Intertek, Bureau Veritas & SGS

April 18, 2008

I N T E R T E K , B U R E A U V E R I T A S & S G S : A D U E - D I L L I G E N C E A S S E S S M E N T

ITS Operations Interteck (ITS) started its China operation[(s)?] plural, yes in 1989 when it established a joint-venture inspection company with a local Shenzhen research institute. In October 2006, ITS participated in the drafting of new national toy- standard regulations and has received accolades for its help [from the Chinese government?] Yes. It is important to note, however, that this was prior to the toy scandals involving Mattel in [when?] summer/fall 2007. In January 2007, ITS set up a center on labor and environment law in China[where in China?] don’t know exact location.

ITS received accreditation from the China National Accreditation Service for the[delete?] yes Conformity Assessment (CNAS) in 2002. CNAC is responsible for the accreditation of certification bodies in China.

Two of the most notable[why notable? do you mean biggest? busiest?] it is the two divisions most highlighted in the literature that we were able to dig up divisions of ITS are its Commercial Division in [Shanghai?] and its Electrical Division [in Guangdong?] Commercial and Electrical Divisions in Shanghai and Guangdong. According to ITS, the division in Shanghai was established in 1999 and the one in Guangdong was established in 2000. They both[each?]yes have more than 200 employees, approximately 60 percent of whom are engineers. These divisions are “widely accepted” by both the European Union and North America[United States?] the literature said North America – not sure if there is a distinction, but definitely including the US and, according to ITS, many household appliance manufacturers operating in eastern and southern China work with these two ITS divisions. [Does ITS have other divisions? in China?] Yes for other products, these are mainly electrical products.

ITS currently has six laboratories and sales offices in Shanghai, Guangzhou, Shenzhen, Hangzhou, Xiamen, Wenzhou, Yuyao, Dalian and Qingdao.

ITS Clients ITS has many corporate clients that are well-known internationally, including Shell, Canon, McDonald’s, BP, IKEA, Nike, LG, GAP, Valero, Ericsson, Chevron Texaco, The Home Depot, Marks & Spencer and Levi Strauss. ITS clients also include government institutes[what is a government institute?] safety institutes and orgs in govt responsible for testing and safety in more than 20 countries, including Bangladesh, Ecuador and Saudi Arabia. ITS also provides services for government [agencies?] i suppose that would be correct and customs[offices? Wouldn’t these be government entities?] yes in various countries, helping them to ensure safety and

© 2008 Strategic Forecasting, Inc. 1 quality standards for their imported products.[is this the service that ITS provides all of its clients?] govts ask them for this service – this is on the importing side. It is not true for all clients/countries unless asked.

ITS Affiliations In May 2006, a division of ITS (ETL SEMKO) signed agreements with the China Quality Certification Center (中国质量认证中心-CQC). This agreement with CQC was meant to improve services and access into each other’s respective country.[where is ITS based?] I believe London, but they have various HQ all over.

ITS also has a strong relationship with the Guangdong government and the Guangdong Entry-Exit Inspection Quarantine Bureau (广东进出口检验检疫局-IQTC). In March 2008, ITS and the bureau established a toy [inspection?] inspection/testing laboratory in Guangzhou. Following the Mattel toy scandal, this partnership was indicative of the Guangdong government’s faith in ITS. At the same time, given the well-known level of corruption among custom and quarantine officials in Guangdong, ITS will face considerable challenges in its effort to certify products according to international standards. Nevertheless, the new joint facility is capable of testing to national and international safety and environmental standards, including Europe’s EN71 and EN62115; U.S. CPSC and ASTM F963; International toy standard ISO8134; Australia’s AS/NZS ISO8214 and China’s GB6675 and GB19865. [I tried to rearrange and simplify this series of standards; please double-check and make sure I linked them to the correct country or region]

BV Operations Bureau Veritas (BV) began its Chinese operations in 1901 and today has approximately 30 offices in China with more than 5,000 employees serving over 3,000 clients.[where is BV based?] Paris BV operations in China consist of four divisions: Marine, Industry & Facilities, Consumer Product Services and Government Services & International Trade.

According to BV, the Marine Division provides expertise in ship classification and related services such as certification, training and consulting. The Industry & Facilities Division provides more than 2,000 clients with a wide range of services, including certification, inspection, construction, project management and technical consulting. An example of a project by this division is the inspection of the turbines and generators at Three Gorges Dam. The Consumer Products Services Division inspects and tests toys and textile products; certifies, inspects and tests electrical and electronic products; and provides social accountability audits and factory assessments. The Government Services & International Trade Division specializes in trade facilitation, import valuation and the inspection of goods.

BV Clients BV clients can be divided in three groups: international organizations, public entities and privately owned trading companies.

International organizations would include such entities as the United Nations’ World Food Program and Children’s Fund. Public entities would include government food- purchasing groups such as the Taiwan Sugar Corporation, which is responsible for importing sugar into [Taiwan?] didn’t say, but I would assume, yes, and Iran’s GTC[what does this stand for?] Govt Trading Corporation (literature didn’t say – guessing from a quick web search, can’t imagine it is anything else), a governmental trade company responsible for purchase food and minerals for

© 2008 Strategic Forecasting, Inc. 2 consumption in Iran. Privately owned trading companies would include many Fortune 500 companies such as IBM, SONY and HP (electronics industry); Coca Cola and Danone (food); Ashland Chemical and Rhodia (chemicals); UPS, TNT and American Express (service); Saint Cobain and Bekaert (metals); Bombardier, Faurecia and Fleetguard (transportation); and Areva and Veolia (energy).

