Author: Jarek Miliszewski
Company: Productivity Commission

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Further Submission to the Productivity Commission’s
Review of the Australian Consumer Product Safety System –
Comments on its Discussion Draft of 9 August 2005

by
Dr Luke Richard Nottage
Senior Lecturer, University of Sydney Faculty of Law

14 October 2005

I. Summary

1. This Submission responds to the call by the Australian Government’s Productivity Commission (“PC”) for public comment on its Discussion Draft (“DD”) released on 9 August 2005 as part of its research Study into the impact of options for reforming Australia’s general consumer product safety system, requested by the Ministerial Council on Consumer Affairs (“MCCA”).

2. Overall, the DD is a very welcome and impressive preliminary study, analysing many important issues and beginning to assemble relevant information. I agree with many of the preliminary views expressed (as noted below, and also eg improving research and extending scope of regulation clearly to certain services). I am agnostic about others (eg strong harmonisation within Australia. This Submission instead focuses on key Preliminary Findings (“PF”) that seem to require significant reassessment, before the PC completes a final Report.

II. Background

3. My initial Submission to the PC, of 11 July 2005, agreed with several others and a set of options put forward by the MCCA in its initial Discussion Paper of 2004 (and reiterated in its Options Paper of August 2005), in proposing the introduction of key features particularly of the European Union’s regime (initiated in 1992 and revised with effect from 2004) for regulating the safety of general consumer goods.

4. The PC’s DD, however, remained to be convinced about the need for those key features, particularly a General Safety Provision (“GSP”) putting the onus on firms not to supply unsafe goods, requiring them to report to regulators if their goods may

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be unsafe, and requiring them to recall them if they decide they are unsafe.^1

5. In late August and September 2005, my two-Part article (“Article”) was published in the Australian Product Liability Reporter, examining more closely the framework and flaws of Australia’s current main regulatory regime (the Trade Practices Act, “TPA”, dating back to 1974) and similar problems with the regime of Australia’s major trading partner in Japan (the Consumer Product Safety Law of 1973), in light of several points made in the DD. The article is therefore appended to this Submission.

6. Only one other formal Submission (“S1”) has been made to the PC, by the peak business associations of the electrical products industry.

7. Although the PC has held forums in Canberra, Melbourne and Sydney inviting other feedback particularly from those who made submissions in its initial consultations for the DD, I was unable to attend these and several others who initially made Submissions may not have been able to participate either. Given also the PC’s tight deadline for submitting a final Report to the MCCA, probably requiring drafting by Christmas, my present Submission attempts to rectify the balance somewhat by briefly addressing some key issues raised in the DD, highlighting some of the points raised in the other formal Submission so far and in my appended Article.

III. Evaluation of the Current System (DD Preliminary Findings [“PF”] 5.1-11)

8. As pointed out even by the electrical suppliers’ Submission (S1 p2), the PC’s Preliminary Finding (PF 5.1) that “overall Australia’s consumer product safety system appears to ensure a reasonable level of product safety” is “speculative because insufficient Australian consumer product safety data is available”. Taking this point a step further, note that it is widely agreed that the lack of safety data collected and disseminated by government agencies – and/or provided by firms – is insufficient (acknowledged in PF 5.5, 9.1-3, 11.1-3 and 12.1-3; by S1; and Article Part 1 at fn 30). Then it seems plausible that at least some firms are taking advantage of this shortage of information by supplying less safe products than they otherwise would – and might be more inclined to in countries where more and better-quality information is collected and disclosed, as under the present EU regime.

9. Such action need not involve “businesses intentionally releasing unsafe products onto
1 All these documents are available via http://www.pc.gov.au/study/productsafety/index.html.

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the market” (PF 5.2, emphasis added). Instead, they may be acting negligently, not giving proper weight to the likelihood and extent of harm likely to occur to consumers – and to be claimed against them by consumers, given the difficulties of (credible threats to) access the civil justice system through (recently reformed, ie restricted) tort law, and/or sanctioned or regulated by authorities also operating in an informational vacuum. These potential problems are related to widely-noted poor enforcement (PF 5.8; also S1 p3).

