Review of the Australian Consumer Product Safety System Discussion Paper

Chapter 2 - Australia's Consumer Product Safety System

In Australia’s consumer product safety system, businesses, consumers and governments each contribute to reducing the harm caused by unsafe consumer products. Product safety regulation, by both the Australian Government and State and Territory Governments, plays a central role in this system.

This Chapter provides a brief overview of consumer product safety regulation in Australia, including the ways in which government regulation seeks to achieve the five objectives of Australia’s consumer product safety system identified in Chapter 1. Appendix A to this paper provides a more thorough description of the regulatory powers available to governments in Australia.

Overview

At the Australian Government level, the safety of consumer products throughout Australia is regulated under the product safety provisions contained in Part V Division 1A and Part VC Division 3 of the Trade Practices Act 1974 (TPA). Policy decisions relating to the exercise of these powers are made by the Australian Government Minister with responsibility for consumer affairs, currently the Parliamentary Secretary to the Treasurer, who is assisted by the Treasury. Product safety regulations made under the TPA are enforced by the Australian Competition and Consumer Commission (ACCC).

The TPA also contains, in Part VA, a product liability regime which complements the common law rights of action under which consumers can seek redress and compensation for the harm caused by unsafe products.

The application of the TPA is restricted by the limitations on the Commonwealth’s powers contained in the Australian Constitution. Ordinarily, the TPA only applies to corporations and to businesses engaged in interstate trade or operating in one of the Territories.

Responsibility for consumer product safety regulation is shared by the Australian Government and State and Territory Governments

These limitations do not apply to the States and Territories, each of which have Fair Trading Acts containing product safety provisions that are similar, but not identical to, the provisions of the TPA. Each State or Territory’s Fair Trading Act applies to all businesses operating in that State or Territory. Policy making and enforcement under these Acts are both undertaken by the relevant State or Territory Fair Trading Agency or equivalent.

Certain categories of products are subject to specific Commonwealth or State and Territory regulatory regimes. These include medicines, food, road transport vehicles, electrical consumer products, buildings and agriculture. This paper, however, considers only the general consumer product safety regulatory regime.

Objective 1 — Safe products and informed consumers

Responsible businesses go to considerable lengths to ensure that the products which they market are safe for consumers and that consumers are provided with sufficient information to use products safely. Many Australian consumers are also aware of the need to educate themselves about the safety characteristics of the products which they purchase.

The efforts of responsible businesses and consumers are, however, not always sufficient to ensure that only safe consumer products are placed on the market, accompanied by adequate product safety information.

Government action complements the efforts of businesses and consumers

In these cases, the Australian Government and State and Territory Governments can act to protect consumers. Governments can set mandatory safety or information standards for particular products, or ban products from the market outright. Mandatory safety standards can require products to comply with rules concerning, amongst other things, their performance, composition, contents, and method of manufacture or processing. Information standards require prescribed information to be given to consumers when they purchase specified products. Product bans can be issued on either an interim or permanent basis.

In addition to mandatory standards and bans, the Australian Government, and several of the State and Territory Governments, are able to issue warning notices in relation to particular goods. These notices either inform the consumer that the goods are under investigation, provide the results of the investigation, or warn the consumer about possible risks involved in the use of the goods.

The current regulatory system relies on governments identifying and regulating specific product hazards

In attempting to ensure that only safe products enter the market the current system places an onus on governments to identify, assess and regulate each product hazard amongst the large and ever-increasing number of products which consumers can purchase. Rapid changes in the market for consumer products are providing consumers with direct access to products sourced throughout the world, while advances in technology and design mean that new and innovative products are continuously being introduced to consumers.

The ability of governments to address potential safety hazards across this great range of products is affected by limitations on their resources and the substantial time and effort required to implement, enforce and review product specific regulations. For example, the process of standard making is extremely resource intensive, particularly where no voluntary standard exists and because, once established, mandatory standards are subject to continuing review.

