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Telling the difference (Part 1)

From misrepresentation of certifications and manipulation of paperwork to the blatant distribution of counterfeit products, Hannah Jo Uy of Climate Control Middle East looks at the broad spectrum of bad trading practices across the HVACR sector and its chilling consequences in this two-part report…

| | Aug 6, 2018 | 10:57 am
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Saad Ali

No one could tell the difference. This was the aspect that Saad Ali, General Manager – Middle East and Africa, SPX Cooling Technologies, found most disturbing, recalling a joint seminar with UL, in which he took part several years ago. “We showed the difference between forged UL certificates, stamps or stickers on specific products,” Ali narrates. “The consultants and contractors in attendance couldn’t tell the difference – no one could.”

Colin Bridges

There is no shortage of third-party certifications within the HVACR industry and, as Colin Bridges, Business Development Director, Belimo Automation, stresses, the testing standards being purported by these bodies provide a good safety net. However, Bridges points out, the regrettable aspect of the growing demand for third-party certifications is that, most likely, it is owing to contractors and consultants being misled and hurt in the past. “As a manufacturer, you have to respect that,” he says, emphasising that more often than not, the industry suffers for the actions of rogue trading companies, “We all pay the price for that,” he adds. Yet, as Ali demonstrated, what happens when the safety nets are being manipulated?

A broad spectrum of lies

“The certifying and approval organisations all have websites that list the approved products and the sites are updated frequently,” Ali stresses, adding that despite these checkpoints there have been occasional encounters with companies that misrepresent certifications and approvals.

Darren Farrell

Darren Farrell, Regional Sales Director, ME, Africa and ASEAN, Greenheck, provides an example. “One of the things we see,” Farrell says, “is people misrepresenting AMCA based on wordplay. They say ‘Tested as per AMCA’ instead of ‘Tested by AMCA’.”

Nazme Mohsina

Nazme Mohsina, Associate Director of Certification, AMCA International, explains the subtle difference. “Products can be tested per AMCA standards without being certified,” she says, “so it is not a blatant misrepresentation. However, it can lead to incorrect inferences by customers that [believe] simply testing to AMCA standards and having AMCA certification are synonymous. If they are claiming to have earned an [AMCA Certified Ratings Program (CRP)] seal and they have not received it – it is a violation of our programme and we will take steps to enforce our programme parameters – including taking action against the violator/violating product.”

Farrell elaborates further on malicious practices, based on experience. “Some companies,” he says, “would change internal components to comply with specifications. If a company doesn’t have a reversible fire-rated fan, they buy a third-party prop, install that and claim it’s reversible, because fan blades can act in the same direction. But [in doing so] they’re not complying with [the specifications] any more because the item was not in the original testing.” That means they are violating the third-party certification requirement.” This, he says, is dangerous because such products are used for life safety.

Pointing to another pressing issue with regard to misrepresentation, Farrell shares that he has come across companies manipulating paperwork relating to country of origin, to avoid paying the five per cent customs tax required for products distributed across the GCC region. Some companies, Farrell says, would put a sticker to say it was ‘Made in the UAE’ and ship it to another country in the GCC region cleared of the five per cent cost, which is otherwise required. Documentation is then altered after clearance, he explains, and stickers are replaced to accommodate labels to associate it as imports from the United States or Europe. “These companies end up being cheaper than other law-abiding manufacturers would be,” Farrell says. “They are using that as a loophole.”

Gianpaolo Bruno

With this, Farrell touches on another growing problem: the misrepresentation of provenance. An issue Gianpaolo Bruno, Italian Trade Commissioner to the UAE, Oman and Pakistan, takes very seriously. “We deem ‘Made in Italy’ as a major brand,” he explains, “we are trying to promote and defend it against deception of consumers from producers illicitly and unfairly using it. We are 100% in favour of the defence of the ‘Made In’ concept and we have done a lot in the European Union to create and enforce stricter rules.” Often, Bruno says manufacturers undertake such deception in order to get unfair competitive advantage. “People should be aware that the ‘Made In’ is not just [a label],” he says, “it reflects that the product entails intrinsic quality.”

Edward Gaynor, Regional Manager – Middle East, BRE Global, weighs in on the issue with regard to country of origin, adding that manufacturers do so because they are aiming to capitalise on a country’s reputation in the market. While dubitable, Gaynor stresses that major manufacturers have factories all over the world and that in a globalised economy the country of origin is not the main issue, but rather the standards the product was manufactured under, the credence of the testing and certifications associated with it, and, ultimately, the deceptive nature of such transactions. In this vein, Gaynor says he has experienced malpractice in the submission of certifications that haven’t been renewed. “You may have given a certificate,” he says, “and [they say] ‘Ok, thank you.’ [But] there is generally no date attached. You could have stopped paying your fees and your certification got suspended as there are audits once or twice a year.”

This practice, Gaynor says, has led some companies to communicate directly with third-party certification bodies, such as BRE, to inquire and corroborate the claims of manufacturers by requesting a sample of the certification. “He was doing his due diligence,” Gaynor says, of a particular instance when he was requested to do so. “If there is something wrong with the certificate it gets taken away. Market has a duty of care. They have to validate, it’s not like certificates are hidden – all these certificates are up online. When someone says they got misrepresented, really they got talked into it by a salesman.”

