Out-Law / Your Daily Need-To-Know

Platforms drawn into EU market surveillance regime for products

Out-Law Analysis | 30 Jun 2021 | 10:11 am | 5 min. read

Online platforms could soon be ordered to stop a raft of products subject to EU safety and quality regulations from being made available on their platforms under the EU’s Market Surveillance Regulation (MSR).

The MSR was finalised in 2019 and comes into effect on 16 July 2021.

Though the new legislation brings platforms within the scope of product regulations enforcement, it is manufacturers, importers and fulfilment service providers – such as warehousing companies – that will remain primarily responsible for preventing unsafe, defective or otherwise non-compliant products from reaching consumers in the EU, and acting when they do.

The MSR in brief

The MSR aims to “complement and strengthen” a suite of existing EU product legislation that seeks to ensure products reaching consumers via the EU single market for goods are safe to use and meet quality standards. It applies to products sold both online and offline.

The MSR amends existing market surveillance regimes relating to the marketing of products and applicable to construction products specifically. It does not fundamentally alter the legal obligations that businesses subject to product regulations already face, but instead enhances the powers of national authorities to enforce those regulations and seeks to ensure those authorities work more closely together.

Finn Michael_Nov 2019

Michael Finn

Partner

All economic operators in the supply chain now face legal obligations to cooperate with market surveillance authorities regarding corrective actions that could eliminate or mitigate risks presented by products they contributed to make available on the EU market

As part of that drive, the MSR promotes the creation of a database for national market surveillance authorities (MSAs) to share compliance data with each other. This is designed to promote cross-border cooperation and transparency and provide a framework for controls on products entering the EU market, with a view to enabling the removal of non-compliant products from the EU market.

To help stop the sale of non-compliant products to EU consumers, the MSR brings online platforms within the umbrella of the EU’s products regulations for the first time. Studies have shown that platforms are being used by businesses based outside of the EU to sell products direct to EU consumers that do not conform to the product regulations.

Not all products are subject to the MSR. The MSR applies to products subject to at least one of 70 EU product laws, all of which are listed under Annex I of the Regulation, unless there are more specific provisions with the same objective in other EU legislation “which regulate in a more specific manner particular aspects of market surveillance and enforcement”.

The scope of the MSR

The MSR applies to all economic operators in the supply chain and outlines general compliance obligations. Economic operators “should be expected to act responsibly and in full accordance with the legal requirements applicable when placing or making products available on the market” to ensure compliance with the EU’s harmonised laws on products.

The Regulation defines “economic operator” broadly as “the manufacturer, the authorised representative, the importer, the distributor, the fulfilment service provider or any other natural or legal person who is subject to obligations in relation to the manufacture of products, making them available on the market or putting them not service in accordance with the relevant Union harmonisation legislation”.

The requirements of the MSR sit alongside, but do not override, any obligations economic operators are subject to in the supply and distribution process under specific EU product laws, and the manufacturer should retain ultimate responsibility for compliance.

Obligations and powers under the MSR

The MSR obliges all economic operators to cooperate with market surveillance authorities in eliminating or mitigating risks presented by products that they have made available on the market.

Additionally, Article 4 of the MSR expressly prohibits 18 specific categories of products from being placed on the EU market unless an economic operator is established in the EU. These include but are not limited to, construction products, toys, PPE, high voltage electrical equipment and machinery.

Article 4 provides for a cascade of responsibility, so if the manufacturer is established in the EU the manufacturer itself is liable for the product, but if they are not established in the EU the importer is liable for product regulation compliance unless the manufacturer has appointed an authorised representative in its stead. Where neither the manufacturer, importer nor authorised representative are established in the EU, the fulfilment service provider will be liable.

The fulfilment service provider is defined as “any natural or legal person offering, in the course of commercial activity, at least two of the following services: warehousing, packaging, addressing and dispatching, without having ownership of the products involved […]” excluding certain postal and parcel delivery service providers. The economic operator assuming the responsibilities for the obligations set out in the MSR must be established in an EU member state.

By introducing the fulfilment service provider to the spectrum of economic operators, the EU hopes to combat the current status quo where often there is no party within the EU responsible for compliance of consumer products sold online. However, the in-scope activities of the fulfilment service provider are rather unclear. It remains unclear what “warehousing, packaging, addressing and dispatching” precisely are; and the defined excluded services of postal and parcel delivery, including any other postal services or freight transport services, will undoubtedly overlap with the in-scope activities. This will remain an uncertainty until either the Commission publishes guidance documentation, or the first cases are brought to court.

Wouter Seinen

Wouter Seinen

Partner, Head of Amsterdam Office

By introducing the fulfilment service provider to the spectrum of economic operators, the EU hopes to combat the current status quo where often there is no party within the EU responsible for compliance of consumer products sold online. However, the in-scope activities of the fulfilment service provider are rather unclear

The MSR requires each EU member state to designate at least one market surveillance authority (MSA) in its territory responsible for the organisation of market surveillance and enforcement. MSAs have powers, under the MSR, to carry out documentary checks and unannounced on-site inspections, among other things, to ensure conformity with EU product laws. In deciding on which checks to perform and on which particular products, MSAs are permitted to take into account an economic operator’s past record of non-compliance.

If the MSA finds a product may affect the health and safety of consumers, it is authorised to require the economic operator to take appropriate and proportionate corrective measures, such as bringing the product into compliance, prohibiting or restricting the making available of the product on the market, ordering the withdrawal or the recall of the product, and destroying the product or rendering it otherwise inoperable.

The MSR provides for the establishment of the Union Product Compliance Network, which is intended to serve as “a platform for structured coordination and cooperation between enforcement authorities of the member states and the [European] Commission, and to streamline the practices of market surveillance within the Union”, helping to make market surveillance more effective.

The Network will be composed of representatives from each EU country and will be responsible for the cross-border cooperation of authorities and for setting up of a database to centralise all enforcement data from across the EU as well as improved verification of compliance data and identification of high-risk products. The database will contain information on product testing, enforcement and remediation actions, market surveillance data and any information on shared initiatives.

Steps towards compliance

Companies operating or wanting to operate in the EU should review the MSR and audit their current product portfolio to see whether they are currently in compliance with product regulations. The MSR will give extra weight to how the existing product laws are enforced, so a review of business activities and product portfolios would be prudent.

Providing a manufacturer is not directly supplying consumers, for example via online platforms, the MSR is more likely to pose an issue for importers of products into the EU. However, businesses should take steps to ensure that the importers or their authorised representatives understand they are the responsible person for compliance. The authorised representative can be established in any EU member state and will be liable for regulatory enforcement and fines and penalties as well as possible civil claims.