EU Product Regulation Round-Up: Autumn 2023

On 9 June 2023, the EU published the Deforestation Regulation (EU) 2023/1115^[1] requiring companies placing on the EU market, or exporting from the EU, specific commodities including soy, coffee, cattle, wood, and even finalised products such as chocolate and tyres, to conduct due diligence to show that such products are both 'deforestation free' and have been produced in compliance with the laws of the country of origin.

The Regulation places positive obligations on the 'operator' (the entity placing the product on the EU market or exporting them from the EU) and 'traders' (those making goods available who do not qualify as operators), albeit the requirements for the two differ slightly. Operators' due diligence obligations include the collection of information, risk assessment and risk mitigation, all to be conducted prior to placing the product on the market.

The extent of the due diligence information gathering exercise is significant. The due diligence statement must include, in summary:

• description including trade name and type of product, details of commodities or other products contained in or used to make the product in question;
  
  
• quantity of products in kg of net mass;

• country of production and, where relevant, parts thereof;
  
  
• the exact geolocation of the plots of land where the commodities were produced and the time or date range, with products composed of commodities produced on different plots of land needing to disclose all geolocations;
  
  
• details of the operator's suppliers
  
  
• details of the operator's downstream commercial customers;
  
  
• "adequately conclusive and verifiable" information that products are deforestation-free and have been produced in accordance with local law.

All of the above information is disclosable to competent authorities on request. Any finding of deforestation or forest degradation automatically disqualifies the product from being placed on the market. In order to be compliant with the Regulation and able to be sold in the EU, the follow-on risk assessment must conclude that no or only negligible risk exists that relevant products are non-compliant. The risk assessment itself is holistic and requires consideration not only of the findings of the due diligence exercise but a range of external information sources as well. It must be refreshed at least annually.

Where companies fail to complete satisfactory due diligence, the relevant authority may take corrective measures including the prevention of sale, product withdrawal, requiring the company to donate to charities or public interest entities, or the imposition of financial sanctions. The latter financial penalties are to be determined by Member States' national implementing legislation, but the Regulation specifies that the maximum financial penalty should be not less than 4% of the offending operator or trader's EU-wide turnover in the last financial year, increasing "to exceed the potential economic benefit gained".

Third parties will also be able to file concerns to authorities, which Client Earth has highlighted provides the public with the ability to challenge authorities' handling of concerns in court.

The new Regulation aligns with the EU's shift towards positive due diligence obligations, as reflected in the anticipated Corporate Sustainability Due Diligence Directive ("CS3D"), and how both businesses and regulators adapt to this new type of obligation will be a critical precursor to the broad-brush requirements to be introduced by CS3D (see our briefing). The Financial Times has reported that the potential impacts of the Deforestation Regulation on small overseas producers of in-scope commodities is already causing disruption in trade negotiations between the EU and both Malaysia and Indonesia, both important sources of imported palm oil.

The Regulation entered into force on 29 June 2023. However the key obligations apply from 30 December 2024, with micro- or small undertakings (as defined in the Accounting Directive) having a further 6 months to comply.

The General Product Safety Regulation (EU) 2023/988 ("GPSR")^[2] was published on 23 May 2023, updating and replacing the two-decades old General Product Safety Directive ("GPSD") (and the Food Imitation Safety Directive) in order to bring it into alignment with recent technological advancements and ensure the ongoing safety of consumer products. The core requirements of the GPSR are not far removed from those of the GPSD, including the overarching obligation to only place safe products on the market, the presumption of conformity for products compliant with European standards, and requirements for technical documentation and labelling. As with the GPSD, the GPSR applies to the extent that its requirements are not more precisely covered by product-specific legislation, such as the Restriction of Hazardous Substances Directive ("RoHS") or the Low Voltage Directive.

A strong theme of the new GPSR is that there should be no option for economic operators to "sell and forget" – many of its provisions are aimed at ensuring that manufacturers in particular are taking a proactive role in responding to and preventing harms from unsafe products, without necessarily waiting for regulators to intervene.

