third party Notified Body do so. Among the feedback received though the interview programme was that flexibility for economic operators in determining which conformity assessment procedure to follow was appreciated by industry and SMEs.

Among the interview feedback was the suggestion that manufacturers that are highly familiar with carrying out conformity assessment procedures under different modules should be allowed to do so using a self-declaration. “When manufactures produce only one type of product they are less familiar with general conformity assessment processes. However, if manufactures are used to performing conformity assessment procedures for other product categories that fall under more demanding modules, they should also be allowed to do using a self-declaration because they know the processes and how to test products sufficiently”.

It is not clear how such a system would work in practice, given the difficulty in checking the competence of individual economic operators. A stakeholder working with SMEs in Belgium pointed out that “while self-certification is often possible, a lot of economic operators do not know or do not have the means to deal with internal production control or performing the necessary checks”.

The survey responses indicated that there was a generally positive view with regard to the role of different conformity assessment procedures as an implementation mechanism to ensure products’ compliance with regulatory requirements and for manufacturers to achieve presumption of conformity. Only 15% of Notified Bodies indicated that there were any problems with the procedures, while none of the Accreditation Bodies surveyed considered CA procedures to be problematic.

Among the eight manufacturers that responded to the survey, none suggested that conformity procedures pose an obstacle to the function of the internal market. Similarly, there was a positive assessment of conformity assessment procedures through the discussions across a broad range of stakeholders in the area of industrial products and interviews with individual manufacturers. Broad satisfaction with the current suite of conformity assessment modules was also confirmed through the surveys of notified and Accreditation Bodies.

In terms of the appropriateness of the different modules, most industry stakeholders stated that they fit well into existing manufacturing processes and allow firms the necessary flexibility. There were only limited examples where the modules were not considered to be fit for purpose. For instance, it was suggested that for personal protective equipment, Module H is too generic and not appropriate.

There were concerns however about the challenges in ensuring a uniformly high level of quality of services across Notified Bodies throughout the EU in carrying out conformity assessment procedures.

In order to ensure a consistent level in the quality of the performance of conformity assessment across the Union, it is necessary to strengthen the requirements for notifying authorities and other bodies involved in the assessment, notification and monitoring of Notified Bodies must fulfil and crucially to ensure that Member States apply these requirements on a uniform basis. One of the problems identified through the research was variations in the quality of third party conformity assessment services being provided, which risks undermining the internal market, for instance, where economic operators having already had their products tested by third parties are required to do so again in another Member State because of a perceived lack of confidence in the Notified Bodies carrying out conformity assessment procedures in another Member State.

Research Findings (RFs)

· (RF25) Roles are clear, i.e. manufacturer carries out conformity assessment and importers check that the technical document relating to conformity assessment is supplied and the CE marking applied.

· (RF26) Manufacturers appreciate the choice of modules relating to conformity assessment (Survey of NBs and ABs; Stakeholder interviews; Case studies)

· (RF27) Self-certification by economic operators should not be allowed under all Modules (except Module A); it would be too hard to check the competence of operators. (Survey of NBs and ABs; Stakeholder interviews; Case studies)

· (RF28) Some operators are unsure which Modules apply to their products and whether third party conformity assessment is required. (Survey of NBs and ABs; Stakeholder interviews; Case studies)

· (RF29) There are concerns about a lack of uniformity in quality of conformity assessments undertaken across EU28. In some instances, economic operators have had to re-submit their products for testing because of a lack of confidence in conformity assessments undertaken in other countries. (Survey of NBs and ABs; Stakeholder interviews; Case studies)

· (RF30) There may be merit in strengthening the requirements on Member States relating to notification of Notified Bodies and take steps to ensure consistent fulfilment of these requirements across EU28.

4.3 Notified Bodies 4.3.1 Performance of Notified Bodies

EQ7: How well do Notified Bodies serve the conformity assessment process?

Notified Bodies play an important role in the implementation of the IM legislation, particularly for legislation where third party conformity assessment is mandatory. According to the NANDO database[35], there are a total of 1826 Notified Bodies (although the review of the database indicates some duplicate records). It is also unclear whether all bodies in the list are operating since the information in NANDO is updated on the basis of information provided by Member States.

On the basis of the information available, Notified Bodies’ distribution across Europe mostly reflects the distribution of the population, although there are some exceptions to this broad trend. For example, the UK has more than twice as many NBs as France, despite being of a similar size. Similarly, the Netherlands has many more NBs than Romania, despite being somewhat smaller.

Table 4.2: Number of Notified Bodies by country

Country || Number || Country || Number

Austria || 58 || Italy || 218

Belgium || 50 || Latvia || 24

Bulgaria || 41 || Lithuania || 21

Croatia || n.d. || Luxembourg || 7

Cyprus || 3 || Malta || n.d.

Czech Republic || 38 || Netherlands || 68

Denmark || 36 || Poland || 81

Estonia || 11 || Portugal || 34

Finland || 28 || Romania || 37

France || 102 || Slovakia || 33

Germany || 336 || Slovenia || 18

Greece || 35 || Spain || 106

Hungary || 31 || Sweden || 45

Ireland || 4 || United Kingdom || 230

|| || ||

Norway || 21 || Japan || 2

Iceland || 4 || Liechtenstein || 1

Switzerland || 47 || Turkey || 29

Canada || 1 || United States || 26

Grand Total || || 1826

In terms of the distribution of Notified Bodies by the area of legislation covered, key Directives (Machinery, Lifts, Low voltage, EMC) are covered by more than 100 NBs while there is a particularly high number of Notified Bodies that cover the NAWI Directive.

Table 4.3: Number of Notified Bodies by Directive

Directive || Number || Directive || Number

Active implantable medical devices || 20 || Medical devices || 77

ATEX || 64 || Noise emissions for outdoor || 70

Cableway installations || 23 || Non-automatic weighing systems || 255

EMC || 171 || Personal protective equipment || 114

Explosives || 13 || Pressure equipment || 36

In vitro diagnostic medical devices || 26 || Pyrotechnic articles || 13

Lifts || 161 || Recreational crafts || 34

Low voltage || 165 || R&TTE || 75

Machinery || 164 || Simple pressure vessels || 96

Marine equipment || 38 || Toys safety || 49

Measuring instruments || 145 || Transportable pressure equipment || 127

Source: NANDO Database

On the basis of the responses to the NBs survey, Notified Bodies are mainly private entities (62.5% of total) or public organisations (government-controlled) (37% of total). There also few that are non-for-profit organisation controlled by associations or jointly controlled by government and the private sector. The majority of NBs serve primarily firms in their country (67% indicate that national market represent more than 50% of the their turnover from conformity assessment services) but there are also few NBs with a clear international character (9% indicated that firms in other EU countries represent more than 50% of the turnover and 5.6% referred to a similar share of turnover for firms in non-EU countries).

In terms of size, the majority of Notified Bodies (54.5%) indicated that they occupy no more than 10 Full time equivalent (FTE) in conformity assessment services and only 13% occupy more than 50 FTE. However, this is not necessarily a reflection of their size. More than 66% indicated that, besides conformity assessment services, they also provide other services to firms.

As regards the role of Notified Bodies, the main issue raised by a number of stakeholders (industry as well as national authorities) is the inconsistency in conformity assessment procedures. A number of stakeholders interviewed stated that this was a significant problem pointing to varying technical capacity and experiences among Notified Bodies, inconsistent interpretation and application of guidelines and requirements. For a number of national authorities the business orientation of many NBs means that they are prepared to be rather flexible in order to gain or maintain clients.

The survey of NBs also supports this view. Some 37% of Notified Bodies suggested that the application of conformity assessment procedures is very or somewhat inconsistent, while 25% that they are quite or very consistent. Similarly balanced is the view of Accreditation Bodies (see Table 4.4). Detailed comments provided by survey respondents pointed to differences in understanding, interpreting and implementing requirements and also varying levels of strictness in terms of adhering to the requirements. At the same time, industry stakeholders interviewed suggested that there are also differences in the approach adopted concerning the use of test results from other laboratories – including those carried out by manufacturers directly.

Table 4.4: How consistent is the application of conformity assessment procedures among Notified Bodies across the EU?

|| Notified Bodies || Accreditation Bodies

Answer Options || Per cent || No. || Per cent || No.

Do not know || 12.8% || 15 || 10% || 2

Very inconsistent || 10.3% || 12 || 0.0% || 0

Somewhat inconsistent || 26.5% || 31 || 20.0% || 4

Neither consistent nor inconsistent || 25.6% || 30 || 40.0% || 8

Quite consistent || 23.1% || 27 || 30.0% || 6

Very consistent || 1.7% || 2 || 0.0% || 0

Answered || || 117 || || 20

No answer provided || || 11 || || 0

Source: CSES survey

According to the survey responses the main reasons for the inconsistent application of conformity assessment procedures appear to be the differences in the technical capacity of Notified Bodies (58% of respondents) and the variations in the transposition of IM legislation with different national implementation rules adopted between Member States (59%). Among Accreditation Bodies, 79% referred to differences between Member States, 32% to differences in the technical capacity of NBs but also to unclear provisions in EU legislation (58%).

As indicated by some national authorities, the weak technical capacity is a reflection of the large number of NBs at least in some countries, where there are a large number of Notified Bodies for a specific Directive. This leads to a limited level of business activity in carrying out conformity assessment for each NB and this may mean some NBs lack sufficient practical experience. However, according to the input from a few stakeholders in the sector, there is a consolidation process of the conformity assessment market – not only at the EU level but worldwide. There are few large NBs with subsidiaries inside and outside Europe that bring along the necessary technical capacity in most areas. Smaller size NBs are only expected to survive if they focus on niche markets, especially private ones. This is seen as an issue of concern for some authorities, to the extent that it means the firms in smaller markets may not have easy access to Notified Bodies and need to incur additional costs.

A considerable number of stakeholders argued that further cooperation amongst Notified Bodies at European level was what is mainly needed to guarantee a consistent interpretation of issues around implementing rules. In that respect the role of Notified Bodies Groups – presently operating in relation to only some Directives[36] – is seen as particularly relevant. The possibility of making participation in these groups mandatory was supported by a few stakeholders. Among the NBs that responded to the CSES survey, around 65% indicated that they consider NBGs are quite or extremely helpful in ensuring a greater level of consistency in the application of conformity assessment procedures.

For example, the Chairman of the NBG for the ATEX Directive reported that the role of the NBG had extended beyond coordination aspects to include discussions on technical problems relating to how to apply the Directive, conformity assessment procedures and the interpretation of standards. “Through the ExNB-Group, any technical questions can be drawn to the attention of the ATEX standing committee which is the official partner from the EC side”. The NBG is also able to publish clarification sheets providing guidance on the ATEX Directive, although these do not have legal weight. There are notified procedures for informing the standing committee about these sheets, some are annotated by the Commission and they are subsequently made available for the public. They provide interpretative guidance, such as how to use standards and as such are useful for manufacturers and users. However, it should also be noted that some NBGs suffer from low levels of participation. Furthermore, there are certain participation costs for the NBs (membership fees, possible travelling for meeting).

Most NBGs include a small secretariat working part-time to provide information on issues of relevance, the support necessary for an electronic information exchange system, meetings and possibly working groups to examine relevant issues and produce "Technical sheets for coordination" that report the common position of the Notified Bodies[37].

The cost of their operation does vary, depending on the level of sophistication and may range from a few thousand Euros per annum to more than a €100,000. Annual fees for participation in the rather well developed Medical Devices Directive NBG are in the range of €2,300-4,500, to which there are additional costs for the most active members for travelling for meetings etc. Thus, while there are strong arguments in favour of some form of mandatory participation of NBs in broader coordination groups – such as the NBGs - there are also possible cost implications that need to be taken into consideration.

Research Findings (RFs)

· (RF31) Most providers of conformity assessment services do not operate at scale; most have few staff dedicated to conformity assessment. (Survey of NBs and ABs; Stakeholder interviews; Case studies)

· (RF32) Very few NBs operate transnationally at scale. (Survey of NBs and ABs; Stakeholder interviews; Case studies)

· (RF33) Many NBs deliver only a limited volume of conformity assessment services and therefore risk lacking technical capacity. (Survey of NBs and ABs; Stakeholder interviews; Case studies)

· (RF34) There has been a process of consolidation amongst Notified Bodies. (Survey of NBs and ABs; Stakeholder interviews; Case studies)

· (RF35) NBGs can be effective in ensuring greater consistency in conformity assessments, notably through facilitating discussions and issuing guidance on technical questions. (Survey of NBs; Interviews of NBs)

· (RF36) There is a need for measures to improve the low levels of participation in some NBGs, which is often linked to cost. These might include mandatory payment of membership fees or EU funding for their operations.

4.3.2 Regulation of Notified Bodies EQ8: Are conformity assessment bodies sufficiently regulated or are more stringent rules needed?

While there are concerns raised on the consistency of Notified Bodies, there are diverging views on the extent that the introduction of a more stringent regulatory framework for NBs is appropriate. Some stakeholder consider that stricter rules – including mandatory accreditation – are necessary and other consider that current rules are appropriate but that Member States are often not consistent in enforcing them. It is also considered that in many cases the problem is the absence of expertise and facilities among some national authorities.

Among survey respondents, most Notified Bodies were against the adoption of more stringent rules (53.5% consider that NBs are sufficiently regulated while 33% were in favour of more stringent rules) while the responses of Accreditation Bodies provided a more balanced picture (47% against in comparison to 42% in favour). The fact that there have not been any major or recurrent problems relating to product safety in Europe was provided by some Notified Bodies as an indication that there is no need to impose more stringent rules on Notified Bodies’ operations. For other respondents, the New Legislative Framework – in particular, Decision 768/2008/EC – has had a positive impact by making conformity assessment requirements clearer.

Figure 4.1 - Is it necessary in your view to introduce more stringent rules concerning the operation of Notified Bodies?

Source: CSES survey

Research Findings (RFs)

· (RF37) It is uncertain that more stringent regulation of NBs will improve the quality and reliability of conformity assessment services. A greater priority is to increase the expertise and resources available to national authorities responsible for the notification process.

4.3.3 Conformity assessment by different bodies EQ9: Is it appropriate to allow different elements of a conformity assessment to be performed by different bodies?

There was limited feedback on the question of allowing different elements of conformity to be performed by different bodies. On the one hand, there are concerns about the capacity to control the quality of those bodies while, on the other, use of multiple bodies provides access to the technical capacity and experience with multiple pieces of IM legislation that may not be available within a single body.

Among the Notified Bodies that responded to the CSES survey, 43.9% were against and 37% in favour. Similarly, among Accreditation Bodies, 42% were against while 37% were in favour. Among national authorities, the main concerns raised in relation to the possibility to subcontract different parts of the conformity assessment process is that there are greater difficulties in assessing the capacity and competence of these bodies, particularly when they are located outside the EU. Ensuring the quality of NBs located outside the EU is already a challenge and existing subcontracting practices make this even more problematic, particularly in relation to products where third-party certification is mandatory.

On the other hand, the discussion with industry stakeholders indicates that the flexibility provided is appreciated and possible necessary in the case of products covered by multiple pieces of legislation, particularly covering very different technical areas. It is unlikely that a single Notified Body – particularly a small one – will have the necessary technical capacity. At least one Notified Body from Lithuania seemed to challenge this view suggesting that, while integrated products may theoretically require different Notified Bodies to be involved in assessing compliance with different IM regulations, in practice most NBs are used to testing products for multiple pieces of applicable legislation. It has not been possible to assess what is the current practice but it logical to expect that not all bodies will have the necessary facilities and expertise, particularly the smaller ones. Allowing manufacturers to use multiple bodies or Notified Bodies to subcontract the work to third parties can be seen as important for maintain many NBs in the market and ensuring high level of competition in the market.

A Notified Body interviewed in Lithuania stressed that although integrated products are becoming more common, which theoretically may require different Notified Bodies to be involved in assessing compliance with different IM regulations, in practice, NBs are used to testing products for multiple applicable legislation.

In conclusion, the analysis identified mixed views on this issue and no clear consensus. However, while the use of multiple bodies may pose certain challenges, ensuring the quality of all bodies involved in conformity assessment – including those in third countries – remains to be the key issue. If this is properly addressed, the use of multiple CA bodies should be seen as providing the necessary flexibility and helping to promote competition and supplier diversity in the NB market.

The discussions with industry stakeholders and authorities indicate that while the flexibility provided is appreciated, the main concern with subcontracting different parts of the conformity assessment process is that there are greater difficulties in assessing the competence of these bodies. On balance, the need to ensure quality of conformity assessments would tend to outweigh the benefits of flexibility. The broad trend towards consolidation of NBs would appear to be creating better capacity within individual NBs to carry out all elements of the conformity assessment process.

Research Findings (RFs)

· (RF38) Allowing different elements of CAP to be performed by different bodies can enable the necessary technical capacity to be made available. However, this creates difficulties in assessing the capacity and competence of sub-contracted NBs. On balance, the need to ensure quality of conformity assessments would tend to outweigh the benefits of flexibility in allowing different elements of a conformity assessment to be performed by different bodies. (Survey of NBs and ABs, stakeholder views)

4.3.4 Conformity assessment by different bodies EQ10: What are the challenges for national competent authorities in monitoring the activities of Notified Bodies located outside the EU? How far is it appropriate – if at all – to open up Europe’s conformity assessment market to third countries?

An issue raised by national competent authorities (responsible for appointing Notified Bodies) was the difficulty in assessing the capacity of NBs in carrying out conformity assessment services located outside the EU, including the subsidiaries of foreign-owned NBs located in the EU. Here, the main concern was whether such NBs are sufficiently well regulated to ensure a common level of quality and consistency in testing necessary to ensure confidence in third party conformity assessment within the EU. The concern was that there are currently problems in assessing their performance.

This concern was shared by representatives of manufacturers that were interviewed. Many of these made particular reference to bodies providing conformity assessment services in third countries where, as claimed, the capacity of national authorities to control their quality is limited. It was claimed that branches of European Notified Bodies that operate in third countries are often less strict in assessing that the requirements and the procedures under the different modules are followed. The Chairman of the ExNBG commented that “in theory, there are no differences between NBs in terms of the quality of conformity assessment services that are being provided, but in practice there are quite differing levels of knowledge and experience”. Given these difficulties, it does not seem appropriate to open up Europe’s conformity assessment market to third countries until the performance of NBs in those countries can be assured.

Research Findings (RFs)

· (RF39) There has been particular concern over the quality of conformity assessments undertaken by Notified Bodies in third countries. (Survey of NBs and ABs; Stakeholder interviews; Case studies).

· (RF40) It does not seem appropriate to open up Europe’s conformity assessment market to third countries until the performance of NBs in those countries can be assured. (Survey of NBs and ABs; Stakeholder interviews; Case studies).

4.3.5 Necessity of third party conformity assessment EQ11: Should third-party conformity assessment be required for all industrial products?

A further proposal made by some stakeholders is the introduction of mandatory third-party certification. Currently the involvement of a Notified Body is only mandatory in the case of certain Directives while in others it is only required for certain categories of products defined in the Directives (see table below).

However, in relation to the total volume of products third party certification under Modules B-H is mandatory for only a small share of products placed in the market overall, since this mainly applies to higher risk products, which tend to be produced in lower quantity. One estimate provided by an interviewee suggested that no more than 5% of the total volume of products are subject to mandatory third party conformity assessment.

Table 4.5: IM Directives depending on requirement for third party certification by a Notified Body

Mandatory || Mandatory for certain products || Not mandatory

Active implantable medical devices Gas appliances Cableway installations Explosives Pyrotechnic articles Lifts Noise emissions in the environment || Ecodesign Simple pressure vessels ATEX Hot water boilers In-vitro diagnostic Measuring Instruments Medical Devices Personal protective equipment Pressure equipment R&TTE || EMC Low voltage NAWI Recreational crafts Machinery[38]

The Supplier's Declaration of Conformity (SDoC) route for conformity assessment is allowed under many IM directives and regulations. From the point of view of manufacturers, this was appreciated since it gives them the necessary flexibility as to whether to carry out the applicable conformity assessment modules using in-house testing alone, a combination of in-house testing and external conformity assessment or solely third party conformity assessment. The findings from the case study research showed that different approaches are adopted by manufacturers. Some firms may choose to meet conformity assessment mainly based on SDoC but choose to outsource testing with harmonised standards for particular directives (especially the LVD since the safety of the consumer / end-user is at stake), even where non-mandatory. This was viewed as providing them with added reassurance and in helping to manage reputational risk

Among stakeholders interviewed, there was broad support for continuing to make third party certification mandatory in the case of high-risk products. The use of third party certification is in principle based on a risk-based approach. However, there was an absence of a clear justification for the use of third party certification requirements based on the level of risk alone in all cases. Generally speaking, under the Machinery Directive (MD), the SDoC can be used for almost all types of mechanical and electrical engineering products. Since 2010, it has also been possible to use the SDoC procedure under the MD – at least if harmonised technical standards are applied – for the higher-risk categories of products set out in Annex IV of the Machinery Directive. Conversely, third party CA is required for all products covered by the Outdoor Noise Directive. Hence, according to some stakeholders, the mandatory third party certification regime does not appear to always be based on the level of safety risk of products.

In the case study research, many firms indicated that, at least for the Machinery Directive, even where a requirement for mandatory third party conformity assessment has been removed (as was the case for the categories of machinery in Annex IV that formerly required mandatory 3rd party CA), this did not necessarily lead to a sudden reduction in demand for third party conformity assessment services. Many manufacturers have continued to use the services of third parties “voluntarily” for reputational reasons and to reassure their customers that their products are safe.

Among stakeholders there are only few – mainly national authorities - that support the view that a mandatory third party certification for all products would be appropriate and helpful in improving the effectiveness of the internal market. Most industry representatives were however not in favour of extending mandatory third party CA beyond the current situation, since the SDoC has helped to improve safety standards for products. Among the feedback received was that any such development would create additional costs for industry and would also potentially lead to delays in time-to-market.

Even among Notified Bodies – which one would probably expect to favour such a development – less than half (46%) of survey respondents were in favour of introducing a mandatory third party conformity assessment for all categories of products and 41% were against. Among Accreditation Bodies, 32% were in favour. Those in favour suggest that self-certification under Module A does not provide a sufficient guarantee that the minimum essential requirements have been met even though there is recognition that such a requirement will create additional costs for industry. At the same time they suggest that self-regulation allows non-compliant products to enter the market and leads to unfair competition.

Among those not against any change in the current requirements, many claimed that the introduction of mandatory third party certification should be assessed on a product by product basis on the basis of some type of risk-assessment. For example, in the case of the Low Voltage Directive, certain products that are not covered could be considered as posing significant risks and third party certification was seen as being justified.

In terms of the costs implications of the mandatory use of third parties, the data collected indicates that the average cost of conformity assessment – excluding testing costs that would have to take place even in the absence of third party certification – is in the range of €30-50k/firm/annum or €3-4k on a per product basis. According to the data from the case studies, the fees to third parties do not represent more than 5% of the total compliance costs incurred by firms. Furthermore, as indicated, even when not mandatory, it is common among firms to outsource parts of the conformity assessment to third parties either because of limited resources – particularly among SMEs – or simply as a result of their own risk-averse approach. Concluding, third party certification should be expected to introduce a small but not insignificant administrative cost for a wide range of sectors. As indicated by some industry stakeholders, it is not the fees that represent the main concern but the possible delays and the negative effects in terms of time-to-market.

Research Findings (RFs)

· (RF41) Many manufacturers voluntarily submit their products third party conformity assessments, either because they value the credibility offered by independent assessment or because they lack the resources or expertise to undertake it in house. (Stakeholder interviews)

· (RF42) There is a strong case for high-risk products to require third party conformity assessment. Other products should be considered on a case-by-case basis, given that manufacturers value the opportunity to choose between SDoC or third-party conformity assessments. (Stakeholder interviews; Survey of NBs and Accreditation Bodies)

· (RF43) There is a need to clarity the principles and circumstances under which third party conformity assessments is required or not, e.g. via guidance from the European Commission.

4.4 Accreditation 4.4.1 Benefits of accreditation

EQ12: What are the benefits of accreditation for enhancing the single market for products (and services) and how could it best be used to support single market initiatives?

Regulation 765/2008[39] introduced a common legal basis for accreditation from January 2010. There are currently 33 Accreditation Bodies, covering all Members of the EEA, Switzerland and Turkey. Thus, while not mandatory to establish an Accreditation Body, all countries have selected to do so.

According to the Regulation, accreditation is voluntary. However, certain countries (e.g. Lithuania, Slovenia, and Luxemburg) accreditation is mandatory while in others (e.g. Germany) accreditation is only necessary in relation to certain categories of products.

The feedback received on the role of accreditation is rather mixed. In general, industry and national authorities were positive about its role in ensuring minimum levels of quality in the provision of conformity assessment services by Notified Bodies.

This was also the view of most Accreditation Bodies that responded to the survey (85% said that accreditation has been quite or very helpful towards the operation of the Internal Market). It is argued that accreditation has helped in strengthening confidence in conformity assessment processes and is a useful tool for ensuring greater consistency and improved technical expertise among Notified Bodies across Europe.

The discussions with interviewees found that Regulation 765/2008, which requires each Member States to set up a single national Accreditation Body, has been positive in making progress towards a more uniform approach to accreditation across EU28. In some countries, such as Germany and Italy, this has led to organisational restructuring at national level. This restructuring was viewed positively since national Accreditation Bodies are now formally under the responsibility of Member States authorities, whereas previously there were competing Accreditation Bodies in the private sector, for instance, in Germany, which undermined the objective of promoting quality and consistency in accreditation across the EU.

The national Accreditation Body in Germany commented that there is a public interest argument for having a robust accreditation system in place underpinned by appropriate procedures and assessment criteria for carrying out accreditation. “Accreditation is an appropriate tool to demonstrate that conformity assessment bodies are competent to carry out relevant tasks for which they are notified so that businesses and consumers have full confidence in the work of NBs and conformity assessment bodies”. Their British and French counterparts expressed similar views, but they also emphasised that compulsory accreditation would guarantee high levels of professionalism and expertise among Notified Bodies across Europe.

However, there were also concerns raised by industry and national authorities regarding the consistency of accreditation across the Union, which was viewed as varying greatly. A number of conformity assessment bodies pointed out that there is a need to build on the progress already made through the NLF in strengthening common approaches to accreditation and developing practical tools, guidance documents and criteria for national Accreditation Bodies carrying out the accreditation of Notified Bodies.

The European co-operation for Accreditation (EA) argued that accreditation has a role to play in raising the quality of conformity of services but agreed that there is currently a risk that different national Accreditation Bodies adopt different approaches. In order to address this problem, it is contributing to a process of putting together the main requirements for accreditation and the preferred standards to be used. The basis on which NBs should be accredited should be determined on a more consistent basis at EU level. “The process of strengthening accreditation will involve Member States’ national Accreditation Bodies, the European Commission and NBs”. There was general support among Accreditation Bodies for EA to take the lead in this area, given that it has a remit to coordinate work on accreditation at European level. It was also pointed out that progress made by the ISO in developing international standards on accreditation should also be taken into account[40].The Notified Bodies that responded to the survey were generally positive about the role that accreditation has played in improving the effectiveness of the Internal Market: 45% were highly positive assessment (“very” or “quite”), whilst 46% were fairly positive (“moderately” or “somewhat”). Accreditation was seen as having made a positive contribution to enhancing the quality and consistency of conformity assessment services. It was also pointed out that a number of Notified Bodies have ceased their operations since the introduction of accreditation in a number of Member States, an indication of their low quality and how accreditation can serve as a mechanism for helping to raise standards. However, more Notified Bodies focused on the differences of approaches followed among different Accreditation Bodies both in relation to the processes for carrying out accreditation and the assessment criteria that are applied. Furthermore, many Notified Bodies suggested varying levels of expertise and technical capacity of Accreditation Bodies to carry out their accreditation role. Additional problems of the accreditation mentioned included:

· Lengthy accreditation process: in some countries it can sometimes take close to two years.

· Doubts concerning the appropriateness of harmonised standards (EN17020, EN17021, EN17025) used for accreditation that have not been designed for the type of tasks that Notified Bodies perform.

Table 4.6: Has the accreditation of Notified Bodies contributed to the effectiveness of the internal market for industrial products?

|| Notified Bodies || Accreditation Bodies

Answer Options || % || No. || % || No.

Not at all || 17.4% || 16 || 0.0% || 0

Somewhat || 21.8% || 20 || 5.0% || 1

Moderately || 23.9% || 22 || 0.0% || 0

Quite || 23.9% || 22 || 40.0% || 8

Very much || 20.8% || 12 || 45.0% || 9

Total || || 92 || || 18

skipped question / don’t know || || 36 || || 2

Source: CSES survey

Research Findings (RFs)

· (RF44) Stakeholders confirm the benefits of accreditation: i) strengthening confidence in conformity assessment and ensuring consistency of conformity assessments; ii) improving technical expertise and professionalism among NBs; iii) promoting consolidation of NBs; iv) driving out poor quality NBs; (Stakeholder interviews; Survey of NBs; Your Voice consultation)

· (RF45) Concerns relate to the consistency of accreditation across EU28. There is a need for the basis for accreditation to be specified more explicitly at EU level, in order to limit national variations and inconsistencies. (Stakeholder views; Survey of NBs; Your Voice consultation)

4.4.2 Compulsory accreditation

EQ13: Should accreditation be made compulsory for the purposes of demonstrating the technical capacity of conformity assessment bodies in the regulated sector?

Despite mixed views on the accreditation procedure and its effectiveness, there appears to be significant support towards mandatory accreditation across the EU. Among Accreditation Bodies almost all were in favour while, even among Notified Bodies, more than 68% of survey respondents agreed that the accreditation of NBs should become compulsory. Accreditation is seen as a positive step for ensuring minimum levels of quality and consistency by most Member State authorities. It is considered necessary in order to strengthen the quality and technical capacity of conformity assessment services of NBs. Furthermore, it can lead to a consolidation process with larger NBs better placed to respond to conformity assessment requirements for products that are becoming increasingly integrated. Rather high support was indicated according to the Your Voice consultation (51/96), primarily among industry representatives (43/73) and less so among public authorities (4/15).

There is still scepticism among a range of stakeholders referring to possible adverse impacts from compulsory accreditation, particularly in smaller Member States in Central and Eastern Europe. There are fears that there may be reduced number of NBs and less competition if a consolidation process takes place. Mandatory accreditation will also lead to costs for Notified Bodies but also delays. The accreditation processes can be expensive and time consuming and a few examples provided indicate that in some cases the whole process may exceed 2 years. Such delays in the context of mandatory accreditation could create problems in the operation of Notified Bodies while the additional costs incurred may lead to the closure of smaller NBs and/or pass through to firms. It should be noted though that no such impacts were reported from national authorities where accreditation has been mandatory even before Regulation 765/2008.

An alternative approach proposed by one Accreditation Body was the possibility to make accreditation mandatory only for Notified Bodies wishing to be notified for certain Directives or product areas. This is based on the example of Germany where it is mandatory for NBs to be accredited by the national Accreditation Body (DAKKS) in order to be notified for certain product areas such as construction. A risk based approach focusing on the high risk product could be used to assess for which products areas and Directive accreditation should be mandatory.

Another alternative approach was proposed by the UK’s National Measurement Office on the basis of the ‘peer-approval’ scheme in place in the UK, whereby organisations such as local authorities can be approved as NBs without accreditation, but using a similar process. The costs of peer assessments being lower than those of accreditation, this approach allows organisations that have been performing product verifications for a relatively long time to stay in business without lessening the standards.

Whilst the accreditation process requires improvement, there would be appear to be a difference between perception and experience; the experience in EU15 suggests that compulsory accreditation is not particularly problematic, whereas in EU12 the fears expressed might not necessarily be based on experience. There is clearly a learning process that the relevant bodies in Member States must follow. On that basis, it would seem appropriate to make accreditation compulsory, over a reasonable timescale with appropriate guidance and discussion at EU level, e.g. to limit the duration and cost of the accreditation process, encourage co-operation and mutual learning between Accreditation Bodies. Whilst alternatives to accreditation do exist, these do not appear to be simpler than wholesale compulsory accreditation and would not address the underlying problems.

Research Findings (RFs)

· (RF46) The accreditation process can be costly and lengthy, e.g. taking up to two years. ABs may lack expertise and may vary too much in their approach to accreditation. There are also doubts concerning the appropriateness of harmonised standards used for accreditation. However, these difficulties can often be overcome, provided that ABs learn over time. (Stakeholder interviews)

· (RF47) It would seem appropriate to make accreditation compulsory, over a reasonable timescale with appropriate guidance and discussion at EU level. (Stakeholder interviews; Survey of NBs and ABs; Your Voice consultation)

4.5 Declaration of Conformity

EQ14: Is the current regime for the Declaration of Conformity satisfactory?

Declarations of conformity (DoCs) are a key element of the New Approach Directives. They constitute a statement by the manufacturer that the requirements of all legislation applicable to a product have been fulfilled. The intention of the NLF is that a single DoC shall be drawn up containing all information required for the identification of EU legislation to which the declaration relates and giving the publication references of the acts concerned. Once the product has been placed on the market, manufacturers and importers (or their authorised representatives) should keep the DoC for a period of time specified by the relative legislation, typically reflecting the lifecycle of the product and the level of risk.

The stakeholder feedback found that the current process of preparing a DoC is broadly appropriate and effective, although there are inconsistencies between IM directives as to the precise administrative requirements. Of those interviewees offering a response, more than half specifically expressed their satisfaction with DoCs and saw no need for any fundamental revision. Such interviewees covered a broad spread of sectors including domestic appliances, electronic equipment, cableways, lifts, gas appliances, pressure equipment and protective clothing. The general tendency of interviewees was to view DoCs as a useful rather than a crucial part of the conformity and compliance process. None of the interviews suggested that the current regime was unsatisfactory.

The most commonly-reported difficulty related to products imported from third countries for which the DoCs were incorrect, fake or non-existent or for which there were doubts on the conformity assessment procedure used. As a result, it was reported that some importers may have unwittingly placed non-compliant products on the market. Much of the problem appears to lie in the relationship between importers and third country manufacturers. Many importers face the practical difficulty of not receiving the DoC, as when the product is supplied to them, particularly when it is not mandatory that the DoC accompanies the products.

Others have faced the problem of a 3rd country supplier completing a DoC but then supplying a non-compliant product; one enterprise mentioned that the only solution for them has been to incorporate any liability into the contract with that supplier. Some stakeholders also reported a lack of clarity over responsibility for the compliance of products imported from third countries. For example, under the New Approach, it is required that that the name of the authorised representative of any third country manufacturer be recorded in the documentation. However, it may be the case that the importer is not specifically contracted to be the representative of the manufacturer, particularly where there are several importers of the same product. Where importers change the trademark and type of the products, they are considered to be the manufacturers and therefore have to establish the DoC; this complicates market surveillance, because there is no way to trace the different trademarks and types corresponding to a same product.

A minority of interviewees reported difficulties with DoCs that tended to reflect a lack of awareness or understanding on the part of economic operators. For example, some interviewees highlighted the risk that manufacturers issue a DoC without understanding the requirements, the standards that need to be covered, and the need to update the DoC as and when they produce revised versions of any particular product.

One interviewee suggested that this was particularly true of components suppliers, as they may have less awareness of the legislation than the manufacturer of a final product (in this case, fuel dispensers). Whilst the legislation does provide clarity over where responsibilities lie (i.e. with the body that completes the DoC), there are potentially difficulties in long supply chains, for example, where type-approvals are issued by a different manufacturer to the one that does the DoC. It was also reported that there had been inconsistent interpretations of when DoC should be made available for installations, i.e. at the time of installation or upon request from the market surveillance authority. Another difficulty mentioned (by a small number of stakeholders) was the need for greater clarity in the documentation so that the information provides a better identification of the product and its components and the conformity assessment undertaken.

Decision 768/2008/EC provides a model structure for DoCs and stakeholders welcomed efforts through the Alignment Package to standardise the template. They also stressed that flexibility should be retained as to whether to choose to produce a single DoC for all applicable IM legislation or a separate DoC for each piece of legislation. However, Decision 768/2008/EC also proposed that a “single declaration shall be drawn up in respect of all Community acts applicable to the product containing all information required for the identification of Community harmonisation legislation to which the declaration relates”.

This was confirmed through the interview programme with industry associations consulted at EU and Member State level in favour of retaining flexibility. There was a divergence of opinion as to whether it is preferable to have a single DoC covering all Directives that relate to a product or a different DoC for each Directive (although few interviewees offered any comment on this question). One in two respondents (24/47) to the Your Voice consultation and a lift manufacturer interviewed as part of the case study stated a clear preference for a single DoC covering all Directives. In contrast, only three respondents to the Your Voice consultation were in favour of a customised DoC for each piece of legislation.

Nevertheless a number of EU and national industry associations were against this suggestion and advocated that each economic operator should be free to choose whether to produce a single or multiple DoCs depending on what best fits with their administrative procedures. What is still generally accepted is that there should be a single template for all DoCs and this is also broadly supported by the responses to the Your Voice Consultation (42/47). A national competent authority suggested that some companies may find it easier to produce several DoCs depending on their procedures for quality assessment.

Another issue that has caused debate is the proposal in the revised LVD Directive which is part of the Alignment Package to require a colour picture of the product for the DoC. There is already a requirement for a colour DoC for the Toys Directive. However, this was as viewed by industry associations and individual manufacturers interviewed as adding unnecessary administrative burdens. A colour picture would not show whether the product is safe. A global manufacturer of IT products pointed out that manuals for electrical and ICT products are normally in B&W and this would therefore impose additional costs with no added value.

Some stakeholders also suggested that the information requirements of the DoC were too onerous, given their purpose. For example, one interviewee mentioned that recent legislation had introduced unnecessary new information requirements, for example, identification numbers on products and a physical address instead of just a website. One market surveillance authority also suggested that it was unnecessary for the DoC to follow the product, since consumers tended to ignore it and market surveillance authority could access the same information from other sources.

With regard to the cumulative regulatory effects linked to administrative requirements, there are high levels of administrative burdens associated with the frequency of updating DoCs. This can be a problem for all economic operators, but is an especially significant burden for large firms that manufacture, import and/ or distribute large numbers of products. Although not a legal requirement to list the harmonised technical standards that have been adopted in conjunction with the list of applicable IM regulations on a DoC, many economic operators choose to do so. A large multinational in the ICT sector stated that they have more than 1,000 products and update DoCs once every 3 months for regulatory purposes. The company pointed out that across their product range, there are frequent legislative updates of IM regulations and updates to standards.

Based on the evidence, there does not appear to be a need for any fundamental revisions of the DoCs and none of the stakeholders interviewed suggested the process of completing the DoC itself was particularly onerous. Issues arising tend to relate to non-compliance, whether wilful or inadvertent (e.g. due to a lack of understanding). In many cases, such non-compliance results from a broader failure to comply with the legislation rather than specifically to the DoCs. There might be some scope to simplify requirements relating to the information required to be presented in DoCs and also to the provision of DoCs with products, provided that they are available as necessary (e.g. provided to market surveillance authorities).

To help economic operators, it would be appropriate to allow them the choice as to whether to produce a single DoC covering all relevant Directives or a separate DoC for each Directive. There may also be some practical steps that can be taken, such as improving the provision of information to manufacturers in order to raise their awareness of the requirements of Directives, or findings ways to facilitate the cross-checking that certificates have been officially delivered, e.g. via databases.

Research Findings (RFs)

· (RF48) Despite some minor inconsistencies between different pieces of legislation and irregularities in DoCs for products imported from third countries, the current DoC regime is satisfactory and the model structure for DoCs provided by Decision 768/2008/EC is useful. (Stakeholder consultations; Your Voice Consultation)

· (RF49) The balance of views is in favour of a single DoC covering all pieces of applicable legislation and a minority prefer multiple DoCs or the flexibility for operators to choose. (Stakeholder interviews; Your Voice Consultation)

· (RF50) There does not appear to be any particular benefit in requiring economic operators to supply a colour picture of the product (Stakeholder interviews)

· (RF51) Given the text of Decision 768/2008 and the fact that DoCs are relatively easy to produce, it is recommended that a single DoC be required for each product, covering all applicable pieces of legislation. This should be applied in all updates to the legislation.

4.6 CE marking

EQ15: Is the current regime of CE marking satisfactory? Are there ways to improve the interaction between CE marking and other compulsory and voluntary marking schemes?

The CE marking system has been an integral part of Union harmonisation legislation since 1993. The general principles governing CE marking were updated as part of NLF in Regulation (EC) No 765/2008[41] while Decision 768/2008/EC sets out the rules on the affixing of CE marking to products to be integrated into Community harmonisation legislation. As such, CE marking is a manufacturer's declaration that the product meets the requirements of all applicable IM legislation. CE marking should be the only marking of conformity indicating that a product is in conformity with Community harmonisation legislation. However, for higher risk products, there are also sometimes additional labelling requirements in addition to the CE marking (see below).

The majority of stakeholders indicate that overall the CE marking is appropriate and operates rather effectively even if there are still issues to be resolved. The analysis of the responses to the Your Voice consultation also found that the majority of survey respondents did not perceive there to be any problems in relation to the use of CE marking (33 out of 47) and did not support a change to the overall approach.

There was however, a divergence of opinion on the question of providing additional information together with the CE mark. More than half of respondents indicate that this is not necessary, whilst around one third suggested that additional information should be presented, such as the applicable legislation or the number of the Notified Body in the case of conformity based on a third party conformity assessment module. However, as indicated by one stakeholder in relation to this last point, the inclusion of the Notified Body number is not appropriate since it can undermine the equivalence of self-certification under Module A where no Notified Body is involved with other conformity assessment procedures.

Among consumers, awareness of CE marking is relatively high, with 66% of respondents to a recent Eurobarometer survey reporting that they were familiar with the logo. This was higher than for four other logos, namely those signifying products detrimental to health if not used properly (64%), recyclable paper products (55%), ecological products (17%) and organically farmed products (16%). Familiarity was generally higher in EU15 than EU12, with respondents in Bulgaria (38%) and Romania (32%) demonstrating least awareness, perhaps reflecting their status as the newest Member States. Familiarity was highest in France and Luxembourg (both 84%), followed by Sweden (79%), as well as in one non-Member State, namely Iceland (81%). More men (70%) were familiar than women (62%). Those aged over 55 years (55%) and those suffering various forms of socio-economic disadvantage were less familiar than the population as a whole. Overall, these findings suggest that, given time, consumers can be made aware of the CE marking and that greater efforts should be made to promote awareness in those countries scoring lowly in the Eurobarometer survey.

Low awareness amongst some groups of consumers was not seen by the stakeholders to be a particular problem, except where consumers wrongly believed that the CE marking was a guarantee of product safety or quality. One hypothetical example offered was that of an oven installed in a new building that might receive the CE marking in line with the Construction legislation; in this instance, the CE marking might lead a user to assume wrongly that the oven has been tested for safety. However, this was not a concern that was broadly shared among stakeholders. Given that it is mainly a declaration of conformity with legislation, many stakeholders consider that it is not particularly important that consumers have a proper understanding of the meaning of the CE marking.

Perhaps more importantly, some stakeholders reported that low awareness amongst manufacturers was a common cause of inappropriate use of CE marking, with some applying the CE mark without knowing what it means. This issue might best be addressed through a combination of enhanced market surveillance to guarantee proper use of the CE marking and maintain confidence as to its role, as well as efforts to promote awareness of the requirements and significance of the CE marking amongst manufacturers, particularly those in third countries. Encouragingly, there was some recognition that the Commission’s recent efforts to promote awareness had proved useful. The Commission has, in fact, corrected one misconception regarding the supposed “China Export” mark in response to a question posed by a Member of the European Parliament.[42] This mark was said to take the form of a symbol identical to the CE mark, except that the letters were closer together. In its response, the Commission confirmed that no such mark existed and that the said mark constituted the CE marking as foreseen in the European legislation without respecting the dimensions and proportions prescribed therein. The Commission also highlighted the importance of market surveillance as well as its constant discussion with Chinese authorities to ensure that Chinese exporters respect Community legislation.[43]

Whilst there is broad satisfaction with the current CE marking regime, a number of issues were raised by stakeholders in relation to specific products or directives. First among these were differences in CE marking requirements between IM Directives, with concerns raised about the need to provide a greater level of information on some directives than on others. For example, directives such as the MD, LVD, R&TTE and the EMC[44] require the CE marking or the address information to be provided. The Personal Protective Equipment Directive was also mentioned as requiring additional, perhaps unnecessary information.

Inconsistencies in requirements between IM Directives were also mentioned as caused difficulties in specialist areas with specific regulatory arrangements that, until recently, did not require CE marking. For instance, the Medical Devices Directive 93/42/EEC covered the placing on the market and putting into service of Medical Devices but did not require CE marking, since a different regulatory approach applied. However, under the new proposed Medical Devices Regulation (October 2012), CE marking will be required, which can cause particular difficulties in relation to integrated products that include smart functionality.

Table 4.7: Example of inconsistencies between IM Directives in relation to CE marking

Medical devices that incorporate a radio part fall under the Medical Devices Directive (MDD; 93/42/EEC) and the R&TTE Directive (Directive 1999/5/EC). Manufacturers must then determine which Directive should apply for instance in respect of CE marking. Under the R&TTE Directive, products must carry a CE marking whereas under the Medical Devices Directive there is a special regulatory regime and products cannot be CE marked. This causes uncertainty for manufacturers in specialist product areas. Note - both Directives are currently subject to revision. In the case of Medical Devices, the European Medical Device Regulations were proposed by the Commission in October 2012, and in the same month, the revision of the R&TTE Directive through the proposed new “Radio Equipment Directive” to align it with the NLF. Nevertheless, new legislation will not come into effect until 2015 so these problems remain.

There was also a call for clarity regarding CE marking on products/assemblies with multiple parts. For example in the case of petrol pumps, it was reported that Member States follow different approaches; some require the placing of a single CE marking on the pump, whilst others require a CE marking on each nozzle of the same pump. In the first case, once a nozzle is defect the whole pump is out of use. In the second, the remaining nozzles can still be used.

A few stakeholders expressed a view on the interaction of CE with other voluntary markings. Those stakeholders that did offer a view did not see any particular benefit from aligning the CE marking with voluntary markings, given that consumers are generally unaware of the significance of the CE marking. Since the CE marking only relates to regulatory compliance with IM regulations, there does not appear to be any merit in combining it with quality marks, such as the voluntary GS marking (Geprüfte Sicherheit or "Tested Safety") in Germany. A number of industry representatives pointed out that although the German GS is not compulsory, it is often requested by retailers and wholesalers can be considered as a non-regulatory barrier to placing products in the German market. This was considered to be a particular problem in the case of gardening equipment (see case study in Appendix C). However, this is more a matter of market pressure and wide recognition of the mark among GS consumers rather than one of confusion with the CE marking.

There is perhaps a need for the Commission to state more explicitly the purpose for which CE marking is intended. If CE marking is specifically intended to inform consumers, there is a need for a marketing campaign to raise awareness, and for additional information requirements, such as a clear explanation in product manuals of the meaning and implications of the CE marking for the product in question. Many stakeholders interviewed however did consider it to be particularly important that consumers fully understand the meaning of CE marking. If the main target audience of CE marking is market surveillance authorities, it might be possible to reduce information requirements, if such information is already provided elsewhere, e.g. in the DoC. For example, it might be possible to remove the obligation of putting a CE marking on the product manual when this is already on the product or to offer the possibility to use electronic CE marking on products such as mobile phones.

The Commission should perhaps also clarify the significance of CE marking for economic operators and consider the information that such operators might require from suppliers. There is also the continued need to improve awareness among manufacturers, importers and distributors regarding the significance of CE marking and the obligations that it imposes on them.

A number of further issues were identified in relation to how effectively CE marking works. Some stakeholders interviewed stated that there was evidence of inappropriate placement of CE marking on non-harmonised products (ladders were mentioned as an example). Furthermore, more thorough market surveillance is necessary to guarantee proper use of, and to maintain confidence in the CE marking system.

A few stakeholders suggested that while CE marking requirements are well understood by economic operators, there can be additional product labelling requirements in addition to CE marking. For instance, in the case of the Personal Protective Equipment Directive and for products falling under category 3 (higher-risk protective equipment and clothing) in addition to the CE marking, a digital code must be included on the product from the NB that carried out the conformity assessment process. In the case of the Measuring instruments along with the CE marking, the metrological marking (M), the last two digits of the year in which the conformity marking was affixed and the identification number of the Notified Body should also be included. While there are some administrative costs, firms and industry stakeholders interviewed did not suggest that these represent a sizeable cost.

While the majority view among stakeholders was against any changes to the CE marking regime, there were also a few suggestions for improvements by some interviewees and respondents to the Your Voice consultation. Close to two thirds (59/96) of respondents to the Your Voice consultation indicated that it should not be necessary to provide any additional information alongside the CE mark, but around one third (34/96) proposed that some reference to the applicable legislation needs to be presented (either direct reference of with an additional marking) and 18 proposed that the Notified Body is also included in the case of conformity based on a third party (as is already the case for the MID). However, as pointed out by several stakeholders, the inclusion of the Notified Body number can undermine the equivalence of self-certification under Module A, where no third party certification is required.

Another suggestion made by a few firms in the ICT/electronics sector was the possibility of introducing of electronic CE marking for products with displays (e.g. mobile phones) while another was the possibility of removing the obligation of putting a CE marking on the manual of a product when this is already on the product.

Overall, given the evidence presented, it would seem that there is no need to change the overall approach to CE marking. There is however a continuing need to ensure through the NLF that there is greater consistency in CE marking requirements between IM directives and regulations, given that many products must comply with multiple applicable legislation. There may also be issues around the need to state the specific Directive to which a CE marking corresponds when placed on a product. With the growth in e-commerce, there may also be issues around the control of imported goods, which the NLF struggles to address.

Research Findings (RFs)

· (RF52) CE marking is appropriate and effective and the logo enjoys a high level of awareness amongst consumers (Stakeholder interviews; Your Voice consultation; Eurobarometer survey)

· (RF53) There is no particular benefit to be gained from aligning the CE marking with voluntary markings (Stakeholder interviews; Eurobarometer survey)

· (RF54) There are some minor difficulties relating to inappropriate markings, although these can be addressed through awareness-raising activities and continued market surveillance. (Stakeholder interviews)

· (RF55) There is no need for any fundamental change in CE marking, although there is a need to bring greater consistency and avoid having different requirements for different pieces of legislation and address the issue of products with multiple parts. This can be addressed through the NLF, as and when legislation is updated.

4.7 Role of support and coordination mechanisms

EQ16: What contribution is made by support and co-ordination mechanisms such as Administrative Co-operation Working Groups and Product Contact Points?

Administrative Co-operation Working Groups (ADCO) are in operation for a number of Directives[45]. Their role is to improve coordination and consistency in terms of the interpretation of requirements and market surveillance. ADCO groups are in operation for almost all Directives.

The interviews indicate that ADCO groups are particularly valued by national stakeholders for their potential to bring together the Commission, national authorities and industry representatives to discuss and often address issues that arise. ADCOs have also a strong role in developing guidance that assist authorities and economic operators. For example, in relation to the Pyrotechnics Directive the relevant ADCO group has published a list of what is banned in different countries informing potential importers. It is a rather common view among national authorities that each Directive and Regulation should have an ADCO group.

Stakeholders expressed concerns about the low level of participation or the limited expertise of representatives of some Member States that participate in the meetings. The absence of some Member States tended to weaken the potential to address problems caused by non-compliant manufacturers in those countries. It is suggested by some ADCO coordinators that there is need to strike a different balance in the participation of generalists, policy experts and technical experts participating in ADCO groups. Furthermore, most national authorities call for a greater coordination between ADCOs and working group meetings.

A number of national authorities called for increased financial support from the Commission for attending of meetings as well as technical assistance to fund ADCO activities, such as research and guidance. They also call for higher visibility of ADCO activities and meeting through the commission websites.  Interviewees agreed strongly on the need for provision of information at national level because of the inevitable variations caused by transposition of Directives into national law, and also because national bodies had the networks, contacts and language skills to provide effective information services to economic operators in their own country. One national body also  highlighted the importance of providing advice on VAT and other tax issues involved in trading across borders, alongside the information and advice relating to the product legislation.

Interviewees expressed divergent views regarding the value of national Products Contact Points (PCPs). Stakeholders in some countries suggested that PCPs were effective and providing a useful service. For example, one PCP had started to organise coordination meetings for Notified Bodies, whilst two others reported good relations with PCPs in other countries. However, others suggested that the concept of PCPs was poorly understood and that PCPs had a very low profile. Since many economic operators request and receive information directly from national authorities, it may be necessary to review the role of PCPs in order to determine their potential to add value to the services provided by national authorities and industry associations.

Research Findings (RFs)

· (RF56) ADCO are valued by national stakeholders for their role in facilitating discussion and action on issues of common concern and in developing guidance for national authorities and economic operators, though their potential is sometimes limited by low levels of participation and/or Member State representatives lacking the necessary expertise. (Stakeholder interviews)

· (RF57) The effectiveness of ADCO could be enhanced by greater visibility (e.g. on the Europa website), EU funding for participation and by EU technical assistance funding, e.g. for research, publication of guidance, etc. (Stakeholder interviews)

· (RF58) Product Contact Points are providing a useful service in some countries, though in others  they have a low profile and their role is poorly understood. (Stakeholder interviews)

· (RF59) There is a need to clarify the role of PCPs and introduce practical actions to strengthen their effectiveness, e.g. facilitate a network at EU level.

4.8 Market surveillance 4.8.1 Challenges facing market surveillance authorities

EQ17: What are the main challenges facing market surveillance authorities?

Market surveillance is a Member State responsibility, although the Commission has an important overall monitoring and coordination role. Effective market surveillance and regulatory enforcement is a crucial mechanism for ensuring the efficient and effective implementation of IM legislation for industrial products. It is vital for ensuring product safety and health and for promoting fair competition and a level playing field among economic operators. In order to strengthen the current approach to market surveillance, the EU adopted Regulation 765/2008 setting out common market surveillance rules and the Commission has proposed a Regulation on Market Surveillance as part of the wider Product Safety and Market Surveillance Package (PSMSP), as described above in section 1.3.5.

As noted earlier, market surveillance is inherently challenging and is considered by many stakeholders (e.g.  60.6% of NBs responding to our survey) to be the most problematic part of the IM regime for industrial products. Indeed, the impact assessment accompanying the PSMSP highlights a number of challenges, which have also been confirmed by the research undertaken for this evaluation.

A first challenge is the relatively high levels of non-compliant products entering the market, although instances of non-compliance often relate to minor administrative irregularities rather than to serious breaches of the essential requirements. There is evidently a balance to be struck between preventing non-compliant products from entering the market and avoiding the imposition of unreasonable requirements on responsible economic operators. It is also reported that there are relatively few withdrawals of non-compliant products from the market, although the RAPEX information systems has helped to raise awareness of high-risk products (see section 4.82 below). However, the 2006 public consultation on the New Legislative Framework (NLF) found that 87% of operators considered there to be unfair competition due to the presence of non-compliant products on the internal market[46]. Evidence from a number of evaluations and impact assessments suggests that non-compliant products account for a sizeable share of the market in certain sectors. This is confirmed in data provided by market surveillance authorities[47].

For example, the impact assessment[48] on the proposed “Radio Equipment Directive” to replace the R&TTE Directive cited evidence from European Market Surveillance Authorities (MSAs) that presently between as little as an estimated 28% and 56% of products were fully compliant with the essential requirements. Administrative compliance has been estimated at an even lower level by MSAs at about 20%. In the case of the Ecodesign Directive, non-compliance was estimated to be 10- 20%[49]. In other areas (e.g. Gas Appliances, Personal protective equipment) the existing studies indicate non-compliance levels of no more than 5-10%[50] and there are also cases – such as explosives – where, according to the relevant evaluation study[51], there are very few cases of non-compliance.

However, this is also a possible illustration of authorities giving a higher priority to products more directly linked to public safety issues. Estimates from market surveillance authorities and enterprises collected in 2006 also ranged from 1% for recreational craft to 30% for the Electrotechnical sector and even up to 50% for luminaires. Similar findings were obtained in three market surveillance campaigns carried out by the Administrative Cooperation group (ADCO) for the implementation of the Electro-magnetic Compatibility Directive focusing on Energy Saving Lamps, Power Tools and Consumer Entertainment Electronic Products. The level of technical non-compliance was 23% for the Energy Saving Lamps, 20% for the Power Tools and 50% for the Consumer Entertainment Electronic Products while according to the ADCO machinery NOMAD study around 80% of products do not comply with noise requirements.

A second challenge, related to the first, is the difficulty in ensuring the traceability of products, which was stressed by a number of interviewees, so that market surveillance authorities can obtain technical documentation not only at the point when products are placed on the market but for up to 10 years following their placement on the market. The limited traceability of products and of manufacturers strongly hinders market surveillance authorities in carrying out their work and improvements in this area would help to strengthen the efficiency and effectiveness of MSAs. However, it should be noted that economic operators were not generally favourable towards traceability requirements, and in particular, were against the introduction of requirements to register in databases. A major EU industry association stated that “the manufacturer is already legally responsible for ensuring regulatory compliance and for producing the DoC to achieve presumption of conformity. Traceability has become a religion and imposes unnecessary administrative burdens on economic operators, such as compulsory registration schemes and the requirement to put the address of the responsible economic operator on the label.”

A market surveillance authority in the UK commented that concerns about the administrative burdens of registration schemes extend beyond industry to some public authorities. “The proposed new registration scheme under the new R&TTE is intended to improve the traceability of products. However, it risks causing a bigger divide between good and bad providers; by creating more hoops to jump through, it will discourage some economic operators from complying and could also give greater competitive advantage to non-compliant providers”.

A Product Contact Point in Sweden pointed out that, although there has been a lot of discussion about traceability in the context of the Alignment Package, its value and importance depends on the type of product concerned, the directive or regulation in question and whether it is a professional or a consumer product. “When we refer to professional products where economic operators are known to one another, the extent to which there is really a need for traceability requirements should be reconsidered since this imposes unnecessary administrative requirements”.

A third challenge is the difference in approaches taken to market surveillance in different countries, for example, how likely MSAs are to carry out testing themselves, as opposed to requesting technical information from economic operators. Such differences may undermine the internal market since there could be variations for economic operators in their experiences, for instance, the type and frequency of requests for information from market surveillance authorities, the likelihood of having products tested, etc. Different approaches to market surveillance often reflect different levels of resources and technical expertise available to MSAs in each country; some stakeholders were of the view that the level of resources and expertise was insufficient in some countries.

One MSA in Sweden noted that “We test a broad selection of products ourselves and do not only ask manufactures to submit papers on the use of products. We also test a broad selection of products from different geographic origins both within and outside the EU. We do identify dangerous products and even where products are generally compliant, remarks are made for three-quarters of products tested”. Another MSA in Romania noted that market surveillance needs to be “highly coordinated and capable of reacting rapidly. However, market surveillance has not kept pace with developments in the Union's regulatory framework, which could be overcome through the use of an "intelligent" model. This means that “random checking” will not be mathematically random, but will instead be focused on a risk-based approach and the identification of potential problem products and economic operators that have previously been non-compliant. Wholesalers, distributors etc. who are known by experience to comply with the rules may therefore expect a fewer inspection visits”.

Encouragingly, stakeholders reported that market surveillance had improved and become more consistent across different Member States through the measures included in the NLF and, in particular the common rules on market surveillance set out in Regulation 765/2008. Some Member States (e.g. Greece, Ireland, Slovenia) had made significant changes to their market surveillance systems, such as the creation of national market surveillance authorities and the development of market surveillance programmes, as a direct response to the requirements of Regulation 765/2008.

Research Findings (RFs)

· (RF60) Market surveillance is considered to be the weakest part of the implementation system, partly due to the inherently difficult nature of the task and in part due to varying levels of resources and technical expertise available in different countries. (Stakeholder interviews; Survey of NBs)

· (RF61) There are high levels of non-compliance for some products, low levels of product withdrawals and a need to strengthen the traceability of products. However, there is the need for MSAs to differentiate between minor instances of non-compliance with administrative requirements and serious instances of non-compliance with essential safety requirements. (Data from previous studies; Stakeholder interviews)

4.8.2 Co-operation and information sharing between market surveillance authorities

EQ18: How effective is the co-operation between market surveillance authorities?

Through the evaluation, we also assessed the extent to which mechanisms and tools put in place to facilitate cooperation between market surveillance authorities and information sharing are working effectively, notably the Rapid Alert Information System (RAPEX) and the “ICSMS” tool (Information and Communication System for Market Surveillance.

Regulation 765/2008 includes a reference in the Regulation to the RAPEX system and has highlighted the importance of this exchange information mechanism for market surveillance in the Single Market. The report on the implementation of Regulation 765/2008 provides feedback on the added value of RAPEX. “Reference to the RAPEX system in the Regulation has extended the obligation to send RAPEX notifications to all goods falling within the scope of EU harmonisation legislation, including products for use in a professional context (e.g. industrial machinery) and products which may harm public interests other than health and safety (e.g. environment, security etc.). This has contributed to the protection of workers and the environment, although the total number of new notifications has been limited during the first two years of implementation”.

However, a market surveillance authority in Ireland noted that “RAPEX has not led to many notifications for harmonised products for professional users and the ICSMS has been more useful in practice”. Whereas RAPEX was viewed as being useful in informing market surveillance authorities and the Commission about high-risk products, and the database is useful for reporting purposes on products presenting serious risks, ICSMS[52], the general information support system for market surveillance also has an important contribution in ensuring that there are mechanisms in place for exchanging information between market surveillance authorities, joint working and for virtual communication and cooperation.

The tool provides a single portal containing information on specific products (product description, test results, in cases of non-compliance identified any remedial measures taken etc.). Two of the actions set out in the Multi-annual plan for market surveillance refer to ICSMS (Action 2: Maximise the benefits of ICSMS and Action 3: Create synergies between GRAS-RAPEX and ICSMS). A small number of stakeholders referred to ICSMS during the interview programme.

A market surveillance authority in Germany stressed the importance of the need for greater synergies between RAPEX and ICSMS. “ICSMS is a great operational tool to communicate with different market surveillance authorities in other EU Member States. Among the advantages of using the system are that it is available in all languages across EU28. Documents can be uploaded and although there is no automatic translation of all documents, most phrases are translated. This solves one of the practical difficulties in ensuring effective market surveillance - language problems can be a barrier to finding out about dangerous products and for avoiding duplication of effort between market surveillance authorities in different countries”.

ICSMS was not seen as duplicating RAPEX but rather complementing it. It was pointed out that it is only available in EN and it does not provide a tool for communicating and collaborative working between market surveillance authorities, which ICSMS does.

The need to examine the scope to merge different databases on market surveillance that feed into Member State reporting requirements to the Commission was highlighted. For example, a market surveillance authority in Belgium noted that “Each year, Member States have to prepare a report on market surveillance carried out and set out the plan for the coming year. There are several databases that are useful, such as Circa, RAPEX, ICSMS. The Commission should investigate whether merging of databases is possible and should study the value added of each database”.

Research Findings (RFs)

· (RF62) RAPEX and ISCSMS are viewed as useful in informing market surveillance authorities. (Interviews of MSAs)

· (RF63) There is scope to increase the complementarity and synergy between RAPEX and ISCMS. (Interviews of MSAs)

4.8.3 Risk-based and systems-based authorities

The proposed Market Surveillance Regulation is based on a risk-based approach to market surveillance (of both harmonised and non-harmonised products). One of the criticisms made by stakeholders is that there is no definition in the Regulation of what constitutes risk, and the criteria to assess it. A market surveillance authority in Germany commented that “Market surveillance authorities should focus on checking non-conformity, since this is easier to perform against the regulatory requirements. If instances of product non-conformity are identified, and it is judged that these are likely to lead to a risk or to a serious risk, then these products should be alerted through the RAPEX system. Although they were in favour of having common elements in Union harmonisation legislation built into a horizontal regulation, market surveillance should continue to be based on an assessment of product compliance with IM regulations.

However, the report on the implementation of Regulation (EC) No 765/2008 published in February 2013 as part of the PSMSP asserted that progress has already been made in the development of a risk assessment methodology. It was noted that the existing RAPEX Guidelines already provide for the risk assessment methodology for consumer goods, and are an important reference point for Member States. Moreover, in 2011, the Commission set up a Risk Assessment Task Force composed of Member States' experts whose role was to assess: (i) whether the existing methodology, whose main focus is on non-harmonised products, could suitably take into account the legal requirements of harmonised goods; (ii) how to address the need to assess risks to public interests other than health and safety, which are not taken on board by this methodology.

Through the research, we reviewed good practice in carrying out market surveillance (given the broad focus of our study, only selected examples are possible). In the Netherlands, a systems-based approach to market surveillance based on risk has been adopted. This was recognised by interviewees in other countries such as Latvia, as being an interesting, and potentially transferable example. An explanation as to how the system works is provided below:

Table 4.8: A systems-based and horizontal approach to market surveillance and regulatory enforcement[53]

In the Netherlands, the government adopted the “Vernieuwd Toezicht” (Renewed Surveillance Programme) in 2008. The aim is to strengthen the efficiency and effectiveness of market surveillance activities by fostering better relationships with economic operators and by raising awareness among enterprises about their legal obligations under product safety and environmental legislation. A distinction is made between (i) horizontal enforcement and (ii) system-based enforcement. These two different types of enforcement are already being applied by some government inspections agencies. Horizontal enforcement involves combining regulatory enforcement with horizontal activities and support actions for enterprises. Implementing a horizontal approach refers to the development of mutual cooperation between government and society. Horizontal enforcement is based on building mutual trust and a working relationship between government and economic operators based on the development and implementation of quality management systems to strengthen regulatory compliance. The agreements are set out in a covenant based on a partnership-based approach which is published on the inspection agency’s website. The provision of relevant information, the exchange of knowledge, and if relevant the monitoring of business activities are sufficient to consolidate compliance. System enforcement focuses on the enforcement of quality and assurance systems and more specifically on the development of a strategy for companies to set up robust regulatory compliance procedures, documentation to measure the results achieved, interventions committed and the defects. Surveillance in general takes place on the basis of periodical (administrative) inspections. Surveillance is not aimed at checking whether individual regulations have been complied with. The confidentiality of the government in the enterprise is still based on inspection. The application of horizontal and system-based approaches means that that one agency may apply the horizontal system and another may apply a system-based approach, while others adopt elements of both approaches. Through the application of a horizontal and system-based approach, the inspection can reduce the administrative burdens for enterprises/institutions which take their responsibility and do not injure the confidentiality received from the government. In addition the surveillance institutions are in the position to focus their capacity to enterprises performing not correctly. An example of a surveillance authority that applies the system approach is the Food and Consumer Product Safety Authority (Voedsel en Warenautoriteit). The systems-based approach is targeted at larger manufactures and EU importers based on the following criteria: position in the value chain (manufacturer, EU importer or major distributor); they must have a relatively large share of the market;, regularly included on RAPEX or often having defects found during product inspections; their willingness to invest in strengthening business-processes aimed at ensuring the safety of products.

Research Findings (RFs)

· (RF64) There is a need for better definition and clarification of risk and how to assess it in the proposed Market Surveillance Regulation, building on the proposed risk assessment methodology in the PMSP. (Analysis of legal text; Interviews of MSAs)

· (RF65) There is a need for guidance on the relative merits of the alternative approaches to market surveillance and the circumstances under which each type of approach should be adopted. (Analysis of legal text; Interviews of MSAs)

4.8.4 Market surveillance of non-harmonised products

EQ19: Should non-harmonised products be covered by common EU market surveillance rules?

Since the evaluation begun, in February 2013, the Commission published a Proposal for a Regulation on the Market Surveillance of Products, which is part of the wider “Product Safety and Market Surveillance Package” to improve consumer product safety and to strengthen market surveillance of products placed on the internal market. The Regulation, if adopted, will merge the rules on market surveillance of the General Product Safety Directive, Regulation (EC) 765/2008 and many sector-specific pieces of Union harmonisation legislation into a single legal instrument that applies horizontally across all non-food sectors. There would be no distinction between consumer and professional products or between harmonised products and non-harmonised products for the purposes of market surveillance. The Commission intends that this “one-tier” system will eliminate overlaps, close gaps and assimilate as far as possible the rules and procedures applicable to all non-food products.

The impact assessment accompanying the Product Safety and Market Surveillance Package considered the appropriateness of non-harmonised products being covered by common EU market surveillance rules, as well as the costs, benefits and possible issues that could arise from such an approach.[54] It offers a number of conclusions that have been reinforced and illustrated by the findings from the recent Your Voice consultation and by the consultations undertaken as part of the current evaluation.

First, the impact assessment suggests that market surveillance will be reinforced by the alignment of consumer product safety requirements with harmonised product safety requirements, through greater clarity and legal certainty. It notes that market surveillance is currently weakened by the differing requirements that currently apply to products with similar characteristics and safety properties, for example, toys and childcare articles.

Second, the impact assessment suggests that common EU market surveillance rules covering harmonised and non-harmonised consumer products will enable enforcement measures to be targeted directly at the source of any risks to safety. The proposed common rules will specify requirements concerning the identification of the manufacturer and/or the importer authorities. According to the impact assessment, this approach will also contribute to the non-discriminatory treatment of economic operators by market surveillance authorities of different Member States while allowing market surveillance authorities to track down non-compliant economic operators more quickly and at a lesser cost – by stopping unsafe products "at the source", i.e. where the product is manufactured or imported to the EU. This approach will also prove fairer and more effective by focusing on the operator primarily responsible for the placement of any risky product on the market, i.e. the manufacturer or importer, rather than the final distributor.

Third, the impact assessment suggests that the costs imposed on (responsible) operators by common EU market surveillance rules may be negligible in many cases. For example, many producers do not use separate production lines for harmonised and non-harmonised products and therefore already apply harmonised product safety requirements to all their products. Many also already establish technical documentation for non-harmonised products, even though not required to do so. In addition, the impact assessment notes that the size of the category of producers producing only non-harmonised products is extremely limited.

In contrast to the impact assessment’s findings, stakeholders consulted in the current evaluation expressed some misgivings about the application of common EU market surveillance rules to non-harmonised products. A key issue raised was that of different national standards in areas that affect safety, such as electrical installations. Such differences mean that common EU rules might prove less effective, for example, potential risks are not assessed with sufficient consideration to the (national) context in which products will be used. Some stakeholders also pointed out that the Commission had ruled out imposing product safety requirements on non-harmonised professional products (i.e. products circulating only among professionals and never used by consumers, such as industrial machines, raw materials and semi-finished products) and that this risked creating a loophole.

Another issue raised by interviewees was the risk of increased human resources and costs resulting from the extension of common EU market surveillance rules to non-harmonised products. Stakeholders noted that it is more complicated for market surveillance authorities to carry out monitoring and surveillance for non-harmonised products since they must contact market surveillance authorities to ask whether products have been produced in line with national legislation, which is resource intensive and slows down the process. Therefore, it was argued by some stakeholders that a differentiated approach should continue to be adopted to market surveillance, depending whether products are harmonised or non-harmonised.

A stakeholder in Romania for example commented that common rules on market surveillance could lead to a high increase in costs in some Member States, if the provisions obliged the relevant bodies to perform complex tests. An increase in staff would be needed and the acquisition of additional testing equipment for those bodies, and investment would be needed in reorganising market surveillance systems, structures and personnel, with training to enhance capacity. A national competent authority commented that “it is difficult to put in place common EU market surveillance rules for non-harmonized products because each Member State has its own specific national organisational set-up and practices”. A market surveillance authority in Germany commented that it is much more difficult for market surveillance authorities to assess the risks associated with non-harmonised products, and this implies further resources.

Feedback from industry and MSAs highlighted some concerns regarding the proposal to remove the distinction between consumer and professional products. It is easier for MSAs to check consumer products before they are placed on the market whereas this is often not straight forward for B2B products (for instance, complicated machines) since these only appear when products are about to enter the market or already in use. Considerable technical expertise is needed to assess more complex industrial products. A ‘one size fits all’ approach to market surveillance as proposed in the PSMSP may be difficult to implement in practice, due to differences in how market surveillance activities are carried out between harmonised and non-harmonised products and differences between product types as to when it is feasible for MSAs to actually carry out testing and risk assessment of products (pre or post-placement on the market).

The absence of standards for non-harmonised products was cited by a number of interviewees (market surveillance and national competent authorities) as a further complicating factor that means market surveillance in the non-harmonised product domain is resource-intensive. For instance, a competent authority in the Netherlands stated that the lack of EN standards means that it is consequently difficult for them to determine the regulatory requirements that should be checked for products placed on the market according to the mutual recognition principle. The resource implications of the proposed Regulation were also highlighted in Denmark. Market surveillance in the non-harmonised sector is more time consuming and costly and requires strong cooperation from market surveillance authorities in other Member States.

However, not all market surveillance authorities would have to make changes to their systems, processes and procedures if a common approach to market surveillance were to be adopted. For instance, a market surveillance authority in Sweden commented that “we have a tradition of working with both harmonized and non-harmonized products in the same way so common rules will not lead to many changes to our processes or ways of working”.

Since market surveillance is a Member State responsibility, any extension of EU market surveillance rules should take into account the willingness, technical capacity and resources available to market surveillance authorities to fulfil any additional responsibilities that would be required of them. There may also be a need to provide support and guidance to manufacturers and other affected economic operators as a means of ensuring effective application of the legal framework and reducing unnecessary burden, as well as to national authorities.

Among the wider feedback from MSAs in relation to the proposal for a new regulation on market surveillance as part of the Product safety and market surveillance package (PSMSP)[55] (COM(2013) 74 final) was that there are concerns as to how realistic the suggested approach is for industrial products and whether there is too strong a focus on consumer products, and whether testing on a sampling basis is more realistic. One market surveillance authority commented that “There are contradictions in the PSMSP, which makes a distinction between industrial and consumer products, however for Regulation 765/2008, industrial and consumer products are integrated”.

A concern among stakeholders with regard to the proposed Regulation within the PSMSP was that each Member State is required to set up a Market Surveillance Authority (MSA) with relatively minimal guidance from the Commission. There is a potential danger that this could result in 28 different sets of rules for the implementation of market surveillance arrangements, with divergence in risk assessment processes. Moreover, there are potentially additional costs associated with the implementation of the PSMSP, namely a new set of testing and evaluation laboratories could need to be set up by each Member State. It is intended that this will come at least partly from fines and levies from requiring manufacturers to carry out risk assessments when these are mandated by MSAs. However, there is an evident risk that different MSAs adopt different approaches, which could undermine the effective functioning of the internal market.

Research Findings (RFs)

· (RF66) Market surveillance will be reinforced by the alignment of consumer product safety requirements with harmonised product safety requirements, although this may depend on the extent to which market surveillance authorities are able absorb any increase in costs. (Impact assessment for PSMSP; Interviews of market surveillance authorities)

· (RF67) Common EU market surveillance rules covering harmonised and non-harmonised consumer products will enable enforcement measures to be targeted directly at the source of any risks to safety. (Impact assessment for PSMSP)

· (RF68) The costs imposed on responsible operators are likely to be negligible in many cases. (Impact assessment for PSMSP)

· (RF69) Different national standards for some products may reduce effectiveness of market surveillance. (Interviews of market surveillance authorities)

     

5. Costs of compliance and scope for simplification 5.1 Introduction and approach taken

An important objective of the evaluation has been to understand the process by which industry complies with the legislation and to identify and quantify the costs incurred in compliance. Based on that, we have then identified ways by which the legislation and its implementation might be simplified in order to reduce those costs. Where possible, we have also attempted to estimate the financial benefits of the simplifications.

More specifically, the analysis has attempted to estimate:

· costs of compliance with IM legislation faced by firms (see section 5.2);

· scope for regulatory and administrative simplification of IM legislation (section 5.3);

· potential cost savings from simplification options (sections 5.4 and 5.5); and

· macro-economic impacts of simplification measures on growth and jobs (section 5.6).

This task has been undertaken through ten case studies of specific product groups, of which eight focus on harmonised product groups and two on non-harmonised product groups. The table below lists the product groups covered by the case studies.

Table 5.1: Product groups selected for case studies

No || Product || Applicable Legislation

Harmonised product groups

1 || Electric motors || Core Directives - LVD, EMC, ATEX Other applicable IM legislation: REACH, RoHS, Ecodesign

2 || Laptops || Core Directives - R&TTE, LVD and EMC Other applicable IM legislation: Ecodesign, RoHS, Packaging and Packaging Waste Directive

3 || Domestic refrigerators and freezers || Core Directives - LVD, EMC Other applicable IM legislation: REACH, Ecodesign, Energy labelling, RoHS, Regulation on materials in contact with foodstuff

4 || Lifts for persons || Core Directives - Lifts[56], LVD and EMC

5 || Gardening equipment || MD, EMC, Outdoor noise, Non-road mobile machinery Emissions, RoHS, REACH

6 || Fuel dispensers || MID, LVD, EMC

7 || Air conditioners || MD, EMC, LVD, CPR, RoHS, Energy Labelling, PED[57], Ecodesign, Regulation 2000/2037/EC on Ozone Depleting Substances Regulation 2006/842/EC on Fluorinated Greenhouse Gases Regulation 2007/1494/EC on Labelling Requirements

8 || Integrated circuits || LVD, EMC, ATEX, RoHS

Non-harmonised product groups

9 || Ski/Snow footwear || Directive 94/11/EC relating to the labelling of materials used in the main components of footwear for sale to the consumer, Directive 94/62/EC on packaging and packaging waste, REACH, Mutual recognition Regulation 764/2008

10 || Bicycles || Mutual Recognition Regulation 764/2008

For each of these ten product groups, the relevant legislation was reviewed, sectoral data on market size and structure was analysed and firms were interviewed in depth in order to identify the processes followed in compliance and the costs incurred. Data on costs was then analysed using the Standard Cost Model, the European Commission’s prescribed tool for analysis of this nature in order to draw conclusions around the cost of compliance and the potential for cost savings from simplification of the legislation. Finally, macro-economic impacts were assessed through the application of a macro-economic model.

Attempting to quantify the costs of compliance, the potential for savings from simplification and the macro-economic impacts of legislation is clearly not without its challenges. Whilst the results presented in the sub-sections are based on recognised analytical techniques, we must highlight these challenges. In summary, these related to the following:

· establishing the baseline: whilst many firms have provided an indication of the situation prior to the introduction of Union harmonisation legislation, none were able to provide quantitative data on costs, given the time that has elapsed; similarly, it has not seemed useful to compare current costs against a hypothetical scenario in which no Union harmonisation legislation exists;

· availability of data: data on costs can clearly be commercially sensitive and many firms were unwilling to participate or reluctant to provide data; even where firms were willing, many simply did not collect data relating to certain costs of compliance; it was relatively straightforward to obtain data on the level of human resources working directly on compliance with administrative obligations, whereas data on product design and development and testing was less available;

· disaggregation of data: for most of the products in question, several pieces of IM legislation are applicable; moreover, most of the firms interviewed produced a range of products or models for both EU and global markets; it thus became difficult to isolate the cost of compliance with particular pieces of legislation from other costs and to relate those costs solely to production for the EU28 market;

· establishing the “business-as-usual” scenario, namely the costs that would be incurred in the absence of legislation; many firms found it difficult to accurately estimate the proportion of costs that they would incur in the absence of legislation, i.e. as part of the normal process of product design, development and testing.

European Commission guidance on the SCM makes clear that a distinction should be made between administrative and substantive compliance costs:

· Administrative costs - relate to the costs of preparing documentation and direct fees; and

· Substantive compliance costs - relate to any specific investments firms must make in order to comply with the law.

It is widely recognised that there may be nuances and an unclear demarcation between the two types of costs because such costs are part of a continuum. Most notably, in the case of testing carried out as part of conformity assessment modules to comply with Union harmonisation legislation, the aim is neither to obtain an authorisation or certification. Rather, it is to demonstrate compliance with the essential requirements. Nevertheless, the guidelines suggest that conformity assessment should still be treated as a substantive compliance cost, even if the current definition does not exactly fit this area. However, some elements of the conformity assessment process are administrative, such as preparing the technical file and issuing the Declaration of Conformity.

Given this potential lack of clarify, the way in which we have defined administrative and substantive compliance costs in this study is summarised in the table below.

Table 5.2: Administrative and substantive compliance costs

Type of costs || One-off costs || Recurring costs

Administrative costs || · Familiarisation with IM legislation and standards · Notified Bodies fees for IM legislation and mandatory testing || · Development and updating of technical files · Production of a DoC and CE marking · Conformity assessment: preparation of technical files in parallel with testing activities

Substantive compliance costs || · Modifications to product design (during new product development phase/ R&D) · Modifications to product design once products have been placed on the market · Costs of temporarily or permanently withdrawing products from the market || · Conformity assessment: preparation of technical files in parallel with testing activities testing for conformity with the applicable modules defined in IM legislation

Source: CSES

The extent of administrative and substantive compliance costs was estimated for four stages in the process of compliance with IM legislation:

1. Preparatory actions and familiarisation with the applicable legislation and relevant administrative obligations for economic operators

2. Substantive compliance: Introduction of processes or changes to product design and production processes to ensure compliance with substantive obligations

3. Conformity assessment procedures and the preparation of relevant technical documentation

4. Declaration of Conformity or other statement of compliance and CE marking

Costs incurred at each stage are now presented in the sub-sections that follow. Although a common approach was adopted to the eight harmonised product cases, in some instances it has been difficult to compare findings from the different cases due to the data limitations already described.

We then present estimates of the cost at sectoral level, for firms of different size and for public authorities.

5.2 Costs of compliance for firms

EQ20: What steps do firms take to ensure compliance with IM legislation? What costs do they incur?

5.2.1 Preparatory actions and familiarisation with the legislation

Familiarisation with IM legislation and the respective requirements is an important and ongoing task for all firms. Even though the amount of time that firms spend on familiarisation was found to vary, most firms indicate that they spend quite a lot of time on such activities, commonly 15-20% of the total in terms of human resources.

Many large firms have staff specialising in regulatory compliance (commonly around 2-4 staff). Since monitoring legislation is part of their everyday business, as part of the familiarisation process, they follow and input to EU policy and legislative-making processes. The firms interviewed recognised that it was in their direct interest to participate in shaping the form, content and implementation of Union harmonisation legislation. Furthermore, many of the large firms interviewed are actively involved in standards development processes. They are involved in discussions at the policy level and have a clear view of relevant developments, and of the dates for the introduction of new requirements or changes to relevant technical standards.

Among small firms, there is more of an ad-hoc approach to the familiarisation step, i.e. whenever there are major legislative developments or changes to standards, SMEs seem to find out about what changes are being introduced. They then assess whether any modifications are necessary for existing products or for new product development. SMEs find out about forthcoming changes through a number of information sources, particularly the relevant national and/ or EU industry associations – which charge a membership fee but provide updates on relevant legal developments.

Some firms interviewed also maintain a database that identifies the relevant legislation and relevant/applicable standards for each of their products. Once developed, however, such a database is useful across different business functions since an overview of legal requirements is required by laboratory staff involved in testing, production engineers and product development departments. Some larger firms were found to have developed a more sophisticated database / information management system that goes beyond a simple spreadsheet. However, this can be costly and time consuming both to set up and to maintain. A suggestion was made that it would be very helpful if there were an online database or web portal where product group specific information about compliance, such as forthcoming legislative developments and the dates of updates to standards coming into effect was provided.

Firms in a few product sectors covered also referred to costs for staff attending training courses, either organised internally or through the use of external consultants. The true cost of such training is difficult to identify, since it may often be incorporated into wider staff training activities. In the case of petrol pumps, one company suggested that it accounted for 15% of the total costs of familiarisation, whilst another suggested a figure of 25%.

In small firms, the familiarisation step typically accounted for less than one full time equivalent (FTE), but sometimes additional external support was needed. For larger firms, given their engagement in EU policy and legislative-making processes and standardisation-related activities, the costs are often much higher, usually around 3-4 FTE (although in one case, as many as 15 staff were involved, although only part of their time was involved in familiarisation). This reflected a much more active approach to monitoring and shaping the development of IM legislation and technical standards.

Among other preparatory actions that involve cash costs for firms are the purchase of harmonised standards which, in the majority of cases, represent the preferred route to ensuring conformity with the applicable requirements. The costs of the purchase and/or update of standards for a specific product group does not account to more than €2,000 on an annual basis, and in many cases less than €1,000.

The amount of time for familiarisation varies depending on the year and what type of legislation has been introduced. For instance, long-established IM legislation was seen as much less burdensome during this step, compared with the introduction of new legislation. For example, for the laptops case, a significant resource input was required to input to the preparation of RoHS and once adopted, to ensuring that companies were RoHS-ready. In the case of air conditioners and air conditioning systems, the Ecodesign implementing regulations required substantial familiarisation time.

Currently, SMEs and large firms obtain information about IM legislation, technical standards and administrative requirements from a variety of sources, such as the legislative authorities, suppliers, industry and trade associations, market surveillance authorities, etc. However, among SMEs and especially micro firms, there is a low level of knowledge about IM legislation, and the specific requirements for different economic operators in the value chain (manufacturers, importers and distributors).

There is therefore a need to ensure that there is an easily identifiable “first port of call” available for firms in each Member State, particularly SMEs, to find out more about which IM legislation is applicable to their products and which standards could be applied to meet the essential requirements. Although the European Enterprise Network could potentially help in providing a signposting function, the European Information Centres (EICs) can only provide very general advice and are non-specialised, as is the case for the SOLVIT network, whereas PCPs have at least some specialist knowledge, since they are often located within national Ministries that are responsible for different national competent authorities.

Quite a number of manufacturers that took part in the case studies stated that one of the most significant challenges in respect of the familiarisation step is keeping track of changes in legislation and updates to standards, since there is a high cumulative frequency of changes. It was suggested that an online web portal could be developed at EU level funded by the Commission to provide a single reference point for firms to find out more about which legislation applies to their product, and what changes are being made to legislation and updates to standards.

It should be stressed that there is already a lot of relevant information available via the DG ENTR website about IM legislation, non-binding guidance, standardisation and Notified Bodies. The issue is whether it is feasible to move from the current legislation-based approach to a product-based approach, since this would be resource-intensive. Given the large numbers of technical standards, such a portal would only be able to follow a broad product category approach (since it would not be possible without significant resources to check the position for sub-categories of products. For instance, there are more than 700 different types of standards for machinery alone.

5.2.2 Substantive compliance with IM legislation

Having understood and familiarised themselves with the applicable essential requirements under Union harmonisation legislation for their product, firms then need to comply with these requirements (often using a voluntary technical standard) and with the appropriate conformity assessment procedures and CE marking requirements.

Either in the case of the development of new or modification of existing product models, this typically includes a period of largely overlapping research and development activities and product testing, the latter providing feedback on the former. The main cost drivers are the costs of human resources (research, engineers), materials, investment in testing facilities and in the costs of testing. Ensuring compliance with the requirements is sometimes the main driver of R&D and testing activities or may be only one among a number of considerations in new product development. The aim is to satisfy market demand and to ensure product quality. Thus, the share of these costs associated with meeting legal requirements (substantive compliance costs) can vary greatly. This is reflected in the input provided through the interview programme and case studies.

Aspects related to product safety may be linked to specific legal provisions but many firms indicate that such activities would take place even in the absence of IM legislation. In most case studies, the firms responded that testing for the Machinery Directive, Lifts Directive, Low Voltage Directive or the EMC Directive is largely part of their business as usual costs, i.e. what firms would do irrespective of whether European harmonised product legislation was in place. For instance, lift manufacturers undertake their own extensive product testing both during development and installation so as to ensure high levels of quality and safety. In most cases, these checks, which are often part of internal quality management systems, readily encompass the minimum essential requirements set out in the legislation.

In contrast, firms very often consider that none of the costs of compliance with environmental (emissions, noise, energy efficiency) requirements are business-as-usual costs. An exception identified in this regard (material handling equipment) indicated that the share of investment in R&D and testing activities directly linked to IM legislation has recently increased from a typical 10-20% to more than 60% of the total R&D budget. . Another exception is the energy efficiency of domestic refrigerators and freezers [cf. case study].

The main reason indicated is the need to ensure compliance with Non-road Mobile Machinery Emissions and the Outdoor Noise Directives, both of which require dedicated testing facilities (the costs of a sound chamber to test for outdoor noise can be more than €1 million). However, there are also benefits and potential trade-offs with products’ performance, requiring additional product design costs. In comparison, firms in the gardening equipment sector – a sector also covered by the NRMM and the Outdoor Noise Directives - indicated that 10-35% of product development and testing costs could be avoided in the absence of IM legislation.

Another Directive considered by some stakeholders as having created significant compliance costs for SMEs is the Ecodesign Directive, under which implementing regulations are adopted in relation to specific product groups. The evaluation of the implementation of the Ecodesign Directive in 2012[58] suggested sizeable costs for R&D, testing facilities and possible changes in production. The Ecodesign implementing regulations however only require redesign of the worst-performing products.

A survey organised by the Finnish Industry Association indicated that, on average, for each firm the one-off costs of setting up the necessary test labs were around €200,000 with an additional 1-2 FTE for relevant personnel. In the case of SMEs that use external labs to assess conformity, the cost per product is, according to information from the impact assessments, around €1,000 per product model-family. The testing of products also includes investment in testing facilities. Large firms usually invest in their own testing facilities while smaller firms use external labs more commonly, often those of accredited organisations that provide certification services (Notified Bodies). The costs involved are higher, but smaller firms often have no choice because they cannot afford the major upfront investment to set up a suitable laboratory and to purchase testing equipment.

Whether directly or indirectly linked to legal provisions, an important point identified through a number of the case studies (laptops, lifts) is that a high percentage of substantive compliance costs are integrated into firms’ product design cycle. Large manufacturers account for a very significant market share and since they follow legislative-making processes leading to the adoption of IM legislation, they are typically aware well in advance of the adoption of the legislation what the requirements are likely to be, and they can therefore factor these in to R&D and design processes well in advance of the legislation coming into effect. A number of firms therefore indicated that even the costs for compliance with the Ecodesign implementing regulations could be significantly reduced when firms are given significant lead times and can integrate the design and testing activities into their normal product development cycle[59]. It should be noted however that the product development cycle varies among sector. For example, in the case of laptops it is typically no more than 6 months, while in the case of air-conditioners it can be up to 3 years. Product development cycles are usually considered in the regulatory process establishing Ecodesign implementing regulations.

In contrast, frequent changes to requirements and standards can lead to sizeable costs for industry. It was also noted that regulatory changes for IM legislation are less frequent than changes to environmental legislation. However, the interaction between (and cumulative regulatory impacts of) IM legislation on the one hand and environmental legislation on the other can sometimes lead to additional administrative costs for industry.

While in general many safety-related directives are not viewed as particularly costly, frequent changes to the requirements or relevant standards can have cost implications requiring the sudden withdrawal and redesign of products. While it was not argued that individual pieces of IM legislation change too frequently (usually legislation is reviewed once every 10 years) since multiple legislation is applicable to a given product, and legislative review processes are carried out at different times, there is an almost constant process of monitoring for revisions. This is especially the case for technical standards, where amendments to standards can be especially frequent.

An example of the implication of changes to standards was provided in the laptop case study where a large multinational had to withdraw a specific desktop PC model that did not meet Amendment 1 of standard IEC 60950-1, a standard set of electronic safety requirements. Similarly, a manufacturer of air-conditioners estimated that it will need to use 75% of its development resources over a 12-18 month period to make necessary adjustments to meet the recently introduced requirements for fans under the Ecodesign Directive.

After the initial adjustments are made, the burdens associated with the Directive are expected to significantly reduce. A lift manufacturer suggested that any technical adaptation required by the legislation would cost around €500k-€1m in terms of new product development. Such costs would relate to ensuring conformity of design, a physical examination of 8-10 different product platforms to be certified but also additional documentation for the conformity assessment process, costs for sales companies, training for sales and production staff, updating sales literature.

Moreover, economic operators referred to additional risks arising for R&D and early stage product development investment if they do not know how IM legislation will develop over time, and the form that its implementation may take in future. It is difficult to provide typical values of substantive compliance costs across the whole industry. They vary depending on the product category and the firm strategy. The following table provides some illustrative examples from the case studies.

Table 5.3: Examples from the case studies – compliance with the applicable legislation

Product category || Example(s)

Domestic Refrigerators || A large firm typically spends 1-1.5 year FTE / firm, 80-90% of which is allocated to product development and product quality testing. Another large firm indicated that a typical product development project - leading to the development of a basic model with multiple variants – takes 3 years and requires and a budget of up to €100 million.

Gardening equipment || A large firm producing close to one million units indicated that around 3% of annual R&D budget of €50-60 million that is invested to the development of a new product is directly related to ensuring compliance with internal market legislation (circa €4 million). A small firm producing 15,000 units indicated investments for product design of €200-300k

Pumps and dispensers || A large producer of pumps and dispensers (over 1000 employees) estimated total compliance costs of €3.2m over the last five years, €2m on changes to product design and €1.2m to production processes.

5.2.3 Conformity assessment procedures

The conformity assessment procedure most commonly followed by manufacturers interviewed was the Supplier’s Declaration of Conformity (SDoC). Among the steps needed as part of conformity assessment are carrying out product testing, the preparation of the technical file and the preparation of the DoC and the required information manual and CE marking. For product groups that have legislation that requires mandatory third party testing, an inspection by Notified Bodies and appropriate certification is required.

According to the common requirements set out in Decision 768/2008/EC, following the placing on the market, this information needs to be kept for 10 years following the placing on the market and to be updated whenever there are changes. This can require significant time and resources, for instance, checking and updating DoCs every few months, as and when legislation and standards are updated.

Significant time is often dedicated to the collection of information from suppliers of specific components or finished products. The estimated time for the preparation of a technical file for a gardening equipment product ranges from 40-100 hrs. The costs for conformity can vary depending on the need or not for third party certification. The data from the case studies suggests that the annual budget of firms for services of Notified Bodies is in the range of €30-80k, around €4,000 for certification of a single product and representing 20-25% of the total estimated costs for compliance. Similar figures were provided by manufacturers of fuel dispensers. Manufacturers of fuel dispensers – a product that requires third party certification - estimated that Notified Bodies fees represented 55% of the conformity assessment costs, 35% relating to initial inspections and 20% to periodic inspections. Data from the evaluation of the Gas Appliances Directive[60] also refer to certification costs in the range of €1000/product. However, the input from a number of firms (gardening equipment, air conditioners, refrigerators) is that firms use NBs services to support them in testing and ensuring compliance even when third party certification is not mandatory.

