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return to Case Studies | ITCD Case Studies Index | Designed
to Regulate? Dormont
Manufacturing Company, a U.S. exporter of gas hose connector, has spent
the past 10 years desperately trying to regain access to the European
Union market. Their main obstacle has been design standards.
Because of the lack of harmonization in EU standards, Evan Segal,
the President of Dormont, has had to make the decision to challenge the
EU members standards committee, go through costly certifications in each
member country, or alter their already successful product to meet these
European standards. Are
design standards a form of non-tariff trade barriers, or does the U.S.
simply have to follow the standards?
“The
formation of the European Union and the development of its standards
policies has been a fascinating study for standards professionals and
governments around the world”, (Helen Delaney, standards expert at the
U.S. Mission to the European Union).
The
U.S. company Dormont Manufacturing has found the EU’s development of
standards not so much fascinating, but frustrating. The EU’s lack of
integration in developing uniform product standards has sent Dormont on
a market-access roller coaster ride.
Part A: The Dormont Side Dormont
History Dormont
Manufacturing Company is a United States gas hose connector manufacturer
located in Export, Pennsylvania. Dormont produces gas hose connectors
with numerous applications in residential, outdoor, and commercial
environments. Dormont
Manufacturing, founded in 1946, is the largest producer of flexible
stainless steel gas appliance connectors and the inventor of the
stainless steel connector. Dormont
has proven to be a world leader in gas hose connector production and
installation: currently over 25 million of their gas connectors have
been installed around the world. The
two most important criteria when evaluating gas hose connectors are
safety and performance. Performance and safety standards are pertinent
to successful marketing and exportation. Dormont has repeatedly emerged as an industry leader in
the area of safety. Its
design, which utilizes helical “304” stainless steel tubing, also
features flared end fittings to guard against the metal fatigue
associated with welded fittings. Dormont’s
products have consistently satisfied and surpassed the rigorous testing
requirements established by the American National Standards Institute
(ANSI). Dormont’s history
for safety and successful completion of performance and safety testing
have produced recognition from not only domestic agencies but
international agencies such as the Australian Gas Association (AGA), the
Canadian Gas Association (CGA). Market
Access Prior to 1988
Prior
to 1988, Dormont freely exported gas hose connectors to European
countries. Dormont’s
customers were mainly fast-food restaurant chains such as McDonald’s
and Kentucky Fried Chicken. In
1989, Dormont was notified by McDonald’s, one of their largest
customers, that they could no longer use Dormont hoses in their British
restaurants. Shortly
thereafter their clients in France at EuroDisney also said they could no
longer use Dormont’s hoses. The
roller coaster ride had begun. In
the late 1980’s, because there was no harmonized EU standard, each
European country began to implement individual national standards for
gas hose connectors. Unlike
their counterparts, such as the Canadians and Australians, the Europeans
established national standards that included design standards on top of
the normal performance standards. Design
standards do not address safety requirements but deal with issues such
as compatibility and material composition of a product. Design standards
can be created to possess very simple requirements; for example such a
requirement might be that all tubing must be colored blue.
The design requirement can also be complex, such as all tubes
must be manufactured into three separate pieces then welded together.
Standards
that are not harmonized in the EU force foreign competitors wanting to
do business in the EU to alter their product to satisfy each national
standard. The cost of
obtaining each national standard certification is very high, not to
mention very time consuming. This
could conceivably require a producer to undergo 15 separate tests, which
could result in 15 different products for exportation.
Each country now required a seal of certification on gas hose
connectors. Market
Access to the United Kingdom (UK)
If
Dormont wanted to continue selling in Europe, they had to apply for
certification in each country and address each individual national
standard. Dormont decided
to first seek approval from the British Standards Institute (BSI). The
BSI is the body that sets standards for the UK.
To obtain certification, gas connector hoses must pass BS 669
testing under the BSI. This
testing includes two parts: BS 669 Part I applies to connectors in
residential settings, BS 669 Part II is relevant for commercial gas hose
connectors for catering appliances (i.e., McDonalds). Both parts of BS
669 contain safety, performance, and design requirements. After
submitting their hoses for approval Dormont was notified that they
passed the safety and performance section of the tests but failed the
design section of the test. Dormont
was confused, although they had to submit their hoses for certification,
they found out that the BSI claimed that BS 669 was supposedly voluntary
standard, yet, under British law, all installers of gas connectors are
required to use products that meet the BS 669 standard.