The GPSR is also novel in many respects. Some of the noteworthy points for manufacturers and importers are as follow:  

Products not covered by more specific legislation

As noted, the GPSR applies to all products to the extent that its requirements are not more specifically laid down in other legislation. For types of products not subject to more specific regulation, so-called "non-harmonised" products, the previous GPSD required adherence to the general safety principle but imposed few administrative steps as are commonly found in harmonised product rules. Under the GPSR, manufacturers of these non-harmonised products must now carry out a risk assessment and on the basis of it, prepare technical documentation for the product. This must include a description of the product and its essential characteristics relevant for assessing its safety, and where appropriate, must also include a more detailed analysis of the risks and risk mitigation measures, and list any European standards applied to meet the general safety requirement.

Responsible Persons

Under the GPSR, no products may be placed on the EU market unless there is an economic operator established in the EU who takes responsibility for certain conformity tasks – this may be the manufacturer, importer, distributor or fulfilment service provider, or could be an EU person appointed by a non-EU entity (a "Responsible Person"). This requirement aims to ensure that all products coming into the EU from third countries, including via online sales, align with the necessary safety requirements and provides national regulators with an accessible target for enforcement action. However, this could provide significant additional costs for those businesses wishing to sell into the EU which do not have a European subsidiary to act as a Responsible Person.

Obligations of Manufacturers

Economic operators who manufacture a product, or have a product designed or manufactured and place a product on the market under their own name or trademark, will be considered to be "manufacturers" and assume a number of primary obligations regarding safety of the product. Health risks of a product now includes risks to mental health stemming from digitally connected products, particular in respect of children.

Manufacturers must keep distributors, importers and, importantly, online marketplaces in the supply chain informed of any identified safety issues. This may not always be straightforward, where manufacturers may lack full sight of where precisely their products are being sold. In the longer term, new sustainability due diligence requirements should ensure transparency in supply chains facilitating easier distribution of safety information.

Online Marketplaces

The use of online marketplaces has grown substantially since the GPSD's enactment in 2001. As a result, the GPSR introduces new rules around these marketplaces to better protect customers.

A provider of an online marketplace is defined in the GPSR as "a provider of an intermediary service using an online interface which allows consumers to conclude distance contracts with traders for the sale of products," a definition which could include, for example, eBay, Amazon and Facebook.

Article 22 of the GPSR lists the specific obligations for online marketplaces in relation to product safety. The primary obligation on online marketplaces is to establish a single contact point which allows for direct communication between the marketplace and the consumer, as well as with the relevant Member States' market surveillance authorities in relation to product safety issues. Market surveillance authorities will be able to issue orders requiring online marketplaces to remove dangerous products from their platforms, to disable access to such offers or display warnings. Online marketplaces will have just a few days to act upon any orders by market surveillance authorities and inform the authority once complete.

Despite these added obligations specific to them, online marketplaces may find themselves in the unenviable position of playing more than one role under the GPSR. For example, the provider of an online marketplace which directly ships products could also be regarded as a distributor or a fulfilment service provider under GPSR, or if selling its own branded products, may be a manufacturer in respect of those products. As each economic actor bears slightly different obligations, online marketplaces may find compliance particularly challenging.

Accidents

Consumers must also have a communication channel via which they can inform manufacturers (and importers) of accidents or safety issues they have experienced with products. Manufacturers (and importers) are required to investigate submitted complaints and information on accidents; given the unfiltered nature of communications, it may be that this imposes a significant new compliance burden. Economic operators must, on request of market surveillance authorities, provide details of complaints and accidents.

Recalls

The GPSR also introduces specific requirements for product recall notices, making them more user friendly, and including a consumer right to remedy for unsafe products that have been recalled, through repair, replacement, or refund. This is a marked improvement to the previous situation whereby organisations often solely placed recall announcements on their websites which did not guarantee that affected customers would become aware of them.

The GSPR requires providers of online marketplaces to notify - directly and without undue delay - all affected customers that can be identified that a product recall or safety warning has been issued. Where it is not possible to directly contact all affected customers, recall notices or safety warnings should be disseminated as widely as possible through means such as social media, the company's website and retail outlets.

The GPSR entered into force on 12 June 2023 and will apply from 13 December 2024. It will not prevent the sale or use of products which are in conformity with the GPSD and were placed on the market before 13 December 2024.