The provision of relevant information in the instruction manuals and translation costs are also part of the administrative costs. Data for translation costs of these manuals to cover all EU countries ranged around €3,000 for each gardening equipment model. It should be noted here that every change to relevant standards or requirements lead to costs for the replacement of manuals. A producer of domestic appliances selling around 2 million units indicated that every time there is new legislation new information manuals need to be printed. The estimated cost at an annual basis was around €100,000k/year.

Sectors covered by the Outdoor Noise Directive (e.g. gardening equipment) need also to submit information included in the DoC to the national and European authorities. Estimates from the gardening equipment case were that it took approximately 80 hours for the 20 different models in its production line. The REACH Regulation and the RoHS Directive do not directly affect firms in the manufacturing sector that are downstream users. The main task is the collection of information from suppliers so as to ensure that no substances of high concern are included in any component.

Some large manufacturers may test components but more typically, the approach followed is to request and collect appropriate certificates from suppliers, to allocate part of a FTE on an annual basis for this activity. According to the recent review of the REACH Regulation[61], 50-70% of downstream users of chemicals (mostly in the non-food manufacturing industry with the exception of chemicals and plastics) have experienced an increase in the costs of managing information along the supply chain, typically in the form of additional workload for existing staff (small firms) or the hiring of extra staff (large firms).

As in the case of product design and testing, additional costs may also arise from the changes to regulatory requirements and the updating of relevant standards. There is a need to adopt information manuals and technical files. This can be particularly problematic for small firms that do not have the structures and mechanisms to follow developments on an on-going basis. The feedback provided suggests that it is mainly these changes that create important adjustment costs rather than the actual information obligations. This is seen as particularly problematic for small firms.

Frequent changes make the legal environment unpredictable but also introduce costs – sometimes sizeable – for firms that try to follow all development and to fit their information collection systems to the information obligations. The feedback provided suggests that it is mainly these changes that create important adjustment costs rather than the actual information obligations. This is seen as particularly problematic for small firms. It was noted that regulatory changes for IM legislation are less frequent than changes to environmental legislation. However, the interaction between and cumulative regulatory effects associated with the two can sometimes lead to additional administrative costs for industry.

A further finding was that although economic operators may not always be able to quantify costs, most firms were able to comment on the level of staffing involved and the broad cost parameters. There were however concerns regarding those areas of the regulatory framework where there is potential future uncertainty for economic operators with regard to the future costs of compliance, such as REACH. Given the very significant level of investment and long lead times required in order to bring some types of new products to market, there are concerns that the situation may change in the interim with potentially very high costs for industry.

Table 5.4: Legal uncertainty for downstream users – laptops case study

A large global components manufacturer in the electronics sectors expressed concern as to whether particular chemicals would still be in use in 10 years’ time, and whether if not, substitute products are likely to be available. Product R&D operates according to long lead times and significant investment in the product development cycle is required to bring new innovative products to market. Economic operators, especially larger companies operating globally have to be inherently forward-looking in assessing how the regulatory landscape will evolve over time. The firm interviewed commented that “there is a great deal of legal uncertainty from a downstream user perspective. There is a substance called gallium arsenide and currently microchips cannot be made without it, but there is no viable substitute product. The substance is currently being reclassified under the CLP 5th ATP. There is a risk that the substance could be fast-tracked to being subject to an authorisation, which would impose major costs on industry. If a particular substance requires authorisation or is banned, then this could really disrupt the supply chain, and lead to legal uncertainty. REACH is delivering in terms of identifying harmful substances, but there should be a greater focus on assessing the impacts on impacts on downstream users.”

5.2.4 Estimates of costs at sectoral level

On the basis of data inputs from firms across the eight sectors examined, we estimated compliance costs – administrative and substantive – at a sectoral level. In the table that follows, we provide summary information drawing on the data from the case studies focusing on:

· Total annual compliance costs (excluding business as usual costs) and their share in the sector turnover;

· The main cost drivers (phases of the process, type of activity) of administrative costs.

Various caveats should be added before presenting the summary findings with regard to the costs of compliance of IM legislation across 8 harmonised product groups. Firstly, there were difficulties in obtaining reliable quantitative data on cost parameters across all variables. Secondly, there were specific issues and assumptions made regarding cost drivers for each case study. These are indicated in the footnotes in Table 5.5 that provide an aggregate of sectoral cost estimates for each case and explained in greater detail in the respective case studies in Annex C.

The total estimated annual costs of compliance of IM legislation across the 8 harmonised product cases were estimated at €342 million.

Table 5.5: Summary of findings – the annual costs of compliance of IM legislation across 8 harmonised product groups

Product group || Total annual compliance costs for the sector and share in annual turnover (%)

Electric motors || € 33.2 million 0.3% of annual turnover

Laptops || € 28.1m 2.0% of annual turnover

Domestic refrigerators/freezers || € 86.0 million 0.4% of annual turnover

Lifts || € 26.0 million 0.9% of annual turnover

Gardening equipment || € 98.5 million 3.9% of annual turnover**

Petrol pumps || € 12.2 million 1% of annual turnover

Air conditioners || € 50.1 million 1% of annual turnover

Integrated circuits || € 7.7 million <0.1% of annual turnover

Total || € 342 million

*Notes (i) the reasons for this outlier are explained in the case study on gardening equipment (ii) reference should be made to the footnotes in the case studies setting out the quantitative findings in all cases, since the assumptions made underlying the data, any gaps and imputations used for particular cases needs to be spelled out.

It is also important to note that it has not always been possible to clearly distinguish between administrative and substantive compliance costs in the quantitative assessment. There are grey areas where the delineation between different types of costs is unclear. For example, while conformity assessment costs are classified as being substantive costs, there are aspects of conformity assessment where administrative costs are incurred in parallel, such as the preparation of a technical file. These were explained in greater detail earlier in section 5...?. Where possible to do so, a differentiation between the two was made in individual case studies.

This being said, we can still observe wide divergence in compliance costs between different harmonised product groups. In most cases, total annual estimated compliance costs do not exceed 1% of annual turnover. The notable exceptions in this regard were gardening equipment (3.9%) and laptops (2.0%). The explanatory factors as to why compliance costs were higher in these sectors were explored through the research.  In the case of gardening equipment, the higher level of compliance costs was mainly because of the costs associated with environmental IM legislation (the Outdoor Noise Directive, non-road mobile emissions). In contrast to safety-related requirements which are very often considered to be “business as usual”, costs of compliance with environmental legislation are considered additional for the firms in the sector and, according to most firms, rather demanding, particularly in terms of the testing required.

For gardening equipment, administrative costs were found to be only a small part of total compliance costs. This seems to be the case generally for many consumer products (gardening equipment, domestic refrigerators and air conditioners). Substantive compliance costs are the main driver of compliance costs because important aspects of product design and testing for safety are not considered by firms to be business-as-usual costs. In comparison, in the case of the lifts and electric motors, both products primarily addressed at professional users, substantive compliance costs (product design and testing) are generally considered to be business as usual and, as a result, the main focus of firms is on the administrative costs of the legislation,

In the case of laptops, the estimates provided may over-estimate the total compliance costs associated with Union harmonisation legislation. Since the industry is dominated by a small number of global manufacturers, it was difficult for them to provide compliance costs disaggregated by geographic region because they tend to design products for global markets and sometimes for multiple – or at least dual – regulatory requirements with some customisation of the product itself to local markets.

Ecodesign was perceived as costly by some manufacturers that took place in the electric motors case study. However, there was found to be a difference between perception amongst industry about the main cost drivers in terms of the type of legislation, and the actual costs. The Ecodesign Regulations do not require all products to be redesigned, only the lowest-performing electric motors (typically 20% of existing models). Since other major global jurisdictions, such as the US, already had strict requirements, many motors already complied and the Ecodesign regulations has simply prevented the dumping of poorly efficient electric motors on the EU market. Compliance costs only equated to 0.3% of turnover in the electric motors sector.

5.2.5 Compliance costs by firm size

There were differences between firms in the level of compliance costs (administrative, substantive) by firm size, although this was difficult to substantiate based on the limited numbers of SMEs that agree to take part in the study. SMEs were found to experience significantly higher costs / unit for regulatory compliance compared with large firms that are better able to spread the costs across a high number of units. SMEs also appear to have a higher percentage of staff involved in compliance-related activities (familiarisation, testing) than large firms, although few are able to have individual staff members working full-time on compliance. Micro and small firms were also more likely to have to rely solely on external third party conformity assessment since many do not have their own in-house laboratory and testing facilities.

SMEs are also at a comparative disadvantage because large firms follow EU legislative-making and standardisation development processes more closely. As a result, they are more aware about proposed changes to IM legislation in advance and can factor in anticipated regulatory requirements prior to new IM regulatory requirements coming into effect at the product design stage, which lowers substantive compliance costs. Even if the number of SMEs that participated in the case studies was limited, the quantitative findings on compliance cost differentials were substantiated by a number of SME and industry associations in particular sectors (e.g. lifts, air conditioning).

The administrative burdens of compliance with Union harmonisation legislation were sometimes found to be disproportionate for micro enterprises. For instance, any manufacturer wishing only to place a product on the domestic market must still comply with IM legislation (including DoC and CE marking requirements) if their product is in the harmonised sectors. An example cited by a European SME association of the burdens were the Finnish woodcutters, where micro enterprises of 2 persons only producing products for the local domestic market had to go through the conformity assessment procedures and to CE mark, even though the products were sold untreated. Nevertheless, they are still subject to the REACH Regulation.

5.2.6 Costs for public authorities of monitoring product safety and regulatory enforcement

This study has not allowed for quantification of expenditure on national support mechanisms, structures and activities to support the implementation of Union harmonisation legislation, such as on market surveillance. However, some data was available in this regard through previous studies and impact assessments.

As far as public authorities are concerned, the available estimates on the number of product safety enforcement activities provided by national authorities suggest that a total of 3,000-4,000 product inspectors across EU28 are engaged in market surveillance and regulatory enforcement activities, with an annual budget of enforcement activities in the range of €100-150 million[62]. These figures are quite a high estimate, as they include enforcement activities relating to non-harmonised products. In addition, in order to assess the overall costs of the implementation of Union harmonisation legislation, other costs related to national implementation are the human resource costs for policy coordination through the role of national competent authorities, for instance, in the transposition of IM legislation, in the appointment of Notified Bodies, etc.

The feedback provided points to market surveillance as being the most resource-intensive aspect of the implementation of IM legislation for public authorities. From the small number of Member States that provided data on the resources allocated to IM legislation, more than 80% appears to be allocated to market surveillance activities. Compared to the situation prior to the introduction of the IM legislation, national authorities may have experienced some cost savings. According to the evaluation of the MID, for instance, many authorities indicated a substantial decrease in their workload in terms of dealing with applications for national certification. This reduction was most notable in countries with a small number of manufacturers of measuring instruments or where measuring instruments are imported on the basis of certification undertaken in other countries.

5.2.7 Conclusions on the costs of compliance with IM legislation for industrial products

Whilst most manufacturers could highlight the most costly compliance steps and pieces of legislation, few were able to quantify the costs incurred at each step with any accuracy. However, as the overall volume of IM legislation has grown, it was clear that the task of ensuring compliance with legislation and technical requirements set out in harmonised standards is resource-intensive.

A certain proportion of compliance costs were ‘BAU’ and would have been incurred by industry regardless as to whether there was a European regulatory framework in place. Many firms have well-developed internal safety testing procedures as part of quality assurance procedures and use third party testing for reputational reasons, even where not mandatory.

In all sectors, the process of adaptation to new technical requirements can be costly for manufacturers short-term, particularly when the transition period is relatively short. In the long-run, substantive compliance costs fall over time as manufacturers become more familiar with the requirements of the legislation. Industry is highly familiar with compliance requirements for long-established directives, such as the Machinery Directive, Low Voltage Directive and EMC Directive. Since the technical standards and administrative requirements are well-known, these can be factored in to design requirements from the outset.

Some legislation is more costly than others to implement. Ecodesign implementing regulations were often mentioned as costly, both because of the need for changes to be made to the worst-performing products. However, it should be noted that under Ecodesign Regulations, this does not mean redesigning all existing models, rather only the worst-performing, typically 20% of existing models. Moreover, products that have already been placed on the market are not effected by ecodesign; components and parts are not a specific aspect: ecodesign requirements are generic to the whole product. Substantive costs vary by sector. In sectors characterised by rapid technological innovation, the substantive requirements can usually be “designed into” the product; in that sense, the legislation sets parameters regarding what is possible without increasing the costs of design and production.

In other sectors, substantive costs tend to account for a relatively high proportion of total compliance, depending on the duration of the product lifecycle. For example, it is more difficult for manufacturers of products with a long lifecycle because they are more likely to have to make modifications – or to identify alternatives or substitutes - to products already on the market. This is more costly than factoring these into the initial design phase during the R&D process.

It is also worth noting that there has been a gradual accretion of IM legislation in the previous 25 years and this has led to cumulative effects of regulatory compliance. While it has long been the case that multiple pieces of legislation may be applicable to a given product, when the New Approach was first adopted, it was perhaps not foreseen that the body of internal market legislation would grow to the level that it has. Moreover, the past decade has seen the introduction of a number of IM directives and regulations that apply horizontally across all product groups (e.g. REACH, RoHS, Ecodesign and Energy Labelling). The cumulative effects of regulatory compliance stem from the fact that manufacturers of industrial products must comply with a growing body of internal market and environmental legislation. It is the cumulative frequency of these changes and updates to legislation itself and to (voluntary) technical standards that result in cumulative effects and impose additional costs, for instance, familiarisation time to keep track of changes, integrating new requirements into R&D and the product design phase, making modifications to products already on the market.

Research Findings (RFs)

· (RF70) Familiarisation with the legislation accounts for a significant proportion of the total costs of compliance, estimated at around 15-20% for many firms. Much of these costs are in the form of staff time, around 2-4 FTEs in a typical large firm and >1 FTE in an SME.

· (RF71) Ensuring compliance with IM legislation is sometimes a key driver of R&D and testing activities or may be only one among a number of considerations in new product development

· (RF72) Testing equipment can account for massive costs that manufacturers might not otherwise incur. These affect SMEs disproportionately, as the cost is spread over at lower volume of production.

· (RF73) In the long-run, a high proportion of substantive compliance costs are integrated into firms’ product design cycles and are therefore negligible. In that sense, the legislative requirements tend merely to set parameters around what is possible rather than imposing additional substantive compliance cost

· (RF74) In contrast, frequent changes to legislative requirements and standards can impose sizeable adaptation costs on industry, albeit one-off and short-term in nature.

· (RF75) A significant proportion of the costs of conformity assessment relates to the task of collecting information from suppliers, preparing technical files, checking and updating DoCs and maintaining technical files for 10 years. Such costs are greatly increased when there are changes to the legislation or the standards.

· (RF76) The costs of conformity assessment depend very largely on the need for third-party certification. Certification of a single product typically costs around €4k in NB fees, though annual certification of systems would be much higher.

· (RF77) In most sectors the costs of compliance do not exceed 1% of annual turnover, provided that much of the costs of product design and testing for safety can be considered business-as-usual costs.

· (RF78) SMEs experience higher compliance costs relative to their turnover, though few have individual staff members solely devoted to compliance. They are also more likely to rely on external third-party conformity assessment and less likely to follow and participate in the process of developing legislation and standards at EU level.

· (RF79) Market surveillance activities are estimated to occupy 3,000-4,000 product inspectors across EU28 at a cost of around €100-150m per annum. This accounts for around 80% of the total cost to national authorities of developing, implementing and enforcing IM legislation.

· (RF80) The gradual accretion of IM legislation has required manufacturers to comply with a growing body of internal market and environmental legislation. Frequent updates to legislation itself and standards risk imposing cumulative costs, for instance, related to familiarisation time to keep track of changes, integrating new requirements into R&D and the product design phase, making modifications to products already on the market, updating DoCs, etc.

5.3 Scope for regulatory and administrative simplification

EQ21: How far is there scope for administrative and regulatory simplification of Union harmonisation legislation? To what extent is there scope for merging different directives?

Although there was some support among stakeholders for the possible merger of specific pieces of IM legislation, stakeholders had differing views as to whether simplification was possible at all, and whether this would result in benefits, or simply risk making the regulatory framework more complex, with additional familiarisation costs for economic operators, at least in the short-term.

Through the research, a number of examples were identified where consideration could be given to the potential merger of specific IM directives and regulations in order to reduce the overall volume of IM legislation as part of a streamlining process. These are described in the table below.

Table 5.6: Possible simplification measures – mergers of directives

Type of simplification || Example || Key issues and possible simplification

Merger || Merging the Pressure Equipment Directive (97/23/EC) with the Simple Pressure Vessels Directive (SPVD) || There is support for merging the PED with the SPVD among some industry stakeholders but mainly national competent authorities. National officials would likely benefit from having to a single piece of legislation rather than two frameworks for pressure equipment. However, others favour retaining the status quo since simple pressure vessels currently benefit from a lighter regulatory regime. This issue was examined through the Evaluation of the PED[63] (CSES, 2012).

Merger || The Machinery Directive and Directive 2000/14/EC on Noise from Outdoor Equipment || The scope for merging the MD with Directive 2000/14/EC is under review. A technical study has been launched. A public consultation was carried out in 2010. Among the proposals under consideration are: simplifying the legislation by proposing revisions concerning noise data collection and methods of measurement.

Merger || EMC and the Machinery Directive || This was suggested by a minority of respondents to the Your Voice consultation.

Merger || RoHS and REACH || Both Directives apply to electrical and electronic equipment. Many stakeholders favour a merger or at least clarification of the relationship between the RoHS and REACH, as well as better co-ordination between those involved in implementation of the two pieces of legislation.

The broad scope of this study does not allow for a detailed assessment of the feasibility of merging different pieces of IM legislation for industrial products. Given the complexity, a technical study would need to be carried out in respect of each proposed merger, supported by appropriate industry consultation. Indeed, this has already been recognised by the Commission and the potential merger of the Machinery Directive and Outdoor Noise Equipment Directive is the subject of a current study and stakeholder consultation. Although the report is not yet available, our interview with the Commission official in charge of the study indicated that at interim report stage, there is no clear consensus among stakeholders as to whether the two directives should be merged.

This finding was echoed in our study through the interview feedback. There were concerns among national competent authorities for instance as to the feasibility of combining these directives. For example, an MSA responsible for Directive 2000/14/EC in Italy was against the possible merger. “Although a merger could theoretically be possible, differences in the aims of the two pieces of legislation should be carefully considered. Whereas Directive 2000/14 seeks to reduce noise pollution and to protect the environment, Directive 2006/42/EC seeks to protect the safety of workers and users of the machinery”. Moreover, in Italy, there are differences in the remit of the relevant competent authority responsible for Directive 2000/14/EC (Ministry for the Environment) and Directive 2006/42 (Ministry for Industry) respectively. Combining the two Directives was viewed as risking undermining market surveillance, because the existing enforcement framework reflects the different objectives established in both directives. In this case, a merger may not result in regulatory simplification and easing the work of enforcement authorities.

There is a need to reconcile two different internal market approaches since the Machinery Directive is one of the earliest ‘New Approach’ Directives whereas the Outdoor Noise Directive follows the ‘global approach’ concept. Practical challenges here are that whereas the MD focuses on horizontal risks and on extensive, broad-based ‘families of products’, the Outdoor Noise Directive follows a product-based approach. A further issue is that the MD works on the basis of manufacturers following voluntary harmonised standards whereas the Outdoor Noise Directive operates on the basis of “limit values”.

There has also been a debate about the possibility of merging the Directive on hazardous substances (RoHS)[64] and the Regulation on Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH),[65] since both apply to electrical and electronic equipment. For example, the potential duplication of restriction procedures and criteria between RoHS and REACH has been highlighted, and similarly parallel systems for the assessment of chemical substances by chemicals specialists has emerged. This creates a risk of inappropriate assessment of substances, unnecessary administrative burdens and conflicting requirements. Here, further future legal clarification would be useful, as and when further experience from REACH implementation is available.

Orgalime, the European Engineering Industries Association, had a similar view, and called for better coordination and structured, continuous communication between the different actors involved in the implementation of both pieces of legislation. They also stated that a clear decision is needed from EU regulatory authorities regarding the procedure that will apply in each case and consistent application of this decision by all bodies responsible for implementing REACH and RoHS.[66]

In response to these concerns, the Commission confirmed that when overlaps occur, the strongest restriction (i.e. the lowest maximum concentration) should be applied and that exemptions from the substance restrictions in RoHS 2 (as the 2011 recast to the 2002 RoHS Directive is known) may not be granted if they result in a weakening of the environmental and human health protection afforded by REACH. The Commission has also stated that a thorough analysis of the coherence of RoHS2 with REACH will be undertaken as part of the first review of RoHS 2, which is due by July 2014.[67]

However, it should be noted that the Commission officials interviewed from DG ENV were not in favour of such a merger, partly because of their position that there are major differences in aims and scope between REACH and RoHS, but equally because the RoHS Directive 2002 was recently recast. Indeed, although the RoHS Directive 2011/65/EU (RoHS 2) entered into force on 21 July 2011 and required Member States to transpose the provisions into their respective national laws by January 2013, so the new provisions have only just come into effect.

A further measure that could be adopted would be to widen the scope of existing IM legislation to include further product groups, both those already covered by IM regulations in principle, but where there is a lack of legal clarity as to whether they are included. Similarly, certain products may currently be excluded from the scope of certain directives and the rationale for including them may need to be strengthened over time.

There are clear benefits for industry in the Commission providing non-binding supporting guidelines that provide information on the scope IM of directives and regulations, and ensuring that these are regularly updated. This is particularly the case when ‘grey areas’ are identified where there is a perceived lack of legal clarity. This can lead to confusion as to which legislation should be applied and / or how legislation should be applied by enforcement authorities and manufacturers.

An example of a product group where there has been uncertainty as to which is the applicable legislation is ‘cylinders for breathing apparatus’, since these fall under both the Pressure Equipment Directive (PED) and Transportable Pressure Equipment Directive (TPED). This piece of equipment has been subject to much debate in relevant European level working groups and evidence has been presented that industry has struggled to understand which legislation applies and which approach they should take to ensuring compliance. In response, the Commission Legal Services (CLS) has produced a written legal opinion on the question of whether cylinders for breathing apparatus are covered by the PED. It concluded that they are covered, but they could also be covered by the TPED rules as long as they don’t fall within the PED exclusions. The Commission has suggested that they will produce a guidance note based on the CLS view and this will be drafted and agreed by the appropriate Working Group.

Although feedback suggests that industry and SMEs find the guidance very useful, some stakeholders commented that guidance to support the implementation of specific IM directives and regulations should be updated on a more timely and frequent basis in order to ensure that it remains fully up to date. The provision of legal clarifications in areas identified through this study as being grey areas, and the should help to provide better guidance for manufacturers in areas where there are grey areas, or where there is confusion among economic operators. However, it would be in the Commission’s interest if responses such as these can be quickly developed in order to meet the needs of authorities and manufacturers.

In a similar vein, as noted in the section dealing with components and spare parts, our research found that there could be a strong rationale in having a more common approach to definitions and to their inclusion across IM legislation. This would help to strength the legal certainty of directives and clarify the scope of the terminology. In line with comments received from the air conditioning industry, prior to the introduction of legislation, research should be undertaken by the Commission on understanding the existing framework so common definitions can be immediately drawn upon with a view to ensuring that the legal text is immediately understood by all market participants.

An area where the scope of legislation could be extended relates to offshore equipment. Given the increasing risks relating to the work of the offshore industry, a number of industrial product directives are being considered for extension to the sector in areas where they do not currently apply. This includes the ATEX Directive, Machinery Directive and Pressure Equipment Directive. A study is underway to explore the impact of the extension[68].

In terms of widening scope of IM legislation, there clearly needs to be strong consideration of impacts and whether benefits are incurred for industry and users. It is likely that extending the scope may not result in simplification for all segments of industry specifically those that solely manufacture products under alternative arrangements. Often, benefits will be incurred in terms of strengthening safety and environmental protection but not in terms of lightening the regulatory load for industry.

Research Findings (RFs)

· (RF81) There may be scope for merging different pieces of legislation, such as PED and SPVD, MD and OED, MD and EMC, and RoHS and REACH, although this will require in-depth consideration on a case-by-case basis.

· (RF82) Consideration of merging directives should take into account the differences between horizontal and product-specific harmonisation legislation.

· (RF83) Widening the scope of existing IM legislation to include additional product groups, particularly where there is a lack of clarity, may increase certainty for operators and thus help reduce costs of compliance.

· (RF84) There are clear benefits for industry from the Commission providing non-binding supporting guidelines that provide information on the scope IM legislation, particularly in any ‘grey areas’ where there is a perceived lack of clarity.

5.4 Benefits of simplifying administrative requirements

EQ22: How far will administrative simplification bring about benefits for economic operators in terms of reduced administrative burdens?

Regulatory and administrative simplification – and greater consistency in requirements between IM legislation – should in principle lead to cost savings for economic operators (EOs) through reduced compliance costs. It is important to scrutinise possible simplification measures carefully, since there could be unintended consequences that may serve to increase administrative burdens and/or limit the scope for flexibility of economic operators, as well as reduce the effectiveness of the legislation (for example, in respect of product safety). There can also be unintended consequences that are the opposite of the good intentions of the regulator. Specific examples are now provided:

Table 5.7: The simplification of DoCs – advantages and disadvantages

Simplification || Expected benefits || Potential disadvantages

Decision 768/2008 – common template for declaration of conformity Requirement that manufacturers should produce a single DoC || Eliminate inconsistencies between DoCs under different IM directives and regulations Common template would mean less familiarisation time for EOs. || Less flexibility for EOs If a single DoC is produced, then the DoC may have to be updated more frequently.

Taking the example above, in Decision 768/2008/EC, there was a proposal that for manufacturers should be required to produce a single DoC covering all applicable IM legislation, although this should in theory help to reduce burdens for manufacturers. However, industry stakeholders were against the proposal even if it is designed to help reduce their administrative costs. Industry associations interviewed were strongly in favour of retaining the current flexibility to decide either whether to produce a single DoC covering all applicable IM legislation or instead multiple DoCs for each separate directive and regulation applicable. This is an example of where administrative burdens on firms could paradoxically be increased, especially for SMEs.

The rationale was driven by a concern among manufacturers of minimising cumulative regulatory effects. Since there is a requirement in IM legislation and under the NLF to regulatory review and update DoC, their view was that If multiple legislation is applicable to a given product, and the manufacturer also decides (voluntarily) to list the technical standards used to achieve conformity with particular pieces of legislation, then the DoC has to be changed frequently, due to the cumulative frequency of legislative updates and amendments of technical standards.

In the next example, we examine the issue as to whether less legislation means that the costs for manufacturers and other economic operators are reduced. This might be said to be the simplification conundrum.

Table 5.8: Simplification – does less legislation mean less cost?

The laptops case study provided an example of a product group where there are alternative routes to compliance with Union harmonisation legislation. Manufacturers of laptops choosing to define their product as a radio product follow the R&TTE Directive whereas those that adopt a modular approach to compliance will comply with the R&TTE, LVD and the EMC separately. In practice, though, since the essential requirements under the LVD and EMC are already included within the R&TTE Directive, the manufacturer still checks for electrical safety and electromagnetic compatibility. The fact that manufacturers can in effect choose between different Directives to achieve regulatory compliance allows consideration as to whether a situation in which less regulation is applicable to a given product would result in cost savings for manufacturers. Among the findings were that broadly similar administrative requirements and testing as part of conformity assessment procedures will apply irrespective of whether one piece of legislation has been applied or three pieces of IM legislation separately. Potential cost savings and impact of “simplification”: since manufacturers have different preferences, and both advantages and dis advantages can be identified of following a modular approach or the R&TTE-D alone, it is not possible to quantify the cost savings of a simplification measure in which only the R&TTE-D was applied. Indeed, manufacturers prefer retaining the flexibility of different routes to regulatory compliance. Although some benefits were identified of only following one piece of legislation, such as clear legal certainty that the manufacturer is solely responsible for legal compliance, there were no cost savings per se. Product testing, for instance for electrical safety, have to be performed irrespective of which route to compliance is adopted.

As noted earlier, the research identified examples of IM regulations where there may be scope to merge directives and regulations in future, such as the Machinery Directive and Outdoor Noise Directive, the Pressure Equipment Directive (PED) and the Simple Pressure Vessels Directive (SPVD). In assessing the potential benefits, there was a need to consider whether there could be cost savings for manufacturers resulting from the merger of IM legislation.

Mergers of IM legislation can be helpful in reducing the cumulative effects of legislation. However, combining legislation does not necessarily mean that manufacturers benefit from cost savings. Indeed, it is difficult to make generalisations about whether merging Directives when there is scope to do so will necessarily lead to cost savings and is always the best approach. This is highly specific and depends on the objectives (e.g. safety and health, environmental) level of risk, and conformity assessment procedure applicable to the IM regulations in question that are under consideration to be merged.

As shown in the table illustrating alternative routes to compliance for the laptops case study, the extent of cost savings will depend on whether mergers of Directives involve substantive changes or are largely cosmetic in nature. Following a merger of IM legislation, similar requirements may still apply irrespective of the number of individual pieces of legislation applicable. For example, in the automotive sector, in order to bring about regulatory simplification, about fifty different Directives were revoked by one umbrella Directive and replaced by the direct application of the internationally harmonised UN Regulations. However, the regulatory fitness check of the type approval legal framework found that most manufacturers consider this change to have been largely cosmetic, since it has not led to any changes in the requirements themselves, or in the number of pieces of legislation involved. There can also be execution risks, since changing the structure of legislation requires additional familiarisation time for manufacturers with the new structure of the legal framework[69]

There are potentially risks in merging Directives in instances where the merger of two Directives may mean that the resulting legislative and conformity assessment requirements becoming more demanding than was previously the case. For instance, the current requirements for Simple Pressure Vessels are less strict in terms of the conformity assessment procedure that can be applied than for the PED. If the two were merged, then some manufacturers that apply the SPVD expressed concern that those producing only Simple Pressure Vessels may be subject to stricter requirements than they currently are.

Some manufacturers already apply the PED to manufacturing all types of pressure equipment and in this case merging the directives would not result in any changes per se. It would seem that the main benefits in this area would be to simplify the legal framework for authorities responsible for enforcing the directives and to strengthen the safety of pressure equipment for users (this last aspect is a key issue given the relocation of some parts of industry to areas outside Europe and the observation made in some quarters that non-conforming products imported from third countries have been identified on the Internal Market).

With regard to the possible merger of the Machinery Directive and Outdoor Noise Directive, it remains unclear if the latter Directives were to be merged with the MD which conformity assessment procedure would be adopted, and whether the Supplier's Declaration of Conformity, which is the mechanism allowed under the MD) would also apply for the Noise aspects, were these to be merged. Even if the SDoC approach were to be permissible for outdoor noise, there is not yet sufficiently robust data to show that third-party testing is more expensive than internal testing (often with some external observation) under the SDoC, which makes it difficult to quantify the potential cost savings.

Moreover, the cost differential with SDoC is not always clear cut, because many global manufacturers use third party testing anyway for reputational reasons and because third party testing results may be required and recognised on third country markets. In the short term, paying a consultant or Notified Body to carry out some tests is less costly than acquiring the necessary laboratory equipment and paying the recurrent costs (annual costs of calibration). There is also a need to invest in human resources to carry out testing internally.

Although on the one hand, making Union harmonisation legislation as consistent as possible between IM legislation is strongly supported by industry, given that industry is broadly satisfied with the current approach to regulating industrial products and placing products on the Internal Market, there are concerns about pursuing a regulatory simplification agenda if this were to radically depart from the current approach, which is one driven by flexibility and pragmatism.

In summary, the following potential costs and impacts might be expected to arise from the simplifications described here:

· There could be cost savings from merging specific Directives, but this depends on what form the combined IM regulations take, the conformity assessment system agreed and whether this differs from what preceded it, etc. It is therefore difficult to quantify and the benefits to industry may be spread unevenly if manufacturers are currently afforded the opportunity of currently selecting alternative regulatory routes. However, clear savings would be possible, where a single conformity assessment process can replace separate processes for each piece of legislation.

· Reduced cumulative impacts of IM legislation through merging different pieces of legislation - e.g. reversing the trend towards the gradual accretion of IM legislation which has led to cumulative costs (including those that arise from the updating of IM regulations and frequent changes in harmonised technical standards[1] the familiarisation costs). However, since the safety and technical requirements for more established New Approach Directives are well known to manufacturers, the savings might in practice be quite modest.

· Lower costs of familiarisation – reducing the volume of IM legislation through merging different pieces of legislation, would in time savings for manufacturers since they would have to follow less legislation. However, in the short term, at the point when Directives are merged, there may conversely be an increase in the amount of time required for familiarisation with applicable regulations. Benefits may result in the longer if manufacturers and authorities are required to take into account fewer pieces of legislation as part of their daily remit.

It should also be taken into account whether mergers reduce the overall regulatory complexity for stakeholders by reducing regulatory burdens or whether mergers benefit certain groups and not others e.g. a merger may not reduce the technical complexity for manufacturers but may add to the existing workload of public authorities since they would have to familiarise with the new legislation and then still to check all the requirements. This depends on the precise configuration of proposed mergers, whether the integration of the legislative is cosmetic (e.g. when the manufacturer still have to require with broadly the same requirements irrespective of whether multiple piece of legislation apply or only a single piece of legislation.

Research Findings (RFs)

· (RF85) Where the legislation is simplified, e.g. through mergers of directives, economic operators may benefit from reduced costs of compliance through having to familiarise themselves and comply with fewer pieces of legislation and from streamlined conformity assessment procedures.

· (RF86) Any proposed simplification of the IM regulatory framework must be strongly evidence-based and supported by extensive industry consultation. Otherwise, there are risks that the regulatory framework which currently affords considerable flexibility for manufacturers and is effective in accommodating innovation could become less flexible, as well as the risk of unintended effects.

· (RF87) There are concerns that the possible merger of directives such as the MD and the Outdoor Noise Directive and of the PED and the SPVD could lead to more complex procedures form some types of products and be confusing for industry

· (RF88) Although mergers of directives may in some instances result in cost savings and other benefits, equally, in other cases, simplification may paradoxically lead to additional complexity for manufacturers. In addition, given that IM directives aim for a high level of technical safety, revising standards to be met in this area would ultimately undermine one of the key objectives of the legislation and the generally high levels of user satisfaction that have been attained.

5.5 Quantification of the benefits from simplification of Union harmonisation legislation

EQ23: To what extent can the benefits of administrative simplification be quantified?

Notwithstanding the difficulties identified in assessing the benefits of simplification outlined in Section 5.1, the evaluation considered the extent to which it may be possible to quantify the benefits of these simplifications. Some manufacturers and industry associations had useful contributions to make in generating ideas on possible regulatory and administrative simplification and suggestions as to how Union harmonisation legislation could be made more effective, they were not able to provide estimates themselves as to the level of potential cost savings. Although a quantification exercise was undertaken, it should be stressed that the research team had to develop most of the assumptions.

Among the types of simplifications that were considered include some of those examined in the previous section, such as merging IM directives and regulations and introducing a common template for the DoC, thereby reducing familiarisation costs. A distinction was made in our analysis between:

· Regulatory and administrative simplifications – these are distinct types of simplification measures, as explained in the typology (Section 2.3); and

· Specific simplifications relating to the eight product groups covered by the harmonised cases.

An example of the quantification exercise in relation to general benefits is provided in the following table. As explained above, the data is based on assumptions, some of which are necessarily speculative in the absence of firms being able to provide either data or even a ‘best estimate’ themselves.

Table 5.9: Simplification measures for all industrial products - quantification of potential simplification savings

Proposed simplification || Explanation || Benefits and/ or disadvantages || Approximate savings

Ensure greater coordination in timing and updating of different pieces of IM legislation || Improve coordination in timing of regulatory review processes and recasting of IM directives and regulations. There are already examples of initiatives to strengthen coordination such as the Alignment Package which will involve the updating of 9 IM Directives in order to align these with the common provisions in the NLF). Ensure better synchronisation of the introduction of new, and revisions to existing IM legislation. || Minimise frequency of regulatory changes. Reduce cumulative costs of compliance. Also some disadvantages; less flexibility in terms of reacting on issues/new products/etc.; strong demands on firms/experts determining standards, etc. || 20.0%

Eliminate inconsistencies in requirements for the DoC between different IM legislation. No longer require DoC to be placed with the product (R&TTE-D only). Ensure a common template for the DoC across all IM regulations || There are currently differences in administrative requirements for the DoC between the R&TTE-D, EMC-D and the LVD-D respectively. Across IM regulations, there are also slightly different layouts and information requirements for DoCs. These problems are already being tackled through the Alignment Package. || Reduction in costs of producing a DoC. This would result from the use of a common template for a DoC rather than multiple templates. Reduced operational uncertainty for manufacturers (eliminate risk of delays to product shipments teaching the market[70]. || 0.2%

E-labelling and wider provision of compliance information electronically. Basic information – full DoC, technical standards that have been applied, safety data sheets could be provided online. Given commercial sensitivities, technical documentation could be provided through secure data transfer. || More regulatory compliance information could be made available online by manufacturers. The market surveillance system needs to be overhauled so that manufacturers provide most compliance information online rather than in paper copy. || For manufacturers: Lower printing costs, e.g. DoCs. Reduced human resource cost of responding to requests from MSAs for information. For MSAs: Better access to compliance information specific to each model. Reduced time to obtain compliance information. Resources freed up to carry out more technical checks. || 3.0%

Eliminate inconsistencies across Union harmonisation legislation as to whether CE marking is required. Example: before recent revision of Medical Devices Directive into a Regulation, there was no CE marking requirement but products faced conflicting rules. || Ensure uniform rules on CE marking across all relevant directives and regulations that require CE marking. Note: the Commission has already taken steps through the NLF and Alignment Package to rectify these inconsistencies. || Greater coherence in administrative requirements for economic operators || 0.4%

Make changes to the DoC allowing to identify a model and the variants || || Reduce costs for conformity assessment for firms operating as OEMs || 0.1%

Setting up mutual recognition schemes for conformity assessment procedures with major global jurisdictions || Discussions are currently taking place on the possibility of allowing for mutual recognition between the EU and US of conformity assessment through the framework of the TTIP || Reduce costs for European manufacturers of third party conformity assessment in the US || 0.2%

An assessment of possible simplifications is provided in each case study, together with a quantitative estimate of the potential savings (see Appendix C). Given some of the nuances associated with simplifications until the fine detail has been drawn up (explained in Section 5.5), the cost saving estimates provide approximate savings only.

Research Findings (RFs)

· (RF89) A number of simplifications have the potential to reduce the costs of compliance with the legislation, namely: i) greater coordination in timing and updating of different pieces of IM legislation; ii) Eliminating inconsistencies in requirements for the DoC between different pieces of IM legislation; iii) labelling and wider provision of compliance information electronically; iv) Eliminate inconsistencies across Union harmonisation legislation as to whether CE marking is required; v) Make changes to the DoC allowing to identify a model and the variants; vi) Setting up mutual recognition schemes with third-country jurisdictions.

5.6 Macro-economic impacts of simplification on growth and jobs

EQ24: What benefits from simplification can be identified for the wider economy?

5.6.1 Approach taken

The analysis presented here makes use of the estimated compliance costs and the savings potential from simplifications for the 8 product groups examined through the case study research. The basic assumption underlying the analysis is that any cost reductions from simplifications to IM legislation will be translated into savings in terms of firms’ operational costs, labour productivity improvements and will eventually be passed on to consumers through lower prices . Lower prices of products should help to strengthen the international competitiveness of European manufacturers, thus boosting exports and reducing imports. Ultimately, this should lead to an increase of the Gross Domestic Product in sectors where regulatory and administrative simplifications are made. An increase of GDP should, in turn lead to increased employment within the sector.

However, in the short term, increased labour productivity should be expected to reduce employment, in turn reducing disposable household income and, as a result, the level of private consumption. Thus, whereas GDP in the sector concerned is increased at the macro-economic level, the impact of the reduction of compliance costs on GDP is uncertain. Employment effects are also not a priori certain, as the initial shock is a ceteris paribus reduction in the number of jobs.

The steps that were followed to carry out the quantitative assessment were:

1. Development of a medium/long-term baseline scenario for economic development by defining a set of plausible values of the exogenous variables of the model.[71] These include the export volumes, consumption (household and government), investment (enterprises and government), imports, GDP and depreciation and its prices as well as labour costs and employment numbers.. The baseline scenario was prior to regulatory simplifications being made of IM legislation.

2. Estimates of the level of cost savings linked to regulatory and administrative simplifications of IM legislation identified in the eight product groups examined in the case studies.

3. Development of an “alternative scenario” for economic development that takes into account the estimated reductions in compliance costs.

4. Comparison of the alternative scenario to the baseline scenario so as to estimate the impact of the compliance cost reduction on economic development.

Ideally, the estimation of the possible impact of simplification would be based on a model of the EU economy as a whole or of each individual Member State. Since this was not available, the PRISMA model for the Netherlands was used[72] and the costs reductions hypothesised for the EU economy were applied to an economic baseline scenario to determine the impact on growth and jobs for the Dutch economy. The results were then extrapolated to the EU level and the World Input-Output (WIOM) model was applied[73]. This approach could be justified on the basis that the core elasticities – mainly price elasticities – do not vary too much across EU countries. Further details about the PRISMA and World Input Output Model models used to carry out the quantitative analysis are provided in Appendix D of the main report, which provides a technical note to support the quantitative assessment of costs and the macro-economic assessment provided in Section 5.2 and 5.6 respectively.

The model variables that are directly affected are domestic final demand by category (household and government consumption, investment), demand in the private sector and labour productivity. Furthermore, exports should be expected to increase as a result of a reduction in prices. The impact on EU imports has also been taken from the PRISMA model. Taken together, changes in final demand and imports determined the extent of changes in GDP. On the basis of changes in GDP, employment effects were estimated making use of the expected changes in labour productivity.

5.6.2 Impact of simplifications

On the basis of the analysis of the eight sectors examined in the case studies, total compliance costs were estimated to be €342 million. 

In our analysis, a core assumption is that that these costs are borne by firms in the selected manufacturing sectors (NACE Rev. 2 divisions 24 -30 and 33; metallurgical industry under the PRISMA model).  The total cost savings for the eight sectors were estimated to be around 11% of total compliance costs, or around €38 million. It has also been assumed that this cost reduction would be translated into a reduction in labour costs. At EU28 level, this means that labour costs (including the imputed wage of the self-employed) would decrease by 0.007% (see table 5.10) with an equivalent increase in labour productivity of 0.007% for the relevant manufacturing sector metallurgical industry.

Table 5.10: Current compliance cost and assumed cost reduction (EU28)

PRISMA model sector name || Relevant NACE Rev. 2 codes || total compliance costs (€m) || cost savings reduction

% || €m || in % labour costs [74]

Food industry || 10 -12 || 0 || 0 || 0 || 0.00

Metallurgical industry || 24 -30, 33 || 342 || 11 || 38 || 0.007

Chemical industry || 19 -22 || 0 || 0 || 0 || 0.00

Other manufacturing || 13 -18, 23, 31, 32 || 0 || 0 || 0 || 0.00

Wholesale trade || 46 || 0 || 0 || 0 || 0.00

Source: Panteia

5.6.3 Estimation of impacts for the EU economy

Certain adjustments were made between the PRISMA and WIOM models extrapolating from the calculation of impacts to the EU28 economy as a whole. Firstly, the sectoral classification used in WIOM is more detailed than the one in PRISMA. Secondly, it makes use of the older NACE Rev. 1.1 classification of economic activities, whereas since 2008, PRISMA has used the NACE Rev. 2 industrial classification system. Thus, a correspondence table linking the two classifications has had to be used.

The results of the analysis are presented in Table 5.11. All final demand categories excluding government consumption are all positively affected by an 11% cost saving. Imports would also increase, even though by less than the impact on final demand. As a result, GDP would also be expected to increase.  The basic conclusion is that the macro-economic effects of administrative and regulatory simplifications to IM legislation and the estimated cost savings are positive on balance. Exports are the main driving force behind this, and would benefit from lower costs and lower prices of exported goods in selected manufacturing sectors.

Table 5.11: Macro-economic impact of 11% reduction of compliance costs on selected products

Variable || % change (EU28)

household consumption || 0.0005

government consumption || 0.0000

Investment || 0.0002

Exports || 0.0009

total imports || 0.0006

GDP || 0.0004

Source: Panteia; calculations with PRISMA and WIOM

Table 5.12 shows the estimated impact on growth and jobs in EU28. At the macroeconomic level, employment remains largely unaffected since the GDP increase is caused by an increase in labour productivity. In the metallurgical industry[75], only around 40% of the original increase in labour productivity of 0.007% would remain (0.003 against 0.007) due to the downscaling of enterprises in this sector, thus an increase in the share of SMEs that have a higher share of fixed costs and lower productivity levels.

Since the benefits in terms of labour productivity in the specific sectors under review are higher than the respective GDP increase, a small loss in the number of jobs should be expected. Conversely, in other sectors of the economy, the number of jobs created should be expected to increase.

Table 5.12: Impact on GDP and employment of 12% reduction in the compliance costs on selected products at EU28 level

Variable || || metallurgical industry || Total economy

GDP || % || 0.0008 || 0.0003

labour productivity (GDP per occupied person) || % || 0.0028 || 0.0004

occupied persons || % || -0.0021 || -0.0001

occupied persons || 100s || -400 || 0.0003

Source: Panteia; calculations with PRISMA and WIOM

Conclusions from macro-economic assessment of the impacts of simplification

Research Findings (RFs)

· (RF90) The simplification of IM legislation has the potential to reduce the costs of compliance by around 11% of total costs of compliance, estimated at €342 million, i.e. a potential cost reduction of €38 million. This could lead to a total increase in GDP of €48 million, equivalent to a GDP multiplier of 1.26. The GDP-increase in the eight sectors under review in the metallurgical industry (of which the 8 sectors form part) amounts to almost €19 million. The number of jobs would decrease slightly, in particular in the sectors under review.

6. Effectiveness, fitness for purpose and impacts

This section considers the overall effectiveness and fitness for purpose of Union harmonisation legislation. The extent to which the legislation is achieving the objectives set out in Article 114 of TFEU is considered. The benefits and impacts of IM legislation at different levels are also assessed, for instance, the effects on economic operators in opening up access to new markets, and at the sectoral level, the impacts on market size and structure and on strengthening industrial competitiveness of the promotion of intra-EU trade.

The specifications set out a number of broad-ranging but specific issues for consideration that fall under the effectiveness criterion. These include among others: the extent to which there remain any regulatory and non-regulatory barriers, whether there are any barriers to the development of innovative products and the use of advanced manufacturing processes in production and KETs. A number of specific challenges are then addressed such as whether the regulatory framework is fit for purpose in dealing with the market surveillance challenges posed by e-commerce with third countries, whether the legal framework is sufficiently friendly towards green products, whether the increasingly blurred inter-relationship between services and products leads to regulatory gaps, and the question as to whether there should be a distinction made in IM legislation between regulating products intended for professional use, as opposed to final consumers.

6.1 Regulatory and non-regulatory barriers

EQ25: What, if any, are the barriers (regulatory/non-regulatory) to the effective functioning of the internal market for industrial products stemming from IM legislation?

6.1.1 Regulatory barriers

Stakeholders confirmed that there has been considerable progress in addressing regulatory barriers to the free movement of products through Union harmonisation legislation since the New Approach was adopted in 1988, and the internal market launched in 1993. However, the perception amongst economic operators is that such barriers persist. For example, 89/96 respondents to a recent Your Voice Consultation on possible reform and simplification of the regulatory framework for industrial products, were view of the view that there remain regulatory barriers within to the internal market for industrial products.[76]

Research undertaken in the course of this evaluation identified four main types of regulatory barriers that may undermine the effective functioning of the internal market in industrial products.

The first main type of regulatory barrier is differing or incorrect interpretations or applications of IM legislation (including language-related difficulties) following its transposition into national law. This was most common regulatory barrier identified through the Your Voice consultation. It is difficult to provide a detailed assessment since the efficiency and effectiveness of national transposition processes (and the incidence and nature of any infringement proceedings that may have been launched by the Commission against particular Member States) were not formally part of the study scope. Nevertheless, some feedback on this question was obtained from national authorities.

Among the feedback received was that, whilst in theory there is not much scope for divergent interpretations of Union harmonisation legislation, there are practical difficulties that may result in misinterpretations and misapplication of the law. For instance, although there are official language translations of each piece of IM legislation in all EU languages in the OJ, there is still potential for misinterpretation and misunderstandings during the process of transposing directives into national implementing regulations, even if these are uncommon. For example, it was reported that differences in translation had created divergences between the legislation applying in Italy and in other countries, as described in the text box below.

 Table 6.1: Regulatory divergence in national transposition of EU Directives - Tunnelling machinery

Under the Machinery Directive (MD), a problem occurred 3-4 years ago that stemmed from misapplication of EU law due to translation issues during the transposition process. This led to a change in the original intended meaning of the legislation, in particular, whether tunnelling machinery fell within the scope of Annex IV, which sets out categories of machinery that may be subject to one of the conformity assessment procedures involving a Notified Body. In Italy, the translation into national legislation meant that a tunnelling machine fell within the scope of Annex IV. However, other Member States, such as France, Spain and the UK had a very different interpretation. An Italian company faced legal uncertainty as to whether it could place its product on the market. Although the misinterpretation problem was resolved by the Italian authorities, since the operating costs of a single tunnelling machine are about €1m a day, there was a cost associated with the prolonged uncertainty.

The above example illustrates why most economic operators and industry associations interviewed were almost universally in favour of regulations to ensure legal certainty (although views were more mixed on the advantages of regulations over directives among national authorities).

Examples were also identified of differences in interpretation as to whether technical standards meet the requirements of IM regulations or not. For instance, sanitary hot water equipment manufactured in accordance with EN 746-2 in industrial enclosures is sometime accepted by market surveillance authorities under Directive 2009/142/EC on Gas appliances (GAD). According to a respondent to the consultation, “this has serious implications to the detriment of the firm that made the placing on the market. There is a need to distinguish between equipment intended for domestic hot water for domestic or commercial use within the GAD and those intended for sanitary hot water industrial spaces that fit better within the scope of the Machinery Directive. The same problem can occur in other types of technological heating systems because it is not very clearly defined within the scope of the GAD”.

Anecdotal evidence suggests that it can sometimes be difficult for economic operators to have products accepted that have already been placed on the market in the home Member State where the economic operator is trying to place the product in circumstances where conformity assessment testing has been carried out in a country within the EU where the quality of testing services is not perceived to be of equal quality or as rigorous. Even if this is against internal market rules, and the manufacturer could potentially complain, this appears to be an issue in some countries. The scale of the problem is difficult to assess since it was difficult to identify concrete examples that could be cited. We detected that some economic operators may be reluctant to complain, in case they consider there is a risk for them to jeopardise their position in accessing particular national markets.

The problem of differing interpretations of legal requirements at national level can also extend to guidance issued by national authorities. For example, one of the enterprises consulted highlighted an example of two different national authorities issuing conflicting guidance about which legal requirements were applicable to economic operators.

Table 6.2: Conflicting advice and interpretation of IM requirements by MSAs

Example 1 - a firm in the Netherlands asked the German government what would be required to test a product for the REACH Directive. The national authorities agreed that tests could be made on a sample of several items and to then use the data obtained to make calculations for REACH across their product range. However, a similar request to the Dutch authorities resulted in different advice. The company was told that it must test each product from each supplier separately. Given the extra costs involved, a German exporter to Holland would thus have an unfair advantage over local producers. Example 2 - In 2007 the firm concerned asked the Dutch market surveillance authorities if the new standard for oil lamps should be followed, since there were many problems with this standard. Their reply was that this was not required. In 2008, products not meeting the new standard were taken off the market in Germany. This meant that the national authorities in Holland had to revise their advice and companies had to recall many items.

The second type of barrier was that of additional national requirements, most often introduced during the process of transposing Directives into national law, a process known as “gold-plating”. These often concern the after-sale phase related to the use, service and maintenance of products and can lead to additional obligations to provide information or undertake testing, which can different between countries. For example, a 2004 survey of firms conducted by UNICE found that 115 of the 200 respondents had to introduce product changes and 92 had to conduct additional testing or gain additional certification. The perception of gold-plating was shared by several respondents to the Your Voice consultation, as well as by several of the stakeholders interviewed. For example, there reported to be diverging safety requirements for recreational crafts and related boat equipment.

It may however be the case that gold-plating is more one of a perceived problem than an actual barrier. The research identified few confirmed instances of gold-plating, in large part because many Member States have transposed the full text of the relevant Directive, as written. Moreover, many economic operators confuse national “voluntary” marking and labelling requirements with there being additional national mandatory requirements in the legislation, whereas in fact this is not the case.

Another issue identified is that economic operators do not distinguish between products covered by harmonised IM legislation and those where only the principle of mutual recognition applies; indeed, the UNICE survey focused on both harmonised and non-harmonised products. Similarly, where national authorities require additional testing, this may reflect a lack of confidence in EC type-approval certificates issued in other countries rather than additional national requirements per se (as we discuss below). In other cases, national requirements in areas not covered by EU legislation may impinge on the free movement of harmonised products. For example, the installation of lifts (harmonised under the Lifts Directive) may be affected by national regulations relating to local building or fire safety standards, which are not harmonised across the EU.

We assessed how far the situation has changed in the past decade since the UNICE survey was undertaken.  In the 2013 Your Voice Consultation carried out by the Commission on possible reform and simplification of the regulatory framework for industrial products, a high proportion of respondents perceived there to remain at least some outstanding regulatory barriers to the internal market for industrial products (89/96 respondents).  However, a note of caution is needed in taking this finding at face value given that some problems cited by Your Voice respondents as being of a regulatory nature were actually non-regulatory, such as national marking and energy labelling schemes (see the next sub-section).

The third main type of barrier identified was the lack of consistency in the recognition of EC type-approval certificates issued by NBs in other countries. For instance, some countries do not recognise the calibration capability approval carried out in another country. As a result, according to one respondent, manufacturers in some countries, e.g. France, Germany, Portugal, Spain, Switzerland need to go through type-approval processes again, which is costly, even if they have already certified their products and followed EU technical standards. An example cited was Solar Thermal Collectors; even where products have already been certified under EN12975, the regulatory authorities in some countries (e.g. France, Ireland) have insisted on additional national certification requirements even though product testing had already been undertaken in another country. Another example was provided by a national authority in the UK: “Importers and distributors in different Member States may be reluctant to accept products from manufacturers and OEM suppliers unless they have been subjected to testing by a domestic NB, even if this goes against internal market rules. In practice, there is not always confidence that conformity assessment carried out by NBs in other countries are equivalent in terms of quality of services. Manufacturers may consequently be asked to have their products retested”.

The fourth main type of barrier was the differences between Member States as to whether products can be placed on the market if they have used an older version of technical standards or whether the most recent version must be used. There was a lack of certainty among economic operators and market surveillance authorities in some Member States as to whether products that have been legally placed on the market can remain on the market or should be withdrawn once updated product safety standards have come into force. This was raised for instance in relation to fuse sockets. Industry representatives indicated that there have also been cases where products are blocked by customs authorities because it is unclear what the legal position is in relation to products conforming to outdated standards, which can add to economic operators’ operational risks.

The extent to which such barriers hinder the effective functioning of the internal market for industrial products should be seen in the light of the institutional and regulatory mechanisms for addressing the misapplication of EU law in national legislation. Under Article 258 of the TFEU, the Commission is responsible for ensuring that EU law is correctly applied. Consequently, where a Member State fails to comply with EU law, the Commission has powers to take action in case of non-compliance.  It can bring infringement proceedings and, where necessary, refer cases to the European Court of Justice. There are also mechanisms such as the 98/34 notification procedure (and the TRIS database which stores these notifications) through which Member States must inform the Commission and other Member States about the adoption of draft national technical regulations for products. There is then an opportunity for Member State authorities to raise any concerns. An analysis of TRIS notifications was carried out as part of the desk research. This found that most problems identified related to non-harmonised products (a statistical analysis is provided in the working paper on non-harmonised products in Appendix E).

Incorrect application of EU law can also be tackled through soft measures such as awareness-raising to promote more uniform interpretation and consistency in the application of IM rules and through legal remedies (e.g. the possibility of launching infringement proceedings against particular Member States).

Research Findings (RFs)

· (RF91) Despite considerable progress, regulatory barriers to the effective functioning of the internal market persist, particularly in the form of differing or incorrect interpretations or applications of IM legislation, additional national requirements, lack of consistency in the recognition of EC type-approval certificates issued in other countries, and inconsistency in allowing the use of old versions of technical standards.

· (RF92) There is evidence to suggest the economic operators perceive the regulatory barriers to be greater than they are in reality. Reported instances of regulatory barriers often relate to non-harmonised product groups or to misapplication of IM legislation rather than to the text of the legislation itself.

6.1.2 Non-regulatory barriers

A number of respondents to the Your Voice Consultation identified non-regulatory barriers to the free movement of goods. Among the most commonly cited barriers were "soft law" requirements, quasi-legal instruments which do not have any legally-binding force.

Respondents pointed to a considerable number of “voluntary” national marking and labelling schemes that operate across different national markets. These were viewed by some respondents as being a de facto requirement in order to get products into the distribution chain, even if they are not legally required to place a product on the market.

The multiplication of labelling requirements was viewed by enterprise respondents as imposing a significant cost on manufacturers, and undermining the internal market, often without adding much value. In addition, such labelling requirements were viewed as causing confusion among consumers since there are a large number of national marking schemes and labelling requirements. A further problem identified was that in some EU countries, being part of a national voluntary labelling and certification scheme has become a de facto requirement to avoid higher risk insurance premiums. An example was cited related to the use of a national certification system in France[77] (NF UPEC) for ceramic tiles.

A further illustration of a non-regulatory barrier was that in some product areas, national certification schemes are in operation and those economic operators that are from another Member State that do have such certification may be unable to benefit in terms of having access to national financial incentive schemes. An example cited in this regard was in relation to certain types of renewable technologies where signing up to the national certification scheme was a requirement in the UK in order to access funding. In some Member States, respondents pointed to evidence that economic operators and public authorities may raise objections to the use of specific harmonised standards that deviate from established national practices and/ or national technical standards. This creates legal uncertainty as to whether economic operators will be able to use a single European standard across the EU or need to customise the standard in particular national operating environments to reflect national standards.

A further non-regulatory barrier identified was that national standards have been developed that are widely used but “voluntary” in some Member States. For instance, in Germany, in some sectors such as lifts, it is difficult in practise to sell products in the German market without meeting voluntary energy efficiency standard VDI 4707 for lifts, which is a German national standard, and displaying the appropriate energy efficiency labelling in the lift.  A small lifts manufacturer from another Member State stated that “it is problematic for non-German firms wishing to place their products on the German market is that there are low levels of consumer confidence for manufacturers, assemblers and installers that do not meet the German national “voluntary” standard”.  This was confirmed through desk research. A Top 4 lifts company pointed out that “The VDI 4707 guideline has been published by the Association of German Engineers (VDI). Although this is an independent organization and as such, their standards are voluntary, the VDI 4707 is quickly becoming the key standard in the market worldwide”[78].

Research Findings (RFs)

· (RF93) Non-regulatory barriers, such as “voluntary” national labelling schemes, national certification schemes and national technical standards, are reported to affect the effective functioning of the internal market.

6.2 Barriers to the free movement of innovative products

EQ26: Are there specific regulatory barriers to the development and free movement of innovative products, including products integrating key enabling technologies (KETs)? Are there any legal gaps not already covered by IM legislation for industrial products?

EQ26: Are there specific regulatory barriers to the development and free movement of innovative products, including products integrating key enabling technologies (KETs)? Are there any legal gaps not already covered by IM legislation for industrial products?

A characteristic of the New Approach to Union harmonisation legislation is that it is technology-neutral since the legislation only sets out the essential requirements. Manufacturers are allowed to determine for themselves how best to meet the essential requirements. An exception to this general rule is legislation such as the Ecodesign Directive, which aims to remove inefficient technologies from the market in favour of more environmentally-friendly technologies, as discussed in section 6.3 below.

It therefore does not matter from a legal point of view whether traditional or advanced manufacturing processes are used, since the same legal framework applies relating to the placing of the product on the market. For example, a laptop using very innovative nano-electronic components is still subject to the LVD and EMC Directives, in the same way that other domestic appliances, such as refrigerators are.

 The fact that Union harmonisation legislation is non-prescriptive regarding the technical specifications that should be adopted means that by leaving detailed implementation to technical standards, the regulatory framework is sufficiently flexible. The more significant challenge is whether there are suitable technical standards that manufacturers can follow and whether such standards are updated sufficiently frequently to take new innovations into account. Whenever there is no suitable technical standard available because the specific innovation, new technology or advanced manufacturing process has not yet been taken into account, firms can use alternative means to demonstrate presumption of conformity, although this may be more costly since demonstrating conformity with harmonised technical standards tends to be cheaper.

Ensuring that the legislation does not pose barriers to the development and free movement of innovative products is also essential to the achievement of other EU policy objectives. For example, EU industrial policy seeks to promote the development and application of Key Enabling Technologies (KETs).[79] A KET-based product is defined as a product induced by KETs and/or those produced by advanced manufacturing technologies. Examples of KETs are high-efficiency photonic LEDs; advanced batteries combining advanced materials and nanotechnologies for electro-mobility; biochips combining advanced materials, nano-electronics and photonics; nano-components used in nano-electronics. Clearly, the achievement of this objective in the industrial policy field is in part dependent on the legislation being sufficiently accommodating.

The majority of industry representatives and other stakeholders consider that that Union harmonisation legislation is sufficiently technology-neutral and does not impose particular restrictions or limitations on innovation. Indeed, IM legislation was not viewed by interviewees from industry as restricting manufacturers in either the use of innovative materials, advanced manufacturing processes or in the incorporation of new technologies into products.

For example, the Machinery Directive can accommodate the development of 3-D printers as hardware, whilst the legislation applicable to the products produced by 3-D printers will be dependent on the type of product produced. In principle, assuming these products are placed on the market, they will be subject to the same product safety rules (and underlying technical standards) as any other industrial products.  There are a series of legal issues raised by 3-D printing, such as the risk of dual-use and challenges in protecting IPR copyright, but such legal issues do not relate to product safety per se. 

A further issue raised through the increased use of 3D printers investigated was who is legally responsible for the products produced by 3-D printing.  Should this be the manufacturer of the 3-D printer, the designer of the 3-D printer, the company selling the 3D printer or the final industrial user or consumer that used the 3D printer to produce products that were then placed on the market. However, legal responsibility is clearer than it might appear at first sight. The manufacturer of printer hardware is responsible for the product under existing IM legislation (irrespective of how high-tech the printer is), while the user of the 3-D printing device is responsible for ensuring the safety of products that they manufacture.

There are also practical difficulties posed by the increased use of additive manufacturing technologies in terms of in ensuring effective market surveillance of products printed using 3-D printers. Whereas the quality of industrial and consumer products sold through conventional supply chains can be checked relatively easily by MSAs, it is much more difficult to check the quality of products produced in small quantities by individuals or micro firms, especially when the route to market may be through online commerce channels only.

There is also evidence that IM legislation has in some cases acted as a catalyst for promoting innovation. First, the functioning of the internal market has enabled some manufacturers to enjoy economies of scale in production, which allows them to invest more in research and development. For example, the consolidation of the lifts industry across Europe is acknowledged as having enabled the development of more extensive research and development centres, since such costs are spread across a larger number of units sold. Second, where essential safety requirements have been made more stringent over the years (as and when legislation is recast or when EU legislation replaces national legislation), this can create a new demand for certain products. Again in the lifts industry, EU legislative requirements relating to the incorporation of emergency telephone systems in new lift units were reported to have boosted the demand for such systems; this increased the incentive for firms to create innovative new products in the knowledge that they would be more likely to recoup investment costs.

In some cases, there is evidence that the lack of EU legislation may prevent the development and free movement of innovative products, such as products integrating KETs. There will inevitably be a tendency for legislation to lag behind the development of innovative products and technologies - legislation is rarely developed for technologies and products that do not exist! For example, in the case of products incorporating nano-materials (a KET), there is evidence that, in the absence of a regulatory framework at EU level, Member States are introducing their own legislation, given the need to ensure health and safety in the production and sale of this particular product. Clearly for such products, there is a need to develop appropriate EU legislation to facilitate further development and application of such KETs. The text box below explores the case of nano-materials in more detail.

Table 6.3: Emergence of national legal frameworks in areas not yet covered by IM legislation – nanomaterials

Legislation on nanomaterials has to strike a balance between an effective regulatory framework that takes into account scientific risks in usage while at the same time promoting the development of KETs and avoiding impeding innovation. There is currently no legal framework at EU level or harmonised legislation on nanomaterials. However, a legislative framework on nanomaterials is evolving in some Member States because the nanomaterials sector is a promising emerging sector but there are concerns about ensuring that the risks are appropriately evaluated on a scientific basis. France is currently the only Member State with a legal framework regulating the use of nanomaterials and the French national authorities are setting up a national registration system for the use of nanomaterials. Several other EU countries are exploring the possibility of introducing national legislation, such as Belgium and Italy. Since over the next 5 years, different national legal frameworks may be developed, the question as to whether harmonised EU legislation should be introduced so as to avoid regulatory fragmentation and to ensure a level playing field for economic operators is under consideration through a second EU regulatory review. There are however concerns among industry stakeholders in relation to the possible development of EU legislation on nanomaterials that the second regulatory review at EU level to determine whether specific legislation is needed on nanomaterials would move more quickly. Consideration is already being given to amending the annexes of the REACH Regulation to take nanomaterials into account. It is challenging doing so without making changes to the REACH regulation itself. A consultation is currently being carried out on this topic by ECHA and the Commission. The Commission’s view is that “The REACH approach to hazard assessment and risk characterisation, with its built-in flexibility, makes it overall suitable for nanomaterials”. Furthermore, the Austrian environmental agency is carrying out a review of RoHS. This is taking place faster than the process of reviewing whether EU legislation on nanomaterials is needed.

There are a number of issues relating to the use of KETs and their integration into innovative products. Firstly, revisions to technical standards do not keep pace with technological developments. This does not necessarily prevent the application of such technologies, but does risk imposing costs on manufacturers who are required to use alternative means of demonstrating presumption of conformity in the interim period between a new technology being developed and technical standards being adjusted to reflect it. Since technical standards provide the basis on which a significant percentage of manufacturers achieve regulatory compliance, it is important that standards are developed in a timely manner and keep pace with technological “state of the art”.

The second difficulty is that multiple pieces of legislation may apply to innovative products, sometimes with blurred boundaries between them. Again, this would not necessarily prevent such products from being placed on the market, since many producers (particularly large firms), conformity assessment bodies and market surveillance authorities are used to dealing with such complexity. The risk would remain, however, that some producers, particularly, SMEs would lack the necessary resources to address the requirements of the legislation and thus be deterred from placing innovative products on the market. In these instances, there will be a continual need to monitor the situation and, where necessary, revise the legislative framework, either through recasting directives and regulations or through introducing entirely new pieces of legislation. There may also be a need to provide additional advisory support and guidance for SMEs, as and when it becomes evident that they are struggling to address the requirements of the legislation in respect of innovative products and KETs.

The Industrial Policy Communication also highlights the importance of advanced manufacturing (the use of innovative technology to improve products or processes). However, it is important to stress that IM regulations are not generally a hindrance to the development of advanced manufacturing, since this concerns intermediate production processes whereas the focus of IM regulations is on products intended for final use that are being placed on the market. There are issues as to whether IM regulations are sufficiently clear about the treatment of components and spare parts used in final products. Certainly, there is confusion among economic operators in some product areas and whether these are included within scope (see earlier analysis – evaluation question 2).

Research Findings (RFs)

· (RF94) IM legislation is sufficiently technology-neutral and tends to promote rather than limit innovation. (Stakeholder interviews; Product case studies)

· (RF95) A lack of EU legislation may hinder the development and free movement of innovative products, where Member States introduce their own legislation (Nano-materials case study)

· (RF96) Where technical standards do not keep pace with technological innovations, manufacturers may be required to use alternative ways of demonstrating conformity with the essential requirements of the legislation. (Stakeholder interviews)

· (RF97) Where multiple pieces of legislation apply to an innovative product, there is a constant need to monitor and, if necessary, revise the legislative framework and also provide guidance to operators. (Stakeholder interviews)

6.3 Barriers to the free movement of green products

EQ27: Are there specific regulatory barriers to the development and free movement of green products? Are there any legal gaps not already covered by IM legislation for industrial products?

Whilst IM legislation is generally intended to be technology-neutral, other areas of EU policy aim to promote wider development and use of green products. For example, the Commission Communication “Building the Single Market for Green Products”[80] aims to facilitate a higher uptake of green products and of greener practices by companies in the EU market by contributing to the removal of potential barriers to the free circulation of green products in the Single Market. Evidence from the Your Voice Consultation suggests that green products are able to circulate, with the majority of industry representatives responding to the Your Voice Consultation (40/47) reporting that were no regulatory barriers to the movement of such products.

EU legislation has, in some cases, promoted the development and circulation of green products by aiming to remove inefficient technologies from the market in favour of more environmentally-friendly technology. For example, the Ecodesign, Outdoor Noise Directive (OND), and Non-Road Mobile Machinery Directives (NRMMD) have explicitly aimed to ensure that all products fulfil a minimum level of environmental performance and to ensure that they are freely traded across the EU[81]. As indicated by the recent evaluation, in the absence of the Ecodesign Directive, national measures would have been implemented leading to the creation of technical obstacles and market fragmentation that would operate against the development of green products. Similarly, RoHS and REACH have promoted the early phasing out of hazardous substances and dangerous chemicals respectively, and incentivised manufacturers to identify alternative substitutes. The recent review of REACH[82] concluded that, notwithstanding the important administrative costs, the information collection mechanisms, the registration and authorisation processes and the candidate list of hazardous substances have often acted as stimuli to product conception or innovation through the increased knowledge of substances and properties.

Evidence from the implementation of other pieces of legislation with environmental aims, such as the F-gas Directive, RoHS and REACH regulations, OND or the NRMMD, is rather mixed. Interviews of industry representatives highlighted a direct link of the requirements of the OND and NRMMD to the promotion of innovation in relation to less noisy and less polluting engines. However, it was also pointed out that the share of R&D activity linked to NRMM provisions is disproportionate (as suggested, up to 80% of the total R&D) leading to less progress made in relation to other equally important objectives such as product performance.

At the same time, it would appear that a number of non-regulatory barriers may exist to the circulation of green products. A first barrier may be the lack of a common definition of what a 'green product' is and what makes a 'green organisation'. As indicated by a national industry association in Italy, there is a “lack of harmonised criteria for applying different green terminology across different product types. This can lead to confusion and misleading advertisements for consumers, especially when the term “sustainable” is used.” Another barrier can be national incentive schemes that promote the take-up of environmentally-friendly technologies; whilst these do not prevent non-national companies from supplying the national market, they clearly put them at a competitive disadvantage (see text box below).

Table 6.5: Renewable Technologies incentives schemes for UK providers

In order to access UK Government Financial Incentive Schemes installers of Renewable Technologies must be certified under the MCS Installer Certification Scheme. Within the Scheme Rules there are requirements that compel additional product testing or completely restrict the installation of some specified product types that are otherwise freely available elsewhere in the EU. The Microgeneration Certification Scheme (MCS) (Document MCS012 requires manufacturers to submit PV and Solar Thermal products for UK Specific Roof Tests and Certification, in conflict with EN12975) UK - MCS Scheme (Document MIS3001 specifically restricts the Installation of In-Roof Solar Thermal Products that carry the European SolarKeymark Certification). The MCS Installer Certification Scheme is the only scheme recognised by the UK Department of Environment and Climate Change (DECC). DECC do not recognise Installer Certifications Issued by other EU Member States which appears to be in conflict with UK obligations under Directive 2009/28/EC Article 14-3.

There is also evidence that the free movement of green products is undermined by weaknesses in market surveillance. It is a rather common view among most stakeholders – including national authorities - that safety aspects are given priority and compliance with environmental requirements in relation to emissions, noise, energy efficiency are rarely examined given the limited resources of market surveillance authorities. As a result of this, firms producing in green products may face unfair competition from firms that either make false “green” claims or are allowed to avoid certain costs and compete on the basis of low prices. This view was supported by a small number of respondents to the Your Voice consultation (7/47) who identified a lack of appropriate market surveillance and enforcement of applicable environmental requirements (e.g. in the case of Ecodesign).

Research Findings (RFs)

· (RF98) There are few, if any, regulatory barriers that specifically relate to the development and free movement of green products. (Your Voice consultation; Previous evaluations of IM legislation)

· (RF99) EU legislation has done much to promote the development and free movement of green products by removing environmentally-unfriendly technologies from the market and phasing out hazardous substances. (Analysis of text of legislation; Previous evaluations of IM legislation)

· (RF100) Some non-regulatory barriers remain, e.g. lack of common definition on “green products”, lack of harmonised criteria for green products. (Analysis of text of legislation; Stakeholder interviews)

· (RF101) Some market surveillance authorities prioritise unsafe products rather than products that fail to meet environmental standards. (Stakeholder interviews; Your Voice consultation).

6.4 Effectiveness in responding to the challenges of e-commerce

EQ28: To what extent is legislation adapted to the challenges presented by e-commerce?

When the New Approach Directives were introduced in 1985, e-Commerce was in its infancy and accounted only for negligible levels of trade.[83] Since then, levels of e-Commerce have grown exponentially, now accounting for a significant share of all transactions. By making information more available, helping to link suppliers and purchasers across Europe and enabling better price comparisons, e-commerce has great potential to facilitate the free movement of goods across the EU. For example, a 2011 study for the Executive Agency for Health and Consumers estimated that an increase in cross-border on-line retailing from 3.5% to 15% of all sales would benefit consumers by €204.5bn p.a. (equivalent to 1.7% of EU GDP) through lower prices and increased choice.[84] However, the level of cross-border e-commerce within the EU has remained relatively low. A 2010 Eurobarometer survey found that only 7% of EU consumers had bought goods or services online in the previous year from a seller located in another EU Member State.

Whilst IM product legislation includes few, if any, references to e-commerce, the research has identified few particular problems related to e-commerce within the EU in respect of compliance with IM legislation; indeed, none of the stakeholders interviewed has suggested that e-commerce raises concerns that are different from other forms of trade.[85] For example, one interviewee compared e-commerce to telephone commerce, which has been undertaken for many more years.

E-commerce does appear to present some serious challenges where products are imported from 3rd countries into the EU. Such challenges may require greater consideration by EU policy, which has tended to focus mostly on e-commerce within the EU.[86] Yet the scale of the problem would suggest the need for action at EU level; one market surveillance authority in Germany reported identifying 20,000 different compliant products offered for sale on the internet by 3rd country suppliers. According to those stakeholders that offered a view, the main problem with the legislation is the lack of clarity over when products are placed on the market and by whom.

Indeed, there appears to be ambiguity as to whether making available for purchase via on a retail website constitutes placement of the product on the market. Similarly, there is the question as to whether the purchaser of the product from a 3rd country supplier via a website is the importer or not. In effect, e-commerce allows the product value chain to be shortened, for example, by removing the need for wholesalers in many cases. Overall, the effect is to facilitate the import of non-compliant products, with consequent increased risks for purchaser. Reported problems include the sale of products without use instructions or warnings in an appropriate language, non-respect of guarantees and lack of effective legal redress. Whilst the definitions of importers and distributors provided by the NLF are reported to be helpful, it would appear that further clarification is necessary.

In addition to problems of defining responsibilities, there are very significant practical problems in the market surveillance of products sold on-line. Whilst market surveillance authorities did not report any lack of legal authority to seize non-compliant products, they do, however, report considerable difficulties in the identification and interception of such products. Market surveillance authorities have fewer problems to identify industrial products imported into the EU via “traditional” routes, for example, through co-operation with border and customs authorities who can help them intercept bulk shipments of products that may be non-compliant. Similarly, market surveillance authorities have much fewer difficulties to identify and intercept products sold through conventional physical outlets. In contrast, goods purchased from third countries via the internet may be delivered to the end-user in single consignments via the conventional postal system, making it much harder to intercept potentially non-compliant products.

One interviewee commented that: “It’s relatively easy to intercept one shipment of 10,000 mobile phones at a port; it’s almost impossible to intercept 10,000 mobile phones each of which has been posted individually from a third country”. Moreover, even where market surveillance authorities identify websites selling non-compliant products, they may simply be unable to identify the supplier using the website.

The challenges raised by the difficulties in tracking and tracing products may be compounded by a degree of ignorance amongst some of the parties. In particular, providers of e-commerce platforms may be unaware that their platforms are being used to trade goods that are non-compliant. Similarly, end-users may be unaware that they are purchasing non-compliant products from a third-country supplier and unaware that they might not enjoy the same legal protection as they would in the case of purchases made within the EU. Some interviewees also suggested that there might also be a lack of clarity over the relative responsibilities of different parties; for example, to what extent should end-users be considered as importers of products? To what extent are e-commerce platform providers responsible for goods sold via their platforms? In fact, according to the limited liability provisions of the Electronic Commerce Directive,[87] it is the primary suppliers and not the intermediary providers acting as mere conduits, caches, or hosts of information that are liable for online content. However, the uncertainty expressed by some interviewees may indicate a need for better information to be made available.

Those interviewees that were able to suggest possible solutions to the challenges raised by e-commerce advocated a mix of legislative and pragmatic approaches. These solutions should perhaps be considered by the Commission as part of its wider consideration of the challenges of products sold on-line (i.e. Action 12 of the current Multi-Annual Market Surveillance Plan).[88] Two interviewees suggested a revision of current EU legislation relating to e-commerce in order to deal with non-compliant products. Here, it is perhaps worth noting that the E-Commerce Directive does not apply to services supplied by service providers established in a third country, which may suggest a gap between that particular piece of legislation and the body of IM legislation.

Another interviewee suggested that EU financial legislation should be revised to stop imports of non-compliant products from outside the EEA, i.e. by introducing the possibility to confiscate payments made for such products. One interviewee also suggested that individual end-users, not just companies, should be subject to the regulations if they purchase and import non-compliant products; however, this does not seem a practical solution, particularly for individual consumers who may be unwitting victims rather than “co-conspirators”. Other interviewees highlighted practical action, such as co-operating with providers such as eBay to identify and remove non-compliant products from their websites, co-operation between market surveillance authorities and internet service providers over the use of domain names to supply non-compliant products, and agreements with 3rd country authorities, notably China, to avoid imports of non-compliant products. Since the Electronic Commerce Directive does state that cooperation with third countries should be strengthened in the area of electronic commerce, there is perhaps a case for ensuring that such co-operation includes a focus on industrial products.

Research Findings (RFs)

· (RF102) IM legislation poses few problems related to e-commerce within the EU. (Stakeholder interviews; EAHC study; Eurobarometer survey)

· (RF103) E-commerce with third countries presents serious challenges in the form of non-compliant products. This relates to ignorance or ambiguity over responsibilities for importing products or placing products on the market in the case of e-commerce. (Stakeholder interviews)

· (RF104) Market surveillance authorities face significant practical problems to trace and intercept non-compliant products imported from third countries via e-commerce. (Stakeholder interviews)

· (RF105) There is a need to review the body of legislation with respect to e-commerce with third countries and also promote practical approaches to market surveillance. (Analysis of legal text; Stakeholder interviews)

6.5 Effectiveness in allowing SMEs to operate across EU28

EQ29: How are SMEs (micro, small and medium-sized) affected by IM legislation for industrial products and how do they cope with the requirements? Is there scope to alleviate the burden on the different SME categories without compromising the overarching objectives of the legislation?

The 2013 Commission Communication on Smart Regulation[89] commits the Commission to considering the needs of SMEs when developing EU legislation. This can be pursued in various ways, such as applying the micro-enterprise exemption, introducing lighter regulatory regimes for SMEs and ensuring regulatory fitness. However, since the objectives of product harmonisation directives are linked to health and safety, the protection of consumers and of the environment (in line with Article 95 of the TFEU), there are inherent limitations on the scope for SME exemptions and/or a lighter regulatory regime.

A 2011 Commission report on "Minimizing regulatory burden for SMEs - Adapting EU regulation to the needs of microenterprises" noted that “much legislation will remain applicable to SMEs and micros, covering fundamental public policy obligations, for example, product safety standards that are integral to trading throughout the single market”.[90] At the same time, it must be noted that the cost of complying with EU legislation is likely to be much less than the cost of complying with the requirements of 28 different national legislative regimes; in some cases, this might be of disproportionate benefit to SMEs (compared to large enterprises that might be well-placed to meet different national requirements).

Unsurprisingly, there are very few examples of legislation being adapted to alleviate the burden on SMEs. The Battery Directive does exempt small enterprises from having to fulfil the responsibilities facing other producers in relation to waste.[91] The Construction Products Regulation also includes simplifications aimed at micro-enterprises.[92] New procedures were introduced when the previous Directive was revised for declarations of performance that need to be drawn up under the new regulation. This is meant to reduce the costs incurred. However, these two examples represent quite specific cases and it would be difficult to replicate these approaches more widely.

Stakeholders consulted for the current study were unanimous in their opposition to a differentiated approach to product harmonisation legislation because product safety is paramount. A common view expressed was that different rules or procedures for SMEs cannot be introduced since this would risk undermining the objectives of Union harmonisation legislation. As one German industry association with 1600 members commented, “SMEs don’t want exemptions – a safe product must be safe irrespective of the size of the undertaking”. Moreover, there was a concern that different rules or procedures for SMEs would make carrying out effective market surveillance activities more difficult and increase the administrative burden on authorities. Market surveillance authorities would need to check whether a given product was manufactured by an SME or a large firm and, in instances where different administrative procedures are being applied according to the size of the undertaking, to verify the equivalence of these procedures.

There was, however, wide recognition amongst stakeholders that SMEs potentially face a greater burden in complying with the legislation, which can serve to reduce competition in the internal market. The most common problems reported related to the diseconomies of scale facing SMEs in the compliance process. Indeed, SMEs are more likely than large enterprises to lack the resources to undertake activities that are required to comply with the legislation, such as testing or measurement. Similarly, SMEs are less able than large enterprises to employ specialist staff to ensure familiarisation with the legislation, disseminate information and promote compliance. They are also less able to participate in the work of bodies such as standards committees. Reflecting these difficulties, a small number of stakeholders went so far as to say that SMEs were more likely to be responsible for placing non-compliant products on the market, whether inadvertently (through lack of awareness) or deliberately (in order to reduce costs and without the need to protect a brand name).

Whilst the opportunities to adapt the requirements of the legislation to SMEs are very limited, there may scope to alleviate the burden in other ways. For example, it might be possible to set different requirements in the area of management systems (e.g. ISO 9001), with more demanding requirements for large firms than for SMEs. Similarly, any costs related to surveillance as well as fines could be made proportional to the size of the enterprise. Adaptations to registration fees could be used, as in the case of REACH. It might also be possible to provide standards in a greater range of languages, which would benefit all operators but particularly SMEs (for whom translation of standards represents a disproportionately greater cost). The Commission could also consider ways to support greater participation of SMEs in the standards committees and other fora at EU level, for example by providing greater help with costs; increasing the participation of SMEs would not only help the SMEs directly involved, but also help ensure that the legislation and the relevant standards are as “SME-friendly” as possible.

Given the greater difficulties that SMEs face in ensuring familiarity with the legislation, there will be a continued to need to promote awareness and understanding. Guidance is already available through the Blue Guide and some guidance documents such as the Machinery Directive are very comprehensive in scope already. As far as possible, the Commission should continue to ensure that all such guidance is clear and “SME-friendly”. However, it has been reported that some guidance documents should be revised in order to make them clearer, such as the guidance on the PED which was viewed as confusing by some interviewees. For instance, a Notified Body commented that “One of the main problems with the PED is that there are gaps in the descriptive parts of the legislation in terms of covering all types of pressure vessels. Some of these gaps have resulted because the Directive is relatively old (1997) and new types of pressure vessels have been developed since the legislation was drawn up. Although such products are addressed in the supporting guidance to the PED, the situation is unsatisfactory because manufacturers point to the legislative text and only want to address the minimum legal requirements. For instance, there is very little in the legislation about large boilers, only in the guidelines. The lack of legal clarity means that sometimes it is down to producers to interpret the guidance”.

In the provision of information and advice, Member States clearly play an important role and there may be scope for some to expand current provision, including through the Product Contact Points. The Commission could support such an expansion through identifying good practice at the national level and promoting the replication of such good practice in other Member States. For instance, an initiative has been launched by the Health and Safety Executive (HSE) in the UK to simplify guidance for different product harmonisation directives and to make it more SME-friendly, which might inform similar approaches in other countries. Member States might also adopt other approaches, such as maintaining a list of accredited consultants from whom SMEs can purchase advice and receive support in ensuring compliance with EU legislation.

Research Findings (RFs)

· (RF106) There are inherent limitations on the scope to alleviate legislative requirements for SMEs without compromising health and safety, consumer protection and environmental protection and without making market surveillance much more difficult. (Stakeholder interviews; Commission report COM(2011)803)

· (RF107) SMEs potentially face a greater burden due to diseconomies of scale and are less able than large enterprises to participate in standards committees and other bodies at EU level. (Stakeholder interviews; case studies)

· (RF108) There are practical ways to help SMEs that could be encouraged and replicated across EU28, e.g. promoting participation in standards committees, guidance, etc.

6.6 Effectiveness in handling the relationship between services and products

EQ30: Are there barriers to trade stemming from the way legislation handles the relation between services and products which are part of the same value chain?

Technological change, increasing complexity of product and innovation in both product design and service delivery are changing the relationship between products and services that are part of the same value chain. Indeed, the distinction between product and service markets is becoming ever more blurred, in part because consumers increasingly demand high-quality after-sales services. “Products are integrated parts or enablers of a wider service. To put it differently, instead of selling a product with a service, there is a tendency of selling a service with a product (e.g. mobile phones)” [93].

Evidence from the current consultation suggests that EU legislation is struggling to adapt to this changing environment, which creates uncertainty as well as potential barriers to trade and risks to health and safety. Union harmonisation legislation relates to the initial placing on the market of products. Once products have been legally placed on the market, they are then free to circulate. Although as a general principle, IM product legislation should also apply to product-related services, but the current regulatory framework in this regard does not appear to be clear.

Difficulties with the design and enforcement of legislation concern a number of different areas. One difficulty is the extent to which original suppliers are liable for the on-going safety of products and, consequently, the actions that they must take at the point of sale, as well as the extent to which they comply with any requirements. For example, manufacturers are typically required to provide sufficient information on the services that may need to apply to a product at a late date, in order for it to remain safe and useable. Yet stakeholders reported that some manufacturers failed to provide sufficient information or indeed any information at all in some cases.

Questions were also raised over the appropriate time period for product guarantees, with some stressing the need for different periods for different products. For example, it was noted that one of the requirements of the PPE Directive is that protective qualities must remain through the life of product; this created a potential uncertainty regarding the relative responsibilities of the manufacturer, customer and any later service provider. If the PPE product is subject to ageing, manufacturer must indicate this fact on the product or in the instructions, though they cannot control use. As one respondent noted: “use defines the lifetime of products and not just care and maintenance”.

For many products, it may be difficult to differentiate between the supply and installation. In some sectors, such as construction or lifts and elevators, it may simply be impossible to differentiate between supply and installation. For these products, the legislation must recognise that companies are not just selling products but a whole package that includes a service, i.e. installation. Where services and products are addressed by different directives, there is risk that suppliers will have to comply with two different notification procedures, creating an additional cost. Whilst this was highlighted as being problematic for construction products, for the lifts and elevators sector it was seen as less of a problem, since lifts and elevators are rarely, if ever, supplied without being installed. Moreover, lifts and elevators tend to be installed by the manufacturer, who therefore ensures compliance throughout the process.

In contrast, the case of “on-site blasting” of civil explosives highlights a potential inconsistency in the legislation. Since no explosive product exists until the supplier mixes the necessary materials on site, on-site blasting is specifically excluded from the current Explosives Directive, as it involves the provision of a service rather than a product. However, on-site blasting will be covered by the proposed new Regulation on consumer product safety, yet stakeholders report a lack of consultation with product-specific groups in the development of this new Regulation. As a result, the risk is that the technical side of the Regulation might not therefore prove appropriate and the industry will ultimately struggle to demonstrate compliance on issues such as on-site blasting.

Spare parts and components were also highlighted as causing difficulties, both in terms of their supply, as well as their use in after-sales service. These are evidently an integral part of the product lifecycle. However, the research found that there are differences between different IM legislation for industrial products as to whether spare parts and components are included within scope across different IM directives and regulations. Moreover, there is also the very practical problem of fitting new components into old products, which raises the question of the extent to which a product can be altered (e.g. when new parts are fitted) and still comply with the requirements of the legislation.

This problem is particularly common for products with long lifetimes, where the original manufacturer might no longer be trading or the original component might no longer be available. Equally, the legislation may risk creating barriers to trade where it prevents independent manufacturers from developing new components that fit into products supplied by large manufacturers. Enterprises also face administrative burdens from the need to ensure that product-related information is kept up-to-date and because there are frequent changes to spare parts and components, they have to regularly update technical documentation. For instance, the serial numbers for parts and components change frequently.

As with supply and installation, after-sales service also raises the question of whether compliance is required under product directives or service directives. Again, this creates the risk of having to comply with two different notification procedures. As well as the potential for greater compliance, there is also the risk of safety issues. For example, the LVD was highlighted as one example of directive that fails to address the safety challenges raised by after-sales services, since it is only concerned with the placement of products on the market and not with after-sales, repair, renting to consumers, etc. Whilst the stakeholders consulted were generally aware of this difficulty, there were divergent views as to the most appropriate solution. Some called for an extension of relevant EU product directives, whilst others suggested that the regulation of services was better suited to the national level because of diversity of condition and contexts, which might prove difficult to address at EU level. However, even those stakeholders suggested that EU legislation might provide some sort of a framework on which national legislation could build; this might suggest the continued use of EU directives rather than regulations, which would allow Member States the opportunity to customise the requirements placed on after-sales service in line with national context.

One very specific dimension of after-sales service that was reported to be problematic was that of the qualifications of staff. For example, in countries such as Germany, certain services may only be carried out by certain enterprises or regulated professions. The construction sector was reported to be particularly affected by such restrictions. As a result, the potential to trade across borders was seen to be limited for companies providing a combination of product and after-sales service, with many having to limit their activities only to the provision of products. This also places a restriction on the mobility of labour in the EU internal market, both permanent and temporary. The solution to this problem would seem to be the reinforcement and acceleration of efforts to promote the mutual recognition of skills and qualifications across Europe, e.g. through the European Credit system for Vocational Education and Training (ECVET), which promotes better compatibility between the different vocational education and training (VET) systems in place across Europe and their qualifications. Whilst progress has been made in this area, it has tended to be undertaken in isolation to the design and implementation of internal market legislation. There might therefore be scope for the Commission to encourage greater co-operation and dialogue between the IM and VET policy spheres.

Research Findings (RFs)

· (RF109) The increasingly blurred distinction between products and services creates uncertainty around: i) the extent to which original suppliers are liable for the ongoing safety of products and the appropriate time period for product guarantees; ii) differentiation between supply and installation; iii) coverage of spare parts and components; iv) after-sales service, i.e. whether covered under product or service directives; v) qualifications of staff required to undertake service and maintenance. (Analysis of legal text; Stakeholder interviews; Case studies)

· (RF110) There is scope for the Commission to reduce this uncertainty through a note highlighting the issues that need to be considered in any update of the legislation and setting out in generic terms how these issues could or should be addressed.

6.7 Effectiveness with respect to business-to-business products

EQ31: The specific situation of business-to-business (B2B products) which are developed and supplied to be used by professionals for the development of other products: Do these products require a special treatment?

IM legislation covers a broad range of products for both industrial use and for consumers. Many of the more high-risk product categories from a safety point of view are primarily intended for use by professionals. In some Directives (e.g. Machinery), there are provisions (Article 17) suggesting that manufacturers need to take into account the intended use in the design and construction of a product and also in relation to the information materials and instructions to be provided which may differ between professional users and non-professional operators. However, in the case of other product harmonisation directives, there is no distinction in EU legal texts between products aimed at professional and non-professional users, since achieving a high level of protection in product safety is the main goal.

Base on the consultations, there appears to be a broad consensus among stakeholders that products developed and supplied to be used by professional users should not be given any special treatment as far as the essential requirements are concerned. A common view was that issues relating to product safety and the level of risk involved in specific product areas are similar irrespective of whether the intended user is a final consumer or a professional. However, the results of the Your Voice Consultation suggest that a significant number of stakeholders – including firms, public authorities and individual EU citizens – consider that some such products should be exempted from IM legislation (29 out of 86 respondents) or that simpler requirements – either in relation to labelling and information requirements or the essential requirements – are appropriate (15 out 87 respondents). For example, manufacturers, importers or distributors could be required only to retain information electronically relating to products intended for professional use rather than having to include paper-based information and material.

In total, around half of consultation respondents were in favour of special treatment for B2B products. It should be noted however that among firms in the manufacturing sector, the level of support for a differentiated approach was less clear. Less than one third were in favour of some form of special treatment. Support for exemptions primarily came from respondents in the transport sector[94]. There is therefore a need to ensure that due caution is given to interpreting the results.

Given the diversity and sectors, it is perhaps not surprising that there is a divergence of views amongst stakeholders. Based on a more detailed review of responses to the Your Voice consultation and to the consultation within the current evaluation, we can offer some more specific findings.

First, there is a category of products that by definition are not supplied to individual consumers. Examples of such products include lifts and elevators, which are never supplied without being installed and tested by professionals, whether employed by the manufacturer or some other company. Clearly, for such products there is no need to differentiate between consumers and professionals and a single set of requirements is sufficient. However, such products typically require high safety standards to be respected, which would tend to limit the scope for any lessening of legislative requirements, including those relating to administrative documentation.

There are also some products that are very unlikely to be used by anyone other than professionals and which tend, in any case, to pose few safety risks. Some metrology instruments might be seen as falling into this category, where the purpose of legislation is to ensure accuracy of measurement rather than to address potential hazards. Feedback from stakeholders in sectors such as metrology suggests that the requirements of the legislation should not be relaxed, as standards must be maintained. However, given that professionals know that they have to buy products that meet the requirements of the legislation, there might be possibilities to relax the administrative documentation required.

At the same time, any relaxation of administrative requirements should only be undertaken after appropriate consultation with sector operators; many professional users have clear expectations regarding type-approval certificates, etc. and do not wish to undertake their own additional checks, which would be necessary in the absence of legislation. In the case of metrology, there are of course products such as fuel dispensers that do pose a safety hazard; however, where such risks are addressed by other directives, such as those relating to explosives, there might be scope to reduce the documentation requirements specifically relating to the Measuring Instruments Directive.

