Articles 2nd Mar 2022

ELP BIS Series – Part 1: Overview of India’s Quality Standard Measures and Impact for Foreign Manufacturers

Authors

Nishant Shah Partner | Mumbai
Stella Joseph Partner | Mumbai
Prakhil Mishra Senior Associate | Delhi NCR
Pulkit Devpura Associate | Mumbai

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  • QUALITY STANDARDS IN INDIA: A COMPREHENSIVE GUIDE PART 1 – OVERVIEW OF INDIA’S QUALITY STANDARD MEASURES AND IMPACT FOR FOREIGN MANUFACTURERS

  • Introduction

    The first of Economic Laws Practices’ three part-series on quality standards lays out  an overview of the regulatory environment governing quality standards and conformity assessment measures in India. This article also highlights the growing thrust of the Indian Government on its applicability and compliance.

    It discusses   key compliance aspects of quality control measures for a foreign manufacturer/exporter of products sold in India. It also evaluates such measures from the prism of India’s obligations at the World Trade Organization (WTO). Further, the article deliberates upon the legal and practical avenues that foreign manufacturers may adopt for voicing concerns faced at the time of implementation of such measures.

  • India’s Recent Thrust on Quality Control Measures

    While the law relating to quality standards has been in place in India for more than four decades now, its effective implementation by ensuring strict enforcement and wider application is something that has been experienced more recently than ever before.

    The present Hon’ble Minister of Consumer Affairs, Food and Public Distribution in India, Mr. Piyush Goyal has repeatedly emphasized on the need to ensure that India is recognized on the global stage as a quality conscious country and a leader in setting global benchmarks for quality standards. The current Government has accordingly enhanced its emphasis on quality control measures, which are administered by the Bureau of Indian Standard (BIS). This has resulted in a huge surge in issuance of Quality Control Orders (QCOs) which prescribe the conformity assessment measures for various consumer products. Moreover, it also prescribes on the inputs used to manufacture these products, a trend especially prominent in recent times. It is important to reiterate here that QCO’s are applicable to foreign manufacturers (exporting to India) as well as the domestic industry.

    To illustrate the seriousness of the government’s intent a list of QCOs which are due to be implemented in the recent times is provided below:

    Recent Quality Control Order (QCO) Product Covered Effective Date Indian Standards Covered
    Chemicals & Fertilizers
    Phthalic Anhydride (Quality Control) Order, 2021. Phthalic Anhydride June 22, 2022 IS 5158:1987
    Ethylene Glycol (Quality Control) Order, 2021. Ethylene Glycol June 22, 2022 IS 5295:1985
    Toluene (Quality Control) Order, 2021. Toluene June 22, , 2022 IS 537:2011
    Terephthalic Acid (Quality Control) Order, 2021. Terephthalic Acid June 22, 2022 IS 15030:2001
    N-Butyl Acrylate (Quality Control) Order, 2021. N-Butyl Acrylate June 22,  2022 IS 14709:1999
    Linear Alkyl Benzene (Quality Control) Order, 2021 Linear Alkyl Benzene April 7,  2022 IS 12795:2020
    Polymers & Textiles
    Polyester Continuous Filament Fully Drawn Yarn (Quality Control) Order, 2021 Polyester Continuous Filament Fully Drawn Yarn April 7, 2022 IS 17261:2019
    Polyester Industrial Yarn (Quality Control) Order, 2021 Polyester Industrial Yarn April 7,  2022 IS 17264 :2019
    Polyester Partially Oriented Yarn (Quality Control) Order, 2021 Polyester Partially Oriented Yarn April 7, 2022 IS 17262:2019
    Polyester Staple Fibres (Quality Control) Order, 2021 Polyester Staple Fibres April 7,  2022 IS 17263:2019
    Safety Glass
    Safety Glass (Quality Control) Amendment Order, 2021. Safety Glass (Architectural, Building and General uses)

    Safety Glass (For Road Transport)

    April 1, 2022 IS: 2553 (Part 1): 2018

    IS: 2553 (Part 2): 2019

    Many governments have adopted regulations to ensure that products meet harmonized safety requirements. Taking a cue from certain developed nations including US, EU, China, South Korea, Japan, etc., India, through the issuances of QCOs, has brought about stringent checks for non-essential and substandard imports into India. Imposition of quality standards also aims at improving other standards (for instance, health, safety, and environmental standards), consequently improving the overall standard of living of its population. From a border protection perspective, such rigorous technical standards aid in restricting import of cheap and sub-standard products that could pose risks to consumer health and environment as also protect domestic manufacturing on price-competitiveness. Enforcement of quality standards will not just curtail low-grade imports but also aid in improving the quality of domestic products.

