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Joint Standing Committee on Treaties - 07/05/2012 - Treaties tabled on 21 November 2011 and 28 February 2012

HEFFORD, Ms Jenny, Chief Regulatory Officer, Therapeutic Goods Administration

JOHNSON, Dr Ronald Bruce, Manager, Manufacturing Quality and Licensing Section, Veterinary Medicines Program, Australian Pesticides and Veterinary Medicines Authority

KELLY, Dr Larry, Group Coordinator, Monitoring and Compliance Group, Therapeutic Goods Administration

MITCHELL, Mr John, Manager, Government Relations, National Association of Testing Authorities

OVERY, Ms Catherine, Assistant Manager, Standards and Conformance Policy Section, Trade and International Branch, Enterprise Connect Division, Department of Industry, Innovation, Science, Research and Tertiary Education

PHILLIPS, Mr Brian, Manager, Standards and Conformance Policy Section, Trade and International Branch, Enterprise Connect Division, Department of Industry, Innovation, Science, Research and Tertiary Education

TROTMAN, Mr Paul, General Manager, Trade and International Branch, Enterprise Connect Division, Department of Industry, Innovation, Science, Research and Tertiary Education

Committee met at 09:05

Agreement on Mutual Recognition in Relation to Conformity Assessment, Certificates and Markings between Australia and the European Community

CHAIR ( Mr KJ Thomson ): Welcome. I declare open this public hearing for the Joint Standing Committee on Treaties' ongoing review of Australia's international treaty obligations. The committee will n otherwise take evidence on the proposed agreement between Australia and the European Union amending the Agreement on Mutual Recognition in Relation to Conformity Assessment, Certificates and Markings. This treaty was tabled in parliament on 28 February 2012.

Although the committee does not require you to give evidence under oath, I should advise you that this hearing is a legal proceeding of the parliament and warrants the same respect as proceedings of the House and the Senate. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. If you nominate to take any questions on notice, could you please ensure that your written response to questions reach the committee secretariat within seven working days of the receipt of the transcript of today's proceedings. I invite you to make any introductory remarks that you wish to make before we proceed to questions.

Mr Phillips : I am pleased to make an opening statement in relation to the agreement between Australia and the European Union amending the Agreement on Mutual Recognition in Relation to Conformity Assessment, Certificates and Markings. I think it would be helpful to provide you with some background on the original agreement. The underlying principle of the mutual recognition agreement between Australia and the European Community—that is, the MRA—is that both parties recognise and accept the technical competence of each other's conformity assessment bodies to test and certify products for compliance with the standards and regulatory requirements of the other party. This largely eliminates the need for duplicative testing and recertification when goods are traded.

The MRA does not require harmonisation of each party's technical regulations nor does it involve recognition of the standards that apply to the other party. The MRA's scope is limited to products which are subject to regulation by government authorities and they are outlined in sectoral annexes. The products covered by the agreement include medicinal products to which good manufacturing practice requirements apply, medical devices, telecommunications terminal equipment, electromagnetic compatibility, pressure equipment, machinery, low-voltage electrical equipment and automotive products.

Since the MRA's entry into force in 1999, certain administrative aspects of the MRA have proved to be unwieldy and inefficient, particularly the requirements that changes to sectoral annexes undergo domestic treaty amendment processes in both parties. As such, many of the sectoral annexes are now out of date and do not reflect current Australian or EU applicable technical and regulatory requirements. In addition, the rule-of-origin provision in article 4, which specifies that products covered by the MRA must originate in the parties to the agreement, has limited opportunities for Australian manufacturers and testing bodies to utilise the agreement. The provision has potentially restricted where Australian businesses can source their inputs and the markets where Australian conformity assessment bodies can compete for conformity assessment work. The amending agreement is aimed at streamlining the operation of the MRA, as well as supplementing efforts being made more generally to minimise non-tariff measures and technical barriers to trade between Australia and the European Union.

The conclusion of the amendments to the MRA is also an action item under the broader EU-Australia partnership framework. The proposed amendments are minor and practical in nature. They include removing the rule-of-origin restriction from the overarching mutual recognition agreement, except in relation to medicinal products and medical devices, according less than treaty status to the sectoral annexes and extending the role of the joint committee to amend the sectoral annexes in response to regulatory and industry developments.