BV also has provided certification services to many Chinese companies, such as the Shanghai Automotive Group, the Bank of China and Wuhan Steel. Although many Chinese companies prefer to go with native groups[certification consultants?] certification companies – they actually provide certification, they are not just consultants, but to say consultants is also correct, they realize that getting international certification is important for trade, especially as so many companies come under international scrutiny. Sources tell Stratfor that BV has seen evidence of corruption and bribery in China but it has worked hard to maintain an ethical stance, and many Chinese companies that want international recognition have sought its services. Sources say this is especially important because of the intensifying competition among local companies[certification consultants?], [who?] competitors – other certification and testing companies are working hard to keep international consultants at bay. The faith that prominent Chinese companies have in BV is worthy of note.

BV Affiliations Like ITS, BV also is affiliated with CQC and its president, Mr. Li Huai Lin (see information on CQC and Mr. Li below). In 2003, the[is there only one BV v.p.?] vice president of BV meet with CQC, although there is no indication of further cooperation.[they are affiliated yet there is no cooperation?] There is no other mention of anything other than this visit. The specific VP is Mr. Le Maitre.

SGS Operations In 1991, SGS[what does this stand for?] Not spelled out anywhere, even on their website established a joint-venture company with China Standard Technology Development Company (中国标准技术开发公司) called SGS-CSTC (the [latter?] yes of which is subject to[part of?] subject to – qsiq is a govt body they answer to the General Administration of Quality, Inspection and Quarantine of the People’s Republic of China QSIQ [中国质监总局]). Presently, SGS-CSTC has more than 4,500 employees and has established over 30 subsidiaries and some 10 laboratories in Shanghai, Guangzhou, Tianjin and Shenzhen.

SGS Clients SGS clients include domestic and foreign enterprises and government and international institutions[what is a government or international institution?] same as above – govt safety and regulation bodies and its services include the testing, verification and international attestation of agricultural, petrochemical, industrial and consumer products. SGS’ two biggest partners in China are Nestle and Philips Electronics. In 2006 and 2007, SGS-CSTC was selected to perform audits in China to help Nestle with its Project CARE [(part of Nestle’s Corporate Compliance Audit Program of Human Resources, Safety, Health and Environmental Practices) This IS CARE?]. As a result of these audits, according to a Chinese [government?]no a website on SGS Web site, SGS informed Nestle that China was complying with national and international regulations and standards regarding customer needs, human rights protection, safety, human resource policies and environmental protection. Of course, this Web site offers a Chinese

© 2008 Strategic Forecasting, Inc. 3 interpretation of the partnership; we would hope that SGS was more candid with Nestle given the poor reputation China has regarding standards compliance. This reputation is due, in part, to poor administrative oversight on the ground and not necessarily to a lack of direction from the central government.

About CQC Because both ITS and BV had [or have?]ITS seems to still have, but the relationship with BV is unclear outside of that one visit relations with CQC, this assessment includes background on the organization. According to CQC, which is headquartered in Beijing, it is a specialized certification body authorized by the government to test and certify products [being introduced to the Chinese market?] Not sure but I think for both domestic and international consumption (as it has offices in other countries). CQC has established 45 sub- branches and 180 contracted testing labs in China and other countries. CQC is the National Certification Body of China for IECEE’s CB Scheme[will reader understand this?] IECEE IS THE INTERNATIONAL ELECTROTECHNICAL COMMISSION AND CB SCHEME IS THE CHINESE SYSTEM FOR THE IECEE (from source) and is responsible for China Compulsory Certification. CQC offers management system certification as well as certification training.

CQC President Li Huai Lin (李怀林), left, was born in January 1954 in Jing Chuan, Gan Su province (甘肃泾川). He joined the Communist Party of China in October 1974. Mr. Li holds a master’s degree from Gansu Agricultural University, where he also holds the title of “honorary researcher.”

Mr. Li also has worked as deputy director general of Gansu Commercial Inspection Bureau (甘肃商检局); director of the System Supervision Department of the National Commercial Inspection Bureau (国家商检局监管认证司体系监管处); and as deputy director general of the Import and Export Quality Attestation Center of the National Entry-Exit Inspection and Quarantine Bureau (国家出入境检验检疫局进出口质量认证中心).

Since April 2002, Mr. Li has been [a?] the director of CQC and vice-chairman of the Chinese Attestation and Certification Association (中国认证认可协会). He has not been linked to any scandals and we were unable to find any publically published reports saying anything negative about him.

Quality Control in the Toy Industry As a result of the Mattel toy scandal in China and the involvement of ITS, BV and SGS in toy inspections, Stratfor also investigated their roles in this industry niche. Following is a brief summary of our findings:

When testing toys, all three companies use the American testing standards. Nevertheless, according to the QSIQ, the reason for the Mattel toy recall was the substantial difference between the results of lead-content testing by different laboratories. Sources told Stratfor that ITS, BV and SGS were all involved in the Mattel testing. One source said that the testing discrepancies could have been a result of different products from different producers being tested at different centers. However, the pattern and testing should be the same at all centers, and all claim to use American testing standards.

© 2008 Strategic Forecasting, Inc. 4 Most of the toy manufacturers we investigated said the majority of their toys were inspected by SGS (one factory source told Stratfor that most European and American clients prefer using SGS).

According to a source at SGS, Mattel designated SGS as its testing institute following the recall. The toy manufacturers[what toy manufacturers? More than one? Just Mattel?]Chinese toy manufacturers that were called – I have a list of the names if needed, there were several seemed to think SGS was the primary testing company both before and after the recall. . Although a source at CNAS[?] CNAS was mentioned above - China National Accreditation Service for Conformity Assessment said ITS has more CNAS-approved laboratories than SGS or BV, the source was quick to say this was not an indication that ITS was superior. The source said all three entities are well-respected in China.