New market surveillance framework in the EU

  • 2020/10/16
  • kutatocsoport5

Introduction

Many things have changed in the global economy over the last 40 years. The trade of goods used to be carried out through relatively controllable and predictable routes, so the market surveillance measures, institutions and powers that could form the foundations of an efficient system are now not necessarily capable of providing the same high level of consumer safety. Rules created in the context of identifiable manufacturers, distributors established in the internal market, physical shops and markets are no longer suitable for facing the market surveillance challenges of the online market.

The large increase in the movement of goods, the volume of products flowing into the European Union through personal orders can no longer be controlled and tracked by traditional methods.[1] Behind the displayed offers of an online store a stock of a trader cannot necessarily be found, especially one’s that is established in the European Union.[2] In addition, warehouses are being set up within the borders of the EU for goods that had entered the European Union and later were withdrawn, that, until now, have fallen outside the control of market surveillance authorities.

At the same time, consumers expect the same level of protection for products manufactured inside and outside the EU. In our globalized world, it remains a challenge to ensure that the imported products comply with EU standards but also do not gain an unfair competitive advantage by violating EU rules. Imported products should, in principle, be inspected when they enter the single market. However, the volume of imported products makes it impossible to control all shipments. In 2015, more than 30% of products entering EU markets came from imports. Their estimated worth was almost € 750 billion. [3] 

In my study, I am looking for the answer whether a high level of protection of the health and physical integrity of consumers can be guaranteed in the internal market in the changed circumstances. Therefore, I review the changes and the latest achievements of the legal framework, that can be considered as milestones of market surveillance and product safety regulations.

Challenges to face by the market surveillance system

Weaknesses in market surveillance have already been pointed out by many actors in Europe, including consumer organizations, industries, the European Parliament and the European Commission, the reasons for that can be traced back mainly to the following factors and changes.

Supply chains have become very complex and manufacturers are often located outside the EU, while in many cases the importer – from a traditional context – cannot be identified. Consumers regularly buy products from third countries via the internet, so the products reach the consumers directly, thus evading the product conformity and import inspections of the customs authorities in most cases. It should be noted here, however, that the power (authority) and obligation to control exist in the same way if the product is delivered to the border control in the form of private consignment or a non-concentrated consignment, but random checks obviously cannot be as effective.

One of the structural weaknesses of the single market for goods is related to the enforcement of harmonized EU product safety rules. Even though there are extensive safety rules, there are still too many illegal and unsafe products on the market. These products pose a high risk to consumers. Another vulnerability factor of the system is that products that are not covered or only partially covered by harmonized EU product safety rules, such as furniture or certain construction industry products, are not subject to specific rules. These products can be considered safe in one Member State and are in conformity with the public interest, while in another Member State they could have difficulties in accessing the market. EU legislation has established risk-oriented and general product safety rules. Too many new types of products and safety risks are excluded from the scope of the GPSD (despite that its scope is designated in general), while specific rules cannot, by their nature, cover all risks (see the rules on the chemical composition of consumer products, rules on chemicals).

Recognizing the weaknesses of the European market surveillance system, as a possible solution the European Parliament and the Council of the European Union adopted on 20 June 2019 the  Regulation (EU) 2019/1020 on market surveillance and product conformity as part of a program (so-called "Goods Package") providing measures that can offer adequate solution to some of the problems detailed above. [4] The second proposal of the package aimed to review and facilitate the use of mutual recognition in the single market. [5]

The Goods Package for a new market surveillance regulation

The ‘Goods Package’ is a wider scope of legislative proposal aimed at ensuring that products entering the European Union (EU) single market are safe and in conformity with the public interests protected by EU legislation, such as the protection of health and safety in general, the occupational health and safety, the protection of consumers and the public safety.

The Market Surveillance Regulation aims to meet the challenges posed by global markets and complex supply chains, as well as the increase in online sales to end-users in the EU. In order to strengthen the current market surveillance system, the challenges posed by the EU, the cross-border e-commerce and online commerce should be addressed, joint activities of market surveillance authorities, other relevant authorities and organizations representing economic operators or consumers of several Member States should be encouraged, also, the digital exchange of information between the authorities, trade unions and the European Commission should be improved. In addition, the regulation aims to establish an EU product conformity network as a platform for coordination and cooperation between Member States' authorities and the Commission; also, it intends to work closely with customs authorities to control products from outside the EU more effectively.

The focus on the entire supply chain

One of the most important results of the Market Surveillance Regulation is that it pays special attention to economic operators. With this, it is aimed to provide an adequate response to a phenomenon, namely products sold online, which has become impenetrable, contingent or even unidentifiable. The effectiveness of the market surveillance system is also significantly hampered by the fact that, as a result of direct sales to consumers, importers can no longer be identified in the classical sense and the consumer cannot be expected to comply with European legislation.