The types of products that raised most concerns amongst stakeholders are those intended for professionals and posing safety risks but that might ultimately be used by consumers. For example, many electric power tools are meant solely for use by trained professionals following prescribed safety measures. Yet such products can often be sold to or passed on to non-professional, untrained users without too much difficulty, creating considerable risks to safety. The consensus amongst stakeholders was that special treatment would therefore not be appropriate for these types of products. As one competent authority commented, “many industrial products placed on the market are initially designed for industrial purposes and then migrate to consumers. It would therefore be impossible to differentiate in the Directives between the intended product use between professional and non-professional users”.

Another category is products that are intended for professional use, being sold as components. Some of these products, such as components for lifts and elevators, are unlikely to be purchased by consumers, and would in any case pose no risk if purchased. For these products, some administrative requirements could perhaps be lightened, such as use of the CE marking and market surveillance activities might also be lighter. However, other products might be used by consumers, perhaps after resale by the original (professional) purchaser of the product. Although there are often specific distributors for such products, experience shows the ease with which non-professionals can often access them. An appropriate approach to take in these cases is perhaps to consider the likely risks that might be posed to consumers, with the legislation tending to “err on the side of caution”.

It is also the case that some components or products tend only to be used in very controlled environments, such as laboratories, research and development centres or test facilities. In these instances, it might be possible to label the products as 'parts' that are only required to meet the essential requirements on the location of use, following a regime similar to that applicable for fixed installations under the EMC Directive. This means that CE marking, Declaration of Conformity or a formal EMC assessment before putting such products into service in a research environment would not be required. Furthermore, for such an exemption to apply under the EMC, there would need to be a direct link between providers and customers. The appropriateness of this proposal and how it might work in practice should be examined along with any possible definition issues that may arise.

Research Findings (RFs)

· (RF111) There is no scope to limit the essential requirements of products to be used by professionals, although for some products, there may be scope to reduce the administrative requirements. (Stakeholder interviews; Your Voice consultation; On-line survey)

· (RF112) There may be scope to reduce the requirements for components or products that are only to be used in controlled environments, e.g. laboratories, test centres, etc. These would have to be considered on a case-by-case basis, as and when legislation is updated. (Analysis of text of EMC).

6.8 Impact of IM legislation on the internal market

EQ32: Overall, how effective is IM legislation for industrial products as a mechanism and means to achieve the objective of improving the functioning of the internal market?

The Ceccini report[95] in 1992 found that Union harmonisation legislation for industrial products had already reduced inefficiencies due to divergent product standards in national technical product regulations. However, a number of major barriers to trade remained prior to the establishment of the internal market in 1992, notably:

· Technical barriers to trade – with differing national regulations across different Member States for specific industrial product groups; and

· Administrative barriers – a diverse range of national regulations across different Member States meant that businesses faced considerable red tape and administrative costs in finding out about national requirements.

Since 1992, there has been a steady accretion of the body of IM legislation and the existing evidence suggests that this has been accompanied by a sizeable increase in intra-EU trade. There are other factors and processes that have also played an important role in the development of intra-EU trade (including the introduction of the Euro currency and the EU enlargement, the broader processes of globalisation, improvements in transport infrastructure and reduction of transport costs, development of e-commerce) and it not possible to determine the extent of contribution of the Internal Market legislation. Nonetheless, the data on levels of intra-EU trade do suggest a degree of correlation. The available data for the period 1999-2011 show a clear increase in the general level of trade in goods as the share of EU GDP but also in terms of the intra-EU trade in almost all manufacturing sub-sectors. Furthermore, input from stakeholders and the analysis of the role of specific pieces of legislation affecting specific sectors also provides supportive evidence.

Figure 6.1 shows that over the 20 years since the Single Market’s launch in 1992, intra-EU trade of goods has grown as a share of GDP by around 5%. Intra-EU trade represented around 17% of EU GDP in 1999 and close to 22% in 2011. Furthermore, intra-EU trade represents a very high percentage of GDP in most Member States, a level that has grown over the period 1999-2012.

Figure 6.1 Intra-EU trade in goods as share of GDP, 1999-2012 (average of export & import)

Source: Eurostat

Focusing on the manufacturing sector, the evolution of intra-EU trade in the three broad categories of industrial goods according to the SITC classification (Machinery and transport equipment, manufactured goods classified by material and other manufactured goods) has exceeded that of the growth of total value added of the EU manufacturing sector (see chart below).

Figure 6.2 - Evolution of intra-EU trade (exports, 2000=100) in selected manufacturing sectors in relation to manufacturing gross value added

Source: Eurostat trade statistics

Figure 6.3 Evolution of intra-EU trade in selected manufacturing sectors (value of imports; 1999=100)

Source: Eurostat

Whilst there are differences between different sectors covered by IM legislation, most have experienced an increase in the level of intra-EU trade, particularly during the first half of the 2000s. Only three have shown a fall in the level of intra-EU trade since 1999 (i.e. office machine and automatic data processing, metalworking machinery, and photographic apparatus), and this coincided with the economic and financial crisis of 2008.[96]

It should also be noted that in most sectors the level of imports from outside the EU has increased at a higher pace. As a result, in most cases, there has been a reduction of the share of intra-EU trade in the total level of trade (see figure below) reflecting the globalisation of markets, the increasing presence of non-European manufacturers in the European internal market but also, as illustrated in some of the case studies (e.g. gardening equipment, domestic refrigerators), the fact that many EU manufacturers have transferred the manufacturing of industrial products to outside the EU  even though where these goods are destined for the EU market.

Figure 6.4 – Evolution of share of intra-EU trade in total trade of selected industrial goods covered by EU legislation

Source: Eurostat trade statistics

This data may, however, understate the positive role of the introduction of Single Market legislation and technical harmonisation requirements. A key limitation in relation to this task is that EU trade data are generally available only after 1999, a point of time when most of the EU Directives under examination were already in force.

More specific evidence can be found for those categories of products where harmonisation came only at a later stage. One such case is the exhaust gas analysers product group that is covered by the Measuring Instruments Directive (2004/22/EC) (MID). The MID was introduced in 2004 and entered into force in 2006. It covers a range of measuring instruments but most of them had already been harmonised, ever since the early 1970s[97]. Exhaust gas analysers was a new category covered by the MID. The available trade data for gas and smoke analysers (a category arguably broader than the exhaust gas analysers) suggest an increase at the level of intra-EU trade even before 2004 but an even greater increase in imports to the EU taking place since 2005/2006. According to one national officer responsible for the implementation of the Directive, the increase in the trade of exhaust gas analysers is clearly connected with the introduction of the MID.

Figure 6.5 - Evolution of trade (imports) for gas analysers inside and outside the EU

Source: Eurostat trade and structural business statistics. Note – the analysis did not include Croatia, EU28

The data are rather less supportive in the case of the recent harmonisation of legislation is pyrotechnic articles. Directive 2007/23/EC on pyrotechnic articles covers fireworks and pyrotechnic articles used in vehicles (airbags, seat belts) and related products. The Directive entered into force in 2010 although it provided for up to a three year period for its transposition into national legislation. Examination of the value of imports suggests a sizeable increase in the level of intra-EU trade of explosives and pyrotechnic products – in comparison with a slower development of extra-EU trade - but a much more gradual increase in the case of fireworks[98]. Imports from outside the EU (China is the predominant exporter) have increased much faster.

Figure 6.6 Evolution of imports (intra-EU and extra-EU) of explosives and pyrotechnic products (value in Euros)

Source: Eurostat trade statistics. Note – the analysis did not include Croatia, EU28

Amongst the Notified Bodies (NBs) and Accreditation Bodies (ABs) responding to the survey, a clear majority supported the view that IM legislation had helped ensure the harmonised operation of the internal market and ensured fair completion and access to the internal market. (See Table 6.6). Among the seven industry representatives that also responded to the survey, five indicated that IM legislation had been effective or very effecting in harmonising the operation of the internal market but only one considered it effective in terms of ensuring fair competition.

Table 6.6: What impact has Internal Market legislation for industrial products had in relation to the following policy objectives?

Objectives || Respondent || Positive or very positive || Neutral || Very negative or negative || Responses[99]

Ensure the harmonised operation of the internal market || NB || 74% || 22% || 4% || 78

AB || 100% || 0% || 0% || 14

Ensure fair competition and access to the internal market || NB || 65% || 27% || 8% || 83

AB || 93% || 7% || 0% || 14

 Source: CSES survey

During the interview programme, most stakeholders (industry representatives and national authorities) also provided support of the role of the IM legislation in terms of the free trade of goods (see selected representative comments in the text box below). The main issue raised is the practical implementation and the fact that, national legislation and requirements applicable to the use phase can still effectively create obstacles to free trade of products.

Table 6.7: Selected comments of stakeholders on the contribution to the functioning of the internal market and free trade

The PPE directive is clear and everybody has to fulfil it, so it is a very good instrument in terms of free movement of goods. We have seen a huge boost for the industry in the early 90’ties as a result of the PPE directive. When it sometimes goes wrong it is in the interpretation in the individual countries. (EU industry association)

Benefits are the free movements of goods. But market surveillance is needed. (national authority)

The free movement of goods works well. There are some technical barriers and inconsistencies from specific Member States but the frameworks that do exist allow productive discussion when the inconsistencies occur and some form of resolution. However, it is important to stress that the concept of free movement does not cover the later phases of use of industrial products (but just the place into market and put into service) often subject to very restrictive national and local regulations. These restrictions may start immediately with the first use. (EU industry association)

The legislation has helped with the free movement of products; there are very few problems with exporting/importing across the EU. It’s also quite easy to import from other countries such as the USA into the EU (EU industry association)

Overall positive – not significant issues – barriers have been removed Positive in terms of boosting exports inside EU (EU industry association)

There is still no guarantee of free movement due to the role of standards and national requirements (EU industry association)

IM legislation, especially New Approach legislation meets the needs of different types of economic operators in a great extent. We would encourage the use of New Approach also in other traditionally old approach sectors (chemicals, food,…). We estimate it [is] very effective relating to free movement of goods within the IM (National authority)

Better than before clearly but [there is] no complete harmonisation. There are issues related to use requirements at the national level [but] they are less and less of problem (EU industry association)

The IM legislation represents an overall effective mechanism for ensuring both free movement of goods and a minimum level of standards in health, safety and consumer protection (National authority)

It has been very effective in ensuring free movement of goods. (National authority)

The market is in good shape. There is definitely free movement of goods according to minimum safety standards However, the level of enforcement does vary and this often depends on the culture of public bodies in diff MS (National authority)

These views are generally consistent with the conclusions of the recent evaluations of a number of Directives. In the case of Gas Appliances Directive (GAD)[100], it was concluded that “the GAD has made a significant contribution to free trade in gas appliances. Harmonising certification requirements has been a significant benefit for manufacturers, who previously had to fulfil varying national certification requirements”. Indeed, this finding was supported by the respondents to the survey organised for that evaluation; some 60% of industry respondents and an even higher proportion of ministry respondents agreed that the GAD has had a positive impact upon the free movement of goods/services and cross-border trade, indicating that it contributed to the internal market and that it had led to an increase in cross-border trade and the free movement of goods.

The recent evaluation of the Pressure Equipment Directive also concluded that “Intra-EU trade in pressure equipment products over the period grew much more rapidly than overall production, suggesting that the Internal Market legislation in this area at least had a facilitating role. During the interview programme it was noted that the biggest increases in intra-EU trade were in products with a higher value and technical complexity”. The survey of industry (51%) and other stakeholders suggested that the majority consider that the PED is more effective than the previous system of national regulation (with 24% giving a neutral response). Similarly, the 2007 evaluation of the Explosives Directives found that businesses around Europe have seen a decrease in the share of sales from national markets – from 82% to 67%. Businesses indicated that 15% of their sales came from elsewhere in the EU, up from just 9% in 1993.

Taken together, the existing evidence supports the conclusion that, while there are imperfections, EU harmonisation legislation has made a significant contribution to the free movement of goods/services and cross-border trade, reduction of national regulatory barriers and an effectively-operating internal market. Weaknesses exist in the practical implementation at the national level and, national requirements related to the use phase – which are still responsibility of Member States and outside the scope of the Internal Market legislation - can often reduce the effectiveness of the IM legislation.

There is, moreover, evidence that IM legislation has delivered benefits for economic operators that trade in global markets. Indeed, many stakeholders reported benefits from compliance with Union harmonisation legislation, since compliance costs can be ‘leveraged’. For instance, once a given product platform is compliant with EU legislation, this can serve as a basic regulatory building block to customise products and documentation to meet compliance requirements for product safety and environmental legislation across other global jurisdictions. IM legislation is among the most stringent in the world and can therefore be used as a starting point for large firms in developing compliant products for different regulatory jurisdictions globally. This is particularly true for products where third country authorities have developed their own standards to be consistent with those of the EU.

Research Findings (RFs)

· (RF113) The accretion of IM legislation has been accompanied by an increase in intra-EU trade in absolute terms and as a percentage of GDP. (Eurostat data)

· (RF114) Whilst the influence of IM legislation cannot be separated from other influence, e.g. global increase in trade, the consensus view is that IM legislation has made an important contribution (Stakeholder interviews; Survey of NBs and ABs; Results of previous evaluations).

· (RF115) Compliance with EU legislation can support economic operators trading in global markets, particularly where third country legislation and standards are based on those of the EU.

6.9 Impact of IM legislation on health and safety and consumer protection

EQ33: Overall, how effective is IM legislation for industrial products as a mechanism and means to achieve the objective of ensuring a high level of health and safety and consumer protection?

In the IM legal base, high levels of health, safety and consumer protection are a key objective. Indeed, this is the overriding principle behind the setting of essential requirements (for safety and health) which underpin the New Approach[101].

In comparison with the situation prior to the introduction of harmonised Internal Market legislation, there are obvious advantages. Manufacturers had to operate in a highly fragmented market with different national regulatory requirements (including those relating to product safety). There were attendant higher risks, since manufacturers - especially from third countries - may not have fully understood different national requirements. There are clear benefits in having a single set of rules from the point of view of promoting product safety and ensuring that products do not have harmful effects on health. EU standards promote harmonisation and they have brought about a more uniform approach to the testing and conformity assessment of products.

Furthermore, horizontal IM harmonisation directives and regulations, such as RoHS and REACH have also served as a useful mechanism for promoting healthier products. In the case of RoHS, this has been achieved by restricting the use of hazardous substances in products. This has had an especially beneficial impact through the interaction between horizontal and product-specific Directives such as the Toys Directive.

Evidence gathered during the research suggests that IM legislation plays a positive role in ensuring high levels of health, safety and consumer protection. Stakeholders generally accept that the legislation has contributed to product safety and to the protection of the health of industrial users and consumers of products. The overwhelming majority of Notified Bodies and Accreditation Bodies responding to our survey expressed a positive view, with only very few suggesting that the impact had been negative. Five of the seven industry representative that responded to the survey were also positive concerning the contribution of IM legislation towards higher levels of safety and consumer protection.

Table 6.8: What impact has Internal Market legislation for industrial products had in relation to the following policy objectives?

Objectives || Respondent || Positive or very positive || Neutral || Very negative or negative || Responses[102]

Ensure high levels of health, safety and consumer protection || NB || 74% || 19% || 7% || 84

AB || 92% || 8% || 0% || 13

 Source: CSES survey

Individual comments from stakeholders (national authorities and industry representatives) also provide a positive view even if there are, again, question related to the practical implementation. The following table provides examples of the typical comments made during the interviews. In general, most respondents are positive even though there are again concerns on the practical implementation and the weak enforcement. Problems related to non-compliant products are generally considered to be due to the fact that the rules in place are not respected by all economic operators, poor market surveillance and enforcement.

Table 6.9: Selected comments of stakeholders on the contribution to ensuring high levels of health, safety and consumer protection

The level of enforcement does vary and this often depends on the culture of public bodies in different Member States. So yes the market works in terms of free movement but I'm not sure if the exact safety standards are always met in all circumstances (national authority)

The main benefits [on Internal market legislation] are Uniformity of good practice in market surveillance activities and uniform rules for safety and market access business (national authority)

It has been effective for health and safety. We have no big issues around that. (national authority)

Quality and safety is guaranteed on a sufficient level. (EU industry association)

Think that in the areas of health and safety there is scope for greater harmonisation – use of regulation would be preferable (EU industry association)

The minimal essential requirements provided for in the regulation are respected. Safety requirements are overall well understood and respected. They filter out fraudulent producers effectively. (national authority)

The body of IM legislation achieves the objectives of the internal market overall in ensuring common minimum standards in health & safety and consumer protection. Products are thoroughly controlled, particularly in France. However, certain Member States do not perform tests regularly and simply verify certification documents. (national authority)

IM legislation is an effective mechanism for ensuring free movement of goods and a minimum level of standards in health, safety and consumer protection. (national authority). We would encourage the use of New Approach also in other traditionally old approach sectors (chemicals, food,…). i) we estimate it very effective relating to free movement of goods within the IM ii) also very effective relating common minimum standards in health and safety, consumer and environmental protection. (national authority).

Another relevant aspect is the increasing awareness of suppliers of products. A recent Eurobarometer survey found that 86% of retailers selling consumer products felt well informed about rules and regulations relating to product safety, which was an increase compared to the figure of 80% in 2009. Some 97% of retailers declared that they complied with all legislation dealing with the economic interests of consumers and 80% believed that their competitors also complied with the legislation. The same survey also showed that a large majority of retailers selling consumer products correctly identified the following statements about product safety as being true:

· Retailers must not place unsafe products on the market (only 9% gave incorrect responses);

· Retailers must be able to present technical documentation on the safety of their products (10% gave incorrect responses); and

· Upon the authorities’ request, retailers must cooperate with the authorities to prevent risks posed by products which they supplied (10% gave incorrect responses).[103]

A large and increasing majority of retailers agreed that public authorities “actively monitor and ensure compliance with consumer legislation (79%) and product safety legislation (81%) in their sector in their country”. Whilst these findings do not differentiate between products covered by EU IM legislation and those that are not, it does offer evidence of a general improvement in consumer protection.

From the point of view of consumer confidence, according to a recent Eurobarometer study, a growing majority of EU consumers agree that, in general, sellers and providers respect their rights as consumers (65%) and that they are adequately protected by the existing consumer protection measures (57%). Moreover, there has been an increased level of trust in the safety of non-food products, with only one in five consumers in 2010 (compared to one in four in 2009) considering that a significant number of products were unsafe.[104]

There is also evidence that there is still a significant distance to go in order to achieve high levels of product safety and consumer protection that satisfies consumer concerns. According to the February 2013 Product Safety and Market Surveillance Package, a considerable percentage of products on the market are non-compliant, which undermines consumer confidence. “Notwithstanding legislation in place, unsafe and non-compliant products still find their way onto the market. People still suffer harm and harmful products still pollute the environment. Rogue traders persist - flouting the rules and undermining a clear level playing field for operators. This undermines the internal market and is a disincentive to businesses that invest a lot of resources in ensuring that the design and manufacture of their products is safe”[105].

A recent joint market surveillance actions under PROSAFE (Product Safety Enforcement Forum of Europe) suggested significant levels of non-compliance often associated with unsafe products and a study of the IFIA on electrical products for household use in 2012 highlighted safety issues caused by a significant number of non-compliant products imported from the outside of the EU. While potentially biased by specific high-profile events, Eurobarometer data also indicate a decrease in confidence of consumers in the safety of products sold in the EU (25% in 2011 compared to 20% in 2010 think that a significant number of products are unsafe). Moreover, a study by the Consumer and Industrial Products Committee of IFIA39 on electrical products for household use performed in 2012 shows that there a significant number of non-compliant products with safety issues imported from the outside of the EU which circulate on the internal EU market.

The 2012 Annual Report on the operation of the Rapid Alert System for non-food dangerous products (RAPEX)[106] suggests that there are a quite high number of notifications of products. It notes that “throughout the last eight years, the number of notifications on dangerous products has increased year on year”. While these have most frequently been related to clothing, textiles and fashion items (34% of all notifications, 668) – products that fall outside of internal market legislation – they were by toys that are covered by the Toys Directive (19% of notifications, 366) and another important category falling within the scope of IM legislation, electrical and electronic equipment (11% of notifications, 205). Lighting equipment is another category of products that was relatively often notified (3% in 2011). It should be noted that, according to the annual report, the increasing number of notifications are a reflection of enhanced market surveillance efforts and not necessarily an increase in the level of unsafe products.

Specific examples of non-compliance were also identified through the interviews and desk research. For instance, the impact assessment for the new “Radio Equipment Directive” cited evidence from EU Market Surveillance Authorities (MSAs) that only between an estimated 28% and 56% of products were fully compliant with the essential requirements. According to an interviewee from the Commission, levels of administrative compliance have been estimated at an even lower level by MSAs, of about 20%. Although this may include minor administrative non-compliance and does not imply that most radio products are unsafe, it illustrates the fact that non-compliance continues to be a major problem.

Research Findings (RFs)

· (RF116) IM legislation plays a positive role in ensuring high levels of health, safety and consumer protection. (Stakeholder interviews; Survey of NBs and ABs; Eurobarometer surveys on awareness of suppliers and on consumer confidence)

· (RF117) There remains a high number of non-compliant products, which undermines consumer protection and consumer confidence. (Stakeholder interviews; Eurobarometer survey on consumer confidence; Consumer and Industrial Products Committee report; PSMSP)

· (RF118) There has been an increasing number of RAPEX notifications, reflecting enhanced market surveillance but also the continuing problem of non-compliance. (RAPEX data; Interviews of MSAs)

6.10  Impact of IM legislation on environmental protection

EQ34: Overall, how effective is IM legislation for industrial products as a mechanism and means to achieve the objective of ensuring a high level of environmental protection?

Finally, with regard to the objective of environmental protection, it should be noted that this has not been a prime objective of the majority of Internal Market Regulations and Directives. Recent pieces of IM legislation - such as the Ecodesign, RoHS, Noise emissions of outdoor equipment, Non-road mobile machinery emissions and Waste Packaging Directives have been based on internal market Treaty articles. The majority of Notified Bodies and accredited bodies responding to the survey supported the view that IM legislation had helped ensure a high level of environmental protection, although a sizeable minority appeared to be more sceptical. Among industry stakeholders, five out of seven were positive as to the contribution to environmental protection.

Table 6.10: What impact has Internal Market legislation for industrial products had in relation to the following policy objectives?

Objectives || Respondent || Positive or very positive || Neutral || Very negative or negative || Responses[107]

Ensure a high level of environmental protection || NB || 51% || 46% || 3% || 69

AB || 69% || 31% || 0% || 13

Source: CSES survey

Furthermore, as indicated in section 6.3, IM legislation plays a positive role in the development of greener products and technologies but weak market surveillance and enforcement of environmental aspects often operate against this. Furthermore, for a number of industry stakeholders the interaction of IM harmonisation legislation and other legislation in the environmental fields (such as WEEE, the F-Gas Regulation) often leads to additional costs and even duplication of requirements increasing the cumulative regulatory effects of IM legislation.

·  (RF119) IM legislation has made a contribution to environmental protection, albeit a modest one; this is not the primary purpose of most IM legislation and MSAs have not tended to prioritise environmental protection. (Analysis of legal text; Stakeholder interviews; Survey of NBs & ABs)

7. Conclusions and recommendations

This evaluation has considered a wide range of issues relating to internal market (IM) legislation for industrial products and the efficiency and effectiveness of mechanisms and structures to support its implementation. Among the cross-cutting themes examined were whether the legislative framework for Union harmonisation legislation demonstrates ‘fitness for purpose’ and whether there are any inconsistencies or instances of duplication between different pieces of IM legislation. The question of how far such legislation can accommodate innovation was also central.

While clearly it is premature at this stage to evaluate the efficiency and effectiveness of the New Legislative Framework (NLF) as a whole, an assessment was made of the, the extent to which follow-up initiatives, notably the Alignment Package has made a contribution to modernising and reforming the legislative framework. Among the issues considered were the extent to which there are cumulative regulatory effects (and compliance costs) of IM legislation. The costs and the benefits of internal market legislation for industrial products, and the possible scope for regulatory simplifications (and cost savings associated with these) were also assessed.

7.1 Conclusions

In this section, we present the conclusions of the evaluation. In each case, we highlight the Research Findings (RF) on which the conclusion is based, which provides the link back to the evidence presented in the main body of the report.

7.1.1 Relevance and coherence of the legislative framework

1. Overall, the IM regulatory framework demonstrates a high degree of fitness for purpose. Internal market legislation is relevant to meeting key EU objectives relating to the need for technical harmonisation measures in the area of industrial products, with high levels of protection for health and safety and consumers and, to the environment. (RF1, 2, 3, 4)

2. The IM legislative framework has in-built responsiveness to adapt to change[108]. Periodic review and recasting of various pieces of IM legislation over the past 25 years has helped to ensure that IM legislation continues to reflect industry-specific and technological developments. (RF9, 10, 11, 12)

3. In general, directly applicable EU regulations appear to be a more effective regulatory instrument than directives for implementing IM legislation. Regulations remove the risk of divergence in interpretation of European rules during national transposition and guarantee synchronised timing in implementation, although in many cases, Member States merely adopt the transpose the Directives as written. (RF5, 6)

4. There is a need to clarify the circumstances under which regulations or directives should be used and this clarification should guide the choice of instrument as and when legislation is introduced or revised. (RF7, 8)

5. The adoption of common definitions of different economic operators based on Decision 768/2000/EC, together with a clarification of their respective obligations and responsibilities is contributing towards a more coherent IM legislative framework. The definitions in Decision 768/2000/EC therefore merit application across the whole body of IM legislation (RF11, 14, 15, 16, 25)

6. It may be more practical to set out common elements across the IM legislative framework in a horizontal regulation, rather than incorporating the same additional text into each and every piece of IM legislation[109]. (RF13)

7. Instances of gaps, loopholes, inconsistencies and duplication in IM legislation are relatively modest in number. Many are being or will be addressed by the NLF, the Alignment Package and other recasts of the legislation. (RF9,10,12)

8. There is a need to bring greater consistency to the definition of products and scope. This might involve broad definitions clearly stated in the main text of legislation, with specific definitions of categories and sub-categories defined in Annexes and clarified by the various Working Groups, with suitable adjustments and fine-tuning over time. (RF17, 18, 19)

9. There is a lack of clarity and consistency in the inclusion and definition of spare parts and components in IM legislation, which should be addressed by guidance from the Commission. (RF20, 21, 22, 23)

7.1.2 Efficiency of the implementation regime

10. Economic operators appreciate the choice of modules relating to conformity assessment, although some are unsure which modules apply to their products and whether third party conformity assessment is required. (RF26, 28)

11. Self-certification should not be allowed except Module A, given the inherent difficulties in ensuring the competence of economic operators. (RF27)

12. Conformity assessments undertaken across EU28 are of varying quality, which often reflects a lack of technical capacity in some NBs, due to the fact that few operate at scale or transnationally. This may require action at EU level, namely the strengthening and more consistent fulfilment of requirements on Member States relating to notification of Notified Bodies, rather than more stringent regulation of NBs, as well strengthening Notified Bodies Groups. (RF29, 30, 31, 32, 33, 34, 35, 36, 37)

13. The need to ensure quality of conformity assessments would tend to outweigh the benefits of flexibility in allowing different elements of a conformity assessment to be performed by different bodies. (RF38)

14. It does not seem appropriate to open up Europe’s conformity assessment market to third countries, given the concern over the quality of conformity assessments undertaken by Notified Bodies in third countries. (RF39, 40)

15. It is not necessary to require third-party conformity assessments, except for high-risk products. However, there is a need to clarity the principles and circumstances under which third party conformity assessments is required or not. (RF41, 42, 43)

16. Accreditation strengthens confidence in conformity assessment by encouraging consistency of conformity assessments and improving technical expertise and professionalism among NBs. Given these benefits, it would seem appropriate to make accreditation compulsory, over a reasonable timescale with appropriate guidance and discussion at EU level. (RF44, 47)

17. The accreditation process can be too costly, lengthy and subject to national variations and inconsistencies, reflecting in part a lack of expertise on the part of some ABs. It may be possible to overcome these difficulties by specifying the basis for accreditation more explicitly at EU level. (RF 45, 46)

18. The current DoC regime is satisfactory, despite some minor difficulties and DoCs are relatively easy to produce. On that basis, it would be preferable for a single DoC be required for each product, covering all applicable pieces of legislation, in line with Decision 768/2008/EC and without the need for a colour photograph of the product. (RF48, 49, 50, 51)

19. Despite minor difficulties relating to inappropriate markings, the CE marking regime is effective and the logo enjoys a high level of awareness amongst consumers. (RF 52, 54)

20. There is no need for any fundamental change in CE marking, except to bring greater consistency and avoid having different requirements for different pieces of legislation and address the issue of products with multiple parts, which can be addressed as and when legislation is updated. (RF53, 55)

21. Mechanisms such as Administrative Co-operation Working Groups and Product Contact Points play a useful role in supporting understanding of the legislation and its implications. Their contribution could be enhanced by greater profile and, in the case of ADCO, by EU funding for participation and by EU technical assistance funding, e.g. for research or guidance. (RF56, 57, 58, 59)

22. There is a lack of uniformity in approach to market surveillance across EU28 and differing levels of resources and technical capacity. Existing levels of technical compliance checks are not considered adequate to ensure that non-compliant products are taken off the market and that non-compliant operators are not given an unfair competitive advantage This contributes to making market surveillance the weakest part of the implementation regime, which in turns leads to high levels of non-compliance, low levels of product withdrawals and a need to strengthen the traceability of products. (RF60, 61)

23. MSAs are most effective when they differentiate between minor instances of non-compliance with administrative requirements and serious instances of non-compliance with essential safety requirements which threaten health, safety and the environment.. In the first case, constructive dialogue with manufacturers can often prove effective. In the latter case, MSAs must typically resort to legal action. Clearly, to achieve EU objectives, most effort must be given to the more serious instances of non-compliance. (RF61)

24. RAPEX and ISCSMS play a useful role in informing market surveillance authorities, which could be strengthened by greater complementarity and synergy between the two tools. (RF 62, 63, 118)

25. There is a need for guidance on the relative merits of a risk-based approach versus a systems-based approach to market surveillance, as well as for better definition and clarification of risk and how to assess it, building on the proposed risk assessment methodology in the PMSP. (RF64, 65)

26. The PSMSP has the potential to reinforce market surveillance by aligning consumer product safety requirements with harmonised product safety requirements and by extending EU market surveillance rules to all consumer products, which will enable enforcement measures to be targeted directly at the source of any risks to safety. This new regime may pose greater costs on MSAs, although the costs for responsible operators are likely to be negligible. (RF66, 67, 68, 69)

7.1.3 Costs of compliance and the scope for simplification

27. Familiarisation with the legislation accounts for a significant proportion of the total costs of compliance, estimated at around 15-20% for many firms and consisting largely of staff costs. (RF70)

28. Compliance costs have a strong element of Business as Usual (BAU) Costs, since ensuring compliance with IM legislation is important, but only one of many elements factored in to the product design and testing process by the firms. The fact that compliance is often taken into consideration from the outset makes the costs very difficult to separate costs such as testing equipment from BAU costs. (RF71, 72, 73, 77)

29. The costs of conformity assessment depend very largely on the need for third-party certification and on the time taken to collate and store the necessary technical documentation for the DoC. (RF75, 76)

30. There is wide divergence in the level of total compliance costs across different product groups. However, the overall burden does not appear to be excessively burdensome. In most - but not all cases - total annual estimated compliance costs (administrative, substantive) for the sector do not exceed 1% of annual turnover. (RF77)

31. There are concerns among economic operators as regards the level of administrative costs and burdens associated with some IM compliance requirements. For instance, traceability requirements were viewed as being insufficiently flexible and/ or disproportionate, examples were found of minor inconsistencies in administrative requirements between IM legislation, with ambiguity in translation requirements for DoCs since the NLF. (RF75)

32. There are cumulative regulatory effects from the interaction between IM legislation and environmental legislation applicable to products. Even though it is has always been the case that multiple pieces of legislation are applicable to a given product, in recent years the overall body of Union harmonisation legislation has grown, as well as environmental legislation applicable to products[110]. (RF80)

33. There is evidence that SMEs face higher compliance costs per unit than large firms and cannot achieve leverage on investment in compliance costs in the same way that global manufacturers can[111]. However, since product safety is non-negotiable, there is limited if any scope for exemptions for SMEs or micro firms. (RF78)

34. There are administrative burdens for industry resulting from the frequency of changes due to the updating of legislation and even more so the updating of harmonised technical standards[112]. (RF74, 75)

35. Since large firms participate much more actively in EU legislative-making and standardisation processes, they have a comparative advantages compared with SMEs, since they become aware about the legislation earlier and factor it into the product design stage earlier, thereby lowering substantive compliance costs. Since they are often also involved in drafting standards, this reduces the extent to which the concerns of SMEs are taken into account and risks favouring large producers. There may be scope to take practical steps to support the involvement of SMEs in such processes (RF78, 107, 108)

36. There is potential scope to simplify the body of IM legislation and its administrative requirements, such as through merging directives, eliminating inconsistencies in administrative requirements and making a gradual transition towards electronic provision of compliance information by manufacturers to MSAs. Such simplifications have the potential to reduce the costs of compliance borne by operators. However, the extent to which such savings are realisable in practice would need to be explored in more depth. (RF81, 82, 83, 84, 85, 86, 87, 88, 89)

37. Simplification of IM legislation might reduce the costs of compliance by around 12%, although the extent of such savings will vary from product group to product group. (RF90)

7.1.4 Effectiveness, fitness for purpose and impacts

38. Regulatory barriers to the functioning of the internal market persist in the form of differing or incorrect interpretations or applications of IM legislation, additional national requirements, failure to recognise EC type-approval certificates issued in other countries, and inconsistency in allowing the use of old versions of the standards. However, there is evidence to suggest the economic operators perceive the regulatory barriers to be greater than they are in reality. (RF91, 92)

39. IM legislation is technology-neutral and tends to promote rather than limit innovation, provided that the legislation and the standards keep pace with technological innovations and that up-to-date guidance is made available. (RF94, 95, 96, 97)

40. There are few, if any, regulatory barriers that specifically relate to green products, although some non-regulatory barriers remain, due to a lack of common definition on “green products” and a lack of harmonised criteria. (RF98, 99, 100)

41. Whilst the legislative framework is generally adequate in respect of e-commerce within the EU, EU, it is not operating effectively to prevent the import of non-compliant products from third countries. This reflects a gap in between the E-Commerce Directive and the body of IM legislation and practical difficulties faced by MSAs. (RF102, 103, 104, 105)

42. There are inherent limitations on the scope to alleviate legislative requirements for SMEs without compromising other objectives, although SMEs potentially face a greater burden due to diseconomies of scale. There are, however, practical ways to help SMEs that could be encouraged and replicated across EU28, e.g. promoting participation in standards committees, guidance, etc. (RF106, 107, 108)

43. The increasingly blurred distinction between products and services creates uncertainty in the implementation and enforcement of the legislation, which could be addressed in any update of the legislation and setting out in generic terms how these issues could or should be addressed. (RF109, 110)

44. There is no scope to limit the essential requirements of products to be used by professionals, except for components or products that are only to be used in controlled environments, although there may be scope to reduce the administrative requirements for other products. (RF111, RF112)

45. It is generally accepted that Union harmonisation legislation has led to reduced costs for industry when compared with a notional “counterfactual” situation of a fragmented market with 28 different sets of national regulations and standards (as was the case before the internal market’s establishment, albeit when the EU had only 12 Member States). (RF1, 3)

46. The elimination of technical trade barriers through harmonisation measures is also associated with growth in cross-border intra-EU trade and industry consolidation. This has allowed for economies of scale and scope to be achieved, which has helped to strengthen the industrial competitiveness of European economic operators. (RF113, 114)

47. There are benefits for economic operators in investing in compliance with IM legislation, where they trade in global markets. Once a given product is compliant with EU legislation, it can often be easily customised to meet compliance the requirements set by other legislative regimes, particularly where third country legislation and standards are based on those of the EU. (RF115)

48. IM legislation plays a positive role in ensuring high levels of health, safety and consumer protection, although there remains a high number of non-compliant products, which undermines consumer protection and consumer confidence. (RF116, 117)

7.2 Recommendations

In this section, we set out the recommendations from the evaluation, which draw on a wide number of research sources: the online surveys, the interview programme, the case study research with manufacturers and industry representatives and the Your Voice consultation. The conclusions section highlights the rationale underlying these recommendations. Where appropriate, we signpost which sections of the report the more detailed rationale can be found.

The recommendations are grouped together under the following headings: (i) Improving the architecture of Union harmonisation legislation; (ii) Strengthening the effectiveness of the regulatory framework; (iii) Improving the functioning of Union harmonisation legislation; (iv) Regulatory simplification; (v) Reducing administrative burdens for economic operators; and (vi) Strengthening the implementation regime for Union harmonisation legislation. Due account needs to be taken of existing and ongoing regulatory and administrative simplification measures and of efforts to strengthen consistency of the regulatory framework.

7.2.1 Improving the architecture of Union harmonisation legislation

Key issues relating to the architecture of Union harmonisation legislation are mainly set out in Section 3 (relevance and coherence). The recommendations reflect the evidence gathered from across a broad spectrum of stakeholders. However, in some cases, where there was no clear consensus, such as the possibility of introducing a horizontal regulation based on Decision 768/2008, we provide an independent evaluative judgement.

1. Consideration should be given by the Commission to using regulations rather than directives as the primary instrument for implementing Union harmonisation legislation. This would eliminate differences in the timing of national legislation entering into force across EU28, and reduce the risk of divergent transposition, interpretation and application.

2. However, there should remain flexibility to adopt directives should it be more appropriate in specific circumstances. Although the general policy would be that regulations are preferable to directives, if the Commission considered that a directive was more appropriate on the basis of an impact assessment (IA), it should clarify the rationale for using whichever legislative instrument is put forward in the IA.

3. Periodic reviews should be undertaken of IM legislation for industrial products to ensure that the regulatory framework is consistent, and that there are no major gaps, loopholes, inconsistencies or duplication either in the legislation itself or between different pieces of IM legislation. IM legislation should be reviewed once every 10 years as a minimum to ensure that legislation remains up to date and reflects industry developments and product innovation.

4. A horizontal regulation based on Decision 768/2008 should be considered in the medium-term, setting out common definitions and other common elements that apply across Union harmonisation legislation. Although not feasible in the near term, since a different approach has been adopted through the Alignment Package, a horizontal regulation would be more coherent and would reduce the length of legal texts in individual product regulations and directives.

5. Non-binding guidance on complying with Union harmonisation legislation should be updated by the Commission on a more regular basis, given its usefulness to manufacturers. Where possible, it should give insight into the rationale for particular requirements or standards.

6. In a number of areas within professional goods, the legislation applicable at the use phase (e.g. installations, maintenance) set at national level imposes additional barriers that reduce the benefits of harmonised legislation. While such aspects are outside the scope of IM legislation itself, the development and provisions of IM legislation should take such aspects into consideration aiming to minimize any obstacles (to the extent possible).

7.2.2 Strengthening the effectiveness of the regulatory framework

Key issues relating to strengthening the effectiveness of the regulatory framework are set out in Section 6 (effectiveness, fitness for purpose and impacts).

7. Legislative review processes leading to the recasting of existing IM legislation should be coordinated and synchronised so as to minimise administrative burdens for industry[113]. The research showed that there are cumulative effects in the form of increased administrative burdens for firms due to the high cumulative frequency of legislative changes and updates to technical standards.

8. Consideration should be given as to the feasibility (political/legal and practical) of introducing a specific date/year when new or amended pieces of IM legislation that have already been adopted come into force. This would also give SMEs more time to prepare.

9. The Commission should give further consideration as to ways of strengthening the participation of SMEs in EU legislative-making and standardisation processes. One possibility would be to ensure that SME representative associations are better represented in working groups on specific IM directives and regulations, with support provided for the costs of their participation where possible[114].

10. There should be a faster transition towards “e-market surveillance” in which economic operators will be expected to make as much compliance information available online as possible. This would promote more efficient and effective provision of two-way compliance information and data between MSAs and economic operators. This would also be more efficient for economic operators from an internal organisational perspective, given the need for periodic review and updating of DoCs and other technical documentation.

11. Economic operators should be allowed to make general regulatory information about specific products / models/ platforms available in online format only (e.g. DoCs). More sensitive technical documentation and supporting test data requested by MSAs could be transferred electronically via secure data transmission.

12. The Commission should actively promote cultural change among MSAs to encourage them to accept compliance information electronically. Many MSAs prefer to have paper copies of compliance documentation (DoCs, technical files). One means to achieve this could be through the exchange of officials, as proposed in the Product Safety and Market Surveillance Package.

13. In order to facilitate the transition towards a paperless future for market surveillance, market surveillance authorities (and customs authorities where appropriate) should be equipped with scanning equipment or smart phone readers that would link through to the compliance section of the economic operators’ website or to a dedicated standalone website. This is subject to resources being identified and requires joint investment by industry and MSAs.

14. Economic operators should be given greater flexibility as to how they meet traceability requirements in order to promote greater use of e-labelling. This would help to alleviate the major concerns that economic operators have with regard to current traceability requirements for products and packaging to provide full addressee information. These are seen as unnecessary and detract from product aesthetics and industrial design. E-labelling provides a viable alternative route to meeting the same requirements.

15. When a currently non-harmonised product group becomes part of a harmonised product group, consideration should be given as to whether it is possible to integrate new product groups within existing pieces of IM of legislation, rather than proposing new legislation.

7.2.3 Strengthening the implementation regime for Union harmonisation legislation

16. The mechanisms to facilitate cooperation and the exchange of information between MSAs should continue to be supported and given appropriate funding. EU funding for EU coordination and support actions relating to market surveillance through the PSMSP are critical and should be maintained if not further extended in coordination with MSAs aiming for the most efficient use of resources.

17. IT-driven systems such as the RAPEX and the ICSMS information system should continue to be supported. They serve different purposes/ functions and have proven vital to strengthening the effectiveness of market surveillance and regulatory enforcement.

18. Although data is already collected by MSAs on the incidence of non-compliance of products checked, this should be further disaggregated by type of non-compliance. At the minimum, comparable data should be available and this should be broken down according to whether instances of non-compliance are administrative or technical.

19. The use of accreditation should be further strengthened through a consistent approach in the area of harmonised products in line with Regulation (EC) No 765/2008. 

20. The operation of Notified Bodies Groups/Organisations could be strengthened and extended to all pieces of IM legislation, given their important role in promoting coordination and a more consistent approach among NBs. A requirement could be introduced for active participation by Notified Bodies Groups for all Notified Bodies, while taking into consideration the cost implications for the operation of smaller Notified Bodies. Extensive use of the appropriate information exchange systems (already in place among some of the existing Notified Bodies Groups) should help to keep the costs of participation low.

21. The possibility of making the accreditation of Notified Bodies mandatory should be further considered, with priority given to Internal Market legislation that concern high risk product categories or issues of higher safety and consumer protection concern.

22. In order for the above to happen in practice, there could be a compulsory accreditation requirement for non-European testing house granted Notified Body status. Concerns were expressed with regard to retaining confidence in the quality of the services provided by all Notified Bodies – European and non-European.

23. Synergies should be fully exploited between different structures in the IM implementation regime, for instance between SOLVIT (which solves general problems relating to the non-functioning of the internal market and Product Contact Points (PCPs), which have more specialised knowledge about non-harmonised product legislation. For instance, there could be referrals of cases from SOLVIT to PCPs, and staff working at SOLVIT contact points could be made better aware about coordination mechanisms and contact points for industry that specialise in issues relating to the implementation of internal market in industrial products.

24. The role of the Product Contact Points should be expanded to harmonised products so as to provide a first point of contact for and basic information about Union harmonisation legislation to firms. Many firms don’t know who to turn to and there is a low level of knowledge among some smaller firms and micro enterprises about internal market legislation, and even whether harmonised or non-harmonised legislation applies to their product. This would both strengthen the visibility of PCPs while providing SMEs with a clear information source from where they can obtain information.

7.2.4 Reducing administrative burdens for economic operators

25. The SME Test should always be applied to internal market legislation so as to ensure that administrative requirements do not impose disproportionate burdens to SMEs. It should be reiterated however that there is only limited scope for SME exemptions from the legal provisions in IM legislation and for a lighter regime in terms of administrative requirements.

26. A single reference source could be developed at EU level for firms providing information as to what changes have been made to IM legislation and updates to standards and when these come into force. This could be funded by the Commission and delegated to an appropriate body (or operated through a technical service contract).

Such an information portal would save time and resources for industry, particularly SMEs. Economic operators signing up to the service could then receive email updates outlining upcoming changes and informing about when these will take place. Moving from a legislative-based to a product-based approach to informing economic operators about applicable IM legislation and voluntary standards would however be a technically demanding and resource-intensive exercise. This would also require the strong cooperation and support of industry associations and ESOs, some of which already do relevant work in this area.

27. The Commission should ensure that the administrative simplifications proposed through the NLF’s Decision 768/2008 are fully implemented. For instance, inconsistencies in requirements for DoCs between directives should be eliminated. However, there remains a need for adequate consultation to ensure that these changes ensure sufficient flexibility for economic operators.

28. Economic operators should be allowed to continue to choose between producing a single DoC and a different DoC for each piece of applicable IM legislation. Some economic operators prefer the latter approach, since it means that there is less frequent updating of individual DoCs when technical standards are updated.

29. The current requirement for a DoC to be placed together with products in paper copy in the R&TTE Directive should be removed. The short form of the DoC currently used is not necessary given that electrical manufacturers already provide the full DoC online.

30. The Commission should provide clarity as to what constitutes a “reasoned request” for translating part of the technical file by an MSA (c.f. Decision 768/2008). Safeguards should be put in place to ensure that MSAs requesting the translation of part of a technical file is the exception rather than norm[115].

7.2.5 Regulatory simplification

31. Future simplification exercises should take into close account and give priority to previous and ongoing simplifications within the NLF framework, including through the Alignment Package. It is crucial that industry is not over-burdened with too frequent legislative changes, since there have been many changes in the past decade, with others due to come into effect in the near future.

32. Regulatory simplifications identified through the research[116] that involve the merger of different pieces of IM legislation should be subject to public consultation, and supported by technical studies. Careful consideration is needed to ensure that proposed simplification measures enjoy sufficiently broad stakeholder support.

7.2.6 Extending the reach of IM legislation

33. The Commission should promote international convergence in legislation on industrial products, since this could help to lower compliance costs for industry, thereby strengthening industrial competitiveness. The Trade and Investment Partnership (TTIP) being negotiated between the EU and the US is an important step in the right direction, but further cooperation with regulators in other third countries that are key European export markets should be explored, such as China, Russia, Brazil, Mexico and Australia.

[1] The terms “manufacturer’s declaration of conformity” and “self-declaration of conformity” are synonymous with SDoC.

[2] The study is part of Lot VI of the Framework Contract for the Procurement of Studies and other Supporting Services on Commission Impact Assessments and Evaluations (2008/S146-195858).

[3] A summary of the key evaluation questions specified in the specifications is provided in Section 2.1

[4] A typology and conceptual framework showing how cumulative impacts have been assessed through the research is provided in Section 2.3.

[5] COM(2012) 582

[6] COM/2011/0206 final

[7] COM(2012) 573 final

[8] http://ec.europa.eu/governance/impact/planned_ia/docs/2013_entr_003_industrial_products_en.pdf

[9] The Commission adopted a “package on innovation in health” consisting of the “Communication on safe, effective and innovative medical devices and in vitro diagnostic medical devices” (26 September 2012)

[10] The separate study is reviewing the PED 97/23/EC; Personal protective equipment (PPE) 89/686/EEC; Appliances burning gaseous fuels 2009/142/EC; and Cableway installations designed to carry persons 2000/9/EC

[11] Impact assessments (IAs) have only been compulsory since 2006 and while IAs relating to Union harmonisation legislation have been reviewed, legislation that predates this period was not subject to an IA process.

[12] Out of 1826 notified bodies listed in the NANDO database there were 136 duplicate entries and in the case of 648 NBs, no email address was provided, or it was incorrect (non-functioning) or missing. The CSES team conducted its own desk research and identified alternative contact details for 74 NBs.

[13] 28 Member States plus Iceland, Liechtenstein, Norway, Switzerland and Turkey

[14] Some interviewees were interviewed twice either because of the complexity of the information needed for the cases, or because they were interviewed in a different capacity, first in their role within an industry association and secondly in relation to their firm.

[15] http://ec.europa.eu/yourvoice/ipm/forms/dispatch?form=IMIP&lang=en

[16] Consolidated Version of the Treaty on the Functioning of the European Union, 26.10.2012

[17] Council Resolution 85/C 136/01 of 7 May 1985 on a new approach to technical harmonization and standards.

[18] Recreational Craft, Personal Protective Equipment, Radio and Telecommunications Equipment Directive, RoHS Directive, Medical Devices.

[19] Directive 98/34/EC of the European Parliament and of the Council of 22 June 1998 laying down a procedure for the provision of information in the field of technical standards and regulations and of rules on Information Society services

[20] Directive 2001/95/EC of the European Parliament and of the Council of 3 December 2001 on general product safety

[21] Ibid.

[22] Directive 2001/95/EC of 3 December 2001 on general product safety.

[23] The codification of directives means bringing into one legal text the original directive and its successive amendments.

[24] The possible merging of the MD and Outdoor Noise Emissions Directive is being explored through a technical study for DG ENTR which began in early 2013.

[25] The recast RoHS Directive adopted many of the common elements set out in the NLF and provided greater clarity on which product groups that were formerly exempted are now within scope.

[26] Article R10 relates to Declarations of Conformity in Decision 768/2008. Annex III to the Decision specifies the form the DoC must take and states that by drawing it up, the manufacturer takes responsibility for the product’s compliance.

[27] Example of a potential simplification that has been identified but not yet implemented.

[28] Cecchini report on the Cost of Non-Europe, Paolo Cecchini, 1988

[29] “The European Challenge 1992 – the Benefits of the internal market, ”Paolo Cecchini with Michel Catinat and Alexis Jacquemin, 1992

[30] It should be recalled that it is difficult to achieve a counterfactual that provides a like for like comparison given that the EU only had 12 members when the New Approach was adopted.

[31] Council Resolution 85/C 136/01 of 7 May 1985 on a new approach to technical harmonization and standards.

[32] Interim Evaluation of the Measuring Instruments Directive examined the extent to which a two tier market concerning consumer protection and competition has developed and if there is difference in the case of Member States have not opted to require legal metrological control (optionality).  17 countries have opted out from the Directive for one or more instruments. The only product area where optionality was linked with unfair competition concerned taximeters.

[33] The extent to which this was due to the transposition process itself, as opposed to misinterpretation and misapplication of the original intention of EU legislation by national competent authorities and market surveillance authorities was difficult to assess (since the transposition process itself was outside the scope of the evaluation).

[34] Under the PED, ‘Safety accessories’ can be defined as devices to protect pressure equipment against pressure limits being exceeded and ‘Pressure accessories’ as devices with an operational function and having pressure-bearing housings.

[35] Nando (New Approach Notified and Designated Organisations) Information system, http://ec.europa.eu/enterprise/newapproach/nando/index.cfm

[36] ATEX, Explosives, Medical devices, Machinery, Lifts, Pressure equipment, Personal protective equipment, Recreational crafts, R&TTE, Outdoor noise

[37] See example of NB for Personal protective equipment: http://ec.europa.eu/enterprise/sectors/mechanical/documents/legislation/personal-protective-equipment/notified-bodies/index_en.htm

[38] Under the Machinery Directive, the SDoC procedure generally applies. Although the categories of machinery listed under Annex IV were previously required to carry out 3rd party conformity assessment, since 2010, this has only been mandatory if the manufacturer does not follow the harmonised standard.

[39] Regulation 765/2008 setting out the requirements for accreditation and market surveillance relating to the marketing of products and repealing Regulation (EEC) No 339/93

[40] See for example ISO/IEC 17011:2004 Conformity assessment – General requirements for accreditation bodies accrediting conformity assessment bodies and ISO/IEC 17025:2005 “general requirements for the competence of testing and calibration laboratories”.

[41] Regulation (EC) No 765/2008 of 9 July 2008 setting out the requirements for accreditation and market surveillance relating to the marketing of products

[42] Written Question by Zuzana Roithová (PPE‑DE) to the Commission, 27 November 2007.

[43] Answer given by Mr Verheugen on behalf of the Commission, 9 January 2008.

[44] The Machinery Directive, Low Voltage Directive, R&TTE Directive and the EMC Directive respectively

[45] Machinery, LVD, Ecodesign, EMC, Pressure equipment, Lifts, Recreational crafts, PPE, ATEX, Outdoor noise

[46] EC (2012), Product Safety and Market Surveillance Package - COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT , http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=swd:2013:0033(51):FIN:EN:PDF

[47] EC (2012), Commission Staff Working Document, Annexes to the Impact Assessment,

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=SWD:2013:0033(52):FIN:en:PDF

[48] Proposal for a Directive of the European Parliament and of the Council on the harmonisation of laws of the Member States to the making available on the market of radio equipment

[49] Evaluation of the Ecodesign Directive (2009/125/EC) - Final Report

[50] Impact assessment study on the review of the Gas Appliances Directive 2009/142/EC

[51] Evaluation on dg enterprise and industry legislation – Cosmetics and Explosives Directives

[52] ICSMS provides an internet-based platform for the comprehensive exchange of information between all the market surveillance bodies. The tool has an internal area for the use of market surveillance authorities that can also be used by customs authorities and EU officials.

[53] Source: Systeemtoezicht en Horizontaal Toezicht, conceptleidraad voor de Rijksinspecties, Begrippen en randvoorwaarden, December 2012 http://www.inspectieloket.nl/vernieuwing_toezicht/programma_systeemtoezicht/

[54] Commission Staff Working Document: Impact Assessment Accompanying the document - Product Safety and Market Surveillance Package, SWD(2013) 33 final

[55] http://ec.europa.eu/consumers/safety/psmsp/docs/psmsp-communication_en.pdf

[56] The Machinery Directive applies to lifts for goods and to other types of lifts not covered by the Lifts Directive, the Cableways Directive applies to lifting appliances installed in outdoor mountain or urban sites.

[57] The SPVD is also applicable but only to certain types of air conditioners.

[58]CSES(2012), Evaluation and review of the Ecodesign Directive, http://ec.europa.eu/enterprise/policies/sustainable-business/ecodesign/review/index_en.htm

[59] We should note though that the product development cycle varies among sector. For example, in the case of laptops it is typically no more than 6 months, while in the case of air-conditioners it can be up to 3 years.

[60] RPA (2011), Ex-Post Evaluation of the Gas Appliances Directive: http://ec.europa.eu/enterprise/dg/files/evaluation/03_2011_finalreport_gas_en.pdf

[61] CSES (2012), Functioning of the European chemical market after the introduction of REACH http://ec.europa.eu/enterprise/sectors/chemicals/documents/reach/review2012/chemical_market_en.htm

[62] Commission Staff Working Document - Annexes to the Impact Assessment Accompanying the document : Product Safety and Market Surveillance Package,

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=SWD:2013:0033(52):FIN:en:PDF

[63] http://ec.europa.eu/enterprise/dg/files/evaluation/evaluation-of-the-pressure-equipment-directive_en.pdf

[64] Directive 2002/95/EC on the restriction of the use of certain hazardous substances in electrical and electronic equipment

[65] Regulation (EC) No 1907/2006 of the European Parliament and of the Council of 18 December 2006 concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH)

[66] Orgalime Position Paper (2013), Ensuring a truly complementary, coherent and consistent implementation of REACH and RoHS2

[67] http://ec.europa.eu/environment/waste/rohs_eee/pdf/faq.pdf

[68] Study on the impacts of possible amendments to the ATEX Dir. 94/9/EC, the Pressure Equipment Dir. 97/23/EC and the Machinery Dir. 2006/42/EC with respect to equipment intended for use in the offshore oil and gas industry

[69] CSES (2013), Fitness Check of the EU legal framework for the type-approval of motor vehicles.

[70] Such delays can occur if customs and/ or MSAs mistakenly believe there to be a requirement for all electrical products to provide the DoC together with the product.

[71] It should be noted that in general macro-economic models tend to be log-linear. As a result the effects calculated do not depend strongly on the values of the exogenous variables. The log-linear behaviour has been seen to hold for the PRISMA and WIOM model used in this study.

[72] PRISMA is a macro-sectoral model Panteia has developed for medium/long- term scenario analysis in the Netherlands. See Box: Panteia’s PRISMA-model for further information.

[73] Panteia’s WIOM (World Input Output Model) is used; see the Box Panteia’s World Input-Output Model (WIOM).

[74] Including imputed wage self-employed

[75] It should be stressed that metallurgical industry is the sector shocked but that the shock refers to part (i.e., the eight sectors under review) of this sector only

[76] A note of caution is needed in taking this finding at face value given that some problems cited by interviewees and Your Voice respondents as being of a regulatory nature were found to be non-regulatory, such as national marking and energy labelling schemes.

[77] The French certification NF-UPEC is the product certification that testifies technical conformity of the product to the requisites required by the French standards.

[78] VDI 4707 measures and classifies elevators according to their energy performance. It defines an energy label and provides a figure for a “yearly nominal energy demand”. Seven energy efficiency classes provide a transparent and factual overview when rating elevators according to their energy performance. They range from “A” to “G” with “A” being the best-in-class system. Measurements are carried out on actual elevator installations, not on theoretical models

[79] COM(2012) 582 final

[80] http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52013DC0196:EN:NOT

[81] CSES (2012), Evaluation of the Ecodesign Directive- Final report, http://ec.europa.eu/enterprise/policies/sustainable-business/ecodesign/review/files/ecodesign_evaluation_report_part1_en.pdf

[82] CSES (2012), Impact of the REACH regulation on the innovativeness of EU chemical industry, http://ec.europa.eu/enterprise/sectors/chemicals/documents/reach/review2012/innovation_en.htm

[83] For example, online ordering was a key feature of the Minitel system, introduced by France Télécom in Brittany in 1978 and extended nationwide in 1982. See: www.minitelfr.com.

[84] Civic Consulting (2011), Consumer market study on the functioning of e-commerce and Internet marketing and selling techniques in the retail of goods

[85] The 2011 Commission Staff Working Document on bringing e-commerce benefits to consumers highlights many issues relating to e-commerce in general but these tend not to relate specifically to internal market legislation for industrial products.

[86] For example, the 2009 Commission Communication on Cross-Border Business to Consumer e-Commerce in the EU, COM(2009) 557.

[87] Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (Directive on electronic commerce).

[88] Part of the Product Safety and Market Surveillance Package. See section 2.1.4 of this report.

[89] Commission Communication on Smart Regulation: Responding to the needs of small and medium - sized enterprises COM(2013) 122

[90] Report from the Commission to the Council and the European Parliament: Minimizing regulatory burden for SMEs - Adapting EU regulation to the needs of micro-enterprises, COM(2011)803

[91] Directive 2006/66/EC of the European Parliament and of the Council of 6 September 2006 on batteries and accumulators and waste batteries and accumulators and repealing Directive 91/157/EEC

[92] Regulation (EU) No 305/2011 of the European Parliament and of the Council of 9 March 2011 laying down harmonised conditions for the marketing of construction products and repealing Council Directive 89/106/EEC

[93] http://trade.ec.europa.eu/doclib/docs/2011/july/tradoc_148053.pdf see Chapter 1.5

[94] A review of responses suggests that more than half of responses can be linked to a single organisation.

[95] “The European Challenge 1992 – the Benefits of the internal market”, Paolo Cecchini with Michel Catinat and Alexis Jacquemin, 1992

[96] See also table with detailed data in Appendix C.

[97] The MID repealed the relevant Directives.

[98] The increase in the use of explosives is linked to a significant increase in the level of intra-EU trade of safety & detonating fuses, igniters, detonators. This product category is covered by the Explosives Directive 93/15/EEC.

[99] After exclusion of “Don’t know/not relevant” responses.

[100] Directive 2009/142/EC of the European Parliament and of the Council of 30 November 2009 relating to appliances burning gaseous fuels.

[101] The term New Approach is becoming less frequently used in the context of the NLF. However, irrespective of the terminology, Union harmonisation legislation and horizontal and product-specific harmonisation Directives that fall within this body of legislation aim to ensure high levels of product safety.

[102] After exclusion of “Don’t know/not relevant” responses.

[103] Flash EuroBarometer Report No 300 – Retailers’ attitudes towards cross-border trade and consumer protection, March 2011.

[104] Flash EuroBarometer 299 – Cross-border trade and consumer protection, March 2011.

[105] COM(2013) 74 final

[106] RAPEX system allows EU Member State market surveillance authorities and the European Commission to share information about dangerous products found on the European market quickly and efficiently and to inform consumers about potential risks to their health and safety.

[107] After exclusion of “Don’t know/not relevant” responses.

[108] Examples of changes in product groups include the placement of new products come on the market, technological developments, a move toward more advanced manufacturing processes, the use of different materials in products, the advent of smart / integrated products, etc.

[109] Given that a different approach has already been adopted through the Alignment Package, introducing a horizontal regulation should instead be a medium-long term aspiration.

[110] Although environmental legislation was formerly out of scope, the cumulative effects of complying with a number of pieces of different legislation for a given product, both IM regulations and environmental, were considered.

[111] The on-going review of the Ecodesign and Energy Labelling Directives will specifically look into this question.

[112] Although individual pieces of legislation taken in isolation do not change that frequently, since multiple pieces of legislation and standards are applied, it takes considerable resource to keep track of these developments and to manage compliance accordingly (e.g. frequent updating of DoCs).

[113] Since IM legislation has in the past been updated at different times, there has been high cumulative frequency of regulatory changes for industrial products. Industry stated that it would be beneficial if there were to be coordinated updating exercises.

[114] There is already funding for NORMAPME which represents SMEs in standardisation but in an earlier study they reported that they still did not have enough resources to adequately follow standardisation processes.

[115] Technical files can vary in length from hundreds to thousands of pages.

[116] Examples are the possible merger of the Machinery Directive and the Outdoor Noise Equipment Directive and the possible merger of the PED and the SPVD.

Appendix ||

A. || List of interviews || 2

B. || Bibliography || 10

C. || Product case studies || 13

|| Case study 1 - Electric Motors Case study 2 - Laptops Case study 3 - Domestic Refrigerators and Freezers Case study 4 - Lifts Case study 5 – Gardening Equipment Case study 6 – Fuel Dispensers (Measuring Instruments) Case study 7 – Air conditioners Case study 8 – Integrated Circuits Case study 9 – Snow-ski footwear Case study 10 – Bicycles || 13 33 67 83 102 119 136 168 188 203

D. || 3D printing case study || 214

E. || Technical note - quantification || 220

Interviews Completed

Commission officials

No || Name of organisation || Unit || Position/ relevance/ Directive responsible

1 || DG ENTR || Unit F5 – engineering industries || Machinery Directive

2 || DG ENTR || Unit F5 – engineering industries || Machinery Directive

3 || DG ENTR || Unit F5 – engineering industries || RTTE, EMC, LVD Directives

4 || DG ENTR || Unit E4 - Key Enabling Technologies (KETs) and ICT || KETs

5 || DG ENV || Unit C1 - Sustainable Production & Consumption Unit || Green products

6 || DG ENTR || Unit F5 – engineering industries || Lifts Directive

7 || DG ENV || Unit C2 Waste Management, RoHS. || RoHS Directive

8 || DG ENTR || Unit F5 – engineering industries || ATEX Policy Officer - Mechanical Engineering Assistant Policy Officer

9 || DG ENTR - || Unit F5 – engineering industries || Team Leader Electrical  and Electronic Product Regulation

10 || DG ENTR || Unit F5 – engineering industries || Policy officer National seconded expert

11 || DG ENTR || Advanced Manufacturing Unit || Policy officer

12 || DG ENTR || Unit F1 - REACH and nano-technologies || Policy officer

Stakeholders

No || Type of stakeholder || Name of organisations || Sector/product category/thematic area

1 || Consumer group || ANEC || General

2 || EU Accreditation body || EA (European Cooperation for Accreditation) || Network of accreditation organisations

3 || EU Industry association || AQUA || Measuring instruments - water meters manufacturer

4 || EU Industry association || Business Europe || General

5 || EU Industry association || CECE (Committee for European Construction equipment) || Machinery - construction equipment

6 || EU Industry association || CECED || Electrical equipment

7 || EU Industry association || CECIMO || Machinery - machine tools

8 || EU Industry association || CECOD || Measuring instruments – Petrol pumps

9 || EU industry association || CEMA (European Agricultural machinery) || Machinery (Agriculture machinery)

10 || EU industry association || EBI || Recreational crafts

11 || EU Industry association || EFCEM || Machinery - Catering equipment

12 || EU Industry association || EFESME - European SMEs in the lift industry || Machinery - Lifts

13 || EU Industry association || EFTA - European Free Trade Association || General

14 || EU Industry association || EGMF - European Garden machinery Federation || Machinery - Gardening equipment

15 || EU industry association || EMOTA, the European Multi-channel and Online Trade Association || E-commerce

16 || EU Industry association || EPBA - European Portable Battery Association || Electrical and electronics

17 || EU Industry association || EPIC the European Photonics Industry Consortium || Semiconductors

18 || EU Industry association || European Safety Federation || PPE

19 || EU Industry association || European Semiconductor Industry Association || Semiconductors

20 || EU Industry association || European Small Business Aliance || SMEs

21 || EU Industry association || Eurovent || Air conditioners

22 || EU Industry association || EVA || Machinery

23 || EU Industry association || Federation of Environmental trade associations || Air conditioners

24 || EU Industry association || Federation of the European Sporting Goods Industry || Snow/ski - wear

25 || EU industry association || FEM (European Federation of Materials Handling) || Machinery/ Lifts

26 || EU Industry association || FESI || Personal protective equipment

27 || EU industry association || GSMA || Mobile

28 || EU Industry association || Orgalime || Mechanical and electronics industry association

29 || EU Industry association || Petroleum Equipment installers and maintenance federation || Petrol pumps

30 || EU Industry association || T&D Europe || Electricity Transmission and Distribution Equipment and Services Industry

31 || National industry association || Safety Assessment Federation Ltd || Pressure, Machinery, Lift,

32 || National industry association – Denmark || Confederation of Danish Industry (DI) || Multiple Directives

33 || National industry association – Germany || VDMA || Machinery

34 || National industry association – Germany || ZIV || Bicycles

35 || National industry association – Germany || ZVEI || Electrical and electronic products

36 || National industry association – Italy || ANCMA || Bicycles

37 || National industry association – Netherlands || FEDA || Electric motors

38 || National industry association – Netherlands || RAI || Bicycles

39 || National industry association – Sweden || Teknikforetagen || Multiple Directives

40 || National industry association- Netherlands || FME- CWM Netherlands || General

41 || Notified bodies organisation || Association of notified bodies for medical devices || medical devices

42 || Notified bodies organisation || European ATEX Notified Bodies Group || ATEX

43 || Notified bodies organisation || European Coordination of Notified Bodies for PPE || Personal protective equipment

44 || Notified bodies organisation || Explosives Notified Bodies group || Explosives

45 || Notified body || CECOC || CIVEX, Pyrotechnics

46 || Standardisation organisations || CEOC - European Confederation of Organisations for Testing, Inspection, Certification and Prevention || Pressure equipment

National authorities

|| Directive/Role || Country || Name of Organisation

1 || Outdoor noise || Belgium || ADCO Chairman

2 || ATEX, Low voltage, EMC || Belgium || FPS Economy SMEs, Self-Employed and Energy Directorate-General Energy Infrastructure & Controls

3 || Gas applicances || Belgium || FPS Economy SMEs, Self-Employed and Energy Directorate-General Energy Infrastructure & Controls

4 || General || Belgium || Service Public Fédéral Economie, P.M.E., Classes moyennes & Energie

5 || General || Belgium || National Contact point – Ministry of Economy

6 || Gas appliances/Pressure equipment || Bulgaria || State Agency for Metrological and Technical Surveillance

7 || Machinery/ Pressure equipment/PPE || Cyprus || Department of Labour Inspection - Ministry of Labour and Social Insurance

8 || Lifts/ ATEX || Cyprus || Ministry of Labour and Social Insurance Department of Labour Inspection

9 || EMC/ Low voltage || Cyprus || Ministry of Communications and Works Department of Electromechanical

10 || Pressure equipment/ ATEX || Czech Republic || Czech Trade Inspection

11 || Machinery/ Cableways/ Lifts || Denmark || Danish Working Environment Authority

12 || MID/NAWI || Denmark || Danish Safety Technology Authority

13 || Medical devices || Denmark || Danish Medicines Agency Inspection & Medical Devices

14 || National contact point || Denmark || Danish Business Authority

15 || Low voltage || Denmark || ADCO Chairman

16 || Accreditation body || Denmark || Danak

17 || Machinery || Estonia || Technical Surveillance Authority Industrial Safety Division

18 || Outdoor noise || Estonia || Technical Surveillance Authority Industrial Safety Division

19 || Machinery, PPE, Cableways || Finland || Ministry of Social Affairs and Health

20 || MID/NAVI, Pressure Equipment, Low Voltage || Finland || Ministry Employment and the Economy

21 || 17 Directives || Finland || TUKES (Safety Technology Authority, Electrical Safety)

22 || MID/NAWI || France || Ministère de l'économie, de l'industrie et de l'emploi - DGE/Sous-direction de la métrologie, de la normalisation, de la qualité et de la propriété industrielle - Bureau de la métrologie

23 || Low voltage || France || Ministère du redressement productif

24 || Machinery/Lifts/PPE || Germany || Federal Ministry of Labour and Social Affairs

25 || Multiple || Germany || Ministry for the Environment, Climate Protection and the Energy Sector

26 || Pressure equipment || Germany || Institution/Authority Bundesministerium für Arbeit und Soziales

27 || Accreditation body || Germany || DAkkS - Deutsche Akkreditierungsstelle GmbH

28 || EMC || Germany || ADCO Chairman

29 || 20 Directives  || Greece || Ministry of Development - General Secretariat of Industry - Directorate of Industries Support

30 || EMC/RTTE || Greece || Ministry of Infrastructure, Transport and Networks

31 || Multiple directives || Iceland || The Icelandic Consumer Agency

32 || PPE || Ireland || ADCO Chairman

33 || ATEX || Ireland || ADCO Chairman

34 || outdoor noise || Italy || Agenzia per la Protezione dell'Ambiente e per i Servizi Tecnici (APAT)

35 || Market surveillance authority || Italy || Istituto Superiore per la Protezione e la Ricerca Ambientale - ISPRA

36 || EMC || Latvia || Ministry of Economics

37 || Market surveillance authority || Latvia || CONSUMER RIGHTS PROTECTION CENTRE OF LATVIA

38 || MID/NAWI || Luxembourg || Ministère de l'Economie et du Commerce extérieur -ILNAS

39 || Multiple Directives || Luxembourg || Inspection du Travail et des Mines

40 || Pressure equipment || Lithuania || Institution/Authority Ministry of Economy of the Republic of Lithuania (Industry and Business Department)

41 || National authority – internal market problems || Lithuania || Ministry of Economy SOLVIT Lithuania

42 || Mutual recognition national contact point || Lithuania || Enterprise Lithuania

43 || Machinery || Malta || Regulatory Affairs Directorate

44 || ATEX, SPVD, PED, Lifts, MD, PPE || Netherlands || Ministerie van Sociale Zaken en Werkgelegenheid

45 || EMC, RTTE || Netherlands || Agentshap Telecom

46 || General || Netherlands || Ministry of Economic Affairs

47 || General || Netherlands || National contact point

48 || MD,Lifts, PPE || Netherlands || Inspectie SZW

49 || Lifts, ADCO || Norway || Chairman of ADCO group, Special adviser of Norwegian Building Authority

50 || Medical devices || Norway || Norwegian Directorate for Health and Social Affairs

51 || Cableways, Railroad || Norway || Norwegian Railroad Authority

52 || Multiple Products (Accreditation, Conformity Assessment, Standards, Market Surveillance) || Norway || Ministry of Trade and Industry

53 || Medical Devices || Norway || Norwegian Directorate for Health and Social Affairs

54 || National authority – internal market problems - || Poland || SOLVIT

55 || RTTE/EMC || Romania || National Authority for Management and Regulation in Communications (ANCOM)

56 || MID/NAWI || Spain || CENTRO ESPAÑOL DE METROLOGIA - National body in charge of metrology

57 || Machinery/Lifts/ATEX/ || Slovenia || Ministry of the Economy Directorate for Internal Market Division for technical legislation

58 || EMC || Slovenia || Ministry of the Economy

59 || PPE/ Low voltage || Slovenia || Ministry of Economic Development and Technology

60 || RTTE || Slovenia || Market Inspectorate of the Republic of Slovenia

61 || MID/NAWI || Sweden || Swedish Board for Accredition and Conformity Assessment (SWEDAC)

62 || RTTE || Sweden || Post and Telecom Agency

63 || EMC/ Low voltage/ATEX || Sweden || Swedish National Electrical Safety Board

64 || Machinery, PPE || Sweden || Swedish Work Environment Authority

65 || National contact point || Sweden || Ministry of Foreign Affairs, Department of Internal Affairs

66 || PPE || Sweden || Swedish Consumer Agency

67 || Mutual Rec. + Services Directive || Sweden || National Board of Trade

68 || EMC || Switzerland || OFCOM - Federal Office of Communications - Section Market access and conformity

69 || Accreditation body || Switzerland || SAS - Swiss Accreditation Service

70 || Machinery || UK || Department for Business, Innovation and Skills (BIS) Environmental & Technical Regulation Directorate

71 || Lifts || UK || Department for Business, Innovation & Skills

72 || Explosives || UK || Mines, Quarries and Explosives Policy Health and Safety Executive (HSE)

73 || Pressure equipment/ATEX || UK || DEPARTMENT FOR BUSINESS, ENTERPRISE AND REGULATORY REFORM (BERR)

74 || RTTE/EMC || UK || Environmental & Technical Regulation Business, Innovation and Science

75 || Low voltage || UK || Department for Business, Innovation and Skills (BIS) - Environment and Technical Regulations Directorate

76 || PPE || UK || Department for Business, Innovation and Skills

77 || Accreditation body || UK || UKAS - United Kingdom Accreditation Service

Case study interviews

Case number || Product || Interviews with firms completed || Interviews with organisations || Names of organisations

1 || Electric motors || 9 || 2 || ZVEI (Germany) FEDA (Netherlands)

2 || Laptops || 4 || 1 || Digital Europe

3 || Domestic Refrigerators || 3 || 1 || European Committee for Domestic Appliances

4 || Lifts for persons and goods || 8(1) || 3 || EFESME - European SMEs in the lift industry, European Lifts Association - ELA, European Lifts Components Association (ELCA)

5 || Gardening equipment || 5 || 1 || European Garden machinery federation

6 || Petrol pumps || 5 || 2 || CECOD PEIMF

7 || Air conditioners || 8 || 2 || Federation of Environmental trade associations Eurovent

8 || Integrated circuits || 8 || 1 || European Semiconductor Industry Association

9 || Ski /Snow footwear || 5 || 1 || Federation of the European Sporting Goods Industry

10 || Bicycles || 6 || 3 || ANCMA (Italy) RAI (Netherlands) ZIV (Germany)

Total || || 62 || 17 ||

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The case studies in this document are part of the Evaluation of Internal Market Legislation for Industrial Products carried out for the European Commission’s DG Enterprise and Industry by the Centre for Strategy & Evaluation Services (CSES)[1], supported by our partner organisations, Panteia and Oxford Research. The case studies reflect the opinion of the persons and organisations that were interviewed. This document should not be considered as representative of the Commission’s official position.

Case Study 1 – Electric motors

1. Introduction – objectives of the study

The product group examined in this case study is electric motors. The aim is to analyse the applicable IM legislation, assess the costs associated with the implementation of the applicable IM legislation, identify areas of overlaps and conflicts between the different parts of the legislation that may lead to problems and costs to the industry and identify and assess the benefits of possible simplifications. The rationale for the selection of these product groups was that:

· Electric motors are covered by a large number of IM Directives and Regulations;

· There is a large number of professional users in the sector;

· The sector represents a high share of total manufacturing (see industry structure below). Hence demand for electric motors is closely related to manufacturing processes and investments in the manufacturing industry[2].

The case study is based on desk research and interviews with two national industry associations representing manufacturers of electric motors and nine in depth interviews with manufacturers of electric motors operating in Europe, four large size manufacturers, one medium and four small.

2. Product definition and description of structure of the sector

Product definition

The product group examined in this case study is electric motors. An electric motor is a device which converts electric energy into mechanical energy[3]. These types of motors are widely used in machine tools, household appliances, power tools and other electrical appliances and equipment. There are two main types of electric motors. These are the so-called AC and DC motors. Around 50% of the demand in the European Union is for AC motors. Further distinctions can be made by output in kW or by type of motor (single-phase, multi-phase).

Electric motors are covered under PRODCOM code 27.11 that includes the following 21 different sub-categories:

· 27111010 - Electric motors of an output <= 37.5 W (including synchronous motors <= 18 W, universal AC/DC motors, AC and DC motors)

· 27111030 - DC motors and generators of an output > 37,5 W but <= 750 W (excluding starter motors for internal combustion engines)

· 27111053 - DC motors and generators of an output > 0,75 kW but <= 7,5 kW (excluding starter motors for internal combustion engines)

· 27111055 - DC motors and generators of an output > 7,5 kW but <= 75 kW (excluding starter motors for internal combustion engines)

· 27111070 - DC motors and generators of an output > 75 kW but <= 375 kW (excluding starter motors for internal combustion engines)

· 27111090 - DC motors and generators of an output > 375 kW (excluding starter motors for internal combustion engines)

· 27112100 - Universal AC/DC motors of an output > 37,5 W

· 27112230 - Single-phase AC motors of an output <= 750 W

· 27112250 - Single-phase AC motors of an output > 750 W

· 27112300 - Multi-phase AC motors of an output <= 750 W

· 27112403 - Multi-phase AC motors of an output > 0,75 kW but <= 7,5 kW

· 27112405 - Multi-phase AC motors of an output > 7,5 kW but <= 37 kW

· 27112407 - Multi-phase AC motors of an output > 37 kW but <= 75 kW

· 27112530 - Multi-phase AC traction motors of an output > 75 kW

· 27112540 - Multi-phase AC motors of an output > 75 kW but <= 375 kW (excluding traction motors)

· 27112560 - Multi-phase AC motors of an output > 375 kW but <= 750 kW (excluding traction motors)

· 27112590 - Multi-phase AC motors of an output > 750 kW (excluding traction motors)

· 27112610 - Alternators of an output <= 75 kVA

· 27112630 - Alternators of an output > 75 kVA but <= 375 kVA

· 27112650 - Alternators > 375 kVA but <= 750 kVA

· 27112670 - Alternators of an output > 750 kVA.

Industry structure Enterprises

According to data from Eurostat there were around 14,000 enterprises in the electric motors sector in the period of 2008 – 2010, which were concerned with the manufacturing of these motors. As mentioned before this concerns NACE code is 27.11 (Manufacture of electric motors, generators and transformers), which is broader than only electric motors.

Table 1: Number of enterprises – electric motors, generators and transformers sector (NACE 27.11)

2008 || 2009 || 2010

14,697 || 14,272 || 14,544

Source: Eurostat, Structural Business Statistics.

The following table shows the production value for the years 2009 and 2010. It shows a sharp increase from 2009 and 2010. This is not in line with the number of employees, which stayed stable around 2.5 million during the same time period.

Table 2: Production value (in million €) – electric motors, generators and transformers (NACE 27.11)

2009 || 2010

45,530.38 || 53,606.02

Source: Eurostat.

Products

Based on the Eurostat PRODCOM data for 2009, the total market size for electric motors was around 733.5 million units or EUR 10.5 billion in production value[4]. In the following table an overview is provided of the different PRODCOM indicators and their export/import value for the year 2009. In Europe 293.2 million electric motors, generators and transformers were produced. The corresponding production value was 12.3 billion euro’s. The sector has exported a value of 4.2 billion, while imports amounted to 2.4 billion. This confirms the view that most motors are still produced in (Western) Europe given the highly automated production processes present in those countries[5]. Table A1 in the Annex gives a detailed description of all codes and the production, import and export values.

Table 3: Production, import and export value – electric motors, generators and transformers (2009), PRODCOM CODES: 2711010 to 27112670[6]

|| Quantity (units) || Values (€)

Production || 293,264,097 || 12,309,392,520

Import || 543,812,581 || 2,433,820,520

Export || 103,498,097 || 4,261,409,780

Total EU market (Production + imports - exports) || 733,578,581 || 10,481,803,260

Source: Eurostat PRODCOM.

Tables 4 and 5 show numbers of units sold and value data for the four most common technologies of motors. 91% of all electric motors sold in Europe in 2010 are small power range motors, namely under 750W. In this year, only 0.01% of the motors sold had a very large power range, 9% were medium range motors.[7].

Table 4: Electric motors and generators sold by type in EU27 (thousand units, 2010)

Technology || Power range

≤ 750 W || > 0,75 ≤ 375 kW || > 375 kW

units || % || units || % || Units || %

DC Motors and Generators || 12,176 || 56 || 4,417 || 21 || 1 || 5

AC Single-Phase || 67,019 || 29 || 6,379 || 30 || n/a || n/a

AC Multi-Phase || 11,700 || 5 || 10,175 || 49 || 28 || 95

Universal || 23,288 || 10 || n/a || n/a || n/a || n/a

Total || 230,123 || 100 || 20,970 || 100 || 30 || 100

Source: EuP lot 30: Electric Motors and Drives (2012).

Table 5: Revenue data for electric motors and generators by type EU27 ( millions €s, 2010)

Technology || Power range

≤ 750 W || > 0,75 ≤ 375 kW || > 375 kW

Value € || % || Value € || % || Value € || %

DC Motors and Generators || 1,762 || 39 || 515 || 11 || 64 || 5

AC Single-Phase || 1,365 || 30 || 805 || 17 || n/a || n/a

AC Multi-Phase || 805 || 18 || 3,384 || 72 || 1,142 || 95

Universal || 576 || 13 || n/a || n/a || n/a || n/a

Total || 4,508 || 100 || 4,705 || 100 || 1,207 || 100

Source: EuP lot 30: Electric Motors and Drives (2012).

3. Analysis of applicable IM legislation and standards

Identification of relevant IM legislation

Electric motors are covered by seven different pieces of legislation. This legislation is divided into three categories:

· Health and safety (Low Voltage Directive, Machinery, RoHS Directive on hazardous chemicals, REACH, ATEX directive),

· Electromagnetic compatibility (EMC Directive); and

· Energy consumption (Eco-design and the respective implementing measures)

The following directives are applicable to electric motors:

· Low Voltage Directive: LVD is applicable to all electric motors, except extra low voltage and high voltage;

· Machinery Directive: the MD is applicable for high voltage electric motors (high voltage electric motors are considered as partly completed machinery). It should be mentioned that in general electric motors are used in machines, for which the MD is applicable. So, although the MD is not applicable to most electric motors, MD is applicable to the machines with electric motors;

· Directive on Electromagnetic Compatibility (EMC): EMC is applicable to all electric motors. Some interviewees mentioned that EMC is not relevant to electric motors, because electric motors do not cause disturbances. There only might arise problems when other components are added (such as control units).

· ATEX: ATEX is only applicable to electric motors that are used in specific areas (explosive atmospheres).

· RoHS: Refers to the use of chemicals (such as lead).

· Reach: Refers to the use of chemicals (such as copper lamination).

· Ecodesign: Ecodesign is applicable to a large part of the electric motors (see below).

The table in the appendix provides an overview of relevant IM legislation for the electric motors, including the basic administrative requirements.

The most important directives is terms of impacts are considered to be the Ecodesign (EuP for IEC-motors) and ATEX. ATEX (if applicable) is considered the most burdensome since it requires third party certification.

Ecodesign is a relatively new Directive in relation to electric motors. Electric motors which have to comply with the Ecodesign directive are called IE-motors or IEC-motors. For these motors there are rules for energy efficiency. EC Regulation 640/2009 implements the European Ecodesign Directive for electric motors. It contains requirements for the design of electric motors. The Regulation was published on 23 July 2009 and entered into force on 12 August 2009. There are several efficiency levels in the regulation. Minimum requirements are IE2 from 2011, IE3 or IE2 combined with a variable speed drive (VSD) for motors above 7.5 kW from 2015 and IE3 or IE2+VSD for motors above 0.75 kW from 2017. Because of the clear timetable enterprises can anticipate on the new efficiency levels. Also international standards are developed before a new level comes into force. Every new level means for enterprises that they have to design new electric motors, which stimulates innovation. Some interviewee noticed that the new efficiency levels are used in the market as a commercial tool.

Analysis of gaps, overlaps, inconsistencies and duplication

Most interviewees mention that there are no gaps, overlaps, inconsistencies and duplications in the IM legislation, that there is no scope for simplification and that there are no big issues that justify opening up directives. The NLF has resolved most issues, such as differences in definitions of producers and importers.

For the Ecodesign regulation, there is a gap at the moment. When the motor can be used in environment temperatures of more than 40 degrees, or higher than 1.000 meters, then Ecodesign is not applicable. This is because special purpose motors (such as motors designed to be used at high altitudes or temperatures) need to remain in the market as they fulfil a specific function. However, it was noticed that there are enterprises that put a nameplate on a normal product that it can be used in an environment temperature of 41 degrees and in that way they escape from the Ecodesign regulation. This problem is already recognized and an amendment to the Regulation has been launched and should be published soon.

Some interviewees mentioned that there are sometimes inconsistencies in directives and sometimes there are duplications in standards. But they say that these are not very obvious and that they are unavoidable looking at the huge amount of regulation. They do not experience these overlaps as troublesome. Because of the increase in the number of directives there is a risk of more inconsistencies. For enterprises it is difficult to have a full overview of all directives. In practice, these gaps are solved in a pragmatic way.

An interviewee mentioned a problem with the ATEX-directive. According to him it is a problem who is responsible for a product with an ATEX-certificate from the manufacturer, that is repaired by another (certified) enterprise.

4. Analysis of costs of compliance with IM legislation Introduction

The information presented in this section is based on the in-depth interviews with nine manufactures of electric motors. The firms range in terms of size and production volume. From six respondents data on administrative costs were collected, four large size manufacturers, one medium and one small.

Table 6: Basic information on the firms interviewed

Firm || Specific/main product || Firm size || Annual sales from product || Main markets

A || Electric motors || Large (>1000 employees) || 3,500,000 units || --

B || Electric motors || Large (>1000 employees) || 25,000 units || 100% of sales in the EU

C || Electric motors || Large (>500 employees) || 900,000 units || 80% of sales in the EU

D || Electric motors || Large (>500 employees) || 260,000 units || 60% of sales in the EU

E || Electric motors || Medium (250-500 employees) || 600,000 units || 98% of sales in the EU

F || Electric motors || Small (<250 employees) || 15,000 units || 80% of sales in the EU

G || Electric motors || Small (<250 employees) || 40,000 units || 100% of sales in the EU

H || Electric motors || Small (<250 employees) || 20,000 units || 100% of sales in the EU

I || Electric motors || Small (<250 employees) || 20,000 units || 100% of sales in the EU

Before we briefly discuss the process steps some remarks need to be pointed to understand the typical situation for electric motors:

· In this case study we identified seven directives which are applicable to electric motors. But in general not all directives are applicable to all electric motors. The applicable directives for electric motors differ between companies, depending on which type of motors they produce. For example, the ATEX directive is only applicable to motors which are used in explosive atmospheres.

· Lots of companies do not produce bare electric motors. Often frequency converters, controllers, software, etc. are added to the electric motors. These added components are often also covered by legislation individually or in combination with the electric motor. For example, some interviewees mentioned that electric motors themselves do not produce interferences and the EMC directive actually is not very relevant, but when frequency converters or controllers are added this causes interferences which make the EMC directive very relevant. Another interviewee mentioned that the Machinery directive was not applicable to the electric motors they produce, but that their customers use the electric motors in their machines. These machines are covered by the Machinery directive. This leads to customer requirements with regard to the supplier of the electric motors in line with the Machinery directive. In general, interviewees indicated that it is difficult for them to distinguish between the processes to comply with the obligations for the electric motors and the processes to comply to the obligations for the added components, because for the manufacturers it is one integrated process.

· Most of the directives relevant for electric motors exit already for a relative long time. They do not change that much and companies are used to comply with these directives. It is incorporated in their processes. Only the Ecodesign implementing regulation is relatively new and has at the moment the largest impact on companies. The regulation requires that electric motors, covered by the regulation, have to reach certain levels of energy efficiency in several steps. For some manufacturers/models [as indicated in section 1.6 the requirements are not more stringent than elsewhere in the world and do not mean that all models need to be redesigned, only a number of them. Typically ecodesign means redesign for 20% of the existing models. Since other jurisdictions such as the US already had strict requirements, many motors already complied and the ecodesign regulation simply stopped the dumping of the poor efficiency ones on the EU market], this does not require simple adjustment of existing models, but complete electric motors have to be redesigned. When asking about internal market legislation for electric motors, most interviewees start with the Ecodesign regulation, because this regulation is the current issue and has the major impact on the companies. Other directives are more viewed as business as usual. The Ecodesign regulation causes extra costs for the companies, but on the other hand most interviewees use the new requirements as strategic issues in their markets. They recognize the impact of electric motors on energy use in the world and that improving the energy efficiency of electric motors is very important. They try to be the first with the development of more efficient motors in the market.

The following steps can be identified in the process of placing electric motors to the market:

· Familiarisation with applicable/relevant obligations

· Introduction of processes or changes to product design and production processes to ensure compliance with substantive obligations

· Conformity assessment procedures and relevant documentation

· Declaration of conformity or other statement of compliance and CE marking

Familiarisation with applicable/relevant obligations

To comply with the applicable internal market legislation companies need to have knowledge of the applicable directives and of the standards. As mentioned, the applicable directives for electric motors differ between companies, depending on which type of motors they produce. For example, the ATEX directive is only applicable to motors which are used in explosive atmospheres and the Ecodesign directive is not applicable to all motors because this directive includes several exceptions.

In general, the companies are linked to information sources on Directives and on standards or they have their own system. For example a smaller Dutch producer is a member of the NEN-connect network. This is a digital platform which shows the different standards and directives which are of interest for producers of electric motors. The platform sends an automatic message when the standards are updated and changes need to apply. When this message arrives, the firm examines the change and decides if they have to change their design. Furthermore, companies buy standards and get all technical features to comply with.

One interviewee mentioned that they participate in standardisation groups to be informed in a very early stage about the backgrounds of the legislation and standards. For them these backgrounds are necessary for the correct application of the requirements.

The average costs for familiarisation with applicable/relevant obligations of the interviewed companies amount to approximately 0.2% of turnover. More than 90% of these costs are cost of human resources.

Introduction of processes or changes to product design and production processes to ensure compliance with substantive obligations

For developing new electric motors and production processes the companies have to comply with the requirements of relevant directives. For most directives working in accordance with the relevant standards is incorporated in the development, testing en production processes of the enterprises. At the moment the Ecodesign implementing regulation requires that electric motors are more and more energy efficient in several steps. To comply with these efficiency requirements enterprises have to redesign some models [as indicated in section 1.6 the requirements are not more stringent than elsewhere in the world and do not mean that all models need to be redesigned, only a number of them. Typically ecodesign means redesign for 20% of the existing models. Since other jurisdictions such as the US already had strict requirements, many motors already complied and the ecodesign regulation simply stopped the dumping of the poor efficiency ones on the EU market. Although this causes extra costs, several respondents mentioned that these developments also offer new opportunities in their markets.

For most producers of electric motors testing is the most costly step to comply with the relevant Directives. But on the other hand most interviewees would also test a lot when there were no directives and standards. This is needed to develop and sell safe products. This is especially the case for ATEX-motors because these motors are used in explosive atmospheres.

The average costs for compliance with requirements (product design and testing) of the interviewed companies amount to approximately 0.6% of turnover. 74% of these costs are cost of human resources, 23% are costs for testing equipment and 3% are costs for third parties.

Conformity assessment procedures and relevant documentation

This step is concerned with preparing technical documentation, which causes costs for employees of the enterprises, and with conformity assessment. Conformity assessment is especially related to inspection of notified bodies. This is the step that causes most of the external costs. This is especially relevant for ATEX-motors. For ATEX- motors it is mandatory that a notified body inspects the designs of these motors and test motors to get the required marking. This is only needed when companies produce motors that are to be used in explosive atmospheres.

The average costs for conformity assessment procedures and relevant documentation of the interviewed companies amount to approximately 0.3% of turnover. 57% of these costs are cost of human resources, 32% are costs for third parties and 11% are costs for testing equipment.

Declaration of conformity or other statement of compliance and CE marking

Drawing up declarations of conformity and CE marking is not viewed a big issue for the interviewees. Compared to the other steps this is a minor step, not very complex and not very costly. The average costs for declaration of conformity or other statement of compliance and CE marking of the interviewed companies amount to approximately 0.1% of turnover.  More than 90% of these costs are cost of human resources.

Business as usual

Companies were asked to differentiate between Business As Usual cost (BAU) and cost specifically due to the internal market regulation. Part of the activities obliged by IM legislation companies would perform anyway. For example, a firm may carry out product testing so as to check the quality and safety of products. Such costs are known as ‘business as usual’ (BAU) costs. Respondents mentioned that the largest shares of the activities that cause the administrative costs are business as usual. If there were no directives and standards the enterprises would have their own quality and safety standards. To meet these standards companies also have to test their products. Some enterprises mentioned that without directives they would spend less on some external tests (costs of third parties). On average, 73% of the costs of human resources spent on compliance activities is considered as business as usual by the interviewed companies. For the costs of third parties this average is 67% and for the costs of testing equipment 87%.

5. Assessment of costs of IM legislation for the whole sector

Data collection

Based on the information provided by interviewees, the average costs of complying with IM legislation have been estimated. Out of six respondents, data on costs were collected, four large size manufacturers, one medium and one small. In principle the respondents are manufacturers. But some of them also have some trading activities (import of motors).  Cost data have been collected for activities relating to electric motors, especially manufacturing, but the respondents could not distinguish between the compliance costs for the manufactured and the imported motors. The data collection was focussed on the costs to comply with the following legislation: Low Voltage Directive, Machinery Directive, the Directive on Electromagnetic Compatibility (EMC), ATEX, RoHS, Reach and Ecodesign.