10. This perspective helps explain the pattern well-documented by the Submissions to the MCCA and the by the Australian Consumers’ Association (“ACA”), demonstrating several concrete instances recently in which half or more tested products failed voluntary or even mandatory safety standards. In its initial public response to the DD (cited in Article Part 1 fn 9), the ACA further emphasises that “behavioural factors that contribute to product misuse and poor product maintenance and safety” (cf PF 5.3, and 5.2) are often irrelevant to these situations, eg involving child-care products. This indicates a serious regulatory system design problem (cf also S1 p3). Further, if product misuse is foreseeable and yet there is a way for suppliers reasonably to prevent it (eg by installing anti-tampering devices), then that should be another area in which firms should be forced to improve existing products rather than attempting to modify (eg tampering propensity) behaviours.

11. The lack of product-safety related information (and indeed legal standards under the existing law^2) available to both firms and businesses also undercuts the DD’s rosy view that there are “sufficient incentives for businesses to voluntarily recall” unsafe products and otherwise for regulators to effectively to “negotiate a voluntary recall in the first instance … in most cases” (PF 5.7). Similar problems have recently been highlighted by large-scale recalls in sectors subjected to specific safety regulations, notably in therapeutical goods. Australia’s legislation on recalls and other important safety activities has had to be considerably strengthened in that sector (Article, Part 2 fn 2). Although the likely risk and extent of harm may be less for some types of consumer goods, there will be other more similar categories. Accordingly, the Government should be more consistent in (at least giving serious consideration to) extending stricter recall and other powers across the board, rather than responding only in specific areas like therapeutical goods after a huge problem arises such as the Pan Pharmaceuticals debacle in 2003.
2 See Jocelyn Kellam, 'Post-Sale Duty to Warn and Product Recall in Australia' (2005) 16(8) Australian Product Liability Reporter (September 2005).

12. The DD also seems overly optimistic about the importance of other “incentives created by the product liability arrangements”, particularly the strict product liability (PL) regime added in 1992 as Part VA of the TPA (PF 5.7). There has been very little case law, even unreported judgments, under this legislation. Perhaps products have suddenly become so safe that consumers don’t need to sue under these provisions, and/or the law is so clear that they settle favourably in its shadow. But that seems unlikely given the lack of clear guidance from higher courts on some vague concepts in Part VA, and structural barriers to accessing the courts which have increased since Australia’s “tort reforms” since 2002.

13. The DD is more convincing in conceding that “it is not clear that the current system engenders an efficient allocation of responsibility for consumer product safety among consumers, business and government”. Shifting the primary onus onto firms not to supply unsafe products, since they tend to have better information on which to make such judgments, but with enhanced back-up powers and information provided to government, seems a more efficient regime particularly in today’s deregulatory environment when direct government intervention and standard-setting is becoming increasingly impractical. Greater transparency of this system also has important legitimacy-promoting advantages, for a democratic society. Both grounds underpin the move towards such a system in the EU. If anything, the nature of Australia’s economy and democratic institutions suggest that following revised EU regime is all the more desirable in this country (Article Part 1).

14. Likewise, although the DD may be correct in that differences between the current regulatory regimes in Australia and New Zealand, its long-standing trade partner, are sufficiently few “to have a significant distortionary impact on Australasian economic activity” (PF 5.11), both corporate and individual citizens can question the legitimacy of regimes that generate such clear variance in outcomes (eg four times the numbers of mandatory safety standards in Australia compared to NZ). Both efficiency and legitimacy issues can only grow as Australia continues to develop other bilateral and potentially regional FTAs, especially in the Asia-Pacific region (Article, Part 1). One important partner is Japan, which also has far fewer mandatory standards than Australia, but partially offsetting institutions and a growing interest in updating its regime – probably on EU lines (Article, Part 2).

IV. GSP (PF 6.1-2)

15. Even on a narrow economic analysis, the PC’s scepticism about whether “the likely
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benefits of a GSP justify the costs involved” seems excessive. Again, the Australian economy is even more open to more proportionately unsafe products eg from the PRC, a key contemporary concern in the EU (and the US). It is hard to believe that all their economists have got it wrong (especially in the US, with its tradition since the 1980s of increasingly light-handed consumer protection). Specifically, the data cited by the PC regarding the EU regime is weak (Article, Part 1).