  • Quality Control Measures in India: Process Overview

    Coverage of a product under a QCO, mandates (i) compliance of a specified Indian Standard (IS)(ii) obtaining of a valid license (iii) bearing of the standard mark on the covered products before supplying to the Indian market.

    Any issuance of QCOs triggers the following requirements for manufacturers of products covered therein (Indian and foreign alike):

    • Determination of scope and coverage of the QCO;
    • Where necessary, determination of relevant categories of products to which it is applicable and exclusion thereof;
    • Undertaking procedures to be carried out to ensure appropriate compliance under relevant legislations;
    • Carry out preparations keeping in mind practical aspects making compliance more effective and efficient for companies.
  • Non compliance

    Being a regulation that protects consumer interests, the non-compliance or violation of a QCO has dire consequences and implications for Indian and foreign manufacturers s. There are direct implications on Indian manufacturers importing raw materials covered under QCO, as well as foreign manufacturers of these raw materials. The QCOs also require manufacturers situated outside India to comply with and follow Indian legislations as well as undergo a scrutiny and verification of their premises by Indian authorities.

  • Key compliances for foreign manufacturers

    In order to obtain the licence to apply for the Indian Standard Mark, foreign manufacturing facilities will be required to undergo audits by BIS officers who will travel overseas to the factory locations for the audits. The foreign manufacturers will also be required to pay certain fees and importantly retain an Indian in-country representative. Once the licenses are issued, a license number will be issued which, along with the Indian Standard mark, will then have to be printed on the primary packaging of the product (and cannot be applied with a sticker). Post the grant of license, there also exists a requirement for periodical testing of prescribed control units of the products, which can be carried out only in accredited laboratories in India.

    Further, a Performance Bank Guarantee (PBG) and an indemnity bond for foreign manufacturers is required after grant of BIS licence through signing of an agreement between BIS and the foreign manufacturer. The need for PBG from a foreign manufacturer is to ensure that in case of any violation of the BIS Act, Rules and Regulations including non-payment of marking fee dues and breach of terms and conditions of the licence, BIS would be able to enforce the PBG. On the other hand, in case of domestic manufacturers, BIS can approach and seek compensation through domestic courts. PBG will be invoked only when there is any breach and covers civil liability and loss of revenue, if any, that may arise during the tenure of the licence or thereafter. The amount shown against bank guarantee remains with the concerned bank in the form of refundable security.

  • QCOs vis-à-vis India’s Commitments at WTO

    Given the present geo-political environment, with broad consensus emerging on key tax issues, non-tax regulations, such as license requirement under QCOs, are increasingly seen as an alternate potential tool for countries to regulate EXIM trade in the country. It thus becomes relevant to scrutinize if Indian QCOs making Indian Standards mandatory to goods imported into India are compliant with India’s international commitment under various multilateral/ bilateral conventions.

    Notably, the QCOs imposed as a way of non-tariff measures are disciplined by WTO and regional and bilateral agreements. The WTO agreements dealing with non-tariff measures among others include the Agreement on Technical Barriers to Trade (TBT Agreement), the Agreement on the Application of Sanitary and Phytosanitary Measures, the Agreement on Article VII of the General Agreement on Tariffs and Trades 1994 (concerning customs valuation).

    The objective of the TBT Agreement is to ensure that non-tariff barriers are fair and equitable. It discourages any methods that would give domestically produced goods an unfair advantage. The agreement also encourages countries to recognize each other’s procedures for assessing whether a product already conforms to an internationally recognized standard which in essence is acceptable in both such nations. Without recognition thereof, products might have to be tested twice, first by the exporting country and then by the importing country thereby adding more to the commercial cost.

    As explained above, BIS standards are made mandatory by the issuance of QCOs. Depending upon exactly what is specified within it, an Indian QCO will likely qualify as a ‘technical regulation’ while the procedures for testing, inspection and approval of licenses contained in the BIS Regulations may likely qualify as ‘conformity assessment procedures’ under the TBT Agreement.

