Grin And Bear It: Product Regulations, International Treaties And Trade Agreements.

Key Point

Manufacturers and suppliers need to be aware of the multiple international regimes that affect product safety.

What pitfalls do numerous product standards present for manufacturers in product liability claims? Are there restrictions on exporting products which do not comply with Australian standards? Do international treaties and trade agreements provide a potential answer for manufacturers, importers and exporters wanting to simplify the requirements?

These are important questions to think about and which demonstrate the need to reduce the international regulatory burden for manufacturers and the desirability of mutual recognition and harmonisation.

Product liability and the Trade Practices Act

The multiplicity of regulations and voluntary and mandatory standards internationally is undoubtedly a burden for manufacturers. They also give rise to potential product liability implications in Australia.

It is sometimes said that if a regulation is a voluntary industry standard, a manufacturer does not have to comply with it. Voluntary standards can however represent industry practice. Unless there is a good reason why it is not being followed (for example, a higher standard is being met), then a failure to do so may represent a lack of due care and be negligent. It will all turn on the facts of a particular case.

Further, domestic and international regulations may be relevant in determining whether a product is defective under Part VA of the Trade Practices Act, that is, whether it affords the safety that "persons generally are entitled to expect". Given that one purpose behind these laws (which are based on the EC Directive on Product Liability 1985) was international harmonisation, a court might find this an attractive argument.

Plaintiffs will also argue that a manufacturer is negligent if it fails to meet international standards. In past cases, we have also seen an emotional argument being made by plaintiff lawyers in the media, for example, asking why Australian consumers were receiving less explicit warnings than overseas consumers.

In the US, the doctrine of pre-emption provides a defence, but no Australian court has yet decided if such a defence is available in Australia. Compliance with a mandatory federal standard however renders a product not defective as a matter of law under Part VA of the Trade Practices Act.

Another surprise for Australian exporters can be section 65C of the Trade Practices Act. Section 65C standards are mandatory product safety standards which relate to the performance, composition, or contents of a product, its method of manufacture, testing and the form and content of markings, warnings or instructions. If a company wishes to export goods that fail to comply, it must first obtain the written approval of the Minister allowing the export.

WTO's Agreement on Technical Barriers to Trade 

The World Trade Organisation's Agreement on Technical Barriers to Trade aims to ensure that regulations, standards, testing and certification procedures do not create unnecessary obstacles and are not disguised trade barriers. There are however two difficulties.

First, most technical regulations and standards under local law are adopted with the objective of protecting human safety, animal and plant life and the environment. Other regulations aim to protect consumers through the provision of information, mainly in the form of labelling requirements. The Technical Barriers to Trade Agreement recognizes that no government should be prevented from adopting technical regulations and standards that fulfil legitimate objectives. The difficulty is that a variety of standards imposing different requirements can all fulfil the same legitimate objective.

Second, a business which is adversely affected as a consequence of a WTO member country not complying with its obligations does not have a direct right of action. Rather, the issue must be addressed at an inter-government level.

Successful challenges to product regulation

Notwithstanding these hurdles, challenges to product regulations are sometimes successfully brought. Whether or not a regulation is protectionist or is designed to fulfil a legitimate objective can be the subject of different opinions.

In 2000, for example, Canada successfully complained to the World Trade Organisation in relation to Australia's quarantine laws prohibiting imports of Canadian Salmon were a "barrier to trade" (WT/DS18/RW 18 February 2000). As a result, Australia changed its regulations to allow its import. These changes were made notwithstanding a specific concern about the possible impact on local salmon populations and a general concern that a precedent was being set which could undermine quarantine requirements in the long term.

In other complaints, Australia has objected to Korean regulations said to discriminate against imported beef by confining sales of imported beef to specialised stores. In late 2007, New Zealand also complained about measures imposed by Australia on the importation of apples. In October 2002, the Philippines requested consultations in relation to certain measures relating to the importation of fresh pineapple and other fresh fruit and vegetables into Australia.

Harmonisation and Australian standards

While there is still much to be done, Australian product standards are slowly falling into line with the laws and regulations of other countries and international organisations. For example, all motor vehicles sold in Australia must comply with the Australian Design Rules (ADRs) which provide a comprehensive range of performance and design requirements for motor vehicle safety. The ADRs cover both active safety requirements (vehicle performance requirements which might prevent an accident from happening) and passive safety requirements (performance requirements which protect the occupant when an accident occurs).

