Withdrawal Symptoms: The UK Has Adopted an EC Directive That Imposes Tough Sanctions on Companies Marketing Products in the European Union That Fail to Meet Safety Standards. Neil Hodge Examines the New Rules and Considers the Implications for Manufacturers and Distributors
Hodge, Neil, Financial Management (UK)
It's every manufacturer's worst nightmare: the product that your company has spent millions of pounds developing, producing, marketing and shipping around the world may have a serious fault. There's a risk that some of the products--maybe a few, maybe most--could be harmful. You face a stark choice: take the goods off the shelves voluntarily and ask customers to return items for an immediate refund or wait until the authorities compel you to do so, publicising potentially sensitive commercial information in the process.
Either way, the costs can easily escalate into tens of millions of pounds and leave your business reeling. In the summer of 2001 the Ford Motor Company's former chief executive, Jacques Nasser, testified before US Congress about the safety of its sports utility vehicle, the Ford Explorer. The hearings took place soon after the US National Highway Traffic Safety Administration announced that more than 200 people had been killed in crashes involving Explorers fitted with Firestone tyres. The hearings were an expensive damage-limitation exercise for the company. Ford replaced around 13 million tyres at a rumoured cost of $3bn (1.7bn [pounds sterling]). After a lengthy dispute over which company was responsible for the accidents, the tyre-maker paid Ford $240m in an out-of-court settlement in October 2005. But a number of lawsuits against both companies are still pending.
Until recently, companies in the UK were not legally obliged to trace dangerous goods and retrieve them from distributors, shops and customers directly. But the General Product Safety Regulations 2005, which came into force on October 1, now compel them to conduct a full withdrawal of any line of products that is deemed to be unsafe.
Most other member states implemented the general product safety directive, which the European Commission issued in 2001, into their domestic laws two years ago. Among other things, it obliges governments to impose new duties on producers and distributors of dangerous goods backed up with "effective, persuasive and proportionate penalties" and to ensure that national enforcement agencies have the necessary powers to protect the public from unsafe products.
The legislation also allows the European Commission to publicise commercially sensitive information on dangerous goods across the European Economic Area (the 25 European Union members states plus Norway, Iceland and Liechtenstein) if it believes that it's necessary to do so.
When the UK government announced in July 2005 that it would at last be adopting the directive, Gerry Sutcliffe, undersecretary of state for consumer affairs, said: "UK manufacturers and distributors are very good at recalling products. But, by giving enforcement agencies new recall powers, we are ensuring that the UK remains a safe place for consumers."
He added that companies which placed unsafe goods on the market, or which failed to act when required to by a trading standards authority, could face fines and their directors could be jailed (see panel, below).
THE GENERAL PRODUCT SAFETY REGULATIONS 2005: KEY FACTS * The regulations apply to new and second-hand consumer goods, except new products that are covered by specific European safety laws. * Products covered include (but are not restricted to) clothing, medicines, agricultural and horticultural products, DIY equipment, comestible goods, household products and motor vehicles. * The regulations place a general duty on all suppliers of consumer goods to supply products that are safe in normal or reasonably foreseeable use. "Safe" takes into account factors such as the product's characteristics, instructions and warnings, and the categories of consumers at serious risk when using the product, particularly children. Relevant UK or European standards can be taken into account in assessing the safety of a product. * Local authority trading standards departments have responsibility for the day-to-day enforcement of the regulations. …