The six interviewed companies were asked to give estimates of the costs of human resources, costs of third parties and costs of testing equipment for total compliance activities (top down approach). Also data on time and tariff were asked (bottom up approach), but this did not result in sufficient usable data. For the testing equipment the costs for the last five years are collected to calculate the average cost per year. Next the interviewees were asked to distribute these costs of human resources, costs of third parties and costs of testing equipment over the identified steps of the compliance process (familiarisation, compliance with requirements, conformity assessment, DoC and CE marking and other) and they were asked which parts of these costs are considered as business as usual.

Estimation of costs

All costs are collected as totals for enterprises. The cost estimates for the whole sector are based on turnover. All costs were calculated as percentages of turnover and this was then used to weight the results. The data collected with two SMEs did not show clear differences – in terms of costs as a percentage of turnover - as compared to the data for large enterprises. Therefore, there were no grounds for making a distinction in the calculations. In other words, it has been assumed that the compliance costs as a percentage of turnover are the same for large enterprises and for SMEs.

Based on the results from the six respondents, in Table 7 the estimates of compliance costs for the sector of electric motors are presented as percentages of turnover. The costs were standardised by calculating averages of the percentages. To estimate the compliance costs for the whole sector of electric motors we followed the following steps:

· for each type of costs (cost of human resources, costs of third parties and costs of testing equipment) the costs were calculated as a percentage of the turnover of electric motors, averaged over respondents (first row in Table 7)

· the distribution of the costs over the different process steps is again an average of the estimated distribution from the respondents, as a percentage of the annual compliance costs (see distribution over process steps  in Table 7)

· we then determined the average percentages of business as usual (as percentage of annual compliance costs, per cost type), to distinguish between the total compliance costs and the regulatory burden  related to the internal market legislation (last 2 rows in table 7).

Table 7 - Estimate of average compliance costs (%)

|| Cost of human resources for total compliance activities || Costs of third parties || Costs of testing equipment || Total

Annual costs (% of turnover) || 0.95% || 0.13% || 0.18% || 1.26%

|| || || ||

Of which (% of annual costs; is the distribution over process steps) || || || ||

- Familiarisation || 19.17% || 8.50% || 2.50% || 15.65%

- Compliance with requirements (product design and testing) || 49.00% || 15.00% || 80.00% || 50.16%

- Conformity assessment || 16.67% || 71.50% || 16.67% || 22.15%

- DoC and CE marking || 13.50% || 5.00% || 0.83% || 10.79%

- Other || 1.67% || 0.00% || 0.00% || 1.26%

|| || || ||

And of which (% of annual costs) || || || ||

- Business As Usual (BAU) || 73.33% || 68.00% || 86.67% || 74.76%

- Regulatory burden || 26.67% || 32.00% || 13.33% || 25.24%

Source: CSES study

To calculate an estimate of the overall costs for the whole sector we used the value of the total EU market according to Eurostat PRODCOM, namely € 10,5 billion in 2009 (see table 3). Applying the percentages in table 7, led to the figures presented in the table 8.

Table 8 - Estimate of compliance costs for the whole sector of electric motors (€)

|| Cost of human resources for total compliance activities || Costs of third parties || Costs of testing equipment || Total

Total Annual costs || € 99,175,627 || € 13,159,638 || € 19,368,345 || € 131,703,610

|| || || ||

Distribution over process steps: || || || ||

- Familiarisation || € 19,008,662 || € 1,118,569 || € 484,209 || € 20,611,440

- Compliance with requirements (product design and testing) || € 48,596,057 || € 1,973,946 || € 15,494,676 || € 66,064,679

- Conformity assessment || € 16,529,271 || € 9,409,141 || € 3,228,057 || € 29,166,470

- DoC and CE marking || € 13,388,710 || € 657,982 || € 161,403 || € 14,208,094

- Other || € 1,652,927 || || || € 1,652,927

|| || || ||

- Business As Usual (BAU) || € 72,728,793 || € 8,948,554 || € 16,785,899 || € 98,463,246

- Regulatory burden || € 26,446,834 || € 4,211,084 || € 2,582,446 || € 33,240,364

Source: CSES study

6. Benefits of Internal Market legislation

Most interviewees in the sector of electric motors are very satisfied with the IM directives, the standards and the harmonisation of their sector which replaced regulations in 27 countries.

It has reduced administrative burdens for enterprises rather substantially – even though it has not been possible to quantify and, nowadays, the interviewees suggested they could hardly imagine a situation without harmonisation. 

The firms also consider as particularly positive the fact that – through their industry representatives or even as individual firms – they can be involved in the development of the IM directives and the standards. While it may be time consuming this involvement reduces the risks of the development of too complex and inconsistent requirements with high administrative burdens for companies. It also provides certain level of predictability and this is the reason that most compliance activities are considered as business as usual for companies.

At the same time, some firms pointed to the benefits from specific pieces of IM legislation in terms of the promotion of innovation in the sector. The Ecodesign Directive has had an important impact in the case of electric motors market by introducing energy efficiency requirements with a clear timetable. According to the evaluation of the Ecodesign Directive it has pushed for a faster adoption of the more efficient IE2 category that would have happened in the absence of the Ecodesign. However, the evaluation concluded that the requirements are less demanding that those in the US or Canada where IE3 level motors are already dominant[8].  

7. Simplification and improvement options

Most interviewees in the sector of electric motors are very satisfied with the IM directives, the standards and the harmonisation of their sector. It is mentioned that the IM directives replaced regulations in 27 countries. This reduced the administrative burdens for enterprises substantially. The interviewees are used to the harmonisation of the sector. They can hardly imagine a situation without harmonisation.   Furthermore, it is mentioned that the sector was involved in developing the directives and the standards. This involvement reduces the risks of too complex regulation, inconsistent regulation and high administrative burdens for companies. We have already seen that most activities to comply with the IM legislation are business as usual for companies. 

Some respondents mentioned some gaps and inconsistencies, but these were already described in section “3 Analysis of applicable IM legislation and standards” under “Analyses of gaps, overlaps, inconsistencies and duplication”. These gaps and inconsistencies do not affect compliance costs.

It is not surprising that companies cannot mention important options for simplification and improvement of IM legislation.

Fewer audits from notified bodies

A small enterprise that produces about 15,000 electric motors a year mentioned that fewer audits from notified bodies could save some costs. This is related to conformity assessment (inspection by notified bodies) and is only relevant for ATEX-motors (motors that are to be used in explosive atmospheres). For ATEX-motors it is mandatory that a notified body inspects the designs of these motors and test motors to get the required marking. But, when the rules or standards are changed a bit, all ATEX-motors have to be inspected again. According to the respondent, this should not be necessary. At the moment, the costs for this respondent for notified bodies are on average about € 12,000 a year. The market for ATEX-motors is a small part of the market for electric motors. With the assumption that fewer audits would lead to a reduction of costs for notified bodies of 10%, the total savings would be about € 300,000.

Reduce the frequency of changes in standards

The small enterprise that produces electric motors mentioned that changes of standards could occur less often. Changes in standards cause costs for getting the new standard and corresponding certification. On the other hand, another respondent mentioned that especially the ATEX-requirements are getting higher and higher, but this is necessary for safety reasons. Cost savings would very much depend on the implementation. To estimate cost savings we use the following assumptions: 25% reduction of the costs for purchase of standards (familiarisation costs to third parties), 10% reduction of costs for human resources for familiarisation and 5% reduction of costs for assessment and preparation. With these assumptions the total savings would amount to about € 1,990,000.

More examples to explain more difficult requirements

A large enterprise mentioned that it is sometimes difficult to understand the requirements from IM-legislations. They do not know from the legislation what is needed because explanations are not clear enough. It would be helpful when there are some more examples to explain the requirements. This would reduce the costs of familiarisation somewhat. When a reduction of 5% of familiarisation costs is assumed, the total cost savings would amount to about € 250,000.

8. Overall conclusions

The case study examined alternative and direct current electric motors. Total EU market for electric motors in 2009 was 733.5 million units and €10.5 billion in value. 91% of all electric motors sold in Europe in 2010 are small power range motors, namely under 750W.

Electric motors are covered by seven different pieces of IM legislation covering aspects of health and safety (Low Voltage Directive, Machinery, ATEX), electromagnetic compatibility (EMC), energy consumption (Ecodesign Directive) and chemicals use (RoHS Directive on hazardous chemicals, REACH).

Based on the information collected during the study it is estimated that the total annual costs of compliance with IM legislation for the firms in the sector are around €130 million, although more than 70% of this is considered to be part of business as usual, namely costs incurred even in the absence of legislation. The estimated net annual costs directly linked with the legislation are around €33 million, no more than 0.3% of the annual turnover of the sector. Substantive compliance costs are significant (around 50%) of the total and are primarily linked with ensuring compliance with the Ecodesign and the ATEX Directives. Still, there are also important costs for familiarisation with the legislation (15%) and conformity assessment procedures, including in particular the costs for notified bodies in relation to the ATEX Directive.

Despite the costs, most firms in the sector of electric motors are satisfied with the IM legal framework and the harmonisation of the sector legislation. By replacing regulations in 27 countries it has reduced administrative burdens for enterprises rather substantially – even though it has not been possible to quantify. In addition they is a positive view of the opportunity to be involved in the standards development process to ensure that requirements are not too complex while also ensuring a certain level of predictability. In parallel, the Ecodesign Directive requirements have effectively pushed for the faster adoption of the more efficient IE2 motors, even if not for the IE3 level which is already widely adopted in the US and in Canada.

In terms of possible simplification, the feedback provided suggested there is limited scope for changes and there are no gaps, overlaps, inconsistencies and duplications in the IM legislation. The possibility of reducing the frequency with which standards are replaced as a way to bring certain cost savings, introduction of guidance document to facilitate familiarisation and possibly the reduction of the number of audits from notified bodies. In total it was indicated that savings of up to €2.5 million of total costs could possibly be achieved for the sector.   

9. Sources of information Publications

· Report ‘Trends and segments for electric motors’ by the Dutch Center for Encouraging import from Developing Countries (CBI) – 2011.  www.cbi.eu/system/files/marketintel/Trends_and_segments_for_electric_motors.pdf

· Report ‘Trends and segments for electric motors’ by the Dutch Center for Encouraging import from Developing Countries (CBI) – 2011.  www.cbi.eu/system/files/marketintel/Trends_and_segments_for_electric_motors.pdf

· Almeida, Ferreira, Fong and Fonseca (2008), ‘EUP Lot 11 Motors’. www.eup-network.de/fileadmin/user_upload/Produktgruppen/Lots/Final_Documents/Lot11_Motors_FinalReport.pdf

· Anibal de Almeida, Hugh Falkner, João Fong and Keeran Jugdoyal (November 2012), ‘EuP lot 30: Electric Motors and Drives, 2nd Draft’. www.eco-motors-drives.eu/Eco/Documents_files/EuP-Lot30-Task-2-2-Dec-2012.pdf

· Eurostat PRODCOM

Interviews:

· 2 with national industry associations

· 9 interviews with enterprises (especially producers); from 6 respondents data on administrative costs were collected.

Annex

Production, import and export value per PROD-COM CODE

Table A1: Production, import and export value – electric motors, generators and transformers (2009), PROD-COM CODES: 2711010 to 27112670

PRODCOM CODE/INDICATORS || Export values (000s) || Import values (000s) || Production Quantity (000s) || Production Value (000s) || Total

27111010 - Electric motors of an output <= 37.5 W (including synchronous motors <= 18 W, universal AC/DC motors, AC and DC motors) || 429,581,300 || 814,922,340 || 74,545,678 || 825,041,147 || 1,210,382,187

27111030 - DC motors and generators of an output > 37,5 W but <= 750 W (excluding starter motors for internal combustion engines) || 278,747,230 || 386,366,040 || 104,390,496 || 1,407,085,735 || 1,514,704,545

27111053 - DC motors and generators of an output > 0,75 kW but <= 7,5 kW (excluding starter motors for internal combustion engines) || 49,647,610 || 55,532,980 || 6,000,000 || 261,370,719 || 267,256,089

27111055 - DC motors and generators of an output > 7,5 kW but <= 75 kW (excluding starter motors for internal combustion engines) || 31,837,520 || 15,936,700 || 1,000,000 || 200,000,000 || 184,099,180

27111070 - DC motors and generators of an output > 75 kW but <= 375 kW (excluding starter motors for internal combustion engines) || 41,158,050 || 20,115,000 || 21,021 || 45,698,243 || 24,655,193

27111090 - DC motors and generators of an output > 375 kW (excluding starter motors for internal combustion engines) || 43,932,440 || 36,989,480 || 1,600,000 || 61,635,219 || 54,692,259

27112100 - Universal AC/DC motors of an output > 37,5 W || 140,273,990 || 121,276,880 || 21,783,407 || 495,727,677 || 476,730,567

27112230 - Single-phase AC motors of an output <= 750 W || 120,770,450 || 129,836,810 || 56,520,199 || 1,195,803,791 || 1,204,870,151

27112250 - Single-phase AC motors of an output > 750 W || 50,438,620 || 49,425,060 || 6,300,000 || 132,175,642 || 131,162,082

27112300 - Multi-phase AC motors of an output <= 750 W || 191,938,140 || 77,272,170 || 10,000,000 || 667,498,083 || 552,832,113

27112403 - Multi-phase AC motors of an output > 0,75 kW but <= 7,5 kW || 324,722,000 || 133,198,120 || 6,359,618 || 1,455,629,073 || 1,264,105,193

27112405 - Multi-phase AC motors of an output > 7,5 kW but <= 37 kW || 198,759,480 || 62,888,110 || 1,189,773 || 663,563,780 || 527,692,410

27112407 - Multi-phase AC motors of an output > 37 kW but <= 75 kW || 110,315,070 || 43,175,790 || 192,619 || 304,180,879 || 237,041,599

27112530 - Multi-phase AC traction motors of an output > 75 kW || 91,719,690 || 11,825,180 || 14,000 || 300,000,000 || 220,105,490

27112540 - Multi-phase AC motors of an output > 75 kW but <= 375 kW (excluding traction motors) || 171,106,750 || 49,028,550 || 54,834 || 422,095,148 || 300,016,948

27112560 - Multi-phase AC motors of an output > 375 kW but <= 750 kW (excluding traction motors) || 111,558,390 || 24,443,830 || 21,331 || 454,592,720 || 367,478,160

27112590 - Multi-phase AC motors of an output > 750 kW (excluding traction motors) || 630,921,610 || 55,401,750 || 11,593 || 1,003,373,605 || 427,853,745

27112610 - Alternators of an output <= 75 kVA || 114,769,970 || 85,838,450 || 3,142,975 || 326,940,309 || 298,008,789

27112630 - Alternators of an output > 75 kVA but <= 375 kVA || 63,040,220 || 29,373,550 || 66,725 || 177,975,375 || 144,308,705

27112650 - Alternators > 375 kVA but <= 750 kVA || 75,541,500 || 10,966,450 || 18,434 || 135,533,843 || 70,958,793

27112670 - Alternators of an output > 750 kVA || 990,629,750 || 220,007,280 || 31,394 || 1,773,471,532 || 1,002,849,062

Electric Motors, generators and transformers || €4 ,261,409,780 || €2,433,820,520 || 293,264,097 units || €12,309,392,520 || €10,481,803,260

Source: Eurostat PRODCOM database, all values (€s, units) are in thousands

Summary of IM legislation covering electric motors

Table A2 – Summary of IM legislation covering electric motors

Name of legislation || Main issue addressed || Who is responsible? || Requirements for economic operators

LVD  2006/95/EC Directive on low voltage machines || Health & Safety  (low voltages machines) || Technical documentation should be provided by the manufacturer. Declaration of conformity procedures and CE marking can be followed by both the manufacturer or his authorized representative (art. 8) || According tot art. 2 of the directive, all products should meet the safety requirements set out in annex I. -Testing according to relevant standards (art. 5) -Development of technical file[9] -Declaration of conformity and CE marking (art. 8) -Mark with information (type, voltage, etc,) -Installation instructions and manual for final consumer (with translations)

Machinery 2006/42/EC Directive on machinery || Health & Safety  (machinery) || Manufacturers or his authorized representative (art. 5) || - Ensure satisfaction of health and safety requirements Annex I - Technical file (Annex VII) -Provide necessary information (instruction) - Conformity procedures (art. 12, art. 13 for not finished machines) - CE marking (art. 16) - EC declaration of conformity in accordance with Annex II, part 1, Section A and ensure that it accompanies the machinery - Construction file and risk assessment which contains: (i) a list of the essential health and safety requirements applied and fulfilled (ii) the description of the protective measures implemented to eliminate identified hazards or to reduce risks, (ii) the standards and other technical specifications used, indicating the essential health and safety requirements covered by these standards, (iv) any technical report giving the results of the tests carried out either by the manufacturer or by a body chosen by the manufacturer or his authorized representative, (v) a copy of the assembly instructions for the partly completed machinery

EMC  2004/108/EC Directive on Electromagnetic Compatibility || Electromagnetic compatibility || Manufacturer (and, for the CE marking (art. 7) his authorized representative) || - fulfill the protection requirements mentioned[10]. -Testing according to standards -Development of technical file -EC Declaration of conformity and CE marking (art. 7, 8 and Annex II) -Installation instructions and manual for final consumer -Meet essential requirements (art. 5 and Annex I) -Other marks and information (art. 9)

ATEX 1994/9/EC Directive on Equipment and protective systems intended for use in potentially explosive atmospheres[11] || Health & Safety (equipment and protective systems intended for use in potentially explosive atmospheres) || The directive carries obligations for the person who places products on the market and/or puts products into service, be it the manufacturer, his authorized representative, the importer or any other responsible person || -Risk assessment (see paragraph 4.3 guide) -Products should meet the health and safety requirements as set out in the Annex II of the directive (see article 3), -Meet the required testing to relevant standards -Development of technical documentation for testing purposes -CE Marking

RoHS (2011/65/EC) Restriction use of hazardous substances || Use of hazardous chemicals (Health and environment – art. 1) || Manufacturers are mainly responsible (art. 7) Secondly, art. 8 lists responsibilities of authorized representatives. Thirdly, art. 9 lists obligations of importers. Lastly, art. 10 lists obligations for distributors. || -Assure no substances listed in annex II are used (art. 4) The following measures are required from the manufacturers: -Assure production in line with requirements directive (art. 4 and 7a) -Collect compliance statement from suppliers (material declarations) -Technical file with supplier declarations and own analysis tests (internal production control, art. 7b) -Declaration of conformity (art. 7c) -Declaration of conformity to be kept for 10 years (art. 7d) -CE marking of the product -Procedures for production to remain in conformity (art. 7e) -Register of non-confirming and recalled products and informing distributors (art. 7f) -Identification mark on each product (art. 7g and 7h) -Take measures  if they have reason to believe non-conformity (art. 7i) -Provide information if so requested by a competent national authority (art. 7j)

REACH (1907/2006/EC) Regulation on Registration, Evaluation, Authorization and Restriction of Chemicals || Use of chemicals (Health and safety) || Manufacturing, authorized representative (art. 4) or importer. || Collect statement from suppliers stating that he is in compliance with requirements (REACH compliance statement) Register and notification of the substances to the Agency.

Eco-Design Directive  2009/125/EC and Implementing Regulation 640/2009 (Design and sustainability) || Energy consumption/ efficiency || Manufacturer or his authorized representative is in general responsible. However, art. 4 of the directive lists specific requirements for the importer if the manufacturer is not established within the community. || Meet the ecodesign requirements as described in Annex I (art. 3 regulation) -Testing (conformity assessment – art. 4 regulation) -Declaration of Conformity and CE marking (art. 3&5 regulation) -Complying with the mentioned conformity procedure in the appendix, -Information in instruction manual for minimizing energy-use -Comply to the proper energy efficiency levels (IE2 or 3) -Instructions for consumers on sustainable use

Case study 2 – Laptops

1. Introduction

Common aims of case studies

The aim of the product cases is to assess how Internal Market (IM) legislation for industrial products affects economic operators (manufacturers, importers and distributors). The applicable Union harmonisation legislation specific to each product is mapped out and an assessment of any gaps, loopholes, inconsistencies and duplication is provided. The costs of regulatory compliance (administrative and substantive) in meeting IM regulatory requirements are then assessed.

Specific aims of case

The rationale for the selection of laptops[12] as a product group was that:

· A key issues highlighted in the specifications was how far Union harmonisation legislation is ‘fit for purpose’ in facilitating – or at least not hindering - process / product innovation. Since laptops are characterised by a high level of innovation and technological change, they provide scope to explore this issue.

· Laptops are dominated by a small number of global manufacturers. This allows us to consider how IM legislation affects multinational companies that produce laptops for both the European internal market and other markets globally.

The case study was carried out using desk research and interviews. With regard to data sources, the main sources used were Eurostat SBS (2 digit NACE code level) and Prodcom data (8 digit NACE), sectoral studies and market research reports. 

2. Product definition and description of structure of the sector

Information and data on market size and structure for the laptop industry is presented. Recent industry developments and market trends are also summarised.

Product definition and data availability

The product group within scope is laptops (also commonly referred to as notebooks). Other types of IT products, such as palm-top organisers, desktops and printers are outside the scope. 

Eurostat SBS and Prodcom data extends more widely than laptops alone[13] and covers the manufacture of computers and peripheral equipment. It was therefore only possible to obtain data at a sufficient level of disaggregation for some variables. In order to supplement Eurostat data and to compensate for data gaps, we have also made use of industry data from industry associations and other market data available through previous studies.

Market size and structure

The size and structure of the laptops market is now considered. The main variables presented are the number of enterprises, employees and production value, and the value of imports and exports.  According to data from the PRODCOM database[14], the total market for laptops is around €24.6 billion. Market studies available provided similar estimates (€24.4 billion)[15]. According to the same data source, a total of 79 million laptops units are sold annually within the EU.

Table 1: EU laptop market size (2011) – estimate based on PRODCOM data for product code 26201100 - Laptop PCs and palm-top organisers

Exports quantity (million units) || Value of exports (billion €s) || Imports quantity (million units) || Imports value (billion €s) || Production quantity (pairs) || Production value (billion €s) || Consumption volume (million units) || Consumption value (billion €s)

8.8 || 3.3 || 80 || 25.6 || 7,800,000 || 2.25 || 79 || 24.6

Source: Eurostat Prodcom data

A leading EU industry association suggested a lower figure for laptops alone. According to industry data, the current market size for laptops can vary significantly and is about 32 million - 48 million units per annum. This is a more accurate figure since palm-top organisers were not examined.  PRODCOM data confirms that laptops manufacturing is mainly carried out outside the EU, commonly in East Asia. The value of imports into the EU is more than 9 times greater than of imports.

Global laptop producers are commonly involved throughout the value and distribution chain (e.g. from initial design, through to manufacturing and direct distribution to consumers and businesses).  In recent years, since the price of laptops has gone down considerably, manufacturers have had to adjust the value chain. Accordingly, there is strong reliance of manufacturers on ODMs (Original Designed Manufacturers). ODMs are suppliers that supply parts or final parts for laptops and under the modular approach to complying with IM regulations (see later in this case), may assume responsibility for the compliance of the particular product modules/ parts that they produce.

Industry structure and employment

A small number of major global laptop producers dominate manufacturing and distribution activities. It was estimated that there are only about 20 large firms in total and industry data shows that five multinationals have approximately a 60% share of the global market (Hewlett-Packard, Dell, Acer, Lenovo and Toshiba).

Additional information about market share in Europe was obtained by searching the Amadeus database (now called ORBIS) of Bureau Van Dijk on laptops. This confirmed that top manufacturers have a very high market share. For example, HP has an estimated 21.5% share of the market, ACER 11.4%, Lenovo: 11.4% and Asus 11.2%. Data for other firms was not available.

Looking beyond the leading global manufacturers, there are also SMEs in the laptops sector. These build bespoke desktops and notepads in relatively small volume (as little as a few hundred units). Data from Eurostat’s Structural Business Statistics were of limited use since NACE code 2620 “Manufacture of computers and peripheral equipment” extends well beyond laptops. This shows that there were 6,963 enterprises in 2008.  An alternative data source was the ORBIS database (Bureau Van Dijk) which provides information on active enterprises in Europe.  

The ORBIS database lists a total of 7094 firms under NACE code 2622 for 2013 – similar to the Eurostat figure. However, a keyword search with the “economic activity description” field with the term “laptops” produced a list of 66 manufacturers. 3 of these are large firms and the remaining 63 are SMEs.   8 of these firms were the headquarters of firms and the remainder were branches and included as one or more subsidiaries of the large manufacturers. In total, on the basis of the information collected, we consider that the number of firms resulting from the use of the ORBIS database provides a realistic estimate of the number of firms affected by internal market legislation.

In terms of employment, the total computers and peripheral equipment sector employed almost 1.1m people across Europe in 2008. There had been a reduction in employment to 884,000 by 2010. However, this relates to the whole of NACE 2620 (including desktops, palmtop organisers and many other types of IT equipment). The European industry association interviewed confirmed that the number of employees in the laptops sector involved in manufacturing is very low. Nevertheless, laptops are an important industry, when combining different aspects of the value chain from manufacturing through to distribution (wholesale, retail) and aftersales and servicing activities.

Key industry trends and challenges

This case does not allow for a detailed review of key industry trends and challenges. However, recent developments and key features of the laptop industry are worth noting. These are, in summary:

· The importance of economies of scale and scope to be competitive, with a high level of market concentration in manufacturing and distribution among a handful of leading global firms.

· A decline in laptop sales and prices in a maturing industry. Increasing competition from product groups such as tablets, smart phones and the advent of alternative data storage solutions such as cloud computing, which reduces the need for high computing power in portables.

· Convergence between the mobile phone and ICT markets (including the entrance of new manufacturers that have diversified away from Smart Phones into tablets and notebooks.

· Strong capacity for innovation and technological change[16].

· Changes to the business model and organisation of the value chain within the laptop industry:

o Increased use of ODMs in manufacturing processes.

o Leading brand names moving away from selling hardware alone to combining these with add-on services such as technical support.

3. Analysis of applicable IM legislation and standards

Summary of applicable IM legislation

A mapping exercise was undertaken to identify relevant applicable IM legislation for laptops. In summary, the main legislation that is applicable is:

· The  Low Voltage Directive (LVD) -  2006/95/EC

· Electromagnetic Compatibility Directive (EMC) 2004/108/EC

· R&TTE Directive (1999/5/EC)

· RoHS Directive (2011/65/EC)Ecodesign for Energy-related products Directive (ErP) 2009/125/EC

· REACH Regulation  (EC 1907/2006)

· Packaging and packaging waste (2004/12/EC)

The detailed mapping of applicable legislation is provided as an annex. This summarises the main issues addressed through the legislation (e.g. product safety, energy-efficiency), the key administrative requirements for manufacturers and examples of relevant (voluntary) technical standards. The mapping of the legislation was based on desk research and discussions with individual manufacturers.   It should be noted that environmental legislation applicable to laptops such as the WEEE Directive (design for end of life and recyclability) is outside the scope.

Overall, the IM regulatory framework affecting laptops was regarded by interviewees as being relatively stable in terms of the core applicable legislation. For instance, the EMC Directive has been in place since 1989 and although this was recast in 2004, there were no major changes. The LVD is one of the oldest Single Market Directives and was adopted even before the "New" or "Global" Approach came into being in the early 1970s. The R&TTE Directive has been in place since 1999.

However, further successive IM regulations applicable to laptops have been adopted in the last decade, such as the RoHS Directive and REACH Regulation and the setting of Ecodesign requirements for energy-related products (ErPs). Firms interviewed stated that the introduction of new IM regulations have had a much greater impact on the industry than their predecessors.

There are currently general requirements common to electrical products used in households and offices, and concern standby and off-mode electric power consumption and Power consumption for information technology equipment (ITE). However, specific requirements will soon apply following the adoption of Regulation 617/2013 (Ecodesign requirements for computers and computer servers), of which some requirements will be mandatory from 1 July 2014 and others from 1 July 2016. In addition, there exists a voluntary energy labelling for laptops used as office equipment, called 'Energy Star'. This is an endorsement label for the most efficient appliances developed by the US, which is also applied in the EU for office equipment).

 Conversely, standards are always changing and being updated, which requires technical work both during the development stage and in order to comply with new or updated technical requirements.

Alternative routes to regulatory compliance - laptops

There are two alternative routes to regulatory compliance for laptops. If a laptop is defined by the manufacturer as a “radio product”, then the R&TTE Directive alone can be applied. Since the Directive incorporates requirements relating to electrical safety and checking for Electromagnetic Compatibility, this means that the LVD and EMC Directives themselves do not need to be applied, since this would be duplicative.

However, if the laptop is considered to be a piece of “electrical equipment” containing a radio part within it, then a modular approach can be followed in which the R&TTE, LVD and EMC Directives are treated separately for compliance purposes. This can be especially beneficial for manufacturers in a situation in which different manufacturers and / or ODM suppliers are responsible for producing different parts of the product since they can then assume responsibility for the compliance of specific product modules rather than for the whole product.  An explanation as to how these approaches work in practice, and the advantages and disadvantages of each approach from the perspective of manufacturers is highlighted in the following table. 

Table 2: A modular approach to compliance with IM regulations

Compliance route || Description || Compliance requirements – analysis of differences || Advantages and disadvantages

R&TTE Directive alone || Complying with IM regulations using the R&TTE Directive only. This means that the whole laptop is treated as a single radio product. || · DoC must be placed together with the product · Product must be CE marked Notification requirements for non-harmonised radio frequencies Laptops with Wifi Radio Module Class 1 and 2 must include an alert mark next to the CE mark || Advantages · Only one Directive is applicable rather than three · Legal clarity - responsibility for whole product is sole responsibility of manufacturer Disadvantages · Cannot divide up compliance responsibilities between different components / parts manufacturers. · Additional labelling marking requirements compared to the EMC-D/LVD (e.g. alert mark next to CE mark, information on restrictions of use, etc…). · Making information available for the user which are not required for the LVD and the EMC (e.g. DoC placed with the product).

A modular approach - R&TTE, EMC and LVD Directives applied separately || Modular approach - the laptop itself is treated as a non-radio product and the R&TTE Directive is only applied to the radio module. Other parts of the laptop are subject to the EMC and the LVD || DoC must be placed together with radio module Only the radio module would potentially need the alert sign (Class 2) Notification requirements for radio frequencies (only for radio module part) || Advantages · Division of responsibility for compliance between manufacturers responsible for different components / parts of laptop · Manufacturer producing other parts of laptop under LVD and EMC don’t need to consider requirements specific to the R&TTE Directive e.g. alert sign, DOC with product[17] · Manufacturers of other parts do not need to provide a DoC to user (only upon request by a MSA)

Feedback is now provided by manufacturers interviewed about their views on the overall IM regulatory framework and their experiences of complying with IM legislation. There are different views among industry as to which approach is preferable. Firms interviewed all appreciated the flexibility afforded by Union harmonisation legislation to determine whether to follow the R&TTE Directive alone, or to adopt a modular approach as and when appropriate. Interview feedback is now considered on this matter. 

Firm C treats laptops as a single radio product and complies with the R&TTE Directive alone and assumes responsibility for the product’s compliance. The LVD and EMC Directives are not applicable because the essential requirements under these Directives are already included within the R&TTE Directive. “The main benefit of a modular approach was dividing up responsibility among manufacturers for different parts of the laptop, depending on the module concerned. However, as a manufacturer, we prefer to take sole responsibility for regulatory compliance”. This was considered as beneficial when considering their obligations towards consumers and in terms of minimising risks. 

Conversely, in Firm A  and Firm B, the modular approach is followed and compliance with the LVD, EMC and R&TTE Directives respectively is addressed separately. The modular approach was considered to be more efficient in a situation in which multiple manufacturers are involved in producing the end product since the manufacturer of each part is able to assume responsibility for their specific part.  In a competitive market place, it was considered that suppliers need to take responsibility for the quality of their product lines and it was believed that this had helped to strengthen standards in the components market.

In Firm A, a different member of the regulatory compliance team deals with each of these Directives and conformity assessment testing is also carried out separately by different teams.  The firm pointed out that under the modular approach, the manufacturer of the final product retains ultimate responsibility for product compliance.  In the full version of the DoC[18], a list of all modules that can be used for each product model is provided. This has been made available online by all leading laptop manufacturers. The modular approach was however seen as an effective mechanism for optimising regulatory compliance processes and procedures, with advantages in allocating responsibility to different manufacturers at different modules/ stages in the production process.

Firm A commented that “Since due diligence needs to be carried out on each product, the modular approach allows us to provide better information to Market Surveillance Authorities about how compliance has been achieved through each product module. If an MSA asks for further information or raises questions about a product, then the manufacturer or ODM supplier concerned that carried out conformity assessment tests and produced technical documentation relating to that specific module can provide technical information as to how regulatory compliance has been achieved under that module”.

According to an industry association, most but not all laptop manufacturers follow the modular approach. This depends on the manufacturer’s business model and how the manufacturing of laptops is organised. Some laptops are designed and manufactured by a single manufacturer, whereas others are produced by multiple manufacturers and ODM suppliers, each responsible for different parts / modules and components within the laptop.  For example, Firm C is directly involved in all aspects of manufacturing and does not generally outsource production (although it may source components from suppliers), whereas most firms in the sector (including Firms A and B) use an increasing amount of outsourcing to ODM suppliers for manufacturing. This trend has been accelerated by downward pricing pressure for laptops and competition from smartphones, tablets and cloud computing.

4. Analysis of costs of compliance with IM legislation

In this section, we provide:

· A summary of how laptop manufacturers meet IM compliance requirements from a business process point of view, highlighting any differences in approach between manufacturers.

· An estimate of the costs of complying with IM regulations (administrative and substantive compliance costs)

·

Interview programme

In order to carry out the quantitative research, four interviews have been carried out with global manufacturers (three with laptops manufacturers and one with a leading manufacturer of chips and processors)[19].  In addition, two discussions were carried out with a European industry association.  An overview of the firms interviewed is provided in the following table: 

Table 3 – Overview of firms interviewed - laptops

Firm || Product category || Firm size || Annual sales from product in the EU

A || Laptop manufacturer || Large || 3 million units/ annum. Market share - 19-20% of EU market

B || Laptop manufacturer || Large || 4 million units/ annum. Market share – 25-26% of EU market

C || Laptop manufacturer || Large || NA - but circa 8-10% of EU market

D || Components manufacturer || Large || NA - but no. of laptop chips and components numbered in the millions/ annum

Although there were challenges in persuading firms to take part, the firms interviewed are all globally recognised players in the laptops industry and account for a market share of c.a. 50-55% of the total market. There are an estimated total of 15m annual laptop sales in Europe. Unlike for other products, no SMEs were interviewed, since the laptops industry is dominated by large manufacturers (see Section 2).

Overview – how do laptops manufacturers manage regulatory compliance?

In this section, a description is provided of the way in which laptops manufacturers manage compliance with IM regulations. Five main steps were identified in harmonised product sectors in order to place products on the EU market. These five steps were defined for all the harmonised product cases and have been used as the basis for carrying out discussions with manufacturers to ascertain information about how they manage compliance processes and the costs involved:

· Familiarisation with the applicable/relevant obligations  – preparatory actions  

· Introduction of processes or changes to product design and production processes to ensure compliance with substantive obligations

· Conformity assessment procedures and relevant documentation

· Declaration of conformity or other statement of compliance and CE marking

· Other activities related to obligations posed by authorities 

The way in which manufacturers manage each of these five steps and feedback received on the type of costs involved is now provided.

Reference should also be made to the previous section, which highlighted that there are alternative routes to achieving compliance for laptops. Clearly, whether a given manufacturer has decided to follow the R&TTE-D alone, or a modular approach in which they comply with the R&TTE-D, EMC-D and the LVD-D separately will have implications in terms of the way in which manufacturers organise their business processes relating to compliance and testing.

Step 0 – Engagement in EU policy and legislative-making processes and in standardisation-related activities

The firms interviewed recognised that it was in their direct interest to participate in influencing the form, content and implementation of Union harmonisation legislation. Since large manufacturers dominate the laptops sector, they commonly participate directly in EU legislative-making and standardisation development processes, for instance by taking part in working groups meetings on particular Directives and in standardisation processes. They also make an indirect contribution, for instance, by providing feedback through the main European industry association, Eurodigital, who in turn participate in EU regulatory processes and in consultations on specific IM regulations.

The aim of this participatory approach is to ensure that industry feedback influences and shapes the form of new IM legislation. Taking part in policy and legislative-making processes enables firms to better anticipate regulatory developments affecting laptops well in advance of the entry into force of IM legislation. It also allows industry to shape the requirements for manufacturers, which is especially important when the potential burden could be significant and other appropriate but equally effective solutions are possible. Among the examples of legislation where industry input was felt to be especially important were RoHS, REACH and the drawing up of Eco-design implementing regulations.

Firm B agreed that active participation in EU regulatory development processes was vital and stressed that they invest considerable time in monitoring key developments well in advance of new regulations and technical standards being adopted and coming into force.  Firm C commented that “In order to ensure that we are effective in managing compliance, we take part in the policy-making process and this facilitates our understanding of how regulatory requirements should be interpreted and implemented. It is important to have both direct and indirect communication channels with legislators (e.g. participating in industry associations, responding to public consultations, attending meetings and workshops, direct email contact etc.)”.

The preparatory phase prior to legislation and standards being adopted requires human resources. Firm B commented that they worked approximately 75% FTE on IM legislation and that they spent a lot of time following new regulatory developments. This requires attending 6 industry meetings in Brussels per year of 2 days’ duration, contributing to the preparation of industry responses to proposed EU regulatory developments, etc. 

However, although this does take some time and resource commitment on the part of industry, the scale of administrative costs incurred should be set in context. It is in industry’s strong interest to monitor EU regulatory developments and standardisation processes closely as part of an active approach to managing compliance with IM regulations. This helps manufacturers to better anticipate how changes in the regulatory regime applying to the products that they manufacture is likely to affect their industry.  This can in turn help to reduce substantive compliance costs by ensuring that upcoming or new requirements are factored into the product design process from the outset. 

Moreover, large global manufacturers also employ thousands (and sometimes tens of thousands) of staff and can spread the cost of engaging in EU policy and legislative-making processes across sales volumes that amount to millions of units per year in the EU. Although there are only a few laptop manufacturers that are SMEs, such firms may find it more difficult to dedicate resources to Step 0.

Step 1 - Familiarisation with applicable legislation and relevant information obligations.

Taking part in the early stages of the formulation of legislation as part of preparatory work to help laptops manufacturers better anticipate forthcoming legislative developments, updates to technical standards, etc. (Step 0) is closely linked to Step 1, which is concerned with familiarisation with the applicable legislation and relevant information obligations once IM regulations have been adopted.

Manufacturers invest considerable human resources in familiarisation with the applicable regulatory and administrative requirements. Since the sector is dominated by approximately 10 large global manufacturers, these firms have dedicated regulatory compliance departments who not only work on familiarisation, but brief their colleagues in other departments as to (i) which legislation is applicable (ii) which technical standards could be utilised (iii) whether there are any forthcoming regulatory changes likely that need to be considered in product design (iv) preparatory work needed on documentation (mainly the preparation of a DoC and of a technical file for each product.

There was a lot of variance in the percentage of time firms estimated that familiarisation took as a proportion of total time spent by internal staff over the 5 process steps. For instance, Firm A estimated that about 10% of staff time was devoted to familiarisation, whereas the equivalent figure for Firm C was 15%. For Firm B, however, this was estimated at 40% (Firm D did not provide an estimate).

Such divergence among manufacturers will depend on the role and perceptions of the interviewee and how the amount of time spent on compliance is divided between different compliance activities and business functions. Since in many cases, the interviewee was located in Europe, and was themselves involved in monitoring regulatory developments, they did not always have the details of the amount of human resources involved in testing activities for compliance, which are often carried out in a different Member State or outside the EU. It was interesting to note that requesting data from colleagues particularly those located outside Europe was seen as challenging and would take considerable time and that the quality of the information eventually provided may not be well thought through. 

More generally, it was difficult to quantify how many staff are working on compliance for any given product group, since most laptop manufacturers produce a wide range of electrical and IT products. Regulatory compliance teams typically work across a number of different product groups, are overseeing different applicable IM regulations, as well as differences in the technical standards which are specific to particular product groups. This means that it is often difficult to estimate precisely how much staff time is spent on familiarisation broken down to a particular product group. This was the case for instance with Firm C, which has a team of 13 FTE staff working on compliance with IM regulations and a further 13 FTE staff with EU environmental regulations.

Laptop manufacturers interviewed noted that they spent much less time on familiarisation in regard to long-established IM legislation, such as the LVD and EMC Directives, where the requirements have not changed that fundamentally in 20-30 years. They spent much more time preparing their firms to meet new regulatory requirements stemming from recently adopted IM legislation. Examples cited in this regard from the past few years were the RoHS Directive (RoHS II was adopted in 2011), the REACH Regulation (which entered into force on 1st June 2007). For instance, Firm D, a global manufacturer of microchips and compressors commented that there had been a lot of preparatory work for RoHS and REACH. There was a need for specialist compliance staff to liaise internally across different business functions such as R&D in order to ensure that the firm was fully compliant and REACH-ready.

In the near future, the introduction of new implementing regulations for Ecodesign specific to laptops was viewed by firms interviewed as being likely to require significant familiarisation time. An Ecodesign implementing measure was adopted in 2013 for computers and servers in June 2013[20].  Laptops manufacturers already have some familiarity with Ecodesign requirements through the requirements on Standby and Off-mode (Regulation EC 1275/2008) which apply to electronic devices generally.

.

Lastly, in order to help industry to minimise the burden of EU legislation, the development of guidance materials was seen as invaluable in saving time for familiarisation costs. For instance, a components manufacturer in the laptops industry commented that the development of guidance for Ecodesign requirement on standby and off-mode was especially important, given the technical complexity involved. However, aspects related to standby and off-mode for laptops are now included in the new ecodesign regulation for computers and computer servers and no longer in the horizontal regulation on standby and off-mode.

Step 2 - Changes to processes or changes to product design and production processes

Like other industrial products, laptop manufacturers have to incorporate regulatory requirements into R&D and product design processes. However, it was difficult to obtain cost estimates from manufacturers. In instances when data was not available at all, the main reasons were that:

· Where manufacturers carry out conformity assessment testing internally, the testing often takes place in laboratories outside Europe for global consumer products such as laptops. Since laboratories work on products designed for the global market, data on testing costs specific to European IM regulations is often not collected by the manufacturer.

· Laptops manufacturers are increasingly reliant on ODM suppliers to carry out testing at the product design stage. ODM suppliers do not usually break down their prices to reveal the specific costs of regulatory compliance (and associated conformity assessment tests) since they provide their client(s) with a total estimated price.

· Manufacturer that make extensive use of ODM suppliers carry out random “spot” testing of products as part of quality control procedures but only at the point when a product model is already on the market (e.g. checking of product batches about to be shipped).

Industry found it difficult to quantify expenditure on substantive design costs. Firm A pointed out that the business model makes it difficult for laptops manufacturers to disaggregate costs. “There is lot of global leveraging and in the notebook business a lot of manufacturing is outsourced this work is, the certification are more and more included in the final price offer and not always quantified, if it is quantified, the price is on global scale mixing a lot of items. In addition, there are difficulties in calculating the leveraged cost of testing modules, which nowadays are carried out on an outsourced basis by OEM suppliers. Consumer notebooks are now totally managed by the outsourcing partner and therefore we totally lost control of that type of costs especially as annual aggregate and related to EU. Somehow by passing the ball we avoid to ask to avoid the risk to have our outsourced partner to revise the agreements, assuming that it is their task to keep tests costs low”.

Even in those instances when data was available to the manufacturer, they were unwilling to share this data because it was considered to be commercially sensitive. Although some data imputations have been made by our team (see table quantifying these costs), the feedback received was mainly qualitative.

It was observed that by anticipating changes to IM regulations, firms are able to help minimise substantive compliance costs. As noted above, large firms follow EU regulatory development processes closely, and are usually aware about changes to IM legislation and administrative requirements well in advance of these becoming mandatory and also follow standards development processes. Since laptop products are designed with knowledge of current requirements under IM regulations (and those likely in future) in mind, and the core legislation has been relatively stable in the past decade, this helps to avoid lots of changes to produce design or to products already on the market due to changes in requirements.

Another observation from the research was that some types of costs, such as substantive changes to product design once products have already been placed on the market in the EU are probably lower for laptops than for say air conditioners due to differences in the product development lifecycle and the duration of the product’s lifecycle post-placement on the market.  Whereas for an air conditioner, this lifecycle is typically 10-12 years (see Ecodesign Preparatory Studies[21]), for laptops it is around 2-4. 

If changes are required due to changes in IM regulations (and/ or updates to voluntary technical standards), these are usually identified well in advance by laptop manufacturers. Any necessary changes can therefore be factored into the design phase when new product models under development, which helps to reduce substantive compliance costs.

It is less common – though not unknown - for laptops to have to be temporarily withdrawn from the market or for modifications to have to be made to existing models. Rather, new laptop platforms under development take these changes into account directly and existing models are simply phased out in line with their planned product timeframe.

Some examples of substantive costs were however identified over and above the initial R&D and product design phase. For instance, interviewees stated that the introduction of some IM regulations had resulted in them incurring substantial additional costs, even if these were difficult to quantify. For instance, under REACH, there was a need for chip makers supplying laptop manufacturers to invest in R&D to identify and test possible substitute chemicals for use in the production of micro-chips.

The most costly pieces of IM regulations were perceived as being those IM regulations introduced in the past five – ten years. This is partly because new IM regulations require more familiarisation time, but mainly because whereas the classical New Approach Directives were concerned with product safety, more recent regulations have more environmental and health-focused requirements in their objectives (e.g. concerned with restricting the use of dangerous chemicals, hazardous substances, and ensuring improved levels of energy efficiency).

There may therefore be a need under these regulations to make significant changes and to plan for these changes, for instance, in respect of product design and specifications, the type of components and parts used, the substances and chemicals used, etc.

Both Firm B and Firm D regarded the introduction of RoHS and REACH as having been burdensome for laptops manufacturers and components makers (e.g. of chips and micro-processors) respectively. Firm D commented that while recognising the environmental benefits, there were significant costs associated with achieving REACH compliance.  These are examined in Table 4.

Table 4:  Industry concerns about legal uncertainty for downstream users under REACH regulation

A concern among industry in relation to the REACH regulation was that there was perceived legal uncertainty as to which substances might be outlawed in future following substance evaluation or subject to restrictions and authorisation requirements. These concerns are particularly acute in terms of the potential cost implications from a downstream user perspective. There is not only uncertainty as to whether chemicals that are currently critical for some laptops components could be banned or restricted, and replacing them with alternatives could potentially be costly. This was viewed as especially problematic by Firm D.  For instance, the substance, gallium arsenide, is widely used and without it microchips cannot be produced. However, there is no viable product substitute. The substance is currently being reclassified under the CLP Regulation as part of the Adaptations to Technical Progress (ATP) to the CLP. This specific substance is currently also being assessed under the Community rolling action process substance evaluation by Latvia. However, there are presently no common criteria for undertaking substance evaluation in order to fast-track particular chemicals. In Firm D’s view, before banning or requiring authorisation for substances that could really disrupt the supply chain, there should be a more detailed impact assessment for downstream users. Since REACH is at a relatively early stage in the process of identifying harmful chemicals that need to be subject to authorisation, restrictions and phased out, there is considerable legal uncertainty and unpredictability for downstream users at the present time. Currently, manufacturers cannot plan for the future effectively and this was said to impose costs. Firm D noted that since a technology-driven development cycle from basic R&D through to high-volume manufacturing takes 10 years. Planning is therefore needed as to which substances can be legally used under IM regulations for the next 15-20 years and investment decisions need to be taken about semi-conductor production facilities which can be very high-cost. Such legal uncertainty may deter investment.

There can also be substantive compliance costs associated with ensuring that products already placed on the market meet requirements set out in updated harmonised technical standards, even though there is a transition period before new standards must be used for products and products that have used the former standard to be slowly phased out. For instance, in the area of electrical safety, in March 2013, a large multinational announced that it had temporarily withdrawn a desktop PC product from the market because it was not compliant with Amendment 1 of IEC 60950-1, an updated standard on electrical safety. The firm concerned was reported to be redesigning the product in order to allow it to continue to be sold in future.

Table 5: Differences in the cost of modifying products to reflect the updating of standards – a comparison between Europe and the US

There are differences between Europe and the US as to whether products can remain on the market once new and updated technical standards have been introduced. Firm B commented that the differences between the US and European regulatory systems affects the costs of modifying products in order to update technical standards, once these are placed on the market. In the EU, there is a transition period during which manufacturers that apply harmonised standards must update products in accordance with the new technical standard, usually within 2-3 years of a product being placed on the market. This imposes costs on the European laptops industry compared with other geographic regions. In contrast, in the US, once a product is already on the market[22], then even if a new, updated technical standard has been introduced, products using the old standard can continue to be legally sold in  the US . However, any new products in the development pipeline are required to conform with the new, updated standard.

Step 3 - Conformity assessment procedures and relevant documentation.

The applicable conformity assessment modules that need to be followed will depend on which alternative route to compliance the manufacturer has decided to select. As set out in detail in Section 3, if the modular approach is applied, then appropriate testing will need to be carried out for the EMC-D, LVD-D and the R&TTE-D respectively, whereas if the product is classified as a radio product, then only the CA procedures applicable under the R&TTE-D will need to be applied[23]. 

The laptop manufacturers interviewed use the Suppliers’ Declaration of Conformity (SDoC) as the main conformity assessment route to meet the essential requirements for applicable IM regulations. Many manufacturers also choose to use a third party to carry out testing in respect of some IM directives, although this is not mandatory. This is a common approach (for instance for the LVD to check electrical safety) since many manufacturers prefer to use external conformity assessment bodies either to carry out all the testing or to check a sample of products that have already been checked by the manufacturer using internal testing. This approach was seen as helpful in minimising risks and in reassuring consumers, which is important, since there are reputational management issues at stake.

Industry confirmed that the flexibility of carrying out conformity assessment internally using the SDoC was appreciated. Since the majority of laptops are produced by global manufacturers using large in-house testing facilities, it was felt that manufacturers could ensure product safety equally as well as third party conformity assessment. Firm B commented that “there is no evidence that SDoC makes products any less safe compared with the use of mandatory third party testing, so long as the system is underpinned by robust market surveillance”.

There were difficulties in obtaining data on the costs of internal and external Conformity Assessment Procedures, for the reasons already set out in Step 2 (e.g. commercial sensitivity of data, internal testing costs not shared between different business divisions globally, difficulty in obtaining accurate data when testing carried out outside EU by manufacturer or when outsourced to ODMs).

Nevertheless, some estimates on the annual costs of external conformity assessment, were obtained. For instance, Firm A estimated that across the 30-40 different product platforms launched annually on the EU market, it spends approximately 800000– 1m EUR per year on third party conformity assessment. In addition, it estimated that in-house testing costs approximately 10000 EUR / regulatory model. A distinction was drawn here between a “regulatory model” on which compliance is built and a “marketing model” i.e. a firm may develop many different models for marketing purposes, but there are a much smaller number of basic platforms on which basic compliance is built. However, it was not possible to obtain estimates of the one-off and recurring costs of internal laboratories and testing and of the purchase equipment.

The applicable conformity assessment mechanism is defined in each implementing measure and conformity is generally based on internal design control or on a quality assurance management system. Implementing measures may also make provision for modules, but this is typically Module A unless explicitly stated otherwise. In the case of the forthcoming Ecodesign requirements for computers and computer servers (Regulation 617/2013), when these start to apply, the applicable conformity assessment procedure will be the internal design control system set out in Annex IV of the Ecodesign Directive or the management system for assessing conformity set out in Annex V of the Directive.

Since large firms dominate the laptops market, no SMEs were able to be interviewed. Some feedback was nevertheless obtained on SMEs. According to the industry association, Eurodigital, it can be challenging for SMEs to test products for Ecodesign requirements. Firm D, which is a global manufacturer of chip and micro-processors confirmed that it assists smaller manufacturers in carrying out testing to meet Ecodesign requirements, which currently apply only to standby power mode), but will be replaced by requirements applying to computers and computer servers as a whole through Ecodesign implementing regulation 617/2013.

Feedback was received from two global laptops manufacturers on the costs of standards. It was pointed out that a distinction needs to be made between harmonised standards and wider standards and technical specifications that are used by the industry but which are not directly linked to complying with IM legislation.

Although the purchase of harmonised standards is voluntary, since the leading laptops manufacturers follow these standards, they are regarded as being part of the overall costs of compliance (even if they only account for a small percentage of the overall costs). There are just a few harmonised standards that meet the essential requirements set out in IM legislation and are included in the Declaration of Conformity (DoC) for laptops. In analysing costs, only the purchase of these harmonised standards should be considered. The same standards can often be applied not just to other types of laptop models but also to other product devices horizontally. For instance, ETSI EN 300 328 relates to 2,4GHz WiFi technology, regardless as to whether the device concerned is a laptop or an MP3 player.   We therefore asked firms to estimate the proportion of the costs of standards solely relating to laptops and to IM legislation.

Firm A stated that the cost of purchasing a single standard, especially those related to the EMC and to electrical safety under the LVD is typically around 80 EUR. There are cheaper prices when obtaining updates for standards that have already been purchased. A manufacturer of laptops will typically follow some 30-40 standards in total (of which only a few are harmonised standards needed to build compliant products). However, as noted above, once a complete set of standards has been purchased, these can then be used across multiple laptop models.

An alternative option for large manufacturers is to purchase a company license, which then gives them the right to purchase a certain number of single licenses (typically 50 licences for all IEC standards purchased). The cost is approximately 40,500 EUR, which is a one-off cost, but which can be used to cover multiple laptop products (and other devices).  The cost of purchasing standards specific to the laptops segment of Firm A were estimated to be in the order of 5000 EUR per year across multiple product models. The cost is higher for large firms than for SMEs because SMEs can purchase standards with a single user license, whereas to share the knowledge internally, large firms must by a company license, or at the least a license for multiple users.

One of the interviewees commented that “companies need to operate smartly in terms of the way in which they deal with buying standards otherwise they may waste money, even if the cost of standards is a relatively small part of the whole. The cost of buying standards is not normally attributed to the cost of an individual product, rather that the purchase of a complete set of standards is needed in order to build multiple laptop platforms”. In this respect, there are similarities to the costs of purchasing laboratory equipment in that this is a pre-requisite and part of the "set up" costs for being a manufacturer in the sector.

According to the interviewee in Firm A, “some European Standardization Organisations such as ETSI adopt a more industry-friendly approach since the standards that they develop are free (in effect, they are paid for by industry who pay to participate in the standards development process for ETSI standards. The amount payable is dependent on the type of membership, the size of the company, and the participation that it has in the standards development process”. Firm C noted that “some companies are more CENELEC-oriented and either purchase individual standards or have a subscription, whereas others are more ETSI-oriented and pay subscriptions to be involved in the standardization process (as standards are indeed freely available). Other laptops manufacturers are involved in the development of both CENELEC and ETIS standards, so the cost of their participation in standardisation making processes (and in purchasing standards) is higher”.

Step 4 - Declaration of Conformity (DoC) or other statement of compliance and CE marking.

Producing documentation - the DoC and the technical file

In common with other industrial products, having first carried out conformity assessment procedures, laptop manufacturers are required to produce a DoC and technical file and to keep this updated for 10 years following placement on the market.

The preparation of the DoC itself is straight forward since this involves producing a sheet of A4 setting out the applicable IM regulations, and commonly also a list of the voluntary harmonised standards that have been applied in order to meet the essential requirements.  However, there are administrative costs associated with the regulatory checking and updating of DoCs due to the high cumulative frequency of regulatory changes, both legislative and those resulting from updates to harmonised technical standards.  Decision 768/2008 states that DoCs shall be kept “continuously updated”. 

Internal systems and procedures need to be put in place to ensure that these documents are updated regularly. Updating DoCs between two and four times each year – depending on the firms’ internal procedures – is a significant burden in terms of human resource costs. Industry noted that although producing an individual DoC was not difficult, the cumulative effects can be burdensome, since global firms have hundreds of different product models (and variants of each product model) and each DoC then has to be kept under continual review.

In Firm A, the dedicated European compliance team working on IM regulations includes 4 staff solely involved in the development and updating of compliance documentation, with regular internal review procedures put in place for (i) checking, maintaining and updating DoCs and (ii) checking that technical files are as complete as possible. This was regarded as resource-intensive.

There was a perception that there is now a longer timeframe to check that product documentation is administratively compliant with the applicable IM regulations.  It was noted that while it previously took 5 days to undertaken an internal procedures to review DoCs and technical documentation and check that these are up to date, the procedure now takes up to 20 days. This was attributed to IM legislation becoming more numerous and complex, for instance, as a result of the introduction of the RoHS, EuP and Ecodesign Directives.

Although some firms viewed the requirement to provide a paper copy of the DoC together with the product under the R&TTE Directive as burdensome, the administrative costs are not that significant thanks to an agreement with TCAM[24] for manufacturers to use the so-called “short form of a Declaration of Conformity”. This is an abbreviated compliance statement localised in all languages and a weblink is provided to the full declaration which is available in English only, but can be translated at the specific request of MSAs.

Translation requirements for DoCs – uncertainty for manufacturers?

Two laptops manufacturers interviewed commented that they faced legal uncertainty since it is unclear whether there is a formal requirement that DoCs should be translated into local languages or should continue to provide a local language version of a DoC upon request as has been the case for many years.

The wording in the NLF has led to uncertainty for industry as to what translation requirements apply to DoCs in order to meet compliance requirements. There is ambiguity in the wording in Decision 768/2008 which states that “The DoC shall be translated into the language or languages required by the Member State in which market the product is placed or made available”. This ambiguous wording causes uncertainty for the laptop industry, which had previously produced DoCs in English only.  One firm commented that “If a translation requirement were to become compulsory, this would be administratively burdensome. Also, for whose benefit would this be, since regulatory compliance information – unlike an instruction booklet which is directly is concerned with consumer safety –is only to help facilitate the work of MSAs”. The argument put forward is that it is cheaper for global businesses to produce DoCs in English only and the benefits of translating the DoC are minimal given that the applicable legislation is well known and is available translated in all EU languages.

A further concern related to translation was that since the NLF, upon reasoned request by a Market Surveillance Authority (MSA), part of the technical file may be required to be translated. While the reasons for this were understood, since many test reports and other important information for MSAs may not even be in a European language, there were concerns that this could constitute a significant administrative burden for manufacturers. The problem is that there is no clear definition as to what constitutes a “reasoned request”.

Step 5 - Other activities related to IM information obligations.

Traceability requirements

The Commission has strengthened traceability requirements for industrial products in order to better enable MSAs to trace the provenance of products and to be able to contact the manufacturer to obtain regulatory compliance information, and parts of the technical file such as tests reports more easily. In Decision 768/2008, there is a specific requirement for products (at least for the packaging) to provide addressee information for the manufacturer and importer(s).

The move towards strengthening traceability is understandable since so many products are manufactured in third countries and MSAs need to be able to contact the manufacturer that produced the product more easily. However, industry has concerns about the administrative burdens that this might impose and also the constraints on product design if such information has to be provided on the product itself.

However, both the industry association and two firms were concerned about the potential administrative burdens of traceability requirements and the difficulty of conforming with such requirements, while at the same time producing attractive, consumer-appealing products. This point extends beyond laptops alone to other products such as smart phones. It was argued that traceability requirements may risk compromising product aesthetics from an industrial design point of view (in instances where labelling has to be provided on the product itself). E-labelling was viewed as a possible solution to avoiding having to have too much information on products and packaging.

A further issue identified relating to information obligations related to marking requirements under the R&TTE Directive. This affects laptops using Class II Wifi devices.

Table 6: Marking requirements affecting laptops using Class II wifi devices

Alongside the CE mark, an additional alert mark (a circle with an exclamation mark in the middle) has to be provided on laptops next to the CE mark.  This was regarded by Firm C, which follows the R&TTE-D alone as unnecessary first because the CE mark should already cover all safety-related aspects of products and secondly since the alert mark is not understood by consumers. Although the costs involved in adding labels to products are small, the multiplication of labelling requirements (linked to IM regulations and product safety, but also energy-efficiency, waste disposal) has cumulative effects. For example, it places constraints on manufacturers as to where the marking and labelling information should be placed in order to ensure compliance, and may serve to detract from producing an appealing product (again, this depends whether there is scope to put such information discretely on the product e.g. on the underside of the product, under the battery, etc).

5. Assessment of costs of IM legislation for the whole sector

In this section, we provide an assessment of the costs of complying with IM legislation in the laptops sector. The data is based on data and supporting qualitative information provided by four manufacturers. Although the analysis is based on a small number of firms, these can be considered as representative, since they collectively account for a significant share of the market. In the case of laptops, the three firms that took part collectively account for 45-50% of the market and all four participants are global manufacturers. 

There were challenges in carrying out the analysis since there were data limitations as regards the costs of product testing, for reasons already explained in our assessment of the five steps in Section 4. Nevertheless, it was possible to arrive at quantitative estimates, since some manufacturers were able to provide more detailed information than others.

Extrapolation of costs and cost saving from the firms to the sector

The following table summarises the costs per unit and total estimated costs for industry. A list of key assumptions made is provided in footnotes. The cost estimates take into account information provided by the firms that took part in relation to the five process steps described in Section 4.

The costs are related to turnover. In the first column, we seek to distinguish between different types of costs. The distinction between one-off and recurrent costs has been taken into account in the analysis, and some costs, such as the costs of purchasing laboratory equipment have been annualised[25].

Table 7 – Summary of main costs of compliance for laptops manufacturing industry

Types of cost || Unit of measurement || Unit cost[26] || Total quantity || Total costs (annualised)

Compliance with admin. requirements || || || ||

Familiarisation ||  (Manufacturers  / cost per year) || € 402,000 || 10[27] || € 4,020,000

Preparation of DoC and technical documentation ||  (Manufacturers  / cost per year) || € 1,206,000 || 10 || € 12,060,000

Standards purchase || No. of standards || € 80 || 30-40 || € 5000[28]

Substantive compliance and Conformity assessment (internal)[29] || || || || € 9,000,000

R&D and Product design || Models || € 800,000 || 10[30] || € 8,000,000

Testing (internal) || Models || € 5,000 || 200[31] || € 1,000,000

Testing equipment[32] || || || || No data

Conformity assessment (external) || || || || € 3,000,000

Consultancy/advisory services (product design) || || || || € 0

3rd party Conformity Assessment by notified bodies || Models || € 15,000 || 200 || € 3,000,000

Total (excluding testing equipment) || || || || € 28,080,000

The total estimated costs of regulatory compliance by the laptops industry are in the order of 28m EUR on an annualised basis.  However, it should be noted that there was difficulty in obtaining data from firms on all the variables (for reasons explained in our assessment of the five steps in Section 4 and in some cases, further expanded upon below). For example, there were difficulties in obtaining estimates of BAU and for the purchase of testing and laboratory equipment.

Business as Usual (BAU) costs were not taken into account in the calculations (these are the costs that firms would be undertaking anyway regardless as to whether internal market legislation was in place, for instance product performance testing and safety testing as part of internal quality management procedures). The main problem was the lack of consistency in the estimates provided by firm and the absence of firms being willing to provide quantitative estimates generally in two cases.

Among the two firms that did provide data, there was divergence in interpretation among firms as to whether compliance costs meet the requirements of IM legislation. Firm A estimated that approximately 30% of the time spent by internal staff on regulatory compliance would be necessary anyway as part of the internal planning and quality management procedures necessary to ensure a safe product and to produce documentation about the product and safety elements. Conversely, Firm C commented that “since all compliance-related activities are ultimately related to IM legislation, there is no element of compliance costs that can be considered as BAU”.

Some costs are one-off costs, whereas other costs are recurring. Other types of costs are more nuanced, and represent a combination of one-off and recurring costs. Examples of costs that are clearly one-off include the purchase of laboratory and testing equipment, R&D costs, third party conformity assessment costs and the purchase of standards. Other costs are evidently recurrent, such as the recalibration of testing equipment. However, the picture is more nuanced for other types of compliance costs, which are both one-off and recurring. For example, the cost of the preparation of a DoC and technical documentation mainly occurs prior to a product being placed on the market.  However, in addition to these one-off costs, there are also recurring costs linked to the need to update and maintain a DoC for 10 years post-placement on the market. In addition, there is a need to update technical documentation, for instance, to reflect new spare parts and components that are introduced as replacements once a product is already on the market.  As regards product design, the costs are mainly one-off, but there could also be recurrent costs if regulatory changes are made and modifications to product design are needed once the product is on the market.

With regard to the total estimate of firm size, although the total number of firms in the industry was estimated to be approximately 60, the top 10 firms account for a very high market share, so the calculations have been made based on compliance cost data provided by leading global firms and then extrapolated. It was estimated that compliance with administrative requirements amounts to 57.2% of total costs (14.3% for the familiarisation stage and 42.9% for the preparation of technical documentation associated with the product and the DoC. Another major cost was the substantive compliance costs associated with the R&D and product design phase to ensure that compliance requirements are factored into new product development. These were significant and estimated to be circa 8m EUR per annum (28.5% of the total).

No substantive compliance costs were identified linked to withdrawing laptops from the market and making modifications to products due to changes in regulatory requirements and/ or in technical standards among the firms that participated (although one or two examples of product withdrawals resulting from regulatory requirements were identified through the desk research. The low incidence of product withdrawals and design modifications reflects the fact that leading global; manufacturers are fully aware of regulatory changes well in advance of these being introduced, and factor these into the R&D and design phase.  This is made possible due to the fact that there are relatively short development lead times for laptops, so current models on the market do not have to be replaced, since they rapidly become old models and are superseded by new models that are compliant with new regulatory requirements.

A further significant cost was carrying out conformity assessment. Although the SDoC procedure was usually followed by manufacturers, as noted earlier, several interviewees stated that they made use of a combination of in-house laboratory and testing facilities and external conformity assessment services. This depended on the individual Directive concerned. For instance, it was common to outsource at least some aspects of testing for standards relating to the LVD Directive to a third party, since these relate to electrical safety.

As noted earlier, it was difficult to obtain data on the costs of setting up testing laboratories (one-off costs) and on the recurrent annual costs of recalibration. The reasons for the absence of data were explained earlier and include the commercial sensitivity of the data, the lack of data availability internally within organisations  because the information is not shared between different business divisions globally and because testing costs are hidden due to the use of OEM and ODM suppliers.

The costs of internal testing were estimated to be 3.5% and the costs for external testing in the region of 10.7% of the total regulatory costs of compliance.   However, the estimates of internal testing costs are probably an under-estimate and reflect the staff time involved in carrying out testing and some laboratory costs.  The quantification exercise took into account information concerning the ‘Business as Usual’ (BAU) scenario, i.e. the estimated percentage of compliance costs linked to IM regulations that related to activities that the firm would undertake anyway irrespective of whether there was Union harmonisation legislation.

6. The benefits of internal market legislation

It is important that the benefits of IM legislation are considered and not only the costs. It is difficult to establish a counterfactual since the laptops industry mainly emerged after the internal market came into being. Nevertheless, those interviewed confirmed that it was preferable to have a single set of internal market legislation across the Union rather than different pieces of national legislation.

Although the administrative costs of complying with IM regulations appear quite high overall, the benefits of IM regulations can help to offset the costs. Firm A and Firm C pointed out that there are benefits for laptop manufacturers in complying with IM regulations through “leverage” on their investment in regulatory compliance in the EU. The manufacturers that took part sell millions of units per year in Europe alone.  They are able to leverage and recoup some investment in compliance through tapping into cost synergies achieved by using compliance with IM regulations as the basic building block for meeting compliance requirements across different jurisdictions globally. Test data and the results of conformity assessment procedures and technical documentation can be used, at least in part, even if the precise specifications may differ due to differences in technical standards. This helps manufacturers to offset the costs of regulatory compliance in other jurisdictions globally.

Firm D commented that it made significant investment in being compliant with RoHS in advance of European legislation coming into force. Since the firm was RoHS-compliant, this then allowed the firm to leverage its investment since more than 40 different jurisdictions have subsequently adopted a RoHS-type regulatory regime and changes to the recast RoHS Directive in Europe have subsequently often been made to other regulatory regimes.

Further examples of benefits were identified, such as energy-efficiency savings and environmental benefits from energy-saving requirements, both those common to all electrical appliances (e.g. requirements for stand-by power mode). The new Ecodesign implementing regulation –for computers (desktops & laptops) and computer servers has the potential to bring about cost reductions through energy savings. Although such requirements can be costly for part of the industry [ecodesign typically means redesign for 20% of the existing models] at least during the early stages of implementation, there are potential benefits in terms of strengthened industrial competitiveness through promoting investment in innovation to make products more energy-efficient.

7. Analysis of simplification options

Gaps or loopholes, inconsistencies or duplication in IM legislation.

Before providing an assessment of possible simplifications, we first summarise the extent to which there were gaps or loopholes, inconsistencies or duplication in IM legislation.

As noted earlier, there are differences in the requirements for the DoC between the R&TTE, LVD, and EMC Directives. The requirement to provide a DoC together with the product under the R&TTE Directive is inconsistent with the requirement under the LVD-D and EMC-D where the DoC does not have to be placed with the product, but must be available on request by an MSA. 

This issue is well known to both industry and the Commission. The intention through the NLF (Decision 768/2008) is to use a common template for a DoC in future.  This is being implemented through the Alignment Package. However, a final decision has not yet been taken as to whether this requirement under the current R&TTE-D will be dropped when the recast Directive is aligned.

Manufacturers are well aware of minor differences in requirements at least under longstanding core IM directives applicable to laptops (and other electrical products). Such anomalies in information requirements for DoCs between IM Directives) have existed for many years.

However, there can be unintended consequences that may increase industry costs due to legal uncertainty and possible delays in products reaching the market.  Manufacturers can face uncertainty since they do not know how familiar MSAs and customs in different Member States are with differences in requirements for DoCs between IM regulations. This can create a situation in which MSAs and / or customs may mistakenly believe there to be administrative non-compliance because the DoC is not together with the product, even if this is not needed because the R&TTE Directive is not applicable to the specific products being transported, or in instances where laptops are being transported and are part of mixed packages. If there is incorrect interpretation of the requirements, even temporary, this imposes costs on industry through time delays in products reaching wholesalers and / or the retail marketplace.

For example, Firm A, which manufacturers laptops, printers and other electronic and IT equipment, noted that there have been instances when inconsistent approaches have been applied by MSAs and customs authorities. The absence of a DoC together with some products has been questioned, and this has held up shipments or product containers.  

An interviewee commented that “Retail packaging is usually specific to a product, whereas wholesale packaging when shipping products into Europe may contain a mix of different products batched together in boxes. Some of these products may fall under the scope of the R&TTE Directive, while others do not. This can cause uncertainty for industry as to what labelling should be placed on packaging and which documentation should be included to satisfy the authorities”.

Apart from this issue, the desk research and interviews did not identify any major gaps or loopholes, inconsistencies or duplication in IM legislation affecting laptops.

Scope for regulatory and administrative simplification

Through the discussions, manufacturers were asked about the extent to which there was scope for regulatory and administrative simplification within IM regulations. A review of feedback in respect of possible simplifications is first provided, followed by an assessment of the potential benefits of these simplifications and the possible cost savings.  

Although there is a requirement for the DoC to be placed together with the product under the R&TTE-D, an agreement has been reached between industry and TCAM[33] so that laptop manufacturers are only required to provide a short-form version of the DoC together with the product. The full DoC is then made available electronically. This not only saves printing costs but is a more efficient way of organising the review and updating of DoCs.

Global laptop manufacturers were in favour of the provision of as much regulatory compliance information online as possible to reduce administrative costs. They already provide a lot of regulatory information online through dedicated compliance websites listing all the applicable legislation and technical standards applied to the product. Such websites often also provide access to more detailed compliance information not only the full DoC for each product model. Examples of such websites are provided as a footnote[34].

For instance, Firm A provides a searchable database of the DoCs for all its models online but also provides for the German market a statement of voluntary conformity assessment with the Geprüfte Sicherheit ("Tested Safety") or GS mark, a voluntary certification mark for technical equipment.   Firm B provides various compliance documents online such as the DoC, technical information on product safety, evidence of compliance with the EMC and environmental safety sheets.

The provision of such information online is designed to ensure that Market Surveillance Authorities (MSAs) are able to obtain further regulatory information about product models.  It was argued that electronic labelling or e-labelling [35] should be adopted more widely in future by manufacturers so as to strengthen the efficiency and effectiveness of the EU’s Market Surveillance System.  Having access to this information online would help to:

· Reduce paperwork costs  -  printing DoCs and user instructions.

· Reduce inefficiency in requests by MSAs for compliance information from economic operators (general) – the NLF has led to a shift in responsibility away from manufacturers alone through the setting of common definitions and obligations for economic operators (including importers and distributors). However, there is a need to ensure that information is requested in the first instance directly from the manufacturer. It was viewed as inefficient for MSAs to approach importers for technical information about the product that only the manufacturer has access to. An email address or weblink direct to the manufacturer would eliminate unnecessary contact with other economic operators.

· Reduce inefficiency in requests by MSAs for compliance information from manufacturers - there is a risk that MSAs turn to branch offices in Member State to request basic compliance information, where there may only be a sales and marketing function in the given Member State. However, this fails to appreciate how global firms operate or manage compliance[36]. When contacting global firms, MSAs need a mechanism for requesting information directly from the compliance department. This would save resources both for MSAs and manufacturers. Ensuring that manufacturers provide direct email contact to their compliance department is essential.

· Provide as much compliance information online as possible - information should be more easily accessible to MSAs and a cultural change is needed in that MSAs should be less insistent on receiving information in paper copy. This would strengthen efficiency by avoiding unnecessary requests for basic compliance information such as the full versions of DoCs by MSAs if the DoC for each model can be downloaded instead through a dedicated website for regulatory compliance or a compliance section of a corporate website.

Similarly, in regard to the provision of technical documentation to MSAs upon request, there could be efficiency savings (reduced printing costs, less time to respond to requests) if this were as a rule to be done electronically. Currently, some MSAs may accept the provision of such technical information online but others prefer to receive information in paper form. It would be more efficient if manufacturers were able to provide information through secure data transmission when requested to provide part or all of a technical file.

The requirement to provide instructions for use in paper copy was regarded as costly. Instructions for use are already available in electronic form in most instances. The possibility of only having these available electronically in future was raised. This has already been ‘piloted’ for professional users under the Medical Devices Regulation.  Arguments in favour are that most consumers have access to broadband internet, and this could potentially lead to cost reductions and environmental benefits.  However, even if industry supports this idea, there could be concerns that providing use instructions information online only could undermine consumer safety for those affected by the “digital divide”. Although the vast majority of consumers have access to high-speed internet, not all do so. Digitally excluded groups of consumers could not do without a paper copy of the instructions.

The most realistic possible simplifications identified by laptops manufacturers, and the potential benefits are summarised in the following table:

Table 8: Proposed simplification measures, benefits and possible savings - laptops

Proposed simplification || Explanation || Benefits

Removal of unnecessary marking requirements on the product itself[37], such as the Alert Sign. || Currently, under the R&TTE-D, laptops with Wifi Radio Module Class 1 and 2 must include an alert mark next to the CE mark. The Alert symbol is regarded as superfluous by industry. CE marking covers all aspects of product safety for consumers and the information is relevant to MSAs and Member State authorities responsible for radio frequency. It is not useful for consumers. || Less marking requirements on product Reduced cost of product marking (less familiarisation costs, printing the mark itself).

Eliminate inconsistencies between IM legislation in requirements for DoC. No longer require DoC to be placed with the product (R&TTE-D only). || There are currently differences in administrative requirements for the DoC between the R&TTE-D, EMC-D and the LVD-D respectively. These are already being tackled through the Alignment Package. || Reduced costs of a single common template for a DoC (rather than multiple templates) Reduced uncertainty for manufacturers (eliminate risk of delays to product shipments)[38].

E-labelling and wider provision of compliance information electronically. Basic information – full DoC, technical standards that have been applied, safety data sheets could be provided online. Technical documentation could be provided through secure data transfer, given commercial sensitivities. || More regulatory compliance information could be made available by manufacturers online specific to particular models. The market surveillance system needs to be overhauled so that manufacturers are to provide most regulatory compliance information online, rather than in paper copy. || For manufacturers Reduction in printing costs (e.g. DoCs) Reduction in human resource costs of responding to requests from MSAs for info. For MSAs Easier and more efficient access to regulatory compliance information specific to each model. Resources freed up to carry out more technical checks.

Although difficult to quantify, based on the feedback received about the order of magnitude of efficiency savings, possible reductions in the costs of compliance for the laptops industry if these savings were to be implemented is now provided.

Table 9 – Estimates of possible reductions in the costs of compliance - laptops

|| Unit of measurement || Reduction per unit || Total quantity || Total cost reduction

Removal of unnecessary marking requirements on the product itself , such as the Alert Sign.[39] || Market share || € 32.160 || 10 || € 321.600

Eliminate inconsistencies between IM legislation in requirements for DoC. No longer require DoC to be placed with the product (R&TTE-D only).[40] || Market share || € 241.200 || 10 || € 2.412.000

Total || || || || € 2.733.600

The order of magnitude of cost savings from simplification measures is relatively modest compared with the total estimated compliance costs. This partly reflects the fact that there are not any major problems with current legislation, but rather a concern with eliminating minor inconsistencies in administrative requirements.

However, there could potentially be more promising cost savings for industry from a gradual transition towards providing more compliance information online. However, these savings are very difficult to quantify. Reduced printing costs are only a small element of the potential cost savings since the transition to electronic compliance is more about improving organisational efficiency for manufacturers in updating compliance information and facilitating access to up to date compliance information for MSAs. There would be savings from being able to contact the right department directly through email contact, with efficiency savings for both the manufacturer and the MSA.

 (ii) Measures to improve the effectiveness and efficiency of the regulatory landscape and help to remove uncertainty. 

In addition to possible simplification measures, manufacturers noted that the costs of compliance could in some cases be kept in check if the Commission were to take steps to ensure that current ambiguities in the IM regulatory framework are eliminated, since this would remove legal uncertainties with regard to what the requirements are.  In particular, legal clarity should be provided that DoCs do not need to be translated into all EU languages. This would help to avoid the risk that over time, MSAs start to demand the translation of DoCs into all EU languages as a compliance requirement, which would result in significant additional costs.

8. Overall Conclusions

· Laptop manufacturers appreciate the flexibility provided by IM legislation and the fact that there are alternative routes to achieving regulatory compliance (following the R&TTE Directive alone vs. a modular approach).

· The compliance costs for manufacturers that follow several individual pieces of IM legislation under the modular approach are broadly similar to the costs of following a single Directive (R&TTE-D), since similar product safety tests are required under the R&TTE-D (e.g. to ensure electrical safety, electro-magnetic compatibility).

· A modular approach can however be advantageous in allowing compliance responsibilities to be divided up between different manufacturers specific to the part of the laptop that they produce and the corresponding applicable module, while the manufacturer retains ultimate responsibility for compliance of the final whole product.

· There were difficulties in obtaining data on substantive compliance costs during the R&D and product design phase, especially for testing costs. This was due to commercial sensitivity reasons in some cases, and the extensive use of ODM and OEM suppliers by most laptop manufacturers in others.

· Qualitative feedback suggests that substantive costs are lower for laptops than for certain other types of industrial products (e.g. air conditioners) when regulatory changes are introduced because the lifecycle of a laptop model is shorter. Therefore, new requirements can be built into the development and customisation of new models, rather than having to adapt or replace components or to adapt product platforms used as the basic building block for developing new products variants. 

· There is strong support among manufacturers for the increased provision of compliance information to Market Surveillance Authorities (MSAs) and users/ consumers electronically and for e-labelling. This may offer scope for efficiency savings and a reduction in the administrative costs of updating compliance information.

· There are concerns that since the adoption of the NLF, there is legal uncertainty for manufacturers resulting from the ambiguous wording in Decision 768/2008 as to the translation requirements for DoCs.

· Since the DoC is primarily intended for MSAs rather than for users/ consumers, if this requirement were to be interpreted in a stricter way in future, then there is a risk that this would result in considerable additional administrative costs. The current practise is that the translation of DoCs is only available upon request by MSAs.

· Divergent requirements for DoCs between IM regulations can cause uncertainty when manufacturers are shipping mixed products in large containers, some of which require a DoC together with the product under the R&TTE-D, while other products do not because they do not contain a radio part. There is a risk that different administrative requirements for different types of products may confuse customs authorities and lead to unnecessary and costly delays.

9. Sources of information

References

● Eurostat Structural Business Statistics Database and PRODCOM

● Data from the 2011 Euromonitor report for computers.

● Lot 3 Personal Computers (desktops and laptops) and Computer Monitors Final Report (Task 1-8)

● Guidance documents on the LVD and EMC Directives

Interviews

● Interviews with 4 global manufacturers, 3 of laptops and one of computer chips

● Several interviews with the European industry association, Digital Europe.

Annex 1 –Mapping of IM Legislation (Laptops)

Table 10: Mapping of applicable IM legislation and administrative requirements for manufacturers

Name of legislation || Main issues addressed (safety, environment, other) || Main administrative requirements for manufacturers || Relevant standards (note: illustrative only)

Core legislation

Low Voltage Directive (LVD) -  2006/95/EC || Health & Safety  (electrical) || Supplier’s Declaration of Conformity (SDoC) Testing according to relevant harmonised standards or alternative means of achieving presumption of conformity Preparation of technical file Declaration of conformity and CE marking Installation instructions and manual for final consumer (with translations) || 10. EN 60950-1:2006 Information technology equipment - Safety -- Part 1: General requirements 11.

Electromagnetic Compatibility Directive (EMC) 2004/108/EC || Electromagnetic compatibility || Testing according to relevant harmonised standards or alternative means of presumption of conformity Development of technical file Declaration of conformity and CE marking || Electrical safety standards IEC 60950 (IT equipment safety), EN 60950 (and American standard UL 60950)[41]. EN 55024:2010 IT equipment (Immunity characteristics) Limits and methods of measurement CISPR 24:2010 EN 61000-3-2:2006 - Part 3-2: Limits for harmonic current emissions (equipment input current <= 16 A per phase) EN 55022, (Radiated emissions), IEC 61000-2-2 and IEC 61000- 3-3, EN 61000-3-3:2008 - limitation of voltage changes, voltage fluctuations and flicker in public low-voltage supply systems, for equipment with rated current <= 16 A per phase and not subject to conditional connection IEC 61000-3-3:2008[42].

Radio equipment and Telecommunications Terminal Equipment R&TTE Directive (1999/5/EC) || Radio bandwidth frequency || Manufacturers must carry out testing to ensure that R&TTE devices do not cause any harm to PST Networks and do not violate power and frequency spectrum allocations on a country by country basis. Declaration of conformity and CE marking || The R&TTE is applicable to laptops that include radio devices e.g. modems and/or wireless communications interfaces (e.g. WiFi, Bluetooth). 12. EN 55024:2010 Information technology equipment - Immunity characteristics - Limits and methods of measurement 13. CISPR 24:2010 14. EN 55022:2010 Information technology equipment - Radio disturbance characteristics - Limits and methods of measurement CISPR 22:2008 (Modified)

RoHS Directive (2011/65/EC) || Use of hazardous chemicals || Collect compliance statement from suppliers (material declarations) Technical file with supplier declarations and own analysis tests Declaration of conformity to be kept for 10 years || Although the 2002 RoHS Directive did not require CE marking, the new 2011 Directive does so.

Ecodesign for Energy-related Products Directive (ErP) 2009/125/EC. || Ecodesign requirements  || || The ErP establishes a framework for setting Ecodesign requirements for energy-related products (ErPs). Through product-specific Implementing Measures, mandatory, Ecodesign requirements are set. Two implementing measures are currently applicable under the ErP. · External power supplies that are shipped with the notebook (Regulation 278/2009/EC with regard to ecodesign requirements for no-load condition electric power consumption and average active efficiency of external power supplies) · General requirement applicable to electrical electronic office equipment on standby  and off-mode power consumption (Regulation 1275/2008/EC with regard to Ecodesign requirements for standby  and off-mode electric power consumption of electrical and electronic household office equipment. · The above are applicable to general electrical products. However, for laptops these implementing regulations will be superseded by Regulation 617/2013 (Ecodesign requirements for computers and computer servers) which will be mandatory from 01.07.2014.  ·

Wider applicable legislation where CE marking does not apply

REACH Regulation  (EC 1907/2006) || Use of chemicals || REACH compliance statement from suppliers || 15.

Packaging and packaging waste (2004/12/EC) || Packaging || Declaration of Conformity || 16.

Annex 2 - Voluntary environmental labels

In addition to Union harmonisation legislation, there are a number of voluntary environmental labels at European and national levels relevant to laptops such as the EU Ecolabel for portable computers[43].  Examples of the requirements in order to qualify and be able to display energy efficiency markings on products are that “Power management settings should be 10 minutes to screen off (display sleep); 30 minutes to computer sleep”.  

There are also national voluntary labelling schemes within the EU such as Blue Angel (Der Blaue Engel), a German certification system for environmentally-friendly products and services and Nordic Swan, the official sustainability Ecolabel for the Nordic countries. There are also international voluntary energy-efficiency labels such as Energy Star (US), which is for office equipment also applied in the EU. Other schemes include TCO Certified, an international sustainability certificate for IT products which incorporates a range of criteria to ensure that the manufacturing, use and recycling of IT products is carried out in an environmentally-friendly, socially responsible and sustainable manner. Such labelling initiatives have strong potential to promote resource efficiency, and are often adhered to by major manufacturers, even if there is no regulatory requirement to do so. There are links here with IM regulations that require manufacturers to assess the energy efficiency of products, notably the Ecodesign implementing regulation for computers and computer servers, for which the setting of the requirements took into account the work done for the development of Energy Star.

Case study 3 – Domestic Refrigerators and Freezers

1. Introduction – objectives of the study

The product groups examined in this case study are refrigerators and freezers for domestic use, also known as cold appliances. The aim is to analyse the applicable IM legislation, assess the costs associated with the implementation of the applicable IM legislation, identify areas of overlaps and conflicts between the different parts of the legislation that may lead to problems and costs to industry and identify and assess the benefits of possible simplifications. The rationale for the selection of these product groups was that:

- Refrigerators and freezers are covered by a large number of IM Directives and Regulations, 8 in total;

- The sector is dominated by a few (around 20) large manufacturers; and

- The conclusions drawn from an assessment of these specific products could be used to draw conclusions on the compliance costs for a broader category of electric domestic appliances since most of the products within this group are covered by the same pieces of legislation.

The case study is based on desk research, the interview with the EU industry association representing manufacturers of refrigerators and freezers (CECED) and three detailed interviews with manufacturers of domestic appliances, one medium size firm (350 employees and total turnover of 150 million) and two large multinationals selling over 2million units and occupying more than 2000 employees. The final text of the analysis was reviewed by CECED that provided additional comments. However, this should not be considered as an endorsement of the conclusions from the side of CECED.

2. Product definition and description of the sector Product definition (products included/excluded)

The product group examined in this case study are refrigerators and freezers for domestic use, also known as cold appliances. According to standard EN 153 they are “electric mains-operating refrigerating appliances”. According to standard EN 15502:2006 refrigerating appliances are “factory-assembled insulated cabinets with one or more comportments and of suitable volume and equipment for household use, cooled by natural conversion or a frost-free system whereby the cooling is obtained by one or more energy consuming means”. There are two main type of refrigerating appliances, compression type and absorption type. The main appliance categories are:

● Simple refrigerators (no freezer compartment);

● Refrigerator-freezer (with at least one refrigerator and one freezer compartment);

● Food freezers; and

● Frozen-food storage cabinets

Data on the market size of the specific product group are derived mainly from Eurostat PRODCOM database and are complemented by market studies. In the PRODCOM database the specific products are covered under the code 27.51.11 (Refrigerators and freezers of household type) with the following subcategories: 

● 27511110 - Combined refrigerators-freezers, with separate external doors

● 27511133 - Household-type refrigerators (including compression-type, electrical absorption-type)

● 27511135 - Compression-type built-in refrigerators

● 27511150 - Chest freezers of a capacity <= 800 litres

● 27511170 - Upright freezers of a capacity <= 900 litres

According to PRODCOM database data for 2011 the total market for refrigerators was close to 24.6 million units with a value of the market of EUR 4.8 billion sold/annum. Other data sources suggest a somewhat smaller market size of 17-20 million[44] cold appliances sold on an annual basis. Refrigerators represent around 42% of the market, combined units 38% and freezers 20%.

The majority of domestic refrigerators are electric powered. However, gas refrigerators and freezers (of the absorption type) are also available used either as mobile (e.g. for camping, recreation vehicles and boats) or fixed at home. Data on the specific market segment are not available since PRODCOM codes do not differentiate depending on the source of power. According to the Evaluation of the gas appliances Directive[45] there are a few large firms in Europe producing gas refrigerator. The 2005 preparatory study for the development of Ecodesign implementing measures for domestic refrigerators and freezers[46] refers to a total of 0.7-0.8 million of absorption refrigerators sold annually in Europe, 0.3 million of which were gas refrigerators. A according to the competitiveness report of the gas appliances sector they do not have a noteworthy role in the total market.[47]

Available PRODCOM data also indicate that the total volume of production within Europe is around 15 million units with a value of €3.8 billion. Of these, 3.4 million units are exported (value of €0.9 billion) while there are also around 12.7 million units imported from third countries (estimated value of €1.9 billion). Thus, according to the PRODCOM, imported refrigerators represent around 50% of the market of refrigerators and freezers. However, it should be noted that a significant part of leading refrigerators and freezers brand are designed in Europe but manufactured outside Europe and subsequently imported.

Industry structure

Concerning the structure of the industry, Eurostat Structural Business Statistics are not particularly helpful. The relevant NACE statistical code covers the whole range of domestic appliances (27.51 - Manufacture of domestic appliances[48]) and as a result they do not allow developing an accurate picture of the sector (e.g. number of firms, turnover, employment). Nonetheless, there were 2,200 enterprises[49] active in the manufacturing of electric domestic appliances (annual turnover of 41 billion and close to 195 thousand people employed in 2011), 31,000 wholesalers of electric appliances (€159 billion turnover and 267,000 people employed). Some guidance on the share of the refrigerators and freezers sub-sector may be provided by PRODCOM data according to which refrigerators and freezers represented around 15% in terms of value sold of all domestic appliances[50]. This would imply a total number of 29,000 employees in the manufacturing of refrigerators and freezers.

Table 1 – Data on market size and industry structure for cold appliances

Parameter || Data

EU Market size || PRODCOM (2011): € 4.8 billion (24.6 million units)   Market reports: 17-20 million (2010)

Production volume/value in Europe || PRODCOM (2011): € 4.8 billion (15 million units)

Imports  || PRODCOM (2011): €1.9 billion (12.7 million units)

Exports || PRODCOM (2011): €0.9 billion (3.4 million units)

Number of enterprises (2010) || Market reports: 10 large multinational firms with multiple brands cover around 85% of EU market sales Eurostat: Manufacturing (NACE 27.51): 2,212 (all electric domestic appliances); Wholesale (NACE 46.43): 30,900; Retail (47.54): 54,500

Number of employees (2010) || NACE 27.51: 194,200 (all electric domestic appliances) Wholesale (NACE 46.43): 267,000 Retail (47.54): 269,000

Source: Eurostat

According to data from Euromonitor market research for 2012, 10 large size companies – most of them present in the market with multiple brands – represent more than 85% of the market in Western and Eastern Europe. At the product/brand-name level the market is rather fragmented since only 1%[51] of the models are sold under the same name in all EU markets.

Additional information for the number of firms can be derived from the ORBIS database of Bureau Van Dijk. From the total of 2,568 enterprises active in the 27.51 a search within the economic activity description field using the keywords “refrigerators” OR “freezers” produced 101 records. The list included all major producers as well as smaller manufacturers some of which are active in the commercial refrigerators and freezers market. A market share list from Euromonitor market research database suggested that 22 manufacturers capture 98% of the market in Western Europe and 90% in Eastern Europe (including non-EU countries). Thus, we consider that a total number of 100 firms provide an upper limit in terms of firms affected by the relevant IM legislation for refrigerators and freezers.

3. Analysis of applicable IM legislation and standards

On the basis of desk research and the input from firm interviews we have identified the list of applicable pieces of Internal Market legislation, the basic administrative requirements and the relevant harmonised standards that can be used by manufacturers to meet the essential requirements. According to the input from industry 95-99% of manufacturers do make use of the standards in the case of refrigerators, and more general for domestic appliances.

Refrigerators are covered by 9 different pieces of IM legislation covering a range of aspects:

· Health and safety (Low Voltage Directive, Regulation on materials and articles that come in contact with food, RoHD Directive on hazardous chemicals,). In the case of gas refrigerators and freezers the Gas appliances Directive is applicable.  Furthermore, the Pressure Equipment Directive (97/23/EC) applies for those refrigerators and freezers that include piping and other pressure vessels (compressors, containers of refrigerants, heat exchangers) with internal pressure above 0,5 bar.

· The General product safety Directive is also applicable but does not introduce additional requirements to refrigerators since these are covered by the other more specific pieces. It does introduce however other obligations, mainly of administrative nature; 

· Electromagnetic compatibility (EMC Directive); and

· Energy consumption and noise (Eco-design and Energy labelling Directives and the respective implementing measures).

In addition, certain requirements arise from the F-GAS Directive concerning the use of fluorinated gases used in refrigerators, as downstream users of chemicals included in articles under REACH Regulation and also in relation to the use of packaging (Packaging Directive).  We should also note that the WEEE 2002/96/EC Directive is also applicable to refrigerators - and is identified as rather burdensome for manufacturers - but it is a piece of legislation that is outside the scope of this study.

