Electronics and Machinery Sector Report

This report covers both the Parts and Machinery sector and the Electronics and Electrical Sector. As defined these sectors combined contribute c. £28bn to UK GVA

Parts and machinery

‘Parts and Machinery’ is used to describe a discrete subset of UK manufacturing (the manufacture, installation and repair of machinery and equipment). This collective does not operate as a single sector and Government has not traditionally engaged with the entirety of this defined group.

The current EU regulatory regime

The majority of products in these sectors are covered by harmonisation legislation that set out the ‘essential safety requirements’ for the product. The legislation also sets out the conformity assessment process (pre-market testing requirements) and various administrative obligations, including documentation, labelling and use of the ‘CE mark’ required to be undertaken to demonstrate compliance with the legislation. Conformity assessment ranges from declaration by the manufacturer or importer supported by documentary evidence, through to mandatory use of test laboratories appointed by an EU Member State.

For products (or aspects of products) not covered by harmonisation legislation, Member States may maintain their own domestic technical regulations (a small group for these sectors). There is also the principle of mutual recognition, which states that (subject to various caveats) a product which is legally marketed in one Member State is entitled to free circulation throughout the rest of the EU.

Safety-related legislation

All machinery, electronic and electrical products are regulated for safety under EU law to ensure a common requirement across the internal market. Examples of legislation in this area include:

he Machinery Directive: Manufacturers of new machinery38 (and other products in scope) to be placed onto the European Economic Area (EEA40) market must design, construct and supply products that comply with the Machinery Directive. In particular, they must be designed and built to meet the relevant essential health and safety requirements. These requirements have been implemented in the UK by the Supply of Machinery (Safety) Regulations 2008, as amended by the Supply ofMachinery (Safety) (Amendment) Regulations.42

Radio Equipment Directive: Some electronics products will be subject to the Radio Equipment Directive, which requires that radio equipment products placed on the market are safe (in terms of the health and safety of persons and domestic animalsand the protection of property) and do not interfere with the radio spectrum. It also requires an adequate level of electromagnetic compatibility and efficient use of the
radio spectrum.

The Low Voltage Directive : This directive ensures that electrical equipment within certain voltage limits provides a high level of protection for European citizens, and benefits fully from the Single Market. Electrical equipment under this directive covers a wide range of consumer and professional products e.g. household appliances, cables, power supply units, laser equipment and some components such as fuses.

Product safety legislation is enforced by national Market Surveillance Authorities (MSAs). For the UK, safety legislation is usually enforced by Trading Standards or HSE although some measures are enforced by other agencies (e.g. Environment Agency, BEIS RDD, and Ofcom). The procedures followed by MSAs are designed to ensure that only compliant products are allowed access to the Single Market, and unsafe or non-compliant products are identified and removed from the market.

Environmental-related legislation

Machinery, electronic and electrical products are also subject to a number of environmental regulations. Examples of legislation in this area include:
41. Waste Electrical and Electronic Equipment Directive (WEEE): This covers the appropriate disposal of these items to avoid significant environmental and health impacts and to encourage resource efficiency, given that the production of electronics and electrical machinery relies on the use of scarce resources (e.g. rare earths). This includes collection schemes which place burdens on the manufacturersand retailers of electronic goods.

Restrictions on Hazardous Substances Directive (RoHS): This restricts the use of hazardous substances in electrical and electronic equipment. The legislation requires heavy metals (e.g. lead, mercury, cadmium), and other materials such as flame retardants, to be substituted for safer alternatives.

Registration, Evaluation, Authorisation of Chemicals (REACH) Regulation: Chemicals produced in or imported by the EU are subject to the EU REACH44regime.
Chemicals are a prime input material for many electronic component manufacturers.

Ecodesign Directive:: This establishes a framework to set requirements for energyusing and energy-related products sold in the EU. Many electronic devices aretherefore in scope. The Directive itself only sets the framework – the minimum ecological requirements are adopted through specific implementing measures for each group of products, so its effective scope will increase over time.

Standards

EU regulations on machinery and electronics are supported by voluntary European standards which provide a technical route to compliance. These standards are developed by European Standards Organisations45 following a direct request from the European Commission. Though not mandatory, compliance with these standards offers a simple way to demonstrate compliance with the essential requirements of applicable EU legislation.

In the majority of cases these European Standards are drawn from international standards, developed through the International Electrotechnical Commission (IEC) and the International Organization for Standardization (ISO). Industry stakeholders look to a common global approach where possible and therefore work through national standards bodies, such as the British Standards Institution (BSI) in the UK, to minimise any deviation between the international standard and ‘regional’ (e.g. European or Australian) standards.

