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Impact of MRAs on the Electronics Industry

This article is an update of a previous piece that was published in the In Compliance Magazine Reality Engineering column in March 2015. At the time, the FCC Rules (FCC 14-208) had been issued but not adopted into the US law. They were subsequently published in June of 2015 and the effects are now reverberating around the world. The ruling effectively ends the allowance of testing in “non-MRA partner countries,” which, in turn, affects the testing of all manner of wireless devices, as well as many types of computers and computer peripherals.

The sunset of the FCC Listing program is scheduled for July 12, 2016. This article surveys some of the potential effects of the changes to the FCC regulations on the testing and electronics industry.

This material was recently delivered in the form of a speech to a meeting between United States and Chinese officials and industry that took place on March 24 and 25, 2016 in Washington DC. The intent of the meeting was understand the current process and see if a path towards a Mutual Recognition Arrangement (MRA) could yield benefits for both sides of this important relationship.

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The original FCC Rules on “Computing Devices” were published in 1983, when state-of-the-art technologies were built around 8-bit microprocessors skipping along to the beat of a 4.77 MHz clock. Since that time, clock rates have increased by 1,000 times and busses have widened by a factor of 8 or more. The electronics industry and our way of life have changed in many critical and profound ways. These changes are the result of many different global forces in technology, trade, regulations, standards, society and economics.

The Information Age born some sixty years ago has evolved to the Communications and Interconnected Age. Nowhere is this more evident than in the wireless industry.

 

FCC Certification Dynamics

In 2015, according to data analyzed from the FCC website, over 19,000 individual devices were certified under the FCC system, over 99% of these devices approved by the Telecommunications Certification Body or TCB Industry. All TCBs operate in the private sector and in all the critical markets. The TCB process never sleeps, whether the activity is in the North America, Asia or Europe.

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Since the year 2000, the growth in FCC Certificates has grown by approximately ten-fold. It is arguable that the privatization of the FCC certification process has expanded the wireless device explosion through its unique system of information-sharing and the access to the FCC’s rich database of product information and test methods. Our global community is the beneficiary of the expansion of electronics and communications technologies that has changed how we work, play and live.

One essential component of the FCC’s Equipment Authorization System is its transparency and access. Developers, testers and certifiers of RF devices can review test reports and technical information, get guidance on methods of compliance and resources that were unheard of fifteen years ago.

In the year 1999, an important decision was made at the onset of the TCB program to be as inclusive as possible in the acceptance of test data. By complying with some minimum criteria, a lab operating in any country could submit test data for certification under the FCC 2.948 Laboratory Listing program.

This liberal approach to test data acceptance allowed many labs to develop and operate competitively, delivering test services to their local customers which, in turn, allowed for very short, efficient test and approval cycles. This was a market-sensitive decision that has allowed very small operators across the globe to compete with larger test labs. This approach also allowed for development of test resources in countries where the electronics industry was still in the early phases of development.


APEC TEL MRA

It is interesting to note that the launch of the TCB program took place around the same time as the beginning of the implementation of the APEC TEL Mutual Recognition Arrangement (executed in 1998). The APEC TEL MRA, as it is known, is a multi-lateral framework that provides for mutual acceptance of test data for the telecom sector. It has successfully been implemented between the US and a number of Asia-Pacific economies. Bilateral MRAs also exist between the US and the EU and the US and Canada. These agreements foster domestic development by allowing the use of local testing resources for new products, creating a path for access to foreign markets.

Economy

Regulatory Authority

Phase I

Phase II

Australia

Australia Communications Media Authority

Yes

Canada

Industry Canada

Yes

Yes

Chinese Taipei

The Bureau of Standards, Metrology and Inspection (BSMI)

Yes

Chinese Taipei

National Communications Commission

Yes

Hong Kong

Office of Communications Authority (OFCA)

Yes

Republic of Korea

Radio Research Agency (RRA)

Singapore

Infocomm Development Authority of Singapore (IDA)

Yes

Yes

Vietnam

Ministry of Information and Communications (MIC)

Yes

Table 1: APEC TEL MRA Agreements


Phase I means that the two countries can accept test data. Phase II allows for full product certification.

In our business, the testing business usually follows and sometimes leads Research and Development activity in emerging markets. This has been demonstrated many times in the US, Europe and Asia. Whatever the cause-and-effect, the R&D and Conformity Assessment are tightly mated.

Mutual Recognition Arrangements, in their various forms, have facilitated the development of testing and associated R&D ecosystems in important markets in every hemisphere.


The Whopping Global Electronics Trade

The global trade in electronics is more than 130 Billion US Dollars. As markets have grown for sophisticated electronics products, so too has the opportunity for cooperation and competition in many industries throughout the supply chain that supports the electronics industry including: engineering, design, component supply, assembly and fabrication, shipping, logistics, distribution, retail and the service industries.

By contrast, my own estimate of the direct size of the FCC-related testing market is on the order of $250M, or less than 1% of the value of trade in electronic products. The BIG money is on the product side; the testing industry is a very small, comparably. However, this small fraction is highly-leveraged because of the nature of the R&D/Test ecosystem.

A large part of the success of the growth electronics industry is because of the successful implementation of Mutual Recognition Arrangements. For example, back in the 1990s, the US-EU MRA has allowed the opening of markets for many small and medium sized enterprises that had previously been closed except for the larger companies. This is particularly true in our own experience in the testing industry.

Under the aegis of a successful MRA, innovators can take advantage of local test resources to obtain product approvals, test to international standards and enter the global market and offer products that can serve our diverse global community. This has an interesting effect: when technology products are introduced into other markets, innovation often advances in that market as local developers are inspired to match or improve on the technology and offer similar or competitive products.

