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10,000 New Ec Rules


International Business

10,000 NEW EC RULES

George E. Saxon Sr. is a classic American niche exporter. As president and CEO of Conco Systems Inc. in Verona, Pa., he has doubled his family-owned company's exports of cleaning systems and condenser devices to Europe over the past year. Today, fully 14% of the company's $6 million in sales goes abroad, about half to Europe.

But there may be a cloud on his horizon. Europe is in the midst of a standards-creating frenzy, sparked by a desire for uniform safety, health, and environmental standards in the aoming single market of the European Community. Beginning Jan. 1, the EC will phase in hundreds, and eventually thousands, of rules governing how everything--from toys to artificial hearts--is made (table). U.S. companies that want to sell in Europe will have to meet those standards--and many like Conco are worried it will be tough going. "The Europeans always have been so protective of their turf," says Saxon. "I hope their standards don't become yet another means of keeping U.S. goods out."

Europe's changing rules aren't supposed to create a fortress. The long-awaited move to create common sets of standards for the EC's 12 member states and the European Free Trade Assn.'s 7 nearby countries is a much favored change. Companies that have had to make different versions of products for different European nations will be able to produce one European product. "Right now, I do cars for Italy, Germany, and France," says Jerry Huber, a plant manager for Chrysler Corp.'s Toledo (Ohio) facility, where export Jeep Cherokees are made, "so anything they do to make it standard is great for me." Other big U.S. companies such as Caterpillar Inc. and Monsanto Corp. will be able to either help shape standards or respond quickly. That's why Washington supports common European rules.

FRAGILE NICHES. The Europeans argue that the standards are required to raise living standards, and deny they want to lock out anyone. "Our activity is open," says Stephen Marriott, secretary general of the European Committee for Electro-technical Standardization (CENELEC), one of the EC's standards-writing bodies. And he says European companies also will have to change their products.

But one side effect is that some of America's hottest exporters will face wrenching readjustments in the form of unforeseen design changes, costly retooling, additional staff, and new quality systems. That's what could put a damper on U.S. exports. Growth in U.S. exports to Europe already has slackened to a mere 4% annual rate, and the overall American trade surplus with Europe, $15 billion in 1991, could be whittled back. Although multinationals account for the lion's share of those exports, much of the growth has come from smaller companies that rely on distributors, agents, or bigger customers to advise them. Taken individually, their export niches are tiny, but when multiplied by the number of companies involved, the impact could be broad.

Whose fault is it? Although there are some cases in which European companies may have attempted to draft unfair standards, most experts argue that the greater failure lies with the Americans: They are not well organized to help shape the standards and then respond to new ones. Thousands of U.S. exporters haven't invested sufficiently in establishing roots in Europe, and the overall American export machine suffers from a lack of coordination among government, industry associations, and exporters.

A BUSINESS WEEK spot check of these exporters shows they are having only limited success figuring out what the new standards are going to be, let alone adapting to them. "For some small manufacturers, this is going to be almost prohibitive," says David M. Hanttula, a product-compliance manager for Silicon Graphics Inc., a Mountain View (Calif.) maker of engineering workstations. Adds Brian Wynne, director of international trade affairs for the American Electronics Assn.: "For small and midsize companies, this is a potential monkey wrench in the works."

The profileration of tough new standards, covering many products never before regulated, in effect raises the hurdle for exporters that have so far been able to tap Europe's markets with relative ease. Take Zimmer Inc. in Warsaw, Ind., a $1 billion-a-year maker of orthopedic devices, including hip replacements. Last fall, the company, which sells a third of its products in Europe, recognized that new standards were about to be established on smoothness and roundness for hip-socket balls.

DUBIOUS BENEFIT. To respond to the new European rules, it was forced to buy $5 million worth of high-tech manufacturing and testing equipment. "There was no real quality benefit," says Senior Vice-President Robert L. Fuson. "But we didn't want to be outflanked on a technical barrier to trade." Besides making what it regarded as an unproductive investment, the company had to add 10 people to its standards staff of six.

Zimmer was one of the lucky ones--it was able to anticipate the new demands. Some exporters wake up too late and face a crisis, as Grinnell Corp. did. This Cranston (R.I.) company makes fire-protection equipment, including a metal fitting for fire sprinklers that's stronger but different in design than European models.

Three years ago, its European competitors proposed making their design the international standard. That would have forced hundreds of millions of dollars worth of retooling for Grinnell, a $1.2 billion unit of Tyco Laboratories Inc. in Exeter, N.H. When the company recognized the magnitude of the proposed change, Engineering Manager Henry Sonderegger began lobbying fellow exporters around the globe to convince Europeans that U.S.-style fittings were acceptable. "I was getting up at midnight to talk to people in Malaysia," says Sonderegger, who eventually prevailed. But at a cost. "Last year, I spent 25% of my time on this thing," he says. "My management was a little taken aback."

The worst fear is that smallish exporters may find the price of compliance so stiff that they stop exporting to some countries. That's what Jim Killam, director of marketing for Osment Models in Linn Creek, Mo., is contemplating. Osment's tiny Woodland Scenics landscape items are a favorite with adult model-train buffs. Killam's reading of the EC toy-standards directive is that his products aren't toys because they're not for the under-15 crowd. While the British backed him, the Germans insisted Osment's products were toys and thus couldn't be sold in Germany; some, for instance, contained lead. If Osment can't convince them, it says it will pull out of Germany.

DIAL DIRECT. One factor that puts smaller exporters at a disadvantage is that they don't participate in drafting Europe's standards, as big players often do. Large multinationals are represented on the U.S. Commerce Dept. advisory committee that monitors the standards-writing process. Big companies have even made direct approaches to the European standards-writing bodies, which officially offer no seat to U.S. executives or officials. Caterpillar, for instance, has been hit with a blizzard of new rules. But because it has been involved in drafting the standards, it has been able to adjust.

In contrast, small exporters have to make do with asking the Commerce Dept. or the private American National Standards Institute (ANSI) to present their cases to the European standards-making bodies. And once new standards are issued, it takes a while for most U.S. exporters to get the news. Killam had hoped his industry's trade association would be his ace in the hole. He got a general standards overview from it, just as he had from the literature the Commerce Dept. sends regularly to some 7,000 exporters. But for the specific problems he faced, an association official told him: "You're on your own."

Commerce has sponsored reports and seminars, and exporters get some local advice. But export boosters worry that smaller players aren't getting the message. "I'd say maybe 50% of them are aware of what's involved," says E. Martin Duggan, executive director of the Small Business Exporters Assn. in Annandale, Va.

Duggan is particularly concerned with the 52,000 exporters who make only 6 to 12 shipments a year. If discouraged, they may drop out of exporting and never return. That's why the new EC rules, however intended, will put many U.S. exporters to the test.Patrick Oster in Brussels, with Vince Gagetta in Pittsburgh, Rob Hoff in San Francisco, and bureau reports


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