Product Life Cycle Compliance & Risk Management Client Alert February 2014 If you would like to discuss these topics in further detail please contact: Graham Stuart Partner Baker & McKenzie LLP Tel: +44 20 7919 1977 graham.stuart @bakermckenzie.com Rachel Barlow Associate Tel: +44 20 7919 1364 rachel.barlow @bakermckenzie.com Top 10 EU Product Compliance Issues for 2014 EU regulators are requiring more and more of businesses in terms of product risk management and compliance. This extends well beyond intrinsic product safety to the entire product lifecycle, from raw material origins to end-of-life responsibilities. The trend for increasing EU product regulation and market surveillance promises to continue apace during 2014. This client alert summarises ten EU product compliance issues which are likely to be relevant to many product manufacturers, importers, distributors and retailers during 2014: 1. Placing on the market: When is a product placed on the market and by whom? This question lies at the heart of many EU product laws but is complicated by today's dispersed production and distribution systems. The most authoritative EU guidance on 'placing on the market' and its related term 'making available' is the now outdated "Guide to the implementation of directives based on the New Approach and Global Approach", the European Commission's so-called 'Blue Guide', published in 2000. Much has changed since then, of course, both with respect to the supply chain structures operated by product manufacturers and as a result of the introduction of the New Legislative Framework (NLF). The Commission is updating the Blue Guide as a result and we expect the final version to be published during 2014. Various drafts of the revised text leaked during 2013 show the Commission grappling with the application of fundamental Blue Guide concepts to modern manufacturing and distribution practices. Based on what we have seen so far, the publication of an updated Blue Guide will undoubtedly be helpful but will also challenge regulators, importers and manufacturers to re-consider some of their historical interpretations of 'placing on the market' and 'making available', with the burden of compliance potentially shifting between supply chain entities as a result. 2. Supply chain due diligence: How much product testing and other due diligence should you do, and to what extent can you rely on information from your suppliers? This is a complex area, legally, but is of critical importance because of the increasing number of EU product laws that require manufacturers and importers to know what is in each product and where it came from. This trend is continuing with new EU restrictions for articles treated with biocidal products already in place (see number 4 in this list) and an EU proposal to restrict the use of conflict minerals expected imminently (see number 7 in this list). Companies that take due diligence too far end up with extremely expensive and burdensome processes going far beyond what is reasonably necessary. Companies that do too little run the risk of non-compliance and being unable to explain their actions to regulators and customers or, in a worst case scenario, defend them in court. Various factors are relevant to the level of due diligence that will be appropriate, including the
size of the business, the nature of the supplier, and the risk and potential consequences of non-compliance. 3. New product safety and surveillance package: The EU plans to overhaul its product safety and market surveillance regime in 2014 with the adoption of a new Consumer Product Safety Regulation and a new Market Surveillance Regulation. The new legislation, if adopted, will have direct effect in Member States without the need for national transposition, meaning it may come into force as early as 2015. Whilst the proposals maintain most existing product safety requirements under the General Product Safety Directive, they also seek to impose "country of origin" marking requirements for all consumer products - a controversial topic that has been keenly debated in Europe since 2000 - and to impose stricter documentation and notification obligations. The new measures will also increase the emphasis on market surveillance and introduce a presumption of a safety risk, even for formal/technical non-compliances such as marking and labelling errors. This appears to be an attempt by the Commission to expand the triggers for corrective actions to be taken, including product withdrawals and recalls. 4. Biocides in products: The EU's biocidal products regime has been extended to capture any product that is treated with or intentionally incorporates a biocidal product (so called 'treated articles'). As a result of these measures, which came into force on 1 September 2013, companies placing products on the EU market must now investigate whether anything within their products has, at any time, been treated with or intentionally incorporates a biocidal product. This is not easy - as the European Commission has itself acknowledged - especially for biocide treatments by suppliers much higher up the supply chain. Labelling requirements, which apply to treated articles in certain circumstances, have been in force since 1 September 2013 and restrictions on substances in treated articles apply from 1 September 2016 (subject to a six month phase-out period). Companies placing products on the EU market need to be taking steps now to understand how the revised regime impacts on their product lines and supply chains. 5. Group restructuring impacts on "producer responsibility" obligations: During 2014 many businesses are likely to continue to seek cost savings and efficiency gains by streamlining operations and reorganising group structures. Such reorganisations can cause significant shifting (and the potential increase) of producer responsibility obligations under various EU regimes (such as WEEE, batteries and packaging waste legislation), both within the group itself and vis-à-vis its external supply chain. The approach taken to determining which entity is classified as a "producer" can vary significantly, not only from Member State to Member State but also from regime to regime (for example, see number 10 in this list on the revised WEEE regime). This ranges from approaches which require a producer to be incorporated within a jurisdiction to be obligated, to approaches where a much more limited presence, such as having a PO Box or office address, will suffice, to approaches where no national presence is required whatsoever for obligations to attach to an entity. Companies considering group or supply chain reorganisations during 2014 should undertake a full assessment of these issues and ensure they fully comprehend the impacts on their producer responsibility obligations.