The discussions about MRAs must, however, take into account the effect on industries around the world. A curious and unfortunate victim of the new ruling is the country of New Zealand that, for some interesting reasons, does not have an MRA with the US. Other emerging economies are affected, too, such as India, Brazil, Malaysia all of which are in various stages of development in the technology sector.


Grantees by the Numbers

As previously noted, in the year 2015 the number of device certifications numbered more than 19,000. Thirty percent, or nearly 6,000 devices were from Chinese firms or “grantees.” US grantees numbered slightly higher. A simple economic fact is that almost all Chinese companies test in China. It is very rare for a Chinese firm to test in another market for reasons of price, convenience, and, most importantly, time. This is especially true for hundreds of small- and medium-size companies that compete in the global market.

Figure 1: Sources of Grantees in 2015 (source: FCC Website)
Figure 1: Sources of Grantees in 2015 (source: FCC Website)

However, thirty percent does not accurately represent the whole of the testing volume. It is very common for US, Hong Kong, Taiwan and European companies to outsource development to Chinese entities and have their products tested in Chinese test labs, but still retain the Certification. Thus, I think that at least forty percent or more of this type of global testing being performed in China. Whatever the true gure, this is a considerable amount of work, representing a much larger volume of products.

Non-China Asia certifications (Japan, Korea, Taiwan and Hong Kong) are about twenty percent of the global total, combined. (I recognize the special status of Hong Kong, but do not group Hong Kong under China because of the existing US-Hong Kong MRA.)

A looming question is: what happens to all the “China work” when July 13, 2016 dawns. How will US MRA partner countries ‘handle’ the volume of work? If you examine capacity in Asia and assuming that very little of this work will flow to the West, one can imagine enormous log-jams in test queues in Taiwan (primarily), Hong Kong (not much capacity there) and Korea. Outsourcing this work to Japan is possible, but carries other challenging dynamics.

If testing and certification is delayed, what is the impact on manufacturing, production, logistics, distribution and retail? Idling of thousands of factory, supply chain, shipping, commerce, service-sector and other workers will have a very chilling effect on the electronics sector.


Test Labs by the Numbers

Currently, there are approximately 150 Chinese lab sites listed with the FCC, which represents about one-quarter of the testing resources world-wide (more or less). To put this in perspective, there are 56 test labs in the city of Shenzhen alone—about one-half the number of accredited labs in the US!

FCC Status

US

CN

TW

Kor

Jpn

Grmy

UK

Else

2.948 Listed

95

150

68

39

99

31

19

94

Accredited

116

0

46

32

66

10

9

49

Table 2: Listed and Accredited Test Labs (FCC Website)

The China testing industry is robust, competitive, efficient and features well-developed world-class organizations performing very complex test programs on radio devices with advanced multi-band LTE, 4G, WLAN, Bluetooth and other features.

An MRA will certainly affect the volume of testing. The question is: by how much?

As previously noted, under the existing APEC TEL MRA framework, Phase 1 of the MRA allows for “acceptance of test data.” Phase 1 is supposed to be a confidence-building period that is designed to develop a foundation for mutual trust.

Phase 1 exists for several APEC TEL member economies, notably Australia, Chinese Taipei, Korea and Vietnam. The implementation of Phase 1 with these economies has led to better access to US markets by the allowance of the use of Declaration of Conformity for many devices that would otherwise have to be formally certified. Market access improves under a Mutual Recognition Agreement, which improves the prospects for all trading partners.

If an MRA is signed, the reality of the situation is that the shift in the testing business will be, in my opinion, minimal because of the fierce competition the China test industry brings to the testing market. There will, however, be some potential ‘upside’ to US firms that want access to China. An effective MRA will certainly improve market access. To take advantage of this, US test labs will have to learn Chinese standards, test methods and regulatory processes and make partnerships with Chinese labs and authorities.


Engineering Ingenuity

On the academic side, Chinese scholars, researchers and engineers increasingly contribute critical research in communications technologies, EMC, R&D and modeling to the international community in the form of industry papers, forum participation, standards development and conferences. One need only look at the bibliography of the past few IEEE EMC symposia to see the contributions from Chinese innovators. These contributions advance the global state-of-the-art.

To this observer, the capacity and sophistication of the Chinese engineering community is quite remarkable and the technology solutions are world-class. A large reason for this is the intense domestic competition in all sectors of the Chinese economy, which runs at a frenetic pace.

The level of sophistication and capacity for work is truly remarkable, the work ethic is at times inspiring and, at other times, a bit numbing to ponder.

An MRA would broaden our mutual understanding and appreciation of the regulatory system and, taken as an incremental step, can increase the opportunity for exchange, both technical and otherwise. There are many factors to consider, but, I believe, little to fear.


Where are we now?

As of this writing, the first discussions between the US and China were conducted in Washington DC on March 24-25. It is probable that future meetings and discussions have already been either scheduled or held.

At this point, there are several tacks that could be taken by both sides.

  1. A delay in the deadline is being considered. This would ease the short-term pressure.
  2. An MRA could be reached before the deadline, but this is unlikely, in my view, because of the amount of internal deliberation and development of processes and procedures amongst the various Chinese stakeholders.
  3. The FCC has given itself the power to enact “special procedures” which may, somehow, resolve the issue.

Trade with China is a very important aspect of our industry and our daily lives. This issue has very wide-ranging impacts on business beyond the testing and conformity assessment business.

Whatever the outcome, the stakes are high.

Meanwhile, tempus fugit.

author_violette-mike2Mike Violette is founder of Washington Laboratories and American Certification Body. Mike can be reached at mikev@wll.com.

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