Table 2 – Summary of IM legislation covering refrigerators and freezers and the relevant standards

Name of legislation || Main issue addressed || Requirements for economic operators || Relevant standards

LVD  2006/95/EC || Health & Safety  (electrical, flammable refrigerants) || Testing according to relevant standards or alternative solutions Development of technical file Declaration of conformity and CE marking Include information ensuring that the product can be used safely and in applications for which it was made || IEC/EN 60335-1 IEC/EN 60335–2- 24

Directive 2009/142/EC on Appliances Burning Gaseous Fuels (GAD) || Health and safety of gas appliances || Testing according to relevant standards or alternative solutions Development of design documentation Declaration of conformity and CE marking || EN 732

General product safety Directive || Health & Safety || Provide identification of the product by a product reference Carry out sample testing of products, keep a register of complaints and keeping distributors informed of such monitoring (voluntary) Inform authorities of dangerous products and actions taken to prevent risk Co-operate with the authorities upon request ||

Pressure equipment Directive || Health & Safety || Testing according to relevant standards or alternative solutions Development of design documentation Declaration of conformity and CE marking || EN 378-2:2008+A2:2012[52] EN 12178:2003[53] EN 12263:1998[54] EN 12284:2003[55] EN 14276-1:2006+A1:2011[56] EN 14276-2:2007+A1:2011[57]

Regulation on materials and articles that come in contact with foodstuff 1935/2004 and Regulation 10/2011 on plastic materials and articles intended to come into contact with food || Health & Safety || Chemical analysis and migration tests of the materials used (in cabinet, door, shelves and accessories) Establish information collection system providing information on the source of materials (traceability) Declaration of compliance ||

EMC  2004/108/EC || Electromagnetic compatibility || Testing according to standards Development of technical file Declaration of conformity and CE marking || EN 55014-1 EN 55014-2 EN 61000

Eco-Design Directive  2009/125/EC  (Implementing Regulation 643/2009 related to domestic cold appliances) || Noise || Testing Declaration of Conformity and CE marking Information in instruction manual for minimising noise || IEC 60704-1 IEC 60704-2-14 IEC 60704-3 ISO 8960

|| Energy consumption/ efficiency || Testing Technical file with results of studies and explanations of design choices made and the management system Declaration of Conformity to be kept for 10 years and CE marking Information in instruction manual for minimising energy-use || EN 62301 - IEC 60301 EN 153/ EN ISO 15502

Energy Label Directive 2010/30/EU  and implementing Regulation 1060/2010 || Energy consumption/ efficiency || Testing according to harmonised standard Technical file with results of studies and explanations of design choices made and the management system Development of product fiche Placing of energy label || IS015502

F-GAS  on fluorinated gases 842/2006 || Climate change || Information on the gas contained in the instruction manual and relevant label on product ||

RoHS (2011/65/EC) || Use of hazardous chemicals || Collect compliance statement from suppliers (material declarations) Technical file with supplier declarations and own analysis tests Declaration of conformity to be kept for 10 years ||

REACH || Use of chemicals || Collect statement from suppliers stating that he is compliance with requirements REACH compliance statement ||

Packaging and packaging waste (2004/12/EC) || Packaging || Declaration of Conformity || Standard EN 13427

The analysis and the discussions with manufacturers did not indicate the presence of conflicting requirements that could be seen as creating either or uncertainty or problematic trade-offs in relation to the design of the product.

Turning to the administrative requirements, a number of applicable pieces of IM legislation (LVD, EMC, Eco-design and Energy-Label, Regulation concerning articles in contact with foodstuff, RoHS) require the development of a technical files following testing, which in most cases is done according to the specific technical standard. The discussions did not point to any conflicts or overlapping activities in relation to the development of these technical files. The main concern is the size of these files and the work required to develop and update them. It is also often difficult to keep all the required information and to get from suppliers the complete technical files. Suppliers sometimes send only parts of the technical file (e.g. the test reports, energy consumption reports) or do not provide technical information at all (only the DoC) due to concerns about confidentiality and this means that certain testing needs to be redone.

The General Product Safety Directive also introduces certain requirements including the mandatory product identification or the voluntary conduct of tests of marketed products and the keeping of a register of complaints.

The review of the requirements of the Declaration of Conformity indicate minor differences in terms of the terminology used (e.g. under the LVD there is a reference to the “description of the product” whereas under the EMC, the “identification of the apparatus”) or similar but the same requirements in terms of the information to be provided (e.g. under LVD it is required to provide the date when the CE mark was affixed to the product whereas under the EMC, the date that the declaration of conformity was signed). However, the discussions so far did not suggest any conflicts or problems for the manufacturers.

4. Analysis of costs of compliance with IM legislation

The information presented in this section is based on the in-depth interviews with 3 manufactures, one small and two large size firms[58].

Table 3 - Basic information on the firms interviewed

Firm || Firm size || Annual sales from product in the EU || Main markets

A || Small (ca. 350 employees) || Ca. 350 thousand units || Ca. 100% of sales in the EU

B || Large (>1000 employees) || 2 million units || Ca. 100% of sales in the EU

C || Large (>4000 employees) || 1.8 million units || 80% of sales in the EU

On the basis of the discussion with firms the process followed by manufacturers of refrigerators to ensure compliance with the IM legislation includes:

● familiarisation with the applicable IM legislation and the respective requirements, identification and purchase of relevant standards and in some cases other preparatory actions in training of staff.

● introduction of changes to the product design and the production process to ensure compliance with the requirements

● conformity assessment procedures including the relevant testing and the development of the technical file, the use of notified bodies for certification if/when required, preparation of declaration of conformity (DoC), CE marking and placing in the market

● other activities in response to requests of the market surveillance activities  

Preparatory actions: Familiarisation with relevant legislation and purchase of standards

A common practice among most economic operators (not only manufacturers but also distributors) is to develop a database where all applicable legislation is indicated, the relevant harmonised standards are listed along with links to the technical file which demonstrates how the essential requirements are met (see below). The databases are continuously updated to reflect changes in the legislation, to standards or any information related to the technical files. In the case of both small firm A and large C around 1 FTE is allocated solely to the management and update of the database which covers all domestic appliances products produced by the firm. Additional staff working in product development and testing makes use of the database and contribute to maintaining and storing information in the database.

Sophisticated relational databases are also used among larger size companies[59] in order to manage the complexity of keeping track with IM legislation, standards and amendments, but equally ensuring that relevant links are kept under each product group to technical documentation required by the firm itself for monitoring regulatory compliance, risk management and quality assurance purposes.

The majority of manufacturers in the sector rely on the use of European harmonised standards in order to meet the essential requirements. In the case of refrigerators the number of mandatory harmonised standards is around 20 but additional standards (e.g. related to quality management) are also often used by firms. While there is no fixed period for revisions of those standards, their average life span is around 6-8 years. Data from two firms indicate that the average annual expenditure for purchase and/or update of technical standards is usually in the range of €700-1,000.

Compliance with the applicable IM legislation

Ensuring compliance with the applicable IM legislation often requires changes to existing product design or new product development. Furthermore, the introduction of new products requires product design work and testing to ensure that the new products are in compliance with requirements.

The small size firm A indicated that in total around 7-8 engineers work full time in product design and quality for all products in the production line, around 10% of which focusing on refrigerators (0.8 FTE). However, since Firm A outsources most of the manufacturing to OEM suppliers in third countries, suppliers absorb most of the compliance costs in their own design process prior to production. Nonetheless, around 0.5-1 FTE is allocated to the testing of all products which includes testing according to harmonised standards and also reliability checks on a periodical basis. Tests for the EMC and LVD Directives take place in the firm’s premises while other tests are conducted outside. It was estimated that the total annual costs for testing and certification for all products produced account to €200k/year including the expenditure for testing equipment with costs for refrigerators around €20-30K for the 20-30 models of refrigerators that are placed in the market on an annual basis (around €1k/model).

For large firms B and C, 5% of the total number of employees in the specific product line is working on product development activities, around 100 for firm B and close to 300 for Firm C.  For the development of a new product Firm B usually spends 1-1.5 year (i.e. 100-150 FTE), 80-90% of which is allocated to the product development and product quality testing. Firm C indicated that a typical product development project - leading to basic model with multiple variants – has duration of 3 years and a budget of up to €100 million. For the large size firm B, testing for product quality and internal market legislation are rather closely linked and it was not possible to get specific estimates of testing costs.

Thus, some of the above costs are not directly linked to IM legislation and firms select to incur as part of their own product quality strategy. However, it was not possible to get estimates of the shares of costs that should be linked to IM legislation. For Firm C more than 60% of the total costs are linked with product design activities, around 50% of which (€30 million) is directly linked to compliance with Internal market legal requirements.

Among the different tests, the firms made reference to those related to RoHS which require an examination of the substances in the materials used for fridge appliances.  Firms B and C stated that the most costly tests linked to the IM legislation are those related to the Ecodesign Directive for energy efficiency and noise.  A typical noise chamber costs around €1 million while for the costs of equipment for energy efficiency testing for the Ecodesign Directive – which is used for a range of products – are around €100 k. Of course, these are generally one-off investments on equipment that may last for more than 5 or 10 years. The tests for EMC and LVD Directives were also considered as costly due to equipment costs but no specific figures were made available. According to Firm B a rather problematic point appears to be the tests concerning the Regulation on the materials and articles the come in contact with foodstuff. The current provisions of the legislation are considered as rather unclear (making reference to materials that “may” come in contact with foodstuff) and often lead firms to perform a broader range of tests than what could be the case if the provisions were more specific.

Conformity assessment procedures

The last part of the process includes the preparation of the technical file, the inspection of the notified bodies and certification, preparation of the DoC and the required information manual and the placing of the CE marking.  

The results of the necessary tests is also brought together in a technical file and the remaining documentation, parts of which also need to be translated to English. According to the IM legislation this information needs to be stored for at least 10 years and updated whenever there are changes. Significant time is often dedicated for the collection of information from suppliers of specific components or finished products. 

While not necessary for all the pieces of applicable IM legislation, Firm A uses the services of a third party (Notified body) for conformity assessment. This is part of the firm’s risk management strategy and introduces costs that are higher than those necessary to meet the minimum requirements imposed by IM legislation. The costs for certification for all products is included in the €200k/year indicated earlier.

Large Firm B indicated that around €100k is spent on an annual basis for third party services that most often go beyond the minimum required (e.g. testing of production facilities) while Firm C tries to keep the costs of third party to the minimum and spends no more than €10-20k for third party certification. Firm C also stated that there are 3 FTE working on the preparations of DoCs and ensuring that CE marking is appropriately applied in all products.  In total, while a specific figure was not provided, Firm C estimated that the conformity assessment procedures and preparation of documentation represents no more than 15% of the total budget allocated to the development of a new model. Firm C also indicated that the requirement for placing an energy label on each appliance adds a cost of around €1/appliance.  

Firm A suggested that there is some confusion in relation to the information and level of detail to be included in the DoCs and whether legislation and the relevant standards need to be included but this was not shared by the representatives of large Firms B and C. Still, even for small Firm A this part does not represent a sizeable cost. The firms interviewed did not indicate any problem with the requirement for a single declaration. However, CECED indicated that some of manufacturers may find it problematic as they have separate departments each having responsibility for preparing conformity statements within their own competence. In such case, the requirement for a single DoC may introduce some costs for changes to structures and procedures. Unfortunately, none of the firms was able to provide more specific estimates of the time and resources allocated to these activities. However, on the basis of the information provided this did not appear to represent sizeable part of the total costs.

In relation to gas refrigerators falling under the Gas Appliances Directive, the evaluation of the Directive found that the introduction of GAD led to additional costs, particularly with regard to testing/certification and labelling/CE marking. [60] However, the costs of testing and certification for all types of gas appliances – not only gas refrigerators – were estimated at around 0.1% of the annual sales value of gas appliances. Response to market surveillance authorities

Market surveillance authorities make requests for technical information and possibly for testing of products approximately once a month although this varies significantly among countries. The amount of time dedicated to respond to enquiries from market surveillance authorities varies depending on the nature of the request (e.g. what information is required from the technical file, which Directive the request relates to, or whether information in relation to conformity of all applicable legislation has been asked for). Typically, authorities give to firms 10 days to respond to requests. The Ecodesign, RoHS, EMC and energy labelling Directives are those for which there are most often requests for information by the market surveillance authorities. A common perception is that big firms tend to be asked more frequently than SMEs to provide technical information. The large firm interviewed indicated that the related resources dedicated are difficult to estimate but are generally part of the work of the 10 FTE dedicated to compliance.

Business as usual

All firms indicated that they would probably conduct large part of the tests, primarily those related to product safety, even in the absence of the legislation and that production quality management would still be part of internal procedures irrespective of the regulatory framework requirements. Even parts of the costs for tests from third parties could be considered as part of a business as usual (no IM legislation) scenario. Even more demanding product reliability tests – that are voluntary under the GPSD - are often conducted by established firms that want to ensure the quality of their products. Similarly, given that issues such as energy efficiency are the focus of consumer organisations related tests would also have to take place – even if not demanding – in the absence of relevant requirements under the Ecodesign and Energy labelling Directive. Thus, large parts of the testing costs incurred – on average up to 50% - are considered as business as usual. Even the product design is in most respects not driven by the legislation but primarily by the general product development process. The main concern for manufacturers is when requirements introduced do not provide sufficient lead time in which case these design costs cannot be integrated in the product design cycle. 

5. Assessment of costs of IM legislation for the whole sector

On the basis of the information provided we have attempted to estimate the costs of compliance for the whole refrigerators sector. The provided figures include the information concerning the Business as usual scenario. Assumptions have been made concerning the number of firms affected since, besides the 10 large firms indicated by EGMF there are also a number of smaller size manufacturers particularly in the professional market segment. As indicated in section 2, the calculations for the whole sector were based on an estimated number of 100 firms, an annual turnover of €4.8 billion and a number of units sold/year of €24.6 million.

The table overleaf summarizes the analysis of the costs for different aspects. The main point is that the estimated cost for compliance activities for the whole of the domestic refrigerators and freezers sector is around €160 million/year. Around 60% of this (€86 million) is considered as directly resulting from the internal market legislation while the remaining 40% are costs that would most probably occur even in the absence of legislation.  Total substantive compliance costs – product designs related activities, testing and testing equipment – are estimated between 80-90% of the total compliance costs while administrative costs (information collection, preparation of technical files, DoC) represent 10-20%.

Table 4 – Summary of main costs of compliance for domestic refrigerators industry

|| Unit of measurement || Average cost/unit || Total quantity || Industry wide costs/year

Own human resources occupied on compliance activities || || || ||

Total || Per annual turnover || 2.9% of turnover || €4.8 billion || €140 million

Familiarisation with legislation || || || || 5-10%

Share of product design and testing activities || || || || 80-90%

Conformity assessment (technical file preparation, information manual, DoC and CE marking) || || || || 5-10%

Share of human resources costs in absence of IM legislation (BaU) || || || || 40%

Net human resources compliance costs || || || || €86 million

Costs of testing equipment || || || ||

Total || Per annual turnover || 0.33% of turnover || €4.8 billion || €16 million

Share of expenses even in absence of IM legislation || || Ca. 48% || ||

Net costs for testing equipment || || || || €8.3 million

Costs of third parties || || || ||

Total || Per annual turnover || 0.5% of turnover || €4.8 billion || €2.6 million

Net third party costs – only for IM || || 60% || || €1.8 million

|| || || ||

Total annual compliance costs || Per firm || €1.59 million || 100 || €158.6 million

Total net compliance costs  || || € 0.86 million || 100 || €86 million

Substantive compliance costs || || || || 80-90%

Administrative costs || || || || 10-20%

Share in total industry turnover || || || || 0.2%

Basic assumptions: || Total units sold: 24.6 million/year Market size: €4.8 billion Number of firms affected: 100 (20 large and 80 small)

6. Benefits of Internal Market legislation

The discussions with the three firms and CECED underlined the contribution of the EU legislation in relation to its prime objective, the creation of the internal market for goods. Two of the firms and CECED, indicated that there have been cost savings in comparison to the situation when they had to comply with different pieces of national legislation covering the same aspects in different ways and with different procedures. For the third respondent, however, any such benefits are offset by the increasing compliance costs of the more demanding requirements of the EU legislation.

Another benefit identified is the opportunity provided through the participation of CECED and the large size manufacturers in the CENELEC and IEC standard setting procedures,  to avoid or reduce any contradictions between EU and international standards. This contributes, to a certain extent, towards the development of of rather similar requirements at an international level and facilitates the access to even broader markets.  

On the other hand, firms were sceptical of the contribution of the legislation to new product development and innovation, even though it was recognised that the Ecodesign Directive – together with the Energy labelling Directive has had a role in promoting the development and adoption of more energy efficiency appliances. 

7. Analysis of simplification options

While the administrative costs are reported to be rather sizeable, the discussions with firms did not point to significant potential for changes to the internal market legislation that could lead to measurable benefits. The common concern of firms whenever they were asked to identify possibly simplification or improvement options was that the focus should be on proper enforcement of internal market legislation, particularly in relation to the Ecodesign Directive. There is a general view – albeit with no specific data to support this – that issues like energy efficiency performance are not given priority by authorities and that non-compliance can provide a competitive advantage, especially in the low cost market segments[61].

The input from the interviews pointed to only two examples of possible change in the legislation that should be expected to bring sizeable costs savings. The first concerned the need for clarifications of the materials and articles that need to be tested under Regulation on materials and articles that come in contact with foodstuff 1935/2004. Addressing the existing ambiguity as to which materials need to be considered could save costs from additional tests. Not all interviewees identified this as a problem but, according to one large manufacturer, up to 50% of the costs of the tests related to the specific Regulation could be avoided. Specific figures were not made available and the specific tests are not considered particularly costly and the potential savings are not expected to be more than a few thousands Euros per firm and, at most, a few hundred thousand for the whole sector[62].  More generally though, CECED suggested that clearer provisions can ensure that firms do not have to spend unnecessary time and resources.

A second proposal made by one manufacturer was the removal of the requirement for the provision of an energy label in each refrigerating product. The manufacturer claimed the energy label costs €1/appliance. For the estimated 24.6 million appliances sold in 2010 this would mean annual savings of up to €24 million for the whole sector. There was however no detailed evidence presented to corroborate this by industry. . However, unless another equally effective and less costly approach is identified to provide this type of information to consumers, we consider that such a cost cutting measure is neither desirable nor justified. The use of energy labels is a particularly effective tool for providing information to consumers and promoting energy efficient consumer products and this is a view supported by CECED. Still, possible improvements to the Energy Labelling Directive are currently under investigation[63].

More relevant though, CECED indicated that the more extensive use of pictograms like the energy label can bring important savings in terms of translation costs for information manuals. CECED did not provide estimates of the possible savings from such a measure but, on the basis of information from other sectors, translation costs of these manuals to cover all EU countries are around €3,000 for each model. For large firms with more than 100 models this may means costs above €100k in total over a period of 3-4 years. Additional costs may arise if there are significant changes to the legislation of the standards. While the use of pictograms will not eliminate the costs for translation, reducing them by 20-30% can still lead to considerable savings for firms that sell across Europe, as most large manufacturers do.

Our own analysis of the legal framework did not indicate obvious duplications or overlaps among the applicable Directives and the discussions with industry representatives did not indicate problematic areas. CECED made reference to problems arising from the use of the terms “placing on the market” and “making available” in the RoHS Directive[64]. While there have been clarifications in the form of the guidance there are still cases that national authorities and manufacturers interpret these terms differently, causing problems to manufacturers. Since there is no information on the frequency of the occurrence of any such problems and the specific implications it is not possible to estimate specific cost savings for the sector.

Finally, in relation to the existing proposal for mandatory single Declaration of Conformity under the New Legislative Framework, the input provided by CECED and all firms interviewed was that maintaining flexibility – namely allowing manufacturers to decide whether to use a single or multiple DoCs – is preferable for firms in the sector. The organisation structure of some manufacturers often means that different units deal with different Directives and a single DoC could be problematic. With the modern IT systems we consider that this should not be a problem for manufacturers although it would require some initial adaptation costs. More important though is that the discussions did not indicate measurable cost saving from such a change. The small benefits from less paperwork could also be counterbalanced by a more frequent need to upgrade the single DoC whenever there are changes to the relevant standards or the legislation.

On the basis of the above saving potentials were estimated for each individual firm and, where possible, for the whole sector.

Table 5 - Summary of simplification/improvement options examined

Change proposed || Expected benefit/problems || Estimated savings potential

Remove requirement for provision of energy label in each product || Saving of costs of up to €1/appliance Loss of information concerning energy efficiency Loss of competitiveness for manufacturers of high-quality products || Total of up to €24 million* for the sector

Use of pictograms (such as the energy label) for the provision of information in a standard common format across the whole of the EU. || Saving of translation costs for information manuals. || €3,000/model – Depending on firm size possible savings of up to €100k/firm

clarification of materials and articles to be tested under in relation to Regulation on materials and articles that come in contact with foodstuff 1935/2004 || Eliminate some of the additional tests conducted due to the ambiguity what parts are covered || Expected to be no more than a few thousand Euros/firm and a few hundred thousand for the whole sector

Mandatory single Declaration of Conformity || Reduced paperwork More frequent need to upgrade the single DoC whenever there are changes to the relevant standards || Overall, no significant (if any) cost savings expected

*note – the estimate of €1/appliance was made by a manufacturer of domestic refrigerators and has been used for the simplification estimates. However, this could not be corroborated through the other interviews.

8. Overall conclusions

The product groups examined in this case study are refrigerators and freezers for domestic use, also known as cold appliances. The total market for refrigerators in 2011 was close to 24.6 million units with a value of the market of EUR 4.8 billion sold/annum. Refrigerators represent around 42% of the market, combined units 38% and freezers 20%.  The total volume of production in Europe is around 15 million units with a value of €3.8 billion while imports represent around 50% of the market. Significant part of leading refrigerators and freezers brand are designed in Europe but manufactured outside Europe and subsequently imported. In total, around 10 large size companies – most of them present in the market with multiple brands – represent more than 85% of the market in Western and Eastern Europe and 22 manufacturers capture 98% of the market in Western Europe and 90% in Eastern Europe (including non-EU countries).

Cold appliances are covered by 9 different pieces of IM legislation that cover health and safety aspects (Low Voltage Directive, Regulation on materials and articles that come in contact with food, RoHD Directive on hazardous chemicals), electromagnetic compatibility (EMC Directive), energy consumption and noise (Ecodesign and Energy Labelling Directive). The Gas appliances Directive and Pressure Equipment Directive are also applicable to a small share of cold appliances.

The analysis suggests that cost for compliance activities for the whole of the domestic refrigerators and freezers sector is around €160 million/year, representing no more than 0.2% of annual turnover. Around 60% of this (€86 million) is considered as directly linked to the implementation of the internal market legislation while the remaining 40% are costs that would most probably occur even in the absence of legislation (business as usual).  Substantive compliance costs – costs related to product design, testing and testing equipment – are estimated between 80-90% of the total compliance costs while administrative costs (information collection, preparation of technical files, DoC) represent 10-20% of the total. The compliance costs are driven primarily by the compliance with environmental legislation (mainly the Ecodesign Directive) which, in contrast to health and safety aspects, is not considered as business as usual.

The discussions with firms did not point to significant potential for changes to the internal market legislation that could lead to measurable cost savings. The priority – from the point of view of industry- is to ensure the proper enforcement of internal market legislation, particularly in relation to the Ecodesign Directive, to ensure fair competition.

Specific improvements identified concerned the need for clarifications of the materials and articles that need to be tested under Regulation on materials and articles that come in contact with foodstuff 1935/2004 that could save up to 50% of the testing costs related to this Regulation. An extensive use of pictograms like the energy label is also expected to bring measurable savings (of a possible order of tens of thousands of Euros for large firms). There is also no clear view as to possible savings from the adoption of a mandatory single Declaration of Conformity. Maintaining flexibility – namely allowing manufacturers to decide whether to use a single or multiple DoCs – is considered preferable for many firms in the sector and there are no measurable cost saving from such a change.

The firms in the sector underlined the contribution of the EU legislation in creating an effective internal market for goods that have led to cost savings in comparison to a situation in which they had to comply with different pieces of national legislations. However, the increasing compliance costs linked to more demanding requirements of the EU legislation may have offset these savings. The industry also benefits from the participation in the standard setting procedures that helps avoid contradictions between EU and international standards. Firms are sceptical concerning the contribution of the IM legislation to innovation even though it is recognised that the Ecodesign Directive has had a role in promoting the development and adoption of more energy efficient appliances. 

9. Sources of information References

● Eurostat Structural Business Statistics Database and PRODCOM

● Euromonitor Market research data on consumer appliances

● Text of applicable IM legislation and relevant standards

● Guidance documents of LVD and MC Directives

● Input from one medium and one large manufacturer/importer of refrigerators and freezers.

Interviews

● Interview with industry association: CECED

● 3 interviews with manufacturers of refrigerators/freezers

 

Case study 4 - Lifts

1. Introduction - objectives of the case study

This case study assesses how IM legislation affects different economic operators  involved in the manufacture, import and distribution of lifts for persons (covered under the Lifts Directive 95/16/EC). In order to help shed light on the interaction between different types of IM legislation, and issues around whether there are sufficiently clear demarcations between such legislation, it also however addresses other types of lifts covered through the Machinery Directive 2006/42/EC, including lifting hoists, lift platforms and escalators and certain types of lifts for goods not covered by the Lifts Directive. The applicable Union harmonisation legislation specific to each product is mapped out and an assessment of gaps, loopholes, inconsistencies and duplication is provided. The administrative costs – and to the extent possible substantive compliance costs – in meeting these regulatory requirements are then assessed.

The rationale for the selection of lifts was that:

· The lifts sector, while dominated by four large firms, has a large number of small and medium-sized enterprises (“SMEs”);

· The lifts sector has longstanding experience of implementing IM legislation since the Lifts Directive was adopted in 1995;

· The Lifts Directive 95/16/EC is one of nine Directives that form part of the Alignment Package. It is important to examine stakeholder views on how the alignment process has had an impact on strengthening the coherence of IM legislation; and

· The case demonstrates the advantages of having a clear delimitation in IM legislation in defining the borderline between different Directives in order to ensure legal clarity for economic operators.

The case study is based on interviews of EU-level and national industry associations, manufacturers and installers of lifts and manufacturers of safety components for lifts, as well as analysis of key legislative documents and published reports.

2. Product definition and structure of the sector

The lift industry is dominated by four very large companies (Kone, Otis, Schindler, ThyssenKrupp Elevator), of which three are European (one non-EU) and one from the USA. These four companies and their subsidiaries have a high combined share of the European market, estimated at 60%.

The lifts industry has undergone substantial changes as a result of globalisation, with evidence of increased industry consolidation in statistics on market structure.[65] The estimated size of the lifts market in Europe, according to the Europe SME lifts association (EFESME) was about €15 billion in in 2009. However, this extends beyond manufacturing and the placing of products on the market (covered by IM legislation). Lift manufacturing and installation only accounts for one third of the total market size, while the remainder is made up of after-sales services (maintenance 41%, repair 7%, and modernisation 18%). The total number of lifts in operation in the EU was estimated at about 4.7 million units. Further data has been obtained for 2009 from NACE and PRODCOM on the size and structure of the lifts industry. “Lifts and escalators” fall within the NACE classification “manufacture of lifting and handling equipment”.

NACE data shows that there are over 9,500 enterprises in the lifts sector, the great majority of which are SMEs, although there has been a decline in the number of lifts companies in the 2008-2010 period (the latest period for which data was available), reflecting on-going industry consolidation processes.

Table 1: Number of enterprises – lifts sector

Nace Code || 2008 || 2009 || 2010

28.22 || 9,970 || 9,720 || 9,525

· Source: Eurostat

The production value of lifts is shown in the following table. The data shows that in parallel with the economic and financial crisis there was a major downturn in the lifts industry but that the production value has since stabilised.

Table 2: Production value of the lifts sector (€ thousands)

Nace Code || 2008 || 2009 || 2010

28.22 || 59,072.38 || 42,603.23 || 43,688.83

· Source: Eurostat

In the following table, Prodcom data shows that a total of about 255,000 lifts (and skip hoists) were produced in Europe in 2012, of which the majority were electrical lifts and the remainder hydraulic.[66]

Table 3: Sales volumes for lift manufacturing industry (2012)

|| Units || Median price (€) || EU27 production value (€000)

Sales volumes || || ||

28221630 (electrically-operated lifts and skip hoists) || 133,000 || 18,242 || 2,157,000

28221650 (lifts and skip hoists excluding electrically-operated) || 122,000 || 14,207 || 802,766

Total sold volume || 255,000 || - || 2,959,766

· Source: Eurostat

Manufacturing in the lifts sector is strongly export-oriented and has generated a significant volume of exports, although the interviews found that a lot of manufacturing that used to take place within the EU has been moved to lower-cost producer countries outside the EU. The table below provides a summary.

Table 4: Production value – lifts sector (2010)

|| Export values (000s) || Import values (000s) || Production Value (000s) || Apparent consumption (Production+ Imports- Exports)

28221630 - Electrically operated lifts and skip hoists || 599,774,450 || 37,947,640 || 2,343,821,623 || 1,781,994,813

28221650 - Lifts and skip hoists (excluding electrically operated) || 165,383,210 || 17,338,000 || 628,899,470 || 480,854,260

Total || 765,157,660 || 55,285,640 || 2,972,721,093 || 2,262,849,073

· Source: Eurostat

With regard to employment, various industry surveys indicate a total European workforce in the lifts for persons sector (manufacturing, installation and servicing) of between 15,000-18,000 people.[67]

3. Analysis of applicable IM legislation and standards

This section maps out relevant Union harmonisation legislation since the study seeks to provide estimates of the costs associated with complying with IM legislation (dividing these costs into administrative costs and substantive compliance costs). Reference is also made to applicable environmental legislation where this has a major impact on manufacturers of industrial goods. However, in the quantitative analysis, we do not seek to quantify the impact of such legislation, rather only IM legislation for industrial products.

In the first table, relevant applicable IM legislation for lifts for persons is mapped out. The table shows that, unlike some of the other product cases, the lifts sector is subject to relatively few pieces of Union harmonisation legislation.

Table 5: Legislation applying to lifts

Applicable legislation || Scope of products included || Main administrative requirements for economic operators

Lifts Directive 95/16/EC || Lifts for persons, persons and goods or goods alone (if the carriers is accessible) with speeds of more than 0.15 m/s || · Conformity assessment - obligation of the installer of lifts or manufacturer of safety components · Produce a DoC (note: DoC required for both installation of lifts and for each safety component) · Keep technical documentation copies of EC type-examination certificates and their additions for a period of 10 years from the date on which the safety component was last manufactured or the date on which the lift was placed on the market · ‘CE’ marking - must be visibly affixed to lifts or to certain safety components of lifts · Rules relating to manufacturing apply to both installers of lifts and to manufacturers of lift safety component (or authorized representatives)

Lifts Directive (COM(2011) 770 final) Proposal for a Directive on the harmonisation of the laws of the Member States relating to making available on the market of lifts and safety components for lifts (recast) || As above || All economic operators Traceability obligations - identify name of installer, manufacturer, name / ID number of Notified Body having carried out conformity assessment Installers and manufacturers Conformity assessment remains the obligation solely of the installer or the manufacturer of safety component Importers · Verify that the manufacturer of safety components has carried out the applicable conformity assessment procedure and has drawn up a technical documentation. · Verify that the safety components for lifts are correctly marked and accompanied by the required documents. · Keep a copy of the DoC and indicate their name and address on the product, or where this is not possible on the packaging or the accompanying documentation.

EMC Directive || Applies to lifts for persons || Testing products for Electromagnetic Compatibility interference Conformity assessment procedure for apparatus mandatory CE marking on apparatus required in accordance with Annex V.

Machinery Directive 2006/42/EC || Lifts for goods only Slow-moving lifts (speed less than 0.15 m/s) Construction site hoists Lifting platforms for persons with impaired mobility || Manufacturers · Ensure conformity assessment procedure for lifting machinery carried out · Produce a DoC (note: DoC required for both installation of  lifts and for manufacture of each safety component) · Keep technical documentation copies of EC type-examination certificates and their additions for a period of 10 years ‘CE’ marking - must be visibly affixed to lifts or to certain safety components of lifts · Construction file and risk assessment. The latter should contain: (i) a list of the essential health and safety requirements applied and fulfilled; (ii)  the description of the protective measures implemented to eliminate identified hazards or to reduce risks; (iii) the standards and other technical specifications used, indicating the essential health and safety requirements covered by these standards; (iv) any technical report giving the results of the tests carried out either by the installer or manufacturer or by a body chosen by the manufacturer or his authorised representative; and (v) a copy of the assembly instructions for the partly completed machinery.

The Lifts Directive covers Lifts for persons (and goods). Article 1(1) states that the lifts to which the Directive applies are those “serving buildings and constructions”. The Directive is clear as to whether spare parts and components are included, since it covers both lifts and safety components for lifts, both of which must be CE-marked. Likewise, other Directives that apply to different types of lifts such as Directive 2000/9/EC relating to Cableways (e.g. chair lifts, drag lifts) also applies to safety components and also to sub-systems.  

A number of different types of lifts are excluded from the Directive’s scope, namely:

lifting appliances whose speed is not greater than 0,15 m/s; construction site hoists; cableways; including funicular railways; lifts specially designed and constructed for military or police purposes; lifting appliances from which work can be carried out; mine winding gear; lifting appliances intended for lifting performers during artistic performances; lifting appliances fitted in means of transport; lifting appliances connected to machinery and intended exclusively for access to workstations including maintenance and inspection points on the machinery; and rack and pinion trains, escalators and mechanical walkways.

The legislation applies to goods alone if the carrier is accessible i.e. a person may enter it without difficulty, and fitted with controls situated inside the carrier or within reach of a person inside the carrier. Other types of lifts to carry goods are included within the scope of the Machinery Directive 2006/42/EC.

A Guide to the Application of the Lifts Directive 95/16/EC has been drawn up by the Commission following consultation between the Member States and lifts industry representatives, standardisation bodies, Notified Bodies and users of lifts. The guidance takes into account practical experiences of the Directive’s implementation and draws widely on the discussions and conclusions of the Lifts Working Group.

The guidance sets out which types of lifts fall within the directive’s scope and which are excluded. This was viewed as being helpful for economic operators in ensuring that there is a clear understanding about the delineation between Directives. For example, the scope of the Lifts Directive and the Machinery Directive are mutually exclusive, but the Lifts Directive includes relevant requirements of the MD. Moreover, since 29 December 2009, Article 24 (1) of the revised Machinery Directive modifies the list of exclusions of the Lifts Directive. For example, the lifts with a travel speed not greater than 0.15 m/s are now excluded from the scope of the Lifts Directive and are subject to the Machinery Directive. Construction site hoists are excluded from the scope of the Lifts Directive. They are no longer excluded from the scope of Machinery Directive.

Process of revising and updating legislation

Before considering whether there are any gaps, overlaps, inconsistencies and duplication in IM legislation affecting the lifts sector, it is necessary to review how the regulatory framework has evolved. Two main legal developments can be noted relevant to EU legislation affecting lifts:

· The Lifts Directive has been subject to regulatory amendments to make the definition of product scope – and the delimitation between the Lifts Directive and the Machinery Directive – clearer. The consolidated legal text reflects this.

· The current legal framework has been reviewed and through the Alignment Package, a recast Lifts Directive will be adopted (circa 2014).

Since the Lifts Directive was adopted in 1995, the former Machinery Directive (89/392/EEC) was updated through regulatory amendments to reflect the provisions in the Lifts Directive. In particular, Recital 27 of the recast MD states that “The application of the Directive to a number of machines intended for lifting persons requires a better delimitation of the products covered by this Directive with respect to those covered by Directive 95/16/EC”. Consequently, an amendment was made to the Lifts Directive 95/16/EC to clarify the borderline between the two Directives’ scope.

Directive 95/16/EC is now being aligned with the NLF through the Recast Directive 2011/0354 (COD) on the harmonisation of Member States’ laws relating to making available on the market of lifts and safety components for lifts. Although most changes to the Lifts Directive as a result of the alignment package will be minor, such as stronger coherence through common definitions and responsibilities for economic operators, there may be some safety benefits.

Analysis of gaps, overlaps, inconsistencies and duplication

Overall, the evidence suggests that IM legislation affecting the lifts sector is coherent. First, unlike some other Union harmonisation legislation, the delimitation between directives (e.g. the Lifts Directive and Machinery Directive) has been clearly specified by the recast of the Machinery Directive in 2006. This ensures that there is mutual exclusivity between the Directives, which provides clarity for economic operators. Whilst the Lifts Directive does not distinguish electrical and hydraulic lifts, such a distinction is made in the relevant standards and is viewed as a logical by manufacturers, installers and other industry stakeholders.

A minority of the companies interviewed also highlighted obstacles caused by legislation relating to construction products and/or buildings. For example, one company suggested that the Construction Products Regulation was not consistent in terms of its references (or lack thereof) to steel structures used in lifts or to the fire-testing of lift landing-doors. Another mentioned that the application of “local building standards” to buildings hosting lifts could serve as a barrier to the free movement of lift units across Europe.

4. Analysis of costs of compliance with IM legislation

Feedback was obtained on how companies in the lifts sector ensure compliance with the relevant Directives (listed in Table 5 above). In order to ensure their compliance with the legislation, the large manufacturers tend to employ specialist staff at their research and development centres and production sites, as well as in their distributing companies (typically nationally-based) that are responsible for installation, service and maintenance. Compliance must be ensured at the design and development stage (typically a one-off task for each new or revised product) as well as at the installation stage for each individual lift unit. It should be noted that the EU legislation only relates to new products; service, maintenance and renovation (including of lifts pre-dating the Lifts Directive) is covered by national legislation that differs from country to country.

Lifts differ from many other industrial products in that compliance has to be undertaken in three main phases, which may take place at different sites in different countries. New lift models are, firstly, designed to take into account IM legislation. For the big four manufacturers, design tends to be undertaken at specialist research and development (R&D) centres, given the obvious economies of scale. For example, one of the firms interviewed has eight R&D centres globally, of which three are in the EU. Second, new lifts must be manufactured to comply with the legislation. Again, the manufacturing of lifts may often be done centrally to make use of economies of scale. The same firm has multiple global production sites, of which three are in the EU. Last, the installers of lifts must ensure that installed products satisfy a proper conformity assessment undertaken on site before they become operational. In contrast to the design and manufacturing of lifts, installation is typically done by nationally-based firms given the need for proximity. The four large firms have operating companies or authorised distributors in each of the 27 Member States and in many other countries worldwide. SMEs clearly differ from the four global players in that respect, since design and production is more likely to take place at the same site.

At each phase, the task of ensuring compliance is very different. Designing a new lift product or model is clearly a lengthy task, undertaken some considerable period before the product is placed on the market. The design process involves intensive testing, whether required by the legislation or not. At the design stage, the requirements of the legislation must be taken into account and thus limit the options for design but without creating a specific additional stage in the process; the requirements are “designed in” to the product. The manufacture of lifts in compliance with the legislation is relatively straightforward, provided that the product has been designed to comply and provided that the lift is made according to the specification. However, the installation of lifts tends to require numerous refinements to ensure the lift functions well within its environment. These refinements result in a corresponding need for repeated checks to ensure compliance with the legislation, as well as with health and safety requirements in general.

The particular nature of this production chain also creates specific costs and benefits compared to other products. There is the need for specialist staff that have expert knowledge of the legislation at all sites, i.e. the locations where R&D, production and installation take place. This is in contrast to a product such as mobile phones, for which there is no separate “installation” phase; once such products leave the production site, the manufacturer can be sure that the product is compliant (unless it is tampered with at a later stage). Compliance is thus a “decentralised” task, creating the need for communication between disparate sites at different points in the production chain, e.g. for feedback from installers to designers about the practical difficulties faced in complying with the legislation at the point of installation. However, the nature of the product (i.e. physically large and fixed in a certain location) facilitates enforcement of the regulation and market surveillance; products can be tracked and traced much more easily than other products, making it hard for rogue or ill-informed manufacturers to place non-compliant products on the market. Similarly, end-users are unlikely to purchase non-compliant products inadvertently, e.g. via a website.

The size of the four largest manufacturers enables them to employ specialist compliance staff in-house. As a result, the general approach in the lifts industry is to gain approval of the installer’s full quality assurance system under Module H, which avoids the need for EC type-approval of each unit installed. However, the system used tends to vary according to the nature of the building; other Modules tend to be used for unusual buildings. Two of the companies interviewed pointed out that they would tend to comply with the harmonised standards as much as possible, reflecting the fact that the Lifts Directive covers a very specific product, unlike some other directives. Compliance with harmonised standards also makes exporting easier to third countries that have unilaterally adopted the EU standards (e.g. many of the Asia-Pacific countries) and also simplifies maintenance.

Feedback from industry associations was that European standards play an important role in supporting the compliance of SMEs with EU legislation, since almost all SME producers of lifts use ropes and follow such technical standards. However, the four large manufacturers do not use standards in order to comply with the essential requirements, since they use belts. There is a reluctance among the biggest industry players to be involved in standardisation because of concerns about maintaining competitive edge and because newer types of lifts are patented.

Preparatory actions: familiarisation with relevant legislation and purchase of standards

For the two large companies interviewed, the process of familiarisation with legislation was not unduly costly. Their very large size makes it affordable to employ staff specialising in EU and other legislation. For example, such staff are a very small part of the workforce for the big four players with more than +40,000 employees worldwide. Moreover, the availability of specialist staff allows the large companies to be well-connected to the European Commission and to participate in various forums and working groups at EU level, which helps familiarisation.

The greatest costs related to familiarisation with the legislation tend to occur when there are changes in the harmonised standards or in the interpretation of those standards, e.g. by national authorities. One interviewee reported that the cost of familiarisation with applicable requirements was not particularly costly, nor was purchasing the relevant standards. (Standards in the UK typically cost between £50 and £300 each). However, reviewing the existing harmonised standards could take time, as could the process of familiarisation across a large company, given the need for constant communication of the information obligations of the legislation to a much wider group of people. For example, the requirements of the legislation are just one part of the knowledge required by those installing lifts; those staff would not necessarily be as pro-active as the compliance officers in ensuring that their knowledge remained up-to-date, hence the need for continued communication as well as regular training. None of the companies interviewed incurred costs in using external consultants to support preparatory work.

Compliance with the applicable IM legislation

Changes to the requirements of the legislation or to the standards have the greatest potential to impose costs on manufacturers where they require changes in processes and product design. Indeed, the nature of lifts requires very considerable investment to be undertaken in the design and development of new products over long time-periods. Where changes occur in the legislation on a regular basis or at short notice, they have the potential to impose substantial costs on manufacturers.

However, the companies interviewed pointed out that the costs of adapting processes and product design are much less where changes in the legislation are announced some time before they come into effect. In general, lift products are continually evolving, e.g. in response to technological innovations and the R&D centres of the large companies are constantly seeking to improve their products, whether through new models or new versions of existing models. The development process involves constant checking of prototypes to ensure safe and effective functioning, as well as compliance with the legislation. Whilst such checks are time-consuming, they are seen as part of the overall development cost. Indeed, it becomes hard to separate out the cost of checking compliance with the legislation from the cost of other checks. As one interviewee stated, “the product specification is not costly as you have to do it anyway; in that sense, the Directive just limits your options, it doesn’t create costs”.

Conformity assessment procedures

The companies interviewed were unanimous in highlighting the additional costs imposed by conformity assessment procedures both in development and installation. The development of a new or revised model tends to require continual refinements to the product. When a product is designed, it has to be considered by a notified body and go back each time it is revised (as part of the overall development process). Manufacturers/installers are required to retain the product certification at each stage of development, which creates a cost. It would appear therefore that it is not so much the cost of the developing a product that conforms to the legislation which is burdensome but the cost of checking conformity. Such costs tend to be additional and therefore costly. As noted above, approval of the installer’s full quality assurance system under Module H avoids the need to have each individual unit checked.

Within the conformity assessment procedure, it would appear that the main costs are imposed by the requirement to collect all information required for technical reports. For example, collecting information from third party suppliers of components can be particularly burdensome due to the lifecycle of the product. The compilation of test reports is equally important and burdensome but tends to be viewed as a “business as usual” cost, since the manufacturers operate their own test procedures and compile test reports in any case. Similarly, product identification requirements (e.g. serial number) and the maintenance of technical information for at least ten years tend also to be seen as “business as usual” costs, in the latter case, because the life-cycle of a lift is 25-30 years. It may be possible to reduce some costs by allowing increased use of electronic documentation.

The large manufacturers tend to undertake their own tests themselves, using in-house staff and following quality assurance systems approved under Module H. Clearly, such costs are significant, given the need for full-time staff. However, the cost of notified bodies tends to be modest; one manufacturer reported that third party notified body inspections are only used to verify its quality assurance system. No company reported their own internal reviews of technical documentation to be particularly burdensome, given the availability of in-house staff; one of the companies mentioned that such reviews were undertaken by the global headquarters. In the case of lifts, periodic inspections of installed products are the responsibility of the customer and, in any case, fall under national rather than EU legislation.

Declaration of Conformity and CE marking

Overall, the Declaration of Conformity and CE marking do not appear particularly burdensome for manufacturers, except for the requirement to keep information up to date, e.g. in relating to changes in the harmonised standards or in the legislation. Since each lift installed represents a unique product, the information has to be created every time, which creates an administrative burden if the DoC is to be kept up-to-date. However, since the CE marking and DoC also have to cover the equipment and environment surrounding the lift, this step can be particularly burdensome in a minority of installations. Since, typically, the lift manufacturer will not have constructed the surrounding environment, e.g. the hoistway, the process of issuing the DoC and CE marking can prove problematic. For example, one company reported that some customers may pressure the lift installer to issue a DoC (e.g. by withholding payment) in cases where the customers themselves have not fulfilled their own obligation to develop a compliant environment for the lift.

Other activities necessary to comply with IM legislation

None of the companies interviewed referred to costs resulting from any other activities required by the legislation.

Analysis of administrative costs for each relevant step indicated

Since the Lifts Directive refers to a very specific product, this Directive accounts for the majority of administrative costs. However, the administrative costs tend to be minimised by the fact that the harmonised standards of the Lifts Directive have been developed to take into account the regulatory compliance requirements applicable to lifts set out in other relevant directives, notably the Electromagnetic Compatibility Directive (EMC). This means that if a manufacturer follows the standard and carries out a conformity assessment based on the standard, they will have met their regulatory obligations across all relevant pieces of legislation.

Similarly, products covered by the Machinery Directive (e.g. escalators) and using the harmonised standards of that Directive will in meeting these requirements have also complied with the EMC requirements since they are incorporated into the standard. Two companies referred to the need to take into account the Ecodesign Directive, with respect to the buildings in which lifts are installed. One of the companies also referred to the need to comply with the ATEX Directive on occasions, i.e. in potentially explosive atmospheres.

None of the firms were able to provide detailed costs for every step in the process. However, we can make some statements based on the evidence available.

· Familiarisation with legislation is undertaken in-house by the large companies using specialist staff; one company stated that each of its national subsidiaries had at least one compliance officer and one final inspector, both of which would possess in-depth knowledge of the legislation and would keep themselves up-to-date; the same company estimated that the total number of compliance and inspection officers across the EU to be around 100. The other company referred to six specialist staff (“Blue collar” operators, i.e. technicians and associate professionals) in one of its nationally-based distributing companies (in a medium-size country).

· Processes and product design: the large manufacturers tend to undertake their own tests, using in-house staff and following quality assurance systems approved under Module H, which serves to minimise cost; in addition, one large company suggested that changes to the legislation could incur costs of €550k-€600k if they require changes to the reference numbers for lift products.

· Conformity assessment procedures: The Lifts Directive is the most burdensome piece of legislation, particularly the requirement for compulsory third party conformity assessment procedures and the supporting technical documentation; this is much more detailed than the other Directives. Lift manufacturers undertake their own extensive testing of their products both in development and in installation to ensure quality and safety; in most cases, such checks can readily encompass the requirements of legislation. To a large extent, the testing required by conformity assessment would therefore tend to represent a “business as usual” cost rather than an additional cost imposed by the legislation.

· The administrative requirement related to conformity assessment procedures undertaken in the product development stage are quite high initially, but occur only once (for each model or version). The larger companies do not incur costs of notified bodies in the installation of lifts, except in special cases where those lifts do not follow the harmonised standards; one national subsidiary in a medium-sized country referred to the need to use a notified body for the certification of lift units around 3 or 4 times per year at a cost of €500 per time, i.e. €2k per year – a cost described as “minimal compared to the cost of installing lifts”. The administrative burden associated with conformity assessment is quite high as inspections have to be undertaken for each new lift installed. There is also the cost of buying and maintaining testing equipment; one subsidiary of a large company reporting that cost to be around €5k per year depending on the frequency of tests.

· Declaration of Conformity and CE marking: in general, this task is not seen as particularly costly, except that gathering the information required for the DoC takes time. The possibility to issue a single DoC covering all Directives significantly reduces the administrative costs of this step.

Compliance costs

As for administrative costs, most compliance costs relate to the Lifts Directive, which in any case requires compliance with the EMC Directive. Again, no firm was able to provide detailed costs for every step in the process. However, we can make some general statements based on the evidence available.

Where changes occur in the legislation on a regular basis or at short notice, they have the potential to impose substantial costs on manufacturers in the design and development of products and production processes. For example, one manufacturer suggested that any technical adaptation required by the legislation would cost around €500k-€1m in terms of new product development; such costs would relate to ensuring conformity of design, a physical examination of 8-10 different product platforms to be certified, additional documentation for the conformity assessment process, costs for sales companies, training for sales and production staff, updating sales literature.

In the long run, particularly where changes in the standards or in the legislation are introduced with sufficient notice, the costs of compliance are inseparable from the “business-as-usual” costs of designing and developing new products and production processes. It may be that the legislation or the standards exclude some options for design or production that would have delivered cost-savings, but these potential “missed savings” were not specifically mentioned by the companies interviewed.

Conclusions

It would appear that the main determinants of the level of compliance costs are the regularity and notice period of any changes in the legislation or in the harmonised standards. New or revised models are continually being designed and developed to reflect technological advances. Provided that changes are not made too frequently and are signalled well in advance, manufacturers appear able to design and develop compliant products without incurring additional compliance costs; to a certain extent, compliance is “designed in”. Changes brought in at short notice can impose very significant costs, as units already in production have to be revised; this can prove particularly problematic where contracts have already been agreed with customers. Frequent changes in the legislation or, particularly, in the harmonised standards also impose a significant compliance cost by requiring extensive information and retraining of staff to ensure that “front-line” staff, e.g. lifts installers are aware of, and apply the revised standards.

For the large companies interviewed, it is clear that the administrative burden represents a somewhat modest financial cost compared to total costs/turnover, as evidenced by the number of specialist staff compared to the total workforce. SMEs may face a difficult choice between incurring the overhead involved in having specialist staff and not keeping up to date with changes in the legislation. Moreover, they rarely have the capacity to engage in the various processes at EU level related to setting standards.

Overall, it would appear that the various Directives applying to lifts are consistent and streamlined, i.e. compliance with harmonised standards of the Lifts Directive implies compliance with the other Directives. This consistency limits the costs of compliance and, particularly, the administrative burden associated with the legislation. It may therefore be safe to conclude that any negative cumulative impacts of the legislation are modest. Moreover, it is reasonable to assume that most, if not all, Member States would introduce legislation covering lifts in the absence of the Lifts Directive, given the risks to safety inherent to this product. The EU legislation may therefore have reduced compliance costs and the administrative burden by enabling the application of harmonised standards and a consistent compliance process across all 27 Member States. However, EU legislation does not apply to services, maintenance and renovation. Any risks to safety must therefore be covered by national legislation, which will inevitably vary from country to country. It may be worthwhile for the Commission to explore the possibility of bringing service, maintenance and renovation of lifts within the scope of EU legislation or to find ways to encourage a gradual, voluntary convergence in the requirements of national legislation.

5. Assessment of costs of IM legislation for the whole sector

On the basis of the information provided, we have attempted to estimate the costs of compliance for the installation of lift units, including electrically-operated (NACE 28221630) and other (NACE 28221650). In offering such estimates, we have taken into account certain characteristics of the sector and of firms therein.

First, companies involved in the manufacture and installation of new lifts typically also undertake modernisation, repair and maintenance, which are not subject to EU legislation. For that reason, we have estimated costs of compliance as a proportion of production value rather than of the total revenues of such companies. Total revenues for manufacture and installation are based on multiplying median prices (sourced from PRODCOM) against the total number of units sold by each company.

Second, the estimates in the table below do not include data from manufacturers of components.  Of course, the manufacturers of components must comply with the relevant legislation and this imposes a certain cost. However, those compliance costs differ in nature from the costs incurred by manufacturers and installers of lift units and are therefore excluded from the table.[68] For example, conformity assessment of new components is a one-off event, whereas each new lift unit must be assessed at the installation stage. Information from the interviews of such companies has instead informed the qualitative text above.

Third, the companies interviewed were generally unable to separate substantive compliance costs (in product design, manufacture and installation) from business-as-usual costs. All interviewees agreed that changes in the legislation or in the standards introduced at short notice tended to impose very significant substantive compliance costs. In particular, any units already in production or already manufactured but not yet installed required technical adaptations in order to be compliant with the legislation, which proved costly. However, the level of any short-term adaptation costs would depend entirely on the precise nature of the change. Moreover, manufacturers are continually innovating in search of higher quality and lower costs (not least in response to demand) and average production costs tend to be falling (e.g. due to increasing economies of scale). In this dynamic situation, the companies interviewed tended to report that, given time to adjust, they could “design in” the requirements of the legislation without necessarily incurring substantive compliance costs. None of the companies was able to state how their products would be different in the absence of legislation. For those reasons, the table below offers no estimate of substantive compliance costs.

Fourth, the companies interviewed stressed that they undertake extensive testing during the installation process for reasons of safety and quality and would do so in the absence of EU legislation. Although the conformity assessment process imposes a significant cost in terms of staff time required to check installations (e.g. under Module H) and compile technical reports, such costs tend to be inseparable from business-as-usual costs. In that sense, it might be possible to conclude that the conformity assessment process determines the format of testing during the installation without necessarily being more expensive than the tests that installation companies would undertake in the absence of EU legislation. SMEs may differ in that respect, as they are more likely to use Notified Bodies and thus incur a direct financial cost, which can be significant; of course, many reputable SMEs would submit their products for third-party testing in the absence of EU legislation, so it is impossible to determine the additional burden imposed by the legislation.

The table below suggests that the costs of compliance may be around £26m p.a. for a production volume of 255,000 units. This represents around 0.89% of total revenue of €2,960m from manufacture and installation of whole units in the EU. To this cost must be added the significant but unquantifiable costs just described. However, the companies interviewed were unanimous in reporting that the cost of complying with EU legislation was less than under a “benchmark” scenario in which national legislation differed from country to country.

Table 6: Summary of main costs of compliance for installation of lift units

|| Unit of measurement || Average cost/unit || Total quantity || Industry wide costs/year || Explanatory notes

Human resources expended on compliance || || || || ||

Familiarisation with legislation || Per annual turnover || 0.26% || €2,959.766m || €7.696m || Staff responsible for participating in EU-level processes, identifying legislative requirements and informing the wider company, e.g. Codes Officers.

Informing and training staff in legislative requirements || || || || || Significant cost but impossible to quantify, typically consisting of small amounts of time spent by a large number of individuals

Product design and testing activities || || || || || Inseparable from business-as-usual costs. Significant in the short-term (i.e. adaptations to changes in the legislation or in the standards). Negligible in the long-run.

Checking compliance in design and production || Per annual turnover || 0.16% || €2,959.766m || €4.736m || Compliance and inspection officers at sites responsible for R&D & production

Conformity assessment (technical file preparation, information manual) || || || || || Inseparable from business-as-usual costs

Declaration of Conformity & CE marking || Per annual turnover || 0.00% || €2,959.766m || €0.000m || Negligible

Total human resources compliance cost || || || || €12.432m || In addition to non-quantified costs of training, product design and testing, etc.

Costs of testing equipment || || || || || Cost of testing for reasons of quality, health & safety are impossible from costs of testing required by the legislation. Production sites typically serve EU and global markets, therefore impossible to separate cost of testing equipment required by EU legislation from testing equipment that would be needed in the absence of legislation.

Costs of third parties || || || || ||

Purchasing standards[69] || Per annual turnover || 0.01% || €2,959.766m || €0.296m || Typical cost = €2k per company per year.

External consultants || Per annual turnover || 0.00% || €2,959.766m || €0.000m || No reported instances of use of external consultants

Notified Bodies (Module H) || Per annual turnover || 0.04% || €2,959.766m || €1.184m || Typical cost is €25-30k for a national subsidiary of a major manufacturer (responsible only for installation).

Notified Bodies (fees for testing specific products) || Per unit || €200-1000 || n/a || n/a || Units deviating from the standards require specific approval but typically form a very small proportion of total installations.

Total annual compliance costs || Per annual turnover || 0.89% || || €26.344m ||

Total net compliance costs  || || || || n/a || Inseparable from business-as-usual costs.

Substantive compliance costs || || || || n/a || Inseparable from business-as-usual costs.

Administrative costs || || || || €26.344m || Excludes substantive compliance costs, which are inseparable from business-as-usual costs

Share in total industry turnover || || || || 0.89% ||

Basic assumptions: || Total units sold: 255,000 units per year (NACE: 28221630 and 28221650) Market size: € 2959.766 million (PRODCOM) Weighted median  price per unit: €16,312 (NACE 28221630 and 28221650)

6. The benefits of internal market legislation

It is important that the benefits of IM legislation are considered and not only the costs. It is impossible to establish a counterfactual since it cannot be known how the industry would have developed in the absence of legislation. They highlighted the following benefits.

First, the firms and industry associations interviewed were unanimous in the view that it was preferable to have a single set of internal market legislation across the Union rather than different pieces of national legislation. Costs of components have also been kept down, where suppliers can provide a certificate from a Notified Body, which prevents the need for the manufacturer to undertake additional checks, which would be necessary in the absence of EU legislation.

Second, the legislation was reported to have helped drive up safety standards across Europe. There has there been a “levelling up” of what were different national standards, with EU standards set at a high level. The legislation has also introduced new requirements that have driven up safety even beyond the level of the previous best of the national standards; the requirements relating to emergency telephone systems were mentioned in that regard.

Third, EU legislation has provided opportunities for export to third countries. Indeed, many third countries were reported to be basing their legislation on the Lifts Directive, which helped EU companies exporting into those countries as well as third countries exporting into the EU; of course, this is also of particular benefit the largest companies, who operate globally, with R&D, production and installation distributed across companies in different countries worldwide.

Fourth, the replacement of national legislation with EU legislation had enabled economies of scale to be captured by producers, leading to consolidation of the market. The New Approach Directives have tended to support the competitiveness of EU industry.

7. Analysis of simplification options

The interviewees identified limited scope for regulatory or administrative simplification. A common view was that the legal framework worked well and that it would not be appropriate to make frequent changes to the EU regulatory framework since manufacturers benefit from a stable legal framework. However, it was recognised that there would be some benefits and minor administrative cost savings from certain changes being made to the legislation. For instance, a number of potential benefits can be noted in relation to the proposed recast Lifts Directive – the first three changes suggested in the table below. Some practical tools may also help reduce costs for industry, such as making abstract versions of standards freely available and creating national databases of lifts.

Table 7: Summary of proposed simplifications/changes and expected benefits

Change in regulatory and administrative requirements || Potential impacts/ benefits || Estimated saving potential

Common definitions || Better understanding of product scope and delimitation between different types of lifts || Unquantifiable

Common text on the responsibilities of economic operators || Clearer definition of responsibilities of economic operators will strengthen the legislation’s coherence.  Benefits for economic operators marginal, but potential safety and health benefits || Unquantifiable

Retain current numbering of the Annexes to the Lifts Directive || Reduced cost of updating documentation || Unquantifiable

Free provision of abstract versions of standards || Reduced unnecessary expenditure on standards || Indicative saving of €60-€350  per standard unnecessarily purchased

8. Overall conclusions - lifts

Lifts for persons are a harmonised product group for which there is one overarching piece of legislation. The Lifts Directive 95/16/EC (LD) incorporates different elements of product safety (including electrical safety) that for other product groups would be covered separately by the LVD. Other Directives, such as the EMC Directive also apply. IM legislation affecting the lifts sector was found to be coherent with no specific gaps overlaps, inconsistencies or duplication identified. The Machinery Directive 2006/42/EC (MD) applies to certain types of lifts, but the delimitation between the two Directives is clearly specified in the 2006 recast of the MD. This ensures mutual exclusivity between Directives and clarity for economic operators.

The “big four” lift manufacturers account for some 60% of the EU market, estimated at €15 billion in in 2009 (EFESME). NACE data shows that there are over 9,500 enterprises in the lifts sector, the majority of which are SMEs. A particular characteristic of the lifts sector is that the manufacturing of lifts only accounts for one third of total market size, while the remainder is made up of after-sales services (maintenance 41%, repair 7%, and modernisation 18%). Whereas manufacturing activities and initial installation are regulated through IM legislation, once installed, lifts fall under national in-service inspection regimes. The costs of lifts maintenance and the costs linked to periodic servicing once in use are a significant cost, but are note linked to European legislation.

The Lifts Directive accounts for the majority of administrative costs, although such costs are minimised by the fact that the relevant harmonised standards take into account the compliance requirements of other relevant directives, notably the Electromagnetic Compatibility Directive (EMC). This means that if a manufacturer follows the standard and carries out a conformity assessment based on the standard, they will have met their regulatory obligations across all relevant pieces of legislation. Familiarisation with legislation is undertaken in-house by the large companies using specialist staff. When developing products, the large manufacturers tend to undertake their own tests, using in-house staff and following quality assurance systems approved under Module H, which serves to minimise cost. The requirement for compulsory third party conformity assessment procedures and the supporting technical documentation tends to be the most burdensome requirement of the legislation. However, the firms emphasised that much of the required testing would be undertaken in the absence of legislation, for reasons of product safety and quality. The administrative requirement related to conformity assessment procedures undertaken in the product development stage are quite high initially, but occur only once. In contrast, the administrative requirement related to conformity assessment procedures in the installation process are higher, as as inspections have to be undertaken for each new lift installed. The task of producing the Declaration of Conformity and CE marking is not particularly costly.

Based on the research, the costs of compliance may are estimated at €26m p.a. for a production volume of 255,000 units across the EU. This represents around 0.89% of total revenue of €2,960m from manufacture and installation of whole units in the EU. However, the companies interviewed were unanimous in reporting that the cost of complying with EU legislation was less than under a “benchmark” scenario in which national legislation differed from country to country. Clearly, these costs are more onerous for SMEs than for large companies that can spread compliance costs among a large number of units.

There is limited scope for simplification of the legislation and manufacturers currently benefit from a stable legal framework. Some minor administrative savings could be realised in the recasting of the LD, namely providing common definitions of different types of lifts, providing common text on the responsibilities of economic operators and retaining the current numbering of the Annexes to the LD. Some practical tools may also help reduce costs for industry, such as making abstract versions of standards freely available which would save companies around €60-€350 per abstract purchased unnecessarily (out of a total cost of around €2,000 spent each year by a typical company).

9. Sources of information

References

Eurostat Structural Business Statistics Database and Prodcom Text of applicable IM legislation and relevant standards Guidance documents of Lifts Directive and Machinery Directive Dispan, J. (2007), Industry report - Lifts and escalators – an industry in flux, IMU Institute Stuttgart Elevators and Escalators - A Global Strategic Business Report 10/12

Interviews:

3 EU industry associations: European SMEs in the lift industry (EFESME), European Lifts Association (ELA), European Lifts Components Association (ELCA) 1 national lift association 8 manufacturers of lifts 2 manufacturers of lift components

s

Case study 5 – Gardening equipment

1. Introduction – objectives of the study

The case study examines gardening equipment with focus on three specific categories, chain saws, lawn mowers and brush cutters. Gardening equipment can be electric, battery powered or petrol based and they are used both by consumers and professionals. 

The aim is to analyse the applicable IM legislation, assess the costs associated with the implementation of the applicable IM legislation, identify areas of overlaps and conflicts between the different parts of the legislation that may lead to problems and costs to industry and identify and assess the benefits of possible simplifications. The rationale for the selection of these product groups was that:

● Lawn mowers are covered by a rather large number of IM Directives and Regulations, 8-10 depending on the type of product;

● The sector is dominated by a few large manufacturers; and

● The conclusions drawn from an assessment of these specific products could be used to assess with some level of confidence the administrative and compliance costs to the broader category of domestic appliances since most of the products within this group are usually covered by the same pieces of legislation.

The case study is based on desk research and interviews with the EU industry association representing manufacturers of gardening equipment (EGMF) and five in depth interviews with manufacturers of gardening equipment operating in Europe, two large manufacturers, two medium and one small. 

2. Product definition and description of structure of the sector

The focus of case study has been three types of gardening equipment, chain saws, lawn mowers and brush cutters. These categories represent the main sales volume of the broader garden machinery equipment group of products that also includes various types of trimmers, vacuums and blowers, leaf blowers, leaf collectors, motor hoes (<3 kW), scarifiers, shredders/chippers and pruners. Gardening equipment are used both by consumers and professionals although there are often differences in terms of engine power and features and some products that are typically used by professionals (e.g. garden tractors). The following paragraphs provide a more formal definition of the three products under examination on the basis of the relevant EN standards:

Lawn mowers[70]

According to EN standard EN836 a lawnmower is “a walk-behind or ride-on grass cutting machine or a machine with grass-cutting attachment(s) where the cutting device operates in a plane approximately parallel to the ground and which uses the ground to determine the height of cut by means of wheels, air cushion or skids, etc., and which utilises an engine or an electric motor for a power source. The cutting devices are either rigid cutting elements or non-metallic filament line(s) or freely pivoting non-metallic cutter(s)”. A lawnmower may be a walk-behind or ride-on grass cutting machine or a machine with grass-cutting attachment(s) where the cutting device is rotating about a horizontal axis to provide a shearing action with a stationary cutter bar or knife (cylinder mower).

Chain saws

A chainsaw (or chain saw) is a portable mechanical saw, having teeth that are linked to form an endless chain, rotated about two pivot points by a power mechanism that can be an electric motor, a gasoline engine, compressed air, hydraulic power.

Brush cutters[71]

A brush cutter is a combustion-engine driven portable hand-held unit fitted with a rotating blade made of metal or plastic intended to cut weeds, brush, small trees and similar vegetation. The cutting device operates in a plane approximately parallel to the ground.

Market size and industry structure

Data available from Eurostat PRODCOM database already provide relatively detailed data on the level of production and trade of chain saws, lawnmowers and cutters. The following PRODCOM codes fit rather well with the specific product groups under examination:

● 28241180 - Electro-mechanical hedge trimmers and lawn edge cutters

● 28304010 - Electric mowers for lawns, parks, golf courses or sports grounds

● 28304030 - Mowers for lawns, parks or sports grounds, powered non-electrically, with the cutting device rotating in a horizontal plane

● 28304050 - Motor mowers for lawns, parks or sports grounds, powered non-electrically, with the cutting device rotating in a vertical plane or with cutter bars

● 28304070 - Non-motorized mowers for lawns, parks, golf courses or sports grounds (such as push cylinder mowers) (excluding with the cutting device rotating in a horizontal plane)

● 28241123 - Electro-mechanical chainsaws          

● 28241260 - Chainsaws with a self-contained non-electric motor

The data analysis suggests a total market size (production+ imports – exports) of around €2.5 billion for those categories with a total volume of 23 million chain saws, lawn mowers, trimmers and cutters sold. Imports are, according to PRODCOM, close to 60% of to total consumptions. Our interviews with manufacturers suggest that this is a reflection of the important role of non-EU producers (US firms are particularly strong in certain segment) but also the fact that many EU producers have transferred part of their production capacity outside Europe but with most of the production re-imported to the EU. Along with the US market (50% of the global sales), the European market remains the most important market for gardening equipment (35%).

Table 1 – PRODCOM data for Lawn mowers, trimmers, cutters  and chain saws (2010)

Product code || Export quantity (000s) || Export value (millions) || Import quantity (000s) || Import value (million €s) || Production quantity (000s) || Production Value (million €s) || Total quantity (000s) || Total Value (million €s)

28241180 || 650 || 23 || 5,881 || 122 || 1,510 || 63 || 6,741 || 162

28304010 || 340 || 28 || 1,461 || 64 || 2,826 || 169 || 3,947 || 205

28304030 || 264 || 62 || 1,774 || 389 || 3,375 || 862 || 4,885 || 1189

28304050 || 7 || 11 || 194 || 88 || 21 || 36 || 208 || 113

28304070 || 49 || 4 || 187 || 6 || 150 || 23 || 288 || 25

28241123 || 180 || 16 || 1,317 || 49 || 517 || 51 || 1,654 || 84

28241260 || 99 || 13 || 2,817 || 192 || 2,341 || 564 || 5,059 || 743

Total || 1,589 || 157 || 13,631 || 910 || 10,740 || 1,768 || 22,782 || 2,521

Source: Eurostat

Data from the European garden machinery federation (EGMF) deviate slightly from PRODCOM suggesting a EU market size of around 15.1 million gardening equipment products of which around 6 million are lawnmowers and 3 million are brush-cutters. There are also 3 million hedge-trimmers and 4.5 million chainsaws sold on an annual basis[72]. According to another study[73], around 4.5 million lawnmowers are sold annually in the EU with chain saws, hedge trimmers and lawn trimmers also being at a 7-digit level.

According to an earlier study[74] around 90% of sold lawnmowers on the European market are of the walk-behind type with cutting blade widths up to 50 cm, while the sales of ride-on is around 300,000 units.

Data from the UK[75] indicate that the consumer market represents around 60% of the total gardening products market with the remaining directed to professional users. Another study[76] raised the consumer segment in the whole of the EU to 75%. Lawn mowers represent around 40% of the consumer gardening equipment market in the UK (based on retail sales) with another 35% going to various types of power tools such as chain saws, cutters and trimmers.

Professional equipment has a relatively short lifespan of 2 years with an average usage of 150 hours per year. Consumer equipment has a lower usage rate of around 5 hours per year with a typical lifespan of several years[77].

Table 2 – Data on market size and industry structure

Parameter || Data

EU Market size (2012) || EGMF: 10 million units for the whole Europe (39 countries) PRODCOM : 22.7 million units, € 2.5 billion

Production in EU27 || PRODCOM : 10.7 million units, € 1.8 billion

Imports  || PRODCOM : 13.6 million units, € 0.9 billion

Exports || PRODCOM : 1.6 million units, € 0.16 billion

Number of enterprises (2010) || 20 large firms

Number of employees (2012) || 30,000 employees (EGMF) 120,000 in dealers

Source: Eurostat

Industry structure

Eurostat data are not particularly useful when it comes to analysing the structure of the industry. There are two relevant NACE codes (28.24 - Manufacture of power-driven hand tools; 28.30 - Manufacture of agricultural and forestry machinery) which are much broader in scope and do not allow for meaningful conclusions.

The information provided by EGMF suggests that the consumers market is dominated by 20 large size companies that occupy around 30,000 employees. This has been the result of a significant consolidation phase in the last twenty years which has led to few large players bringing together small and medium size manufacturers while retaining the brand names and the production units across Europe. Brand awareness is relatively high among consumers, and technological barriers also make it difficult for new competitors to enter the market. The tendency is explained by the high fixed costs faced by individual product lines. According to one estimates that development costs correspond to 5% of its turnover[78]. The 13 members of EGMF- including both large multinationals and smaller size firms - cover almost 75% of the European market. The main players in the market – although this may differ in the different sub-sectors – are Husqvarna (SE), Stihl (DE), Bosch (DE), Global Garden Products (IT), MTD (US), Toro (US), John Deere (S), Stanley Black and Decker (US), Echo (DE), TTI (HK) and Makita. [79]

In the professionals market there are a few SMEs producing a wide variety of models and there are 147 brands and 1500 models for lawnmowers. Still, around 80% of the European market for professional handheld internal combustion engine powered equipment is covered by 4 European companies. SMEs are niche players, with specialised knowledge of specific client needs.

3. Analysis of applicable IM legislation and standards

Chain saws, lawn mowers and brush cutters (gardening equipment) are covered by a large number of IM Directives and Regulations covering a range of aspects:

● Health and safety: The Machinery Directive (2006/42/EC) is the main applicable legislation for all products. In the case of electricity/battery powered products requirements of the Low Voltage also apply but not the procedures and information obligations that are covered by the Machinery Directive. In the case of lawn mowers, brush cutters self-certification (Module A) can be used for conformity assessment. In the case of chain saws which are included in Annex IV,  third party certification from a notified body is required.

● The General Product Safety Directive (2001/95/EC) is also applicable but does not introduce additional requirements to refrigerators since these are covered by the other more specific pieces of legislation. It does introduce however other obligations, mainly of administrative nature;

● Electromagnetic compatibility: The EMC Directive (2004/108/EC) applies to all powered gardening equipment.

● Noise: The Outdoor Noise Directive (2000/14/EC) is particularly relevant to gardening equipment and introduces requirements concerning the sound power level which needs to be measured under specific conditions. It also requires that manufacturers submit a copy of the Declaration of Conformity (DoC) to the Member State authorities and the Commission.

● Pollutant Emissions: Gardening equipment have been covered by the Directive 2002/88/EC on Gaseous Emissions of non road mobile machinery (NRMM) since 2004. It covers spark ignited (SI) engines (petrol engines) up to 18 kW for engines installed in and held and non-handheld equipment such as lawn and garden machines. Certain small SI engine applications (including some trimmers) were exempted from the Stage II emission limits but these exemptions expired at the end of the first quarter of 2011. However, it should be noted that many manufacturers of gardening equipment purchase the engines from dedicated suppliers which have the responsibility to ensure compliance with the NRMM.

● Chemicals: Both RoHS Directives and REACH Regulation certain obligations to manufacturers of gardening equipment in terms of the chemicals included in the equipment. As downstream users, under REACH gardening equipment manufacturers need to ensure that the products do not contain substances of very high concern and, if they do, they need to pass information to their customers.

In addition, for certain type of gardening equipment products there are additional pieces of IM legislation applicable:

● for battery based products the Directive 2006/66/EC on batteries and accumulators and waste batteries and accumulators

● for products with remote control features using wireless technology, the RTTE Directive is also applicable

The following table analyses the main requirements arising for economic operators as a result of the different pieces of IM legislation and indicates the relevant harmonised and other standards applicable.

Table 3 – Summary of IM legislation covering refrigerators and freezers and the relevant standards

Name of legislation || Issue addressed || Requirements for economic operators || Relevant standards[80]

Machinery (2006/42/EC) || Safety || Requirements concerning safety and health of lawn mowers   Information warnings and pictograms Conformity assessment on the basis of self-certification (module A) – Except for chain saws Develop technical file to be available upon request of authorities Declaration of conformity Marking of product (CE marking, name of manufacturer, type, series, year of construction) || EN 836 [81] EN ISO 5395-1/2/3 [82] EN 11681-2[83] EN ISO 11806 EN 60335-2-91/ EN 60335–2-77/EN 60335-2-107/EN 60745-2-13

LVD  2006/95/EC || Health & Safety  || Testing according to relevant standards  or alternative solutions (other requirements under Machinery) || EN 60335-1

General product safety Directive || Health & Safety || Provide identification of the product by a product reference Carry out sample testing of products, keep a register of complaints and keeping distributors informed of such monitoring (voluntary) Inform authorities of dangerous products and actions taken to prevent risk Co-operate with the authorities upon request ||

EMC  (2004/108/EC) || Electromagnetic compatibility (for electric powered equipment) || Testing according to standards Development of technical file Declaration of conformity and CE marking || EN 61000-6-1 EN 61000-6-2 EN 61000-6-3 EN ISO14982

NRMM Emissions (97/68/EC and amendments) || Emissions of ride-on combustion engine powered lawn mowers || Application for type approval of engine or engine type Information dossier Testing of engines Approval by technical service Affix label with EC type approval marking with ID number and information on engine type and trade mark ||

Outdoor noise Directive (2000/14/EC) || Noise || Meet sound level requirements (Stage II levels for most gardening equipment) Conformity assessment (Modules   A and control by notified bodies, G,H) Declaration of conformity Place CE marking and marking of the guaranteed sound power level Send copy of DoC with information on measured and guaranteed sound to national authorities and the Commission (complete information in database) || EN ISO 3744: 1995 [84] ISO 10884:1995/ISO 9207:1995/ISO 11094:1991[85] EN ISO 22868[86]   EN ISO 11094[87] EN ISO 4871[88]

REACH || Use of chemicals || Collect statement from suppliers stating that products are in compliance with requirements concerning chemical content of components Test the content of articles of products for substance of very high concern (not mandatory) Issue REACH compliance statement ||

RoHS || Use of hazardous chemicals || Collect compliance statement from suppliers (material declarations) Develop technical file with supplier declarations and own analysis tests Declaration of conformity to be kept for 10 years ||

Batteries Directive (2006/66/EC) || Heavy metal content and labelling of batteries || Forbids placing on the market batteries/ accumulators containing mercury or cadmium Design products so that batteries can be removed Information on the type of battery used Contribute to costs for establishment of battery collection schemes at national level (applies in some cases) ||

Packaging and packaging waste || Packaging || Declaration of Conformity || Standard EN 13427

The review of the various requirements and the discussions with manufacturers pointed to a few issues in relation to the implementation of the legal framework and the requirements:

· large number of applicable pieces of legislation makes the whole system complex and increases legal uncertainty. The changes to the different pieces of legislation or the relevant standard in different periods also means that, quite often, firms need to introduce changes to product design, procedures, declaration forms or produced information manual which larger or smaller cost implications;

· an area of concern indicated by some firms is the problematic relationship between the Machinery and the outdoor noise Directive. A key issue indicated is that for the measurement of sound power level which falls under the Outdoor Noise Directive there is still reference to the outdated 1995 version of the ISO/EN 3744 standard while, for those products not covered by the outdoor noise, but covered by the Machinery Directive the most recent 2010 version is used.  More generally, in the recent consultation[89] 80% of the respondents expressed the wish to merge the methods of measuring noise emissions required under both directives into a single Harmonised Standard;

· duplication in parts of the certification process – mainly the fees to the third parties - in the case where manufacturers sell to other firms products similar to those they sell under their own brands with only minor- cosmetic – differences (e.g. different color).  For these products, which are identical with those that have already undergone conformity assessment but have a different name (model number), manufacturers are required to pay additional fees;

· firms indicate that, while there have been clear benefits from the harmonisation of the applicable legislation, there are significant problems with market surveillance which, in their view, means that much cheaper, lower quality and arguably non-compliant products circulate in the market;

· the review of the requirements of the Declaration of Conformity indicate minor differences in terms of the terminology used or the type of information to be provided. However, the discussion with industry did not suggest important conflicts or problems. Still, the alignment process across all Directives is considered rather welcome.

4. Analysis of costs of compliance with IM legislation

The information presented in this section is based on the in-depth interviews with 5 manufactures of gardening equipment. The firms range in terms of size and production volume. They also have different approaches in terms of the level of testing and other R&D activities they perform that are not a direct result of the legislation which is a reflection of their size and position in the market.

Table 4 - Basic information on the firms interviewed

Firm || Specific product considered || Firm size || Annual sales from product || Main markets

A || Brush cutters || Large (>1000 employees) || 1 million units || 50% of sales in the EU

B || Lawn mowers || Large (>1000 employees) || 1 million units || 90% of sales in the EU

C || Lawn mowers || Medium (250-500 employees) || 200,000 units || 90% of sales in the EU

D || Lawn mowers || Small (<250 employees) || 15,000 units || 100% of sales in the EU

E || Chain saws || Medium size (250-500) || 100,000 units || 50% in the EU

On the basis of the discussion with firms the process followed by manufacturers of gardening equipment to ensure compliance with the IM legislation includes:

● familiarisation with the applicable IM legislation and the respective requirements, identification and purchase of relevant standards and in some cases other preparatory actions in training of staff.

● introduction of changes to the product design and the production process to ensure compliance

● conformity assessment procedures including the relevant testing and the development of the technical file, the use of notified bodies for certification if/when required, preparation of declaration of conformity (DoC), CE marking and placing in the market

● other activities in response to requests of the market surveillance activities  

Preparatory actions: Familiarisation with relevant legislation and purchase of standards

Familiarisation with IM legislation and the respective requirements represents a first task for all firms. Almost all firms indicated that this is not a particularly demanding part of the process and it usually corresponds to no more than 0.1-0.2 FTE of a member of the legal compliance team.  However, most firms also indicated that the R&D or homologation departments try to monitor developments in the legislation and one of them even performs a scenario analysis aiming to prepare for alternative scenarios.

All firms interviewed indicated that they maintain a database of the relevant pieces of legislation which is continuously updated and also includes information in relation to the relevant/applicable standards. Maintenance and update of the database usually occupies an employee of the firms compliance/homologation department on a part-time basis. The sophistication of the database tends to be greater for larger size firms.

In relation to use of standards all firms consider them crucial in the conformity assessment process. The information provided suggest that firms typically spend €500-€2,000 on an annual basis for the purchase and update of standards and the reading licences for their various departments for a single product line (e.g. lawn mowers), for which 15-20 different standards are applicable.

Compliance with the applicable IM legislation.

Ensuring compliance with the applicable IM legislation often requires changes to existing product design or new product development. Furthermore, the introduction of new products requires product design work and testing to ensure that the new products are in compliance with requirements. While in most cases new product development is driven by market demand there are also cases where product development and R&D activity are primarily driven by legal requirements. More specifically, most firms indicated that the Non-Road Mobile Machinery (NRMM) and the Outdoor Noise Directives have led to significant level of investment. In the case of the NRMM, some firms purchase the combustion engines from suppliers and do not perform own research.

Large size Firm A indicated that around 3% of its annual R&D budget of €50-60 million invested to the development of a new product is directly related to ensuring compliance with internal market legislation (circa €4 million). On top of that they have made one of investments of around €10 million in tooling/equipment during the last five years. Small size firm D indicated annual costs for product design of €200-300k while medium size Firm C around €2 million. The amounts invested on product design vary depending on the firms’ size but, on the basis of the data provided, the total investment on an annual basis is around €500,000 for every 100,000 units of production. 

Testing of products is an important part of these costs. It includes tests directly related to the IM legislation but also product performance and durability. For the large scale producers, these tests take place primarily in-house on an ongoing basis while for smaller firms these are often outsourced. Firm B suggested that around 15% of the budget and time of the 30 researchers and engineers working full time in the R&D department with around 30 FTE allocated to tests required by IM legislation for product homologation. The other firms indicated costs in the range of €200-700k.

Certain directives (NRMM, Outdoor noise) require specific testing facilities. Large size manufacturers may purchase for their internal controls while in other cases these may be outsourced to specialised labs. Estimates for the one-off costs for the purchase of testing equipment from large Firm A are around €30 million covering all products in the product line and all applicable Directives. €5 million were spent for chemical analysis equipment for REACH testing and €5 million for a sound chamber for outdoor noise tests. However, it should be noted that REACH related testing is not mandatory and it reflects the specific policy of this company that is not replicated among the smaller size manufacturers. Most other firms indicated smaller size investments in the range of 100-1,000,000 which were also confirmed from another data source (€0.6 million for noise measuring room).

The discussion with firms suggest that, on average, around 50% of the testing activities are directly related to IM legislation while the remaining is part of the quality and durability testing of products. The outdoor noise and the NRMM are for most firms the pieces of IM legislation that introduce most costs.

Conformity assessment procedures

The information provided from manufacturers is that the whole process of conformity assessment of a new product tends to last around 9 months in total. This includes the preparation of the technical file, the inspection of the notified bodies and certification, preparation of the DoC and the required information manual and the placing of the CE marking.  

The estimated time for the preparation of technical file for a single product ranges from 40-100 hrs[90] with around half of the time required whenever there are significant changes to legislation.

In terms of the use of notified bodies, which is mandatory in the case of the Outdoor Noise Directive, all firms indicated that they are used even when a third party is not mandatory. The data provided suggest that the annual budget of firms for services of Notified Bodies is in the range of €30-80k, around €4,000 for a single product.

The costs for notified bodies increase for firms that produce multiple variants of the same model with the same technical characteristics. Customs authorities often do not allow the placing of products on the market if the model is not the same as that indicated in the label attached. As suggested, the current label does not allow for the provision of information that will allow to identify both the basic model and its variant. There is additional administrative work created for every new variant of the same basic model (i.e. same product with only differences in colours and brand name). This also means costs for new labels, changes to relevant references in the instruction manual and fees (around €700/product and additional time of around 4 weeks) to notified bodies every time they need to certify that the initial technical file is also appropriate for the new model.

The interaction of the CE marking with other labelling appears also somehow problematic for some of the firms and introduces costs that, in principle they need not incur. More specifically Firm B indicated that while the firm did not consider it necessary to apply for the German GS mark, it was in practice obliged in order to be able to sale in the German market as many retailers do not accept products without the GS mark. The cost for the GS mark certification of each model is around €1,200 and this needs to be renewed every 5 years for a bill of around €700. There is also a €800 annual fee charged by GS. In total, the annual bill for Firm B to get the GS mark certificate for all its lawn mower products placed in the German market is around €32,000.

Provisions of relevant information in the instruction manuals are also included in all Directives. There were no specific data provided for the time to develop the information manual. For most firms these are seen as part of the overall time for the conformity assessment process. Translation costs are also relevant here with average costs of around €3,000 for each different model.

In the case of products covered by the Outdoor Noise Directive additional information provision obligations arise since firms are required to submit information included in the DoC to the national and European authorities. One firm estimated that it can take up to 80 hours for the 20 different brush cutter models in its production line. 

Certain information collection obligations arise from REACH Regulation. The main work is the collection of information from suppliers to ensure that no SVHCs are included. In the case of Firm A, around one FTE is allocated to the collection of this information from suppliers. One of the firms also conducts its own testing of the chemical content of certain components with annual costs for all products are around €500k. However, this is rather the exception. Most other firms are limited to the collection of declaration of conformity from their suppliers which is the responsibility of the purchases department.

Finally, under the NRMM there is the obligation to submit data to the national and European Database. While there are some problems with the process – sometimes difficult to update and problematic when introducing a new model with lower noise emissions – firms could not provide specific data on the specific time allocated and suggested that it is part of the work of the compliance/homologation department.

Business as usual

The discussion with firms indicates that a rather important part of the activities and the respective costs would not have taken place in the absence of the legislation. Firms estimated that, in total, between 10% and 35% of the compliance costs (substantive and administrative) would have incurred even in the absence of any legislation 

5. Assessment of costs of IM legislation for the whole sector

On the basis of the information provided we have attempted to estimate the costs of compliance for the whole of the gardening equipment sector. The provided figures include the information concerning the Business as usual scenario (i.e. the fact that 10-35% of the product development costs should be expected to occur irrespective). Certain assumptions have been made concerning the number of firms affected since, besides the 20 large firms indicated by EGMF, there are also a number of smaller size manufacturers particularly in the professional market segment.

The table below summarizes the main costs per unit and for the total of the industry. As is evident costs for product design and testing represent more than 85% the total costs of compliance.

Table 5 – Summary of main annual costs of compliance for gardening equipment manufacturing industry

|| Unit of measurement || Average unit cost || Total quantity || Industry wide costs/year

Familiarisation with legislation/support actions || || || ||

-  human resources || per manufacturer || € 11,520 || 100[91] || € 1,152,000

- costs of purchase of standards || per manufacturer and per product line || € 1,250 || 500[92] || € 625,000

Compliance with IM-legislation requirements || || || ||

- Product (re)design and testing || per 100.000 units || € 500,000 || 22.7 million/year || € 113,500,000

Share of product design and testing costs that would apply even in the absence of the legislation || || || || 10-35%

Net product design and testing costs || || || || 73,775,000-€102,150,000

- Testing equipment[93] || per manufacturer || € 100,000 || 10021 || € 10,000,000

Share of product design and testing costs that would apply even in the absence of the legislation || || || || 10-35%%

Net costs for testing equipment || || || || €1,000,000- €3,500,000

Conformity Assessment || || || ||

- Preparation of technical file || per single model || € 2,100 || 375[94] || € 787,500

- Costs of notified bodies || per single product || € 4,000 || 37523 || € 1,500,000

- requirement for new labelling || per single model (once in four years) || € 700 || 37523 || € 262,500

- translation costs || per single model (once in four years) || € 3,000 || 37523 || € 1,125,000

Other || || || ||

- Submission of information for outdoor noise Directive || per manufacturer || € 2,400 || 10021 || € 240,000

- Collection of REACH information || per manufacturer || € 25,000 || 10021 || € 2,500,000

Total || || || || €85,467,000- 111,342,000

The estimated costs for the sector are in the range of €85-112 million/year which represent 3-5% of the total annual turnover of 2.5billion of the sector. This is a rather high share but the administrative costs – namely excluding product design and testing - are no more than 10%-15% of the total costs and less than 0.3% of the annual turnover of the sector.   

6. Benefits of Internal Market legislation

The discussions with industry representatives and individual firms provided quite strong support of the success of the IM legislation towards achieving its prime objective, the creation of the internal market for goods and the avoidance of the costs arising from having to comply with different pieces of legislation covering the same aspects in different ways and with different procedures. According to one firm the harmonisation of EU legislation has possibly saved up to 80% of administrative costs for a firm selling across the EU. In the past there firms employed personnel travelling around Europe on an ongoing basis to ensure that products meet requirements and also had to send specimen of each new products to be tested in each of the EU Member States.  These were important costs that the harmonised EU legislation has significantly reduced.  As indicated by two of the firms interviewed, mainly as a result of these costs in the past firms would not enter markets where they expected only very few sales. From their point of view, the IM legislation has significantly reduced the threshold for exporting in other EU countries.

In terms of access to global markets, the views of the industry representatives was that there is still quite some work to be done towards the alignment of international requirements.  Lastly, as regards the role to new product development and innovation the general view is that the requirements introduced are technologically neutral and do not pose specific barriers.

7. Analysis of simplification options

The discussions with industry pointed to a few areas where changes to the internal market legislation could lead to sizeable savings and in some cases it was possible to make an estimate of possible cost savings. The simplifications examined are analysed below.

Merging Machinery and Outdoor noise Directives

This is a proposal that has come from various sources and there is currently a dedicated study examining this proposal in detail. In general the industry appears positive towards such a development on certain conditions. The EGMF representative suggested that a merger with the Machinery Directive can bring important benefits only if there is no actual change to the Machinery Directive and the relevant outdoor noise requirements are only added as an appendix to the Machinery Directive. This will also mean that Module A (self-certification) will be available for ensuring conformity with the outdoor noise requirements, that the relevant and updated harmonised standards related to the Machinery Directive will be used.

It is also expected to bring savings in relation to paperwork for DoC, reduce – if not eliminate - the cost of notified bodies, streamline the market surveillance procedures and also ensure that testing of products take place on the basis of the more up-to-date harmonised standards in the Machinery Directive and outdated limits and test codes included in the text of the Outdoor Noise Directive are avoided. Three of the five firms interviewed indicated that they expect savings from fewer tests for sound testing (up to 20% of the total of the noise tests required for the Machinery and the Outdoor noise Directives according to large Firm A) needed and the human resources for the preparation and update of the documentation involved. Furthermore, on the basis of the data provided, a small reduction of testing costs (5%) could lead to sizeable savings of €3.5- €5 million annually, around 4% of the estimated total compliance costs for the sector. To that one could add the savings from a reduction of human resources allocated to preparation of technical files and Declarations of Conformity and the costs of notified bodies. Nonetheless, given the small share of administrative costs in the total compliance costs (10-15%any simplifications will not have a sizeable impact on the costs for the sector. Even a sizeable 20-30% reduction of administrative costs will not bring more than 2% reduction to the total compliance costs. For the whole gardening equipment sector this could be an equivalent of €1.6-2.3 million savings on an annual basis.

It should also be noted though that an alternative scenario where the requirements and processes of the Outdoor Noise Directive are adopted (e.g. mandatory third part certification) is expected to lead to higher costs and not to savings[95].

Single harmonised standard covering all pieces of legislation

Most firms are in favour of a single standard covering all applicable legislation. Besides the savings from the purchase of standards – which represent a very small cost – industry representatives referred to greater legal certainty and the benefit for firms – particularly SMEs that lack technical expertise – of working with a single document. The potential cost savings are mainly related to the costs of familiarisation with requirements and a possible efficiency savings in the testing of products and the development of technical files. There were no estimates of the expected cost savings from the introduction a single standard provided by the firms interviewed. However, on the basis of the costs estimated provided above, a 20% efficiency savings in relation to the human resources and time for familiarisation with legislation, the purchase of standards and conformity assessment procedures could not lead to a cost reduction of more than 0.2% of the total turnover of the sector. However, at the firm level a possible saving of up to €3,000 annually can be significant for small firms.

On the other hand, one firm also pointed to the significant one-off costs for the industry for the development of the relevant standard. More important though, there is also the danger that the standard development process – already often considered slow, complicated and not accessible to firms with limited resources – will become more complex and the process for the development of the standard even longer. 

Reduce frequency of changes to standards

Four of the five firms interviewed and EGMF indicated that a possible reduction in the frequency of changes to harmonised standards as a possible cost saving measure. There have been frequent changes to harmonised standards related to outdoor noise in the last year almost once a year – although on average the analysis of the frequency of update of the harmonised standards is around 4-5 years.

From the administrative costs side it can lead to less frequent changes to Declarations of conformity and replacement of manuals which can possibly lead to savings of up to €5k/firm. For large firms it also means less human resources allocated to the standards development process. In addition, less frequent changes to standards will lead to less frequent need for investment in testing equipment investments and product design activity to meet new requirements for existing models. The savings in such case may be significant. In theory an increase in the period of renewal from 5 to 6 years for all standards could possibly lead to a reduction of compliance costs linked to testing and product design of up to 17% although in practice this would probably be smaller due to the fixed costs involved irrespective of the frequency of changes to standards and requirements.  

However, although in terms of cost savings such a measure could be justified in the case of very frequent changes, as a general principle it is probably not appropriate. Given the central role of standards in the implementation of the legislation and the integration of new technological development there are important concerns that less frequent changes will hinder technical progress and essentially award firms that are not investing in new technologies.

Include information on Declarations of conformity to identify model variants

As indicated in the analysis of the costs of compliance firms that produce products to be sold under their clients brand names often need to produce new labels, change references in instruction manuals and pay fees to notified bodies for each variant. It is suggested that a change to the DoC to include references to variants to basic models that will identify the product even if sold under a different brand will bring savings to firms of €700-1000/model. Given that there are no data on the share of the OEM market and the number of products under this label it is not possible to estimate the possible savings. The EGMF representative indicated that share of such products is rather high in the low quality and cheap segment of the market.

Clearly, for firms selling only products with their own brand there will be no savings. For firms selling as OEMs the annual savings will depend on the number of different variants sold to different clients. On the basis of the information provided it could be up to a few thousand Euros annually. The share of such products in the market is also not clear. Furthermore, it depends as to whether the OEM transfers these costs to the final dealer or manufacturer that sells under their own brand and which are the ones ultimately responsible for the product.