Apart from resource constraints, the ability of the Australian Government to ensure that unsafe products do not reach the market is further limited by the restriction, contained in the TPA, that consumer goods can only be banned if they ‘will or may cause injury’. The effect of this restriction is that the Australian Government can only ban goods that are defective and not those which are unsafe as a result of foreseeable misuse.

These factors result in a regulatory system which is reactive to unsafe products that are manufactured and which come to the attention of governments.

Government resources are devoted to regulating a comparatively small number of consumer products

A second consequence of the current system is that significant resources are devoted to regulating a small proportion of the consumer products available in Australia, while the great majority of products are not subject to any regulatory requirements as to their safety. For example, under the TPA twenty-seven products are currently subject to a mandatory standard, with the largest group of standards relating to children’s products. Regulating individual products in this way is highly resource intensive, and this significantly impacts on the resources available to regulate other areas of consumer product safety. Prescribing mandatory standards for a significantly larger number of products would require resources far in excess of those available to governments.

Moreover, there is a lack of clarity surrounding the coverage of two significant categories of consumer products, namely services and second-hand goods. While some State laws do include consumer safety provisions relating to services, this is not the case for all jurisdictions. Jurisdictions apply product safety provisions to second-hand goods in an ad-hoc manner which results in administrative uncertainty.

In overcoming the above difficulties there is a need to ensure the clear, comprehensive treatment of products in a way which draws upon the expertise and resources of businesses and is supported by more efficient use of the resources available to governments. A strengthened regulatory system could seek to provide businesses with greater incentives to ensure that unsafe products are not manufactured in the first place.

Objective 2 — Detection and reporting of unsafe products

If an unsafe consumer product does reach the market, it is important that it be swiftly detected and reported to those parties, chiefly businesses and governments, who are able to protect consumers from the safety hazard.

In Australia, there is an expectation that governments will collect information on product safety hazards and respond to them. Such information is chiefly collected through consumer complaints, information exchanged with other jurisdictions, and media reports. Other sources of information for regulators include: surveys of retail outlets conducted by the ACCC and State and Territory agencies to detect banned goods or goods which fail to comply with a mandatory standard; data collected by the Monash University Accident Research Centre and National Centre for Coronial Information; and data from the National Injury Surveillance Unit at Flinders University.

Regulators could identify product hazards more rapidly

The principal criticism of the system is that product hazards could be identified more rapidly. This is due to a number of factors, including: the heavy onus placed on governments, which have limited resources, to detect unsafe products; the time that it takes for information to reach government regulators; gaps in the information available to regulators; the need to interpret the available information; and weaknesses in coordination and information sharing across jurisdictions.

Objective 3 — Removing unsafe products from the market

Most recalls are voluntary, and compulsory recalls are seldom required

Once an unsafe product is detected on the market, an attempt must be made to recall the stocks of that product that have reached the hands of retailers and consumers. Currently, the vast majority of product recalls are undertaken voluntarily by businesses which have become aware of a safety problem concerning one of their products. Since 1986 governments have been notified of approximately 7,000 voluntary recalls in Australia.

While responsible businesses will act voluntarily, there are occasions when governments must compel businesses to recall unsafe products from the market. The TPA and many of the State and Territory Fair Trading Acts contain provisions which allow governments to order compulsory product recalls.

Under the TPA, compulsory recalls can take the form of an emergency order if the product creates an imminent risk of death, serious illness or serious injury. Otherwise, if there is no immediate and serious risk to the public, the Minister must first publish a draft recall notice inviting suppliers of the product to request a conference on the recall before the ACCC.

The compulsory recall powers of governments are seldom used. Only five compulsory recalls have been ordered under the TPA since 1986. Often, regulators are able to negotiate a voluntary recall with manufacturers and suppliers, making a compulsory recall unnecessary.

However, it can be difficult to undertake compulsory recalls in a timely manner

The ability to make an emergency order under the TPA can allow the Minister to act quickly to order a compulsory recall where a product creates an imminent risk of death, serious illness or serious injury. However, it can also be difficult to undertake compulsory recalls in a timely manner. This is chiefly because the system relies on government agencies, who are not participants in the marketplace, to become aware of an unsafe product before its removal can be ordered. Due to the time taken for information to reach regulators, significant quantities of the product may have been purchased by consumers before a compulsory recall is ordered.