The EU Commission announced plans for the 'Critical Raw Materials Act' in March 2023: a "comprehensive set of actions" designed to ensure access to a secure and sustainable supply of critical raw materials. The proposal forms part of the Green Deal Industrial Plan, adopted in February 2023, which aims to create a regulatory environment which supports the net-zero transition. Though at first glimpse not obviously burdensome for most businesses, the draft Regulation contains both supply chain due diligence obligations for the largest manufacturers, and a labelling and recyclability obligation for certain products containing permanent magnets (including household appliances and electric motors).

The draft Regulation is accompanied by a Communication which outlines how the EU intends to partner with third countries and increase global engagement in the development and diversification of sources of raw materials, in order to ensure that critical raw material supply chains are resilient, secure and affordable, whilst also being sustainable.

The five objectives of the Regulation are as follows:

1. Setting clear priorities for action The Regulation sets targets for internal extraction, processing and recycling capacity within the EU along the supply chain of identified strategic raw materials. The EU aspires to meet 10% of annual consumption for extraction, 40% of the annual consumption for processing and 15% of annual consumption for recycling from within its borders. The proposal further states that not more than 65% of each strategic raw material at each relevant stage of processing should be from a single third country, highlighting an awareness that EU supply should be diversified in order to be secure.
   
   
2. Creating secure and resilient EU critical raw materials supply chains Administrative processes and procedures surrounding critical raw materials should be simplified in order to expedite 'Strategic Projects', which will be eligible for access to finance and shorter permitting timeframes, encouraging investment in extraction, processing or recycling of critical raw materials.
   
   
3. Ensuring that the EU can mitigate supply risks To ensure the resilience of supply chains, monitoring and co-ordination of critical raw material stocks will be mandated. Importantly, it is expected that monitoring of supply chains will be undertaken at company level. "Large companies" (those with more than 500 employees and net worldwide turnover of over EUR150m) manufacturing strategic technologies (e.g. energy storage, EV batteries, renewable energy generation equipment, data transmission and storage equipment, etc.) using strategic raw materials must audit their supply chain every 2 years, map where the materials are extracted, processed or recycled, stress test the supply chain, and produce a report for their board of directors.
   
   
4. Investing in research, innovation and skills To strengthen the uptake and deployment of breakthrough technologies in critical raw materials, the Commission has proposed a 'Raw Materials Academy' and a 'Global Gateway' to assist partner countries develop their own extraction and processing capacities.
   
   
5. Protecting the environment by improving circularity and sustainability of critical raw materials Reducing demand for critical raw materials via increased collection and recycling of critical raw materials is a key aspect of securing supply chains. In particular, the draft Regulation requires that products containing permanent magnets (including certain household appliances) meet circularity requirements and specify recyclability and recycled content on labels. Member States will also be obliged to investigate waste from current and historic mining sites.

Critics have queried how increasing access to, and encouraging the extraction of, raw materials can be aligned with EU regulation designed to protect natural habitats. Protests in Portugal over the granting of six new mining permits in recent years highlight that, even if the EU relaxes permitting rules, breaking ground on new projects may still not be straightforward.

The Regulation, once final, will come into force without any delay. The new labelling requirements for products containing permanent magnets are expected to apply 3 years after the Regulation's entry into force. The European Parliament adopted its position on the proposal in September; notably its position softened the requirements on companies to audit their supply chains, so where the Council comes out on this particular aspect will be interesting to see. The current timetable for final adoption is not clear.

Both the EU Parliament and the EU Council have now adopted their positions on a new Regulation for Ecodesign for Sustainable Products, first proposed by the Commission in March 2022. The proposal will repeal the existing Ecodesign Directive, enacted in 2009 which predates more recent trends such as an emphasis on the circular economy, the exponential growth in online shopping and the rise of the conscious consumer.

The new framework Regulation will expand the types of products in scope compared to previous regulations so that almost all goods placed on the EU market could become subject to sustainability requirements across their lifecycle (only excluding food, feed, medicine and veterinary products and motor vehicles). This is in contrast to the position to date, where ecodesign requirements have been applied to only a subset of particularly energy- or resource-hungry products. In common with the existing directive, sustainability requirements will be enacted by way of delegated acts for specific product groups. The European Parliament's position sets priority product groups, including iron, steel, aluminium, textiles, furniture, paints, chemicals and ICT equipment.