Hamid A Syed, Vice President and General Manager, UL Middle East, says the company regularly receives queries from consumers and clients expressing concern about suspicious and misleading products, ranging from a “gut feeling” to informing of a safety incident involving an unauthorised product. “These go-to-market shortcuts taken by sellers looking to turn a quick profit leave consumers with products that do not meet the required health and safety standards, but more importantly, place their physical safety at extreme risk,” Syed says.

Dr Floris Hendrikus Schulze

The issue is also a major concern for stakeholders in the renewable energy sector. Dr Floris Hendrikus Schulze, Managing Director and Head, CESI Middle East, says that as certification becomes more valuable due to the ongoing changes in the energy sector, he expects an increase in falsification of certificates, largely owing to the fact that the GCC region is ripe to be a leader in renewables.

Outright deception: What’s real and what’s not?

Abier Wasouf

While misrepresentation of certifications is a matter of concern, equally troubling is the distribution of counterfeit products. Abier Wasouf, Regional Anti-Counterfeit Counsel for the Middle East and Africa region (MEA), Danfoss, offers a historical perspective. “If I compare 12 years ago and now,” Wasouf says, “the counterfeiters have developed so much. They have become more sophisticated. Before, they used to go from the source to the country of final destination.  Nowadays, they will go to different ports and change the papers and the company’s names, so no one can trace the manufacturer or the source of the counterfeit products. When the shipment reaches the final destination, it has a completely different name and papers. The counterfeiters have started to invest more money on the route and transportation and stop in many countries. You cannot trace the name of the manufacturer or source and you cannot trace the final destination, or [even] the trader at the final destination. It used to be straightforward we used to catch them easily. I talk about all industries, not just Danfoss.”

Counterfeit, Wasouf stresses, is a global problem that affects the economy. “Not even one single famous brand doesn’t have a counterfeit problem,” she says. “At Danfoss, we have a counterfeit problem because we are a famous brand, we have standards and high-quality products. People tend to counterfeit and infringe on our rights, they want to use our fame to market their products.”

Frank Ackland

Frank Ackland, General Manager at Eaton Middle East, echoes this. “The counterfeiting of well-known brands and products is a growing and worldwide issue,” he says. “Many counterfeit products are hard to detect because they may mimic the trademark or service mark of the genuine brand or use the appearance of a well-recognised device, which may not include the tags or labels that are commonly seen on real products.” In many instances, Ackland says, counterfeit products appear to be genuine, but are unable to meet minimum performance specifications. “Manufacturers of counterfeit products often use inferior materials without regard for meeting published ratings or safety,” he says. “These “knockoffs” consistently fail independent certification testing from organisations such as Underwriters Laboratories (UL).” Instead, he says, counterfeit product manufacturers rely on deception and prices that are below market level to find their way into homes, businesses and electrical infrastructure. Although counterfeit products may appear to be attractive because of lower pricing, he says, they are unsafe copies that can lead to “fires, shocks or explosions that can lead to injury or even death”.

From Wasouf’s experience with Danfoss, a lot of the counterfeits are directed towards spare parts and components, many of which are discovered in raids conducted in warehouses. These raids, she says, are a culmination of an elaborate process undertaken in close connection with authorities. After the company files a complaint as per the jurisdiction and country’s requirements, authorities give the necessary approvals and customs and police officials coordinate to raid the warehouse, in which Wasouf says she actively participates. “Sometimes they mix genuine with counterfeit,” she recalls, “but in most cases all of them are counterfeit. We can tell if it lacks the whole identification [features].” In most cases, Wasouf says, the traders are aware of the fakes. “He would know that this is Danfoss and that he is dealing with counterfeit,” she says, “In most cases the traders deny that they know, but he has the responsibility to have the knowledge and not to infringe anyone’s right.”

Tariq Al Ghussain

Tariq Al Ghussein, CEO, Taqeef, knows this all too well, having dealt with not only fake components, but fake products, particularly split air conditioners. “We have been selling Fujitsu General for many years,” Al Ghussein says, “and it is the most copied in the Middle East.  Because you copy a successful brand. We found 23 brands – all fakes.”

Al Ghussein says that the counterfeit brands come to surface when dealers complain that sales have dropped owing to similar units being sold at a lower price. “This is part of our market intelligence and presence with the dealers,” he says. Another way, is when the company receives calls for after-sales service, only to find out upon arriving and inspecting the unit that it was not authentic. “If it’s fake it doesn’t look the same and it’s cheap as possible,” he says. “No one wants to buy a fake product but the person is unaware.”

Al Ghussein says that this is mostly prevalent in consumer products and not chillers, which require specialised testing, installation and is not readily available in any outlet or shop. He adds that it is also not a common occurrence for VRF systems save for possibly, spare parts, compressors, controls and replaceable units.