Table 6 - Summary of simplification/improvement options examined

Change proposed || Expected benefit/problems || Estimated saving potential

Introduce single standard covering all IM legislation || Increase clarity/easier to work (especially for SMEs) Reduce costs for standards Longer/more complicated process for the development of standard || Saving of €500-1,000 annually on purchasing of standards Total efficiency savings for testing and conformity procedures of up to €3,000/firm One-offs costs for industry for development of standards

Merging of Machinery and Outdoor noise Directives || Different definitions and test codes will be abolished Reduction of costs of notified bodies if self-certification under Machinery Directive is adopted Possible efficiencies for testing Efficiencies in relation to the Declarations of Conformity and technical files || Cost savings of up to 4-5% of testing costs (€3.5-5 million/year) But limited overall savings expected (no more than 1.2% of total costs)

Reduce frequency of changes of standards/coordinate changes || Reduce uncertainty Reduced costs for replacement of all manuals Saving on investment for testing equipment and product design expenditure || Up to €5k/firm for administrative costs Up to 17% savings in product design and testing costs from an increase in the period for renewal of standards by one year.

Changes in the in DoC allowing to identify a model and the variants || Reduce costs for conformity assessment for firms operating as OEMs || Up to €1000/model. A few thousand Euros annually for small number of firms.

A final suggestion made by a couple of manufacturers was the possibility to include footnotes within the text of the applicable pieces of legislation to explain and clarify the intentions of the different provisions. This is expected to improve readability and address any uncertainties that may lead to lost time – in terms of human resources - during the various stages of the process. The manufacturers could not provide indications as to what would be the possible time savings from this. Given the cost estimates provided earlier and the fact that human resources represent only a small part of these costs, the possible savings are most probably less than 1% of the total costs. Furthermore, we should note that is not very different from the guidance documents that have already been developed for a number of Internal Market Directives.

8. Conclusions

Gardening equipment covered in this case study includes chain saws, lawn mowers and brush cutters. These categories represent the main sales volume of the broader garden machinery equipment group of products which also includes various types of trimmers, vacuums and blowers, leaf blowers, leaf collectors, motor hoes, scarifiers, shredders/chippers and pruners.  The total annual market size of gardening equipment is estimated at around €2.5 billion for those categories with a total volume of 23 million sold. The consumer segment of the gardening equipment market is dominated by 20 large size companies while in the case of professional equipment there is a greater number of SMEs serving niche segments.

Gardening equipment is covered by more than 10 different pieces of IM legislation (Directives and Regulations) covering a range of aspects including health and safety, environmental aspects (noise, pollutants, toxic from batteries).

For the whole sector the estimated annual costs are in the range of €85-112 million which represent a rather significant 3-5% of the total annual turnover of €2.5billion of the sector. This is driven by the high compliance costs associated with the environmental IM legislation (outdoor noise, outdoor emissions) both of which required changes in the design and rather sizeable costs for testing equipment (one-off) and on-going testing of products, only a small proportion of which is considered to be “business as usual” for most firms. Administrative costs – such as costs for documentation, fees to notified bodies, the preparation and updating of technical files, purchasing standards, the development of manuals - are no more than 10%-15% of the total costs and no more than 0.3% of the annual turnover of the sector.   

The analysis also identified a number of possible simplification options with sizeable cost saving potential. The merging of the Machinery and Outdoor Noise Directives could bring relatively sizeable cost savings if it were to integrate the outdoor noise requirements within the Machinery framework and maintaining the key aspect of self-certification that can bring important savings in terms of costs for testing and for notified bodies. Since administrative costs are still no more than 10-15% of the total costs the possible savings will not be more than 1-2% of the total compliance costs. Other possible simplifications examined were the possibility of adopting a single standard covering all applicable pieces of legislation and a reduction of the frequency of updates. Both can have important costs savings but also introduce the risk in terms of the effectiveness of the standard development process.

Additional cost savings may arise - in terms of reduction of fees to notified bodies - by introducing changes to the DoC to include references to variants to basic models. This will affect primarily the low end of the market that very often includes OEM products produced by a manufacturer that are then sold by the clients brand names. The savings may be up to a few thousand Euros per firm annually.

Irrespective of the sizeable costs of compliance, industry is rather supportive in terms of the role of IM legislation towards developing an internal market for goods and eliminating the costs arising from having to comply with different pieces of national legislation. As indicated by some the firms, as a result of these costs firms often not enter markets where they expected only very few sales. The legislation is also seen as technology neutral and does not pose specific barriers. There is however, more work to be done towards the alignment of international requirements.

9. Sources of information References - Sources

1. http://www.egmf.org/en/economic-information/

2. ‘Lawn Mover Noise and Vibration Control’ study (Tetteroo & Bockhoff, 2006) cited in http://ec.europa.eu/enterprise/sectors/mechanical/files/noise/iastudy_noise_finrep_en.pdf

3. NOMEVAL (TNO, 2007), http://ec.europa.eu/enterprise/sectors/mechanical/files/noise/tno_nomevalrep12-12-07_en.pdf

4.  http://ec.europa.eu/enterprise/sectors/mechanical/files/noise/smetest_noise_finrep_en.pdf

5. Euromonitor international: Home and Garden market analysis

Interviews

- Industry association : European Gardening equipment manufacturers associations (EGMF)

- 5 interviews with manufacturers of lawn mowers, chain saws and brush cutters

 

Case study 6 – Fuel Dispensers (Measuring Instruments)

1. Introduction - objectives of the study

This case study focuses on fuel dispensers which are classified as instruments and appliances for measuring, testing and navigation (hereinafter measuring instruments) and are covered under the Measuring Instruments Directive 2004/22/EC. The manufacturing of fuel dispensers is also regulated by a number of other pieces of EU legislation, such as ATEX and the Petrol Vapour Recovery Directives.

The rationale for the selection of fuel dispensers was that:

· The sector, while dominated by four large firms, also includes a large number of SMEs;

· The legislation allows for the use of internationally-agreed normative documents, as an alternative to the use of harmonised standards;

· The MID 2004/22/EC is one of ten Directives that form part of the Alignment Package; and

· The case has the potential to demonstrate the advantages of coherent interaction and clear demarcations between different pieces of legislation, in order to ensure legal clarity for economic operators.

The information presented in this case study was obtained from a variety of sources including Eurostat data, official EU documents, industry association documents and interviews with four major firms in the sector.

2. Product definition and description of structure of the sector

Product definition

Fuel dispensers are classified under NACE code 28.13 (manufacture of other pumps and compressors) and correspond solely to the PRODCOM Code 28131105: petrol and oil dispensing pumps.

Fuel dispensers are described as machines combining a pump and point-of-sale (POS) system and pumping fuel into motor vehicles. A Point of Sale (POS) system is a system for managing the sales of goods. The term refers to the software and hardware associated with check -out stands, and all of the bundled features which are included.

A modern fuel dispenser is typically divided into two main parts: an electronic part containing an embedded computer to control the action of the pump, drive the pump's displays, and communicate to a sales system; and secondly, the mechanical section which in a self-contained unit has an electric motor, pumping unit, meters, and valves to physically pump and control the fuel flow.

Market size

Fuel dispensers have an annual life cycle of 12 years and, on this basis, there are currently around 300,000 fuel dispensers installed across the EU[96]. The size of the European market can be estimated on the basis of a total production value of around €360 million in 2012 based on a unit price of around €1,100[97]. According to PRODCOM data on fuel dispensers, around 16% of the production of Europe is exported outside EU while imports represent no more than 3% of the market.

PRODCOM data shows that a total of about 350,000 petrol and oil dispensing pumps were produced in Europe in 2012. Manufacturing in this sector is strongly export-oriented and has generated a significant volume of exports, although the interviews found that a lot of manufacturing that used to take place within the EU has been moved to lower-cost producer countries outside the EU.

Table 1: Production and value of petrol and oil dispensing pumps in EU27 in 2012 – PRODCOM Code 28131105

Export Quantity (Units) || Export Value (€) || Imports Quantity       (Units) || Imports Value (€) || Production Quantity            (Units) || Production Value           (€) || Consumption Value € (Production + Imports - Exports)

347,309 || 148,672,970 || 245,102 || 15,171,090 || 349,038 || 357,890,334 || 224,388,454

Source: Eurostat

Industry structure

There are around 20 producers of fuel dispensers for petrol stations[98]. The major manufacturers include Gilbarco, Tokheim, Petrotec and Dresser Wayne with a presence across Europe and more than 60% market share[99]. The remaining manufacturers are present in only a few Member States. It is also estimated that the main companies in the sector employ around 10,000 employees without referring to importers or local distributors[100]. Altogether, the petrol pump sector employs about 14,000 to 16,000 workers[101].

3. Analysis of applicable IM legislation

As noted above, the manufacture of fuel dispensers is covered by the Measuring Instruments Directive 2004/22/EC and by a number of other Directives, such as ATEX and the Petrol Vapour Recovery Directives. The table below provides a summary.

Table 2: EU Legislation applicable to fuel dispensers

Applicable legislation || Issue addressed || Requirements for economic operators

Directive on Measuring Instruments (MID) 2004/22/EC || Legal metrological control || · Conformity assessment: obligation of the installer/manufacturer · Produce a DoC · Keep technical documentation copies of EC type-examination certificates and their additions for 10 years · CE marking and additional metrology marking must be visibly affixed to products

ATEX Directive (94/9/EC) || Risks relating to equipment used in potentially explosive atmospheres || · Conformity assessment – either by the manufacturer or a subcontractor of the manufacturer to a Notified Body · Produce a DoC · Keep technical documentation copies of EC type-examination certificates and their additions for a period of 10 years · CE marking must be visibly affixed to products · Additional markings of certain components for safety purposes

Petrol Vapour Recovery Directive (94/63/EC) || Reduction of emissions || · Conformity assessment with administrative fee charged by the Member State · Marking (pictogram sticker) certifying the equipment includes a petrol vapour recovery system

National Emission Ceiling Directive (2001/81/EC) || Reduction of emissions || · Same as above given that the directive relates to the reduction of emissions of volatile organic compound (VOC), i.e. petrol vapour · Administrative requirements depend on specific national measures

EMC Directive (2004/108/EC) || Electromagnetic compatibility (for electric powered equipment) || · Testing products for Electromagnetic Compatibility interference · Conformity assessment procedure for apparatus mandatory · CE marking on apparatus required in accordance with Annex V.

LVD (2006/95/EC) || Health and safety || · Conformity assessment – either by the manufacturer or a subcontractor of the manufacturer to a Notified Body · Develop a technical file (see Annex IV of LVD) · Produce a DoC · Keep technical documentation copies of EC type-examination certificates and their additions for a period of 10 years · CE marking must be visibly affixed to products · Provide installation instruction manual for installers

The nature of fuel dispensers is such that they require regulation covering different perspectives, notably accuracy and reliability in measurement, minimisation of the risks of explosion and protection of the environment. This inevitably requires multiple pieces of legislation, creating the risk that the overall framework is not coherent.

The interviews with the major companies in the sector suggest that the EU legislative framework pertaining to fuel dispensers has in fact become more coherent over the years, albeit with some gaps and inconsistencies remaining. Whilst EU legislation on measuring instruments dates back to the early 1970s, MID represented a considerable simplification, since it replaced eleven previous directives, all covering different products.

The ATEX Directive was introduced in 1993. Hitherto, manufacturers were required to satisfy different national legislative requirements in each country in which they operated, whilst meeting European requirements on MID. Since the introduction of ATEX, each manufacturer has been able to gain certification from one Notified Body for its sales across the EU. MID and ATEX side-by-side have thus served to reduce barriers to the free movement of goods in the internal market – as evidenced by the process of consolidation in the industry over the last two decades, as manufacturers exploit economies of scale. Indeed, the technical parts of fuel dispensers now tend to be the same across different Member States. Moreover, the credibility of this legislative framework has also assisted manufacturers in their efforts to export to third countries. MID was also reported to be consistent and complementary to the more recent RoHS Directive.

The consistency of the legislative framework for fuel dispensers is also enhanced by the use of internationally-agreed normative documents, namely those of the International Organization of Legal Metrology (OIML). This has tended to make European products immediately marketable to third countries that apply the OIML standards. The one downside of this approach is, however, that EU manufacturers exert less influence on the specification of the standards than they do on EU standards, such as those of the ATEX Directive.

Despite this generally positive situation, there are still some inconsistencies among the applicable Directives and Regulations. More specifically, the definition of “large-scale fixed installation” within RoHS is criticised as being too vague. Definitions applicable to fuel dispensers also appear to differ between Directives, with for instance the EMC Directive treating a dispenser as a single machine, whereas MID treats it as a collection of several measuring instruments[102].The MID Annex MI-005 distinguishes between individual measuring systems (i.e. fuel dispensers) and self-service arrangements (of fuel dispensers).

There remains debate over the desirability of having an annex of the MID devoted exclusively to fuel dispensers. Annex MI-005 covers “measuring systems for continuous and dynamic measurement of quantities of liquids other than water”[103] and defines and covers all the relevant essential requirements for metrology (and refers to voluntary standards that give presumption of conformity can be more specific). It therefore can be applied to the case of fuel dispensers and, indeed, it defines flow ranges specifically for fuel dispensers. However, the industry associations and manufacturers consulted were of the view that an annex specifically devoted to fuel dispensers would be preferable and ease the process (and thus the costs) of compliance.

It was also reported by the companies interviewed that some fuel dispenser products or components covered by ATEX and PED are not covered by MID, e.g. automatic feed nozzles and pressure valves. Although these components are not directly relevant to measuring, they can have an effect on accuracy of measurement. As a result, certification requirements can differ for each piece of legislation. According to the companies and industry associations interviewed, this can lead to conflicts between approval bodies which results in an unnecessary multiplication of conformity tests and an increase in administrative work.

A major issue is the fact that EU legislation does not address the connection between fuel dispensers and forecourt point-of-sale (POS) systems, which are not covered by EU legislation. Indeed, it was reported that it was impossible for MID-approved fuel dispensers to be connected to equipment with national certificates only such as pre-MID POS systems. . Since retailers, including small supermarkets, have contracts with POS systems providers, this can cause difficulties[104]. Moreover, the legislation does not cover the provision of regular checks and recalibration of fuel dispensers once installed; as with other New Approach Directives, MID is only concerned with the placement of a product on the market and its installation. Whilst this does not affect the free movement of products, it does affect the free movement of services, with such services tending to be provided mostly by nationally-based operators.

It was also proposed by some of the companies interviewed that the legislative framework (notably MID) needs to be extended to cover additional types of fuel dispensers, particularly compressed natural gas dispensers (CNGD), which are currently subject to national legislation. Although mutual recognition under Art 34 of the TFEU applies to CNGD, this is only valid when countries accept this. CNG is regulated under OIML R139[105] and for many years, each country has required its own type approvals. Whilst mutual recognition could be a means of allowing products to circulate freely, the risk is that national authorities to allow such products to be placed on the market in the absence of national certificates. In contrast, liquid natural gas dispensers (LNGD) are subject to MID despite accounting for lower volumes of trade. There are around 5,000 to 10,000 petrol stations equipped with CNGD while there are only around 100 stations equipped with LNGD across Europe. CNG is for cars while LNG is for trucks. CNGD are available in petrol stations along with normal MID-approved fuel dispensers and LPG dispensers, while LNGD are most likely to be found in dedicated petrol stations. Given the barriers to the circulation of CNGD products, the risk is that manufacturers face higher costs than if such products were covered by EU legislation and are be unable to exploit economies of scale in production.

4. Analysis of costs of compliance with IM legislation

Analysis of the costs of compliance has been based on interviews with four large companies that serve the EU27 market and export globally, as well as two industry associations. The table provides information on the firms interviewed.

Table 3: Basic information on the firms interviewed

Firm || Specific/main product (if a specific sub category) || Firm size || Annual sales from product || Main markets

A || Pumps & dispensers || Large (4,000 employees) || 10,000 units || 50% of sales in the EU

B || Pumps & dispensers || Large (>1,000 employees) || 15,000 units || 82% of sales in the EU

C || Gasoline Dispensers, payment solutions for petrol stations || Large (5,400 employees globally) || Not known || 60% of sales in the EU

D || Fuel management and dispensing systems, service station hardware || Large (3,200 employees) || 15,000 units || 33% of sales in the EU

Step 1: Familiarisation with the legislation and relevant obligations, as well as preparatory actions

For all the companies interviewed, identifying and reviewing the requirements of the legislation, the relevant standards and the resultant information obligations is a relatively costly activity. Two companies offered an estimate of the relative share of this task in the overall cost of Step 1: 50% and 60% respectively. Membership of the relevant industry associations at EU and/or national level, e.g. CECOD, is vital to this task and, of course, involves a membership fee. Whilst membership of industry associations serves a wider purpose (and is thus a business-as-usual cost), much of the rationale for and benefit of membership is related to receiving information about the legislation and the standards – and also to being able to influence the legislation and the standards at the EU level.

As well as receiving information through the industry associations, all the companies employed at least one staff member dedicating most or all of their time to this task. These individuals typically participate in the various working groups and committees relating to the legislation (e.g. through CEN) and within the relevant industry associations. Although such participation is costly, this investment of time is considered to be worthwhile by the companies, given the benefit arising, i.e. in terms of being able to influence the legislative process and receive information in good time.

For the companies interviewed, the cost of identifying the legislation and the relevant standards and reviewing its requirements mostly consisted of the staff costs of these individuals. For example, Firm A employed three staff (out of 4,000) with responsibility for overseeing compliance: one in the UK (also the European head office), one in Germany and one in Italy. Firm D employed one person in each of the 5-6 different national offices, each spending perhaps 50% of his/her time on this task. Similarly, Firm C employed between 3 and 5 heads at senior engineering level (out of a total workforce of 5,4000) to understand the legislation and train manufacturing people and QA people – as well as to undertake tasks related to other steps, i.e. checking the manufacturing process, finding practical solutions to compliance issues, gaining approvals, etc.

Training staff was seen as the next most costly element of Step 1. It is routinely provided by all the companies interviewed, for new staff and for existing staff, as and when there are changes to the legislation and/or the standards. The true cost of such training can be hard to identify, since it may often be incorporated into wider training of staff. One Firm suggested it accounted for 15% of the costs of Step 1, whilst another suggested a figure of 25%.

Use of external consultants to aid the familiarisation and preparatory process appears to vary widely between the companies interviewed. Two companies stated that they very rarely used consultants, whilst two others suggested that the use of consultants accounted for around 10% of the costs of Step 1. One Firm stated that it only used consultants when entering new national markets, which might thus explain this discrepancy. It might be safe to conclude that consultants are rarely used for the “routine” task of ensuring familiarity with the legislation but can be used when additional support is needed to identify the requirements relating to new products or new markets.

Purchasing the standards (of Directives other than MID) also presents a direct financial cost for all companies interviewed (although the MID normative documents are made available free-of-charge on the Europa website), although participation in standards committees at EU level sometimes provides access to the standards free-of-charge. For the companies interviewed – all large – the cost of standards was not seen as prohibitive. Two suggested it accounted for only 5% of the costs of Step 1. Another quoted a figure of €1.2k for each standard purchased, which was not seen as particularly burdensome relative to its revenues. However, such costs would inevitably be more burdensome for SMEs.

Two companies, as well as one EU-level industry association, highlighted that the most significant costs in Step 1 resulted from having to address differing interpretations of the legislation and of the standards in different countries. Such difficulties were said to arise not from the text of the legislation or of the standards, but from insufficiently clear guidance or, indeed, a lack of guidance. The resulting costs tended to relate to the time spent negotiating with national authorities, market surveillance authorities and Notified Bodies, as well as delays in placing products on the market (although neither firm was able to specify the precise cost, which is not therefore included in the table below).

Overall, all the companies and the industries associations interviewed highlighted the fact that most of the costs incurred in Step 1 were no higher than the previous situation in which national legislation applied. Indeed, the fact that the MID standards are also based on the internationally-agreed OIML normative documents means that there has been a degree of continuity in the processes followed, with the EU legislation reducing costs by bringing a more uniform approach. Given this situation, it would seem that the main scope for reducing costs associated with Step 1 relate to facilitating a more uniform interpretation of the legislation applying to fuel dispensers (i.e. MID, ATEX, EMC, etc.) and encouraging a more consistent application and enforcement in different Member States.

Step 2: Changes to product design and production processes to ensure compliance with substantive obligations

The nature of fuel dispensers and related products is such that design, development and manufacture require extensive testing for the purposes of safety, accuracy and reliability. It is clear that national legislation already imposed quite stringent requirements in most countries, particularly those where national standards were based on internationally-agreed normative documents. The EU legislation also places stringent requirements on manufacturers, with a consequent need for extensive testing and risk analysis, as well as subsequent changes to product design and production processes. For example, the one firm offering an estimate of substantive compliance costs, Firm B, reported that substantive compliance costs had amounted to €3.2m over the last five years (equal to around 3% of turnover), of which €2m on changes to product design and €1.2m on changes to production processes. Whilst these are one-off costs for each specific product that is certified, the fact that each large firm is continually bringing new products to market mean each incurs such costs on an annual basis.

It is, however, impossible to separate such costs from the business-as-usual scenario, particularly in a context of on-going technological development and innovation. Indeed, reputable manufacturers of high-quality products undertake extensive testing and risk analysis of any new product in any case. To a certain extent, such activities therefore represent a business-as-usual cost. Overall, the legislation has perhaps represented more of a burden for manufacturers of poorer-quality products, who have had to operate to higher standards, with less potential to undercut other suppliers on the basis of low price.

Of the companies interviewed, all agreed that testing related to compliance with substantive obligations posed a considerable cost. Indeed, testing and risk analysis is undertaken throughout the year at all the companies interviewed, involving a mix of internal staff and external costs. Firm D suggested that testing might account for up to €1m of its annual revenue of €15m (i.e. just less than 7%). Firm B reported that testing accounted for around €500k out of annual revenues of €20m (i.e. 2.5%). Firm C reported annual testing costs of €50-€150k for each of its four European factories, i.e. €200-600k p.a. Whilst such costs are clearly significant, it is not possible to separate them from a situation in which national legislation prevails or from the “business-as-usual” cost, given the emphasis that reputable manufacturers would place on product safety, accuracy and reliability.

In general, the companies were unable to give accurate data on the cost of testing equipment related to compliance with the EU legislation. For example, Firm D stated that most testing was undertaken at the firm’s main laboratory in the USA; the cost of testing for the EU market was therefore inseparable from the cost of testing products for all global markets – particularly, where international, rather than EU standards apply. Firm A reported that it spent around €40k p.a. on testing equipment for the purposes of compliance (mostly linked to the EMC Directive) in relation to sales of around 10,000 fuel pumps per annum (equivalent to an average cost of €0.25 per unit).

Firm A did, however, highlight one very specific cost arising from the legislation and which could not be considered as a business-as-usual cost. One effect of the MID has been to require calibration of fuel dispensers (e.g. to match fuels) to take place in the factory rather than on-site (i.e. at the fuel retailer’s forecourt). Previously, this calibration would take place on site, with the appliance then checked by a local trading standards officer, which Firm A considered to be easier. Although the fee for the local trading standards officer was not cheap (e.g. €50 per nozzle, so €300 for a pump with six nozzles), it was paid by the customer. However, under Module B (type approval) of MID, the Notified Body now has to verify the product and the calibration has to be undertaken at the factory. This creates difficulties as the precise conditions of the installation environment (i.e. the retailer’s forecourt) cannot be known and recreated in the factory. Enforcement authorities tend not to allow subsequent adjustments to be made on site, whereas previously the manufacturer could send staff to tweak the product on site. Whilst Module F allow verification and calibration at the forecourt, this option

As a result, Firm A reported that it was required to spend a lot of time in the factory, continually refining weights and measures equipment to ensure the product is legal. Overall, the legislation was reported to have introduced a liability for the manufacturer, for which no obvious practical solution had been found. The consequent cost included €120k on testing facilities for LPG, as well as around €250k in staff time over the last six years, equivalent to perhaps €100 extra per dispenser under MID compared to the previous situation.

Step 3: Conformity assessment procedures

Under the MID, manufacturers can choose from a number of conformity assessment procedures, namely Modules B+F, B+D, H1 or G. This creates a variety of approaches and therefore differing costs, with some manufacturers subject to periodic inspections of their quality systems by Notified Bodies (e.g. under Modules D and H1) and others having the conformity of specific products verified, e.g. under Modules B and F.

The companies interviewed were unanimous in reporting that the fees of Notified Bodies represented the costliest element of Step 3. The one firm that offered an estimate of the proportion of total costs in this step accounted for by Notified Bodies fees suggested a figure of 55%, of which 35% relating to initial inspections and 20% to periodic inspections. All the companies offered estimates of the financial costs of the fees of Notified Bodies and those estimates demonstrating a degree of consistency. An initial inspection of a fairly routine nature (e.g. permeation tests or other minor adjustments) was said by two companies to cost up to about €4k, whereas testing of components such as valves, motors or junction boxes was said by another firm to cost €10-20k. The same firm reported that it undertook around six of such tests each year, representing a total cost of about €100k in Notified Body fees (i.e. 0.5% of total turnover). More extensive tests for entirely new products or processes might cost €40k-50k each. In addition to the initial inspections, it is also necessary for each firm to have periodic inspections by Notified Bodies in order to retain their certification. Figures quoted by one firm included €15k-25k for both the MID and the ATEX Directives, with another firm quoting a figure of around €30k for such periodic inspections across its three European facilities for the same two Directives.

Whilst the cost of Notified Bodies’ fees was reported to be high, the companies agreed on the benefits of gaining certification. One firm made a favourable comparison to the situation prevailing before the introduction of the New Approach Directives, stating that the current costs were relatively low. The same firm reported that it was able to use its MID and ATEX certification globally, in the former case because of the use of OIML standards by MID. Moreover, it was also reported that OIML certification from some EU Member States tended to have more credibility than certification gained in some third countries.

Manufacturer’s own internal checks were also reported to be costly, albeit less than the cost of Notified Bodies. However, to a large extent, these tended to be a business-as-usual cost, with such checks undertaken continuously and routinely – and likely to be undertaken in the absence of legislation.

Similarly, the preparation of technical documentation in advance of conformity assessment, compilation of test reports, production identification requirements and maintenance of technical information for ten years were reported to be costly in terms of internal staff time. Indeed, one firm suggested that such activities could account for several hundred thousand euros each year in staff time, whilst another suggested that such activities could account for around 35% of the total costs of conformity assessment. Preparation of technical documentation related to ROHS was said by one firm to pose a particularly high cost. In addition, two companies reported very high costs of translation of documents related to conformity assessment, although such costs may be inextricable from the general costs of translating instruction manuals – estimated at around €100k p.a. by one firm (against sales of 10,000 units and turnover of “tens of €millions” per year).

Step 4: Declaration of Conformity and CE marking

The companies interviewed were unanimous in reporting that the Declarations of Conformity and use of the CE marking were much less costly than Steps 1, 2 and 3. However, the preparation of a Declaration of Conformity could be made more complicated – and therefore more costly – by the need to collect information, DoCs and compliance statements from suppliers of components. Depending on the number of components and of suppliers, this could in some cases be costly and manufacturers need to build such requirements into their contracts with suppliers.

The compliance statements that will be required under ROHS and REACH were expected by one firm to impose a significant cost as and when they become mandatory. However, at this stage it was not possible to estimate the cost of producing such statements.

The requirement to apply CE marking was reported by all the companies to pose very little cost. Indeed, it was easily incorporated into the manufacturing process. None reported any particular additional financial cost. However, the companies and industry associations reported some confusion around the application of CE marking. This included a lack of clarity around whether the CE marking needed to be placed only once on each pump installation or on each nozzle. It was also suggested that consumers had limited awareness of the significance of the CE marking, with national standards, such as the British Standard markings, being more widely-recognised in each country.

As with the technical documentation, translation of the Declaration of Conformity was reported to be expensive. Three of the four companies reported a very high cost of translation, whilst another reported it to be moderately high. One firm reported that it was necessary to translate Declarations of Conformity four times a year, at a cost of around €8k p.a. In order to minimise costs and the potential for error, another firm reported that it replicated the text from the various language versions of the official documentation as far as possible. Again, such translation costs are bound up with the wider cost of translating instruction manuals. However, given that fuel dispensers are sold only to businesses and not to consumers, one firm suggested that there should perhaps be flexibility over the requirement (imposed by most Member States under the terms of Article 6 of the MID) to provide such documentation in the language of the customer, provided that the customer has sufficient numbers of staff fluent in the language proposed by the manufacturer. In that way, it might be possible to reduce the number of translations required, particularly into the less-spoken EU languages where it less difficult to spread the cost of translations over a large volume of sales.

Conclusion/Summary

Overall, Directive 2004/22/EC on measuring instruments (MID) is appropriate for the sector. It provides a good legal and technical base, which allows technical progress to take place. In order to reflect technical progress, the instrument-specific annexes might need amendment from time-to-time via the comitology process set out in Article 16 (Functions of the Measuring Instruments Committee).

On average, around €800k per year are spent by major manufacturing groups on activities linked to compliance. Direct administrative compliance costs represent just over 10% of the total costs of compliance-related activities. Investments in terms of product design, manufacturing equipment represent major compliance-related expenditures (around 35-40%).

5. Assessment of costs of IM legislation for the whole sector

On the basis of the information provided, we have attempted to estimate the costs of compliance for the whole sector. The figures in the table below include information concerning the “business-as-usual” (BAU) scenario.

Table 4: Summary of main costs of compliance for the firms interviewed

|| Firm 1 || Firm 2 || Firm 3 || Firm 4 || Average || Total

Turnover || € 20m || € 20m || € 600m || € 15m || || € 1,091,666,667

Compliance Costs FTE || || || || || ||

- costs FTE yearly || € 72,000 || € 260,000 || € 420,000 || € 330,000 || ||

- costs FTE yearly / turnover || 0.36% || 1.30% || 0.07% || 2.20% || 1% || € 5,372,250

Business As Usual (BAU) FTE || || 30% || 30% || || 30% || € 1,611,675

Compliance costs FTE || || 70% || 70% || || 70% || € 3,760,575

Compliance Costs - third party fees || € 41,667 || € 500,000 || € 500,000 || € 1,000,000 || ||

- costs third parties / turnover || 0.21% || 2.50% || 0.08% || 6.67% || 2.4% || € 12,367,014

Business As Usual (BAU) third parties || || 50% || 50% || || 50% || € 6,183,507

Compliance costs third parties || || 50% || 50% || || 50% || € 6,183,507

Compliance Costs - testing equipment || € 160,000 || € 100,000 || € 500,000 || || ||

- costs testing equipment/turnover || 0.80% || 0.50% || 0.08% || || 0.46% || € 2,773,519

Business As Usual (BAU) test equipment || || 20% || 20% || || 20% || € 554,704

Compliance costs test equipment || || 80% || 80% || || 80% || € 2,218,815

Total compliance costs || € 273,667 || € 860,000 || € 1,420,000 || € 1,330,000 || || € 20,512,782

Business As Usual (BAU) || || €348,000 || €476,000 || || 41% || € 8,349,886

Compliance costs || || €512,000 || €944,000 || || 59% || € 12,162,897

Total compliance costs as % of Turnover || 1.5% || 4.5% || 0.25% || 9% || ||

The assessment of costs of IM legislation for the whole sector is based on the figures obtained from the four major companies in the sector representing 60% of the market. The figures in the far right column are an extrapolation of the data obtained from the four major firms and represent the total turnover and compliance costs for the whole of the EU petrol pumps sector.

The annual turnover for the whole sector is estimated at €1.1bn. Total compliance costs are estimated at €20.5M for all the companies in the sector, representing around 2% of their combined turnovers. For the largest of all four companies (firm 3) compliance costs represent 0.25% of the turnover. For the smallest (firm 4), compliance costs amount to around 8.5% of the total turnover. Across the four companies, around 60% of the compliance costs relate to compliance with EU Internal Market legislation.

Administrative compliance costs FTE represent around 0.5%-1% of companies’ annual turnover on average. Costs range from just under €100,000 to over €400,000 for larger companies. On average, they make up 30% of Business As Usual costs to a firm on a yearly basis. The remaining 70% relate to EU IM legislation compliance requirements.

Administrative and non-administrative compliance costs towards third-parties are of around €500,000 on average for the companies in the sector. These costs represent around 2.5% of companies’ annual turnover and make up 50% of their Business As Usual costs.

Testing equipment costs for compliance activities averaged around €100,000 per firm annually. For larger companies, testing equipment can cost over €500,000. These costs are also dependent on the number of factories owned by companies. These costs represent around 0.5% of companies’ annual turnover in the sector and make up 20% of Business As Usual costs. In other words, testing equipment expenditures at firm level mostly relate to the necessity to comply with the MID requirements and other environment-related requirements introduced by various EU legislative measures. 

According to PRODCOM data, the production value of each individual petrol pump unit ranges between €1,000 and €2,000. This corresponds with the data obtained from the individual companies when dividing their annual turnover by the number of units they produce per year. When dividing the individual companies’ annual turnover by their total compliance costs, it is possible to see that compliance costs account for between 0.25% and 9% of the production value of a single unit (See Table 4).

6. The benefits of internal market legislation

It is important that the benefits of IM legislation are considered and not only the costs. It is impossible to establish a counterfactual since it cannot be known how the industry would have developed in the absence of legislation. They highlighted the following benefits.

First, the firms and industry associations interviewed were unanimous in the view that it was preferable to have a single set of internal market legislation across the Union rather than different pieces of national legislation. This was highlighted as being particularly important for the ATEX Directive, which replaced very differing, and therefore burdensome, national legislation. As a result of MID, the technical parts of petrol pumps tend to be the same in each Member State, which also helped limit the cost of maintenance, serving and repair. Costs of components have also been kept down, where suppliers can provide a certificate from a Notified Body, which prevents the need for the manufacturer to undertake additional checks, which would be necessary in the absence of EU legislation.

Second, EU legislation has provided opportunities for export to third countries, such as Turkey and the USA. Again, the ATEX Directive in particular was seen as being beneficial in that respect; it is considered to be highly recognised and respected in non-EU jurisdictions, with some third countries using it to inform the design of their own legislation and/or accepting ATEX certificates issued in the EU. For example, the USA was reported to be changing its explosive standard in line with the international explosive standard which is already well-aligned with those of the ATEX. This provides export opportunities for EU producers and helps keep production costs down. Moreover, accreditation in respect of MID also promoted global exports as the standards are the same as those of OIML.

Third, the ATEX standards were seen as not only safe but also as reasonable for manufacturers. This reflects the possibility of industry to help set the standards.

Fourth, the replacement of national legislation with EU legislation had enabled economies of scale to be captured by producers, leading to consolidation of the market. The New Approach Directives have tended to support the competitiveness of EU industry. Although the large manufacturers retain their strength in their home markets, the legislation has enabled a degree of consolidation and economies of scale.

7. Analysis of simplification options

The analyses of the applicable legislation and the discussions with firms and industry representatives have indicated some areas for possible improvements and simplification.

Introduction of a specific annex for fuel dispensers in MID directive

There is no specific annex on fuel dispensers in the MID Directive (although MI-005 does cover such products, as part of its wider focus on “liquids other than water”). In particular, manufacturers report that MID does not adequately address the connection between fuel dispensers and forecourt POS systems and that additional national certification is often required. A specific annex for fuel dispensers should prevent different interpretations by the manufacturer and Notified Bodies in respect to the devices permanently connected to a meter, which needs to be considered during a conformity assessment. Overall, this would clarify the scope of the MID with respect to fuel dispensers.

It is estimated that creating a specific annex for fuel dispensers in the MID directive would result in a significant reduction in compliance costs overall. For example, one firm suggested that its compliance costs might fall by as much as 35%. Full-Time Equivalent (FTE) compliance and third-party compliance costs[106] in particular would be reduced as a specific annex on fuel dispensers would facilitate compliance work through greater harmony in Member States’ interpretation of certification requirements.

Understand SSD as sub-assemblies for petrol stations

Simplification efforts should focus on adapting the sub-assembly definition in order to introduce the possibility to certify sub-assemblies in more categories of measuring instrument, including fuel dispensing systems, and keep the necessity to certify nevertheless the complete measuring instrument.

The sub-assembly approach is for the time being very limited in MID as it is not foreseen in some fields such as measuring systems of liquids other than water although these instruments are modular in most cases. Fuel dispensing systems are by essence composed of parts manufactured separately by different providers and assembled by the manufacturer of the complete instrument.

The lack of a sub-assembly approach for measuring system for quantities of liquids other than water deeply complicates the application of the MID for manufacturers, not only for the self-service devices linked to fuel dispensers, but for all kind of measuring systems. This is mainly due to the fact that manufacturers of complete measuring systems are not able to demonstrate the compliance of some critical parts that they do not manufacture.

If such a modification is accepted it would facilitate the approval process for manufacturers. It would also mean fewer problems in the MID application for manufacturers of fuel dispensers. It would especially facilitate the revamping of some measuring instruments and it would remove unclear situation concerning the responsibility of the conformity of the complete instrument.

WELMEC guide 8.8 provides an appropriate base for this implementation. It is desirable that its application is ruled by European Commission in order to be recognised and applied by all Notified Bodies in European countries with no distortion. 

Considering Self-Service Devices as sub-assemblies of fuel dispensing systems, thus not requiring separate MID certification, would lead to a 5-10% cut in compliance costs, particularly in testing equipment costs. The current MID interpretation is driving up compliance activities and costs across the industry, including extending national approvals. It also slows down investment in technology.

Address link to Points-of-sale

Still in relation to sub-assembly, there is a particular issue of combining old non-MID certified points of sales with new MID-certified fuel dispensers in petrol stations (and the reverse) which is seen as a major limitation for the development of the market in a number of countries. This is also commonly known as the ‘mix and match’ issue, which broadly concerns the capacity to combine old and new components whereby a system approved under old national legislation cannot be upgraded with an MID certified component without first seeking MID approval for the complete system. This means new components of a system cannot be installed without the manufacturer of the fuel dispenser upgrading the system. Petrol station owners that want to revamp part of a system are forced either to upgrade old non-MID dispensers or points of sale stations or to buy complete new systems. An extension of the sub-assembly principle in the MID to measuring instruments other than water would certainly remedy this problem. However, this situation is only provisional and will end in 2016 (Art 23 MID), after which date no assemblies can be put into use that are not fully compliant with the MID. In fact, many Member States are already requiring this to be the case, as a matter of consumer protection.

Addressing this problem would also reduce companies’ compliance costs by around 5%-10%. Expenditures on testing equipment would be reduced and companies’ administrative burden relating additional certification procedures would be alleviated.

Create a central site that gives manufacturers for each specific product a general view of the minimum requirements for compliance with European directives and standards

Currently, the online information on minimum requirements for compliance with IM legislation is categorised according to each piece of IM legislation as opposed to product type. In other words, manufacturers are first required to know which pieces of IM legislation apply to their product before they can check minimum requirements. Organising information on minimum requirements by product type would save manufacturers a considerable amount of time.

This would imply a reduction of between 50% to 75% in the time and cost spent by manufacturers on this task. This reduction in administrative compliance costs would depend based on the organisational and staff structure of the individual companies. This is a function that can normally be achieved by means of a EN standard. This task could be undertaken by the CEN.

Develop a European database for product certificates that could be consulted by all entities involved

Some further practical steps could be taken, such as setting up an EU-wide database for product certificates allowing for quick cross-checking that certificates have been officially delivered. This may require the merging of existing different databases on market surveillance that feed into Member State reporting requirements to the Commission. The EC should investigate whether merging of databases is possible and should study the value added of each database.

This effort of data simplification might reduce the time (and associated cost) spent by manufacturer’s explaining and informing local verifiers/authorities, regarding certificates issues by up to 50%. Again, any reduction in costs would depend on the organisational and staff structure of the individual companies.

Table 5: Summary of proposed simplifications and expected benefits

Change proposed || Expected benefit/problems || Estimated saving potential

Creating a specific annex for fuel dispensers in the MID directive would result in a || A specific annex on fuel dispensers would facilitate compliance work through greater harmony in Member States’ interpretation of certification requirements. || 35% reduction of compliance costs overall. FTE compliance and third-party compliance costs in particular would be reduced as

Consider Self-Service Devices as sub-assemblies for petrol stations. || The current MID interpretation is driving up compliance activities and costs across the industry, including extending national approvals. It also slows down investment in technology. || Consider SSD as subassemblies would abolish the requirement of separate MID certification for critical parts and therefore lead to a 5-10% cut in compliance costs, particularly in testing equipment costs.

Abolish the need for multiple certifications for systems combining old non-MID certified points of sales with new MID-certified fuel dispensers in petrol stations (and the reverse). || Petrol stations would no longer encounter problems for upgrading to MID. Expenditures on testing equipment would be reduced and companies’ administrative burden relating additional certification procedures would be alleviated.     || Addressing this problem would also reduce companies’ compliance costs by around 5%-10%.

Create a central site that gives manufacturers for each specific product a general view of the minimum requirements for compliance with European directives and standards || Online information on minimum requirements is categorised according to each piece of IM legislation as opposed to product type. Organising information on minimum requirements by product type would save manufacturers a considerable amount of time. || This would save considerable time and money from an administrative point of view.

Develop a European database for product certificates that could be consulted by all entities involved || Merge existing databases into an EU-wide database for product certificates allowing for quick cross-checking that certificates have been officially delivered. || This would save considerable time and money from an administrative point of view.

Other proposed simplifications for which benefits are not quantifiable:

Introduce compulsory checks following installation of new fuel dispensing systems

Concerns have been raised about the lack of awareness of the need to re-verify after a new POS has been fitted and frequently it was discovered that such changes had been made without re-verification. (It should be noted that where the POS contains metrological software it concerns a new instrument in the sense of MID). Problems have arisen with dispensers that had been factory verified and installed without further checks being made, whilst it appears that legislation permits this. It is necessary to make re-verification compulsory to guarantee that newly-installed POS are operating as accurately as possible. This follows reports that some retailers have suffered high losses from newly installed dispensers, before the error was discovered through routine stock reconciliation.

Extend MID to cover Compressed Natural Gas (CNG) dispensers

Given the evidence of trade barriers in the sense of Art 34 TEU the MID could be extended to cover Compressed Natural Gas (CNG) dispensers given the large market expansion for natural gas vehicles caused by the rise in petrol prices and efforts to reduce air pollution emissions (See Section 3). The MID already covers cryogenic Liquefied Natural Gas (LNG), however its market remains limited compared to the CNG market. Companies would be able to invest in CNG-based technology and exploit economies of scale. No cost savings here would occur but firm profits could potentially rise.

Extend possibilities of amendments via comitology

Extending possibilities of amendments via comitology would avoid future problems and create a better understanding between different stakeholders. Any suggestions for new proposals should be made in consultation with industry stakeholder committees in line with smart regulation whereby full account is taken of all alternatives to regulation. For instance the field of water and heat meters, the legal framework is “fit-for-purpose”, particularly because of the possibilities for amendments via comitology.

8. Overall conclusions

This case study focused on fuel dispensers which are machines combining a pump and point-of-sale (POS) system and pumping fuel into motor vehicles. In other words, fuel dispensers combine an electronic part containing an embedded computer measuring fuel sales and a mechanical section to physically pump and control the fuel flow.

There are around 20 manufacturers of fuel dispensers in Europe, amongst which are four major players with more than 60% of the market share in Europe and a significant presence worldwide. The total production value for petrol pumps in Europe was of around €360 million in 2012 based on a unit price of around €1,100. A total of about 350,000 petrol and oil dispensing pumps were produced in Europe in 2012.

The manufacture of fuel dispensers is mainly covered by the MID and by a number of other Directives, namely: ATEX, the Petrol Vapour Recovery Directive, the EMC Directive, the Low Voltage Directive and the National Emissions Ceiling Directive. The nature of fuel dispensers is such that regulations covering different perspectives are required, notably on accuracy and reliability in measurement, minimisation of the risks of explosion and protection of the environment.

The assessment of costs of IM legislation for the whole sector was based on the figures obtained from the four major companies in the sector representing 60% of the market. Total compliance costs are estimated at €20.5M for the four major companies in the sector, representing around 2% of their combined turnovers. Around 60% of the compliance costs relate to compliance with EU Internal Market legislation (€12M) whilst the remaining €8.5M relate to business-as-usual compliance costs.

Administrative and non-administrative compliance costs towards third-parties are of around €500,000 on average. Familiarisation costs are reported to be significant in this particular sector. This is due to the need for company to address differing interpretations of the MID legislation and of national standards in different countries. Testing equipment costs for compliance activities averaged around €100,000 per firm annually. For larger companies, testing equipment can cost over €500,000. In summary, investments in terms of product design, manufacturing equipment represent major compliance-related expenditures (around 35-40%) for companies in the sector.

Overall, the MID Directive was deemed to provide a good legal and technical base enabling technical progress. The stakeholders interviewed recognised that harmonised internal market legislation can be very cost-effective, particularly in relation to the ATEX Directive, which replaced differing and burdensome national legislation. Furthermore, thanks to the MID, the technical parts of petrol pumps tend to be the same in each Member State, which therefore limits the cost of maintenance and repair. In general, the replacement of national legislation with EU legislation had enabled economies of scale to be captured by producers, leading to consolidation of the market.

As regards simplification, efforts should focus on adapting the sub-assembly definition. Manufacturers have estimated that considering Self-Service Devices as sub-assemblies of fuel dispensing systems, thus not requiring separate MID certification, would lead to a 5-10% cut in compliance costs, particularly in testing equipment costs. Simplification should also address the ‘mix and match’ issue whereby a system approved under old national legislation cannot be upgraded with an MID certified component without first seeking MID approval for the complete system. The manufacturers interviewed estimated that addressing this problem would also reduce their compliance costs by around 5%-10%.

9. List of interviews 2 interviews with industry associations: CECOD, PEIMF 5 interviews with manufacturers 1 interview with the European Commission DG Enterprise and Industry

Case study 7  – Air Conditioners

1. Introduction – aims of the case study

Common aims

The aim of the case studies is to assess the way in which IM legislation for industrial products affects different economic operators across selected product groups. Union harmonisation legislation applicable to each product group is first mapped out and an assessment of any gaps, loopholes, inconsistencies and duplication is provided.  The compliance costs in meeting these requirements are then assessed.

Specific aims of case

The rationale for the selection of air conditioners and air conditioning systems as a product group was that:

· Air conditioners and air conditioning systems are a significant industrial sector, particularly in southern European countries, with a large volume of products sold.

· There are only a relatively small number of firms overall in most market segments, and large firms dominate the market.

· The sector is one in which there is a high level of internationalisation in manufacturing and non-EU firms dominate some segments of the European market (especially for smaller and portable air conditioners). This has allowed market access issues to be considered.

The case study was carried out using a combination of desk research and interviews. The main data sources used were Eurostat SBS (2 digit NACE code level) and Prodcom data (8 digit NACE), sectoral studies and market research reports. Work carried out recently on Ecodesign requirements for air conditioners and air conditioning systems was also used, since this provides useful data on market size and structure[107].

2. Product definition and description of market structure

This case study focuses on air conditioners and air conditioning systems (both comfort air conditioning in buildings and portable air conditioning systems).  There are a number of different types of air conditioners such as air‐to‐air, water‐to‐air, evaporatively-cooled, split and multi-split air conditioners air‐to‐air, water‐to‐air, and VRF (Variable Refrigerant flow) systems. Industrial chillers are also covered, wherever these incorporate air conditioning systems. The focus is on electrically-driven air-conditioning appliances although gas burning appliance designs placed on the market were also taken into account, since a different legal regime applies under the GAD.

Selected sub-sectors within the wider HVAC industry, and heat and industrial pumps have also been included, but only where these are part of air conditioning and heating systems.  There is a trend towards convergence of cooling and heating systems so air conditioning manufacturers often produce these items.

Data and information sources

An overview of sectoral data and key trends is now provided, drawing on Eurostat Structural Business Statistics (SBS) and Prodcom data. Since Eurostat datasets can be misleading in that they present data at a very high level of aggregation, we have also drawn on market research reports. Where data gaps have been identified, for instance, an accurate estimate of manufacturing employment in the sector, we have taken feedback from industry associations and individual manufacturers into account about since they have provided insights on market size and structure, recent industry developments and market trends. 

Industry structure and employment

In the first table, we provide an overview of the sector, although it should be noted however that the data is at a higher level of aggregation than for air conditioners and air conditioning systems alone. Eurostat SBS data under NACE 28.25 includes the manufacture of refrigerating or freezing industrial equipment, including assemblies of components, the manufacture of air-conditioning machines, including for motor vehicles, non-domestic fans, heat exchangers, machinery for liquefying air or gas manufacture of attic ventilation fans (gable fans, roof ventilators, etc.).

Table 1: Manufacture of non-domestic cooling and ventilation equipment sector (NACE 28.25)

|| 2008 || 2009 || 2010

Number of enterprises || 9,913 || 8,984 || 9,190

Number of employees || 254,200 || 228,800 || 219,700

Production value || 48,083.16 || 37,624.77 || 38,645.77

Source: Eurostat’s SBS

The European industry association – Eurovent – speculated that Eurostat data may also extend to firms and employment relating to the installation and maintenance of air conditioners and air conditioning systems, not only to manufacturing. Given the unreliability of official data sources on the number of enterprises and employment, it has therefore been necessary to rely on market studies that provide industry data and on information provided by industry associations.

The manufacturing industry for small air conditioners (<12 KwH) and comfort cooling systems is dominated by a small number of global manufacturers, especially from East Asia. The market for single and multi-split air conditioners is dominated by Asian manufacturers and brands.[108] The five largest brands of air conditioners for domestic use in Europe are all Asian: Mitsubishi (Japan), Daikin (Japan), LG Electronics (South Korea), Hitachi (Japan) and Toshiba (Japan). Outside East Asia, a number of other international manufacturers have a strong market share of the global air conditioner market such as Amana, Carrier, Lennox and Trane (US). In BRIC economies, such as China and India, there are also large manufacturers with high sales volumes, such as Haier, Gree and Midea (China) and Blue star and Voltax (India). Chinese companies also export a lot of small air conditioning products to Europe under an array of different, less well known brands. 

It was not possible to obtain accurate data on the level of employment within the sector. However, it was noted by the industry association that there is a significant level of employment – greater than in manufacturing – relating to the installation, servicing and maintenance of air conditioners and air conditioning systems. Employees in these sectors are only indirectly affected by IM legislation, they are much more affected by environmental legislation, for instance, European legislation pertaining to the F-Gas regulation and pursuant legislation[109] setting out minimum requirements and the conditions for the mutual recognition for the certification of companies and personnel.

Some data on employment in Europe by international manufacturers was however obtained. It is important to point out that although non-EU firms dominate many areas of manufacturing and although a significant proportion of manufacturing also takes place outside Europe, manufacturers originating from East Asia have made a significant investment in setting up some manufacturing facilities in Europe, which has created a significant amount of European direct employment and indirect employment (suppliers/subcontractors of e.g. pumps and fans. According to Eurovent, an EU industry association, about 5000 direct jobs have been created and an estimated 15000 indirect jobs. A significant proportion of total employment in the EU in the air conditioning sector is for the subsidiaries of large international companies. Japanese, Korean and US air conditioning companies are well-represented.

For instance, the market leader Daikin has a factory in Belgium and two in the Czech Republic. Mitsubishi Electric has a factory in Scotland, whilst Hitachi has a factory in Spain. Among the reasons why global manufacturers are investing in developing manufacturing capabilities in Europe are: proximity to market, a need to strengthen their market share in Europe and to embed their position in the European market. Consequently, these companies are keen on monitoring and participating in European decision making processes, including the development of Ecodesign and Energy Labelling regulations. 

It is difficult to obtain a clear picture by country of origin of the brands of air conditioning manufacturers since lesser-known brands sold on European markets can be subsidiary companies of international holding companies. However, a previous study for DG ENTR on the air conditioning sector citing Eurovent data[110] estimated that East Asia (particularly Japan and Korea), have a dominant market share with 60% and 13% respectively. These data estimates were checked, for instance with JRAIA (The Japan Refrigeration and Air conditioning Industry). They estimated that Japanese manufacturers share of the market is in the region of 50-60% in Europe.

The US has a 10% share of production, the EU has only an estimated 7% share, whilst Israel has 6% and China 5%. Notwithstanding the points above regarding international manufacturers setting up manufacturing facilities in the EU, a 2008 market study for the Commission confirmed that the majority of small air conditioners for domestic use are manufactured and assembled outside Europe[111], with the exception of mini-chillers, where Europe has a stronger manufacturing base (although international manufacturers with manufacturing plants in Europe are also present in the market). 

Although in absolute terms, Europe’s market share is relatively low, European manufacturers have a higher market share in the production of high-end air conditioning systems produced in lower volume, and in specialised market segments. For example, an interviewee from a European manufacturer commented that “while East Asian manufacturers dominate small air-conditioning systems for comfort and office cooling, European manufacturers have a higher market share of large-scale industrial cooling systems. Europe also has a significant market share for other types of air conditioners such as precision air conditioning and chillers. For instance, the UK and Germany have a strong market position in respect of precision air conditioning (such as cooling systems for data centres). Although disaggregated data is difficult to obtain, interview feedback found that European manufacturers and the US also have a strong market share in respect of industrial refrigeration. For instance, Italy is strong in the chillers market. It is not possible to provide accurate data on the percentage of firms that are SMEs in the air conditioning industry. As noted above, at 4 digit NACE code level, it is difficult to obtain sufficient disaggregation through Eurostat. Discussions with industry associations confirmed however that at least for smaller air conditioners for domestic use, small comfort coolers and for portable air conditioners, the market is dominated by large firms.  A further market study from 2012 (Lot 6, Ecodesign)[112] was only able to identify small numbers of SMEs manufacturing air conditioning systems, chillers and fan coils (not quantified).

Market size

Before providing information on the European air conditioner and air conditioning systems market, we first provide an indication of the size of the market globally.

Market research data was obtained by CSES directly from the industry on the air conditioning market globally in 2013. The data shows the relative importance of different geographic markets in million units and their respective global market share.

Table 2: World market for air conditioning in 2013

Geographic region || No. of units (m. units) || Percentage share

China || 41.2 || 42.0

United States || 14.35 || 14.6

Japan || 9.58 || 9.8

Latin America || 6.95 || 7.1

Europe || 6.65 || 6.8

South East Asia || 6.2 || 6.3

India subcontinent || 4.87 || 5.0

Middle East || 4.57 || 4.7

Africa || 2.86 || 2.9

Oceania || 0.91 || 0.9

Total || 98.14 || 100.0

Source: JARN, the “Japan Air Conditioning, heating and refrigeration news” magazine, 25 May 2013

The data shows that 98.1m units were sold globally annually. The data confirms that China is the world’s largest air conditioner market, although, as noted earlier, Japan and Korea are the biggest manufacturing companies for air conditioners sold on the European market. The estimate of 98.1m units sold globally compares with about 6.65m units sold in Europe in 2012, according to Eurovent figures.   As will be demonstrated below, although European manufacturers have a relatively low market share globally in terms of sales volume, they have a higher market share for non-domestic air conditioning systems and for chillers.

Eurostat PRODCOM data provides an estimate of the total size of the air conditioners market for non-domestic air conditioners and ventilation. There is no equivalent data for domestic air conditioners and ventilation however. Data for 2010 suggests a total market of around €4.6 billion, with imports representing 38% of this total. In the case of window or wall air conditioning systems, imports are more than 50% of the total.  It also demonstrates that air conditioning is quite a significant industrial sector, with total market size of almost 4.6bn EUR.   

Table 3: EU 27 Value of exports, imports and production value in 2010

Prodcom code || Category || Value of exports (€s) || Value of imports || Production value (€s) || Total (Production + imports- exports)

28251220 || Window or wall air conditioning systems, self-contained or split-systems || 119,059,590 || 667,189,720 || 682,292,212 || 1,230,422,342

28251250 || Air conditioning machines with refrigeration unit (excluding those used in motor vehicles, self-contained or split-systems machines) || 508,839,700 || 880,691,590 || 1,651,035,022 || 2,022,886,912

28251270 || Air conditioning machines not containing a refrigeration unit; central station air handling units; || 327,782,600 || 206,526,710 || 1,465,437,087 || 1,344,181,197

Total || || 955,681,890 || 1,754,408,020 || 3,798,764,321 || 4,597,490,451

Source: Prodcom,2010, Note: PRODCOM data refer to production sold.

In addition to Eurostat and Prodcom data, various market studies have also been consulted. A study undertaken for the Commission in 2008[113] noted that Southern European countries accounted for a large share of demand within the EU, reflecting climatic factors as a key demand driver.  In the figure below, a breakdown of the market share for different air conditioning systems by type and cooling capacity is provided. The figure shows that chillers with air conditioning in them account for 59% of the market, and other types of air conditioning a much lower proportion. Single splits and VRF splits (ducted splits are not so easy to install in European households since most do not have duct space) each with a 14% share of the market respectively.

Figure 2: Market Share - Air Conditioning Systems by type and cooling capacity

Source: Sustainable Industrial Policy – Building on the Ecodesign Directive, July 2012 (Note: single splits below 12 kW are excluded from the graph.)

A 2012 study[114] on the impact of the Eco-design Directive provides an assessment of current market size and structure. However, according to the study “Extra EU-27 trade and Intra EU-27 trade are only available in Prodcom at the even more aggregated level of Procom code 28251 Non-domestic cooling and ventilation equipment. The Prodcom data are therefore of limited value for this analysis, being too aggregated”[115].

Prodcom data in respect of different types of air conditioning systems is now provided. The “apparent production” values are derived from the reported figures and do not take into account possible stock levels between production or import and sale). The first category of Prodcom data relates to air conditioning systems, self‐contained or split‐systems. The data shows that European manufacturing exports account for a small proportion of total sales.

Table 4:  Window or wall air conditioning systems, self‐contained or split‐systems, Prodcom category 28251220, Million Euros

Year || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009

Exports || 87 || 96 || 98 || 147 || 173 || 155 || 119

Imports || 620 || 1,032 || 924 || 944 || 1,389 || 1,255 || 668

Production || 1,148 || 1,343 || 1,264 || 1,101 || 1,396 || 935 || 682

Apparent consumption || 1,681 || 2,279 || 2,089 || 1,898 || 2,612 || 2,034 || 1,231

Source: Eurostat, Prodcom

Prodcom data in respect of air conditioning machines with refrigeration units is now provided. Again, the level of imports considerably exceeds exports.

Table 5:  Prodcom category 28251250: air conditioning machines with refrigeration unit (excluding those used in motor vehicles, self‐contained or split‐systems machines), million Euros

|| 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009

Exports || 375 || 404 || 422 || 430 || 502 || 631 || 509

Imports || 1,299 || 1,949 || 1,594 || 1,203 || 1,657 || 1,384 || 881

Production || 1,607 || 1,779 || 1,566 || 1,699 || 2,095 || 2,364 || 1,651

Apparent consumption || 2,532 || 3,324 || 2,738 || 2,473 || 3,250 || 3,117 || 2,023

Source: Eurostat,  Prodcom (note – data on exports was not available in earlier years).

Lastly, the third Prodcom category examined was air conditioning machines not containing a refrigeration unit. Here, unlike in the first two areas, European manufacturing is comparatively stronger, with exports considerably exceeding imports.

Table 6:  Prodcom 28251270: Air conditioning machines not containing a refrigeration unit; central station air handling units; vav boxes and terminals, constant volume units and fan coil units, million Euros

|| 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010 || 2011 || 2012

Exports || 188 || 215 || 244 || 270 || 344 || 390 || 328 || 344 || 467 || 459

Imports || 167 || 292 || 251 || 254 || 357 || 274 || 207 || 224 || 258 || 200

Production || 1,474 || 1,270 || 1,253 || 1,531 || 1,682 || 1,777 || 1,465 || 1,550 || 1,676 || 1,736

Apparent consumption || 1,453 || 1,347 || 1,260 || 1,516 || 1,696 || 1,661 || 1,344 || 1,429 || 1,466 || 1,477

Market research data

In the following table, data on the number of units sold annually in the EU based on product sales data from market research are now provided. The Prodcom figures are larger, which reflects the wider scope of Prodcom classifications.

Table 7: Comparison of Prodcom and Market Research Data (2009)

Air conditioning products || Market Research (no. of units sold annually in EU) || Prodcom value || Prodcom category

Chillers || 85000 || 2384000 || 28251250

AHUs for air conditioning and fan coil units || 184,000 + 1,140,000 = 1,324,000 || 1716000 || 28251270

Source: Market research data and Prodcom, Analysis presented in Sustainable Industrial Policy – Building on the Ecodesign Directive (DG ENTR).

The data presented above from the market research report draws on a number of sources, such as Eurovent sales data for EU27 for 2008 and 2009, market research reports from BSRIA for six countries (an extrapolation was made for EU27). Although the data is from 2008 and 2009, market research data provides a more accurate picture than Prodcom data since it is disaggregated for air conditioning and fans and for chillers[116].

Key industry trends and challenges

A number of key industry trends were identified through the research. These are, in summary:

· The adverse impact on the market of the global economic and financial crisis, with a significant drop in the numbers of air conditioning units sold in the European Union in 2008, 2009 and 2010, albeit with a recovery in 2011 and 2012.

· Convergence of cooling and heating products and systems.

· The integration of more energy-efficient technologies into air conditioners and cooling systems.

Annual turnover in the sectors under review has declined due to the global economic and financial crisis, in particular due to lower levels of construction activity. This has led to reduced demand for new air conditioning systems. However, demand for maintenance and repair services has been relatively steady during this period. Although initiatives to reduce energy consumption at EU and Member State level will help to boost demand for the installation of new, energy-efficient units in future, the number of units sold in the European market has declined overall in the past five years. The number of units has fallen sharply across the EU to 9.2m units in 2007, and further still to only 5m units in 2009. It has recovered somewhat during 2010 and 2011, but declined again to 6.65m units in 2012 (source: Eurovent).

There has been a trend towards convergence in cooling and heating systems, with integrated solutions becoming more common. Discussions with two air conditioning associations found that more diverse air conditioning solutions are needed.

A further key driver has been the transition towards the use of more energy-efficient technologies and parts and components in air conditioners and cooling systems. This has been driven globally by European legislation on Ecodesign implementing regulations to eliminate the worst-performing products.

.

3. Summary of applicable IM legislation and standards

A mapping exercise was undertaken to identify applicable IM legislation and standards relevant to the air condition sector. The mapping of IM legislation was based on desk research and discussions with individual manufacturers and the information has been verified by industry associations. The main applicable legislation, is in summary:

Low Voltage Directive (LVD) -  2006/95/EC Electromagnetic Compatibility Directive (EMC) 2004/108/EC Machinery Directive (2206/42/EC) Implementing Regulation on Ecodesign requirements[117], Regulation  206/2012 EC for air conditioning equipment below 12 kW. Regulation Ecodesign requirements for fans (327/2011 EC) Regulation Energy Labelling  Air conditioners  and comfort fans  (626/2011 EC) Directive 2002/31/EC energy labelling of household air-conditioners Pressure equipment Directive 97/23/EC (PED) REACH Regulation  (1907/2006 EC) RoHS Directive (2011/65/EC) Packaging and packaging waste (2004/12/EC) Regulation Ecodesign requirements electric motors (640/2009 EC) Regulation Ecodesign requirements glandless circulators (641/2009 EC) Regulation Ecodesign requirements water pumps (547/2012 EC) The Gas Appliances Directive (2009/142/EC) “GAD”, which applies to gas-fired air-conditioning units

It should be noted that whereas for electrically-powered air conditioners, among the core applicable legislation is the LVD and the EMC, for gas-fired air-conditioning and/or heat pump appliances, the GAD may provide the main legal framework. The focus in this case however has not been on gas-fired air-conditioning. Since the HVAC sector is very large, we have sought to focus on other types of air–conditioning systems.

A more detailed mapping of the applicable legislation is provided as an annex to this case study. This provides a summary of the main issues addressed through the legislation (e.g. product safety, energy-efficiency), key administrative requirements for manufacturers and examples of relevant standards. 

Although environment legislation is formally out of scope, an overview of applicable environmental legislation affecting air conditioners and air conditioning systems has been mapped out and is provided in annex, since the interaction between IM legislation and European environmental legislation has cumulative effects.

Assessment of gaps and loopholes, overlaps and inconsistencies

The study required an examination of the extent to which there were gaps or loopholes within specific pieces of IM legislation and overlaps and/ or inconsistencies between different IM legislation. The desk research and interviews found that there were no major problems, either in the air conditioning sector or for industrial chillers. However, a number of specific issues were however identified, although some of these have already been resolved.

For instance, there was legal uncertainty as to whether the original RoHS Directive (2002) should be applied to all air-conditioning systems or only to portable units. During a public consultation on the Directive’s revision, some industry stakeholders argued for a clearer distinction in the RoHS Directive between ‘appliances’ and ‘systems’. In the recast RoHS Directive (2011), it has now been clarified that there is an exclusion from RoHS for fixed installed cooling, air conditioning and refrigerating systems and heating systems designed for non-residential use. This has eliminated the legal uncertainty that existed prior to the recasting exercise.

One issue that does not yet appear to have been resolved is the need to develop more consistent definitions in IM legislation that affect the air conditioning industry so as to make the demarcation between the Machinery Directive (MD) and Low Voltage Directive (LVD) clearer. Although the Commission has taken steps in this regard previously and has incorporated clarifications into the guidance documents on the MD and the LVD respectively, two of the air conditioning manufacturers interviewed stated that there remains confusion among industry as to whether these directives are mutually exclusive, or whether both directives are applicable for certain types of products.  A large European air conditioning manufacturing company commented in this regard that “whilst it is clear in the legal text of the MD (2006) that there is mutual exclusivity i.e. manufacturers should not apply both the LVD and the MD, there are no such references in the legal text of the LVD to the types of product groups where the MD is not applicable”[118].

Firm C noted that there can be temporary regulatory gaps due to the lead times in developing standards following the entry into force of new IM legislation. To respond to this challenge, manufacturers typically use the closest available standard in the first instance, and then the correct standard once available can be used by designers at a later stage in the design process.

A further issue related to divergence in the descriptions of similar technical requirements across industrial product legislation. An issue was identified in respect of possible duplication in technical standards.  A number of manufacturers expressed the view that there are too many EN and ISO standards overall for air conditioners, and this can causes confusion for economic operators, since there are also overlaps between some standards.  Manufacturers could be helped to select the most appropriate standards, for example, Firm D stated that ‘there are many standards and sometimes there are common elements in the text that repeat themselves. There needs to be further consolidation and merging of standards’.

4. Analysis of costs of compliance with IM legislation

10 interviews have been carried out as part of this case study, eight with firms, of which six firms provided sufficient quantitative data to be able to quantify the costs of compliance with IM legislation. Through the interviews, a good mix was achieved between firms of different size and market share. Two out of the top five global manufacturers were interviewed, as well as a large European manufacturer of air conditioners and an SME producing chillers. In addition, two interviews with industry associations have been carried out (see Section 8 – information sources). Comments and data have also been provided by an international industry association (JRAIA - the Japan Refrigeration and Air conditioning Industry). In the following table, basic information about the firms interviewed is summarised:.

Table 8 - Basic information on the firms interviewed

Firm || Product category || Firm size || Annual turnover and sales from product in the EU || Main markets

A || Air conditioners & air conditioning systems || Large || Turnover £600m – 800,000 units || 98% of sales in EU28

B || Air conditioners & air conditioning systems || Large || Turnover (UK) €100m >200 units || Europe, the Middle East and Africa

C || Air conditioners & air conditioning systems || Large || NA but production in EU numbers in millions of units || 80% of sales in EU28

D || Industrial chillers || Small || 100 units || Ca. 100% of sales in EU28

E || Air conditioners & air conditioning systems || Large || 500,000 units || 33% EU 66% outside EU

F || Air conditioners & air conditioning systems || Large || €520m – 300,000 units || 50% sales EU28 50% outside EU (mainly Russia)

G || Air conditioners & air conditioning systems || Large || Turnover £42m - 2,500 precision aircon / 500 chillers || 80% UK 20% RoW (EU and Middle East (10%))

H || Air conditioners & air conditioning systems || Large || Turnover €200m No. of units not available || Europe, Asia, USA – evenly split

It should be noted that sufficient data was obtained for SCM purposes from firms A, B, C, E, F and G. Firms D and H were not included in the SCM analysis. In the case of Firm D, this was because although data on human resources involved in compliance and testing was provided, this was an outlier as a % of staff costs compared with the total. In the case of Firm H, no data was available because they currently outsource manufacturing to ODM suppliers so do not have any information about compliance costs including testing.

In this section, a summary of how compliance with IM regulations is managed in enterprises in the air conditioners and air conditioning systems sectors is provided. This sets out the main steps required in order to place an air conditioner or air conditioning system on the market and considers the internal business processes necessary. This provides important contextual information for interpreting the costs of complying with IM legislation.

Overview as to how compliance is managed by air conditioning manufacturers

As mapped out in Section 3, a number of different pieces of IM legislation are applicable to air conditioners. This includes longstanding New Approach directives such as the LVD-D and EMC-D (applicable to all electrical appliances) and more recent legislation adopted in the last decade, such as the Ecodesign requirements (implementing regulations for air conditioners and fan coolers), Energy Labelling requirements and requirements under RoHS and REACH relating to substances used in the manufacture of air conditioners. Additionally, air conditioners are subject to environmental legislation such as the F-Gas Regulation 842/EC/2006[119] and its different implementing regulations and the Energy Performance of Buildings Directive 2010/31/EU (EPBD).

Large firms and SMEs manage the process of ensuring regulatory compliance with IM legislation in broadly similar ways. In large firms, there are commonly separate divisions dealing with different aspects of regulatory compliance: a regulatory compliance manager or department with overall responsibility for compliance (including following EU legislation-making and standardisation processes and familiarisation with the introduction of new and the revision of existing IM regulations and the applicable administrative requirements), a division dealing with research and development and product design, and a division responsible for carrying out conformity assessment procedures through product testing within in-house R&D and/ or testing laboratories.

Large firms are in an advantageous position compared with SMEs however since they can devote staff to the earlier preparatory stages in the development and recasting of IM regulations and in the development and revision of harmonised standards in order to anticipate and respond to regulatory developments. SMEs also try to follow and to anticipate regulatory developments.

SMEs also try to follow and to anticipate regulatory developments but they have less resources available to dedicate to this step. The European industry association pointed out that there is anecdotal evidence to suggest that smaller air-conditioning companies are leaving the market because of the complexity /cost of the regulation. It was difficult to verify this assertion since the smaller size segment of air conditioning companies were generally unwilling to take part in the case (although one small chillers firm did participate – and they were managing compliance with IM legislation). Five main steps were identified in the process of achieving regulatory compliance for the study and these have been used in order to quantify the current costs of compliance. The steps are:

· Familiarisation with applicable/relevant obligations

· Introduction of processes or changes to product design and production processes to ensure compliance with substantive obligations

· Conformity assessment procedures and relevant documentation

· Declaration of conformity or other statement of compliance and CE marking

· Other activities related to obligations posed by authorities 

Firms interviewed commented that while these five steps broadly reflect the processes involved in achieving regulatory compliance, for large firms, there is in addition a preparatory step that can involve significant time resources, that of “keeping track of EU legislation and standards”.

Any differences between firms in their approach to managing compliance are commented on and the extent to which these differences are dependent on firm size and on the number of products/models being produced.

The companies interviewed were asked to assess the proportion of time FTEs spend on each of the five steps of the above process.   Each firm provided slightly different information on this aspect as a result of their internal set-up considering factors such as the extent to which they relied on third party testing services, as opposed to carrying out conformity assessment tests in-house. 

However, familiarisation with IM legislation and the applicable administrative requirements was generally seen as quite time consuming (e.g. firm G mentioned that 30% of time was concentrated on this activity).  The introduction of changes to product design and carrying out conformity assessment procedures were also seen as time-intensive (e.g. firm D invests 60% of time in total on these items).  However, the production of a declaration of conformity and other activities stemming from regulatory obligations were generally seen as less time consuming (e.g. Firm A spends 20% of time in total in this regard).  Staff specialising in regulatory compliance spend more time on familiarisation processes with IM legislation and less on the other five steps, whereas for laboratory staff (engineers working in R&D and in testing) the majority of their time is spent on carrying out product testing and on conformity assessment.

Familiarisation with relevant legislation and purchase of standards

Preparatory steps – taking part in EU legislation-making and standardisation processes

Several of the larger air conditioning manufacturers interviewed stated that they invest resources in following EU legislation-making and standardisation processes. The aim is to enable them to shape and influence the development of new and the revision of existing IM legislation.

This enables them to anticipate legislative changes so that new regulatory requirements or changes to existing requirements (and forthcoming updates to technical standards) can be incorporated from as early a stage in the product design process as possible.  This enables them to minimise substantive compliance costs by factoring in new requirements from as early a stage in the product design and R&D process as possible.

Large firms interviewed often have dedicated staff specialising in regulatory compliance. They are therefore able to actively contribute to EU legislation-making processes, for example by participating in the work of EU industry associations[120], responding to public consultations, attending workshops with industry representatives in order to establish a consensus industry position on new legislative proposals and taking part in EU standardisation processes.

Taking part in this preparatory step involves time and human resource costs. Several of the large firms interviewed have full-time regulatory compliance teams consisting of between two and four FTEs.   A senior manager at a large European manufacturer estimated that “Contributing to the policy debate regarding Eco-labelling and Ecodesign took several years from the start of the discussions until the adoption of these regulations. Given that both regulations potentially have a significant impact on the air conditioning industry, during the 2 year period leading up to their adoption was the most intensive, and the amount of time spent on these regulations alone amounted to 0.5 FTE”.

However, there are clear benefits for industry in actively following regulatory development and standards-making processes. This enables large firms to influence policy and legislative-making processes likely to affect them. Industry may not always be happy with the end result, but at least has the opportunity to influence the process.  More generally, this facilitates regulatory compliance because large firms are then able to anticipate forthcoming legislative changes and updates to technical standards. This investment in participating directly in EU policy and legislative making processes gives large firms a competitive advantage over their smaller rivals, who typically follow regulatory developments but lack the resource to follow new developments closely.

Familiarisation with applicable legislation and administrative requirements

Familiarisation activities are required to ensure that air conditioning firms are aware of the applicable legislative and administrative requirements. At least in middle and larger sized firms, this step requires input from dedicated regulatory compliance staff who assume responsibility for keeping track of regulatory changes and updates to harmonised technical standards. They are then responsible for briefing different business divisions about new regulatory developments,  such as product engineers, product managers and sales teams.

In large firms, such as firm F, there is a division of 2-3 people providing specialist in-house expertise on compliance matters. Another large company, Firm B, mentioned that they employ a full-time regulatory specialist and one of their main tasks is to update product managers, engineers and country sales teams on new legislative developments and how these will affect different product categories. They also provide guidance to colleagues on how new IM legislation and changes to existing regulations should be interpreted. Whist only a small number of full-time regulatory specialists are employed, familiarisation with legislation is an activity that cuts across a number of business functions (e.g. country sales teams and product engineers).  Consequently, it was estimated that the total number of FTEs involved in familiarisation with the legislation is equivalent to 15 full time staff.    However, Firm H tended to use product safety consultants to provide specialist advice and consultancy support to assist them in the familiarisation process with new legislation. It should however be noted that there is an intention to move this function in-house in the near future.

In SMEs, familiarisation requires a significant effort, but there are less dedicated resources available. Firm D, an Italian firm manufacturing chillers employs a full-time manager who specialises in regulatory compliance to keep track of regulatory developments. The person concerned estimated that approximately 50% of their time was spent on familiarisation activities.  The owner of the company also spends about 20% of their time on compliance matters (of which about half on familiarisation).

Several interviewees commented that familiarisation with more IM directives and regulations introduced in the past five years take up a lot more time than other pieces of legislation. Whereas the legal and administrative requirements for long-established Directives such as the LVD and EMC are well-known to manufacturers and have not changed fundamentally in years , a lot more time is required for compliance specialists to familiarise with the requirements set out in more recent legislation, especially legislation with either environmental, consumer protection or energy-efficiency objectives, such as RoHS and the Ecodesign implementing regulations.

Currently, Ecodesign requirements only apply to small air conditioners under 12 kW and comfort fans under 125W. There is a separate measure that applies to fans of between 125 W and up to 500 kW even if they are included as a component in larger equipment, as detailed in the following sub-section.

Introduction of changes to product design and production processes to ensure compliance with substantive obligations The introduction of new legislative requirements under Union harmonisation legislation may require changes to be made to products either during the R&D and design phase, during the production process and in the case of fans integrated into products, also to  products that have already been placed on the market.

The costs of making such changes depend how far in advance air conditioning manufacturers are aware about forthcoming changes and on the length of the product life cycle. The research showed that it is much more costly for manufacturers to make design changes to existing product platforms than it is to incorporate new requirements into new product platforms or those at a very early stage in their development.

An Ecodesign preparatory study noted that the life cycle of air conditioning platforms is typically between 10 and 12 years.  The life cycle of an individual air conditioning model is longer than for other types of industrial products[121]. Therefore, the introduction of substantive obligations has a more significant impact on air conditioners.

Since basic air conditioning platforms form the basis on which products are updated through the development of new models and variants, there can be major costs if design modifications have to be made or particular components are withdrawn.  Eco-design requirements were regarded as the most administratively burdensome piece of IM legislation.  Implementing regulations setting out ecodesign requirements for air conditioners and comfort fans (Regulation EU 206/2012) applied from January 1st 2013 to units of <12KW. Since ecodesign targets the worst-performing products, redesign is necessary only for approximately 20% of existing models.

 . 

Even though large air conditioning units and systems have not yet been made subject to ecodesign legislation, the main implication has been that lower-performing fans integrated into larger air conditioning systems and units have had to be replaced or taken off the market for testing, adaptation or permanent removal. 

A large European manufacturer of air conditioning systems, Firm G, commented that although they only produce large air conditioning systems over 12 12 kW, they have already been affected by the implementing regulations. “Ecodesign requirements have meant that changes have had to be made to replace fans in older products. Sometimes, fans have had to be withdrawn by suppliers because they no longer meet the required performance threshold for energy efficiency” . In such cases, the firm has then had to identify alternative energy-efficient fans to incorporate as components into larger products, such as air conditioners used for cooling purposes in data centres.

This in turn requires updating the corresponding technical documentation and DoCs and further testing has had to be carried out. Both Firm F and Firm G confirmed that are indirect impacts as a result of fan products used as components being withdrawn, such as a finished unit having to be retested under the EMC Directive, because the old fan originally included as a component when the product was placed on to the market is no longer compliant and a new type of fan has had to be installed. Firm F commented however that ‘it is difficult to quantify such substantive compliance costs’ since no data is kept on the total costs incurred across a number of different products due to the replacement of fans.

The comments made confirm the findings from an earlier evaluation of the Ecodesign Directive undertaken by CSES that there are some specific issues in respect of the compatibility of ecodesign requirements for fans when these are integrated into other types of products such as machinery and air conditioning systems and larger air conditioners.

Firm C suggested that since the core product safety directives applicable to air conditioners change infrequently that the introduction of new (and updating of existing) technical standards is a greater administrative burden than the legislation itself. Firms A and B had difficulties in determining the exact number of FTE involved in carrying out conformity assessment procedures under IM legislation internally since  a significant proportion of manufacturing takes place in Asia. It was therefore difficult for them to know the exact number of engineers involved, especially since the engineers work on products designed for the global market, which will then be designed and tested to meet dual or multiple regulatory requirements.

There can be difficulties for manufacturers in meeting regulatory requirements, while at the same time addressing end-user and consumer needs. For instance, the aim of increasing energy-efficiency is not always compatible with that of reducing indoor and / or outdoor noise.    

Conformity assessment procedures

The Supplier's Declaration of Conformity (SDoC) can be applied by manufacturers for most types of air conditioners. Most manufacturers therefore carry out the majority of product testing in internal laboratories, but may also use an external third-party (on a voluntary basis) to carry out some aspects of testing. The use of a third-party provides a useful external validation that helps to ensure an additional guarantee for the enterprise. 

A European industry association indicated that although the SDoC procedure can be applied to the LVD, most manufacturers prefer to use a third party. In addition, some firms also make use of external product safety consultants in order to provide advice and to help project manage the testing and compliance process. For example, Firm H uses 2 consultants who work on a working part-time basis for the company for approximately 3 months a year advising on regulatory compliance linked to testing. 

Firm D (an SME with 64 staff) employs 7 FTE that deal with regulatory compliance / conformity assessment, 2 of who deal with following regulatory compliance requirements and 4 of who work in the internal testing department. Whereas the EMC and the LVD were believed to be the least burdensome, Ecodesign, the MD and the PED were regarded as the most costly pieces of legislation.  The firm has invested in accreditation for internal production control under the PED in relation to chillers which has limited its reliance on third parties. 

Given the relatively low number of units manufactured by the SME, the costs of complying with IM legislation per unit are higher when compared with large companies. This message was reiterated by Eurovent, the air conditioning industry association that SMEs face much higher regulatory costs per unit. In comparison, large air conditioning manufacturers are able to spread the costs of compliance across a large number of units produced and sold in European markets.

In Firm E, 11 FTE are employed as regulatory and conformity assessment specialists, 5 staff work on internal testing and R&D for air conditioning and 4 staff perform similar activities but working for heaters. Firm E suggested that the initial set-up costs for establishing internal testing functions is expensive. This includes for safety tests (€30,000 to €40,000) and performance tests (€30,000 to €40,000) and room and equipment instrumentation (€200,000).  Annual costs include calibration services for instrumentation (€20,000) and replacing instrumentation, estimated at between €30,000 and €50,000.

Firm F commented that Ecodesign particularly in relation to fans is the most costly piece of legislation, followed by the EMC and the LVD. The MD was viewed as being less costly.  In total, part of the job description of 20 product engineers is to work on compliance-related matters and this equates to about 10-15% of their time e.g. 2-3 FTEs. The firm spends on average €1 million on external testing per annum and this includes carrying out testing in respect of the EMC-D and the LVD-D.  In addition, there are one-off costs associated with the purchase of equipment  (€50,000) and annual costs for calibrating equipment (this relates to €20,000 for IM regulations).   

In the case of the LVD Directive, one of the oldest New Approach Directives, most testing is carried out by an in-house laboratory with a 3rd party technician being present. However, many SMEs do not have such a laboratory facility and therefore have to send samples to a 3rd party for testing. This means that testing costs can be significantly higher, both in absolute terms and when spread across the total number of units sold.  Perhaps surprisingly since the legislation is long-standing and well-embedded, Firm E suggested that the LVD was the most costly IM legislation[122] on the grounds that even if  third party testing is not required, there is a need to validate internal test results and to use a notified body to test a random selection of products so as to provide additional reassurance that the product is safe.  

In Firm G, conformity assessment procedures cut across the work of two specialised departments that have a combined annual budget of approximately €1.4 million. The development department is composed of 20 electrical and mechanical engineers and CAD designers. The test centre is composed of 6 engineers that evaluate designs and performance functionality. Overall, it is estimated that 3 FTE engineers spend 20 - 25% of their time ensuring that products are compliant. This includes the development of technical reports and product testing. With regard to salaries of staff working on compliance, one engineer has a salary of approximately €60,000 per annum; the costs of annual testing equipment were estimated in the region of €25,000.

Firm G commented that the Machinery Directive and Low Voltage Directives were less costly since the SDoC procedure can be applied. It was noted that some types of industrial air conditioning units must comply with the Pressure Equipment Directive (PED) .  Here, complex tests need to be carried out by third parties, or if testing is carried out internally, there is a mandatory requirement that this must be carried out by a third party[123].

Declaration of conformity (DoC) or other statement of compliance and CE marking

Producing a DoC and CE marking was seen as less costly compared with the previous steps described. However, it was recognised that the minor administrative costs involved at the end of the compliance process are only possible once the preceding steps have been completed, which require investment by air conditioning firms.

Firm E stated that producing the DoC is neither problematic nor costly.  Firm H stated that producing the DoC itself does not take up a lot of time, since the information contained in the DoC can typically be fitted on to one sheet of A4 paper.  Rather, the conformity assessment procedures leading up to the DoC and the development of a technical file are the most time consuming aspect. 

Other information obligations and administrative costs

Other administrative requirements under Union harmonisation legislation can however be costly. For instance, the requirement to translate instruction manuals into all EU languages was viewed as costly. Under the LVD Directive, an instruction manual must be supplied in the language where the product is sold. Some interviewees noted that instruction manuals are becoming bigger and more complex, with a requirement to “provide an ever-increasing number of safety warnings to consumers”.  Firm E suggested that industry would prefer to minimise the amount of text needed on products and to use pictorial symbols or warnings rather than written text that needs to be translated. This would help to reduce costs and reduce the length of compliance and other documentation that has to be provided with products. 

Another point raised was that the administrative costs of producing energy labelling (as opposed to the testing of products to check their energy efficiency which is a substantive obligation and can be costly) have been kept to a minimum due to the use of pictograms rather than text. Pictograms were viewed as facilitating communication with consumers across the EU's multilingual market, without the need to spend money on translation or on producing lots of paper to accommodate translations into multiple languages.

5. Assessment of costs of IM legislation for the whole sector

An assessment was undertaken of the compliance costs of IM legislation for manufacturers in the air conditioners and air conditioning sector.  As noted earlier, one chiller company was also included. Since the wider HVAC sector is very wide, not all categories of firm were interviewed (e.g. heating pumps firms). The aim was to have a narrower focus on air conditioning.

As noted in Section 4, the assessment was carried out on the basis of quantitative information provided by six manufacturers (from the eight interviewed in total). The costs are related to turnover. In the first column, we seek to distinguish between different types of costs. The distinction between one-off and recurrent costs has been taken into account in the analysis, and some costs, such as the costs of purchasing laboratory equipment have been annualised[124].

A summary of the estimated costs of compliance is provided below (it should be noted that the costs presented in the table represent the net costs after a deduction for “Business as Usual” costs has been taken into account).

Table 9 – Summary of main costs of compliance for air conditioners manufacturing industry

|| Unit of measurement || Average cost/ year (total) || Estimated no. of firms || Total costs (annualised)

Compliance with administrative requirements || || || || € 17.198.600

Familiarisation || Manufacturers || € 64,617 || 100[125] || € 6,461,700

Preparation of DoC and technical documentation || Manufacturers || € 106,169 || 100 || € 10,616,900

Standards purchase || Manufacturers || € 1,200 || 100 || € 120,000

Conformity assessment (internal) || || || || € 23.524.975

Product design || Manufacturers || € 96,597 || 100 || € 9,659,650

Testing (internal) || Manufacturers || € 53,653 || 100 || € 5.365.325

Testing equipment || Manufacturers || € 85,000 || 100 || € 8,500,000

Conformity assessment (external) || || || || € 9,360,000

Consultancy/advisory services (product design) || Manufacturers || € 18,720 || 100 || € 1,872,000

3rd party conformity assessment by notified bodies || Manufacturers || € 74,880[126] || 100 || € 7,488,000

Total || || || || € 50.083.575

We now provide a short overview of the key assumptions made in order to arrive at the above annualised calculations.

The firms interviewed provided data on the level of human resources involved in compliance, for instance on familiarisation with the legislation and technical standards and on how much time and FTE staff are involved in the preparation and updating of DoCs and technical documentation. With regard to estimated salary costs for staff working on regulatory compliance, there were considerable differences between firms. As explained in Section 4, there were even major variations in staff costs within firms, depending which aspects of compliance were carried out in Europe and Asia. In order to provide a better basis for comparison between firms, we therefore sought information on human resources and applied a standard tariff using Eurostat data on average salaries. The figures used were €30 an hour, which equates to about €50000 year FTE.

Several firms were also able to provide data on the internal and external costs of testing. Where data was missing, imputations had to be made using data from those firms that did provide data. For instance, one of the top 5 global players provided data on their expenditure on third party conformity assessment, whereas the other was unable to, since testing and conformity assessment was carried out in Asia and the data was not available even internally. We therefore used data from those firms that were able to provide estimates and used this as the basis for assumptions about the level of expenditure for other firms (taking into account other data that was provided, such as the volume of sales units produced and sold in the European market, annual turnover and the number of product platforms manufactured annually).

Firms were asked to provide data on the costs of carrying out conformity assessment testing in-house, for instance their annual expenditure on conformity assessment procedures carried out internally(again taking into account the number of product platforms manufactured annually), and the one-off and recurrent costs linked to testing. This includes the one-off purchase of laboratory equipment and the annual (recurrent) costs of calibrating testing equipment. Not all firms were able to provide this data, either because of commercial sensitivity considerations, or because the information was not shared internally by particular divisions carrying out the testing (especially for the larger Asian manufacturers). Nevertheless, sufficient data was obtained to be in a position to make assumptions about the level of costs in a typical firm, depending on its size, sales volume and the number of product platforms manufactured per year.

In quantifying the annualised costs of compliance, we attempted to take into account which compliance costs were one-off and which were recurring.  It is important to note that the distinction is often blurred between the two in the case of compliance with IM legislation.   Examples of one-off costs are the purchase of laboratory and testing equipment, R&D costs, third party conformity assessment costs. Other costs are evidently recurrent, such as the recalibration of testing equipment. However, the picture is more nuanced for other types of compliance costs, which are both one-off and recurring. For example, the cost of the preparation of a DoC and technical documentation is mainly incurred prior to a product being placed on the market.  However, in addition to these one-off costs, there are also recurring costs linked to the need to update and maintain a DoC for 10 years post-placement on the market. There is a need to update technical documentation, for instance, to reflect new spare parts and components that are introduced as replacements once a product is already on the market.  As regards product design, the costs are mainly one-off, but there could also be recurrent costs if regulatory changes are made and modifications to product design are needed once the product is on the market.

 “Business as Usual” (BAU) costs were also taken into account.  A number of air conditioning manufacturers stated that a certain proportion (typically 20% to 30%) of product safety testing that they carry out can be considered as BAU since it forms part of internal quality assurance procedures. A number of firms stated that some testing would have been carried out anyway so as to minimise reputational risk even if there is no legal requirement to involve a third party in conformity assessment and the Supplier's Declaration of Conformity (SDoC) can be applied. It was common among manufacturers interviewed to involve a third party in testing for the Low Voltage Directive.

However, there was wide variance in estimates of BAU between firms. A number of firms suggested that approximately 50% of the human resources and cash costs of compliance were BAU, whereas other firms interviewed estimated the proportion to be lower, at 15-25%. An interesting finding was that several manufacturers noted a distinction in BAU depending on the objectives of different pieces of IM legislation. A distinction can be drawn between safety requirements, which were seen as an integral part of BAU and those IM regulations that related to environmental requirements, which were viewed as imposing additional compliance costs that would not occur in the absence of IM regulations.  The most commonly cited example in this regard were the eco-design requirements.

Although firms may consider some types of environmental requirements as part of BAU, for instance, as part of their marketing strategy to differentiate products from competitors, the % of BAU costs was much lower.  Firm C pointed out that the business as usual case is hypothetical and that it was difficult to provide an accurate quantitative estimate given that without EU regulation, national legislation would apply for safety and environmental requirements. It was suggested that this would create a more complex and fragmented regulatory landscape than is currently the case.

6. Benefits of Internal Market legislation

The research also indicated some important benefits for economic operators from the IM legislation. Air conditioning manufacturers do not have to design products that meet 28 sets of different national legislative and technical requirements. IM legislation has facilitated market access both for European and international manufacturers selling across the Single Market. Although the internal market has opened up competition to international manufacturers by reducing market access obstacles, it should be noted that as explained in Section 2, international manufacturers have also invested significantly in setting up European manufacturing plants, and this has created direct and indirect employment (estimated at 5000 and 15000 jobs respectively).

Another benefit identified was the notion of “leverage on investment” from compliance with Union harmonisation legislation. Large air conditioning manufacturers – by dint of their global scale and scope - are in a position to leverage investment in regulatory compliance in the EU through the development of product platforms that are compliant with IM legislation and then customising products that are designed to meet stringent European safety, environmental and consumer protection requirements and either designing products for dual or tripe regulatory jurisdictions (e.g. the EU, the US and China) or utilising some of the results from the conformity assessment and testing process as the starting point for achieving compliance in other global  jurisdictions, even if differences in technical standards mean that some adaptations / customisation of the product and / or retesting to different specifications may be necessary to meet the different regulatory requirements across different markets.

A further benefit of IM legislation is that it has encouraged the industry to speed up the integration of energy-saving technologies into air conditioners and air conditioning systems. Making air conditioning units and fans integrated into air conditioners more energy-efficient should help to reduce energy consumption and greenhouse gases. The Ecodesign regulations should also stimulate the use of inverters technologies in Europe. These enable air conditioning units to operate more efficiently by varying the speed of the compressor according to its thermal load. Again, there is potential here to contribute to reducing CO2 emissions.

Although interview feedback found that industry views the Ecodesign regulations as having led to increased costs, the regulations should over the medium-long term provide an impetus to strengthening competitiveness by encouraging the “phasing out” of older models and components. 

7. Analysis of simplification measures

 Through the discussions, air conditioning manufacturers were asked about the extent to which there was scope for simplification of IM legislation and administrative requirements for economic operators.

Simplification measures

There was support among interviewees to reduce the number of (voluntary) technical standards that manufacturers follow, since evidence of duplication between standards was identified (which could be eliminated through a review process to streamline standards). Although the use of such standards to meet the essential requirements is voluntary, in practise, most manufacturers use harmonised standards. Therefore, the costs associated with complying with these regulations are seen as being part of overall compliance costs.

Although responsibility for the development of standards is the responsibility of ESOs under a mandate from the Commission, several firms stressed that it can be difficult and time-consuming to determine which standards are applicable and most relevant to their specific product group. A possible means of overcoming this problem would be to develop product-specific standards for different types of air conditioning products. Using a single ‘off-the-shelf’ standard would help to reduce the amount of time firms spend in familiarising with multiple technical standards.  The SME in the industrial chillers sector also supported the idea of developing a single integrated standard for industrial chillers that took into account all the relevant legislative requirements (e.g. the PED, Machinery Directive, LVD and the EMC).

A further suggestion to reduce the costs of compliance suggested by some large air conditioning firms that export globally was to explore the scope for mutual recognition schemes with third countries. This would facilitate exports and avoid products having to be subject to further conformity assessed in different jurisdictions, which is duplicative.  For example, it was noted that in Australia, there is a requirement for third party testing of air conditioners and air conditioning systems, whereas the SDoC procedure can be applied in order to place a product on the internal market in Europe.  A mutual recognition agreement between Europe and key trading partners such as the US, Russia, Australia and the BRICs would help to minimise the costs incurred by European industry in exporting air conditioning products to new jurisdictions.

A summary of possible simplifications identified through the interviews with air conditioning manufacturers is now provided. This provides a qualitative assessment of possible benefits:

Table 10: Proposed simplification measures, benefits and possible savings

Proposed simplification || Explanation || Benefits

Review technical standards to eliminate duplication and overlap between standards || There is a need to consolidate technical standards wherever these overlap so as to limit the overall number of technical standards. || Reduction in number of standards followed by manufacturers Time saving in familiarisation costs with standards

Integration of measurement methods for all IM legal requirements into a single technical standard. || Development of product-specific standards encompassing all[127] || Time saving in familiarisation costs with standards

Setting up mutual recognition schemes for conformity assessment procedures with major global jurisdictions || Whereas the SDoC is accepted under most IM regulations, 3rd party conformity assessment is mandatory in other jurisdictions (e.g. US, Australia). This can result in manufacturers having to retest products that have already been placed on the European market. || No double testing of products for conformity assessment purposes Reduced need for third party conformity assessment services.