The Regulation aims to not only ensure products are energy and resource efficient, as covered in the previous ecodesign directive, but also that they are durable, reliable, reusable, upgradable, repairable, recyclable and easier to maintain. The Regulation also establishes a framework to prohibit the destruction of certain unsold consumer products (including returns) and creates a reporting obligation for organisations to publicly declare the number of unsold consumer products discarded per year and the reason for it. Where destruction of unsold goods of specific product types may have significant environmental impact, the Commission may prohibit such destruction via a delegated act. Certain fast moving consumer goods are clear targets for this type of prohibition, such as textiles but more broadly, manufacturers who declare large amounts of destroyed products can expect scrutiny from a range of stakeholders including NGOs and consumers. Businesses should also ensure that their environmental claims and green credentials are not undermined by their approach to unsold products, given that to date that type of information has not been commonly disclosed. The Parliament's position goes further and introduces a direct ban on the destruction of unsold consumer textiles, footwear and electrical and electronic equipment, one year after the entry into force of the Regulation (not immediately applicable to SMEs).

In addition, the Regulation proposes a requirement for companies to obtain a 'Digital Product Passport' for each of their products in order to move them around the single market. The passport will provide both sustainability and safety information, as well as details required for product export/import, and aims to ensure that products are traceable along the value chain. The passport will be fully accessible by consumers, regulators and other economic operators within and outside of the product's supply chain.  

The draft Regulation still needs to be agreed between the institutions, which could happen before the end of 2023. Given its nature as a framework, the real compliance challenge for manufacturers and importers will come when the Commission begins to adopt delegated acts containing sustainability requirements for specific product groups.

On 28 July 2023, the new Batteries Regulation (EU) 2023/1542 was published, which will gradually replace the existing 2006 Directive between February 2024 and August 2025 (though certain provisions will remain in force until February 2027). The Regulation reflects a more holistic approach to these products which may have significant impacts across their lifecycle. The Regulation sets out requirements for enhanced repairability of battery-containing devices (batteries must be removable), more stringent waste collection targets both generally and in terms of recovered materials, minimum recycled content, and significantly enhanced information requirements.

The Regulation will apply to all categories of batteries, including electric vehicle batteries, and to products containing batteries. In order to be placed on the EU market, including via online sales, batteries must meet sustainability, safety, labelling and information requirements. The Regulation also contains a sweeper clause that prohibits batteries from entering the market if they present a risk to human health, the safety of persons, property or the environment, even where the batteries are compliant with the specific requirements of the Regulation.

Due diligence for the battery value chain

A key novelty of the Regulation compared with the previous Batteries Directive is a new obligation on large battery producers to adopt and implement a battery due diligence policy, addressing a broad spectrum of social and environmental (including climate) risks. Producers are expected to draw on international regimes such as the OECD Guidelines for Responsible Business Conduct and UN Guiding Principles. Due diligence policies must be third-party verified and periodically audited, and must be overseen within the organisation by "top management level". It is envisaged that national, industry association or groups of interested organisations will develop and oversee battery due diligence schemes over time, which can be recognised as equivalent by the Commission in consultation with the OECD Centre for Responsible Business Conduct. Similar to a waste-focused compliance scheme, these schemes allow producers to effectively outsource fulfilment of the due diligence requirements for a fee. Nonetheless, the due diligence obligation is likely to be a significant burden for batteries producers, including those marketing products containing batteries who are even further removed from the impacts that they are responsible for assessing, preventing and mitigating. Interaction between the due diligence requirements in the Batteries Regulation and those set to be introduced by the EU's draft Corporate Sustainability Due Diligence Directive ("CS3D") may present an additional challenge; the latter will still apply to batteries, to the extent that the obligation in question is not more specifically addressed by the Batteries Regulation. This could mean, for example, that batteries producers could still be subject to civil liability for damage arising from due diligence failures if this forms part of the final package under CS3D.

