[The following is an un-footnoted longer draft of one of two Policy Digests prepared for a Sydney Southeast Asia Centre joint research project and an ASEAN Secretariat conference on consumer protection law in Hanoi over 8-9 December 2014. The footnoted final version is available at: http://www.asean.org/resources/publications/item/consumer-protection-digests-and-case-studies-a-policy-guide-volume-1?category_id=382]
Consumer product safety is a major contemporary concern for developing, middle-income and developed economies. ASEAN, through its Committee on Consumer Protection (ACCP), has recognised this as a priority topic for international collaboration, as trade in goods accelerates through the region with its major trading partners world-wide. Part 2 of this Digest highlights the policy challenge. Part 3 shows how market and even private law incentives are unlikely to provide sufficient incentives for manufacturers to produce safe products; some minimum regulatory standards are needed. Part 4 focuses on regulatory powers to force recalls of unsafe goods, but also requirements for suppliers to notify national regulators about ‘voluntary’ recalls. It also outlines recall information disclosure efforts underway nationally, regionally (notably within the European Union, EU, but also through ACCP since early 2011), and now internationally (especially through the Organization for Economic Cooperation and Development, OECD, since late 2012). This Digest suggests there is scope already for greater engagement by ACCP and individual ASEAN member states particularly with the OECD initiative in this field. Part 5 also urges broader information-sharing as the OECD clearing-house expands over the next few years, as well as with product safety incident reporting systems already developed particularly in the EU and the United States (US).
2. Unsafe Consumer Products: A Global Challenge
In the Final Report for its Review of Australia’s Consumer Policy Framework: Inquiry Report, released by the Australian Government’s Productivity Commission in May 2008, chapter 8 on ‘Defective Products’ succinctly states the general problem for law and policy in the field of defective goods – especially unsafe products:
Defective products impose a range of costs on consumers and the broader community.
• In the case of unsafe products, these costs can include both physical and psychological injury, the financial burden of income lost due to incapacity and costs associated with accessing medical treatment. Broader societal impacts will also be felt through greater demands on the public health and social welfare systems and the temporary (or permanent) reduction in the economy’s productive capacity.
• For products that otherwise fail to meet reasonable levels of quality or performance, some consumers will bear the additional cost of procuring replacement products and the dissatisfaction associated with the original purchase. Economic activity may also be impeded if some consumers are less willing to purchase products whose quality and performance is uncertain.
Reputable firms do not, of course, intentionally set out to produce and market unsafe or otherwise defective goods. But some products inherently pose risks simply because of the uses for which they are designed. More generally, there is always an explicit trade-off between designing and manufacturing products that offer higher levels of product safety, quality and performance and the cost of doing so. It is the willingness of consumers to pay for enhanced characteristics that ultimately determines whether firms make the investments necessary to deliver them.
That said, for a range of reasons, governments and the legal system also play a role in ensuring consumer products meet reasonable standards of quality, performance and safety. A key reason is that the complexity of some products means that consumers will be unable to cost-effectively judge whether they meet appropriate standards. Another is to address those circumstances where a firm has little reputational capital and only a transitory commitment to a particular market.
Particularly over the last few decades, world-wide changes in markets and technologies have combined with heightened consumer expectations regarding product safety to generate pressure for regulatory reform at various levels. In addition:
Increasingly risks and issues are being raised around chemicals and new technologies where risks are virtually impossible to determine by any other means than laboratory testing. Consumers do not have ready recourse to such testing facilities and so rely on regulators to ensure safe products. Similarly many small businesses lack the capacity to test products, and/or do not consider testing for product safety before they supply goods, which means potentially unsafe goods get on to the market un-checked. Responsible businesses and manufacturers frequently ask the [regulator] for guidance as to how they can ensure that their products are safe. However, retailers of low value imported goods may be less inclined to demand evidence of safety testing for the products they sell. Mandatory standards can help all stakeholders by laying down clear criteria around product safety issues.