In the following table, we then provide estimates of possible cost savings from these simplifications in so far as these were possible to quantify.

Table 11: Estimates of possible cost reduction costs of compliance for air conditioners manufacturing industry

|| Unit of measurement || Reduction per unit || Total quantity || Total cost reduction

Review technical standards to eliminate duplication and overlap between standards[128] || Manufacturers || € 400 || 100 || € 40.000

Integration of IM legal requirements into a single technical standard[129] || Manufacturers || € 9.693 || 100 || € 969.255

Setting up mutual recognition schemes for conformity assessment procedures across key global jurisdictions (e.g. EU, US, Russia, China, etc.)[130] || Models || n.a. || || € 374.400

Total || || || || € 1.383.655

It should be noted that the estimated simplification savings are approximate. It is difficult to quantify savings because manufacturers are themselves unable to quantify the expected level of benefits and cost reductions. Moreover, there is a lack of baseline data on many types of costs.  For instance, in order to accurately quantify the cost savings of implementing a mutual recognition scheme, it would be necessary to have data on the costs of third party conformity assessment in third countries and the comparable costs in the EU for manufacturers of following the Supplier's Declaration of Conformity (SDoC) procedure. Estimating the latter is complicated by the fact that even when manufacturers use SDoC, they often carry out some testing themselves, while using a third party to undertake some aspects of testing on an outsourced basis. .

Measures to improve the effectiveness and efficiency of the regulatory landscape and help to remove uncertainty. 

In addition to possible simplification measures, manufacturers noted that compliance costs could in some cases be kept in check if the Commission were to take steps to ensure that current ambiguities in the IM regulatory framework are eliminated, since this would remove current legal uncertainty with regard to what the requirements are.  In addition, access to relevant information could be made more accessible thereby enhancing the efficiency of the ‘familiarisation with the legislation step.

Familiarisation with legislation is a major cost for manufacturers. Currently, regulatory compliance specialists need to continually engage with industry associations, attend industry events and speak with their suppliers in order to keep track of upcoming regulatory developments.  Manufacturers are consulting national standardisation authorities to ensure that they keep abreast with ongoing updates and developments.  A number of different sources are drawn upon to ensure that firms are fully informed.  As a result, a lot of time and effort is being invested in this area and it is likely that not all firms are equally engaged in the process.  To address this issue, the Commission could set up a centralised online repository for keeping track of the introduction of new, and changes to existing IM directives and regulations and updates in the applicable standards. This could provide details for individual product groups. This could reduce the human resources needed by manufacturers to keep track of regulatory changes. The familiarisation step is clearly an area where the Commission could help to create a level playing field for market participants and ensure that there is equal access to the latest regulatory information and development in the fields of standards. 

In addition, the point was made that there is some ambiguity in the wording in the NLF as to the translation requirements for DoCs.  The industry is accustomed to producing DoCs in EN and this has met the needs of Market Surveillance Authorities since the introduction of the New Approach.  However the wording in the NLF is ambiguous as to whether the use of the relevant national languages is required or is EN is permissible[131]. Clarifying this matter with a view to retaining the longstanding linguistic approach of using EN would remove any ambiguity and sustain the current level of efficiency in this area.

Table 12: Proposed efficiency enhancing measures and benefits

Proposed measure  || Explanation || Benefits

Provide clarity as to whether DoCs need to be translated into all EU languages || There is a need to remove ambiguity as to whether DoCs can be translated in EN for the EU market or if Member States translations are required. || Ambiguity for manufacturers will be reduced and the currently level of efficiency in producing DoCs will be maintained.

Development of an online repository of regulations and indication of the relevant standards (and where they can be purchased) for specific product groups and providing an overview of (future) updates and developments.  || Currently ensuring that firms are up to date with legislation and standards requires investment in keeping abreast with developments in multiple areas with information being retrievable from several sources.  This could be centralised and made more coherent. || Familiarisation with the legislation and standards represents a major cost for industry. Providing the most up to date information located in a single source will help to reduce costs in this area.

8. Overall conclusions

This case study focused on air conditioners and air conditioning systems. Since the HVAC industry is very broad, it was not possible to include all categories of air conditioner. 

There were difficulties in obtaining reliable data on the air conditioning sector in Europe since Prodcom data was only available at a high level of aggregation. However, global market data shows that the manufacturing of small air conditioners (<12 KwH) and comfort cooling systems is dominated by a small number of global manufacturers, especially from East Asia (the EU has only an estimated 7% share).  According to data on the size of the world market for air conditioning in 2013, global production was 98m units in 2013, whereas the size of the European market was about 6.65m units sold in 2012. European manufacturers have a stronger market share in niche markets such as chillers and high-end data cooling systems.

IM legislation applicable to air conditioners and air conditioning systems includes some of the core product safety directives such as the Low Voltage Directive (LVD) and the Electromagnetic Compatibility Directive (EMC). In addition, IM legislation with an environmental focus is applicable, for instance the Ecodesign implementing regulations for small air conditioners and comfort fans <12kwH. From 2015, the extension of ecodesign requirements through Lot 3 Ecodesign Implementing Regulations for larger air conditioners is likely to result in extra administrative costs for industry. These future costs are expected to be quite high compared with well-established IM legislation.

On the basis of information provided by the eight companies interviewed, most of whom were able to provide quantitative information, the costs of compliance with IM legislation were estimated at around €50.8 million, equivalent to c.a. 1% of annual turnover. Administrative compliance costs (familiarisation with the legislation and applicable administrative requirements, the preparation of a DoC and technical documentation) were estimated to be approximately €17.2 million. Substantive compliance costs, such as integrating IM regulatory requirements into product design and carrying out testing as part of conformity assessment procedures (internally and externally) were estimated at € 23.5 million per year.

The interviews with firms were consistent in pointing to the Ecodesign Directive as one the main current cost drivers of compliance-related activities. It was acknowledged however that the costs of the introduction of new legislation, whilst high in the short-term tend to diminish over time as the legislation becomes better embedded. The need to replace fans integrated into larger air conditioning systems already in the development pipeline or about to be placed on the market was a particular industry concern, since many fans do not meet eco-design requirements.

The air conditioning industry was broadly supportive of internal market legislation in providing a regulatory framework that avoids country-specific divergence across different national markets. However, they were concerned that their industry is especially impacted by the high administrative costs of IM legislation that has a strong environmental focus.

As regards the possible scope for simplification, there were no suggestions relating to IM legislation itself. Rather, proposed measures related to the need to eliminate duplication due to perceived overlap between different technical standards. The possibility of integrating all IM legal requirements into a single technical standard so as to overcome duplication was raised by two firms.  Total potential savings were these and other measures, such as strengthening the mutual recognition of conformity assessment across different jurisdictions, were estimated to be €1.4 million.

9. Sources of information - interviews References - Sources

· Preparatory study on the environmental performance of residential room conditioning appliances (airco and ventilation), Economic and Market analysis, July 2008.

· Market research data and Prodcom, Analysis presented in Sustainable Industrial Policy – Building on the Ecodesign Directive (DG ENTR).

· A comprehensive overview of applicable legislation in the area of Ecodesign, the Energy Performance of Buildings Directive and the Energy Labelling Directive was produced recently as part of an Ecodesign preparatory study for air conditioning equipment above 12 kW – see www.ecohvac.eu, task 1, page 128-160.

· JARN, the “Japan Air Conditioning, heating and refrigeration news” magazine, 25 May 2013  Prodcom data, 2010.

Interviews

- 1 with a national association in the UK (FITA), and 1 with an EU Industry association (Eurovent).

- 7 interviews with manufacturers of air conditioners, 1 interview with a manufacturer of chillers (6 of the 8 discussions yielded quantitative data.

Annex - Applicable IM legislation and standards

This Annex provides information that supplements the summary overview of the applicable IM legislation and standards in Section 3 of the case.

A mapping exercise was undertaken to identify applicable IM legislation relevant to the air conditioning sector. An overview of relevant legislation and of relevant technical standards is now provided. This draws on desk research and has subsequently been verified by industry associations and enterprises. There are differences in the applicable legislation and technical standards depending on the size of the air conditioning system and its intended purpose (e.g. domestic, industrial, fixed installations vs. portable air conditioners). For example, Ecodesign implementing regulations have only so far been introduced for air conditioning systems <12 kW, although as will be shown in this case study, the withdrawal of non-compliant fan products can also affect manufacturers of larger air conditioning and precision engineering systems which integrate such fans into their products. The PED is only relevant to larger air conditioning systems for industrial use.

Table 13: Overview of IM legislation and standards applicable to air conditioners and conditioning systems

Name of legislation || Main issue addressed (safety, environment, other) || Administrative requirements for economic operators || Relevant standards

Core legislation

Low Voltage Directive (LVD) -  2006/95/EC || Health & Safety  (electrical) || Testing according to relevant safety standards Development of technical file Declaration of conformity and CE marking Installation instructions and manual for final consumer (with translations) || Two applicable standards to achieve presumption of conformity for portable and household air conditioning: Part 1 EN 60335-1 (general standard applying to household and similar electrical appliances) Part 2 EN 60335-2-40 Particular requirements for electrical heat pumps, air-conditioners and dehumidifiers EN 50564:2011 Ecodesign – stand by and off mode:

Electromagnetic Compatibility Directive (EMC) 2004/108/EC || Electromagnetic compatibility || Testing according to relevant technical standards Development of technical file Declaration of conformity and CE marking ||  

Machinery Directive (2206/42/EC) || Safety || Development of technical file Declaration of conformity and CE marking Installation instructions and manual for final consumer (with translations) || Only applicable to air conditioning systems intended for industrial and/ or commercial use Requirements of the directive for cooling generators of ENTR Lot 6 are covered under the following standards: - EN 12693:2008 Refrigerating systems and heat pumps - Safety and environmental requirements - Positive displacement refrigerant compressors -  EN 378-2:2008+A1:2009 Refrigerating systems and heat pumps - Safety and environmental requirements - Part 2: Design, construction, testing, marking and documentation

Gas Appliances Directive (GAD) 2009/142/EC || Specify the safety level required of appliances burning gaseous fuels by specifying design, operating characteristics and inspection procedures. || || Two harmonised European standards have been cited in the OJEU under the GAD: (1) EN 12309-1:1999: Gas-fired absorption and adsorption air-conditioning and/or heat pump appliances with a net heat input not exceeding 70 kW - Part 1: Safety; and (2) EN 12309-2:2000: Gas-fired absorption and adsorption air-conditioning and/or heat pump appliances with a net heat input not exceeding 70 kW - Part 2: Rational use of energy[132]

RoHS Directive (2011/65/EC) || Use of hazardous chemicals || Collect compliance statement from suppliers (material declarations) Technical file with supplier declarations and own analysis tests Declaration of conformity to be kept for 10 years || Note: since the 2011 recast Directive, there is an exclusion from RoHS for fixed installed cooling, air conditioning and refrigerating systems and heating systems designed for non-residential use. CE marking has been applicable since the 2011 RoHS II recast.

Implementing Regulation on Ecodesign requirements[133]:   Regulation  206/2012 EU for air conditioning equipment below 12 kW and comfort fans. || Energy consumption/ efficiency || Testing according to harmonised standard Technical file with results of studies and explanations of design choices made and the management system Development of product fiche Declaration of conformity and CE marking Installation instructions and manual || EN 14511:2011 Determination of Full load energy  efficiency EN 14825 2011  Determination of part load energy efficiency EN 62301:2005 (CEN) Standby power consumption EN 12102:2008 Sound power level (CEN) Notes: · Applies from 1st January 2013. A regulation on Ecodesign requirements for equipment above 12 kW is in preparation.

Regulation Ecodesign requirements for industrial fans (327/2011 EU) || Fan efficiency || Development of technical file Declaration of conformity and CE marking Installation instructions and manual for final consumer (with translations ||

Regulation Energy Labelling  Air conditioners  and comfort fans   (626/2011 EU) || Energy consumption/ efficiency || Technical file with results of studies and explanations of design choices made and the management system Development of product fiche Placing of energy label || EN 14511:2011 Determination of Full load energy  efficiency EN 14825 2011  Determination of part load energy efficiency EN 62301:2005 Standby power consumption (CEN) EN 12102:2008 Sound power level (CEN)

|| || ||

Other legislation

|| || || ·

|| || ||

|| || ||

|| || ||

Pressure equipment Directive 97/23/EC  (PED) || Safety of pressurized systems || Development of technical file Declaration of conformity and CE marking Installation instructions and manual for final consumer (with translations) || EN 378: 2012 environmental & safety requirements Note: only applies to larger air conditioners

REACH Regulation  (1907/2006 EC) || Use of chemicals || Collect statement from suppliers stating that product is in compliance with requirements REACH compliance statement ||

Packaging and packaging waste (2004/12/EC) || Packaging || Declaration of Conformity ||

Regulation Ecodesign requirements electric motors (640/2009 EC) || Motor efficiency || Development of technical file Declaration of conformity and CE marking Installation instructions and manual for final consumer (with translations ||

Regulation Ecodesign requirements glandless circulators (641/2009 EC) || Circulator efficiency (chillers) || Declaration of Conformity CE marking ||

Regulation Ecodesign requirements water pumps (547/2012 EU) || Circulator efficiency (chillers) || Declaration of Conformity CE marking ||

The European Union’s Ecolabel Regulation 66/2010 is a voluntary labelling scheme and can be awarded to products and services that have a lower environmental impact compared with other products in the same group. The label criteria were devised using scientific data on the whole of a product’s life cycle, from product development to disposal. There is a link between the voluntary Ecolabel and compliance with Ecodesign regulations in that products bearing the Community eco-label are presumed to comply with the Ecodesign requirements stated in the applicable implementing measures.

Although EU environmental legislation is not formally within study scope, such legislation is particularly important in the air conditioning industry since it forms part of the overall body of EU legislation with which manufacturers must comply. A summary of the main environmental legislation that applies to air conditioners is summarised below:

Table 14:  Overview of applicable environmental legislation affecting air conditioners and air conditioning systems

Name of legislation || Main issue addressed (safety, environment, other) || Notes and references to relevant standards

F-Gas Regulation (2006/842/EC) || Containment of greenhouse gases || F-gas regulation and its 10 supporting implementing regulations (leakage, certification personnel, labelling, etc.). Note: legislation under revision due to proposal to revise F-gas Regulation, COM(2012) 643 The aim is to reduce the emissions of fluorinates greenhouse gases covered by the Kyoto Protocol.

Implementing Regulations for  the F-Gas Regulation Labelling F gas (1494/2007 EC) || Labelling Certification of technical personnel and companies Leakage || Personnel & company certification is mandatory and concerns personnel who install, maintain or service systems; leak check systems

Energy Performance of Buildings Directive 2010/31/EU (EPBD) || Energy Performance in buildings || Articles 15,16,17,18 deal with the inspection of air conditioning systems, but also the impact of national/ regional calculation methods e.g. SAP in UK, En EV in D, RT 2012 in F There are also a set of related standards developed under CEN TC 113 and CEN TC 228 Energy Performance of Buildings Directive. CEN Standard EN15251 (comfort conditions regarding temperature and humidity).

WEEE Directive (2012/19 EC) || Waste of electrical equipment || The scope is defined in the IA Annex of the WEEE directive (2002/96/EC). Air-conditioning products are dealt with in the IB Annex under ‘Large household appliances’, as ‘Large cooling appliances’, ‘Air conditioner appliances’, ‘Other fanning, exhaust ventilation and conditioning equipment’.

Case study 8 – Integrated Circuits

1. Introduction – objectives of the study

The product groups examined in this case study are integrated circuits. This covers a wide variety of products, sub-components and final applications as explained further in section 2, below.

The aim is to analyse the applicable IM legislation, assess the costs associated with the implementation of the applicable IM legislation, identify areas of overlaps and conflicts between the different parts of the legislation that may lead to problems and costs to industry. This case will also identify and assess the benefits of possible simplifications. The rationale for the selection of these product groups was that:

· Integrated circuits are a fully globalised product group, with important centres of European expertise integrated into the global value chain and which are directly impacted by European legislation

· Integrated Circuits are manufactured in stages, with a number of processes between the first step and the final application in a product. Costs are incurred at each stage of the production process

· Integrated Circuits are perhaps the single most prominent Key Enabling Technology, and are one of the key factors to realise the overall policy objectives of Europe 2020. As such, integrated circuits are the subject of a newly-released European strategy for micro- and nonelectrical components and systems

· Integrated circuits are a key input into a number of additional products and are used primarily by professional users.

This case study is based on desk research and qualitative interviews. In the first phase of the project, structured desk research was carried out in to establish an overview of the integrated circuit industry, identify relevant pieces of legislation and standards, and to identify companies within the industry. An interview with The European Semiconductor Industry Association (ESIA) was then carried out. Thirty-five companies were contacted for interviews. In the end, eight interviews with firms were carried out. The interviews covered one of the largest European-based manufacturers of integrated circuits, another large European manufacturer, one of the largest global manufacturers, based in Asia, and inputs from five smaller ‘fabless’ manufactures in a variety of applications. A number of companies declined to participate in the study, citing difficulty in assessing costs or, in many cases, confidentiality reasons.

2. Product definition and description of structure of the sector

According to the standardised language adopted by the International Electrotechnical Commission, a semiconductor is a device whose essential characteristics are due to the flow of charge carriers within a semi-conductor. According to IEC 521-10-03, this includes any microcircuit in which all or some of the circuit elements are inseparably associated and electrically interconnected so that it is considered to be indivisible for the purpose of construction and commerce. This includes a number of applications. The following PRODCOM categories have been used to outline the scope of the product group.

Products within scope

26112240 - Photosensitive semiconductor devices; solar cells, photo-diodes, photo-transistors, etc

26113003 - Multichip integrated circuits: processors and controllers, whether or not combined with memories, converters, logic circuits, amplifiers, clock and timing circuits, or other circuits

26113006 - Electronic integrated circuits (excluding multichip circuits): processors and controllers, whether or not combined with memories, converters, logic circuits, amplifiers, clock and timing circuits, or other circuits

26113023 -Multichip integrated circuits: memories

26113027 - Electronic integrated circuits (excluding multichip circuits): dynamic random–access memories (D RAMs)

26113034 - Electronic integrated circuits (excluding multichip circuits): static random–access memories (S–RAMs), including cache random–access memories (cache–RAMs)

26113054 - Electronic integrated circuits (excluding multichip circuits): UV erasable, programmable, read only memories (EPROMs)

26113065 - Electronic integrated circuits (excluding multichip circuits): electrically erasable, programmable, read only memories (E²PROMs), including flash E²PROMs

26113067 - Electronic integrated circuits (excluding multichip circuits): other memories

26113080 - Electronic integrated circuits: amplifiers

26113091 - Other multichip integrated circuits n.e.c.

26113094 - Other electronic integrated circuits n.e.c.

As is clear by the range of product types, the product category of integrated circuits contains a number of sub-types. In general, integrated circuits are the building blocks of a number of technologies that make up micro- and nano-electronic components and systems. This includes the semiconductors used in all types of digital application used in electronics, automotive, and medical devices. In addition, integrated circuits are moving into an additional range of applications that further complicate the sector. New technologies such as wearable applications are driving breadth of integrated circuits into new product types.

Market size and Industry Structure

The global turnover of the semiconductor sector has been estimated at €230 billion in 2012, while the value of products comprising micro- and nanoelectronic components represents around € 1,600 billion worldwide and has grown by 5% per year since 2000.[134]

The starting point for the size of the European market is the Eurostat PRODCOM database, supplemented by additional market studies. In the PRODCOM database the specific product are covered under the code 261130-XX. Based on data, turnover is in the range of EUR 56.8 billion. Other sources suggest a somewhat smaller industry, with European turnover in 2011 amounting to EUR 30,3 billion.[135]  The most comprehensive report outlining the profile of the Integrated Circuits market is the EU Trade in Electronics Sector Fiche, which is cited by the Industry Association as an authoritative source of market information. The Sector Fiche indicates a market size of

Industry Structure

Semiconductor products are multinational composites, and the industry is highly decentralised and diverse. The process of manufacturing can be broken down into discrete steps, with up to 600 sequential operations for each circuit. Final products are based on wafer processing, testing, and assembly, which generally take place in different places, often in different regions across the globe. The value chain is very complex and long, with the industry moving into even greater levels of fragmentation.

Developing newer generations of chips, becoming smaller and more powerful at an exponential rate, requires a high degree of precision in the fabrication process and higher levels of investment. In the 1980s, a new business model emerged to help solve the need for constant investment, called the “foundry” model, comprised of different types of manufactures. Large foundries, called “fabs” are able to increase the volume of their production to a sufficient scope to allow them to update assembly and photolithography systems, and are more commonly located in the Asian Pacific region. The Taiwan Semiconductor Manufacturing Company (TSMC) is the world's largest dedicated independent semiconductor foundry, with its headquarters and main operations located Taiwan. As a corollary industry, the “fabless” semiconductor company model, is comprised of firms focused on design, marketing, and sale of circuits while benefitting from lower capital costs while concentrating their research and development resources on the end market.

The industry continues to bifurcate into two types of integrated circuit producers:

· Integrated Device Manufacturers (IDM) that design, manufacture and sell their chips. This includes firms in the United States (e.g. Intel), Asia (e.g. Samsung), and in Europe (e.g. STMicroelectronics, NXP, Infineon).

· Fabless manufacturers that design components and provide integrated circuit products and services to customers but outsources manufacturing to foundry companies. Fabless manufacturers often source their products from multiple foundries to optimise their supply chain and secure constant access to materials.

· A hybrid ‘fab-light’ model has also emerged, which is based on maintaining some high-value manufacturing in-house but outsourcing the rest to a foundry.

The continued migration of production to ‘low cost’ labour countries combined with the continued high rhythm of technological change has driven companies to focus on core competencies, meaning that European firms are increasingly specialised in one component of the value chain.[136] The emergence of a networked model has allowed for – and subsequently encouraged – a greater degree of specialisation and opportunity for new entrants in highly-innovative areas of design, logistics, services, and computer-supported manufacturing.

This globalisation of the industry has also created a very long and complex supply chain in which European firms increasingly focus on collaboration and industrial partnerships. It is common for companies to rely on supply chains for most subcomponents, with third party testing occurring at various stages along the production phase, depending on the product type, country of origin, and intended final application.

The European industry is driven by a high research-intensity, with the highest R&D intensity of any sector in Europe, at 14.8 percent.[137] Industry clusters are important in the integrated circuits sector, given the high R&D intensity and the need to specialise. The most significant European clusters are located around Grenoble (France), Eindhoven (Netherlands), Dresden (Germany) and Dublin (Ireland), but other European clusters such as Catania in Italy also have global presence. It also appears that the leading clusters will reinforce their position as technology transitions to a new platform based on 450 mm wafers.[138] To sustain these clusters, European-wide supply chains have developed, with additional high-tech clusters in increasingly specialised fields (such as Helsinki and Vienna). Table 1 outlines key descriptive data on the European market.

The largest manufacturer is located in Taiwan (TSMC). Within the top 20 producers in terms of worldwide sales, only three are located in Europe: STMicroelectronics, Infineon, and NXP. Global rank among the largest European manufactures is provided in Table 2, below.

Table 2: Top European manufacturers - 2010

Global Rank || Company || Country || Revenue (million USD) || Market Share (percentage)

7 || STMicroelectronics || France/Italy || 10, 290 || 3.4

13 || Infineon || Germany || 6,226 || 2.0

17 || NXP || Netherlands || 4,021 || 1.3

While European manufacturers do not command a large global share, some producers of integrated circuits have established sites in Europe, including sales, design, and research along with some production as well capacity. In 2011, European production represented less than 10 percent of global production, down from a high of 16 percent only a decade earlier. Nevertheless, in Europe, micro- and nanoelectronics is responsible for 200,000 direct and more than 1,000,000 indirect jobs. [139]

Table 1 – Data on market size and industry structure

Parameter || Data

EU Market size || Market reports (2011) EUR 30.3 billion

Production volume/value in Europe || PRODCOM – Production Value (2010) – EUR 49.2 billion PRODCOM - Production Quantity: 11.415.218.521 units

Imports  || PRODCOM - Value of Imports: 11.174.225.410 units

Exports || PRODCOM - EUR 8.8 billion

Number of enterprises || PRODCOM (2010) 6,984

Total Turnover || PRODCOM - EUR 56.8 billion

Number of employees || ESIA (2012) 200,000 direct employment PRODCOM (2010) 215,000

Source: Eurostat and market reports

The Final Report of the High-level Expert Group on Key Enabling Technologies[140] estimates that the European sector will enjoy a compound annual growth rate of 13 percent over the next years. But the industry data itself does not tell the complete story of the value of the integrated circuits sector to the overall European and global economy. Integrated circuits constitute a Key Enabling Technology (KET) and are valuable for the economic potential, their value-adding and enabling role, as well as their technology and capital intensity in terms of R&D and initiation investment costs.[141] The image below outlines the economic impact of the sector, both in terms of providing a market for suppliers of materials and equipment, moving up into direct employment and the subsequent industries enabled by the presence of software.

Figure 3: Value of Enabling Technology

Source: ESIA, 2010

3. Analysis of applicable IM legislation and standards

On the basis of desk research and input from firm interviews, we have identified the list of applicable pieces of Internal Market legislation, the basic administrative requirements and the relevant harmonised standards that can be used by manufacturers to meet the essential requirements.

In response to the internal market legislation, a number of standards have been developed, as outlined in table 2, above. Integrated circuits are highly technical and subject to broad international standardisation. Extensive standards exist. Given that the range of potential applications and sub-groups is limitless, only the major product-specific regulations have been reviewed. The table is meant to illustrate key standards that are aligned with specific requirements from internal market legislation, and is far from comprehensive.[142]

Standards vary according to the organisation issuing them. A number of standard-setting organisations exist, such as industry-led bodies (JEDEC), as well as the IEC and ISO/CEN. The IEC have been active in developing recent standards for the industry, as it focuses on the electronics industry.

Table 2 – Summary of IM legislation covering Integrated Circuits

Name of legislation || Main issue addressed || Requirements for economic operators || Relevant standards

RoHS (2011/65/EC) || Use of hazardous chemicals || Collect compliance statement from suppliers (material declarations) Technical file with supplier declarations and own analysis tests Declaration of conformity to be kept for 10 years || EN 50581:2012   IEC62321

General product safety Directive || Health & Safety || Provide identification of the product by a product reference Carry out sample testing of products, keep a register of complaints and keeping distributors informed of such monitoring (voluntary) Inform authorities of dangerous products and actions taken to prevent risk Co-operate with the authorities upon request || CENELEC: EN 60950-1:2006/A12:2011

EMC  2004/108/EC || Electromagnetic compatibility, mostly in the downstream applications of some integrated circuits || Testing according to standards Development of technical file Declaration of conformity and CE marking || IEC 61000 IEC 61967 IEC 62132

Packaging and packaging waste (2004/12/EC) || Packaging || Declaration of Conformity ||

REACH || Use of chemicals || Collect statement from suppliers stating that compliance with requirements REACH compliance statement || IEC 62474

The review of the various requirements and the discussions with manufacturers pointed to a few issues in relation to the implementation of the legal framework and the requirements:

- Of the regions that produce integrated circuits, Europe is the most highly-regulated region in the world and plays a key role in the development of global standards. Given the globalised nature of the industry, with highly developed supply chains, undue or particularly burdensome regulation can cause shifts in production location. The initial analysis suggests that most Directives place rather similar obligations on industry; namely, revise the design of some products and then subsequent requirements to test, document, and declare conformity to specific requirements. 

- This uniformity in across the sector was pointed out in the interviews with firms as being a positive aspect of the current framework. The industry is in general agreement that the legislation and the surrounding legislative framework are fairly positive. However, specific instances of duplication and inconsistencies have been identified.

- The most specific piece of legislation relating to integrated circuits is the RoHS Directive, which has been in effect since 2006. It was recently updated, known as RoHS2 (2011/65/EU), to address some uncertainties raised by industry and to increase market surveillance. RoHS2 bans new electrical or electronic equipment containing lead, cadmium, mercury, hexavalent chromium, polybrominated biphenyl and polybrominated diphenyl ether flame-retardants above specified thresholds and places documentation requirements throughout the supply chain.

- The interviews with firms consistently pointed to the RoHS Directive as the main driver of compliance-related activities. However, the interviews also emphasised that the RoHS-related procedures are part of a larger change to the industry that is now so deeply integrated in to the supply chain that it could not be isolated, even hypothetically.

- RoHS applies to integrated circuits produced in Europe as well as those entering the EU that are manufactured abroad. Due to the global nature of the industry, RoHS has become a de facto global regulation. China recently adopted most of the provisions through ‘China RoHS,’ which applies to the bulk of manufactured products. The RoHS concept is thus deeply integrated into the global industry and provides a framework for much of the supply chain.

- RoHS provisions are also reinforced and complemented by REACH, Directive No 1907/2006 concerning the Registration, Evaluation, Authorization and Restriction of Chemicals. The General Product Safety Directive introduces mandatory requirements concerning the product identification, cooperation with authorities when requested and a voluntary conduct of tests of marketed products, and the keeping of a register of complaints.

4. Analysis of costs of compliance with IM legislation

The information presented in this section is based on the in-depth interviews with eight producers of integrated circuits. The firms range in terms of size and production volume and a located at various points along the production chain.

Given that the integrated circuits industry is completely globalised, turnover has been estimated from the turnover from Europe or from the European subsidiary of global companies. Information has been taken from corporate reports. It should also be noted that even though turnover is from Europe, the overall activity is fully global, such as R&D taking place in Europe with manufacturing happening in other regions, generally in Asia).

Firm || Product/Application || Firm Size || Annual turnover from product (global) || Share of EU market (% of total firm turnover)

A || Fabrication || Large (>1000 employees) || 3,900,000,000 || 33

B || Fabrication || Large (>1000 employees) || 17,100,000,000 || 10

C || Fabrication || Large (>1000 employees) || 4,368,000,000 || 20

D || Fabless - telecommunications || Medium size (250-500) || 388,000,000 || 32

E || Fabless – consumer electronics || Small (<250 employees) || 2,400,000,000 || 10

F || Fabless –touchscreen components || Small (<250 employees) || 3,000,000 || 100

G || Fabless - general || Small (<250 employees) || 6,000,000 || 15

H || Fab-lite - general || Medium size (250-500) || 1,800,000,000 || 66

On the basis of discussion with the integrated circuit producers, IM legislation generates impacts on the following stages of the production process:

· Familiarisation with legislation and the purchase of standards

· Development of alternative designs and the associated testing of materials

· Seeking authorizations and exemptions, if needed, from RoHS and REACH lists of restricted substances

· Documentation of c Documentation of compliance -  Testing, technical file and certification

· Monitoring the suppliers in the supply chain for compliance and switching to avoid non-compliance

· Declaration of conformity, CE marking and instruction manual

· Response to market surveillance activities

A number of caveats are necessary.

· It should also be noted that while costs have been suggested at specific points along the path towards compliance with EU Internal Market legislation, specific data on the costs is not available for each step.

· The interviews have produced limited information on the specific impact. One key reason is that, as a result of the dominant use of the foundry model, much of the compliance costs are absorbed throughout the supply chain and not by an individual company. OEM suppliers in third countries are required to adhere to restrictions while also complying with design requirements set out by fabless producers.

· Compliance testing occurs very early in the supply chain and it is not possible to disaggregate compliance costs for the IC firms. In addition, firms have not been able to estimate the amount of resources involved in the design process linked directly to regulatory compliance versus design procedures relate to quality, reliability, or adherence to regulations and standards set out at an international level.

The general process followed by manufacturers to ensure compliance with the IM legislation includes the following closely interlinked steps, and any specific data on costs has been identified and noted.

Familiarisation with relevant legislation and purchase of standards

The introduction of new legislation places costs on firms, including the time and resources used to familiarise themselves with the legislation.

The purchase of standards is one approach to learning about the implications of specific relevant legislation, which generates financial costs. Interviews with firms suggest that no standard ‘familiarisation period’ can be feasibly created due to the differences in the requirements. Manufacturers, suppliers, distributors, and end producers of consumer products develop administrative systems or databases applicable requirements are organised. Databases are being developed to manage the complexity of keeping track with IM legislation, standards, and amendments.

However, the costs association with each of these features is dependent on the specifics of legislation, of the new provisions, the intended end use of the semiconductor, and of the product portfolio. Therefore, no general average can be derived, according to the interviews. Indeed, the interview respondents suggest that databases and tracking systems are a normal part of working in an industry with a long supply chain and diffuse set of suppliers.   

The smaller fabless firm states that they rely on their suppliers as well as their customers to inform them of implications of the various pieces of legislation. Third party testing occurs, but it varies depending on the production chain. In terms of their suppliers, fabless manufacturers tend to create industry partnerships with ‘fabs’ that produce the raw inputs into the integrated circuits. In general, there are fewer and fewer producers and the fabs are highly involved in the discussions of standards and legislation. On the customer side, the main market for European producers includes some of the most highly-regulated industries, which are careful to conform to legislation. Therefore, according to the interview with a fabless manufacturer, the industry has knowledge of how to comply and this knowledge is shared up and down stream. 

Under REACH, the substance of very high concern (SVHC) "candidate list" can be updated annually and functions as a "living list".[143] As soon as a SVHC appears on the "candidate list", suppliers of articles containing the SVHC must forward information on the listed SVHC contained in the article (above a concentration of 0.1%) to recipients. The list is updated every 6 months, and even the larger firms have a very difficult time managing the speed with which the list is updated, though the industry has not produced data to demonstrate the burden. The European Chemical Agency (ECHA) engages in a highly structured public consultation every year, with consultation period of 45 days.[144] However, the participation of industry representatives is highly context- and product-dependent; nevertheless, this period of consultation generates discussion in advance of the introduction of changes, which allows for some familiarisation with the legislation.

According to the interviewees, manufacturers rely on standards to meet the essential requirements. Standards vary according to the organisation issuing them. A number of standard-setting organisations exist, such as industry-led bodies (JEDEC), as well as the IEC and ISO. The IEC have been active in developing recent standards.

Two interviews with small fabless producers suggest that smaller companies rely on standards, but that often changes are generally clearly articulated by customers and additional standards are not always purchased. The firm indicated that standards are purchased as needed, with some periods of time requiring the purchase of standards, as well as significant variation depending on the product line. Moreover, industry standards are often translated into customer specifications. Even in the absence of specific standards, producers would need to comply with customer specifications.

New costs have been introduced since the industry has shifted from voluntary industry standards created by JEDEC, which were free, to the IEC standard EN 50581:2012 was made available in 2012 by CENELEC related to “Technical documentation for the evaluation of electrical and electronic products with respect to restriction of hazardous substances.” This standard must be purchased. The current prices for the identified standards covering a majority of the sector include:

Relevant Standard || Price (EUR) [145]

EN 50581:2012 || 43

IEC62321 || 252

EN 60950-1:2006/A12:2011 || 277

IEC 61000 || 187

IEC 61967 || 122

IEC 62132 || 122

IEC 62474 || 204

Given that the range of potential applications and sub-groups is limitless, only the major product-specific regulations have been reviewed (see table 1 above).

Development of alternative designs and the associated testing of materials

Internal market legislation generates two distinct costs on firms in terms of design choices. First, some manufacturers have had to redesign products to comply with restrictions on materials. Second, under the two most applicable internal market directives, RoHS and REACH, companies have an opportunity to petition for an exemption or authorisation from some of the limitation imposed by the legislation. Because two separate lists are created, with separate procedures for exemptions/ authorisation, there is a duplication of effort combined with a high degree of uncertainty about certain substances.

In terms of redesign, one important source of compliance costs has been the requirements of the RoHS Directive in relation to the use of lead, which is used in a number of components in the manufacture of integrated circuits. The industry is still in the process of phasing out lead. There were significant upfront costs for the conversion to lead-free packaging, and until recently the unique functionality of lead soldering was required for some components and packaging.

Exemptions have been obtained under RoHS to allow for the continued use of some lead in a limited number of applications. Thus, testing for compatibility and replacement programmes has been an ongoing activity for firms. A number of companies outlined a ‘conversion roadmap’ to demonstrate progress towards converting their product line towards compliance with RoHS.[146]

Large companies initiated compliance programmes in response to European regulations (especially RoHS) relatively early, while many smaller producers did not have the capacity or inclination to develop substitutes and only recently started to address this issue. RoHS compliance presents many product management and design decisions such as whether to bring products into compliance or to make them obsolete, or whether to make use of the currently granted exemptions.[147]

RoHS generated upfront costs of material substitution, given that many types of integrated circuits used lead soldering. While the interviews would not confirm the cost, some studies of the impact of RoSH suggest that the impact equals 1.9% of total turnover,[148] which is generated by the upfront costs of switching to lead-free components. This is roughly in line with a 2008 study which estimated that, generally, the average past and future one-off cost impact of RoHS lies between 1 and 2% of total turnover. However, these studies did not focus exclusively on integrated circuit manufacturers, nor did they document the precise source of costs.

Interviews with firms could not provide further information, though the interview with a large producer suggested that the RoHS compliance programmes are among the most pressing R&D and compliance issues for the industry, especially given the unique functions played by some substances, such as lead. 

Seeking authorizations and exemptions

In terms of the authorization and exemption processes, some materials are critically important to the integrated circuits, both in terms of some harmful substances used in the production process while others are found in trace amounts in the final product due to their unique functionality in achieving performance goals for the product. The material development cycle in the semiconductor industry is typically 10-15 years, consisting of fundamental research, hazard and risk evaluation, demonstration and integration with manufacturing equipment (and sometimes the development of new manufacturing equipment or processes), and production. Where chemicals already used in manufacturing need to be replaced, ample time must be provided to develop substitutes for these chemical uses.

The large manufacturers stated in interviews that the requirements often serve as an impediment that is eventually overcome rather than a true barrier. No examples of specific instances could be presented where the use of a key substance could not be substituted or an exemption obtained. A review of company websites outlines the continued use of hazardous or dangerous materials in the production process, even though the substance does not end up in the finished product.

Nevertheless, the exemption and authorisation processes are very costly, according to the interviews, though no fixed amount is available. There are two aspects of the duplication that cause substantive costs. RoSH 2 and REACH apply to some of the same substances in the same products and processes, sometime resulting in duplication of administrative burdens. RoHS 2 provides rules on the restriction of certain hazardous substances in Electrical and Electronic Equipment (EEE), while REACH is a more general act regulating or restricting chemical substances. In terms of specific duplication, in a position paper from March 2013, Orgalime points out[149] that there is some overlap in the Directives. Four substances highlighted under RoHS2 for priority assessment, namely plasticisers BBP, DBP, DEHP and flame retardant HBCDD featured in the REACH Candidate list back in 2008 and are now also included in the list of substances subject to REACH authorisation in Annex XIV.

When seeking exemptions, there are two separate procedures that need to be followed and the two Directives do not recognise each other’s lists of banned substances. In some cases, an exemption can be obtained in one list but not in another; in some of these cases, there could be a delay in obtaining the second exemption.

There appears to be inconsistency in the application of RoHS and REACH, especially in terms of valid procedures that are consistent for both Directives. The industry association, ESIA, points out that lists based around the REACH processes that target substances for potential likely action without any upfront risk review on whether or not the risk is managed in how the semiconductor sector uses the substance. This uncertainty creates barriers to product development without a full risk-based assessment taking place.

The overlap and inconsistency cause a duplication of effort and significant uncertainty for the industry, with the greatest effects in product development. So far, the interviews have produced limited information on the specific impact. One key reason is that, as a result of the dominant use of the foundry model, much of the compliance costs are absorbed throughout the supply chain and not by an individual company. OEM suppliers in third countries are required to adhere to restrictions while also complying with design requirements set out by fabless producers.

Compliance testing occurs very early in the supply chain and it is not possible to disaggregate compliance costs for the IC firms. In addition, firms have not been able to estimate the amount of resources involved in the design process linked directly to regulatory compliance versus design procedures relate to quality, reliability, or adherence to regulations and standards set out at an international level.

 Documentation of compliance - Testing, technical file and certification

Testing has long been a normal procedure in the integrated circuits industry, either in-house or by specialised testing houses. With the emergence of RoHS and REACH, third party testing houses have emerged to fill the gap in internal capacity of some smaller fabless manufacturers. IDMs have in-house testing capabilities, and increasingly have started to offer testing services to their industry partners to help consolidate some of the processes within the supply chain.

Both RoHS and REACH require the development of a technical file following testing, most often following a specific standard created by the industry. RoHS2 introduces new requirements for companies to maintain technical files. This is a significant difference compared to the first version of the RoHS Directive, which did not prescribe any requirements for manufacturers to maintain compliance documentation.

Under the original RoHS, firms along the supply chain did not have this obligation; the final OEM manufacturer or importer who puts the finished branded equipment on the market in the EU incurred all the costs of managing the supply chain.[150]

As a result of major end users being required to monitor the supply chain, suppliers have long been encouraged through market pressure to maintain technical files, and this has long been a well-established practice in the integrated circuits industry.

However, the practice remained ad hoc and incomplete, according to the large manufacturer interviewed. RoHS2 now puts more of a structured framework in place. Standard EN 50581:2012 was made available in 2012 by CENELEC related to “Technical documentation for the evaluation of electrical and electronic products with respect to restriction of hazardous substances"[151] to meet the needs of technical documentation.

Information obligations add an additional administrative cost. An important source of administrative costs is with REACH Regulation. REACH places a legal obligation on all EU suppliers to provide substance declaration information when they supply their outputs (components and sub-assemblies) to the next manufacturer in the supply chain. This could extend to contract manufacturers when they supply equipment to OEM clients, drawing on information which component suppliers are required to disclose to the contract manufacturer. However, the costs vary depending on the unit type and the size of the order.

There are also certain synergies in the databases since many of the requirements are the same and industry standards are able to cover both Directives. A single technical file system can capture information pertaining to both RoHS and REACH. The General Product Safety Directive introduces mandatory requirements concerning the product identification, cooperation with authorities when requested and a voluntary conduct of tests of marketed products, and the keeping of a register of complaints.

Firms provided direct estimates of human resources dedicated to managing the technical files. The resources dedicated to managing these files vary significantly according to firm size and location in the production chain. For example, a small fabless producer (focusing on design and sales) with 25 employees reported that 1 FTE was required to address requests for documentation. A large global producer, with a staff of 24,000, stated that there are approximately 50 FTE dedicated specifically to compliance. In this latter case, approximately half of the staff time is normally dedicated specifically to RoHS. However, the total responsibility for maintaining the files is distributed across a number of additional staff resources, including sales staff, R&D, quality assurance, and management. Another large producer stated that the European-based team has a large legal team, with 42 people and one in-house council that focus on, among other domains, export compliance.

Monitoring the suppliers in the supply chain for compliance and switching to avoid non-compliance

Linked to the certification costs, firms in the downstream stages of the supply chain are required to verify the certification of their suppliers and then pass this information onto their clients. This places significant burdens throughout the supply chain. Although REACH and now ROHS2 place obligations on companies to pass on information, in practice it is the demands of customers that cause companies to collect stringent information, up to the standards of the eventual end-users.

A number of approaches have been adopted to monitor the supply chain. Downstream firms, especially larger firms operating with many suppliers, require relevant supplier to pre-register substances and preparations used in industrial (including engineering) processes and will monitor and support registration by suppliers.

As integrated circuits move from one producer to the subsequent stages of development, the common practice is to use a bill of materials (BOM) to document the materials and substances contained in the circuit. Ideally, suppliers will issue a Full Materials Declaration, which states all of the elements and substances that are contained in an integrated circuit. According to desk research and interviews, this is not consistently practiced. Confidentiality was raised as one potential barrier in obtaining all relevant information. In some cases, re-testing is required where there is a ‘break in the chain’ from one stage to the next. Confidentiality was also cited as one of the impediments to obtaining precise estimates; given that efficient management procedures are part of the value proposition of some companies, details were not forthcoming.

The main concern is the amount of detail that needs to be carried forward along the development process of integrated circuits. One difficulty that was mentioned by a large manufacturer was that there are potentially dozens of suppliers in any single component, and that it is often a problem if one of the intermediary suppliers has not kept adequate records. Often, the level of detail of a company’s record system is actually a selling point in terms of the appeal of using a specific supplier.

Some companies are encouraging smaller suppliers to pre-register their Bills of Materials on private platforms that offer industry-wide databases to manage certification and declarations of compliance. BOMCheck is the most developed platform.[152] Under this system, suppliers can create a vendor account and the purchasers can apply for a subscription that allows for verification of records. For the BOMCheck system, the subscription fee for suppliers is an annual fee of EUR 300. [153] More than one million RoHS and REACH Materials Declarations from over 3,100 suppliers have been uploaded to the system, as of June 2013.[154]

Declaration of conformity, CE marking and instruction manual

Based on a review of the websites of a wide sample of the industry, it appears that the standard practice is to post Declarations of Conformity on the company webpage. This does not appear to be particularly burdensome, and the interviews suggest that this is a common practice that is recognised by firms in the sector. Indeed, the introduction of REACH and RoSH2 could potentially redistribute costs across the supply chain rather than place all costs on the single point at which the final product is placed on the market, meaning that costs are transferred rather than altered. 

Manufacturers within the EU must obtain a declaration of ROHS compliance for all the parts, components, and materials that they are using, while importers need to obtain a declaration of compliance from their suppliers.

The set-up costs do, however, include the time to carry out the conformity assessment and check that standard documentation has been obtained. Some of the larger downstream companies facilitate this process on behalf of suppliers, and it ensures a smoother process for identifying required documentation. Based on the interviews with firms, the CE Marking is recognised as a normal cost of doing business and is not seen as unduly burdensome.

The industry has adopted Design for RoHS compliance guidelines, though this is internal for each company and differs based on the application. The large manufacturer uses this design guideline internally, while the small fabless manufacturer relies on the foundry to check for the compliance of its designs before shipment.

Response to market surveillance activities

RoHS2 includes obligations for all EU Member States to perform systematic market surveillance including "appropriate checks on product compliance on an adequate scale, by means of documentary checks and, where appropriate, physical and laboratory checks on the basis of adequate samples". In contrast, RoHS1 did not prescribe any enforcement procedures that Member States were required to implement.

While the documentation requirements for compliance are burdensome, interviews did not yield specific instances of particular burdens with market surveillance beyond what would be expected under typical regulation. Under RoHS, firms have 28 days to provide sufficient documentation of conformity, and there is no suggestion in the available information that this is particularly burdensome.

Both the fabless and the IDM interviewed state that while there are some occasions that surveillance authorities request information, by far the largest burden is on supplying information to client downstream, such as manufactures of electronics, automotive, or other industries. The interview respondents state that given the highly-regulated nature of the end manufacturers (automotive, industrial processes, telecommunications industries), some of which are very tightly regulated in Europe and other countries, there is a high burden on the supply chain to maintain records.

Large firms maintain structured protocols for responding to surveillance requests while the smaller firm relies on an ad hoc approach, rarely exceeding the 1 FTE that has been allocated to maintaining the technical file, reacting when necessary to supply information. Details of the document management system were not shared, though the firm was clear in that a standard approach to managing supplier documentation is sufficient for responding to requests. It was also stressed that requests from clients are normally the key source of inquiries and far outweigh any burden from surveillance agencies. 

Business as usual

Some of the costs indicated above should be considered as part of a business as usual scenario, especially those related to information sharing. While the interviews focused on the impact of RoHS and REACH, all interviews stated that quality management would still be part of internal procedures irrespective of the regulatory framework requirements, and the information requirement would remain just as burdensome. The large company stated that in some instances, the Directives and corresponding standards are helping to simplify the information as it moves through the supply chain as common standards are imposed for all companies. Product reliability tests are often conducted by established firms that want to ensure the quality of their products, so information will always need to be shared.

Furthermore, the presence of significant legislation in other countries (e.g. China and Japan) means that important part of the documentation required and the significant costs of maintaining sophisticated databases would likely have been incurred even in the absence of EU legislation.

5. Estimation of Assessment of costs of IM legislation for the whole sector

Disentangling costs is limited, given the lack of information and the diffuse burdens across the supply chain. The complex and very long supply chain creates impacts for manufacturers far upstream and downstream, though it is difficult to estimate the distribution of the burdens. Moreover, interviews suggest that the impacts of pieces of legislation are highly context-dependent, ultimately differing based on the product portfolio of a company (number and types of products), as well as the location with the supply chain. 

On the basis of specific cost information from four of the interviews, we estimated the administrative costs for the main cost elements identified and, on the basis of certain assumptions, to extrapolate to the whole of the EU industry. The interviews did not provide sufficient data to present cost details. The following table presents some information. The average figures from the interviews were upscaled using turnover.

Type of Cost || Estimated annual costs for the whole sector

Internal || € 7.6 million

Third parties || € 26 thousand

Testing equipment || € 10 thousand

Total || € 7.6 million

As is evident, internal compliance costs represent the main cost element for the industry. The interviews suggest that internal processes and activities related to compliance were the highest share of the total costs. Compliance testing is linked to companies’ R&D activities. Research and Development costs are inevitably high in the integrated circuits industry, which is a major factor explaining   why integrated circuits are the most R&D intensive industry in Europe, according to the European Commission’s R&D Scoreboard. Third party testing and testing equipment specifically for compliance with internal market legislation is marginal in terms of the overall R&D budgets. Again, a number of assumptions that have been made related to the costs need to be further examined and discussed with the relevant association. 

6. Benefits of Internal Market legislation

The industry is in general supportive of the impact of internal market legislation. The major benefit is the degree of uniformity in application across the sector and across the global production industry. The market legislation and the surrounding legislative framework are fairly positive and appreciate the impact that a standardised set of regulations has created.

The logic of the system is supported by the interview participants. Producers at the earliest points in the production chain are required to document materials and processes, and then this information is passed forward and can be traced all the way to the final application. Interviews with larger manufacturers of integrated circuits are explicit in its praise for the design of the regulations in that they do not distort competition, either in terms of location or of the placement in the value chain.

The system is applied to all stages of development and does not place unduly high burdens on the final producer of products, as was the case under previous types of regulatory instruments. Under national systems that previously had not adopted the same approach as Europe, the final producer is required to monitor the supply chain, while under the European system the supply chain fairly well documented. Europe has essentially set the global standards for the industry. This standardardisation has spread globally, and now major producing regions have aligned their regulatory frameworks to align with Europe, with the China RoHS being the most explicit example.

Market access is greatly improved. The interviews suggest that it would be very difficult to imagine a scenario with different standards in individual member states, given the global nature of the industry and the composite nature of manufacturing and application to specific products. For example, while some reservations exist about the process to identify prohibited substances (with separate systems under REACH and RoHS), the industry appreciates a single set of procedures at the European level. Under separate systems, there would be a very high level of monitoring of regulations and a constant threat that one government would face pressure to ban a specific substance, which would disrupt the global supply chain.

The regulations help to standardise the information requirements throughout the supply chain and across products. All producers state that records keeping and monitoring of bills of material would be standard practice even in the absence of European regulations. The large company stated the Directives and corresponding standards are helping to simplify the information as it moves through the supply chain as common standards are imposed for all companies. Product reliability tests are often conducted by established firms that want to ensure the quality of their products, so information will always need to be shared. Information requests would still be sent from customers, and firms would still need to keep files to track the supply chain. However, the use of a single source of regulations has helped to standardise the types of information that are required and has limited the variation in the types of requests that come from later stages in the production chain.

Given the globalised nature of the industry, with highly developed supply chains, undue or particularly burdensome regulation can cause shifts in production location. The initial analysis suggests that most Directives place rather similar obligations on industry; namely, revise the design of some products and then subsequent requirements to test, document, and declare conformity to specific requirements. The interviews suggest that while there is some scope for improvement at the level of implementation, the overall system has generated simplification, a fair distribution of burden across the entire production chain, and avoids creating location decisions based on lower standards. 

7. Analysis of simplification options

All respondents stated that the internal market legislation functions very well, and that while there is room for improvement, the functioning of the internal market legislation is well developed overall. Two concrete areas of focus emerged through the interviews. While there was a general consensus among interview participants that the two options would generate savings, the massive difference in size of the firms as well as the variation along points of the production chain meant that savings would be distributed differently for each of the firms.

Merger and simplification of exemption and authorization process under RoHS and REACH

There is an opportunity to simplify aspects of RoHS and REACH. The most immediate opportunity for simplification identified is the elimination of duplication found in the exemption and authorisation process for the same substance under both REACH and RoHS. The two processes could be made to recognise the list of the other; exemptions under one list would be automatically applied to the other. This would limit the duplication of the process of requesting authorizations or exemptions while also limiting uncertainty by only having a single list to manage. Firms at various points along the production chain emphasised that responding to requests for documentation constituted the largest source of ongoing costs, and that the presence of two lists with different cycles caused unnecessary burden. 

The impact of this simplification is that firms would be able to manage a single process, which would reduce familiarisation, design, and administrative costs. It would also create consistency for the industry through a structured regulatory cycle, which would facilitate long-term product development planning, while limiting the amount of regulatory activity required by enforcement agencies. While the benefits are clear, interview participants were unable to estimate an approximate value for the savings.

Simplification could also involve re-structuring the way in which new substances are added to restricted lists. Interviews suggest that one of the reasons REACH compliance is difficult is due to the dynamic SVHC list, which introduces upfront costs but also high risk. The six month updating cycle causes a constant flow of documentation requests from customers, which could be better managed if a longer, more structured system existed.

.

Simplification of information requirements

A second opportunity is found in the sharing of information, which could be simplified by limiting the types of information required so that a single validation or declaration would apply to all EU legislation, although the interviews suggest that these procedures are already part of the normal operation of a business in the industry. The industry representatives stated that one of the major benefits of European legislation is that it helped to standardise the reporting systems throughout the industry. Without common requirements, reporting systems would be splintered and would potentially place greater costs on the industry.

Given the complex and decentralised supply chain, adequate tracking measures and supply chain monitoring are in place for reasons other than EU internal market legislation. Standard technical documentation would be required by end product manufacturers in the absence of specific internal market legislation to comply with quality standards as well as a range of additional requirements, depending on the final application. China RoHS and the demands of end-users or final products put pressure on the supply chain create costs that would not be alleviated with any simplification.

Further simplification of information requirements could help to reduce burdens of collecting product information. Some industry-led measures to create a common platform, such as BOMCheck, could be supported by the relevant EU authorities, either by compelling its use or by strengthening cooperation with platforms. This would simplify the passing of information along the supply chain and improve the consistency of data.

8. Overall conclusions

This case study examined the role and costs of IM legislation for integrated circuits, the building blocks of a number of technologies that make up micro and nano-electronic components and systems. According to PRODCOM data, the European market for integrated circuits has a total market size of €56.8 billion while other sources suggest that the industry is somewhat smaller industry, around €30 billion. European manufacturers do not command a large global share and European production represented less than 10 percent of total global production in 2011.

The applicable IM legislation covers issues related to product safety only indirectly (through the General Product Safety Directive), electromagnetic compatibility (EMC) and focuses more on environmental impacts (REACH and RoHS Directives).

On the basis of information provided by some companies, the administrative costs for the sector were estimated at around €7.6 million. The interviews with firms consistently pointed to the RoHS Directive as being the main driver of compliance-related activities. However, the analysis also emphasised that RoHS-related procedures are part of broader changes within the industry that are now so deeply integrated into the supply chain that the compliance costs specifically linked to internal market legislation cannot be easily isolated.  The industry generally believes that internal market legislation has had a positive impact and appreciates the fact that there is harmonised product legislation in this area. A major benefit is the degree of uniformity in application across the sector and across the global production industry.

Nonetheless, some potential scope for simplification was identified, in particular, the possibility of simplifying certain aspects of RoHS and REACH so as to eliminate duplication in the exemption and authorisation process for the same substance. A second area is the possible use of a single type of validation or declaration form to cover all EU legislation. Unfortunately, no estimates for possible cost savings resulting from these simplifications were provided by manufacturers interviewed.

9. Sources of information

- Eurostat Structural Business Statistics Database and PRODCOM

- Text of applicable IM legislation and relevant standards

- Policy and strategy documents published by the European Commission or relevant industry associations 

- Industry Association: The European Semiconductor Industry Association (ESIA)

- Interviews with eight firms, varying in size, market share, and product applications.

Case study 9 –Snow-ski footwear

1. Introduction – objectives of the study

This case study focuses on the non-harmonized product group snow-ski footwear. While the product group is non-harmonized, some elements of the product are covered by harmonized legislation; namely, the Labelling of materials in footwear (1994/11/EC) directive and the Packaging and packaging waste (2004/12/EC) directive. Since the products are primarily non-harmonized, the aim of this case study is to assess the impact of national legislation and its consequences for the industry, including substantive and administrative compliance costs. Furthermore, the case study will cover the impacts of the two above mentioned IM directives as well as highlighting the important role of international standards in the production phase.

The main reasons for choosing the snow-ski footwear product group are:

- The snow-ski footwear category illustrates how regulations affects non-harmonized products and create both visible and hidden compliance costs for manufacturers;

- Although represented by relatively few economic operators the industry is comprised of a selection of both large manufactures as well as SMEs;

- Snow-ski footwear products are products with a high level of technical sophistication and have experienced rapid products development in recent years; 

- Snow and ski footwear is a non-harmonized products category and thus does not have any specific regulations concerning only this product group. However, because it is non-harmonized product group there can arise problems in regards to differing IM standards.

Methodology

The findings of this case study are based on desk research and qualitative interviews. In the first phase of the project, structured desk research was carried out in order to establish an overview of the snow-ski footwear industry, identify relevant pieces of legislation and standards as well as identify companies within the industry.

Two interviews have been conducted with The Federation of the EU Sporting Goods Industry (FESI), which is the European industry association for snow-ski footwear producers; one in the beginning of the research phase and one in the final phase to verify collected data. Additionally, five interviews have been conducted with companies within the industry. Two large manufactures and three SME’s have been interviewed As companies were regarded as an important source of information for the development of the case, a structured approach to recruiting companies was applied. Initially FESI contacted their members by email and phone, to inform about the study and set up interview appointments. Simultaneously, all identified non-FESI members were contacted by email and a minimum of two subsequent follow-up calls. All companies have received one email and a minimum of two subsequent telephone calls. For the companies where contact was established and relevant person/department was identified we have followed up with 3-4 phone calls. As mentioned above, five companies have agreed to participate.

2. Product definition and description of structure of the sector Study scope (products included/excluded)

The product group snow-ski footwear includes footwear products related to activities involving downhill and cross-country skiing. The primary products include alpine ski boots, cross country ski boots, snowboard boots and touring boots. The differences in the production methods and materials used between the various product types means that the applicable legislation and standards differ between the different product types. Snow-ski footwear is unlike other skiing equipment, such as helmets and goggles, defined as a recreational product and not a as a protective equipment.

According to the PRODCOM database the total size of the EU27 market for snow-ski footwear in 2011 was 4.93 million units (pairs) and a total EU production value of EUR 330 million. Figure 1 shows the development of the production value since 2005.

Figure 1: Annual production value of snow-ski footwear production in EU27 (PRODCOM)

Source: Eurostat

The PRODCOM code for snow-ski footwear is 32.30.12 which is a sub-category of manufacture of sports goods (32.30). There are no subcategories within snow-ski footwear and it is therefore not possible to analyze PRODCOM data for the different product types separately. The data presented in this section therefore captures the combined numbers for the manufacturing and production of all types of snow-ski footwear.

The vast majority of snow-ski footwear is alpine ski boots. FESI estimates that alpine ski boots represent around 90% of the total snow-ski footwear product category in terms of market size. The remaining product types (cross-country, snowboard, and touring boots) constitute small shares of the total market.

PRODCOM data for imports and exports shows that there is substantial trade of snow-ski footwear between the EU27 and the rest of the world. In 2011, the total EU27 export to the rest of the world amounted to 2.53 million units annually and a production value of around EUR 140 million. Imports into the EU27 totalled 2.17 million units with a production value of around EUR 40 million. Thus, according to the PRODCOM data, exports of snow-ski footwear products exceeded imports by around 350,000 units.

The numbers show that export value exceeded import value by almost €100 million and that the value of EU27 exports where about 3.5 the size of the value of imports into EU27. These numbers indicate that the value per unit exported is substantially higher than the value per unit imported. This relationship between the value of imports and exports is most likely due to the fact that the factors of production are higher within the EU27 than other producer countries, such as countries in Asia where a large share of imported products are produced.

Figure 2 illustrates the value of imports and export in the EU27 from 2005 to 2011. The graphs show that exports have recovered from the crisis-years and are now back at pre-crisis level. Imports have remained almost stagnant during the period, with a slight upward going tendency from 2007.

Figure 2:  Export & Imports of snow-ski footwear in EU27 (PRODCOM)

Source: Eurostat

The PRODCOM database does not contain data on the export destinations. However, the two major markets for snow-ski footwear other than the European countries are the US and Japan[155] and these markets accounts for the vast majority of EU27 exports.

According to FESI, the global market for snow-ski footwear products is on a general level stagnating. This is mainly due to the fact that the alpine ski boot market, which constitutes the majority of the market, has been stagnating in recent years. The market for snowboard boots is currently declining whereas the touring boots market, which constitutes a very small share of total production, is growing.

Number of employees/businesses

The EUROSTAT structural business statistics (SBS) do not provide data specific to the snow-ski footwear industry[156]. The most relevant data on industry demography and employment is therefore only available for the manufactures of sports goods (PRCCODE 32.30), where snow-ski footwear represents just one product category.

Looking at the overall data for manufacturers of sports goods, Eurostat data shows that in 2009 a total of 4,186 companies employed a total of 39,300 people[157]. The total production value of the manufactures of sports goods was EUR 3,562 million in 2011[158]. The snow-ski footwear industry accounts only for a smaller share of this value.

A rough estimate of the number of employees in the snow-ski footwear industry can be developed by assessing the production value of the industry compared to the entire sporting goods industry. Our estimate of the number of companies is based on qualitative input from the European industry association (FESI). Comparing the total production value of EUR 3,562 million in sporting goods industry with the total production value of EUR 330 million in the snow-ski footwear industry it can be observed that the snow-ski footwear industry accounts for a little less than 10 % of the total production value in the sporting goods industry. Applying this relationship would suggest a total number of employees of around 4,000. This is the most accurate estimate possible and has been supported by FESI. Considering that Firm A interviewed for this study, which is one of the largest manufactures within the industry, employs an estimated 620 people in their ski-boot division, indicate that a total of 4,000 employees appears to be a realistic estimate.

In general, the snow-ski footwear industry is very competitive with only a small number of manufactures. Based on desk research, as well as the interviews with FESI, we estimate that the total number of snow-ski footwear producers in the EU amount to around 20. These numbers, which have been verified by FESI, includes all snow-ski footwear product categories. It should be noted that since many large manufactures produce several brands, the number of snow-ski footwear brands is higher than 20. On a global level an estimated 30 companies exist.

Industry structure

According to FESI, around 70 % of the world’s production of snow-ski footwear is located in the EU. The countries with registered production include Italy, Romania, Estonia, Slovenia, Hungary, Austria, Czech Republic, Germany, and France[159]. Of these countries Italy accounts for the largest share of the market with around 50% of total production value. Historically these manufacturers have been located in the Veneto Region in northern Italy near the town of Montebelluna, where a textile and footwear cluster[160] has developed several decades ago. This cluster developed amoung leather production and as early ski boots were produced by leather materials production developed here.

Romania also accounts for a significant share of around 28% of total snow-ski footwear production. The remaining 22% is divided between the remaining countries[161]. Italy used to account for an even larger share of total production but in recent years some production has shifted towards Eastern European countries.  None of the larger manufactures are headquartered in these countries but the production is carried out through subsidiaries or intermediaries.[162]

The remaining 30% of the global production outside Europe is mainly located in the US and in Asia. In the US producers are mainly smaller manufactures within the snowboard boot category. These are very specialized companies that target a niche within the market.

The companies within the snow-ski footwear industry represent on the one hand larger companies which are responsible for several ski boot brands but also small and medium sized companies. The larger companies, which often own several brands, are a relatively small group of companies. Some of these larger companies include K2 (Full Tilt) (US), the Tecnica Group (Nordica and Dolomite) (IT), Amer Sports Group (Salomon and Atomic) (FI), Völkl Sports GmbH (DE), Fischer Sports GmbH (AT), HEAD Sport GmbH (AT), Burton (US) and the Rossignol Group (FR).

In addition to the larger companies a range of smaller players within the snow-ski boot industry exist. Despite the strong technological development of snow-ski footwear products these smaller companies have been able to maintain a position in the market (some minor companies, however, have been acquired or integrated into the larger players). The small companies are often family owned businesses that produce very specialized ski boots. Some of these smaller companies include SCARPA (IT), Northwave (IT), Startex (Karhu) (FI), Andrew Shoes (IT), Garmont (IT), Dalbello (IT) and Black Diamond Equipment (US/IT), Dale Boot (US), Rome Snowboards (US), Mammut (CH), Ride (US).

Besides the companies mentioned here a range of very small producers exist. These companies are niche players and produce only a very limited amount of products.

To estimate the total turnover of the European snow-ski footwear industry, the turnover from FESI’s members have been used.[163] The total turnover for FESI’s members is between € 680-1620 million. Since the FESI-members represent 85% we can estimate that total turnover for the snow-ski footwear industry in the EU is € 800-1900 million.

Table 1 summarizes the numbers presented above on the market size and industry structure within EU27.

Table 1: Data on market size and industry structure – snow-ski footwear (PRCCODE: 32301200).

Parameter || Data

Market size (prod.value, EU27, 2011) || € 330 million (4.93 million units (pairs))

Imports (prod.value, EU27, 2011) || € 40 million (2.17 million units (pairs))

Exports (prod.value, EU27, 2011) || € 140 million (2.53 million units (pairs))

Total Turnover (EU27) || Manufactures snow-ski footwear:  € 800-1900 million (2012)

Number of enterprises (EU27) || Manufactures of snow-ski footwear:  20 companies

Number of employees (EU27) (2011) || Manufactures of snow-ski footwear: 4,000*

Source: Eurostat, FESI

*Estimate

3. Analysis of applicable IM legislation and standards

This section outlines the relevant regulatory requirements that manufactures within the snow-ski footwear industry face. Snow-ski footwear is primarily a non-harmonized product group and therefore not covered by harmonized IM legislation. Some aspects of the products, however, are covered by the harmonized directives. These aspects will be outlined below. Also, reference will be made to the applicable national legislation covering the product group.

In addition to the regulatory requirements, technical standards are central in the industry production. This chapter therefore also outlines the relevant technical standards that are relied upon in the production of snow-ski footwear.

Identification of relevant legislation and directives

As mentioned above the snow-ski footwear product group is a non-harmonized product group. However, some aspects of the products are covered by the harmonized EU regulations. The relevant directives and regulations are listed in Table 2.

Table 2: Overview of harmonized Union legislation covering snow-ski footwear

Name of legislation || Main issue addressed || Requirements for economic operators

Labelling of materials in footwear (1994/11/EC) || Labelling of Materials used in main components for footwear || - Labelling must be in the language of the receiving states or a language of their choosing - The manufacturer is required to provide further textual information if requested by member states - Labelling have to be affixed within each pair

Packaging and packaging waste (2004/12/EC) || Packaging || - Limit the weight and volume of packaging to a minimum in order meet the required level of safety, hygiene and acceptability for consumers; - Reduce the content of hazardous substances and materials in the packaging material and its components; - Design reusable or recoverable packaging.

EC Regulation on chemicals and their safe use (EC 197/2006) REACH || Deals with the Registration, Evaluation, Authorisation and Restriction of Chemical substances || - The following information on the manufactured or imported substance shall be included in the dossier in order to unambiguously identify the substance: o  Substance name and related identifiers, molecular and structural formulae, if applicable o  Information on the composition and purity of the substance o  Spectral data and analytical information to verify the identity and composition of the substance o  Clear and concise description of the analytical methods

Mutual Regulation 764/2008 || Laying down procedures relating to the application of certain national technical rules to products lawfully marketed in another Member State || - See national legislation

Source: EC Commission

As the table shows the product category is only subject to relatively few harmonized IM directives. These include the Labelling of materials in footwear (1994/11/EC) and the Packaging and packaging waste (2004/12/EC) directives. These are both directives that do not affect the specific production process but are related to the post production labelling of the products as well as the packaging of the finished products. Additionally, the EC Regulation on chemicals and their safe use, also referred to as the REACH regulation, also covers the production of snow-ski footwear. The specific requirements are listed in the table.

In addition to these pieces of legislation the snow-ski footwear products are covered by the Mutual Recognition principle (764/2008). This means that products compliant with legislation in one member state can, on the basis of Mutual Recognition principle, also be legally marketed in other member states.

It should be noted that the Personal Protective Equipment (89/686/EEC) directive that applies to a range of sports equipment categories does not apply to ski-snow footwear since ski and snowboard boots have not been defined as protective equipment.

Since national legislation applies on the basis of the Mutual Recognition principle an assessment of the national legislation in the producing countries could be valuable. This would allow a comparison of the national legislative requirements related to snow-ski footwear in the producing countries.

Identification of international and EU wide standards

As indicated above international and EU wide standards are an important element in the design and production phase within the industry. These standards are used as a constant reference. Table 3 summarizes a list of the applicable standards within the snow-ski footwear industry. The relevant standards are published by both the International Standardization Organization (ISO) and the European Committee for Standardization (CEN). It should be noted that some of the larger producers also apply standards from national standardization organizations, such as DIN[164] in Germany and UNI[165] in Italy. These standards, however, are applied in other production than snow-ski footwear and have therefore not been included in the table below.

Table 3: Overview of applicable international standards

Name of standard || Product addressed || Main issue addressed

ISO 5355:2005 || Alpine ski-boots –requirements and test methods || - Specifies the requirements, test methods and marking of ski-boots that are used with current systems of alpine ski-bindings with attachment at the boot toe and boot heel, the proper release function of which depends on the dimensions and design of the interfaces. - For ski-binding systems that function irrespective of the sole shape or that have different requirements for the sole dimensions, it is not always necessary for the ski-boot soles to comply with this International Standard in order to achieve the desired degree of safety.

ISO 9523:2008 || Touring ski-boots for adults – requirements and test methods || - Specifies the dimensions and characteristics of the interface, requirements, test methods and marking of ski-boots with a rigid sole which are used with current systems of touring ski-bindings with attachment at the boot toe and boot heel, the proper release function of which depends on the dimensions and design of the interfaces. - For ski-binding systems that function irrespective of the sole shape or that have different requirements for the sole dimensions, it is not always necessary for the ski-boot soles to comply with this International Standard in order to achieve the desired degree of safety. - It applies to rigid touring boots. Boots with softer shells like Telemark boots are excluded as they do not have the necessary shell stability to act as part of the release systems.

ISO 11088:2006 || Assembly, adjustment and inspection of an alpine ski/binding/boot (S-B-B) system || - ISO 11088:2006 specifies assembly, adjustment and inspection procedures for the binding mechanisms of skis, integrating in a practical way, the requirements of those International Standards which are related to skis, bindings and boots. - It is intended for all individuals and institutions concerned with those procedures, and especially for sports retailers. - ISO 11088:2006 is applicable to a ski/binding/boot/ system (S-B-B) for alpine skiing, of which at least one component is owned by the user.

ISO 11634:1996 || Snowboard boots – Interface with snowboard bindings || - Specifies the dimensions and characteristics of the interface zone of the sole and parts of the shaft of snowboard-boots, to provide defined attachment conditions for the snowboard-binding

ISO 14359:1997 || Winter-sports equipment || - Marking of parts made of polymer materials

ISO 22264:2006 || Telemark ski-boots for adults -- Interface with Telemark ski-bindings -- Requirements and test methods || - Specifies the dimensions and characteristics of the interface, requirements, test methods and marking of Telemark ski-boots with flexible sole which are used with current systems of telemark ski-bindings with attachment at the boot toe and boot heel, the proper function of which depends on the dimensions and design of the interfaces. - For Telemark ski-binding systems that function irrespective of the sole shape or that have different requirements for the sole dimensions, it is not always necessary for the Telemark ski-boot soles to comply with this International Standard in order to achieve the desired degree of safety.

ISO 14359:1997 || Winter-sports equipment -- Marking of parts made of polymer materials || - Specifies the marking of all separable parts made of polymer materials (plastics), which are used in winter-sports equipment (e.g. ski boots, ski-bindings). It is not applicable to compound materials with duroplastic components (e.g. skis). - This International Standard specifies the minimum requirements for identifying materials. This is to enable a complete separation of polymer materials for recycling

EN 13427 || Related to the Packaging - Requirements for the use of European Standards in the field of packaging and packaging waste || - This European Standard specifies requirements and a procedure by which a person or organization responsible for placing packaging or packed product on the market (the supplier) may combine the application of five (mandated) packaging standards and one (mandated) CEN report (in two parts). - These standards, along with the unrevised EN 13432:2000 'Requirements for packaging recoverable through composting and biodegradation – Test scheme and evaluation criteria for the final acceptance of packaging', were agreed to support the essential requirements of Directive 94/62/EC on packaging and packaging waste. They were developed under mandate from the European Commission.

Source: International Organization for Standardization (ISO) and European Committee for Standardization (CEN)

National legislation does not appear to be relevant. Desk research in various national databases and reports has not yielded any results. Similarly, interviewees have not been able to provide information on the various national legislative requirements. Rather than keeping track of national legislation companies are much more focused on the relevant technical standards that apply to the snow-ski footwear products.

Our interviews with the firms indicate that national legislation does not seem to be a primary concern among the companies, and does not appear to affect design or production decisions. The companies do not allocate any significant share of resources to keeping track of national legislation, and only marginal resources to tracking European legislation. Hence, there seems to be limited problems related to the adaptation to national legislation and, through the interviews, it was indicated that no specific problems related to varying legislation across different member states.

4. Analysis of costs of compliance with IM legislation

This section describes and analyses the substantive and administrative compliance costs faced by companies. These costs were estimated based on the input provided by five companies – two large companies and three SMEs[166].

Firm || Product/Application || Firm Size || Annual turnover from product (global) || Share of EU market

A || Sporting good, including snow footware || Large 1,500 || €161 million || Top three in Europe, with global reach

B || Snow foot ware || SME 25 || €8 million || Small, mainly Europe

C || Snow foot ware || SME 30 || Turnover not available || Small, mainly Europe

D || Snow footware || SME 30 || Turnover not available || Small, mainly Europe

E || Sports equipment, including snow footware || Large200-250 || N/A (3.4 million units sold) || Top Three in Europe, with global reach

The processes and procedures applied by manufactures of snow-ski footwear to ensure regulatory compliance with the applicable legislation include the following steps which are analysed in detail below:

· Familiarisation with relevant legislation and standards

· Purchase of standards

· Declaration of conformity, CE marking

· Customs clearance

Familiarisation with relevant legislation and standards

The interviews have indicated that companies within the industry do not pay particular attention to the national regulatory requirements. While the preparatory actions that newly established companies perform in order to map the regulatory environment would offer suggestions about the regulatory barriers, few recent start-ups exist. The manufactures within the snow-ski footwear industry are generally well-established companies that have been in production for decades.

As mentioned, some production of snow-ski footwear has recently shifted towards selected Eastern European markets. One of the consequences is that the production has been outsourced to specialized production companies that produce products for a range of companies.

One specific case is illustrative. One of the smaller companies (Firm C) interviewed has outsourced production to a producer in Czech Republic. They did not emphasise familiarization with national regulations in the production phase as important but trust that their specialized sub supplier is in control of the processes and the regulatory requirements. In this type of constellation, the company, to ensure compliance in the production phase, spends resources on occasional controls of the finished products to ensure compliance with regulatory requirements. In this phase around 2-3 employees are allocated to regulatory compliance control of the products. It was estimated that these employees spend around 10 % of their time on regulatory compliance. Hence, the total amount of time spent on regulatory compliance in the production phase for this one company amounts to around 0.20-0.30 FTE. Within the brand owner, which has outsourced production, there are not sufficient resources to monitor and follow legislation. However, the interviewee pointed out that the specialized producers, who manufacture products for several companies, are very aware of the regulatory environment. In that sense the process of familiarization with legislation in this type of constellation has been “outsourced” to the specialized producer along with the actual production.

In general, the allocation of human resources associated with regulatory compliance for the smaller companies, however, is primarily related to the design phase, where they represent a significant share of the costs. In the design phase regulatory, requirements related to harmful substances, restricted chemicals, or other limits on materials are considered. The primary focus, however, is primarily on the technical standards.

In the case of large firm A, an average of 3-4 employees work on ensuring that sample products fulfil necessary technical requirements. The employees, however, only spend about 25% of their  time on regulatory compliance. Hence, the total amount of time spend on regulatory compliance in the design phase can be estimated to around 0.75-1 FTE.

For Firm C, a small firm, it was not possible to distinguish between compliance costs in the design phase and the production phase. However, it was estimated that the total level of human resources allocated to compliance costs amounts to 0.2-0.3 FTE’s. This in turn represents less that 1 % of total turnover a year (specific information on annual turnover was not disclosed).

Within larger firms, familiarization and monitoring of relevant legislation is structured within the company and monitoring of both national and EU legislation is conducted.  In terms of human resources, the larger companies allocate somewhat more resources than the smaller companies. For Firm A which sells multiple brands, one full time employee (FTE) is allocated to regulatory compliance. It was mentioned that the allocation of one full time employee does not represent a significant share of the total staff costs for this specific company (total of 640 employees). In addition to the one FTE, the company use specialized consultancies with expertise in legislative requirements and verification procedures. An estimate of these costs could not be provided.

Firm E estimated that a total of 2-4 FTE’s were allocated to compliance issues. These FTE’s were spread over different departments such as production (quality control) (1 FTE), the legal department (1-3 FTE), and the sales department also had ad hoc responsibility for checking on compliance issues based on requests from customers.  In general, the firms in the sector did not indicate any specific difficulties in terms of monitoring or complying with legislation across different member states, nor have they pointed to specific problems in relation to placing products on the market.                                                                                                                                              

Purchase of standards

As mentioned above the use of technical standards is a key focus area within the snow-ski footwear industry. The companies consulted in this study highlighted technical standards as a central element in their production processes. For the smaller companies there appear to be cost issues related to acquiring the standards and in general it was mentioned that the purchase and adherence to standards represents a major cost.

Within the larger companies the application of standards is also a key element. One of the companies interviewed, for example, has in-house UNI[167] and ISO committees, which focus on the applicable standards. The relevant standards for the snow-ski footwear industry have been outlined in Table 3 above. Table 4 summarizes the purchasing costs for the relevant standards.

Table 4: Price of relevant standards

Standard || Price

ISO 5355:2005 || 99,5 EUR

ISO 9523:2008 || 75 EUR

ISO 11088:2006 || 70 EUR

ISO 11634:1996 || 41 EUR

ISO 14359:1997 || 47 EUR

ISO 22264:2006 || 60 EUR

ISO 14359:1997 || 47 EUR

EN 13427 || -

Source: International Standardization Organization

Requirements from market surveillance authorities (Declaration of conformity, CE marking)

One of the significant sources of regulatory costs highlighted by the companies is the cost related to certifications by third parties. This process has proven particular burdensome for the companies and costs have been allocated in the budget to service these requirements.

One of the major regulatory barriers the companies experience is the request for certifications of materials and samples for tests. This is the primary source of costs in estimating compliance costs during the design and production phase. The larger companies listed this type of costs as the most costly stage that the company faces in dealing with regulatory compliance obligations.

The smaller companies pointed out that the process of obtaining CE marking is also an extremely costly process. This is reinforced by the need to be tested several times a year, which leads to substantial costs.

Furthermore, Firm A experienced problems related to market surveillance activities outside the EU. One of the companies had to modify the design of a product even though it had fulfilled all the homologation tests, based on US regulations. While EU legislation is particularly relevant for EU producers, compliance costs arise from international sources of requirements.

As the snow-ski footwear industry is non-harmonized the above mentioned requirements are not set out in the IM directives. FESI states that such requirements should be included in national legislation, though they were not able to point to specific pieces of national legislation containing such requirements.

Customs clearance

In general the issue of customs clearance does not seem to be a general concern within the industry, though some companies highlighted customs barriers as major sources of costs. In one of the interviews, for example, it was highlighted that delivering supporting documents for customs clearance was one of the stages of regulatory compliance that the company takes into consideration when estimating the costs of regulatory compliance. From the perspective of the company, there is little difference between the legislation and the administrative barriers that the various pieces of legislation create.

Summary of costs

The companies interviewed for this study represent very different types of companies in terms of turnover, number of employees and available resources. The amount of resources allocated to administrative and substantive regulatory compliance processes vary widely from company to company.

Most companies interviewed do not disclose their total revenue, which means that it can be difficult to estimate the impact of compliance costs versus normal costs of doing business. The larger firm that allocates one FTE to regulatory compliance generates a total annual turnover of around € 400 million and employs 1,500 people. 41% of company revenue is generated from ski-boots. Thus the turnover for ski-boots is approximately € 165 million and employment 615. Taking these numbers into account the allocation of one FTE to regulatory issues cannot be considered a major cost. This was also confirmed by the interview. Furthermore, the interviewee estimated that the budget allocated to certification, advice and testing represented around 1-2% of the total investment budget.

The burden of compliance falls disproportionately onto the smaller companies.  It  is more difficult to separate the resources allocated to compliance issues since many processes in small companies are interlinked and employees share a range of different roles and responsibilities. However, resources dedicated to compliance costs are allocated in both the design phase and the production phase. Firm B has an annual turnover of €8 million while employing only 25 people. That makes this particular company a very small manufacturer within the industry. This small company allocates almost as many resources in the design phase (0.75-1 FTE) as one of the larger companies, which indicates that the regulatory requirements are fairly high in relative terms for a small manufacturer compared to a large manufacturer.

As mentioned throughout the case, technical standards are important elements within the industry both in the design and production phase, especially for small producers. Smaller manufacturers appear to be impacted to a greater extent than larger firms. The adherence to the standards was not mentioned either as a main cost issue for the larger companies interviewed.

Variation in national regulations or laws has not created problems for the industry. Problems related to the practical application of the mutual recognition principle and varying national legislation in different member states could potentially cause problems for companies. This, however, does not seem to be the case within the snow-ski footwear industry. None of the five companies interviewed has experienced problems related to national legislation, neither in terms of compliance nor in terms of placing products on the market in different member states. The issues were also discussed with FESI. Problems related to national legislation in different members states or the mutual recognition principle have not been brought up in meetings or discussions with their member companies. In general, therefore, there seem to be very limited, if any, costs related to varying legislation across the member states as well as practical problems with the ‘mutual recognition’ principle.

Business as usual

Some of the costs described in the section above could be considered so-called business as usual (BAU) costs. This refers to costs that the company would have had to bear even in the absence of specific legislation. However, the concept of BAU costs does not apply in the same extent to snow-ski footwear since the product group is non-harmonized. Therefore, the premise of the BAU cost consideration applied in this study is to examine what costs companies would face in the absence of harmonized IM legislation. Since the harmonized IM legislation does not apply to the snow-ski footwear industry the premise of the BAU consideration would be what costs companies would face in the absence of national legislation.

Testing processes in all companies include a focus on performance, compliance with standards, and conformity with industry trends. Snow-ski footwear companies go through testing procedures that are not limited to regulatory requirements. These procedures are maintained to ensure product quality. In the snow-ski footwear industry, ensuring durability is a central element and even smaller producers go through intensive practical testing of the products, which integrates standards as well as performance testing. 

5. Possible benefits from simplification or harmonisation

As the product group for this case study is non-harmonized, the sections above have used national legislation as a point of reference in examining the administrative and substantive compliance costs. The input provided through the interviews with companies and industry associations indicate limited problems from national legislation in the different Member States.

Production of snow-ski footwear is concentrated in relatively few European countries. There are no significant challenges in terms of varying legislation that would complicate the selling of the products and increase costs. Hence, there seems to be no real demand or even potential for simplifying current national legislation. On the question of whether harmonizing legislation would lead to lower costs for the industry, it was noted that since national legislation does not represent major obstacles, there would be little costs savings related to a harmonization of legislation.

Requirements for testing and documentation to third parties companies within the snow-ski footwear industry are a source of additional costs. In general, the companies interviewed were positive towards the fact that formulated requirements exist. However, it was stated that the requirements on the frequency and scope of testing impose significant costs to the manufactures. Hence, there could be scope for simplification of these procedures in order to reduce the processes involved in testing and documentation to third parties. The costs associated with these processes are particularly prohibitive in terms of developing new products, according to one of the interviewees. Thus, companies are positive towards requirements but would like to see them revised to decrease the costs they impose, especially the need for repeated testing.

Extrapolation of costs and cost saving from the firms to the sector

Given the limited amount of data in the relevant databases on the number of manufactures of snow-ski footwear within the industry, and possible variance between Member States given different national legislative environments and national standards, we have not attempted to extrapolate the substantive and administrative costs across the total number of manufacturers in the EU.

6. Overall conclusions

This case study covered snow-ski footwear which includes footwear products related to activities involving downhill and cross-country skiing. Products such as snow-ski footwear are regulated at national level, non-harmonised and covered by the Mutual Recognition principle (764/2008). Certain aspects of the products are covered by Union harmonisation legislation. This includes the labelling of materials, packaging and also the use of chemicals under the REACH Regulation.

The total size of the EU27 market for snow-ski footwear in 2011 was 4.93 million units (pairs) with a total EU production value of EUR 330 million. The snow-ski footwear industry is very competitive with only a small number of manufactures with global reach. The total number of snow-ski footwear producers in the EU is around 20, occupying around 4,000 employees and representing around 70 % of the world’s production. Despite the absence of harmonised EU legislation in this area, national legislation is not particularly relevant to snow-ski footwear due to the globalised nature of the market. This means that all products are developed with reference to, and in compliance with international standards that tend to be followed EU-wide.  

While specific data on the compliance costs of meeting national regulations were not available from manufacturers, the most significant compliance costs identified were obtaining product certification from third parties and driven by the frequency of testing required. Meeting the requirements set out in technical standards was not mentioned as a key cost driver.

7.  Sources of information

- Eurostat PRODCOM

- Eurostat Structural Business Statistics Database and PRODCOM

- International Standardization Organization

- European Committee for Standardization

- European Commission

- Input from interviews

o Industry association: Federation of the European Sporting Goods Industry

o Five companies

Case study 10 - Bicycles

1. Introduction – objectives of the study

This case study focuses on bicycles. Bicycles are covered by the Mutual Recognition Regulation (Regulation 764/2008/EC). This regulation applies to products which are not covered by Community harmonisation legislation, or to aspects of products falling outside the scope of such legislation. The main purpose of this case study is to assess the influence of the above mentioned regulation on the bicycle sector. In the Impact Assessment of Mutual Recognition Regulation in 2007 some cases in the bicycle sector were considered.[168] Furthermore bicycles are subject to the General Product Safety Directive (GPSD 2001/95/EC), that resulted in European standards on safety requirements for bicycles.

2. Product definition and description of structure of the sector

Product and market definition

This case study focused primarily on “regular” bicycles (The term “regular” is used here to distinguish them from Electrical Power Assisted Cycles, EPACs).

Since the importance of Electrical Power Assisted Cycles has sharply increased in recent years, certain aspects related to Electrical Power Assisted Cycles were also examined. Based on Directive 2002/24/EC (concerning the type-approval for two and three wheeled vehicles) the definition of an Electrical Power Assisted Cycle can be determined. These so-called Electrical Power Assisted Cycles are (article 1 (h)) "Cycles with pedal assistance which are equipped with an auxiliary electric motor having a maximum continuous rated power of 0.25 kW, of which the output is progressively reduced and finally cut off as the vehicle reaches a speed of 25 km/h (16 mph) or if the cyclist stops pedalling.” Because of this exclusion, Member States define Electrical Power Assisted Cycles as bicycles as well. Bicycles with more power do fall under directive 2002/24/EC (concerning the type-approval for two and three wheeled vehicles). Nevertheless several Directives are applicable to Electrical Power Assisted Cycles (see below).

Market size

The following table makes use of PRODCOM data from Eurostat and shows information on production, imports and exports within the EU for the year 2009. The total European market has a value of 2.8 billion Euros. The table shows that the largest part (in value) of the bicycles on the European market are produced in Europe, that a large part is imported and that the export from Europe to third countries is limited.

Table 1: Production, import and export value – European bicycle sector (2009), PRODCOM CODE: 30921030 (Non-motorized bicycles and other cycles, without ball bearings) and 30921050 (Non-motorized bicycles and other cycles with ball bearings)

INDICATORS || Values (€)

Production || 2,012,629,673

Import || 925,093,260

Export || 96,857,400

Total EU market || 2,840,865,533

Source: Eurostat PRODCOM.

According to a report[169] of COLIBI and COLIPED (COLIBI is the Association of the European Industry and COLIPED is the European Two-Wheeler Parts’ & Accessories’ Industry) around 20 million bicycles are sold on the European Market (EU-27) in 2011. This is a decrease of 2% relative to 2010, but an increase of 5.8% relative to 2000.

Table 2: European bicycle sales (EU27), 2000-2011

Year || Sales (1,000 units) || Growth rate(%)

2000 || 18,945 ||

2001 || 17,745 || -6.33

2002 || 17,840 || 0.54

2003 || 20,206 || 13.26

2004 || 20,322 || 0.57

2005 || 20,912 || 2.9

2006 || 21,033 || 0.58

2007 || 21,344 || 1.48

2008 || 20,206 || -5.33

2009 || 19,582 || -3.09

2010 || 20,461 || 4.49

2011 || 20,039 || -2.06

Source: EUROPEAN BICYCLE MARKET 2012 edition, Industry & Market Profile (2011 statistics), COLIBI and COLIPED.

According to the report, within the EU most bicycles are sold in Germany (20% of the total volume), UK (18%) and France (16%).

Table 3: European bicycle sales (EU27) by country, 2011

Country || Sales (1,000 units) || Country || Sales (1,000 units)

Germany || 4,050 || Greece || 325

UK || 3,580 || Portugal || 320

France || 3,200 || Slovakia || 300

Italy || 1,750 || Slovenia || 250

The Netherlands || 1,171 || Hungary || 240

Spain || 780 || Lithuania || 115

Poland || 610 || Bulgaria || 103

Denmark || 550 || Ireland || 95

Sweden || 520 || Estonia || 65

Belgium || 468 || Latvia || 35

Austria || 405 || Cyprus || 35

Romania || 375 || Malta || 12

Czech Republic || 345 || Luxembourg || 10

Finland || 330 || EU 27 || 20,039

Source: EUROPEAN BICYCLE MARKET 2012 edition, Industry & Market Profile (2011 statistics), COLIBI and COLIPED.

Industry structure

In terms of industry structure (production), Eurostat data for the relevant NACE category 30.92 (Manufacture of bicycles and invalid carriages) indicate that 1,636 companies were active in the bicycle industry in 2010. The market is characterized by a combination of both large and small companies. Many bicycle producers are part of groups, which means that they produce several brands.

Table 4: Number of enterprises – bicycle and invalid carriages sector (NACE 30.92)

Indicator || 2008 || 2009 || 2010

Number of enterprises || 1,654 || 1,555 || 1,636

Production value (in thousands) || € 5,040 || € 4,794 || € 4,892

Source: Eurostat

In terms of production volume, according to the COLIBI/COLIPED report European production (EU27) has decreased from around 14.5 million bikes in 2000 to around 11.8 million in 2011.

Table 5: European bicycle production (EU27), 2000-2011

Year || Production (1,000 units) || Evolution (%)

2000 || 14,531 ||

2001 || 13,009 || -10.47

2002 || 12,272 || -5.67

2003 || 12,828 || 4.53

2004 || 13,232 || 3.15

2005 || 13,218 || -0.11

2006 || 13,320 || 0.77

2007 || 13,086 || -1.76

2008 || 13,246 || 1.22

2009 || 12,178 || -8.06

2010 || 12,241 || 0.52

2011 || 11,758 || -3.95

Source: EUROPEAN BICYCLE MARKET 2012 edition, Industry & Market Profile (2011 statistics), COLIBI and COLIPED.

According to the report of COLIBI/COLIPED, within the EU most bicycles are produced in Italy (20% of the total volume), Germany (19%) and the Netherlands (10%) which are traditionally the three main producers[170]. Production of parts and accessories also takes place in Italy (32%), Germany (16%) but also in Romania (15%). Still, at a global scale, over 60% of bicycles produced today are made in China[171].

Table 6: European bicycle production (EU27) by country (2011)

Country || Production (1,000 units) || Country || Production (1,000 units)

Italy || 2,310 || Greece || 133

Germany || 2,288 || Sweden || 129

The Netherlands || 1,200 || Belgium || 109

France || 900 || Denmark || 70

Poland || 892 || UK || 40

Portugal || 782 || Finland || 31

Bulgaria || 642 || Slovenia || 5

Romania || 422 || Ireland || 0

Hungary || 387 || Cyprus || 0

Czech Republic || 361 || Estonia || 0

Lithuania || 326 || Latvia || 0

Slovakia || 306 || Luxembourg || 0

Spain || 275 || Malta || 0

Austria || 150 || EU 27 || 11,758

Source: COLIBI and COLIPED annual report (2011 statistics)

In terms of employment data from the Industry & Market Profile report produced by COLIBI and COLIPED shows that around 20.000 people work in the bicycle and the parts and accessories industry. In total are working in the industry. The report does not clarify if these numbers concern only production sector or also retailers[172].

Table 7: Total employment in the bicycle sector (COLIBI data)

Country || Bicycle || Parts & Accessories || Total

EU 27 || 12,874 || 6,915 || 19,789

Germany || 2,450 || 1,200 || 3,650

Italy || 1,574 || 1,600 || 3,174

The Netherlands || 1,764 || 500 || 2,264

France || 1,150 || 900 || 2,050

Poland || 1,074 || 370 || 1,444

Romania || 400 || 800 || 1,200

Portugal || 690 || 500 || 1,190

Bulgaria || 1,010 || 10 || 1,020

Czech Republic || 460 || 480 || 940

Hungary || 482 || 50 || 532

Austria || 300 || 80 || 380

Slovakia || 280 || 90 || 370

Belgium || 220 || 150 || 370

Great  Britain || 250 || 70 || 320

Lithuania || 190 || 0 || 190

Spain || 180 || 0 || 180

Greece || 160 || 0 || 160

Finland || 60 || 45 || 105

Sweden || 90 || 0 || 90

Slovenia || 10 || 70 || 80

Denmark || 80 || 0 || 80

Cyprus || 0 || 0 || 0

Estonia || 0 || 0 || 0

Ireland || 0 || 0 || 0

Latvia || 0 || 0 || 0

Luxembourg || 0 || 0 || 0

Malta || 0 || 0 || 0

Source: COLIBI and COLIPED annual report (2011 statistics)

3. Analysis of applicable legislation

Bicycles are non-harmonised products and are not covered by a specific EU legislation (except Electrical Power Assisted Cycles). At the EU level the relevant piece of legislation is the mutual recognition which is presented in the section below. Additional information is provided on the development of the mutual recognition guideline, especially the impact assessment (case studies for bicycles). At the same time though, there are relevant EN standards, based on the General Product Safety Directive (GPSD 2001/95/EC). Furthermore, there are national pieces of legislation. In this study we examined the legislation of three Member States with a large bicycle tradition, namely (Germany, Netherlands and the UK).