Formal compliance with BS 669 is not required to enter the
British Market, however, if United Kingdom installers use non-BSI
certified connectors, they face prohibitive costs and risks.
The Council for Registered Gas Installers (CORGI) is a mandatory
registration body for gas installing businesses in the United Kingdom.
CORGI must enforce compliance with BS 6173, which in turn
enforces compliance with BS 669. CORGI
registered installers face professional liability and revocation of
their license if they use products that are not affixed with BSI
certification. In
1988, Dormont met with BSI officials to petition to changes in the
design specifications so that the standards included Dormont gas hose
connectors. Dormont argued
that the revision would not compromise the current safety and
performance requirements of BS 669.
BSI refused to alter the design requirements of BS 669 Part I and
II, under the reasoning that these standards fell under the jurisdiction
of the United Kingdom and they represented British businesses of which
Dormont was not. In
1991, in an attempt to gain access to the gas hose connector
decision-making committee, Dormont purchased Sureflex, a small British
gas hose manufacturer, they renamed the company Dormont Europe Ltd.
Now, because they owned a British company, they were entitled to
have a representative on the GSE/1 committee. GSE/1 is a technical
committee in the BSI that developed and oversaw the BS 669 standard. GSE/1
is made up of mostly British manufacturers of gas fittings and gas
connectors. Acting as
a British company, Dormont once again petitioned BSI and GSE/1 to revise
the design requirements of BS 669 Part I and II.
The effort was once again pursued in vain, the design
requirements remained the same. Dormont and the Association of Catering
Engineers (ACE)[1]
accused the GSE/1 committee of being biased towards manufacturers in
designing the standard by. It became clear to Dormont that altering BS
669 standardization was not an option for them; they were at an empass.
Just as things started to look bleak, the clouds started to
clear, offering Dormont a possible new opening for market access. The
Rise and Fall of the CE Approval
In
1992 the European Union (EU) created a number of Directives that
harmonized standards in many different product areas.
The Directives provided guidelines for the affixing of the CE
marking, this was a “Declaration of Conformity”.
Through these directives the European Union harmonized the
standards of all member states. A difference in the EU standard was that
only safety and performance standards not design standards were used
when testing products. The
CE mark must be physically affixed to the product.
The act of affixing the mark to the product shows that the
product meets all of the requirements stated under the Directive and can
be sold in all member states; without the CE mark the product must meet
individual member state requirements to enter their prospective markets.
Dormont
now saw a window of opportunity to finally get certification and regain
market access. This
certification would allow Dormont to sell their product to all countries
in the European Union. The
European Commission authorizes six notifying bodies to review
applications for CE approval on harmonized products[2].
Each notifying body was to comply with the national standards
established by their authorized standardization body. The notifying body
in England was the British Standards Institute (BSI).
This was ideal for Dormont since they historically had a strong
presence in England and language would not be a hindrance to the
application process. After
undergoing CE certification was notified that they met BS 669’s
“essential safety requirement”, and therefore, was granted the CE
mark in August of 1993. Now
that Dormont had obtained the CE mark, they could re-enter the gas hose
market not only in the UK but the entire EU. With
the CE mark affixed to their products, Dormont attempted to market its
gas hose connectors in other European countries, starting with France.
To their dismay and frustration, Dormont was quickly told that
the CE mark issued by BSI would not be recognized in France.
The French authorities said the gas hose connectors did not fall
under the EU Gas Appliance Directive and therefore they would not except
Dormont’s hoses. After
much discussion the European Commission concluded that gas connectors
were not covered by the scope of the Gas Appliance Directive.
In December 1994 the British Government’s Department of Trade
and Industry (DTI) informed BSI that it must withdraw the CE mark from
Dormont’s gas hose connectors. Dormont
once again lost access to the European market.
They were now losing patience and started looking into their
rights as an international exporter.
