EU Standardization is at a Crossroads

Standardization is increasingly used as a strategic tool in EU policy making. Standards have also the potential to support the green and digital transition and to make value chains more resilient during times of pandemics, war and other crises.? At the same time, geopolitical rivalry has fueled a “standards race” between economic powers. Private standards occupy more and more space, side by side with formal standardization - often to find quick solutions to new technological problems. Given all this, there is mounting pressure on the EU regulator to move quickly and to prepare efficient regulatory responses to both complex and sometimes conflicting policy goals while ensuring the public interest.?

Against this backdrop, there are worrying new developments. The EU system for technical harmonization might face a radical change in the beginning of next year if the European Court of Justice (ECJ) decides that European harmonized standards are to be seen a part of European legislation and therefore need to be made available free of charge.

This could be seen as good news, in particular for small companies. But it would likely create significant new challenges, not only for the European standardization system but also for European business and competitiveness at large. In our opinion, there is a need to acknowledge the original objective of the EU system for technical harmonization – i.e., to simplify doing business and to support the free movement of goods. Failing to do so, dues to an increasingly politically steered top-down control of standardization - may risk the EU falling back to the Old Approach1, and, instead of catching up with global developments, creating a gap between EU and the rest of the world.?

Cracks in the system?

The pride and the slogan for free movement of goods in the Single Market i.e., the concept of “One-product, One-standard” is successively altering to “Mayday-Mayday, More-Standards”.

The role of standards within the EU System for Technical Harmonization has served the European industry well in more than 30 years. The New Approach has also provided a strong international benchmark for how to address technical barriers to trade and free movement of goods in the EU and beyond. The European standardization fulfils well the international demands and operates according to global trade policy principles with focus on openness, transparency, effectiveness and relevance. But now the system is questioned.

As a response to quick changes in regulatory environment and the urgent need of harmonized standards the EU Standardization Strategy has opened the door for a fallback solution in case European Standardization Organizations (ESO) are not able to deliver a standard in a reasonable time frame. New deliverables, so called Common Specifications2 may be developed outside the formal standardization system with the support by the Joint Research Centre3. ?These specifications are not drafted by the interested stakeholders in consensus, according to international trade policy principles4, but by the European Commission itself. Introducing new types of “standards deliverables” is likely to create confusion among businesses and may risk increasing regulatory fragmentation and decoupling between the European and international standardization systems, questioning furthermore the role and status of EU standardization internationally.

Furthermore, a recent proposal by the EU, engaging itself in the administration of Standards Essential Patents (SEP)5 has generated some debates. The proposal implies increased involvement by the Commission e.g., in the administration of a database for licencing, in the handling of eventual disputes and even involvement in price setting, i.e., in matters earlier managed by businesses themselves. ?Such patents are cash cows for some companies that generate revenues from licensing them across the industry. They and others get paid by companies that use the technology in a growing range of smart devices — everything from mobile phones to connected cars and drones. Patent-holding companies are on the other hand worried that the proposal will make it much harder to collect royalty payments, which they say could hinder — rather than help — Europe’s tech industry. The new rules would require companies at odds over licensing to pause and negotiate a solution before they could go to court.

The question of whether there is a rationale for public involvement in SEP.? Also, there are concerns of whether there is competence inside the Commission to evaluate the SEPs.

Also, European businesses are in urgent need of regulatory frameworks that support new innovative products and services and that also consider the new demands of digital and green transition. The regulatory strategies and measures taken by the EU in the past years, especially in the digital sphere, has resulted in an enormous number of horizontal and sector specific legislative proposals in various fields that are very difficult for business to navigate and apply. Further the securitization of trade policy by geopolitical tendencies and the need to address secure supply chains and resilience has generated a regional, European approach to cybersecurity regulation and for example to critical raw materials.? Most of these policy areas are dependent on standards that provide for global interoperability, and where a regional, European-only set up could just result in increasing fragmentation and trade barriers.??

Is there a path forward?

It is evident for us that policy making on EU standardization is at a crossroads and that trust needs to be re-created between policy makers, standardization organisations and business in the EU. We see two main options; either adjusting the current standardization system to better respond to changes in the global regulatory environment or to integrate the EU standardization system more closely with international standardization.

The best option would probably to be to adjust the EU standardization system by holding to the original objective and principles for free movement of goods and a standardization system, using a bottom-up approach where business and other stakeholders can contribute with innovation and knowledge. ?To better deliver standards for the support of EU legislation we conclude that it might be necessary to carefully amend the legal basis for public-private partnership defined in Regulation 1025/2015 in order to manifest the original idea with harmonized standards, providing a clear and systematic approach to product compliance. However, a thorough evaluation of the European Standardization system seems to be a crucial step before making any fundamental modifications.