6. REACH 0.1% SVHC threshold debate: There is ongoing disagreement between the Commission and 6 dissenting EU/EEA States as to whether the REACH 0.1% weight threshold for 'substances of very high concern' (SVHCs) applies to a product as a whole or to its individual components. The EU REACH Regulation imposes obligations on companies involved in the production and sale of articles (i.e. objects) which contain one or more SVHCs above the 0.1% weight threshold. The European Commission's position is that this threshold applies to the whole of a finished product. A small number of countries insist, however, on applying the threshold to each individual component within a finished product, a position they reasserted during 2013 in a joint guidance document available here. The dissenting position catches many more products in its scope, leaving companies uncertain as to which approach to follow and whether they are compliant or not. The Commission is considering taking legal action against the Member States concerned during the course of 2014. This disagreement is an important point to be clarified given the growing number of SVHCs on the candidate list, which was most recently increased to cover 151 substances in December 2013. 7. Conflict minerals: Following an EU public consultation in 2013 "on the responsible sourcing of minerals from conflict-affected and high-risk areas", the European Commission is expected to publish details of a legislative proposal regulating conflict minerals in or around March 2014. Recent press indicates that the scheme may only be voluntary in nature, reflecting concerns of EU businesses about the potential for a European regime to add to the already substantial burden of the mandatory US Dodd-Frank rules, which require thousands of companies to conduct extensive due diligence on their supply chains to ascertain the presence of conflict minerals. We already have a basic picture of the components of the proposal which, to minimise duplication and incompatibility, are likely initially to build on the existing US rules affecting tin, tungsten, tantalum and gold (otherwise known as 3TG). That said, the EU regime may be geographically broader than the US rules, which are limited to the African Great Lakes Region, and may focus on smelters (the narrowest point in the mineral supply chain). 8. Ecodesign compliance: The EU's ecodesign regime continues to expand its product coverage, with new energy efficiency requirements for computers entering into force on 1 July 2014 and for vacuum cleaners on 1 September 2014. These new measures are already causing challenges for manufacturers in areas such as the application of new product testing requirements, where the rules remain uncertain and the approach of market surveillance authorities unclear. The ecodesign regime, more generally, continues to create compliance uncertainties, including whether and how products and accompanying accessories need to be combined and tested for the purpose of measuring energy consumption requirements. A key issue in this respect is the potential for an accessory to become such an integral part of a main product that it loses its separate identity for ecodesign purposes and should be treated as part of the main product, with consequences for the combined product's compliance with power restrictions. There has been little guidance from the Commission on this point and, with the increasing scope of the ecodesign regime, further guidance during the course of 2014 would be very timely.
9. RoHS expansion to medical devices: Medical devices come within the scope of the recast RoHS regime from 22 July 2014, with in vitro diagnostic medical devices in scope from 22 July 2016. Even if the electric function of the medical device is only a minor feature of the equipment, it will still be within scope provided the device is dependent on electric currents or electromagnetic fields to fulfil at least one of its intended functions. Exemptions apply, however, to the use of specific restricted substances in certain applications, such as the use of lead bearings in x-ray tubes. Active implantable medical devices are not within the scope of the recast RoHS regime but will be reviewed in 2020 for potential inclusion. One key point to note with the RoHS regime is that manufacturers, importers and distributors are required to notify Member State regulators when they consider or have reason to believe that one of their products does not conform, even where the non-conformity is purely technical in nature (e.g. a labelling issue), and to take appropriate corrective action. 10. Recast WEEE regime: The recast Directive on waste electrical and electronic equipment (or WEEE) was due to be implemented by EU Member States by 14 February 2014. Many questions still remain as to how several provisions will be applied at national level. Some clarity may be provided when the Commission publishes its final FAQ guidance document (expected very shortly). Even so, companies whose products fall within scope of the regime are likely to face an uneven picture across the EU, with Member States adopting varying approaches in a number of areas. One key area of uncertainty is how Member States will interpret the Directive's revised definition of 'producer', which requires an entity to be "established" within a Member State to qualify as a 'producer' in that Member State (with the exception of distance sellers). A further related change with perhaps even greater potential for confusion is the requirement that Member States must permit a producer established in one Member State to appoint an 'authorised representative' in any other Member State in which it has WEEE producer obligations but is not locally established. How this requirement will be implemented in practice is currently unclear.