EPR for batteries

The Batteries Regulation increases waste collection targets across the various battery types. It also introduces full extended producer responsibility for batteries, with the aim that financial contributions by a producer should cover all costs for the products it places on the market, relating to separate collection, transport and treatment, provision of information and data gathering. Producers who sell batteries via direct distance sales (eg. online) will need to have an authorised representative for EPR in each Member State in which it sells batteries, whether itself established in the EU or a third country. This represents a departure from the "one-stop-shop" system of a single EU registration as previously found in producer responsibility regulations.

Enhanced product information requirements

Electric vehicle batteries, rechargeable industrial batteries with a capacity above 2 kWh and batteries for light means of transport will need to declare their carbon footprint in a manner to be determined by further implementing acts, but the declaration will include at least information about the manufacturer, the battery including the location of its manufacturing plant, carbon footprint per kWh and additionally, carbon footprint differentiated by life cycle stage as further explained in the Annex to the Regulation. This is likely to be challenging not just on a technical level but also requires a battery manufacturer to have a detailed knowledge of its value chain from mining of the raw materials to recycling of the battery, which should be aided by the new due diligence obligations as described above. Carbon footprint requirements are phased in over several years, with electric vehicle batteries needing to comply first, as of February 2025. Eventually the information must be available through a unique QR code normally printed or engraved on the battery, which will also give access to the product's "Digital Passport", containing a wealth of safety and environmental information for battery users and handlers.

What next?

The Regulation will apply from 18 February 2024, 6 months from its entry into force on 17 August 2023, though many requirements will be phased in over a longer period.

In February 2023, the European Chemicals Agency ("ECHA") published a proposal for a restriction under the REACH Regulation of 10,000 per-and polyfluoroalkyl substances ("PFAS"). The proposal would effectively introduce a blanket ban on the production and use of these so-called "forever chemicals", which do not break down easily and are known to cause soil and water contamination and potential harmful effects on human health. In the announcement, the ECHA highlighted that 4.4 million tonnes of PFAS would end up in the environment over the next 30 years unless action is taken.

The ban, if enacted, will have a significant impact for EU companies directly, but equally for non-EU companies whose supply chains will be disrupted if they wish to continue using the products (though this will foreclose access to the EU market). Furthermore, the extent of the impact should not be underestimated given the extremely broad application of PFAS; the ECHA notes the "ubiquitous" presence of PFAS across industries and products. All manufacturers would be well advised to identify use of PFAS in their products and consider what a transition away from the substances might look like.

The current proposal suggests two options for the ban:

·       Option 1 – a full ban on all 10,000 PFAS after an 18-month transition period; or

·       Option 2 – a phased ban with specific time-restricted derogated options applying for particular uses, for either five or twelve years after an 18-month transition period. The five-year derogation period would apply for products where alternatives to PFAS have already been identified but remain under development and/or are not available in sufficient quantities. The twelve-year derogation would apply where there are no alternatives at present. This second option is currently preferred by Member States who put forward the proposal.

A six-month consultation was opened on 22 March 2023 with comments and submissions to be submitted by 30 September 2023. The consultation includes information requests (among other things) for PFAS use cases and the availability of alternatives and transition options. Where no alternatives are currently available or where substitution is not technically or economically feasible, industry was encouraged to submit comments so that the use can be considered under the potential derogations list.

Though not comparable to the scale of the EU proposals, the UK's Health and Safety Executive has also recently considered the environmental and health impacts of PFAS, and further limited restrictions on use in certain products can be expected to follow. 

The second option detailed above is considered the preferred option by the Member States who put forward the proposal to the ECHA. Given that the ECHA received over 5000 comments in response to the consultation, we do not expect the final legislation to be imminent.

While the proposed ban on PFAS is one of a long series of amendments to the REACH Regulation, the chemicals industry and those reliant on it may be collectively breathing a sigh of relief at recent reports that the planned major overhaul of the REACH Regulation is in fact unlikely to proceed, at least in the short term. Though envisaged by the Commission's 2020 Chemicals Strategy for Sustainability, delays in the REACH review are thought to be a concession to the chemicals industry which has struggled with rising energy costs and a heavy regulatory burden.

As previously set out in our article, in September 2022 the EU proposed a new Regulation to combat the use of forced labour in the production of goods.

The draft Regulation is very broadly drafted, covering all products that can form the subject of a commercial transaction. No economic operator will be permitted to place on the EU market or make available products made with forced labour.