Under the Market Surveillance Regulation, the products covered can only be placed on the market if the underlying economic operator established in the EU can be identified. The economic operator shall be responsible for ensuring that the conformity documentation is available, shall cooperate with the market surveillance authorities and inform the authorities if there are grounds for believing that a product presents a risk. For the purposes of the Market Surveillance Regulation, an economic operator shall be a manufacturer established in the EU, an importer if the manufacturer is not established in the EU, an authorized representative of the manufacturer with a written mandate to act on behalf of the manufacturer; or in all other cases, Fulfillment service providers (FSPs) established in the EU, if there is no other economic operator established in the EU. The purpose of the Regulation is, inter alia, to apply the EU law to all economic operators involved in the supply and distribution chain in accordance with the extent of their intervention or participation.

The nature of liability extended to fulfilment service providers

Traditionally, economic operators, such as the manufacturer of the goods, the importer (if the manufacturer is not established in the EU) or the authorized representative, are responsible for placing the products on the EU market. However, there is an increasing number of economic operators who sell directly to consumers through e-commerce. Fulfilment service providers that perform the same functions as importers, but which do not always meet the traditional definition of importers in EU law, are now covered by the legislation. With the development of direct sales and online commerce, consumers may become 'importers' within the EU, but at the same time these consumers are clearly unable to ensure that products entering the EU comply with EU legislation. This is precisely why the legislator has extended the definition of economic operator in the Market Surveillance Regulation to fulfilment service providers who provide at least two of the warehousing, packaging, addressing and dispatch services without owning the products in question. Exceptions to this are postal services; parcel delivery services; and any other postal or freight services.

The Market Surveillance Regulation considers that a product offered for sale online or through other means of distance sales, should be considered to have been made available on the market if the offer for sale is targeted at end users in the Union, thus, if the relevant economic operator directs, by any means, its activities to a Member State

For the case-by-case analyses, relevant factors, such as the geographical areas to which dispatch is possible, the languages available, used for the offer or for ordering, or means of payment, need to be taken into consideration. In the case of online sales, the mere fact that the economic operators' or the intermediaries' website is accessible in the Member State in which the end user is established or domiciled is insufficient.

Stricter market surveillance powers

The Market Surveillance Regulation confers enhanced powers on national market surveillance authorities to ensure compliance with EU law for products purchased both in the online and offline market. Access to information is essential for the exercise of effective market surveillance powers. Under the Regulation, economic operators are obliged to provide relevant data or information to market surveillance authorities on compliance and technical aspects of the product, on the supply chain, on the structure and actors of the distribution network, on quantities of products on the market, online sales platforms and relevant information for the purpose of ascertaining the ownership of websites.

One of the biggest innovations of the Regulation, in addition to redefining the chain of responsibility, is the creation of an effective system of sanctions. The legislator envisages that, in the event of a serious risk, market surveillance authorities would have the right to require the removal of related product content from online interfaces or to oblige the economic operator to explicitly display a warning on its online interfaces. When such a request is not observed, the relevant authority should have the power to require information society service providers to restrict access to the online interface

What should be the next step?

In addition to the issues outlined in the study, a number of emerging product types are forcing the expansion of the traditional conceptual framework. More and more consumer goods such as cars, baby monitors, refrigerators and toys that are on the market can connect to the internet (Internet of things). Although these products offer several new services and greater convenience to consumers (even if connection to the internet is not a prerequisite for their operation), research shows that there may be a number of problems with their operation and use. In fact, it can endanger the health and physical integrity of consumers or violate their privacy. At the same time, it should be noted that the general safety of these products is subject to product safety rules, however, there are no compliance standards for new types of risks and hazards.

Nowadays, long-distance cruise control, blind spot/lane/traffic sign detection systems keep the car with minimal intervention on the road and also brake in an emergency instead of the driver. In smart homes, personal assistant programs help with life. But neither the car’s sensors nor the assistants are able to work without error yet. The role of algorithm-based decision-making will increase in the future and have an increasing impact on the lives of consumers, raising the issues of information self-determination, sovereign decision-making, including the regulation of the new type of product compliance.

Most of the provisions of the Market Surveillance Regulation will apply from 16 July 2021, so companies distributing products on the EU market that are covered by EU harmonization legislation shall be prepared to apply the rules, including the designation of a responsible representative.

 

Author: Dr. Zsolt Hajnal, assistant professor, University of Debrecen, Faculty of Law

 


[1] V. Jadhav & M. Khanna, “Factors Influencing Online Buying Behavior of College Students: A Qualitative Analysis”, The Qualitative Report 2016, Vol. 21, No.1, 2016, pp.1-15

[2] V. J Massad and K. Berardelli, “The Roles of Bounded Rationality and Ethical Self-efficacy in Online Shopping Orientation”, Academy of Marketing Studies Journal, Vol. 20, No.3, 2016, pp. 26-37

[3] SWD(2017)466.

[4][4] Regulation (EU) 2019/1020 of the European Parliament and of the Council of 20 June 2019 on market surveillance and compliance of products and amending Directive 2004/42/EC and Regulations (EC) No 765/2008 and (EU) No 305/2011. OJ L 169, 25.6.2019, p. 1–44

[5] Regulation (EU) 2019/515 of the European Parliament and of the Council of 19 March 2019 on the mutual recognition of goods lawfully marketed in another Member State and repealing Regulation (EC) No 764/2008 OJ L 91, 29.3.2019, p. 1–18

 

 

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