A particular concern in developed countries world-wide (and increasingly now middle-income countries), including among ASEAN member states, has been the influx of low-priced manufactured goods from major exporting nations like the People’s Republic of China (PRC). ASEAN member states are also increasingly integrated into pan-Asian production chains, with components being sourced for example from the PRC for assembly and export into third-country markets like the EU, the US and Australia, underpinned by a burgeoning network of Free Trade Agreements (FTAs). This enhances risks to ASEAN exporters if their final goods are later found to be unsafe, due to defective component parts. In addition, the rise of e-commerce has reduced entry barriers for cross-border trade, bringing smaller businesses into the market which may be less able or inclined to focus adequately on maintaining consumer product safety.
3. Incentive Effects from Market Forces, Private Law and Public Regulation
Consider more closely the three main mechanisms identified by the Productivity Commission in Part 2 above, and other commentators, as potentially providing suppliers with incentives not to put unsafe products onto the market. Arguably, each mechanism has somewhat different effects depending on the following combinations of probable risks and seriousness of harm to consumers.
First, market forces (suppliers’ concerns about maintaining a reputation for good-quality products) are generally more effective for high-probability risks, especially those with more severe consequences, as the media is more likely to report on such product failures. However, it may not have a strong impact, especially in developing countries. Further, even well-established media may not be able to overcome information asymmetries to determine whether and how such failures are caused by a particular supplier or pervasive throughout an entire industry.
Private law remedies (for example through contract or tort law), supported by the fact-finding processes available to the court system, can provide a second incentive mechanism for product suppliers – mostly again for products associated with high-probability risks, but usually only for those generating major harm. Even then, the incentive effect is often diminished by issues of ‘access to justice’, especially for individual consumers. These barriers remain significant even when suppliers are made strictly liable for product defects, rather than consumers having to prove negligence, although strict liability can help incentivise manufacturers to produce safer ‘type II’ goods (with a lower probability of harm but potentially serious consequences).
Strict liability has become a growing trend in legal systems since the 1960s, after the EU drew on early US case law to develop its 1985 Product Liability Directive. Now applicable across 28 member states in Europe, the Directive has also provided an inspiration for strict product liability legislation introduced in Australia and the Philippines in 1992, followed by several other ASEAN member states including: Indonesia (1999), Cambodia and Thailand (2008). However, although introducing strict liability for product defects has had some significant effects, preliminary survey evidence from the Asian region suggests that direct effects have not been large – a pattern earlier found in the EU.
Thirdly, public authorities and the political system can also encourage or indeed require suppliers to maintain minimum safety standards, sometimes through general criminal law sanctions (for example, for ‘professional negligence causing death’ or ‘corporate manslaughter’ offences) and especially through product safety regulation underpinned by administrative law and/or criminal law sanctions. Such regulation was initially product- or sector-specific (‘vertical’), targeting areas involving high-probability risks of product failure likely to result in severe consequences (such as pharmaceuticals or foodstuffs), and measures can extend to pre-market licensing requirements for such products or factory premises or processes.
However, as institutional capacity and public concern regarding product safety failures have grown, legislative frameworks setting minimum standards for consumer product safety have been introduced in more and more countries, particularly since the 1970s. Such ‘horizontal’ regulation typically includes powers for regulators to set product safety requirements, which must be met before the goods can be marketed, and occasionally (as in the EU)) can add a ‘general safety provision’ (GSP) mandating that goods not be ‘unsafe’ – otherwise public law sanctions follow, in addition to any liability that may be incurred by suppliers subject to private law claims for harm from product defects. Like vertical regulation, horizontal regulation also increasingly implements various post-marketing controls, including over intermediaries such as wholesalers or retailers – although regulatory requirements are often less strict than for manufacturers (and importers). These controls include powers to ban goods found to be unsafe by the authorities, to recall goods, to warn the public about likely safety risks, and even to require product accident or incident reports from suppliers.
4. Voluntary and Mandatory Recalls
Suppliers may recall their products because they fear private law claims. One possibility is that the importer (or its insurer) may sue under contract law the exporter of unsafe goods if those have caused harm to consumers purchasing from or through the importer, resulting in the latter paying compensation to the consumers. However, in such business-to-business contracts, the exporter is often legally entitled to exclude or limit its liability towards the importer for such ‘consequential damages’ (and even for the reduced value of the defective goods themselves). Such contractual arrangements will diminish the exporter’s fear of being sued by its importer, and therefore reduce its incentive to conduct recalls promptly.