The proposed changes do not alter Australia's existing obligations under the MRA and should lead to improvements in its operation. They will introduce greater clarity and flexibility into the MRA, enable timely maintenance of the sectoral annexes and allow Australian export businesses in the designated product areas, as well as conformity assessment bodies, to more readily access and utilise the agreement.

The agencies represented here today are those with an interest in the MRA and who have been involved in guiding the negotiations for the amending agreement. They are: my own department, the Department of Industry, Innovation, Science, Research and Tertiary Education, which has responsibility for the overall administration of the MRA; the Therapeutic Goods Administration, which has a portfolio interest in the two medical sectoral annexes that have been updated as part of the amending agreement process; the Australian Pesticides and Veterinary Medicines Authority, which has a portfolio interested in the medicinal products and GMP sectoral annex; the National Association of Testing Authorities, which is one of the MRA's designating authorities and has responsibility for accrediting Australian conformity assessment bodies to test products against European requirements; and the Department of Foreign Affairs and Trade, which has had oversight of the negotiations for the amending agreement.

This concludes our opening statement. We would be happy to take any questions from the committee in regard to the amendments being proposed. Thank you.

CHAIR: Thank you. I was a little bit unclear about 'conformity assessment bodies'. Who performs that function in Australia?

Mr Phillips : In relation to most of the sectoral annexes here, they would be laboratories accredited by the National Association of Testing Authorities. So they are testing laboratories—generally, private sector laboratories. In relation to medical devices and good manufacturing practice, the TGA is the conformity assessment body, along with Ag and Vet Chemicals.

CHAIR: Is that similar to the European Union?

Mr Phillips : Yes, they have a similar infrastructure there.

CHAIR: Okay. Senator Fawcett.

Senator FAWCETT: Do we have similar agreements with the US, or Japan or Korea—places where we have a large degree of trade in these sorts of devices?

Mr Phillips : We currently have an agreement with Singapore, and within the APEC context there are also mutual recognition agreements in relation to electrical or electronic products as well as telecommunications equipment. I understand the TGA has an agreement with Canada. So, apart from our agreement with Europe, Singapore and in the APEC context, we also have a higher-level agreement with New Zealand.

Senator FAWCETT: Do you have any figures that give an indication of the volume of trade in the kinds of technologies we are talking about between us and the European Union versus between us and the US, Japan or Korea?

Mr Phillips : I do not have the trade data in front of me. In terms of the overall trade flows, I cannot say at the moment.

Senator FAWCETT: My concern at the moment is that the NIA indicates that this agreement has been underutilised and the cause that has been identified is the fact that perhaps the sectoral annexes are out of date. But if you put yourself in the shoes of a business that is importing equipment here in Australia, they are going to set up the process to accommodate where the majority of the goods come from. If this is a standalone process that is different to where the bulk of things come from it raises questions as to why we maintain this if we do not with our major trading partners and, if it is useful, why do we not try to expand that across the others? If this is only a minority sector, is it worth the effort to even keep this whole separate agreement alive?

Mr Phillips : I think it is fair to say that we have not negotiated further agreements along these lines. This one came into effect in 1999. The Singapore one came into effect in around 2000. There are largely agreements amongst our trading partners, particularly in the European Union, that this type of agreement may not be as useful as it was first hoped it would be. The amendments we are making to it should make it more useful, but I do not want to overstate the overall impact of the agreement.

Senator FAWCETT: I note that you have an exception there for medical goods because of the potential life-threatening impacts of issues of quality. Given that you are proposing that we make the sectoral annexes able to be amended more regularly, who will actually, from Australia's perspective, provide the input into that to decide whether that change is one of technical significance that may impact on health or safety or is a change in scope or a change to reflect regulations? What authority would we be ceding to whom to approve those changes in the sectoral annexes?

Mr Phillips : You are correct that the sectoral annexes cover the scope. They also list the relevant legislation and regulations that relate to the particular goods. The treaty itself creates what is called the joint committee. That is representatives from both the European Union and Australia. My department, which has overall policy responsibility, would bring together the Australian side of the joint committee, which would largely be the people you are looking at here in relation to the medical devices and the GMP side of things, so your key regulators in that field. That Europeans would be doing the same. They would bring the key regulators along as well as the European Commission body that has overarching responsibility for the MRA.