They consulted a lawyer and the regulations of World Trade
Organization (WTO). International
WTO Obligations
Dormont
felt that the UK was in violation of several of its World Trade
Organization (WTO) obligations. They
wanted to prove that the UK was violating the Technical Barriers to
Trade (TBT) Agreement of the WTO (see Annex 1). Under Article 2.1 of the TBT it states that: “Members
shall ensure that in respect of technical regulations, products imported
form the territory of any Member shall be accorded treatment no less
favorable than that afforded to like products of national origin and to
like products originating in any other country." Article
2.2 states: “Members
shall ensure that technical regulations are not prepared, adopted or
applied with a view to or with the effect of creating unnecessary
obstacles to international trade. For
this purpose, technical regulations shall not be more trade- restrictive
than necessary to fulfill a legitimate objective, tacking account of the
risks non-fulfillment would create.
Such legitimate objectives are, inter
alia: national security requirements; the prevention of deceptive
practices; protection of human health or safety, animal or plant life or
health, or the environment. In
assessing such risks, relevant elements of consideration are, inter
alia: available scientific and technical information, related
processing technology or intended end-uses of products.” Article
2.5 states: “A
Member preparing, adopting or applying a technical regulation which may
have significant effect on trade of other Members shall, upon the
request of another Member, explain the justification for that technical
regulation in terms of the provisions of paragraphs 2 to 4 of Article 2.
Whenever a technical regulation is prepared, adopted or applied
for one of the legitimate objectives explicitly mentioned in paragraph 2
of Article 2, and is in accordance with relevant international
standards, it shall be rebuttably presumed not to create an unnecessary
obstacle to international trade.” Dormont emphasized Article 2.8: “Whenever
appropriate, Members shall specify technical regulations based on
product requirements in terms of performance rather than design or
descriptive requirements.” BSI
and the British Government
According to the UK government, they were not violating any WTO
regulations. BSI is an independent, non-governmental body, therefore the
UK government does not have a say in drawing up the standards.
Dormont, on the other hand, points to the Memorandum of
Understanding (MOU) (see appendix 2) between the United Kingdom
Government and the British Standards Institution as providing the link
between the UK government and BSI.
The first sentence of the MOU states:
“[t]he
Government will use all appropriate means to support and foster the
achievement by BSI of the objects for which it was constituted by Royal
Charter.” The second
sentence of Article 1 indicates that the UK Government will financially
contribute to the BSI’s annual budget in the form of an annual
grant-in-aid. One must not
overlook Articles 2, 3, and 5 of the MOU that authorizes direct
government supervision of and participation in BSI’s standard setting
process. Article 2(i)
offers a direct interpretation of the role the government will play in
standardization processes: “In
particular, it will, in accordance with priorities agreed between BSI
and the Government review and where appropriate revise existing British
Standards and seek to ensure that these and where appropriate new
standards will be suitable for reference in Government regulations as
unambiguous statements of technical requirement.” Further
indication that the UK government and BSI have a close relationship is
stipulated in Article 2 (iv): Where
the Government considers that no existing British Standards are suitable
for its purposes, the Government and BSI will seek to agree a timetable
for the development of the necessary standards.
Where such a timetable has been agreed, the Government will
refrain from developing standards or purchasing specifications for these
purposes, unless in its view circumstances change, in which it will
consult BSI before so doing. BSI
will amend or, if this is not feasible, withdraw or withhold publication
of any British Standard which may be in conflict with technical
regulations. Despite
this interpretation, the UK government maintains that they do not have
direct jurisdiction over BSI standardization.
This case cannot be presented to the WTO unless there is
substantive evidence that there is direct involvement from the UK
government in creating these standards with the BSI. However,
the relation between the two bodies becomes more questionable when
looking at the hierarchy in the government. The Health and Safety
Executive (HSE) is the government body that supervises BSI.
It is responsible for the enforcement of some of the standards
BSI establishes (including BS 6173 and 669).
HSE also has the authority to direct BSI to eliminate or revise
an existing BSI product standard if it deems it deficient.
