EU Market Surveillance Regulation reshapes European product legislation

As of 16 July 2021, market surveillance by authorities for non-food products will be fully harmonised in Europe. The new European Market Surveillance Regulation (EU) 2019/1020 (“MSR”) comprehensively regulates the procedure of Member State authorities for enforcing harmonised European product legislation for almost all non-food products in Europe. With the modern legislative instrument of the European regulation and broad scope covering more than 70 product-related harmonisation acts, the European legislator has eliminated previously existing national discretion in the structuring of market surveillance and intensified the controls on economic operators.

The new European MSR is also a statement for robust, efficient and sustainable and cross-border surveillance of the distribution of goods in Europe in terms of its content. With the introduction of a new economic actor (referred to as a “fulfilment service provider”), the expansion of the central definition of “making available on the market” as well as the partly massive expansion of official powers to intervene, especially with regard to the now established business models used in e-commerce, the power of authorities to take action against the companies involved is significantly strengthened.

Due to comprehensive harmonisation of market surveillance by means of a European regulation, the rules on market surveillance previously laid down in Germany in the German Product Safety Act will become obsolete on 16 July 2021. The German legislator has taken this as an opportunity not only to simplify the German Product Safety Act by adding the regulations on market surveillance, but also to transfer the rules on installations requiring surveillance that were previously regulated there into a separate law (German Installations Monitoring Act). In order to extend the requirements of the MSR to the few products that have not yet been harmonised at European level, a new German Market Surveillance Act will come into force in Germany on 16 July 2021.

The legal regime of official surveillance of non-food products in Europe is thus fundamentally changing and further diminishing the practical significance of the purely German Product Safety Act for economic actors.

There are many consequences for trade and industry:

A. EU Market Surveillance Regulation

The new European Market Surveillance Regulation creates a harmonised framework for product compliance controls. This new legal framework applies to all non-food products that fall within the scope of the total of 70(!) European legal acts listed in Annex I of the MSR. The Regulation’s scope thus extends to almost all relevant product groups.

The expansion of the authorities’ powers is expressly aimed at stricter and more efficient surveillance of online trade. The introduction of the fulfilment service provider as a new economic operator and addressee of official market surveillance measures (Article 3(11) MSR), the expansion of the term “making available” to include online sales offers (Article 6 MSR) and the power of the authorities to also take action against purely online platform operators in the future and, if necessary, even to restrict access to these platforms, provides the competent authorities with the tools they need for effective control of e-commerce – especially in the interest of competition-neutral enforcement in comparison with brick-and-mortar retail.

However, the expansion of the authorities’ powers goes far beyond online retail. The European legislator has learned from the enforcement experience of the authorities in recent decades. Numerous detailed specifications and extensions of the previously known powers of the authorities will enable the authorities to make market surveillance much stricter in the future:

• A large number of consumer and industrial products will only be able to be distributed in Europe according to the provisions of Article 4 of the MSR if there is a verifiable person established in the European Economic Area who performs clearly defined tasks in connection with product distribution (e.g. fulfilling official notification obligations and keeping technical documents available).
  
  
• In future, market surveillance authorities may expressly acquire product samples under a cover identity, check the conformity of products by means of reverse engineering or demand access to embedded software (Article 14 MSR). Economic operators must cooperate with the authorities to the extent necessary.
  
  
• Authorised representatives of a manufacturer must fully disclose their mandate to the national authorities and perform a number of clearly defined tasks (Article 5 in conjunction with Article 4(3) MSR).
  
  
• In future, the activities of the market surveillance authorities must be carried out according to a risk-based approach (Article 11(3) MSR). When selecting the products to be checked, particular consideration must also be given to whether an economic operator has already attracted attention in the past due to infringements of the requirements of product compliance.
  
  
• In future, the authorities of the Member States must develop market surveillance strategies according to uniform European standards (Article 13 MSR), are obliged to provide cross-border cooperation and effective mutual assistance (Article 22 MSR) and must undergo regular evaluations by other authorities (peer reviews) (Article 12 MSR).
  
  
• In future, the market surveillance authorities of other Member States will be able to follow the sales bans imposed in one Member State without having to conduct further investigations of their own, which will lead to an increased “domino effect” if a product becomes the focus of market surveillance in one Member State.

However, the new European legal framework in Article 21 MSR also means uniform procedural rights for economic operators throughout Europe, which some people concerned may have felt were lacking in the past when dealing with complaints from foreign authorities. Article 19(2) MSR clarifies across all product segments that risk assessments conducted by authorities, which are the basis for orders to prohibit distribution, withdraw or recall products, must necessarily take into account the likelihood of damage occurring. The sometimes seemingly audacious special approaches of individual national enforcement authorities (as previously known, for example, in connection with the risk assessment of construction products) are thus being ended under European law in the interest of economic actors.

B. The new German Market Surveillance Act

Products that do not fall within the scope of one of the 70 EU harmonisation acts (referred to as the non-harmonised area”) will continue to be subject to the national administrative rights of the Member States in terms of market surveillance legislation. In order to avoid the coexistence of market surveillance provisions for harmonised products in the MSR and non-harmonised products in the German Product Safety Act, the German legislator has decided to integrate these two areas by creating a new German Market Surveillance Act. The new German Market Surveillance Act essentially achieves this through corresponding references to the regulations of the European MSR.

C. Recasting of the German Product Safety Act

Due to the market surveillance provisions being moved from the German Product Safety Act to the German Market Surveillance Act (namely sections 6 “Market surveillance” and 7 “Information and notification obligations”), the German Product Safety Act has become significantly leaner. In the course of this, the German legislator has finally taken the opportunity after years to transfer the stand-alone section 9 “Installations requiring surveillance” into a separate law on installations requiring surveillance (German Installations Monitoring Act). The addressee of the regulations previously laid down in sections 34 onwards of the German Product Safety Act are exclusively addressed to the operators of these systems, which is why putting these regulations in the German Product Safety Act always appeared illogical and could only be explained historically.

With the provisions on market surveillance, the recast German Product Safety Act loses a large part of its practical significance for economic operators. In future, it will primarily serve legal purposes. Apart from the remaining rules concerning the German GS (tested safety) mark, which have been slightly adapted by the recast, it remains important for the implementation of product-related EC Internal Market Directives and the general Product Safety Directive 2001/95/EC, the definition of safety requirements for the non-harmonised area and various authorisations to issue regulations.

Nevertheless, the recast German Product Safety Act contains one very noteworthy innovation: for the first time, the federal government has the possibility to proactively restrict or prohibit certain dangerous product categories being made available on the market by means of a prohibition regulation. The background to the regulation is the fire in the monkey house at Krefeld Zoo on New Year’s Eve 2020, which was caused by “sky lanterns”. While their use was prohibited by the police, the market surveillance authority had to take action against the sale of these products with individual prohibition orders against numerous traders because the sale of the product type as such was not prohibited. In future, this will be possible through the corresponding prohibition regulation. In addition, as has been the case in Austria for years, laser pointers are also likely to be targeted by the legislator.