Ms PARKE: I am thinking of the medical implants, the metal-on-metal hip replacement devices, of DePuy of Johnson and Johnson that were accepted by the TGA without any testing in Australia on the basis of prior UK assessment. At the time that Australia accepted the UK assessment there had already been a number of problems that had arisen in the UK with the use of these devices. Thousands of Australians have now got faulty hip replacements and many of them have lifelong disabilities as a result of the inadequate investigation of these hip-replacement devices in Australia. How will this agreement prevent these sorts of things happening in the future?

Dr STONE: If I could add to that, the breast implant products from France—same story.

Mr Phillips : Perhaps I could ask the TGA to respond?

Ms Hefford : Neither of the products that you referred to, either Ms Parke or Dr Stone, used the MRA pathway to access the Australian market. The processes that applied to them were not covered by the former agreement and would not necessarily be impacted by the amendments.

Dr STONE: How are they regulated then?

Ms Hefford : Both the ASR hip under our new arrangements and PIP breast implants under our current arrangements are class III high-risk medical devices and would not be covered by this. But a large number of products come on to the market without using the MRA pathway to access the market; they simply come—sorry?

Dr STONE: I remarked to Senator Fawcett, 'What is the point, then, if there are two pathways, one which has some scrutiny and one which allows faulty products into the Australian market?'

Ms Hefford : Both pathways have scrutiny. They are different pathways.

Ms PARKE: What is the difference? How would you know which pathway is appropriate—different devices or different levels of risk?

Ms Hefford : Level of risk is one defining feature. Australian regulation has classes of products based on a risk assessment which we make at the TGA and that risk assessment determines the way in which that product will come on to the market if it is approved to come on to the market. Both the products that you have talked about, were not products where the manufacturer sought to take advantage of or use the MRA as a pathway to come forward. They are not relevant to this conversation.

Ms PARKE: That does not mean we cannot ask you a question about it. How will we prevent things like the faulty hip replacements and the faulty breast implants coming into this country? What is TGA doing about that?

Ms Hefford : It is a different question.

Dr Kelly : If we just step back a moment to the PIP breast implants, they were allowed into the Australian market based on a full Australian TGA conformity assessment process. It was not based on any assessment by overseas notified bodies. The difficulty with the PIP case was that it was out-and-out fraud that led to the faulty implants. That is something that is very difficult to regulate for, but that was a process that underwent full TGA scrutiny. The ASR hips that you mention did not use the MRA process. The difference between an MRA process and another European process is that both get assessed by a European conformity assessment body. In the case of an MRA, TGA plays no further role in the assessment. We have five days to allow that product into the Australian marketplace if it uses the MRA process. If it uses European assessment process but non-MRA, TGA then intervenes to assess the suitability of the assessment undertaken by the notified body. As we go forward we are proposing to reclassify the ASR hip implant up to class III, which is the highest-risk classification. From 1 July, if this amendment goes through, those particular devices will be excluded from the MRA. All class IIIs, the highest risk devices, will be excluded until there has been confidence building between the Australian government and the relevant European regulators.

Ms PARKE: So what happened in the case of these faulty devices with the TGA? Did the TGA just pass them through without doing an assessment?

Dr Kelly : Which devices? The PIP implants went through—

Ms PARKE: No, I am talking about the hip replacements.

Dr Kelly : The ASR was assessed by a European notified body—the UK one that you mentioned. They collected the evidence. They did the assessment. They issued a certificate in Europe. Under our legislation, that certificate is a way into the Australian marketplace, provided that Australia agrees with that particular assessment—when we get their certificate, we do a check to see that that certificate was issued appropriately. What we do not do, and we did not do with ASR and we do not do for the vast majority of medical devices, is that we do not review the prime evidence, being the clinical evidence and the manufacturing data. That responsibility is done by the European regulatory system.

Ms PARKE: But by then a few years have elapsed and there had already been issues with the UK hip replacements and by the time that the TGA came to assess it for Australia.

Dr Kelly : No, that is not the case. It went into the marketplace around 2004 in Australia, which is about the same time that it went into the European supply chain. Australia was the first country to take regulatory action against the ASR. We were the first country to remove the ASR hip from the supply, ahead of European countries.

Ms PARKE: I am just going by the Four Corners program on this subject which reported that way.

Dr Kelly : I am aware of the way it was reported. I am aware of the way 60 Minutes also reported the PIP implants.

Ms PARKE: It was incorrect, was it?