Though there is not an explicit requirement to conduct due diligence on supply chains, in practice due diligence would be required in order for the economic operator to avoid an investigation and ultimately a penalty by regulators. There is no required standard for due diligence, though the Commission will issue guidance to assist businesses. There are also references to international standards on due diligence, notably from the OECD which has recently updated its Guidelines for Responsible Business Conduct (previously, Guidelines for Multinational Enterprises), as summarised in our briefing. Member State authorities would have powers to investigate products and businesses where there are indications of forced labour in the supply chain.

The draft Forced Labour Regulation has been criticised by stakeholders for not focusing sufficiently on the victim's rights to remediation, particularly where the victims are not located within the EU. On 28 April 2023, the European Parliament published a briefing highlighting this and identifying that there was a need to strengthen routes for remediation. However this may be practically very difficult; in particular, it is not clear how responsibility for remediation would be allocated between economic operators in the value chain. Furthermore, effective cooperation and communication will be required between, on the one hand, national authorities responsible for ensuring due diligence takes place, and, on the other hand, those responsible for preventing products entering the market where it has not.

The proposal is closely tied to the draft Corporate Sustainability Due Diligence Directive which is currently progressing through the European institutions (potentially to be adopted in late 2023 or early 2024). One of the key aspects for further development of the draft forced labour products Regulation is avoiding duplication with the CS3D.

The draft Regulation remains at an early stage. Once in force, companies are expected to have two years to comply.

Though the UK's post-Brexit legislation is often following fairly closely in the footsteps of the EU, the UK has yet to propose any really original, eye-catching regulations along the lines of those outlined above.

With that said, the UK appears to be, after many years of discussion, finally embracing extended producer responsibility ("EPR"). This is thanks to provisions in the Environment Act 2021 which gave the Government new rights to impose producer responsibility obligations and to require producers to take direct responsibility for disposal costs.

Packaging legislation is long-established and relatively uncontroversial, so a natural starting point for the roll-out of EPR. The Producer Responsibility Obligations (Packaging Waste) (Amendment) Regulations 2022 make changes to the existing 2007 Regulations, increasing recycling targets. More significantly, the new Packaging Waste (Data Reporting) (England) Regulations 2023 require producers to collect data on packaging they supply and in some instances to report it to the Environment Agency (every 6 months), with the aim of fully allocating responsibility for volumes of packaging placed on the market. The new reporting system is already live.

Producers under the Regulations include brand owners, packer/fillers, importers, distributors and packaging sellers, but also online marketplaces (facilitating sales by non-UK suppliers) and service providers (supplying reusable packaging). Small producers (with turnover of £1m - £2m and supplying or importing 25 - 50 tonnes of empty packaging or packaged goods in the UK), online marketplace operators and large producers are subject to similar but progressively more demanding requirements to collect, retain and, for large producers, report data. As with the established packaging regulations, producers can meet their obligations by joining a compliance scheme. Although no fees have yet been published, the Government has said that the scheme administrator will use reported data to calculate a fee based on household packaging and packaging that commonly ends up in public bins.

Though packaging EPR was expected to be fully effective as of 1 January 2024, the Government has now confirmed that it will be delayed following aggressive lobbying. Industry was unhappy with various aspects of the proposed scheme, notably uncertain costs, a system that is "not fit for purpose" and local authorities "not yet equipped" to handle materials that producers would be paying to recycle. The deadlines for reporting as laid out in the regulations have not been changed (large organisations should have submitted their first report by 1 October), but the Government has confirmed that no enforcement action will be taken provided data is submitted by 31 May 2024. EPR fees are not now expected to apply until October 2025.

In combination with the Plastic Packaging Tax, which the Government has recently said will now be enforced in full after something of a "soft launch", producers will have strong incentives to reduce the amount of packaging they use for products. Producers taking their obligations seriously must hope that the Environment Agency will in turn take its enforcement role seriously once EPR is fully implemented – the overall "waste fee" (estimates range from £1.2 bn to £1.7 bn) owed to local authorities in respect of costs for disposing of household-type waste will be divided amongst those reporting data, with non- or under-reporting companies driving up costs for the rest of the market.