As a separate part we also examined the legislation covering Electrical Power Assisted Cycles.

Relevant legislation: Mutual Recognition

Bicycles are covered by the Mutual Recognition Regulation (764/2008/EC). The principle of mutual recognition states that products lawfully sold and marketed in one Member state, should also be allowed to be marketed in another Member state. This statement holds, even when the product does not fully comply with the technical rules valid in the Member State. This guideline removes the need for harmonisation of all national technical rules. These rules state typically requirements for packaging, size, composition, weight and labelling. One exception to the mutual recognition guideline is when the Member State can show that this is necessary for the protection of for instance the consumer safety, public health or the environment and secondly that the required measures can be shown proportional.

The Mutual Recognition Regulation provides conditions and procedures which Member states have to follow when they want to introduce a national law (technical rule) which may disrupt the internal market[173].

General Product Safety Directive and EN standards

Except for the mutual recognition principle, bicycles are subject to the General Product Safety Directive (GPSD 2001/95/EC). Based on the GPSD the sector itself developed the standards. The EN standards provide safety standards for the bicycles. These are captured under CEN/TC 333. The European standards for bicycles are mandated by Commission Decision 2011/786/EC. This decision sets out the specific safety requirements for bicycles, bicycles for young children and luggage carriers for bicycles to be met by European standards pursuant to Article 4 of Directive 2001/95/EC.

An overview of the relevant standards is provided in the table below:

Table 8: Relevant EN Standards

Standards || Title

EN 14764:2005 || City and trekking bicycles - Safety requirements and test methods

EN 14766:2005 || Mountain-bicycles - Safety requirements and test methods

EN 14781:2005 || Racing bicycles - Safety requirements and test methods

EN 14872:2006 || Bicycles - Accessories for bicycles - Luggage carriers

EN 16054:2012 || BMX bicycles - Safety requirements and test methods

EN 14765:2005+A1:2008 || Bicycles for young children - Safety requirements and test methods

Source: European Committee for Standardization[174]

According to all interviewees the EN standards are used by all manufacturers inside Europe but also to a large extent also by manufacturers outside Europe. Even Chinese manufacturers of bicycles and components use the standards for their exports to Europe. Some interviewed European producers mentioned that they use their own standards which are often higher than the EN standards. 

At the moment ISO standards are developed. These standards are based on the EN standards. When these ISO standards are ready, they will replace the EN standards.

Applicable national regulations

As stated above, the mutual recognition regulation does allow Member States to enforce different technical rules. These rules form exceptions on the Mutual Recognition principle and should be based on art. 36 TFEU. Examples include public health and the environment.

The United Kingdom has two specific regulations (technical rules) for bicycles. The first regulation (Pedal Bicycles (Safety) Regulations (SI 2010/198))[175] is concerned with safety and consumer protection. Examples from these regulations are that the bike should be equipped with a bell, right hand should operate the front brake and the incorporation of retro-reflected material in the design.

The second regulation (Pedal Cycles (Construction and Use) Regulations (SI 1983/1183))[176] is concerned with the construction of the bicycle as well as the use of these vehicles. Examples of regulations include the name of the manufacturer on the bicycle, braking systems, and the presence of a gearing system between the pedals and the wheels.

In the Netherlands, bicycles are subject to the Warenwet in the Netherlands which covers general requirements for the safety of consumer products[177]. Secondly, bicycles are covered under the Regeling Voertuigen[178]. The former is based on the European directive for product safety. The latter is specifically for vehicles and gives specific (technical) rules to which bicycles should comply. The Netherlands does not have required approving each type of bicycle. The Regeling Voertuigen does only have several general requirements which bicycles have to fulfil if they want to enter the Dutch roads. One of the requirements are reflectors of a certain type on the side of the tires, pedals should have these as well. Also, the Dutch law knows the requirement of a bell.

Germany has a similar set-up to the Netherlands. Rules about the bicycles can be found in the Straßenverkehrszulassungsordnung (StVZO)[179]. From this legislation requirements are for instance the fact that bicycles should have two brakes which can be operated independent from each other. Also, bicycles should have a bell. In contrast to the Netherlands, Germany requires the bicycle it self to have lights, back and front. These lights should be operable at all time. The Netherlands only requires it during night and also allows the cyclist to have the lights on himself instead of the bike. Secondly, Germany requires a dynamo to operate the lights.

In the interviews some other requirements were mentioned. For example, in France bicycles have to be fully assembled and in Denmark a traceability code is required (in connection with theft) and in Spain bicycles have to be accompanied by test certificates.

From the countries discussed up to now, we see that the requirements seem to be quite similar. In general, safety standards are considered to be important which results in requirements for lights, reflectors as well as for brakes. In practice the different national requirements result in specific adjustments of bicycles per country.

In contrast to regular bicycles, Electrical Power Assisted Cycles (EPACs) are within the scope of by IM legislation. An overview of relevant directives is provided in the following table[180]:

Legislation || Obligations

Directive 2006/42/EC (Machinery)[181] || o Complete technical file o EC Declaration of Conformity o CE marking o Marking with § The business name and full address of the manufacturer and, where applicable, his authorised representative § Designation of the pedelec § Designation of series or type, § Serial number, if any, § Year of construction, business name and full address of the manufacturer and, where applicable, his authorised representative,

Directive 2004/108/EC (Electromagnetic Compatibility)[182] || o Complete technical file necessary to produce evidence of compliance. o EC Declaration of Conformity o CE marking o Fulfil requirements for traceability.

Directive 2011/65/EC (RoHS)[183] || o Complete technical file o EC Declaration of Conformity o CE marking

Battery transportation (dangerous good regulations for transport by road (ADR), class 9) || o Includes requirements for all transports of the battery. o Comply to UN3481 requirements o Follow handling procedures

Directive 2006/66/EC (Battery) || o Registration of the producers of batteries o Obligation to take back used batteries o Readily removable (or clear instructions on how to remove the bicycle) o Labelled with the correct symbols o Recycling of collected batteries

Source: BIKE EUROPE series on EU regulations for E-bikes and pedelecs.[184]

There is a technical standard for Electrical Power Assisted Cycles, EN15194:2009. In terms of technical standards a lot of the requirements are covered by technical standard EN15194:2009[185]. Only the requirements of the Machinery Directive are not fully included. Therefore following the standard does not mean that you meet all requirements of the directives. The fact that the standard does not fully cover the requirements of the directives makes it confusing for enterprises.

Also from the interviews the main conclusion is that the rules for EPAC are rather confusing. The main remarks from interviewees are:

· The EN standard for EPACs is a ‘collage’ of many single requirements from the applicable directives;

· It was already mentioned that EN 15194:2009 covers most of the requirements of the directives, but not all;

· EN 15194:2009 sometimes conflicts with national regulation on vehicles or traffic;

· The Machine Directive is applicable, but not all requirements of the MD are possible for EPACs. The interviewee mentioned for example that according to the Machine Directive rotating parts have to be covered, but if you do that with a bike, you cannot use the bike anymore. This interviewee also mentioned that according to the Machine Directive the EPAC should have an emergency button. Although these are wrong interpretations of the interviewee, it shows that there is confusion.

· At the moment a working group is working on the revision of the EN 15194 standard to include the relevant requirements of the directives in the standard, including the requirements of the Machinery Directive. In the main time it is confusing for some enterprises that following the EN standard do not mean that you meet the requirements of IM legislation and that enterprises have to find out themselves which elements of the Machinery directive are relevant for Electrical Power Assisted Cycles.

4. Analysis of mutual recognition in non-harmonised product groups

Additional information on the role of mutual recognition in the case of bicycles was provided in the impact assessment study that took place in 2007[186]. A sectoral study that took place in 2002 found that 41% was unfamiliar with the principal of mutual recognition (2002)[187] while only about 50% of the companies familiar with the principle actually relied on it to access foreign markets.

The impact assessment (2007) illustrated three firm cases in the bicycle sector, with lack of mutual recognition and extra costs caused by national rules. The first case describes the technical barrier of lightning equipment used in bicycles. Different Member states have different requirements for these. The enterprise has to change these to meet the requirements in the different countries. Associated costs are estimated for the lack of mutual recognition of 98,000 and 148,000 EUR each year, which represents between 0.7% and 1% of the turnover of this company on the market of this (large) Member State.

The second case[188] of an SME importing indicated three specific requirements in his country:

· All bikes must be equipped with bells

· Particular stickers on the bikes.

· Need to have bikes type approved

All these requirements were reported to impose an extra cost to the firm of € 103,400 each year, representing 4.75% of its annual turnover for the specific company.

Finally, the third case indicated that the most important hurdle that each type of bicycle has to be previously tested in an accredited laboratory in the Member State in which the company wants to sell. If this test is successful, a code is provided which the company has to engrave in the frame of the bicycle. The specific costs could not be specified.

All above indicate that national requirements, which are allowed under the Mutual recognition principle, result in technical barriers and in extra costs for placing products on the market in other Member States.

From the interviews carried out there seems to be limited familiarity with the principle of mutual recognition. Still, the interviewees could not mention substantial problems with placing products on the market in other Member States. This is because nearly all manufacturers make use of the EN standards which facilitate the operation of the EU market. The only problems are the national requirements on especially lightning and retroflection which results in extra costs for especially designing of adjustments for specific countries or extra logistic costs (order and store different parts). These national requirements are allowed within the Mutual recognition principle and were already identified in the case studies in the impact assessment study mentioned before.

The impact of the national requirements on lights is limited. The European bicycle industry and market exist for a long time. They are used to the different requirements on lights. There are no problems with placing products on the market in another Member State. Furthermore, markets in the different countries are quite different because of differences in consumer preferences. There are some typical bicycle countries, like Germany, UK and the Netherlands. Producers in a country best know the national preferences. Therefore most producers produce especially for their home market and little for other countries.

At the same time the view of interviewees on imported bicycles (especially China) differs. Some suggest that they mostly meet the EN standards, but that they are generally of low quality. Others suggest that there are imported bicycles on the market that do no meet the EN standards, but that there is too little surveillance. Furthermore, there is a feeling that a certain level of dumping is taking place.

5. Analysis of management of regulatory compliance and administrative costs and burdens

Differences of national requirements mainly have to do with lighting and retroflection, and sometimes an extra brake. To comply with these national requirements some manufacturers have to make adjustments in their designs and they have to look for and buy the needed components. The interviewees have different views. One interviewee mentioned that there are extra costs to meet the national requirements of about 2 or 3 days per adjustment and that they have about 30 to 40 adjustments a year. Some interviewees estimated the extra costs on about 1% of turnover, because of extra inventory of different models or extra inventory of different kinds of lights. Some others mentioned that it is very easy and that there are hardly any extra costs. The suppliers of the lights know exactly the requirements of all countries and the bicycle producer only have to buy the right lights.

Overall the extra costs are limited. Furthermore, all interviewees mentioned that it is difficult to separate these costs for national requirements of light from costs for adjustments for national preferences. Bicycles are “cultural” products, meaning that every country has different consumer preferences. So, bicycles have to be adjusted for these consumer preferences in nearly every country anyway. Meeting the national requirements is incorporated in the processes.

From the analyses it can be concluded that while bicycles are non-harmonised products (except Electrical Power Assisted Cycles), the sector is to a large extent harmonised through the use of harmonised standards (for safety requirements under the General Product Safety Directive (GPSD 2001/95/EC)). The Mutual recognition principle does not play an important role in the bicycle sector.

6. Overall conclusions

The case study focused on bicycles covered by the Mutual Recognition Regulation (Regulation 764/2008/EC). Bicycles are not covered by Union harmonisation legislation (except Electrical Power Assisted Cycles) and the only relevant piece of legislation is the General Product Safety Regulation. In the context of the Regulation, a number of European EN Standards developed by CEN are key for the sector. They are used by all manufacturers inside Europe but to a large extent, also by manufacturers outside Europe.

In 2011, the total European market for bicycles was close to €2.8 billion in size with a total of around 20 million bicycles sold on the European Market (EU-27). Production inside Europe was close to 11.8 million bicycles in 2011. Italy, Germany and the Netherlands are the three larger producers in Europe but 60% of the global production takes place in China. 

The situation is different in the case of Electric Power Assisted Cycles, which are covered by IM legislation (Machinery, EMC, RoHS, Directive 2006/66/EC on batteries and accumulators). However, according to the input provided, the rules applying to Electric Power Assisted Cycles are confusing and the development of a new comprehensive technical standard is being developed.   

Earlier studies on the costs of the different national pieces of legislation and our own analysis suggest that the additional costs may be up to 1% of firms’ annual turnover as a result of different requirements concerning lighting and retroflection, the requirement to introduce additional breaks or bells, to apply specific stickers, but also the need to have bikes type approved in some EU countries.  An important finding was that many firms are unaware about the concept of mutual recognition and its potential advantages, although since most firms follow the EN standards, this problem has been partly addressed by default.

7. Sources of information

Sources of information:

· COLIBI and COLIPED annual report (2011 statistics)

· European Committee for Standardization

· Eurostat PRODCOM

· http://www.worldometers.info/bicycles/

· http://www.colibi.com

· http://www.bike-eu.com

· Impact Assessment COM(2007) 36 FINAL SEC(2007) 113

· http://www.legislation.gov.uk/uksi/2010/198/pdfs/uksi_20100198_en.pdf 

· http://www.legislation.gov.uk/uksi/1983/1176/pdfs/uksi_19831176_en.pdf 

· http://wetten.overheid.nl/BWBR0001969/geldigheidsdatum_23-05-2013

· www.gesetze-im-internet.de/stvzo_2012/BJNR067910012.html

· www.cen.eu

Interviews:

· 3 interviews with a national industry association

· 6 interviews with producers of bicycles

Case study on Additive Manufacturing / 3D Printing

Introduction

Through this study, 10 product cases have been developed (8 harmonised and 2 non- harmonised). In addition, this case has been produced since the specifications posed questions as to how ‘fit for purpose’ the body of internal market legislation for industrial products is to accommodate new technologies and advanced manufacturing processes.

The main sources that have been used to carry out the case were: desk research to identify relevant studies and literature that provide information on the 3D printing sector and on regulatory issues raised by its rapid development. In addition, discussions with a small number of industry associations and manufacturers involved in the manufacture of laptops and printers have been interviewed. Lastly, the Your Voice consultation on possible reform of the Internal Market Legislation for Industrial Products included a question specifically on the issue of 3D printing. There were limited responses specifically relating to 3D printing, but some inputs were used.

Background on Additive Manufacturing (commonly known as 3-D printing)

Additive manufacturing is an advanced technology and an intermediate step in the production process. It can be used to develop prototype products for R&D and design purposes across a wide range of sectors. Additive manufacturing involves a process of making a three-dimensional solid object from a digital model. The manufacturing process involves making physical objects by depositing a material using a nozzle, print head, or another printer technology.  A 3D object is made using an injector which during each pass deposits five or ten hundredths of a millimetre of an acrylic resin, a metal alloy, a wax or a nylon powder. This is consolidated with a laser, or left to cool, and then tested.

It is important to note that the terms '3D printing' and '3D printer' are misleading in that the process of additive manufacturing is more like a machine tool, except that instead of removing material, the machine adds materials in successive layers so as to produce a 3D object. Although 3D printing was initially used for the development of product prototypes, the different potential uses of 3D printing have evolved and become multifaceted.

Additive manufacturing is now used to produce highly customisable short-run manufacturing of industrial products and also for dental implants and medical devices. The purposes for which 3D printing are used are therefore becoming more diverse in terms of their potential applications across different markets. The 3D printing industry has grown markedly in the past 5 years, driven by growing consumer interest in 3D printers and the reduction in the cost of 3D printers and improvements in their technological capabilities. There are also an increasing number of industrial applications. For instance, a recent study in the US by GIS[189] estimated that the global 3D printing market will reach $2.99bn by 2018.  The report states that the market for 3D Printing Products is projected to grow considerably in the near future as 3D printer systems become more affordable and easy to use.

3D Printing and Industrial Competitiveness

There is considerable potential to stimulate growth and competitiveness through this nascent industry. Customised products can be developed, developmental costs for new products reduced and this helps to level the playing field for SMEs through reduced lead times to market and the ability to carry out design and prototype development in-house rather than having to pay for external product prototype development.

Further advantages of additive manufacturing are that it can help to accelerate product development lead cycles considerably. Taking an example from Italy in the area of the design of customised parts for Formula 1 vehicles, 3D printing of prototypes dramatically reduces time to market. “In the 1970s, it used to take six years from the designer’s first sketches to release to market. Today, we’re looking at eighteen months, and even that’s shrinking”[190].

Applicable IM legislation­ for additive manufacturing

· The legislation that is applicable to 3D printers includes:

· IM legislation applicable to the 3D printer itself e.g. the Machinery Directive

· IM regulations applicable depending on the products produced by the machines

· The products produced by the machines will also be subject to wider legislation beyond IM regulations e.g. intellectual property law, legislation to control dual-use potential and environmental legislation.

Since 3D printers are essentially machines, and are not like office printers, the current interpretation is that the Machinery Directive is  always  applicable[191]. Since the scope of the Machinery Directive is based on a broad definition of machinery and not on a list of product categories and since the essential health and safety requirements of the Directive cover all the potential risks, there is no need for new or amended legislation. On the other hand, effective application of the Machinery would be facilitated by the development of a specific harmonised standard or set of standards for this type of product.

There may be an outstanding question as to whether certain compact '3D printers' could not be considered as ordinary office machinery or IT equipment subject to the Low Voltage Directive. This issue could become more pertinent as 3D printers become ever-cheaper and the uses ever wider. There is evidence that the price point has been significantly reduced and that consumer-oriented 3D printers are becoming more common.

Since a central feature of Union harmonisation legislation is that it is technology-neutral, in principle, there are no specific legal barriers within current IM regulations that would hinder the development of additive manufacturing or of the products produced by 3D printers, which would follow existing IM legislation, depending on what type of product is being produced (and only if these products were placed on the market (not if they were basic prototypes).   A respondent to the Your Voice consultation confirmed that “3D printers can be covered through the existing CE-Marking directives. Similarly, products printed using 3D printers need to be compliant like any other manufactured good”.

However, a distinction can evidently be made between the applicable legislation for the 3D printer as a piece of machinery and the products and prototypes it produces through additive manufacturing processes. No specific problems were identified in terms of gaps in internal market legislation. If products produced using such printers were placed on the market, they would be subject to whatever the applicable legislation is depending on the final product being produced.

There likewise do not therefore appear to be any problems relating to additive manufacturing being an intermediate stage in the production process, whereas IM regulations apply to products placed on the market.  There is no evidence of specific gaps in IM legislation.

An interesting issue identified in relation to all types of printers (not only 3D) is that products can be modified through software updates post-placement on the market. Moreover, major manufacturers are increasingly designing hardware based on a single platform with some functions disabled so that different models can be sold using this platform simply through software updates and/ or the insertion of a configuration SIM card.

Wider legal issues raised by 3D printing

Although a detailed examination of the legal implications of 3D printing is beyond study scope, having concluded that IM legislation is fit for purpose in accommodating new technologies and innovations, it is worth providing a short summary of the legal issues raised by the sector’s development (and the practical challenges of ensuring that market surveillance is effective for the outputs produced by 3D printers. In summary, these were:

· The importance of addressing potential product abuse or misuse by carrying out of a thorough risk assessment procedure by manufacturers. There are risks that 3D printers could be used to produce products for nefarious purposes or that could potentially be misused. 3-D printers use computer-assisted design (CAD) blueprints as a template to print solid objects out of raw plastic polymers.

· Since these are downloadable over the Internet, there are clearly associated risks[192]. It is therefore essential that manufacturers carry out a thorough risk assessment at product design stage.  However, the applicable conformity assessment modules under different IM legislation are already based on a risk-based approach and a manufacturer’s risk assessment is already required under the MD. But there is as yet no specific mention in the guidance accompanying the LVD and MD respectively on 3D printers.

· A specific reference could be made when the guidance is next updated as to the need for “a manufacturer’s risk assessments to take into due consideration possible product misuse, including dual use potential and any risks associated with changes to the product specifications resulting from software”. In addition, guidelines could be introduced on a voluntary basis, drawn up between manufacturers, regulators and market surveillance authorities to ensure that there is a clearer understanding of the potential risks.

· 3D printing has implications for the legal framework in respect of intellectual property rights and these should be reviewed.

Under Decision 768/2008, manufacturers retain responsibility for updating product information for 10 years following their placement on the market. However, there is a question mark as to whether manufacturers should assume ongoing responsibility for potential product misuse. Technologies such as 3D printing may in future need to be included within IM product legislation, as such “disruptive technologies” are transformed towards more mainstream markets for consumer and industrial use.

There is also a need to ensure that the potential for misuse by consumers / end-users is appropriately regulated, for instance, to avoid consumers producing dangerous objects or weapons. However, there is already a robust regulatory regime in place to concern any products placed on the market, both for harmonised and non-harmonised products.  3-D printing does however raise wider legal issues such as disputes over copies of physical objects covered by patent law, since this tends to be less strict than copyright. There may also be grey areas and legal gaps in respect of intellectual property rights, for instance, patent law generally governs only complete assembled products. There may therefore be legal uncertainty as to whether creating replacement parts are legal.

A wider issue raised by 3-D printers and the use of advanced manufacturing equipment is how this should be addressed through IM legislation, which under the New Approach has historically focused on end-use following the placing on the market. An EC official commented that “there is a need to look at the entire value chain not just end product”.

There are self-evident practical difficulties for market surveillance authorities in checking the safety of products if in future these can be produced directly by industry and consumers themselves. There is a need to ensure that any products placed on the market using 3D printers are subject to rigorous market surveillance and that there is adequate traceability. This is particularly the case given the issues mentioned above relating to the potential for the increased risk of product misuse or unintended use and the danger of or dual-use. Indeed, during the course of this study, there has been a. There is consequently a need to develop mechanisms to monitor product use following the placement on the market of 3D printers.

Stakeholder feedback on 3D printing.

A leading EU industry association representing the interests of manufacturers stated in response to the Your Voice consultation that “Products and applications related to 3-D printing do not need to be regulated at EU level.  However, there are some issues relating to their dual use (civil/military) and their potential for fraudulent use to counterfeit other goods. These issues need to be tackled under the existing regulatory framework, thereby avoiding establishing additional regulatory requirements for additive manufacturing”.

A major German industry association confirmed through the Your Voice consultation that although there was no need for 3D printing to be regulated at EU level, certain legal issues nevertheless arise in the context of 3D printing, such as possible violations of intellectual property, technology misuse (for military purposes, the risk of reduced quality of products produced on a decentralised basis), and the use of new materials through the development of new applications in the area of medical technology.

A further respondent to the Your Voice consultation confirmed that there are a wider set of legal issues beyond IM legislation and CE-Marking requirements. It was suggested that “rules may need to be introduced or reviewed for products produced using 3D printers regarding possible copyright or IPR infringements and dual-use products”.

Conclusions

· IM legislation is open to innovative products and techniques and existing IM legislation appears to adequately cover 3D printers. These should be considered as machines and therefore fall under the Machinery Directive.

· Since IM legislation is technology-neutral, there are no specific barriers under the applicable legislation to the development of new technologies, or to the use of additive manufacturing in production processes.

· However, since additive manufacturing is a relatively new and growing industry, and is changing rapidly, there is a need for a more thorough discussion with industry on the applicable EU legislation. Specifically, the Commission should clarify directly with industry whether all additive manufacturing machines and '3D printers' are subject to the MD or whether certain types maybe considered as ordinary office machinery or IT equipment subject to the LVD.

· Effective application of the Machinery Directive would be facilitated by the development of a specific harmonised standard or set of standards for this type of product.

· Where necessary, existing IM legislation can also cover the products produced by the machines when products are subsequently placed on the market.

· There may however be concerns with regard to intellectual property rights or certain abusive applications such as weapons but these do not relate to IM legislation itself and as such, are outside this study’s scope.

· Additive manufacturing has strong potential to serve as an innovation catalyst and to level the playing field between SMEs and large industry in terms of R&D and product design costs.

· There is a need for vigilance by regulators so as to ensure that manufacturers’ attention is drawn to the need to carry out adequate risk assessment, especially with regard to potential product misuse and/ or dual use.

· Likewise, the implications of micro enterprises and individuals being able to produce or “print” their own products in future, albeit on a limited production scale should be debated by Market Surveillance Authorities.

Literature sources:

· Guidance on the application of the Machinery Directive and LVD

· Cross-sectoral Analysis of the Impact of International Industrial Policy on Key Enabling Technologies within the Framework Contract Sectoral Competitiveness ENTR/06/054, Final report - 28th March 2011

· Application of 3D Printing in the Manufacturing Process, Shimpei Kurokawa

· 3D printing and product lead times http://www.corriere.it/english/13_maggio_14/formula-one_70300362-bc81-11e2-996b-28ba8ed4f514.shtml

· 3D printing and product misuse/ dual use issues - http://www.guardian.co.uk/world/2012/sep/26/3d-printing-guns-legal-issues-us-law

· http://techcrunch.com/2013/01/18/like-it-or-not-i-think-3d-printing-is-about-to-get-legislated/

This technical note sets out our approach to the case studies and to the quantification of costs. It sets out the more detailed methodological approach with regard to (i) the case study work (ii) the quantification of compliance costs and (iii) the quantification of the benefits of possible simplification measures. As such, it supports Section 5 of the main report.

E.1      Introduction – case study analyses

An important task in the specifications was to carry out ten case studies based on different product categories. The objectives were to:

· Identify which Union harmonisation legislation is applicable in eight selected harmonised product groups and to illustrate the interactions between different EU legislative texts;

· Identify and estimate the costs for firms of complying with Union harmonisation legislation;

· Assess the cumulative effects of IM legislation and the interaction between different pieces of legislation applicable to the same product;

· Assess the potential scope for any further regulatory and administrative simplification of IM legislation;

· Quantify (to the extent possible) the cost savings that might arise for firms at the level of the sector, and examine the possible impact on economic growth and employment creation from such measures.

It was agreed with the Commission that eight of the ten case studies would focus on harmonised products and two on non-harmonised products. In addition, a qualitative case study was carried out on 3D printing, which focuses on issues relating to fitness for purpose of the IM legal framework for accommodating innovation. The following table provides an overview of the case studies carried out, the number of interviews completed, the internal market legislation applicable to each product (environmental legislation was excluded from scope) and the selection criteria addressed through each case.

Table E.1: Product groups selected for case studies

No || Product || Applicable Legislation || Selection criteria covered || Interviews

Harmonised cases

1 || Electric motors || Core Directives - LVD, EMC, ATEX Other applicable IM legislation: REACH, RoHS, Ecodesign || · Professional users · High share of total manufacturing · High share of SMEs || · 2 national industry associations · 9 firms

2 || Laptops || Core Directives - R&TTE, LVD and EMC Other applicable IM legislation: Ecodesign, RoHS, Packaging and Packaging Waste Directive || · Final consumers and professional users · Relative high share of e-commerce · Large firms dominant || · 1 EU industry association · 4 firms

3 || Domestic Refrigerators and freezers || Core Directives - LVD, EMC Other applicable IM legislation:: REACH, Ecodesign, Energy labelling, RoHS, Regulation on materials in contact with foodstuff || · Final consumers · Large firms dominant || · 1 EU association · 4 firms

4 || Lifts for persons || Core Directives - Lifts[193], LVD and EMC   || · Professional users · Large firms dominant || · 3 EU industry associations · 2 national industry association · 8 firms

5 || Garden equipment || MD, EMC, Outdoor noise, Non-road mobile machinery Emissions, RoHS, REACH || · Professional users and final consumers · Large firms dominant || · 1 EU Association · 5 firms

6 || Instruments & appliances for measuring, testing and navigation ||  LVD, EMC || · Professional users/intermediate products · Use of KETs · High share of SMEs || · 2 industry associations · 5 firms

7 || Air conditioners || MD, EMC, LVD, CPR, RoHS, Energy labelling, PED[194], Ecodesign, the GAD, Regulation 2007/1494/EC on labelling requirements || · Final consumers and professional users · SMEs || · 1 EU and 1 national association · 8 firms

8 || Integrated circuits || LVD, EMC, ATEX, RoHS || · Professional users/intermediate products · Use of KETs such as photonics · Large firms dominant || · 1 EU association · 8 firms

Non-harmonised cases

9 || Ski/Snow footwear || Directive 94/11/EC relating to the labelling of materials used in the main components of footwear for sale to the consumer, Directive 94/62/EC on packaging and packaging waste, REACH, Mutual recognition Regulation 764/2008 || · Final consumers · High Share of SMEs || · 1 EU association · 5 firms

10 || Bicycles || Mutual Recognition Regulation 764/2008 || · Non-harmonised · High Share of SMEs || · 3 national industry associations · 6 firms

|| Total || || || 62 firms 19 industry associations

Overall, the product groups selected for the case study work have achieved broad coverage across different types of industrial products addressed through Union harmonisation legislation.

A number of selection criteria were agreed with the Commission during Phase 1, such as: a mix of different industrial product sectors in terms of their market size and importance within the European economy, the need to include innovative product groups that integrate Key Enabling Technologies (KETs) and the use of advanced manufacturing in production processes; product groups in which SMEs have a strong market share, and products aimed at professional / industrial users and at final consumers. Although most harmonised product legislation relates to final products, a further criterion was to ensure that intermediate products were included in the selection of products, such as electric motors and integrated circuits.

The target was to carry out between 6-8 firms per case study. This was achieved for some case studies, but not others. In total, 62 firms and 19 industry associations contributed to the case study work out of a total of more than 220 firms contacted. There were challenges in getting cooperation from firms across all product groups. For instance, in the case of laptops and domestic refrigerators, the relevant industry associations (CECED and Digital Europe) were contacted and in turn encouraged their members to participate in our study. However, many were unwilling to be interviewed due to commercial sensitivity concerns, difficulties for firms in collecting the necessary data internally. In parallel with the efforts of industry associations to encourage participation in the case study research, manufacturers were contacted directly by our study team.  The main challenges in data collection and in quantification – and how we have sought to overcome difficulties in so far as possible – are set out later in this technical note.

E.2      Methodological approach to case studies The methodology for the case study research

Our approach to the quantification of administrative and substantive compliance costs for economic operators (mainly manufacturers) was informed by the Standard Cost Model (SCM) approach. A simplified version of SCM, which followed the main principles, was used in the eight harmonised product cases to get estimates of the costs of complying with Union harmonisation legislation.

The quantification exercise was initially meant to focus on the compliance costs associated with gaps, loopholes, inconsistencies and duplication, by measuring the current costs of compliance with IM legislation so as to establish a baseline and then assessing the possible benefits of regulatory and administrative simplification in future. The practical difficulties in applying SCM to the broader scope of all (relevant) IM legislation – and the need to adapt the model accordingly - are outlined in the next section.

The case studies have been prepared using a combination of research tools. These are:

• Data analysis – a review of sectoral data on market size and structure from Eurostat (SBS and Prodcom data), industry associations and information from other data sources, such as the Orbis database[195]. Where available, data from market studies were also analysed.

• Desk research – a review of relevant applicable Union harmonisation legislation, Commission non-binding guidance documents on specific legislation and a review of forthcoming simplifications set out through the NLF (764/2008, 765/2008 and 768/2008) and the Alignment Package.

• Interviews - 62 interviews were carried out with firms[196] and a further 19 with national and EU industry associations. Interviews with firms provided both quantitative and qualitative information on the costs of compliance with IM legislation.

• Verification of case study findings and quantitative estimates – checking with industry associations that the findings from the case studies and the quantitative estimates of compliance costs are realistic and reflect broader feedback on the experiences of manufacturers in complying with IM legislation.

The interview programme was carried out using a structured framework, which followed the SCM approach but which was adapted to reflect the complexity of applying SCM to multiple pieces of legislation in parallel. Economic operators interviewed were asked questions with regard to:

· How they manage regulatory compliance internally (whether they use third party Notified Bodies);

· Views on the most costly and administratively burdensome pieces of IM legislation;

· The costs involved in regulatory compliance (one-off and recurring), both staffing and cash costs;

· Views on possible regulatory and administrative simplification measures; and

· Opinions about what the counterfactual - what would have been the situation in the absence of Union harmonisation legislation

Having carried out the interviews, the following steps were then undertaken to analyse the results:

· Step 1 - Analyse the current costs of compliance with Union harmonisation legislation based on information provided by firms. Aggregate these costs at a sectoral level (“baseline scenario”).

· Step 2 – Identify and analyse possible simplification measures and quantify the potential benefits of implementing these.

· Step 3 – Consider the benefits of possible simplifications at macroeconomic level in terms of GDP and job creation - for the EU economy.

The first step was to estimate the current costs of compliance with Union harmonisation legislation based on information provided by firms and industry representatives. The intention was to aggregate these costs at sectoral level in order to develop a “baseline scenario” against which to compare the benefits of simplification.  On the basis of data available on compliance costs, we then made an assessment of the costs for a “typical firm” of complying with IM legislation for each harmonised product group. This was then used to extrapolate and estimate the costs at the sector level, and to assess their significance in relation to market size and firm turnover.

The second step was to identify, analyse and estimate the potential cost savings from simplification options identified.  The typology of simplification measures was used (see Section 2.3 of the main report) to distinguish between regulatory and administrative simplification measures. Two different methods were used to identify simplification measures. Through the eight harmonised product cases, manufacturers were asked for their views on possible simplifications. Secondly, the study team sought to identify through the wider research  further generic simplifications that could be applied across multiple or all industrial product groups.  A further distinction was made between simplifications already taking place through the NLF and additional possibilities identified through this study. 

Quantification was not always possible however. Whilst some simplifications can be quantified relatively easily (e.g. putting in place a common template for a Declaration of Conformity to eliminate inconsistencies in the requirements) in other cases, such as merging different pieces of IM legislation, quantifying the benefits is difficult until the precise way in which the legislation will be combined can be set out. For instance, it may not yet be clear which conformity assessment procedures will apply post-merger if there are currently different requirements (e.g. combining the Machinery Directive and the Outdoor Noise Directive – would the SDoC be applicable or would a third party be required to check environmental noise levels?). 

Since manufacturers themselves were often unable to estimate the savings, the estimates were often based on assumptions based on qualitative feedback.  Taking an example, manufacturers were not generally able to quantify how much time they would save were there to be a common DoC with no divergence in requirements between IM legislation. But based on information gathered, assumptions can be made with regard to time savings and the cost-savings that this would translate into[197]. In some cases, we assessed what part of the compliance process the specific simplifications would affect, and provided illustrations as to what could be considered as a realistic cost saving. 

The third and final step was to estimate the potential for cost savings from possible future simplification measures and to assess the macroeconomic impacts on growth and job creation (see Section 5.6 of the main report). Here, PANTEIA’s PRISMA and WIOM models were used to estimate the impacts of possible future administrative and regulatory simplification measures. Estimates were made in respect of potential cost savings for all sectors covered by IM legislation.  A macroeconomic modelling analysis would have given an indication of the total possible economic impacts in terms of GDP and job creation for the EU economy. However, given the high level of uncertainty in relation to compliance cost estimates from some of the product groups selected and even greater uncertainty as to the savings from simplification measures, such an extrapolation from the 8 cases to the whole of the EU economy was not deemed to be appropriate.

Rather, the cases provide illustrations as to the potential cost savings from administrative and regulatory simplifications in specific product areas. It should be stressed that the data comes with caveats attached in terms of the comparability of compliance costs. It is therefore difficult to know how representative the estimated cost savings are in terms of the total picture for all industrial products covered by IM legislation, since there are different situations between product groups in terms of the number of different pieces of IM legislation applicable. We have therefore limited the exercise to providing an estimate of the macroeconomic effects across the eight sectors under review.

E.3      Challenges in the quantification of compliance costs

The challenges encountered in the quantification of the costs for economic operators of complying with Union harmonisation legislation are now presented. It is important to spell these out. Although useful data on compliance costs was collected, data at the level of individual product groups on compliance costs was sometimes partial with gaps in relation to some variables. Assumptions sometimes therefore had to be made in order to arrive at estimates for the sector as a whole.

E.3.1   Establishing the “baseline”

There were difficulties in establishing a baseline against which the current costs of compliance for economic operators could be compared.  It has not been possible to get data on the costs incurred prior to the introduction of Union harmonisation legislation so that we could compare actual costs against a hypothetical case examining how the situation would have developed in the absence of the internal market and Union harmonisation legislation for industrial products. Whilst it was broadly accepted by firms and industry associations that compliance costs were higher prior to the introduction of IM legislation for industrial products, since there was considerable regulatory fragmentation and a need to comply with different national technical regulations and standards. However, in most cases it was not possible to provide specific cost figures or estimates.

Firms were only able to provide a qualitative assessment as to how the current costs of compliance compare with the situation before the internal market came into effect. Since core “New Approach legislation” has been in place for 25 years, it is difficult for many interviewees to compare with how the situation was prior to the internal market’s establishment.  Furthermore, it would have been difficult to make direct comparisons since there have been many changes affecting market size and structure during this period – e.g. globalisation, the expansion of the EU from 12 Member States when the single market came into effect to 28 Member States today. There is moreover an absence of data on compliance costs at the national level prior to its establishment.  Nonetheless, the lack of such data did not however prevent us from considering the benefits of Union harmonisation legislation qualitatively (see main report, some case studies). 

E.3.2   Data availability and reliability

Quantifying the costs of complying with EU legislation in general, and Union harmonisation legislation in particular, has been challenging for a number of reasons, such as the availability of data or the capacity to link specific activities with the applicable pieces of EU legislation and types of obligations. These are explained in more detailed in the following paragraphs.  Interviewees were often not able or unwilling to provide with data to allow for a detailed analysis of compliance costs for a number of reasons:

· Commercial sensitivity of data – even having agreed to participate, some manufacturers were reluctant to provide cost estimates for commercial reasons. This was especially the case in terms of R&D, product design and testing costs, but less so in relation to human resources.

· Furthermore, ODM and OEM suppliers are reluctant to provide information to manufacturers on the costs of compliance. Indeed, full testing data itself is often considered to be confidential. Although ODMs and OEMs are required to provide their clients with basic test results for the technical file, such information is often partial. OEM suppliers are reluctant to provide full test information due to commercial sensitivity reasons. If they are asked for test data by an MSA, they often provide the requested information directly to the MSA and do not share this with manufacturers).

· Data on some types of compliance costs was more readily available than for others. It was straight forward to obtain data on the level of human resources working directly on compliance with IM legislation. However, there were challenges in respect of other data parameters, such as internal testing costs and the external costs of compliance. Firms were first more willing to provide data on human resources and secondly often lacked data on other types of costs.

· Difficulty of disaggregating compliance costs when many different pieces of internal market legislation are applicable to a given product. Interviewees often could not associate specific type costs with a specific piece of legislation since very often the activities to meet the relevant obligation consider the legal framework as a whole. For example, while fees to notified bodies can be more easily linked to specific piece of legislation, the same does not apply to familiarisation with legislation, preparation of technical files or other information collection obligations. 

· Difficulty of disaggregating data on compliance costs by specific product group. Several harmonised product sectors covered through the cases are dominated by large firms. It was difficult for them to break down compliance costs by individual product group for the following reasons:

- There are difficulties in obtaining compliance data when they manufacture across multiple manufacturing sites.  Cost data is often fragmented and not collected or shared between business divisions involved in different aspects of compliance.

- Furthermore, manufacturers often outsource some parts or all of the manufacturing process so lack data. There is a trend towards outsourcing manufacturing activities to Original Equipment Manufacturers (OEMs) and Original Design Manufacturers (ODMs). This means that manufacturers often do not have data on compliance costs themselves. Suppliers often provide a quotation for delivery of a final product or for parts and components, without any reference to compliance-related costs, such as testing.

- Large manufacturers typically produce multiple product lines and do not collect data on compliance costs disaggregated by product platform, especially for early stage testing as part of the R&D and product design phase. Within a given product group, they typically manufacture a number of different models/platforms and data on compliance costs is not kept on each of these even internally[198].

- It was difficult for large firms developing products for global markets to separate the costs of complying with IM legislation in Europe with similar legislation that is applicable across multiple regulatory jurisdictions - e.g. the US, Australia, Russia, BRICs. Although technical standards may differ, some test results and measures that firms take to comply with legislation in one part of the world can be used across a number of jurisdictions including the EU (although some adaptations and/ or retesting may be required). Examples are basic product safety requirements for electrical safety, compliance with RoHS, etc.[199]

- The globalised nature of manufacturing – and the lack of a complete picture on costs since many manufacturers, ODMs and OEMs are located outside, or carry out at least some manufacturing activities outside the Union. Regulatory compliance specialists within the European divisions of international firms interviewed often found it difficult to obtain data on compliance costs (especially for testing) from R&D laboratories and testing facilities within their firm located outside Europe. Where information was available, this is rarely disaggregated by individual product group.

Difficulties in associating costs with specific pieces of EU legislation and types of Information obligations

During the interviews it was often difficult to provide estimates of the resources and time allocated in relation to specific types of legislation or specific types of legal obligations. It was often the case that estimates were provided at only a rather generic level (e.g. over a period, or for a specific product group) with limited indication of their break down. More specifically, the main challenges were :

· Difficulties in separating compliance costs resulting from IM legislation from other environmental legislation. Environmental legislation such as the WEEE Directive and F-Gas Regulations are also applicable to industrial products. Although some firms have regulatory compliance specialists that deal with IM and environmental legislation separately, at the level of product groups, firms were not able to disaggregate compliance costs between different types of legislation, since compliance with EU legislation is sometimes dealt with horizontally.

· Firms often could not identify the “substantive compliance costs”. This was mainly the case for long-established IM legislation where the requirements are well known and already integrated into their product design processes. Even when an estimate is available of the R&D costs during the product design phase specific to a particular product model, IM legislation is only one factor among others taken into consideration, making it difficult to disaggregate compliance costs..

· More generally, the identification of the Business as Usual scenario (BaU) was often difficult. Firms may find it difficult to accurately estimate the proportion of testing costs that they would be doing anyway as part of their internal quality assurance and quality management systems (which include product safety testing).

· Some aspects of compliance are managed horizontally by firms – especially preparatory steps such as participating in EU legislation-making and standardisation processes, and familiarisation with the relevant legislation and applicable Information Obligations (“IOs”). Whereas testing is product-specific, those working in regulatory affairs/ dealing with compliance are commonly employed by larger firms with a large product portfolio, work horizontally across many different products. Although a “best guesstimate” can be made as to the proportion of human resources spent working on specific product areas, given the horizontal role played by many regulatory compliance specialists working in industry, this is at best an approximation.

In summary, although for some case studies the target of 6-8 firms interviews was achieved, the data available from all firms often only covered some variables, while it was missing altogether for some others.  In general, data estimates specific to the product group were more easily provided by SMEs but more difficult for large companies. As a result of the variability in the quality and quantity of data obtained, comparisons among the cases are problematic.

Overcoming data gaps

A number of steps were taken to overcome, to the extent possible, the difficulties and limitation described above. These were:

· Ensuring that the firms that participated were broadly representative - most firms that participated could be considered are rather typical of the relevant sectors even for those cases where more limited numbers of interviews were carried out, such as laptops and refrigerators. With the assistance of the relevant associations, the firms interviewed are established firms with long period of experience and, in those sectors where the market dominated by few large manufacturers (e.g. domestic refrigerators, laptops, air conditioners, lifts) firms relatively high market shares. In such cases, while not expecting to provide a picture covering all firms, we provide a rather “typical” case. In other cases, like the gardening equipment, the firms interviewed cover a range of sizes which helped identify the different practices between larger and smaller firms. 

· Developing assumptions about the costs of compliance – where data was only partial in respect of particular parameters we used data from several firms, we were able to make imputations as to the average costs for a typical firm, which were then scaled up at the level of the product overall.

· The aggregation of costs to the sector was either estimated by referring to the total number of firms in the sector or the total volume of production. Certain types of costs (e.g. technical file preparation, purchase of data) were considered to be similar irrespective of the size of the firm. In that case we relied on the number of firms in the sector to reach an estimate of the total costs. In other cases (e.g.  ...) the proposed costs appeared to be linked with the volume of production or the number of models. In that case, the preferred approach was to use of market size data to estimate the total costs for the sector on an annual basis.

· In the case of data on market size and on the number of firms, we gave priority to data from industry associations or market reports and, only in their absence, to data from PRODCOM and Eurostat. Eurostat data on the number of enterprises was not considered to be an appropriate base for estimated cost data at the sectoral level. Eurostat data refer to individual legal units, which may be many more than one within a single enterprise, particularly among large multinational firms with presence across the EU market. Compliance related activities are often dealt centrally from a single unit. When possible, the data from market studies or associations were complemented by data from the the Orbis database providing information on active enterprises. In this case we considered the number of firms’ headquarters as the most appropriate number to use.   

· Developing assumptions about the cost savings of simplifications – In relation to the quantification of the of the savings from possible simplifications, the qualitative feedback about the type of cost savings, the main type of compliance cost affected and, in some cases, the order of magnitude allowed us to make some “reasonable” estimates of the possible cost savings. For example, in the case of savings related to the reduction of the use of notified bodies from the move to a self-regulatory approach it was possible to make some assumptions as to the maximum savings that could arise once the total costs of notified bodies was established. Even at a more aggregate level, simplifications of information obligations were assessed in relation to the overall weight of those obligations to the total administrative costs and what could be considered a reasonable (e.g. 10%, 20%, 50%) contribution to the costs reduction.

E.4      Methodological approach to quantifying and assessing the costs of compliance with Union harmonisation legislation

In this section, a definition of administrative and substantive compliance costs is provided, together with an explanation of the difficulties in quantifying these separately in some instances. An overview of the methodology for estimating compliance costs is then provided. Reference should also be made to the full case studies set out in Appendix C since these spell out assumptions.

E.4.1   Definition of administrative and substantive compliance costs

Methodological guidance on SCM in the Secretary General’s Impact Assessment guidelines and in international methodological documentation[200] makes clear that a distinction should be made between administrative and substantive compliance costs, which should be clearly distinguishable from one another.

· Administrative costs relate to the costs of preparing documentation and direct fees, while substantive compliance costs relate to any specific investments firms must make in order to comply with the law[201].

· The IA guidelines provide a definition of these terms and seek to clarify areas of possible nuance. For instance, the guidelines state in respect of testing costs that: “when businesses have to submit their products and processes to the test in order to get an authorisation or a certificate, these testing costs are not considered as administrative costs.

However, in the case of testing carried out as part of conformity assessment modules to comply with Union harmonisation legislation, the aim is neither to obtain an authorisation or certification. Rather, it is to demonstrate compliance with the essential requirements. Only the US requires product certification before products can be sold. Nevertheless, the guidelines suggest that conformity assessment should still be treated as a substantive compliance cost, even if the current definition does not exactly fit this area.

Guidance on the application of the UK SCM model points to the difficulties in establishing BAU costs “dividing normal costs from burdens is difficult to achieve in practice as activities are embedded into business processes”[202].  There can still be challenges in breaking down the costs of compliance with IM legislation between administrative and substantive compliance costs.

If conformity assessment is accepted as being a substantive compliance cost, there are other aspects associated with conformity assessment procedures that are administrative, such as producing the technical file and preparing a Declaration of Conformity. This means that in practice, there may be nuances and an unclear demarcation between the two types of costs because such costs are part of a continuum.   Although conformity assessment is a substantive compliance cost, it is equally an integral part of the process leading up to the production of administrative documentation. 

The five steps represent how the various compliance steps can be seen conceptually. In practice some firms do manage compliance broadly according to these five steps. Other firms commented however that there is a lot of complexity and there is crossover between the different steps, with some compliance activities taking place in parallel, whereas others are sequential.

The way in which we have defined administrative and substantive compliance costs for the purposes of this study is summarised in the table on the following page:

Table E.2: Administrative and substantive compliance costs

Type of costs || Costs

Administrative costs || Familiarisation with IM legislation and standards Notified bodies fees for IM legislation and mandatory testing Development and updating of technical files Production of a DoC and CE marking

Substantive compliance costs: || Modifications to product design (during new product development phase/ R&D) Modifications to product design once products have been placed on the market The costs of temporary or permanent withdrawal from the market of products

Administrative and substantive costs || Conformity assessment procedures under the applicable modules Example of substantive cost - testing for conformity with the applicable modules defined in IM legislation[203] is Example of administrative cost – preparation of a technical files in paralell with testing activities

Source: CSES and Panteia – assessment of different cost types

Testing carried out as part of conformity assessment procedures is arguably both an administrative and a substantive compliance cost since most firms say they that they carry out testing as part of internal quality assurance procedures (BAU costs) and for safety as part of the design stage. Products are designed, tested and then if legislative changes or changes to standards are introduced during the design phase, may also be redesigned in order to meets legal requirements (compliance with IM regulations and environmental legislation) and with the technical specifications set out in (voluntary) technical standards. In summary, while some compliance costs can clearly be defined as substantive, such as making modifications to products already on the market due to the introduction of new (or amendment of existing) IM legislation, others can be both administrative and substantive compliance costs, and there are “grey areas”.  A summary of the quantitative findings from is provided in the case studies. We have sought to quantify compliance costs.

E.4.2   Methodology for estimating compliance costs Standard Cost Model

The quantitative analysis was carried out using a Standard Cost Model (SCM), the most widely applied methodology for measuring administrative costs. As noted earlier, there was a need to adapt SCM and to simplify and to customise the approach so that it was suitable for Union harmonisation legislation. 

SCM is normally applied to measuring the costs of complying with a single piece of IM legislation (or at most a small number of different pieces of related legislation). Since multiple pieces of IM legislation are applicable to a given product (and in addition, to environmental legislation), there are practical difficulties for firms in disaggregating the costs of Information Obligations (IOs) for each piece of legislation separately. Moreover, the fact that multiple legislation and IOs are applicable makes SCM difficult to apply without spending a considerable amount of time with each enterprise (which with a few exceptions they were generally unwilling to do).

Another difference in the approach to this study is that whereas in a typical SCM exercise, a bottom-up approach alone is used, this was not feasible for this study, given the data difficulties encountered. Instead, a pragmatic and flexible approach was adopted that combined elements of bottom-up and–top-down. This was necessary given variations in the quality and extent of data availability between cases.

The quantification exercise was meant to focus only on the compliance costs associated with gaps, loopholes, inconsistencies and duplication, by measuring the current costs of establishing a baseline and assessing the possible benefits of regulatory simplification from eradicating these. Since less evidence of gaps, loopholes, inconsistencies and duplication was found than had been anticipated, during Phase 2, it was suggested that we should try to quantify the costs of compliance more generally. However, there are limitations in the extent of data availability and consequently its quality. 

Development of assumptions

It was necessary to develop assumptions in order to produce the calculations set out in the case studies. The detailed assumptions that have been made in carrying out quantifications for each case are specified in the full case studies (Appendix C).

Assumptions can be developed under various circumstances so as to improve the quality of the data, such as when quantitative data is lacking and qualitative feedback is used to develop quantitative assumptions e.g. firms found it difficult to quantify internal testing costs themselves so data parameters for other firms were cited and the firm was asked if these were considered reasonable.

We have made had to develop various assumptions for different product groups, which are specified in the case studies. The nature of the assumptions and the extent to which we had to make assumptions varied between product groups depending on (i) how many firms were willing to participate (ii) the extent to which the issues raised earlier regarding data sensitivity were problematic (ii) the availability of data internally among firms themselves, which varied considerably between cases, and can depend on firm size (global manufacturers found it more difficult to quantify costs accurately and these dominate some of the product groups concerned.

Taking the counterfactual into account

Another way of obtaining a baseline would have been to assess how the situation would have developed in the absence of the internal market and of Union harmonisation legislation for industrial products (“the counterfactual”).  Two main possibilities were considered as below:

• Counterfactual 1 – compliance costs pre-establishment of the internal market. However, here there was the difficulty that there was the absence of data on such costs and comparability issues.

• Counterfactual 2 - current costs of compliance with Union harmonisation legislation compared with possible future simplifications

We now explain why the second of these two approaches was adopted. If there were no regulatory framework and firms instead had to comply with 28 sets of different national legislation and technical standards, there would still be costs associated with complying with national regulations, since there would remain a need for national product safety regulations to protect consumers and users of industrial products.

Firms were only able to provide a qualitative assessment as to how the current costs of compliance compare with the situation before the internal market came into effect. Since core “New Approach legislation” has now been in place for 25 years, it is difficult for many interviewees to compare the situation prior to the internal market’s establishment. It would more be difficult to make a direct comparison anyway for the following reasons:

• There have been many changes affecting market size and structure during this period e.g. globalisation, the expansion of the EU from 12 Member States when the single market came into effect to 28 Member States today.

• The absence of data on compliance costs at the national level prior to its establishment.

• The fact that a simple “before and after analysis” cannot be undertaken since the body of internal market legislation was introduced over a period of 25 years rather than three being a “big bang” when the internal market first came into being in 1993.

It was instead agreed with the Commission that the baseline would be based on the current costs of compliance with Union harmonisation legislation. A comparison was then made with what impact different simplification scenarios that could be implemented in future would have in terms of reducing current compliance costs. As noted in Section 5.2.2, there were challenges in obtaining data on the current costs of compliance, but data was obtained and assumptions developed across the 8 harmonised cases, presented later in this section.

Taking Business as usual scenario (“BAU”) into account

As already indicated, in all sectors, parts of the costs incurred by firms in the process of ensuring compliance are costs that firms would incur even in the absence of the EU legislation.  The estimated share of business as usual costs varies greatly though. In the case of garden equipment, around 10% and 35% of the total compliance would have been incurred even in the absence of IM legislation. In comparison, in the case of electric motors, 73% of the human resource costs and 87% of the testing equipment were considered as part of the BAU scenario.

Similar high shares of the BAU scenario apply in the case of lifts while in the other product categories around 50% of the cost incurred were considered as costs that would probably have happened even in the absence of IM legislation.  The review of the data from the cases suggests that a key driver of high or low share of the business as usual costs is the level of costs for product design and testing linked to environmental legislation. Familiarisation with the legislation, fees for third party certification, preparation of technical files, DoC and CE marking is generally part of the compliance costs.

Where data on internal and external testing costs was available, establishing the costs specific to IM legislation as opposed to BAU costs was not always straight forward.  While in some cases, the proportion of costs that were considered to be “BAU” was easy to estimate, for instance, a firm stating that 30% of the costs that it incurs as part of conformity assessment procedures would be incurred anyway (for instance, safety testing being carried out irrespective of whether there was IM legislation in place so as to ensure high levels of product safety, internal quality management systems and procedures to protect corporate reputation).

Average weightings to take into account firm size

The costs of regulatory compliance have taken firm size into account in different ways, depending on the mix of firms that have taken part in each case. Compliance costs were usually estimated as a percentage of the firm’s turnover. Where not available, an alternative unit of measurement was used, such as the volume of units sold per year based on parameters for the regulatory costs per unit from other firms where turnover data was available. Some form of weighting was therefore included.

There were limitations as to the extent to which a detailed quantitative analysis could be undertaken of compliance costs based on firm size. There was a lack of SMEs participating in the interview programme generally, although some SMEs took part in some of the cases. This partly depended on the product case, since some sectors such as laptops are dominated by large global manufacturers. Even when SMEs were interviewed, however, it was difficult to make a definitive judgement as regards compliance costs since for each case study, only a small number of firms were involved in the SCM exercise (e.g. 2 SMEs, 2 medium, 2 large firms). Although SMEs were well represented in sectors such as bicycles, this is a non-harmonised case.

Nevertheless, where possible, average costs were calculated so as to take into account any information obtained about differences in the level of compliance costs between SMEs and large firms. We asked firms to provide data on the volume of units sold in Europe annually and for their turnover and number of employees (this data was not always available). Establishing the regulatory cost per unit was possible for some cases, which allowed a weighting to be made.

Other qualitative considerations with regard to how SMEs and large firms manage the compliance process were also taken into account, since this can influence the structure of compliance costs. Since SMEs are less likely to have their own in-house laboratories and expertise and capacity to carry out testing for all IM directives and regulations under the SDoC procedure, they are therefore more likely to have conformity assessment carried out in an external laboratory. Whilst even under the SDoC, large firms also commonly use the services of a third party at some point during the conformity assessment procedure, they will typically carry out some testing in-house and use third party observation to provide external validation and audit of internal testing. They may then also outsource some testing activities linked to conformity assessment for some directives, such as the LVD (electrical safety).

Salary costs

With regard to salary costs, the study team asked for actual cost estimates in the first instance. However, in some cases these differed markedly between firms. For instance, a firm in the air conditioning sector pointed out that the salary costs of those working on compliance within the company across different divisions in the EU and in Asia can vary by a factor of between 5 and 10. Even within the EU, the costs of staff involved in compliance can vary considerably between different countries in many cases. Since only a small number of firms took part in most case studies, so as to ensure greater consistency and comparability, standard parameters were applied to participant firms based on Eurostat average salaries.

E.4.3   Types of compliance costs for industry

Evaluation question 15 - What are the compliance costs with Union harmonisation legislation in eight selected harmonised product groups?

Two main types of costs were taken into account in our assessment: (i) the costs of compliance with Union harmonisation legislation and in meeting the essential requirements either through following voluntary harmonised technical standards[204] or alternative means and (ii) the administrative costs that economic operators have to fulfil in order to meet the essential requirements (e.g. development of a technical file, production of a DoC, CE marking). In so far as possible, we have distinguished between whether costs are one-off or recurring, but in many cases, there are elements of both. For instance, the main cost in preparing a technical file is in the period from the product design stage up to product launch but the file needs to be maintained and updated (as does the DoC) for up to 10 years following its placement on the market.

A distinction was also made in the case study quantification exercise between substantive and administrative compliance costs but given the continuum between some types of compliance activities, this was not always possible.  The following table summarises the main types of compliance costs identified:

Table E.3: Types of costs incurred in complying with Union harmonisation legislation.

Type of costs || One-off or recurring?

· Human resources – examples of the resources required to manage compliance are: o Regulatory compliance managers - participation in EU legislative-making and standardisation processes (mainly large firms), familiarisation with the applicable legislative and administrative requirements (all firms), keeping track of changes to legal requirements and updates to standards, briefing other business divisions about the legislation and forthcoming developments, ensuring that documentation (e.g. DoCs, technical files are kept up to date and made available online, responding to requests from market surveillance authorities). o Product and testing engineers – staff involved in R&D and new product development (early stage), engineers involved in testing and conformity assessment procedures prior to product launch. || Recurrent - global manufacturers employ small teams of permanent compliance specialists Some one-off costs – e.g. part of salaries of engineers prior to product launch can be attributed to IM legislation (discounting for BAU[205])

· Investment in laboratories and testing equipment - the cash costs of compliance (e.g. purchasing equipment). Although harmonised standards are voluntary, since the vast majority of manufacturers follow these standards, compliance with standards in order to meet the essential requirements has generally been considered as part of overall compliance costs. || One-off and recurrent

· Third party conformity assessment – typically a one-off cost prior to product launch. Although 3rd party CA is mandatory for a small number of IM directives and regulations, typically, the Suppliers’ Declaration can be used and the use of a 3rd party is voluntary. || One-off – costs incurred prior to product launch

Section 5.4 of the main report provides an assessment of the compliance costs themselves and draws conclusions between product groups.

E.5      Methodological approach to estimating the broader impacts on growth and jobs from simplification measures

The analysis presented in the main report makes use of the estimated compliance costs and simplification savings potential calculated from the eight product groups examined in the context of the case studies.

The basic assumptions of the analysis are that any cost reductions from simplifications will be translated into savings of firms’ operational costs that will, in turn, be translated into improved labour productivity which is then passed into lower prices of products. This improves (international) competitiveness, boosting exports and reducing imports relative to final demand; which, ultimately, should have a positive impact on Gross Domestic Product which should, in turn lead to increased employment.  At the same time, increased labour productivity should be expected to reduce employment in the short term reducing disposable household income and as a result, private consumption demand. Thus, whereas the GDP in the sector concerned is increased at the macro-economic level the impact of the reduction of compliance costs on GDP is uncertain. Employment effects are also not a priori certain, as the initial shock is a ceteris paribus reduction in the number of jobs.

The steps that were followed are now outlined:

1. We developed a medium/long-term baseline scenario of economic development by defining a set of plausible values of the exogenous variables of the model.[206] These include the volumes of export, consumption (household and government), investment (enterprises and government), imports, GDP and depreciation and its prices as well as labour costs and employment numbers.. This baseline scenario did not include simplification of IM regulation.[207]

2. Definition of the nature and size of the cost savings as a result of possible simplifications to the IM regulation on the basis of the results of the case studies.

3. Taking the original baseline scenario as point of departure, we prepared an alternative scenario of economic development including the estimated compliance cost reductions

4. Comparison of the alternative scenario to the baseline scenario to estimate the impact of the compliance cost reduction on economic development

Ideally the estimation of the possible impact would be based on a model of the EU economy as a whole or of each individual member state. As these were not available, the PRISMA model for the Netherlands has been used[208]. Thus, the relative costs reductions hypothesised for the EU economy were applied to the Dutch economy to determine the impact on growth and jobs. The results were then extrapolated at the EU level and the World Input-Output model was applied[209].

Ideally the estimation of the possible impact would be based on a model of the EU economy as a whole or of each individual member state. As these were not available, the PRISMA model for the Netherlands has been used[210]. Thus, the costs reductions hypothesised for the EU economy were applied to an economic baseline scenario to determine the impact on growth and jobs. The results were then extrapolated at the EU level and the World Input-Output model was applied[211].  This approach is sensible under the assumption that the core elasticities – mainly price elasticities–  do not vary much between EU countries.  

The model variables that are directly affected are domestic final demand by category (household and government consumption, investment), demand in the private sector and the labour productivity. Furthermore, exports should be expected to increase as a result of a reduction in prices. The impact on EU imports too has also been taken from the PRISMA model. Together final demand and imports determine GDP. On the basis of changes in GDP employment effects can be estimated making use of expected changes in labour productivity. These are taken from the PRISMA exercise. Further information about Panteia’s PRISMA-model is provided in the following box:

Box: Panteia’s PRISMA-model PRISMA - an acronym of Policy Research Instrument for Size-aspects in Macro-economic Analysis - is an economic macro-sector model. It has been designed in such a way that it produces results that are consistent with those produced by the current macro model of the Netherlands Bureau for Economic Policy Analysis. PRISMA is used for forecasting, scenario building and what-if analyses with respect to government policies and exogenous shocks. Its time horizon is 3-25 years. PRISMA consists of a kernel and a number of modules. PRISMA’s business sector is disaggregated into nineteen industries. Within each economic sector, a distinction is made between SMEs and large enterprises. Hence, the following two types of model exercises become possible. First, economic effects derived by PRISMA’s kernel - for example when forecasting, building a scenario, or evaluating the consequences of changes in policy or the economic environment - can be ‘translated’ into the prospects for SMEs. Second, when circumstances change differently for SMEs compared to large businesses - for example due to a policy measure that focuses particularly on SMEs – the consequences can be evaluated by using the size-class module. The relevant PRISMA-sector for the current application is business services (NACE Rev. 2 N+M), of which the services sectors under consideration make up 50% in terms of value added (EUROSTAT SBS, 2010) References: · General Introduction (http://www.ondernemerschap.nl/index.cfm/1,95,305,0,html/Prisma) · PRISMA 2001, The Kernel (http://www.ondernemerschap.nl/index.cfm/12,html?nxt=ctm_publikatieandbestelnummer=H200104) PRISMA, The Size-Class Module (http://www.ondernemerschap.nl/index.cfm/12,html?nxt=ctm_publikatieandbestelnummer=N200207)

Section 5.6 of the main report provides a quantitative assessment of the simplification benefits using the PRISMA model.

[1] The study is part of Lot VI of the Framework Contract for the Procurement of Studies and other Supporting Services on Commission Impact Assessments and Evaluations (2008/S146-195858).

[2] Report ‘Trends and segments for electric motors’ by the Dutch Center for Encouraging import from Developing Countries (CBI) – 2011. http://www.cbi.eu/system/files/marketintel/Trends_and_segments_for_electric_motors.pdf

[3] Definition taken from ‘EUP Lot 11 Motors’ by de Almeida, Ferreira, Fong and Fonseca (2008). See http://www.eup-network.de/fileadmin/user_upload/Produktgruppen/Lots/Final_Documents/Lot11_Motors_FinalReport.pdf

[4] Including production and import, excluding export.

[5] Report ‘Trends and segments for electric motors’ by the Dutch Center for Encouraging Import from Developing Countries (CBI) – 2011. http://www.cbi.eu/system/files/marketintel/Trends_and_segments_for_electric_motors.pdf

[6] The table in the appendix provides an overview of the data of per PROD-COM CODE.

[7] Source: EuP lot 30: Electric Motors and Drives (2012), table 2-3 and 2-4 - http://www.eco-motors-drives.eu/Eco/Documents_files/EuP-Lot30-Task-2-2-Dec-2012.pdf

[8] CSES (2012), Evaluation of the Ecodesign Directive – Final report

[9] See Guidelines on the Application of Directive 2006/95/EC, paragraph 22 (page 14) for a list of required documents. Link: http://ec.europa.eu/enterprise/sectors/electrical/files/lvdgen_en.pdf

[10] See the Guide for the EMC Directive (2004/108/EC), page 23.

[11] http://ec.europa.eu/enterprise/sectors/mechanical/files/atex/guide/atex-guidelines_en.pdf

[12] Laptops can be defined as a portable computer to be operated for extended periods of time without a direct connection to an AC power source.

[13] NACE codes 2620 includes: Laptop PCs and palm-top organisers, Point-of-sale terminals, ATMs and similar machines capable of being connected to a data processing machine or network Desk top PCs and Laptop PCs and palm-top organisers, among other categories of peripherals.

[14] It is not clarified by the definition but it is also possible that this category covers portable tablets.

[15] Data from the 2011 Euromonitor report for computers.

[16] Examples of technological change are increased processing power with reduced power consumption through investment in energy-efficient technologies

[17] A DoC only needs to be provided with the product by manufacturer responsible for radio part (since only R&TTE Directive has this requirement).

[18] In the laptops industry, it has been agreed that an abbreviated version of the DoC is provided together with the product with more detailed regulatory compliance information provided online.

[19] There were difficulties in persuading more firms to participate. Some companies approached were concerned about commercial sensitivities, while others did not believe that they would be able to collect such complex data at the product level because they produce so many different product platforms.

[20] COMMISSION REGULATION (EU) No 617/2013

[21] Preparatory studies for Eco-design Requirements of EuPs, Lot 3 Personal Computers (desktops and laptops) and Computer Monitors, IVF Industrial Research and Development Corporation, 2007 (for the European Commission's DG TREN)

[22] There is no direct equivalent to the concept of “placing a product on the EU’s internal market” as set out in Decision 768/2008

[23] The conformity assessment procedures that are applied by manufacturers under the R&TTE-D are in summary (II) Internal production control (iii) Internal production control plus specific apparatus tests (IV) Technical construction file and (V) Full quality assurance).

[24] TCAM is the Telecommunications Conformity Assessment and Market Surveillance Committee and was officially established by the R&TTE directive.

[25] These costs were annualised in order to arrive at comparable annual costs, using a system similar to firms’ accounting for depreciation. For some questions, we also asked questions in the SCM questionnaire about how much they spent on testing equipment over a 5 year period, which had to be annualised.

[26] All unit costs are based on the interviews with at least 3 respondents answering each figure.

[27] Turnover is used to upscale the parameter estimates. The average respondent has a market share of about 10%. The same approach was adopted for the DoCs.

[28] Approximately 30-40 standards need to be purchased in order to develop a compliant laptop product. However, once purchased, these standards can then be used across multiple product platforms.  We have assumed an average annualised cost of 5000 EUR since larger firms may purchase a group license rather than buy standards individually.

[29] Here, substantive compliance costs are concerned with building in compliance requirements to product design during new product development phase and where necessary, making modifications to products that have already been placed on the market.

[30] Based on one respondent and its market share, the total number of models was estimated at 200. The average respondent runs 20 models, so the quantity is 10 (200/20).

[31] Number of models (see above footnote). The same is done for 3rd parties.

[32] No data was available on the costs of purchasing testing equipment because for commercial sensitivity reasons, the firms concerned were unwilling to share this data.

[33] Telecommunications Conformity Assessment and Market Surveillance Committee

[34] Regulatory compliance websites of leading laptop manufacturers – examples are: the HP Technical Regulations EuroBase - http://www8.hp.com/uk/en/certifications/technical/regulations-certificates.html, http://www.dell.com/content/topics/global.aspx/about_dell/values/regulatory_compliance/dec_conform?c=us&cs=&l=en&s=corp&~ck=anavml  and http://www.lenovo.com/social_responsibility/us/en/ec_doc_notebooks.html

[35] There is already a precedent for electronic labelling in order to provide regulatory compliance information, since this approach has been adopted through EU Commission Regulation 207/2012 on the electronic labelling of medical devices. The provision of instructions for use in electronic form for professional users is designed to help to reduce the environmental burden and to improve competitiveness by reducing costs whilst at the same time maintaining safety.

[36] Global firms will tend to centralise their compliance function through their European HQ.

[37] The exclamation is known as the "alert symbol” is found on any device that includes a Class 1 or 2 Wifi module and supplements other CE markings. The reason why the mark has been introduced is because Member States have restrictions on various frequency bands—for example, a wireless device operated outdoors in France can only use frequencies between 2.4 GHz and 2.454 GHz. When a device can follow all these restrictions, it is said to work on "harmonized frequency bands" and is called a “Class I device”. Class II devices must however carry the extra alert symbol so that users know the phone might try and operate on frequency bands that are not allowed to be used in certain countries. However, consumers are not familiar with the alert sign and this information could be provided online instead on the regulatory compliance section of websites directly to MSAs.

[38] Such  delays can occur if customs and/ or MSAs mistakenly believe there to be a requirement for all electrical products to provide the DoC together with the product.

[39] Less marking requirements on product. Reduced cost of product marking (less familiarisation costs, printing the mark itself). Assumed: 2% reduction familiarisation, 2% reduction preparation etc..

[40] Reduced costs of a single common template for a DoC (rather than multiple templates). Assumed: 20% reduction DoC. Reduced uncertainty for manufacturers (eliminate risk of delays to product shipments) is not quantified..

[41] These standards are similar and can be considered broadly harmonised.

[42] When designing a computer or laptop, EMC technical standards influence the design phase because they set the parameters as to what is possible or not.

[43]             The Ecolabel for portable computers can be awarded for desktops or laptops with a system unit, display and keyboard combined in a single case which can be used with an internal battery. This product group also covers devices equipped with touch screen keyboard.

[44] Topten (2012), Cold appliances: recommendations for policy design

May 2012, http://www.topten.eu/uploads/File/Recommendations_Cold_May%202012.pdf   

[45] RPA (2011), Ex-Post Evaluation of the Gas Appliances Directive- Final report

[46] ISIS (2007), Preparatory studies for Ecodesign Requirements of EuPs – Lot 13: Domestic refrigerators and freezers – Final report

[47] Ecorys (2009), Study on the Competitiveness of the EU Gas Appliances Sector - Within the Framework Contract of Sectoral Competitiveness Studies – ENTR/06/054 - Final Report,  http://ec.europa.eu/enterprise/sectors/pressure-and-gas/files/study_competitiveness_eu_gas_appliances_final_en.pdf

[48] Besides refrigerators and freezers this category includes a range of appliances including: dishwashers and washing machines, vacuum cleaners, hair dryers, radiators and heaters, microwave ovens, electric ovens, grills and toasters, coffee makers, electric cookers, food grinders and mixers, electric blankets.

[49] The data from Eurostat refer to individual enterprise units, many of which are subsidiaries of the few large manufacturers that dominate the refrigerators market and are present in most EU national markets.

[50] All products for which the first 4 digits of the PRODCOM code is 2751. 

[51] Electra report - Twenty solutions for growth and investment to 2020 and beyond, http://ec.europa.eu/enterprise/sectors/electrical/files/electrareport_en.pdf

[52] Refrigerating systems and heat pumps - Safety and environmental requirements - Part 2: Design, construction, testing, marking and documentation

[53] Refrigerating systems and heat pumps - Liquid level indicating devices - Requirements, testing and marking

[54] Refrigerating systems and heat pumps - Safety switching devices for limiting the pressure - Requirements and tests

[55] Refrigerating systems and heat pumps - Valves - Requirements, testing and marking

[56] Pressure equipment for refrigerating systems and heat pumps - Part 1: Vessels - General requirements

[57] Pressure equipment for refrigerating systems and heat pumps - Part 2: Piping - General requirements

[58] It has not been possible to collect data from a manufacturer of gas refrigerators. However, some data on costs of the gas appliances were available in the evaluation of the Gas appliance Directive and are included in the relevant sections of the report.  

[59] In 2012, the firm interviewed had a turnover of EUR 150 million and 350 employees. Around 10% of the turnover came for the sales of refrigerators.  The firm is a subsidiary of a larger enterprise

[60] RPA (2011), Ex-post evaluation of Directive 2009/142/EC on appliances burning gaseous fuel, http://ec.europa.eu/enterprise/dg/files/evaluation/03_2011_finalreport_gas_en.pdf

[61] Firms were not able to provide specific data.

[62] On the basis that other firms did not identify this as a problem this is possibly and overestimate of the possible savings.

[63] Evaluation of the Energy Labelling Directive, http://www.energylabelevaluation.eu/eu/home/welcome

[64] According to article 3 of the RoHS Directive ‘making available on the market’ means any supply of an electrical and electronic equipment (EEE) for distribution, consumption or use on the Union market in the course of a commercial activity, whether in return for payment or free of charge; ‘placing on the market’ means making available an EEE on the Union market for the first time;

[65] http://www.lift-report.de/index.php/news/361/373/Industry-report---Lifts-and-escalators-an-industry-in-flux

[66] It should be noted that skip hoists are not lifts and are not subject to the Lifts Directive. However, Eurostat does not provide further disaggregation of Prodcom data.

[67] Elevators and Escalators - A Global Strategic Business Report 10/12

[68] To a certain extent, the compliance costs incurred by manufacturers of components might be passed on to the manufacturers and installers of lift units through higher prices for components. However, it is beyond the scope of this study to determine the extent to which that happens.

[69] As an indicative example, UK standards under the Lifts Directive are typically priced between £50 and £300. See: http://shop.bsigroup.com/.

[70]  The definition comes from EN 836

[71] The definition comes from EN ISO 11806

[72] http://www.egmf.org/en/economic-information/

[73]Data from the UK indicate that the consumer market represents around 60% of the total gardening products market with the remaining directed to professional users.  Lawn mowers represented around 40% of the consumer gardening equipment market in the UK (based on retail sales) with another 35% going to various types of power tools such as chain saws, cutters and trimmers.

[73]According to the EGMF, its members sell in Europe more than 6 million lawnmowers, 4.5 million chainsaws, 3 million brush-cutters and 3 million hedge-trimmers on annual basis

[73] http://ec.europa.eu/enterprise/sectors/mechanical/files/noise/iastudy_noise_finrep_en.pdf

[74] ‘Lawn Mover Noise and Vibration Control’ study (Tetteroo & Bockhoff, 2006) cited in http://ec.europa.eu/enterprise/sectors/mechanical/files/noise/iastudy_noise_finrep_en.pdf

[75] http://www.britishgardenshed.co.uk/uk_market.htm

[76] NOMEVAL (TNO, 2007)

[77] http://ec.europa.eu/enterprise/sectors/mechanical/files/noise/tno_nomevalrep12-12-07_en.pdf

[78] SME Test Study on possible policy options for reviewing the Noise Directive + Impact Assessment Study on possible policy options  (concerning conformity assessment procedures) for reviewing the Noise

Directive), http://ec.europa.eu/enterprise/sectors/mechanical/files/noise/smetest_noise_finrep_en.pdf (p.59)

[79] Data retrieved from Euromonitor international Passport database (accessed from British library)

[80] The list of standards is not exhaustive. Furthermore, not all standards identified are applicable to all products.

[81] safety of powered lawnmowers

[82] safety of electrically powered lawn mowers

[83] Machinery for forestry - Portable chain saws - Safety and testing requirements

[84] Determination of sound power levels and sound energy levels of noise sources

[85] Test area standard for different categories

[86] noise test for internal combustion lawn mowers, brush cutters, trimmers

[87] test code of airborne emissions for powered mower

[88] Declaration and verification of noise emission values of machinery and equipment

[89] Public consultation on the revision of Directive 2000/14/EC on noise from outdoor

Equipment, http://ec.europa.eu/enterprise/sectors/mechanical/files/noise/public-consultation/report_en.pdf

[90] One firm indicated 300hrs but this deviated from all others.

[91] We have assumed 20 large size firms (members of the EGMF) and 30-80 small firms

[92] On the basis of an average of 5 product lines on average per manufacturer

[93] Investment in testing equipment is usually one-off and last for at least 5 years. The costs provided here have been estimated on an annual basis.

[94]  Number based on an assumption of 15 models/firm once in four years

[95] This appears to be a position taken by Orgalime that representatives of a much broader range of manufacturing sectors. See http://www.efcem.eu/media/uploads/dopp_on_merger_md-noise_final.pdf

[96] Figure also obtained after analysing PRODCOM annual production statistics

[97] PRODCOM data from 2012

[98] CSES (2010), Interim Evaluation of the Measuring Instrument Directive

[99] Ibid;

[100] Ibid;

[101] PRODCOM data, 2010; cf. CSES (2010), Interim Evaluation of the Measuring Instruments Directive, page iii

[102] EMC Article 2 (a) (b) (c), Annex MI-005

[103] Annex MI-005

[104] There is a period of transition up till 2016, after which all new POS must be MID compliant

[105] International Organisation of Legal Metrology (OIML) R139: Compressed gaseous fuel measuring systems for vehicles

[106] FTE: The ratio of the total number of paid hours during a period (part time, full time, contracted) by the number of working hours in that period; Third-party compliance costs: external quality control/product safety auditors

[107] For instance, the F-Gas regulation (Regulation 842/2006 on certain fluorinated greenhouse gases) relating to greenhouse gases was considered by some air conditioning stakeholders interviewed to be one of the most burdensome pieces of legislation affecting the sector.

[108] Preparatory study on the environmental performance of residential room conditioning appliances (airco and ventilation), Economic and Market analysis, July 2008

[109] For instance, pursuant to The F-Gas Regulation (EC) No 842/2006, Commission Regulation (EC) No 303/2008 of 2 April 2008 establishes minimum requirements and the conditions for mutual recognition for the certification of companies and personnel as regards stationary refrigeration, air conditioning and heat pump equipment containing certain fluorinated greenhouse gases

[110] It should be noted that this data is not publicly available, since it is proprietary.

[111] Idem.

[112] Sustainable Industrial Policy – Building on the Ecodesign Directive – Energy-Using Product Group Analysis/2 Lot 6: Air-conditioning and ventilation systems, Part 2 Market Study, July 2012

[113] Preparatory study on the environmental performance of residential room conditioning appliances (airconditioning and ventilation), ECODESIGN Lot 10, July 2008

[114] Sustainable Industrial Policy – Building on the Ecodesign Directive – Energy-Using Product Group Analysis/2 Lot 6: Air-conditioning and ventilation systems, Part 2 Market Study, July 2012

[115] The relevant Prodcom categories are: 28251220: Window or wall air conditioning systems, self-contained or split-systems. These products are within the scope of this case when used for comfort cooling and over 12 kW cooling capacity: smaller units are under Prodcom code 28251250: Air conditioning machines with refrigeration unit (excluding those used in motor vehicles, self-contained or split-systems machines). This category includes comfort-conditioning air conditioning chillers and chillers used for other air conditioning applications, and other products, 28251270: Air conditioning machines not containing a refrigeration unit; central station air, handling units; boxes and terminals, constant volume units and fan coil units (including air handling units and terminal units – including fan coil units - but also other component parts of central air conditioning systems).

[116] The data is based on sales to end-users irrespective of whether they are imported, manufactured within EU27 or assembled from imported components. Import and export is only reported from a national perspective so intra-EU and extra-EU figures cannot be determined from this derived data.

[117] A comprehensive overview of applicable legislation in the area of Ecodesign, the Energy Performance of Buildings Directive and the Energy Labelling Directive was produced recently as part of an Ecodesign preparatory study for air conditioning equipment above 12 kW – see www.ecohvac.eu, task 1, page 128-160.

[118] The LVD applies to small air conditioners for domestic use, whereas the MD applies to larger air conditioning systems such as big chillers.

[119] There is currently a proposal for a revised regulation on fluorinated greenhouse gases -  COM(2012) 643

[120] EU industry associations provide an opportunity for industry to feedback their views on the revision of existing EU regulations and on the proposed introduction of new legislation, for instance, through Commission working groups that have been set up on specific directives and regulations e.g. working group on Ecodesign.

[121] In comparison, the lifecycle of a laptops platform in which different model variants are developed is in the region of 2 to 5 years. It is easier to integrate regulatory requirements into the development of new platforms rather than to invest in modifying platforms that have already been developed.

[122] The reason why the LVD can result in high costs is due to the duration of the testing process which can take up to one month in a third party laboratory, even after the manufacturer has carried out testing in-house. The main mechanism chosen by manufacturers to achieve presumption of conformity with the LVD is through harmonised standards. Two standards are applicable for air conditioners: (i) EN 60 335-1 (general standard applying to household and similar electrical appliances) and Part 2 specific additional requirements for each category of appliances standard for safety requirements in household appliances and (ii) EN 60 335-2-40: specific requirements for electrical heat pumps, air-conditioners and dehumidifiers.

[123] This includes (PED) final observation of a pressure tests and (EMC) check for radiated and conductive emissions.

[124] These costs were annualised in order to arrive at comparable annual costs, using a system similar to firms’ accounting for depreciation. For some questions, we also asked questions in the SCM questionnaire about how much they spent on testing equipment over a 5 year period, which had to be annualised.

[125] Although there is a lack of data on market size and structure at a sufficiently disaggregated level in Prodcom and SBS data, we estimate that there are approximately 20 major manufacturers active in Europe, and perhaps some 80 small and medium sized manufacturers. Even market studies do not provide reliable estimates in this regard so this is a “best estimate”.

[126] There were considerable differences in the estimates of compliance costs for large, medium and small air conditioning manufacturers, reflecting significant differences in the volume of units sold annually in Europe. Standardised parameters were estimated based on the data obtained, taking into account differences between firms of different size thresholds.

[127] There are already examples within the IM regulatory framework of such standards (e.g. under the PED, where is a standard for boilers).

[128] Lower cost of purchasing standards (average 80 EUReach). 5 (=1/3 of total) fewer standards purchased a year = saving of 400 EUR per firm.

[129]  15% saving in familiarisation costs .

[130] No saving for manufacturers only exporting within EU. Estimated 25% reduction 3rd party CA per model exported to third countries. Assumed: 20% of models exported. Adds up to a reduction of 5% on CA. Note: this saving will only be relevant and measured in instances when CA was originally carried out in the EU.

[131] Decision 768/2008 states that “The DoC shall be translated into the language or languages required by the Member State in which market the product is placed or made available”.

[132] It is of particular interest that the latter standard deals with the energy efficiency of gas-fired air-conditioning appliances (the energy efficiency aspect may be subject to one or several of the implementing measures under the EcoDesign Directive).

[133] A comprehensive overview of applicable legislation in the area of Ecodesign, the Energy Performance of Buildings Directive and the Energy Labelling Directive was produced recently as part of an Ecodesign preparatory study for air conditioning equipment above 12 kW – see www.ecohvac.eu, task 1, page 128-160.

[134] European Commission. 2013.

[135] Semiconductors: Global Industry Guide. 2012. MarketLine

[136] http://ec.europa.eu/enterprise/newsroom/cf/_getdocument.cfm?doc_id=7382

[137] The EU Industrial R&D Investment Scoreboard: http://iri.jrc.ec.europa.eu/scoreboard.html

[138] European Strategy for Micro and Nanoelectronic Components and System

[139] http://ec.europa.eu/enterprise/sectors/ict/files/kets/hlg_report_final_en.pdf

[140] High-Level Expert Group on Key Enabling Technologies. Final Report. http://ec.europa.eu/enterprise/sectors/ict/files/kets/hlg_report_final_en.pdf

[141] High-Level Expert Group on Key Enabling Technologies. Final Report.

[142] A search for ‘integrated circuits’ on the British Standards Institute database resulted in 685 individual standards. http://shop.bsigroup.com/en/SearchResults/?q=integrated%20circuits

[143] An updated version of the “candidate list” can be found in the ECHA website: http://echa.europa.eu

[144] http://echa.europa.eu/en/web/guest/view-article/-/journal_content/512b7526-9dd6-4872-934e-8c298c89ad99

[145] The International Electrotechnical Committee is based in Switzerland and bases its prices on the Swiss Franc (CHF). Conversions use the following rate: CHF/EUR = 0.8147

[146] See, for example, the chart created by NXP: http://www.nxp.com/about/corporate-social-responsibility/environment/lead-free-halogen-free/matrix.html#complete

[147] ESIA. 2009. Semiconductors: Enabling Sustainable Living in 21st Century Europe.

[148] Cited in http://www.nema.org/Policy/Environmental-Stewardship/Documents/081203%20RoHS%20impact%20assessment%20summary.pdf

[149] http://www.orgalime.org/sites/default/files/PP_Complementary_REACH_and_RoHS_Mar13.pdf

[150] https://www.bomcheck.net/assets/docs/Guide%20to%20REACH%20Requirements%20for%20component%20suppliers%20and%20equipment%20manufacturers.pdf

[151] This European Standard specifies the technical documentation that the manufacturer needs to compile in order to declare compliance with the applicable substance restrictions. The documentation of the manufacturer’s management system is outside the scope of this European Standard.  http://www.cenelec.eu/dyn/www/f?p=104:110:3448161281810912::::FSP_PROJECT,FSP_LANG_ID:23432,25

[152] See the industry-led initiative, BOMCheck, developed by the European trade association COCIR and coordinated by the environmental consultancy ENVIRON, which sits on co-chairs the IPC 1752A materials declaration standard and serves as EMEA regional coordinator for the IEC 62474 materials declaration standard.  https://www.bomcheck.net/ 

[153] See press release: http://www.prnewswire.com/news-releases/bomcheck-celebrates-more-than-1-million-rohs-and-reach-materials-declarations-from-over-3100-suppliers-211932871.html 

[154] There is no limit to the number of part numbers that the supplier can load into the database or the number of customers that the supplier may have on BOMcheck.

[155] FESI

[156] We have been in contact with Eurostat to confirm this

[157] Eurostat Structural business statistics (SBS)

[158] PRODCOM

[159] PRODCOM

[160] http://www.clusterlink.com/acenet/new/pdf_acenet/Veneto%20Region.pdf

[161] Due to a low number of producing companies data on the remaining markets production value is not available in the PRODCOM database.

[162] One of the companies interviewed, for example, has outsourced all production to a Czech manufacturing company while continuing to design, market, and manage the company in Italy.

[163] This is a close approximation of the industry, as FESI is the largest industry association and covers 85 percent of the total industry.

[164] Deutsches Institut für Normung (DIN)

[165] UNI Ente Nazionale Italiano di Unificazione (UNI)

[166] The companies represent typical companies within the industry and it is our impression that the information obtained are to a large degree typical for the sector. However, results should be interpreted with some care due to the relatively small number of interviewees.

[167] Italian standardization committee

[168] Impact Assessment of the REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL laying down procedures relating to the application of certain national technical rules to products lawfully marketed in another Member State and repealing Decision

3052/95/EC

[169] EUROPEAN BICYCLE MARKET 2012 edition, Industry & Market Profile (2011 statistics), COLIBI and COLIPED. http://www.colibi.com/docs/issuu/European%20Bicycle%20Market%20&%20Industry%20Profile%20-%20Edition%202012.pdf

[170] http://www.bike-eu.com/Sales-Trends/Market-Report/2013/3/European-Union-2012-Is-Cycling-Becoming-Hot-Again-in-Europe-1179947W/

[171] Source: Worldometer Stastics, http://www.worldometers.info/bicycles/

[172] Please note that COLIBI and COLIPED do not give a definition in their report. It is therefore not possible to compare their findings one-on-one with the Eurostat data.

[173] For examples from the UK for technical rules, please follow this link: https://www.gov.uk/mutual-recognition-regulation-across-the-eea

[174] See the following link: http://www.cen.eu/cen/Sectors/TechnicalCommitteesWorkshops/CENTechnicalCommittees/Pages/Standards.aspx?param=6314&title=Cycles

[175] For the full text of the regulation: http://www.legislation.gov.uk/uksi/2010/198/pdfs/uksi_20100198_en.pdf

[176] For the full text of the regulation: http://www.legislation.gov.uk/uksi/1983/1176/pdfs/uksi_19831176_en.pdf

[177] See http://wetten.overheid.nl/BWBR0001969/geldigheidsdatum_23-05-2013 for the full text of this legislation.

[178] See http://wetten.overheid.nl/BWBR0025798/geldigheidsdatum_23-05-2013 for the full text of this legislation.

[179] http://www.gesetze-im-internet.de/stvzo_2012/BJNR067910012.html for the full text of the legislation.

[180] Source BIKE Europe EU Regulations for E-bikes & Pedelecs Series. See http://www.bike-eu.com/Laws-Regulations/Safety-standards/2010/8/EU-Regulations-for-e-Bikes-Part-1-Type-approval-legislation-and-CEN-standards--BIK004232W/

[181] http://www.bike-eu.com/Laws-Regulations/Safety-standards/2010/8/EU-Regulations-for-e-Bikes-Part-2-Machinery-Directive-BIK004233W/

[182] http://www.bike-eu.com/Laws-Regulations/Safety-standards/2010/8/EU-Regulations-for-e-Bikes-Part-3-Electromagnetic-Compatibility-BIK004234W/

[183] http://www.bike-eu.com/Laws-Regulations/Safety-standards/2013/3/EU-Regulations-for-E-bikes--Pedelecs-Part-6-RoHS-Directive-1258753W/

[184] Pedelecs stand for Pedal Electic Assisted Cycles or EPACS stand for Electronic Power Assisted Cycles.

[185] See http://www.vae-enov.com/fiches_2010/norme_en_15194.pdf

[186] See Impact Assessment, page 70.

[187] See Impact Assessment, page 15 and 16.

[188] See impact Assessment, page 71.

[189] "3D Printing: A Global Strategic Business Report" announced by Global Industry Analysts

[190] http://www.corriere.it/english/13_maggio_14/formula-one_70300362-bc81-11e2-996b-28ba8ed4f514.shtml

[191] The demarcation between the MD and the LVD is based on the category of product, rather than its size or whether it is used in a consumer, office or industrial environment. All ordinary office machinery and IT equipment is excluded from the scope of the MD and is thus subject to the LVD.

[192] For instance, the template for printing a fully functioning 3D gun in the US in 2013 attracted more than 100000 downloads before the technical blueprint was withdrawn.

[193] Certain types of lifts are covered under other Directives. The Machinery Directive applies to lifts for goods and to other types of lifts not covered by the Lifts Directive, the Cableways Directive applies to lifting appliances installed in outdoor mountain or urban sites.

[194] The SPVD is also applicable but only to certain types of air conditioners

[195] In order to obtain better information on the numbers of firms, CSES made use of the Orbis database which allowed the number of active firms or groups of firms in Europe for a number of sectors to be identified. This was considered preferable to the number of enterprises provided by Eurostat this is based on NACE two digit level classifications. NACE 2 digit product groups were usually broader in scope than the sectors we were examining and, critically, the number of enterprises provided refers to separate legal units, irrespective if these are subsidiaries of larger groups. In relation to compliance with IM legislation this is particularly important since more firms tend to perform most, if not all, relevant activities in one central location. Local subsidiaries usually have very limited, if any, role in the process.

[196] The firms were mainly manufacturers but some importers and distributors were also interviewed.

[197] For example, less familiarisation time may be needed and there would be less chance of products being stopped by customs authorities because they do not have a paper copy of the DoC – which is currently required under the R&TTE-D and confusion about whether one must be placed together with the product.

[198] It was noted during the research by global manufacturers that a distinction can be made between a product model or basic platform for regulatory compliance purposes and a product model for marketing purposes, where there may be multiple variants, with only minor technical differences and upgrades, but based on the same regulatory model.

[200] International Standard Cost Model Manual - Measuring and reducing administrative burdens for businesses. SCM network, OECD - http://www.oecd.org/regreform/regulatory-policy/34227698.pdf

[201] See inter alia - International Standard Cost Model Manual, Measuring and reducing administrative burdens for businesses.

[202] Measuring Administrative Costs: UK Standard Cost Model Manual, Better Regulation Executive, 2005

[203] A common set of Conformity Assessment Modules is defined in Decision 768/2008

[204] Although harmonised technical standards are voluntary, most manufacturers follow these in order to meet the essential requirements. The costs of meeting standards to support the legislation’s implementation were also included not only the administrative requirements and information obligations underlying these.

[205] BAU - Business as usual costs – a term used under the Standard Cost Model

[206] It should be noted that in general macro-economic models tend to be log-linear; therefore effects calculated do not depend strongly on the values of the exogenous variables. The log-linear behaviour has been seen to hold for the PRISMA and WIOM model used in this study.

[207] It should be noted that in general macro-economic models tend to be log-linear; therefore effects calculated do not depend strongly on the values of the exogenous variables. The log-linear behaviour has been seen to hold for the PRISMA and WIOM model used in this study.

[208] PRISMA is a macro-sectoral model Panteia has developed for medium/long- term scenario analysis in the Netherlands. See Box: Panteia’s PRISMA-model for further information.

[209] Panteia’s WIOM (World Input Output Model) is used; see the Box Panteia’s World Input-Output Model (WIOM).

[210] PRISMA is a macro-sectoral model Panteia has developed for medium/long- term scenario analysis in the Netherlands. See Box: Panteia’s PRISMA-model for further information.

[211] Panteia’s WIOM (World Input Output Model) is used; see the Box Panteia’s World Input-Output Model (WIOM).