HSE is under the supervision of the Department of Trade and
Industry (DTI). Revision
of BS 669 In 1997, after ten years of arduous work, frustrating work, Dormont finally had the design standard revised in Part II of BS 669 (for commercial hoses). The revision would include the design specifications of Dormont hoses. CORGI
has stated that they were instrumental in instigating the revision of
BS669 Part II, published in March 1997 that led to the inclusion of the
Dormont catering hose in British national standards.
However, Dormont still does not meet the standards for Part I
(residential hoses). They are still awaiting completion of final
documentation and have begun to sell again in the UK commercial market,
and are still trying to revise Part I (residential use) of BS 669. Part
B – The United Kingdom Side
The British Standards Institute
In 1988, the British Standards Institute (BSI) created a new
standard for gas hose connectors, the BS 669 Part I and II.
The standard included performance and design standards.
All gas hose connector importers must satisfy these standards in
order to sell in the UK. All
BSI standards are drawn up by committees made up of representatives from
manufacturers, users, research organizations, government departments and
consumers who have a vested interest in the products being standardized.
BSI ensures the views of British industries are represented in
this area. BSI is an independent authority and its standards are
voluntary. Before any standard is published, it is made available for
public comment. BSI is also
a member of the International Organization for Standardization (ISO) and
follows many of their guidelines. Part
I of the gas connector standard involves testing for residential-use
hoses, Part II pertains to commercial/catering-use hoses.
Under Part II standards involve the specification that hoses be
covered in white plastic, have annular tubing, and rubber hosing.
It also requires the use of fittings with a welded construction
as opposed to a flared design; the hose is initially in three separate
pieces then welded together. BS
6173 is the Gas Hose Installation standard that allows for the
installation of gas hoses and its connectors to catering equipment.
It requires that where an appliance is to be joined to the fixed
pipe work, it must be connected using flexible pipe that complies to the
British Standard manufacturing specification BS 669 Part II. The
Department of Trade and Industry (DTI) works in partnership with
businesses and the scientific community to ensure that science supports
the efforts of business to “become as competitive as possible” by
promoting open and competitive markets.
According to a representative from DTI, the DTI has no role to
play in drawing up or the approval of standards in the BSI process.
That is the job of the GSE/1 committee. GSE/1
is a technical committee in the BSI that developed and oversaw the BS
669 standard. It is made up
of mostly British manufacturers of gas fittings and gas connectors. BS
669 is a voluntary standard, yet you do need to pass the test in order
to have the hose installed by the Council for Registered Gas Installers
(CORGI). Installers
must be registered with CORGI before installing gas connectors,
basically they are the policing authority under the HSE.
Registration ensures that installers are following UK codes and
standards that certify that the gas connector components are operative,
tested and inspected. Inspectors
must check to make sure correct gas appliances are used.
Installation of gas appliances follow British Standards.
For catering equipment the standard that applies is BS 6173. This standard requires that an appliance joined to the fixed
pipework must be connected using a flexible pipe that falls under the
British Standard specification BS 669 Part II.
Dormont
hoses did not pass BS 669 Part I or II.
Yet it should be noted that even though the hoses did not pass
the testing. CORGI still believed that the hoses were suitable for use
and continued to accept the Dormont hose. In essence, they unofficially
relaxed the standard and continued to install Dormont hoses. When
asked to give their side of the story, the British/American Chamber of
Commerce in San Francisco, California claimed that there is no story,
the standards exist to maintain safety and meet specifications of the
British gas hose connector, and foreign producers exporting connectors
to the UK and EU must abide by this standard, end of story. Part
C – The European Union Side
Background in Standards In
1992, the Council of the European Communities adopted a series of
Directives designed to remove technical barriers to trade by creating
one norm to provide a level playing field for product safety
requirements in the European Community.
This would allow importers easier access to all EU markets by
having to pass only one standard. The
European Committee on Standardization (CEN), established in 1961 and
located in Brussels, is responsible for standardization throughout the
European Union. The
Committee is made up of central standardizing bodies in all of the EU
countries, one in each member country.
CEN collaborates with the standardizing bodies in preparing
European standards[3].
New standards were developed on a European-wide basis under the control
of CEN.