Dr Kelly : I could not quote every part of the Four Corners program, but I can tell you that what happened in Australia was it was approved for the supply based on the mechanism I just described, around the end of 2004. In 2007, TGA began to get some alerts about the performance. We consulted with an external panel of orthopaedic experts, who advised us that, given it was a relatively new device that was technically difficult to insert into patients, the best way to treat this was with a training program so that surgeons would be required to undergo specific training in the use of a particular ASR device. That was in 2007. That was the advice the government was given by the independent group of experts.

Imposing the training requirement then led to a substantial decrease in the use of the device in Australia. But it was in 2009 when we started to collect the solid evidence from the joint registry that showed it was performing worse than devices of the same type that regulatory action was taken. That was nine months before any other country in the world took action against that particular device.

Dr STONE: You have a category of product which must go through the MRA process, according to—

Dr Kelly : No.

Dr STONE: So it is optional?

Dr Kelly : It is optional.

Dr STONE: How does that lead to greater public safety? If it is optional, are you saying those employers must use an alternative testing mechanism to ensure Australian standards are met?

Dr Kelly : No. In Europe, the conformity assessment bodies can issue a European certificate which is marked with authorisation in Europe. Australia can use that piece of evidence in making its own regulatory decisions on marketing here. Those same bodies in Europe can also issue, if they are accredited by their competent authorities, an MRA certificate, which is the same as a CE certificate except it comes with much more rapid access to the Australian market.

Dr STONE: Is it fee for service for an importer to trigger an MRA process?

Dr Kelly : All the TGA activities are fee for service for whichever mechanism is used.

Dr STONE: Can you give us an indication of the cost associated with, say, testing one of these new prostheses? Does it vary according to the complexity or is it a standard fee?

Dr Kelly : It varies. TGA has its own cost structures. If we were to be doing a conformity assessment on a hip implant made in Australia, a fee would accompany that particular assessment. We have no control over the fees that the European notified bodies charge. I really do not know how much they charge for those activities. They charge the manufacture of the device to have their device assessed for conformance with the European requirements and with the Australian requirements.

Dr STONE: Right. The Australian importer looks at the fees. You are not sure what those are or you are not telling us right now what those fees are. Is there a cost constraint or a cost dimension in the fact that, as we have been told, there has been an underutilisation of the agreement in the past? Could it be just to do with the costs that are required in Australia?

Dr Kelly : The cost of the fees in Australia for Australian manufacturers? I will get the precise cost for you, but I do not believe that there is a substantial difference between TGA doing a conformity assessment for supply to the Australian market and then doing the equivalent under the MRA arrangements for an Australian manufacturer. When it comes to a European assessment body doing it, as I say, we have no say in what fees they will charge the manufacturer.

Dr STONE: I think the preliminary information we were given went down this path a little. We do not, of course, require this treaty to have harmonisation of qualities or standards in the product. We simply acknowledge that is the product standard that the European Union has agreed to and we take on face value on the basis of the reputation of the testing in the EU that this is okay. It may be a very different standard though to what we require in Australia.

Dr Kelly : Not for medicines and medical devices, it is not. It maybe for the other sectors. I do not know.

Dr STONE: Did you mention automotive parts as one of these?

Mr Phillips : Yes. The agreement itself only relates to the conformity assessment. We might have Australian standards for the products: electrical products, automotive products. If European manufacturers want to utilise the agreement, the testing body in Europe has to test those products to the Australian standard. The point we were trying to make in the opening remarks is that we are not unilaterally accepting European standards necessarily, although some of our Australian regulations are similar to European regulations. But the idea is that the European testing body would be testing it to the Australian standard. So what the agreement is doing is recognising the ability of the testing body in Europe.

Dr STONE: I see. Where we do not have standards, for example, with on road agricultural equipment where Australia does not have national standards then it is whatever the European standard is—whether we will simply look at that and accept it or not.

Mr Phillips : If we do not have a mandatory standard, I think the general arrangements under consumer and competition law would come into play in that sense. The product must be fit for service, must be safe—those higher level arrangements or requirements for actually placing a product on the market.

CHAIR: If there are no further questions, thank you for attending to give evidence today. If the committee has any further questions, the committee secretariat may seek further comment from you at a later date. Thank you.

Dr STONE: Could you provide information about what fees are typically charged?

Dr Kelly : We can provide those.

CHAIR: If you could provide that information to the secretariat, that would be appreciated.