Similar to product bans, the ability of the Australian Government to order compulsory recalls is limited by the requirement in the TPA that a recall of consumer goods can only be ordered if the goods are currently banned, breach an existing mandatory standard, or if they ‘will or may cause injury’. This latter restriction means that goods can be compulsorily recalled if they are defective, but not if they are unsafe as the result of foreseeable misuse.

A further limitation of the current system is that, while businesses are required to notify the Australian Government when they undertake voluntary recalls, the TPA does not provide the Government with formal powers to audit the effectiveness of such recalls. Knowledge of the manner in which a voluntary recall is being conducted can assist regulators in determining whether a compulsory recall is required.

Objective 4 — Consumer redress and compensation

Ensuring that consumers are able to seek redress and compensation for the physical or economic harm caused to them by unsafe products is an important objective of Australia’s consumer product safety system. Moreover, the costs incurred by businesses as a result of successful legal action by consumers provide an additional incentive for businesses to ensure the safety of the products which they market, monitor the ongoing safety of their products and voluntarily recall any of their products which prove unsafe.

Australian consumers have a range of opportunities to obtain redress and compensation

Australian consumers have access to a wide range of avenues through which to seek redress and compensation. These include the internal complaint handling procedures of individual businesses, industry-based dispute resolution schemes, and common law rights of action under tort or contract law. Consumers are also able to bring legal action under the product liability provisions of Part VA of the TPA, as well as under Part V Divisions 2 and 2A of the TPA. These provisions allow all persons who suffer loss or damage because of a defective product to take legal action for compensation against the manufacturer of that product.

The impact on consumer redress of the introduction of Part VA into the TPA in 1992 is unclear. While there does appear to have been an increase in the level of product liability litigation in Australia since that time, other factors could account for this. For example, it could be argued that consumers are better educated in relation to their rights than previously or that they now have greater scope to undertake class actions.

Since 1992 there have also been consistently higher levels of voluntary product recalls in Australia, which may indicate a desire by businesses to protect themselves against potential product liability claims.

Some commentators suggest that the existing court system hinders consumer redress as court action is too expensive, uncertain and slow to be attractive to consumers in many instances. However, these issues relate to all forms of legal action through the courts and are not confined to matters of consumer product safety. Due to these wider implications, such matters lie outside the scope of this discussion paper.

It is also important to understand that, for many consumers, ideas of redress and compensation are not confined to receiving financial recompense for the cost of injury. Rather, consumers wish to see that the product safety system operates to address the underlying safety hazard which has caused them harm. There are examples of consumers complaining to the authorities after receiving compensation because a supplier has taken no action to prevent further injury to other consumers.

Objective 5 — Efficient markets and efficient use of government resources

The product safety system affects the welfare of consumers and businesses in many ways

In seeking to ensure that the consumer product safety system achieves the four objectives discussed above, governments in Australia consider the impact which their regulatory actions have on the broader welfare of Australian consumers and businesses.

As described in Chapter 1 of this paper, businesses should not face a system of rules that: are unnecessarily complex or costly to comply with; make it unnecessarily difficult to supply products to consumers located in other jurisdictions; or create unwarranted obstacles to the creation of new and innovative products.

Additionally, a system of rules should accommodate the global nature of market transactions in consumer products. Such rules should aim to protect consumers from unsafe imported products but not impede access to products widely available on international markets.

Unless soundly based, government regulation may reduce the range and increase the prices of products available to Australian consumers.

As taxpayers, consumers are also concerned to ensure that the resources that governments devote to regulating the safety of consumer products are used as efficiently as possible.

Several aspects of Australia’s current consumer product safety system offer scope for improvements aimed at ensuring that these objectives are achieved.