    The TBT Agreement lays down certain key requirements that Members (including India) must respect while setting out technical regulations;

    • As far as practicable, they should be based on relevant international standards.[1]
    • They should be non-discriminatory i.e. treatment accorded to imported products must not be less favourable than that accorded to like domestic products and like products from other countries.[2]
    • They should not be more trade-restrictive than necessary to fulfil a legitimate objective.[3]

    With respect to conformity assessment procedures, the TBT Agreement sets out similar yet distinct requirements:

    • As far as practicable, they should be based on relevant guides or recommendations issued by an international standardizing body.[4]
    • They should be non-discriminatory i.e. access to such procedures for foreign suppliers should be under conditions no less favourable than accorded to suppliers of like products in a comparable situation.[5]
    • They should not be more strict than necessary to give the importing Member adequate confidence of conformity. [6]

    Further, manufacturers and exporters need to know what the latest standards are in their prospective markets. To help ensure that this information is made available conveniently, all WTO member governments are required to establish national enquiry points and to keep each other informed through the WTO. The TBT is the major clearing house for members to share the information and the major forum to discuss concerns about the regulations and their implementation.

  • Avenues to address concerns about QCOs for foreign manufacturers

    Even while Indian standards are typically identical to the global standards issued by ISO, on account of its stringency as well as lack of clarity on certain aspects, a QCO may result in several challenges for a foreign manufacturer. For instance, there could be a lack of clarity with regards to grouping guidelines for varieties of products which could be covered in a single license. Alternately, there could be ambiguity on products already placed in the market before the date of implementation of QCO (existing stock). Similarly, for various practical reasons, there could be a genuine need for seeking extension of date of implementation of QCO. In the face of such challenges, the following avenues may exist:

    • Objections to be filed with the TBT Committee

    As a part of the process under the TBT Agreement, when a member country introduces a license requirement (e.g. when India does so by issuing a QCO), the draft regulation is required to be notified to all other Members through the TBT Committee. Post this, a reasonable time is given for other Members to raise objections if they feel that any prescription is violative of the aforementioned requirements of the TBT. India has also in the past, prior to introducing a QCO in the country, notified the TBT Committee in advance, and also provided a time period (typically of around 60 days) for other members to object. During such time, other Member countries can file their objections against the QCO.

    • Diplomatic Efforts/ Bilateral Negotiations

    For foreign manufacturers supplying goods to India, concerns, if any may also be raised through filing of representations with their respective governments to raise questions and create diplomatic pressure at the WTO level against the implementation of a QCO. Industry stakeholders may also consider liaising with governments in other jurisdictions to advocate bilateral negotiations with India to achieve mutual recognition of the home country’s conformity assessment procedures. Practically, however, enforcing these measures have been difficult- in many instances the  Indian Government has proceeded with and implemented proposed QCOs even if the goods being imported into India are already complying with the prescribed quality standards in essence.

    • Dispute Settlement

    As an extreme measure, in case a necessary relief is not received through the above steps and the imposition of QCO is deemed to be against the tenets of the TBT Agreement, foreign manufacturers may consider liaising with their jurisdictional governments to advocate initiation of a WTO dispute qua the QCO.

    However, obtaining any sort of relief at the WTO level will be a long-drawn process and the effectiveness of this may be short term or uncertain. Therefore, objections with the TBT Committee and diplomatic efforts/ bilateral negotiations should be undertaken on a more immediate basis. This will increase the possibility of persuading the Government of India to get into the consultative process with industry stakeholders/foreign manufacturers.

    We trust you will find this an interesting read. For any queries or comments on this update, please feel free to contact us at insights@elp-in.com or write to our authors:

     Nishant Shah, Partner – Email –  NishantShah@elp-in.com
    Stella Joseph, Partner – Email – StellaJoseph@elp-in.com
    Prakhil Mishra, Associate – Email – prakhilmishra@elp-in.com
    Pulkit Devpura, Advocate – Email – pulkitdevpura@elp-in.com

  • References

    [1] Article 2.4, TBT Agreement.
    [2] Article 2.1, TBT Agreement.
    [3] Article 2.2, TBT Agreement.
    [4] Article 5.4, TBT Agreement
    [5] Article 5.1.1, TBT Agreement
    [6] Article 5.1.1, TBT Agreement

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion or advice.