Intellectual property

Intellectual Property frameworks are highly relevant to the electronics sector. Sampled information from the Intellectual Property Office suggests that, in 2014, around 11% of companies in this sector had trademarks in force, with around 11% of companies classed within ‘manufacture of computer, electronic and optical products’ and 2% of companies classed within ‘manufacture of electrical equipment’ had patents in force. This is in comparison to the 0.3% of the IPO’s total sample of over 2.5m companies that had patents in force in the same year.

Existing frameworks for how trade is facilitated between countries in this sector

The arrangements described in this section are examples of existing arrangements between countries. They should not be taken to represent the options being considered by the Government for the future economic relationship between the UK and the EU. The Government has been clear that it is seeking pragmatic and innovative solutions to issues related to the future deep and special partnership that we want with the EU.

Manufacturers from outside of the EU wishing to export manufactured goods to the EU need to meet the requirements set out in any applicable EU legislation.

Importers and distributors of machinery and electronics from manufacturers based in third countries must satisfy themselves that the products comply with EU legislation including conformity assessment where required. These manufacturers would also need to comply with legislative requirements in their home country, and any othercountries, where they intend to market products.

Countries can use bilateral Mutual Recognition Agreements which allow conformity assessment bodies in either market to carry out product testing and certification to each other’s legislative requirements. The authorities in both parties agree to accept conformity assessment decisions issued by bodies recognised in one another’s markets. Manufacturers still need to ensure that products meet the requirements set out in the legislation where they plan to market the product. For example, the US has signed MRAs for telecommunications equipment with Israel, Japan and Mexico.

The EU has concluded MRAs with seven countries, covering a variety of sectors. Some of the EU’s bilateral MRAs have been integrated into FTAs. One example is CETA, where mutual recognition of conformity assessment covers eleven sectors, including electrical and electronic equipment; radio and telecommunications terminal equipment and machinery. CETA also contains provisions for voluntary cooperation on data exchange to support market surveillance activity and exchange of information about the development of technical regulations.

Other existing agreements, such as the EU-Swiss agreements and the EEA Agreement, provide for further mutual recognition. For example the EU-Swiss MRAs provide mutual recognition across around twenty product types, including those covered in CETA and measuring instruments, and are linked to an agreement that recognises Swiss legislation as equivalent. Where legislation is deemed equivalent, notified bodies’ certificates of conformity with the product rules in the EU will be recognised as proving conformity with Swiss legislation, and vice versa. They also cover cooperation on market surveillance of products already on sale.

In the EEA agreement, for industrialised goods, including machinery and electronics, EEA countries adopt EU product legislation into their domestic legislation, and goods that originate from these countries are treated as products from member states. The agreement also includes a system of surveillance and enforcement.

Trade in manufactured goods can be facilitated through the use of international standards, such as those developed by the International Standards Organisation (ISO) and the International Electrotechnical Commission (IEC). These are voluntary agreements on best practice for a given process or product. These standards are voluntary, and the majority are developed purely for commercial purposes, such as to support the interoperability of supply chains.

In some areas of electronics and machinery, product regulations are informed by international organisations which facilitate the development of common approaches across countries, drawing on best practice. These organisations bring together national regulators. For example, the International Organization of Legal Metrology is an intergovernmental treaty organisation that makes model regulations for weights and measures requirements. The work of these organisations can facilitate similar regulatory approaches across a number of countries, which in turn can help business in operating in a number of countries.

Customs

There are many customs facilitation arrangements in international agreements. These include the EU’s agreements with a number of third countries, such as Canada, Korea, and Switzerland. These agreements differ in the depth and scope of customs facilitation offered. Examples of customs facilitations include: simplifying customs procedures, advance electronic submission and processing of information before physical arrival of goods, and mutual recognition of inspections and documents certifying compliance with the other parties’ rules.

Tariffs

In the absence of a preferential trade agreement, goods imported into the EU from non-EU countries must pay a tariff. Tariffs are custom duties levied on imported goods. Under WTO Most Favoured Nation (MFN)), a country’s tariff schedule must be consistent for all countries it trades with, except those where a preferential trade agreement exists. EU MFN tariff rates vary depending on the good. The EU’s simple average of MFN applied duties is 1.9% for non-electrical machinery, and 2.8% for electrical machinery, and 2.6% for Manufacturing not elsewhere specified.

Rules of origin

The EU includes rules of origin in all of its FTAs, which are restrictions on the originating content of products that exporters must comply with to gain tariff preferences. These rules typically reflect both the supply chains of both the EU and its FTA partner. Many of the EU’s rules of origin arrangements are based on the Regional Convention on Pan-Euro-Mediterranean Preferential Rules of Origin, which includes provisions that allow producers to treat content from some third countries as if it comes from their own country. Several arrangements aim to reduce the administrative requirements associated with origin certification, including the EU’s Registered Exporter (REX) system, which lets businesses register for selfcertification of origin using an online system, avoiding paper certificates.

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