A second possibility is that consumers may sue the exporter or overseas manufacturer directly, for negligence under general tort law, for not conducting a recall and thus causing or exacerbating harm to the consumers. However, there are very few examples of such claims even in developed countries. This is presumably due to problems of proof and access to justice more generally.
Instead, responsible suppliers nowadays increasingly voluntarily recall goods due to concern about adverse publicity if harm to consumers eventuates or escalates. Indeed, marketing specialists argue that a well-conducted recall can often generate positive publicity, and criticize recalls that do not take place or are delayed. Yet even well-intentioned suppliers can find it difficult to inform the public effectively about their voluntary recalls, while others may be tempted to conduct ‘clandestine recalls’ to try to avoid any publicity or to avoid damages claims and attention from regulators.
Since the 1980s, therefore, many countries have introduced regulations or other measures designed to encourage voluntary recalls. In 1986 in Australia, for example, the Trade Practices Act (renamed since 2010 the Australian Consumer Law or ‘ACL’) added powers for the regulator to conduct a mandatory recall. Although very rarely exercised formally (as indeed is true in other countries allowing for mandatory recalls), because of that possibility suppliers subsequently became much more likely to conduct a ‘voluntary’ recall. In addition, if they do conduct a voluntary recall, suppliers must notify the government. In 2010 Australia’s regulator also published guidelines as to what constituted a voluntary recall and how to go about conducting one effectively, and also improved an internet portal site to publicise notified recalls. Other major importing countries have also improved websites and guidance manuals for recalls in recent years, including the US, the EU, and Japan.
Around 2008, the OECD began investigating possible improvements in consumer product safety regimes, prompted partly by large-scale consumer product failures (for example, involving foodstuffs and toys from the PRC). A general report and roundtable that year led in 2010 to a more detailed report on ‘Enhancing Consumer Product Safety Information Sharing’, and a related ’10 Point Action Plan’ – including, as one (short-term) measure, a call to ‘pool information on recalls and emergency alerts on a single website’. In October 2012, the OECD officially launched its ‘Global Portal on Product Recalls’. This presently makes available information provided by 5 OECD members (originally Australia, Canada, the EU and the US, now also including Mexico), one non-member (Brazil) and one international NGO (GS1).
Policy-makers in ASEAN should seriously consider contributing to this (searchable database) resource, as is not restricted to OECD member states (which presently do not include any ASEAN states) and is already attracting more partners. An effective way to do so would be to provide to the OECD the ACCP’s data on ‘Product Alerts’, namely the ‘Lists of Official Recalled/Banned Products and Voluntary Recalled/Banned Products in ASEAN’ publicised since November 2011. Advantages would include:
• Data could be made public via the OECD’s Global Portal more quickly (whereas the ACCP’s Lists are only uploaded at present every 4-6 months);
• Data on recalls reported by ASEAN member states would be easily searchable, and trends therefore more readily discernible to pinpoint emerging hazards (see also Appendix A, which attempts to consolidate and summarise the ACCP’s recalls data so far in a user-friendly format);
• Data and trends from ASEAN member states could then be more readily compared, by researchers or practitioners from Asia as well as the OECD, with data and trends from other parts of the world (including cross-checking of information provided through ACCP, to minimize errors or inconsistencies);
• Data provided by ACCP would not necessarily be limited by type of product or sector, as the OECD’s Global Portal allows for uploading of recall information provided by partner institutions overseas for whatever they considers to be relevant ‘consumer products’.
The OECD could also be encouraged to develop and maintain resources on the main product safety regulations concerning recalls that are in force in ASEAN as well as OECD member states. In any event, this would be useful to have on the ACCP website, as well as links to any online databases or information on recalls of general consumer products that have or may be developed by individual ASEAN members states.
All such agencies in ASEAN member states should develop a one-stop consumer product recalls portal website in their home jurisdiction, and fully communicate recalls information to the ACCP website and/or the OECD Global Portal. Ideally, legislation in each member state should specifically require suppliers to promptly notify their national regulator when conducting voluntary recalls of any type of consumer products, and ensure that this information is publically disclosed as well as to the ACCP and OECD.
