Does MRA answer the BIS Conundrum for Foreign Manufacturers

[Narayana Chambers]

BACKGROUND

In last 10 years, the Government of India has increased its standardisation efforts, with twin objectives, of ensuring quality-goods within Indian market & to curb imports of low-quality & cheap goods. This is evident from the fact that upto May-2014 only 106 Products were under Compulsory Licensing Regime of BIS. However, in next 10 years (upto May-2024), over 500 products have been subjected to Compulsory License from BIS, with many more on the anvil. Such increased standardisation efforts pose a challenge to foreign manufacturing units, by restricting their access to Indian Market.

BACKGROUND

In last 10 years, the Government of India has increased its standardisation efforts, with twin objectives, of ensuring quality-goods within Indian market & to curb imports of low-quality & cheap goods. This is evident from the fact that upto May-2014 only 106 Products were under Compulsory Licensing Regime of BIS. However, in next 10 years (upto May-2024), over 500 products have been subjected to Compulsory License from BIS, with many more on the anvil. Such increased standardisation efforts pose a challenge to foreign manufacturing units, by restricting their access to Indian Market.

REQUIREMENT FOR BIS LICENSE AGAINST IMPORTED GOODS

The setting-up of parameters for standardisation is a sovereign function. Thus, Government of India had enacted Bureau of Indian Standards Act, 2016, in order to revamp & develop the BIS as ‘National Standards Body of India’. The BIS functions under Ministry of Consumer Affairs, Food & Public Distribution, Government of India. The prominent certification schemes operated by BIS are: (1) ISI Mark Scheme; (2) Compulsory Registration Scheme. Under such scheme, the BIS issues a mark /license to products, confirming to its prescribed Standards.

The requirement for mark/license from BIS, is voluntary unless made compulsory by Government of India. The compulsory mark /license is separately mandated through: (1) Quality Control Order (QCO); (2) Compulsory Registration Order (CRO). Such Order is issued by the Ministry responsible for overseeing the sector concerned. Thus, post implementation of such Order, the BIS license becomes mandatory for manufacture, import, distribution, sale, hire, lease, storage or exhibition for sale.

As per Para 2.03, Foreign Trade Policy, 2023, the imported goods have to comply with all Domestic Laws/Rules/Orders/Regulations/Technical Specifications, as are applicable to goods produced in India. Further, Sec. 17(1), BIS Act, 2016, prohibits manufacture, IMPORT, distribution, sale, hire or storage of goods, without a Standard Mark issued by BIS. Therefore, when requirement for BIS License /mark is made compulsory through a Quality Control Order, then all imported goods must comply with such a condition.

FOREIGN MANUFACTURER CERTIFICATION SCHEME – AN OVERVIEW

The Answer to Question-17, in FAQ on product certification states that, “BIS license is granted to the factory that manufacturers the product, not to the importer. If your product is subject to mandatory certification, the MANUFACTURING FACTORY in a FOREIGN COUNTRY must obtain a BIS license under Foreign Manufacturers Certification Scheme (FMCS)”. Thus, onus for filing the application for BIS license, is on the foreign manufacturing unit.

The FMCS was originally enacted in the year 2000, with a view that Indian consumers must get quality product, which is manufactured outside India. In order to facilitate applications from foreign manufacturers, the BIS has established a separate Foreign Manufacturers Certification Department (FMCD) at New Delhi. The FMCD grants license based on successful assessment of manufacturing infrastructure, production process, quality control and testing capabilities of a foreign manufacturer.  

Upon filing of application, the FMCD scrutinises it. If the documents are in order & all other conditions are satisfied, the application is taken on record. Subsequently, the factory premises are visited by BIS Scientists for evaluation of manufacturing process & testing infrastructure. Further, the samples are taken during such visit. Upon receipt of satisfactory Inspection Report & Test Report, conforming to the applicable standard, intimation is sent to foreign manufacturer. Further, such manufacturer is required to pay license fee, advance minimum marking fee and other outstanding dues before grant of licence.