This said, it must be understood that both competitiveness and resilience in the EU internal market are also based on integration with other markets supporting interoperability. We feel that this is an aspect that needs to be considered to a larger extent given the large amount of digital regulation requiring new standards for advanced technologies. Any reform to make EU standardization relevant and efficient- must use methods that embrace true integration with other markets and consider the global demands of the digital- and green transition.

A new policy cannot be implemented flippantly - It requires a comprehensive regulatory impact assessment as the stakes are high and costs are likely to be high huge. Here we would like to see an assessment of the effect that the shift towards a top-down management standardization and related processes, such as SEP and the introduction of common specifications, have for the quality and interoperability of European compliance requirements.

Moreover, in case the ruling of the ECJ concludes that standards in support of legislation in the EU must be free of charge, patents also need to be made freely available. This would probably require compensation to the ESOs for their standards deliverables, with a large cost for taxpayers. Again, thus we see it this path requires a thorough impact assessment presenting the consequences for different stakeholders.?

To address the issue, another option for the EU would be to go truly international, to i.e., displace our activities in standards making on a global level for making our companies fit for global competitiveness instead of decoupling from the rest of the world.

An option that has not been discussed widely, but that would seem reasonable, is to increase the use of international standards rather than European ones. This means that the role of the European standardization system would decrease.

Our experience is that the most far-reaching improvements in the trade of goods by international regulatory cooperation is by applying same regulations and standards worldwide.

Already today there are agreements between EU and international standardization to avoid duplication of standardization work. To steer EU standardization to become even more international could better support the current trade policy reality. Especially as the extremely complex regulatory scene in the EU no longer follows the straight-forward sector specific harmonization approach of the past but has introduced several new digital layers to address not only product safety, but cybersecurity, privacy and resilience.

The EU is also, like many other markets, in process of negotiating a number of trade deals and commitments that require regulatory flexibility regarding issues such as AI, Cloud and cybersecurity. Basing these deals on international standards would most likely bring more flexibility and be much easier than using regional standards. It must be acknowledged that European standardization organizations are members of the international standardization organisations which gives Europe influence on standards and committees as well.

To move completely away from European harmonized standards is however not an insignificant move as the whole Internal Market regulation for goods, conformity assessment and market surveillance are built on these standards.? From the business perspective, however, the demand for international solutions is higher than ever – and could motivate an approach that would align standards used in EU regulation even closer to standards prepared on international level.? To move away from harmonized standards based on essential requirements in EU law – would on the other hand be unprecedented, not only from a practical point of view but also from a policy perspective, and is very likely to meet resistance, also because of strong geopolitical tensions. The question is also whether EU:s regulatory leadership in specific areas would be compromised if the EU abandoned its approach with regional EU standards. For us it is evident that the status quo is not an option, and that change is needed, in order to deal with new regulatory concerns related to innovation, and the green and digital transition.

Heidi Lund and Anna Sabelstr?m Senior Advisers at the National Board of Trade Sweden

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?1. The Old Approach refers to the regulatory technique used in the EU before the New Approach for technical harmonization– the Old Approach imply that detailed product requirements were presented in the legislative acts, by referring to standards making the regulatory process much more time consuming and cumbersome. The Old Approach had also many other disadvantages such as, excessive uniformity, ignoring the problems with conformity assessment (testing and certification), implementation problems and in incapability to solve regulatory problems in relation to third countries.

2. Common Specifications have been integrated to legislation by the Commission and are meant to ensure that the public interest is served where harmonized standards are absent and insufficient. The Commission could be empowered to develop Common Specifications via implementing acts. This could, for example, be the case when standards are delayed, or the process is blocked due to a lack of consensus between stakeholders.

3. The Joint Research Centre (JRC) is the European Commission's science and knowledge service which employs scientists to carry out research in order to provide independent scientific advice and support to European Union (EU) policy.

4. Code of Good Practice and Six Principles on the Development of international Standards in the WTO Agreement on Technical Barriers to Trade (TBT Agreement).

5. A patent that protects technology that is essential to a standard is called a Standard Essential Patent (SEP). Holders of patents undertake to license SEPs to other companies or users who need to use the technology to comply with the specified standard. The patentee is expected to offer licences under "Fair, Reasonable, and Non-Discriminatory" (FRAND).

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