“Organised retailers don’t really sell a lot of air conditioning,” Al Ghussein says, “but there are a million little shops of household appliances that sell air conditioners, refrigerators and TV and they will happily sell fake [Fujitsu] Generals. More blatantly, [of late] is General AUX, which is not General. They’re not saying its General, but they are capitalising on the name.”

Syed weighs in on another aspect compounding the issue of such products entering the market. “Online retail sales in the Middle East continue to grow rapidly – at a rate projected to more than double the combined E-Commerce sales of the Gulf countries between 2017 and 2020. The flip side to this online retail sales boom? The evolving online retail environment has created the perfect playground for criminals and organised crime groups to operate anonymously and target vulnerable consumers. Against this backdrop, because the opportunity created provides factories, distributors and retail outlets with direct access to consumers through a click of a button, anyone has the ability to position themselves as an ‘entrepreneur’ – at times, with a non-legitimate business.”

Brandon Witt

Undoubtedly, counterfeit products pose a number of negative ramifications, but perhaps none is more chilling that the sale of counterfeit refrigerants – the consequence of which could be fatal. Brandon Witt, Global Brand Assurance Lead–FluoroChemicals, points to the Kigali Amendment to the Montreal Protocol as having provided a clear and predictable path forward, providing the necessary time for a rational and cost-effective transition to new solutions.  “As the Kigali Amendment focuses on refrigerant management based on Global Warming Potential (GWP),” Witt says. “The framework provides a manageable plan to the industry for many years to come.”

James Walters

James K. Walters, Vice President, International Affairs, Air-Conditioning, Heating, and Refrigeration Institute (AHRI), says that though the association doesn’t specify or certify the use of one particular refrigerant over another, he has observed that owing to the transition to low-GWP refrigerants, there has been upward pressure on the price of the refrigerants being phased out and, as such, “there will be an incentive for counterfeiters to claim they are offering the refrigerants being phased out at a lower price”. This, Walters stresses, becomes a safety issue, with reports of accidents in various countries as low refrigerant level could potentially cause dangerous fires. Walters says that vigilance must be administered, especially in relation to drop-in refrigerants, as some counterfeit versions could be sold in retail stores or on the street given the wide opportunity for counterfeit goods to change hands.

Witt echoes this. “With the transition to Chemours, we occasionally see outdated packaging carrying our product brands,” he says, “but this is a red flag for potential counterfeit products, since we updated our packaging after our separation in 2015. We also have relationships with customs agencies to ensure safe refrigerants are imported around the world.” He adds that the company takes the issue very seriously. “We work diligently to monitor and police counterfeiting on a global basis, to protect our customers and our brands,” he says. “We know that even a single case of counterfeiting puts our customers and industry at risk, which is why we all must remain vigilant to ensure we purchase and use genuine refrigerants.”

Two prime examples of this commitment in action came last year, Witt says. “Our team identified and prosecuted two Chinese businesses for selling fake refrigerant,” he says. “The cases resulted in fines, confiscation of more than 100 cylinders of counterfeit products and, in one case, imprisonment.”

Countries taking action

Ali, however, warns that stakeholders must not vilify the east as a source of counterfeits. “I do not agree that everything from China is bad,” he says. “Some of the biggest manufacturers in the world have major manufacturing facilities in China. The fact that Apple manufactures products in China shows what their capabilities are. I think integrity is important. We need to identify quality products in every region of the world. To outright say ‘Chinese products are bad’ is wrong. It’s estimated that China produces 80% of the air conditioner products in the world.”

Al Ghussein echoes this. “China used to be the manufacturer of the world,” he says, “but not for their own brand and products.” He explains that previously, as OEM providers, some manufacturers create according to the specification of a client, whatever standards that may entail, without regard to where the components, parts or products go. While he admits that some companies still do so and operate without traceability, checks or measures, creating as per client demand, the market has significantly shifted from this old way of thinking.  “China used to only manufacture for others and it used to be 100% that way,” he says, “but now they are shifting. Manufacturers, big companies, have taken action in China. China as a country and its authorities are stricter.”

Walters says that incentives vary among countries with regard to the kind of incentives they want to have for contractors and specifiers to be more aware that the equipment they are installing meet minimum energy performance standards. The government’s mechanism to regulate and test those products, he says, will encourage specifiers to ensure the products they are installing are true to the regulation of the country, whether it be the United States, Saudi Arabia or the UAE. In the UAE in particular, Walters says, energy efficiency is an increasingly regulated aspect of the business.

The public sector’s interest in regulating fakes comes as no surprise as, Ackland stresses, counterfeits have a detrimental effect on the economy. “According to US Customs and Border Protection,” he says, “the manufacturer’s suggested retail price (MSRP) value has grown by 538% since 2010, while, according to the International Anti-Counterfeiting Coalition (IACC) over 750,000 jobs are lost every year due to counterfeiting of distinguished brands.”

To be continued

In the September 2018 issue Climate Control Middle East takes a closer look at the factors aggravating the proliferation of these bad practices, the regulations being rolled out to mitigate the sale of counterfeits, what companies are doing to battle these issues and the true cost of cutting corners.

 

Hannah Jo Uy is Assistant Editor at Climate Control Middle East magazine. She may be contacted at hannah@cpi-industry.com


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