Consistency of product safety regulation and administration

Businesses face a range of legislative and administrative inconsistencies

The development of product safety legislation over time in each jurisdiction in Australia has created some obstacles for businesses that wish to sell their products to consumers throughout Australia. This is partly because, although the product safety provisions of the State and Territory Fair Trading Acts are based on those in the TPA, they are not identical and there are inconsistencies in the laws of the different jurisdictions.

While mandatory standards developed under the TPA are often adopted by the States and Territories, the standard may vary, in certain respects, as a result of different legislative requirements across jurisdictions. In the case of product bans, differences exist in the length of time for which an interim ban can be imposed and in the appeal and review processes available to suppliers of products subject to bans. In addition, not all States and Territories have the power to issue warning notices or to order compulsory product recalls.

These legislative inconsistencies are compounded by differences in the manner in which jurisdictions administer and enforce similar legislative provisions. For example, goods may be subject to a mandatory standard or ban in one State or Territory but not in another. While some jurisdictions devote greater resources to enforcement action and more strictly enforce their product safety laws, others engage in more limited enforcement.

This lack of legislative and administrative consistency means that a business which wishes to sell its products throughout Australia may be faced with a range of different product safety rules and conflicting interpretations of the law. Dealing with this complexity can place additional costs on businesses and, ultimately, on the consumers of their products. It may also make it more difficult for a business based in one State or Territory to supply its products to consumers elsewhere in Australia. These problems are ameliorated to an extent by the Mutual Recognition Acts adopted by each jurisdiction in Australia, which state, in essence, that a product which complies with the laws of one jurisdiction may legally be sold in the others.

Lack of legislative and administrative consistency may also send conflicting messages to consumers about the safety of particular consumer products.

Efficient use of government resources

Government resources are limited, and could be used more efficiently

The involvement of multiple jurisdictions in regulating the safety of consumer products also affects the efficient use of government resources. This is because similar regulatory tasks, such as issuing mandatory standards or bans, are often conducted by each jurisdiction in respect of the same product.

This duplication of effort increases the pressure on the limited resources which governments are able to devote to consumer product safety regulation.

Responsibility for decision making

The allocation of responsibility for product safety regulation within the Australian Government between the Minister and the ACCC is also an issue. The current system relies heavily on the Minister making decisions, many of which may not relate to significant issues of government policy and might be dealt with more appropriately by the relevant regulatory body.

Review of government decisions

Avenues for review are limited and are not consistent across jurisdictions

It is important that robust processes exist for businesses affected by regulations to seek review of government decisions.

Under the TPA, the supplier of a product that is subject to a compulsory recall or ban, ordered by the Minister, can request the ACCC to hold a conference to hear the supplier’s concerns. Following the conference, the ACCC provides advice to the Minister who is, however, not bound by the ACCC’s recommendations. There are questions regarding the ACCC’s dual role in enforcing regulations and adjudicating supplier’s complaints in relation to them. Questions have also been raised as to whether it is appropriate for the regulator to effectively review decisions by the Minister.

Commonwealth product safety regulatory decisions are also reviewable by the Federal Court under the Administrative Decisions (Judicial Review) Act 1977. However, such reviews concern the process used in making the decision rather than its merits.

At the State and Territory level, conference procedures are rarely employed, in part because some jurisdictions do not have conference provisions in their legislation. Jurisdictions without conference procedures normally offer a limited right of appeal, usually to the courts or a tribunal, of product safety decisions taken by the State or Territory Minister. In general, businesses have limited avenues through which to appeal or seek review of consumer product safety decisions made by State and Territory Governments.

Summary

This Chapter has identified a number of areas in which Australia’s consumer product safety system could be improved. The discussion focused on the role of governments within the system and on the ability of the existing regulatory framework to achieve the objectives set out in Chapter 1.

Chapter 3 of this paper examines a number of international approaches to consumer product safety regulation. Chapter 4 describes a range of options for reforming Australia’s consumer product safety system that draw, in part, on these international approaches.

Next: Chapter 3 - International Approaches to Consumer Product Safety Regulation

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