16. The DD suggests that if the MCCA does favour adopting a GSP, that should define “safety” etc consistently with Part VA of the TPA (PF 6.2). That is a good starting point, but it should be remembered that product safety regulation generally (eg in both the EU and, since 1990, the US) has a broader scope than strict PL definitions of “defect”, because it needs to allow preventive action rather than ex post responses triggered after injury or death giving rise to private compensation claims (Article Part 1 at fn 38).

17. On the other hand, a reformed regulatory regime in Australia should at least go as far as the TPA. Thus, it should clearly include foreseeable misuse within its scope, as recommended already by the PC (PF 7.1). However, care needs to be taken in then excluding situations where such foreseeable misuses involves unreasonable behaviour on the part of the user. The focus should remain on what a reasonable supplier would do. In some situations, for example, it may be reasonable to build in design features that prevent such unreasonable or even intentional misuse (Article Part 1 at fn 44). To draw an analogy, PL law might view a lack of design improvements (but resulting in an injury) having been broadly “caused” by the supplier of a product containing a “defect”, but reduce damages awarded for the user’s comparative negligence. Similar considerations should extend to product regulation reform.

18. There is no ground for concern that there would be “mandatory demonstration of compliance with GSP requirements” (S1 p4), if that implies that firms would need to provide documentation showing how each product meets detailed safety standards. Not even the revised EU regime goes that far.

V. Monitoring and Reporting for Unsafe Goods (PF 10.1-2)

19. Instead, the amendments in force since 2004 in the EU now add more general monitoring and reporting requirements. It was found that a GSP in itself, initiated in 1992, provided insufficient incentives. Combined with the point made above (para 8), this suggests that the PC needs to reconsider its view that adding such requirements

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in Australia “would not justify the associated costs” (PF 10.1).

20. The PC does, however, approve of requiring firms to report goods subject to a successful PL claim or multiple out-of-court settlements (PF 10.1 para 2). The electrical suppliers’ associations object even to this, yet they concede that “liability claims through the courts are rare and may not be completed for years” (S1, p 6). The implication that the tougher thresholds under US law for reporting in the event of PL suits or settlements should be transplanted to a reformed Australian regime, at least, is unconvincing given the huge volume of PL activity in the US. The further assertion that “mandatory reporting of claims” would be counter-productive to claimants negotiating settlement is also unpersuasive: even such settlements are comparatively rare in Australia, so reporting will simply shift the negotiating parameters somewhat more in favour of consumers. The extent of the shift will depend on the nature and extent of the reporting requirements added, and there is no evidence that the revised EU regime has an explosion of claims and/or settlement negotiation breakdowns.

VI. Recalls (PF 13.1-3)

21. The electrical suppliers associations also support the PC’s preliminary assessment that “a general requirement for businesses to recall unsafe products is not warranted” (PF 13.2), due to incentives generating voluntary recalls and the threat (albeit rarely enforced) of mandatory government recalls. Again, the lack of information on when and how to make recalls and unclear enforcement powers (above para 8), along with the more robust systems in force in the EU and the US (and likely in other trading partners like Japan), call for a reassessment of such views.

22. The problem of “ophan products” (S1 p 8) is a serious one, but which could be addressed by deeming certain suppliers to be the suppliers subject to new recall obligations, along EU lines.

VII. Making further progress (PF 15.1-4)

23. Overall, as more narrowly acknowledged by the PC, we should already add “a stronger focus on reducing inconsistencies between Australian and international standards” in the field of consumer product safety regulation.

[Note by Productivity Commission]

ATTACHMENTS

The following articles by Dr Nottage were provided as attachments and are available in 
the .pdf version of this submission on this website:

Reviewing Product safety regulation in Australia – and Japan?  Part 1, in
Australian Product Liability Reporter Vol 16 No. 7 August 2005

Reviewing Product safety regulation in Australia – and Japan? Part 2, in
Australian Product Liability Reporter Vol 16 No. 8 September 2005