Should conformity assessment bodies be better run as public or private entities?

There are different organisational forms of conformity assessment bodies (CABs). [1] Public institutions claim to provide common goods, whereas private organisations are commercially oriented. In addition, there are mixed forms, such as certification bodies of business associations or providing conformity assessment services under a common umbrella with a national standards institute.

The advantage of government bodies lies in their non-profit orientation. However, the fees charged through the CAB are also a factor in providing resources and investments. [2] Government agencies often stand out due to their staff’s long-term continuity and experience.

Private CABs, on the other hand, face intense competition. This strengthens customer orientation and leads to a more rapid innovation process. They can react flexibly to new developments and dynamically adapt their services accordingly. They usually have competent staff who are generally well-trained (for example, in parent companies abroad).

The reputation of CABs can be considerably damaged if the press informs that despite testing and certification, important safety, health and environmental protection requirements are not met (see, e.g., TÜV scandals). [3]  Especially the large CAB providers are the focus of media attention and are criticised for their commercial interests standing in the way of their necessary independence, despite accreditation.

Even though less frequently reported, there can be similar misconduct by public-owned CABs, whose management is also under pressure to perform. When regulators use private CABs to implement technical regulations or when the business community uses the services of CABs, they must be able to rely on the technical competence of the CAB.

The misconduct can be limited by using accreditation services. Accreditation works according to international standards, and its task is to ensure the CAB’s impartiality, integrity, and competence. Accreditation thus significantly contributes to a credible and competent infrastructure of CABs. Since accreditation is based on risk-based assessments, misconduct can be limited but not 100% excluded.

The European Commission gives priority to using private, accredited CABs. In this way, it can promote the development of a competent conformity assessment infrastructure that serves both the regulated and the non-regulated sectors and thus significantly contributes to an innovative and efficient economy.

However, areas relevant to national security are partially excluded from this strategy. The spread of private sector CABs also depends, among other things, on the level of development of local markets. In industrialised economies, the demand for conformity assessment is generally high, so the provision of related services becomes commercially lucrative. This also explains the presence of significant Testing, Inspection, and Certification (TIC) providers in industrialised and emerging economies.

Conversely, developing countries often need more demand for conformity services or are satisfied with government agencies, making it difficult for private organisations to develop. One way to strengthen the involvement of private service providers is when competent government authorities delegate conformity assessment tasks to private companies.

The innovation and customer proximity promoted by the free market often fall by the wayside. Government agencies often cannot provide the necessary services to assess increasingly complex products, and local suppliers must resort to international markets. Private conformity assessment services are established whenever there is a corresponding demand. Due to the need for specialised personnel and testing equipment, installing such services only makes economic sense when there is a critical demand.

In less developed countries, there is often too little articulated demand, and it is not worthwhile for private investors to set up corresponding services here. Although a certain number of companies are willing to pay for QI services, their demand is insufficient to provide an adequate supply. Economists speak of “market failure”, which means that the market mechanism of supply and demand does not lead to economically desirable results, and the factors of production are not used in such a way that they bring the greatest possible return for the economy.

Specifically, the few demanders would not have access to conformity assessment services. Various measures can overcome such a situation, e.g., the establishment of a state laboratory or certification body or subsidies for private CABs (e.g., through a voucher system), , sourcing conformity assessment services abroad and joint provision of conformity assessment services.

For example, the private sector has established certification bodies in Brazil/ABNT and Colombia/INTECO. ABNT and INTECO simultaneously exercise the function of the National Standards Institute. Here, cross-subsidisation between profitable and (still) non-profitable areas of conformity assessment can also take place.

State investments in CABs make sense where the investments of private providers are not sustainable. However, it is also essential to consider that where state providers offer services at low prices (even below the cost-price), no market can develop. Hence, investments become less interesting for the private sector due to crowding-out effects.

The market can be promoted if governments recognise private services as equivalent to state services through accreditation. If the demand for conformity assessment services increases as the economy develops, private provision of the services may become viable.

In this situation, the incentive for private investment increases in conformity assessment and challenges the public providers. Therefore, an effective competition policy is needed to allow new providers to enter the conformity assessment market.

The existing public CABs are somewhat less interested in such competition. Their priorities are in the field of consumer safety and environmental protection regulations. Balanced state action is required here, which development cooperation can support through appropriate advisory services.

It makes sense that government agencies in a developing country first establish conformity assessment services. However, these initial services must ensure the market access of private providers. This is where competition policy comes in.

To achieve constructive interaction between state and private-sector CABs in developing countries, the following questions should be considered:

• What opportunities exist to promote private-sector CABs?

• What possibilities exist to promote their innovation?

• How can corruption be avoided sustainably?

• Under which model is the financial sustainability of private CABs ensured?

• Under which model is a CAB service affordable for the industry?

• Under which model can Good Regulatory Practices be implemented better?

• Under which model can technical regulators further develop their core competence and achieve their general objective (consumer protection, health protection, environmental protection, safety and security etc.)?

Regardless of the public, private or mixed ownership, the technical competence and independence of the CAB must be guaranteed. For this purpose, the accreditation of the CAB should always be promoted, especially in development cooperation projects.

* This article was jointly written in German by Hans-Peter Ischi and Dr Ulrich Harmes-Liedtke for the QI-WIE Knowledge Engagement of PTB’s international cooperation. We thank PTB for the permission to publish it in English.

References

[1] ISO/CASCO Toolbox, Geneva

[2] WB/ PTB (2019) Ensuring Quality to Gain Access to Global Market: A Reform Toolkit, Chapter Conformity Assessment, Washington DC/ Braunschweig

[3] Der Spiegel, Dam bursts, breast implants, weather stations, TÜV scandals. If the inspectors themselves fail, 01/02/2019 l,