CEN
continues to support the use of international standards from the
International Standards Organization (ISO), whenever possible; 42% of
all CEN standards are adopted from ISO.
CEN has a close liaison with several Directorates of the
Commission because they give them mandates to draw up European standards
supporting Union standards, but they are two separate bodies.
European
Union and Dormont
Dormont
applied to the BSI under the Gas Appliance Directive to receive the CE
marking. In 1993 BSI tested Dormont’s gas hose connectors using tests
relating only safety and performance requirements in the British
Standards BS669 Part I. Dormont
passed the test with flying colors, and subsequently BSI issued a CE
mark. Dormont tried to then market the product, first in France, and was
informed by French local authorities that the CE mark did not apply to
gas connectors. The Gas
Appliance Directive only covered the appliances themselves, and not gas
hose connectors. BSI had made the determination that gas connectors were
an integral part of the gas appliance and treated them as one apparatus.
According to France, BSI had wrongly affixed the CE mark on the Dormont
hoses. In
1995, after discussions between the European Commission and Member
States, it was announced that gas hose connectors were not appliances
and therefore did not fall under the provisions of the Gas Appliance
Directive. BSI then had to withdraw the EC Type Examination Certificate
issued to Dormont in 1993, in order to comply with its obligations as a
notifying body for the EU. The
CE Mark was not withdrawn because of failure to meet requirements--Dormont’s
hoses had passed all relevant requirements for safety and
performance--simply the hoses did not fall under the Gas Appliance
Directive. According to the European Commission in March 1996, the Gas
Appliance Directive will eventually be expanded to include gas hose
connectors. There
is presently no Directive that applies to gas hose connectors, therefore
Dormont must now apply to each member state in order to qualify to sell
in their respective markets. CEN
was not involved in the Dormont case until 1997, simply
because there wasn’t a European Directive covering gas
connector hoses. On May 7,
1996 CEN 236/WG2 held its organizational meeting and has included gas
connector hoses on its work program. As of November 1997 the European
Committee for Standardization is considering a new European-wide
standard for gas connectors and has a working group discussing the
development of a new directive. After
continuous attempts to get information from CEN about the Dormont
situation, CEN claimed that it was not their policy to participate in
such discussions about importers and that ANSI would have to answer any
questions regarding the case. They
claimed they had nothing to hide, and as far as they were concerned the
case was closed long ago. Conclusion Dormont
has regained entry into the British “commercial” gas hose connector
market, yet this approval does not allow them access to all other EU
markets. They are slowly making their way back into the EU market, but
it isn’t easy. Dormont is
now trying to build a Mutual Recognition Case, in which EU member states
would be forced to accept a
product in their market if it has received certification in another EU
Member State. Dormont is
still fighting the design standards that many of the member states still
use in certification testing. The
following is a country by country review of what Dormont is now doing to
enter each market: France:
Dormont must pass French standards in order to receive an
“NF” mark (the French seal of certification) to sell gas hose
connectors in France. This standard also includes design standards. Spain:
Spanish authorities have stated that there is no national
standard, yet it is not legal to sell Dormont’s connector in Spain.
There is much confusion over what will happen in this market. Italy:
The Italians have their own standard, and are requiring that
Dormont pay for additional testing.
This also includes design standards. Belgium:
Dormont has received an approval from the Belgium Authorities (ARGB).
They are now legally selling in Belgium, and trying to sell from Belgium
into other EU nations. Denmark:
The Danish authorities have agreed to accept Belgium
certification and BSI test results. Austria:
Austria requires that gas hose connector producers meet their
national standards and become a part of their OVGW Association.
Dormont must therefore pay for additional testing.
Germany:
They will not accept other EU certification and Dormont must pay
for additional testing in order to receive approval to sell in the
German market. Sweden:
There is currently no national standard. Netherlands:
They will accept portions of the BSI and Belgium testing, but
Dormont must also pay for additional testing in order to receive their
certification. United
Kingdom:
After a legal review of the situation, it was determined that the BSI
standards were “de facto mandatory requirements” and that they were
perceived by distributors and end-users as legal requirements.