There are over 70 ADRs, of which more than 55 concern passenger vehicles. In 2000, Australia became a signatory to the 1958 UN Agreement concerning the Adoption of Uniform Technical Prescriptions for Wheeled Vehicles. Over 70 percent of the ADRs are consistent with the UN Economic Commission for Europe Vehicle Regulations. Other ADRs continue to impose local requirements.

International agreements

Australia has entered into Free Trade Agreements with the US, Thailand and Singapore, and the "Pacific Three" (New Zealand, Singapore and Chile). These agreements have the potential to impact upon product regulation. Chapter Seven of the Australia-United States Free Trade Agreement, for example, relates to Sanitary and Phytosanitary Measures. It provides a method whereby disputes and trade issues concerning such issues can be resolved. A Committee on Sanitary and Phytosanitary Matters is established with the objectives of enhancing mutual understanding of such measures and the regulatory processes which under lie them, technical co-operation on sanitary and phytosanitary matters.

Similarly the Australia New Zealand Closer Economic Relations Trade Agreement (ANZCERTA) and the Trans-Tasman Mutual Recognition Agreement provide for close collaboration and mutual recognition across quarantine, customs, regulatory and product standards. A joint Australia-New Zealand Food Standards Code is in place. Until now, therapeutic goods have been exempted from mutual recognition provisions, however, both Governments are committed to removing the barriers to the movement of therapeutic products between the two countries. There are, however, some exceptions, notably in the therapeutic goods (medicines and medical devices).

Australia is a party to a number of international agreements in relation to specific categories of products. In the area of chemicals, for example, it is a signatory to the Stockholm Convention on Persistent Organic Pollutants, the Rotterdam Convention on the Prior Informed Consent Procedure for certain Hazardous Chemicals and Pesticides in International Trade and the Montreal Protocol on Substances that Deplete the Ozone Layer.

Are international standards relevant to decisions by Australian regulators?

Notwithstanding the move towards international harmonisation, Australian regulators are not necessarily obliged to follow international standards when making Australian regulations, although they may take them into account.

This is illustrated by the Federal Court case of Distilled Spirits Industry Council of Australia Inc v Food Standards Australia New Zealand [2003] FCA 1139. In that case, Distilled Spirits Industry Council was seeking review of administrative decisions made by Food Standards Australia New Zealand (FSANZ). It argued that Australia's entry into various international agreements gave rise to a legitimate expectation that FSANZ would not depart from the provisions of those agreements in determining applications for variations of food standards without first allowing Distilled Spirits to be heard. By failing to do so, FSANZ was said to have denied Distilled Spirits natural justice.

The Court rejected this argument. It held that, the relevant considerations to be given active consideration by the regulator in developing standards were the "objectives" contained in the Australia New Zealand Food Authority Act, that is,

the protection of public health and safety;

the provision of adequate information relating to food to enable consumers to make informed choices; and

the prevention of misleading or deceptive conduct.

In addition, the regulator was also to have regard to:

the need for standards to be based on risk analysis using the best available scientific evidence;

the promotion of consistency between domestic and international food standards;

the desirability of an efficient and internationally competitive food industry; and

the promotion of fair trading in food.

Therefore, while the desirability for consistency was one relevant factor, FSANZ could depart from the provisions of international agreements.

Conclusion

The burden of having many different regulations and standards is not only cumbersome for producers and exporters in a practical sense. It gives rise to a number of legal issues for manufacturers, importers and exporters to think about. The range and number of product regulations both voluntary and mandatory at a domestic and international level are a fact of international trade and commerce. Having many different regulations is cumbersome for manufacturers and exporters and involves significant expense.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Stuart Clark 

Clayton Utz 

Levels 22-35

No. 1 O'Connell Street 

Sydney

NSW 

2000

AUSTRALIA

Tel: [phone]

Fax: [phone]

E-mail: [e-mail]

URL: www.claytonutz.com.au

Click Here for related articles

(c) Mondaq Ltd, 2008 - Tel. [phone] - http://www.mondaq.com