The license is initially granted to foreign manufacturer for a period not less than one year and upto two years, which is renewable for upto 5 years. However, the entire process is riddled with inefficiencies & delays. Some of the common problems faced by Foreign Manufacturers are as under:

1. Non-recognition of internationally acclaimed standard marks by BIS, resulting in additional compliance burden for foreign manufacturers.
2. Testing of Products is done only at BIS accredited labs in India, resulting in additional cost for transport of goods to India
3. Foreign Manufacturers are required to apply manually at FMCD office, New Delhi, causing difficulty in follow-up on application process.
4. Physical inspection of factory premises, resulting in time-consuming & costly logistical arrangements to be made for BIS Scientists.
5. Appointment of local Indian representative (AIR) is a challenging task for a foreign manufacturer with no direct presence in India.

It is estimated that due to rise in filing of applications under FMCS, the turn-around time for the entire process is almost 24-30 months. Thus, if a foreign manufacturer applies for BIS License on 01-Jan-2024, he will obtain it only in 2026. This has caused high levels of anxiety & tension amongst foreign manufacturers, exporting goods to India. Further, this has also resulted in closure of Indian Market for foreign manufacturers, wishing to export their goods to India.

MUTUAL RECOGNITION AGREEMENT – AN ANALYSIS

As National Standards Body of India, the BIS has signed over 30 agreements with National Standards Body (NSB) of other countries. The MRA recognise the competency of NSB in export countries to test the samples, inspect the premises & provide Reports certifying compliance with Indian Standards. The Mutual Recognition Agreement (MRA) are primarily of 2 types: (1) Memorandum of Understanding (MoU); (2) Bilateral Cooperation Agreement (BCA). For the sake of this Article, we will analyse the provisions of (1) India-Vietnam MOU; (2) India-Uzbekistan BCA. 

India-Vietnam MOU

This MOU was signed on 03-09-2016, between BIS (India) & STAMEQ (Vietnam). The Agreement was valid for a period of 5 years, with clause for automatic renewal for next 5 years, unless terminated. The salient features of this Agreement include the following:

1. Exchange of information related to standardisation policy, organisational structure for standardisation, scientific and technical information in areas mutually agreed upon.
2. Study of Organisational structure & infrastructure on conformity assessment, with an intent to enter into Bilateral Cooperation Agreement, for recognition of conformity assessment results.

Thus, basis above, it can be understood that India-Vietnam MOU is simply a pre-cursor for signing of Bilateral Cooperation Agreement & does not create any independent obligations by itself.  

India-Uzbekistan BCA

This BCA was signed on 10-12-2020 between BIS (India) & UZSTANDART (Uzbekistan). The Agreement shall be applicable indefinitely. The salient features of this Agreement are as follows:

1. This Agreement would be applicable only for Product Categories jointly agreed by the Parties.
2. Physical Inspection will be conducted by NSB based in exporting country. Such inspection reports will be accepted by both Parties.
3. Testing of Samples will also be conducted by NSB based in exporting country. Such testing reports will also be accepted by both the Parties.
4. Reports from accredited laboratories based in exporting country, will be accepted by both the Parties.
5. The final Inspection Reports & Test Reports, conducted in exporting country will be considered to grant certificate of conformity /renewal or suspension of existing license.
6. The grant of Certificate of Conformity is the sole discretion by NSB based in importing country.

Thus, basis above, it can be understood that an exporter can undertake inspection & testing within his own country, from domestic NSB. Such results & findings would be valid & upheld in importing country. However, the final mark would be given by NSB based in importing country.

CONCLUSION

There are certain limitations to use of BCA: (1) India has signed BCA with only 8 countries (as on date); (2) BCA covers only a specific set of products under its framework. Thus, signing of BCA does not automatically guarantee inclusion; (3) BCA will be applicable only if the manufacturing facility is located within the signing country. Thus, most of the manufacturing companies lose will lose out.   

From the above discussion, it can be inferred that BCAs does obliterate certain lacunae of FCMS. Since inspection & testing is done within the country of export, it saves plenty of time, effort & cost for the exporter. Further, the processing time for such an application is around 5-6 months in India. Thus, reliance on BCA significantly eliminates this technical barrier to trade. However, limited applicability & strict conditions hamper its implementation.

With the unfolding of standardisation regime in India, there is chaos & anxiety amongst foreign manufacturers & importers. The delay in awarding Standardisation Mark even to bona fide foreign manufacturing units is leading to disruption in domestic market; resulting in increase in raw material prices & increase in consequent ad valorem duties. The FCMS scheme with all its ills remains the best bet for foreign manufacturers, wishing to export goods to India. The BIS should make all efforts to simplify & expedite the licenses distributed to foreign manufacturing companies either through FCMS or under BCA.