BSI has taken action to eliminate the design restrictions from
the standard, and the UK government has stated that it is legal for
Dormont to sell its products in the UK.
In
the meantime, CEN continues to work on a Directive to include gas hose
connectors, which if passed, would allow Dormont to test for
certification that would allow them access to all EU markets under one
recognized standard. Questions Did
the United Kingdom use non-tariff trade barriers to block international
market access? Were
the BSI and GSE/1 acting on the behalf of British business to eliminate
threatening international competition, or were they ensuring the quality
and safety of a product? Is
it their right to establish specification requirements?
Was
the United Kingdom violating its WTO obligations or is BSI’s
sovereignty independent from the British government? According
to the Technical Barriers and Trade Agreement, what arguments could
Dormont use in their defense? The
Case Plan: EU vs. Dormont ·
Brief
Statement of Teaching Objective Students
in the fields of international trade, business, political analysis, or
negotiations can use this case study as a basis for discussion of the
importance of design standards and whether they should be considered non
tariff barriers (NTB) in international trade and business. ·
Proposed
Outline of the Case by Subtitles I.
Dormont Side: -
Background; II.
EU Side: -
CE mark background; III.
UK Side -
No problem with Dormont; Overall
conclusion: -The
issue is ongoing. ·
Data
Requirements List for Case Inclusion Interviews
or information with Evan
Segal CORGI HSE German
competitors CEN
USTR ·
Proposed
Schedule to Completion Individual
sections completed by December 25. Timeline Prior
to 1988
·
Dormont
free to market its gas appliance connectors throughout EU August
1988
·
Dormont
obtains ISO 9000 a model for a quality system that is not specific to a
product, service or market, but to the quality process itself. (1957) 1988 ·
Dormont
is excluded from being part of GSE/1 (a BSI committee dominated by
industry users, government departments, and research organizations)
because it is a US manufacturer 1989
·
EU
members and European connector manufacturers enact design standards to
block Dormont access into their national markets
·
Design
standard - BS669
i.e. fittings with welded construction instead of flared design ·
BS
669 is not mandatory but BS 6173 an installation standard is mandatory 1990 ·
British
Standard Institute (BSI) will not adjust BS 669 to include Dormont hoses Jan
1992 ·
Gas
Appliance Directive by EU picks 6 notified bodies that could issue CE
certification 1993
·
Dormont
obtains CE mark under the Gas Appliance Directive ·
Dormont
now a member of GSE/1 August
1993 ·
Dormont
tries to obtain Kitemark based on equivalence of ANSI standards to BS669
- Kitemark refused from Britain in 1995 because “cannot issue kitemark
to manufacturer who meets some of the requirements but not all” ·
Application
denied because of failure to comply with BS 669 design requirements. December
1994
·
EU
decides gas connectors not covered under
Gas Appliance Directive ·
BSI
acknowledges Dormont’s product met the essential safety and
performance standards of BS669 but not design requirements January
1995 ·
CE
mark removed ·
Dormont
goes to USTR ·
HSE
assert the fundamental safety of Dormont products ·
Dormont
selling its product without certification begins to control 25%
of the UK industrial market October
to December 1995 ·
Dormont
provide evidence to GSE/1 and BSI that BS669 not consistent to safety
(allows for rubber hoses) ·
GSE/1
refuses to alter BS669 ·
BSI
will not intervene with GSE/1 because they say standard directly under
GSE/1 Jan. 1996
·
CE
mark required for installation of gas connectors in Europe by CORGI · first 301 petition by Dormont to UST Up
to date ·
Dormont
still selling its gas connectors without certification to the UK in its
industry market · Other strategies by Dormont and its European competitors will be covered as we get more information [1] ACE is an industry group of gas connector users. [2] The six bodies in the EU that are allowed to issue the CE mark, they are the British Standards Institute (BSI), AFNOR, Deutsscher Verein des Gas- und Wasserfaches, TUV, NSAI, LNE. All organizations follow the Directives adopted by the Commission. [3] In 1985 CEN “gained much greater importance with the advent of the EU’s ‘New Approach’ for harmonizing technical regulations and standards, with the goal of eliminating technical obstacles to trade”. |
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