5. Additional Accident Information Disclosure and Sharing
A more recent and partial development in ‘horizontal’ consumer product safety regulation is a requirement on suppliers to notify the regulators about serious product-related accidents or deaths. There is growing awareness that better information flows to the government through such a mechanism is essential to evidence-based ‘responsive regulation’ in the event of serious product failures, including serious measures such as mandatory recalls, bans or the development of minimum safety standards. If reports from suppliers are then made publically available, even without identifying specific manufacturers or products, consumers (and even potential trading partners) can be more aware of the potential health risks associated with particular products or types of products.
In some jurisdictions (for example the EU, and recently Canada) suppliers must also notify when they ought to know about serious product related accidents or deaths, and where there is a serious risk even if no actual accident occurred (as also in the US, and in Japan albeit only regard to risks defined through secondary regulations – namely, so far, serious fires or carbon monoxide emissions). In 2010, Australia’s ACL regime introduced a disclosure obligation that is narrower in these respects. It also does not require disclosures of long-onset health risks or diseases (unless and until these result in deaths). Most remarkably, the ACL adds strict confidentiality obligations on the regulator receiving accident reports from suppliers; it cannot even share identifying information with regulators from close trading partners. This hampers Australia’s capacity to contribute product hazard information to the OECD’s Global Portal, which over the long term aims to collect and disclose information on serious hazards in addition to recalls. However, Australia may be able to amend the ACL if it accedes to FTAs or other international agreements that allow for information-sharing with counterpart regulators overseas – including those in Asia.
Major product safety regulators world-wide are already concluding Memoranda of Understanding to share product safety incident information. For example, the EU has long had a ‘Rapid Alert System for Non-Food Products Posing a Serious Risk’ (known as ‘RAPEX’), for notification of measures taken by national regulators from its member states to limit supplies of dangerous goods. Pursuant to a 2006 agreement with China, information on dangerous goods reportedly sourced from China is passed on the Chinese government for investigation there (the ‘RAPEX-China’ system).
As the OECD’s Portal expands its coverage, ASEAN member states – individually and/or via the ACCP – should also seek to enter into cross-border agreements for sharing of product hazard information reports received from their local suppliers. To that end, each ASEAN member state should also enact legislation:
• requiring suppliers to disclose information about serious product related accidents or deaths; and
• allowing each state’s regulator to disclose reported information to foreign counterpart regulators (within ASEAN and, for example, regulators in other FTA partners) as well as international organizations like the OECD, and to the general public (at least in general form).
So far no such legislation exists within ASEAN. However, its exporters are already increasingly likely to have to agree to disclose such accident information anyway pursuant to contracts concluded with their trading partners in countries, like the EU or Canada, which impose duties on their own suppliers to report serious product related accidents that they should know about even when occurring abroad.
ASEAN policy-makers and other stakeholders should also be aware that the US has launched in March 2011, pursuant to the Consumer Product Safety Improvement Act 2008, a government website that allows consumers to directly upload information about purportedly unsafe products, and then suppliers to post comments in response and seek corrections to consumers’ reports. This ‘Safer Products’ website is open to the public and searchable, for example by the name of an ASEAN member state. US government officials, healthcare professionals and others can also file reports. Separately, US suppliers must provide reports of accidents and serious risks to their Consumer Product Safety Commission.
The ACCP and/or authorities in individual ASEAN member states should therefore consider a hazard information-sharing agreement with the Commission, whereby (a) the latter discloses information on products sourced from ASEAN which can be investigated there if they are likely to be sold also within ASEAN, and (b) the ACCP or ASEAN states provide local product accident information to the Commission, so it can be on the alert for issues arising from similar products that may be imported into the US. Meanwhile, the ACCP and ASEAN states can also examine the reports from consumers and others through the new publically available ‘Safer Products’ website, to anticipate more effectively hazards that may arise with similar products within ASEAN.
Already, the ACCP website has begun listing “information sharing” reports received from ASEAN member states since May 2013. However, there have only been a few such reports. They also refer to goods produced elsewhere (namely Taiwan, Japan and New Zealand), and it is unclear whether those goods are in fact being imported into the ASEAN member state which provided the report to ACCP (or to any other member state).