Review of the MCCA Direct Marketing Model Code of Practice Discussion Paper

Executive Summary

Australians expect the products that they purchase and consume to be safe to use. Unfortunately, this is not always the case, and consumers can suffer financial loss, injury and even die as a result of products, including both goods and services, which are unsafe or which are used in a way that makes them unsafe. According to some estimates, consumer product related injuries are believed to be associated with seventy per cent of all unintentional injuries receiving medical attention in Australia.¹ Total annual government outlays on the direct treatment of injuries caused by consumer products have been estimated to exceed $200 million.²

Such loss can occur for a variety of reasons. Sometimes, consumers do not have the information they need to use a product safely. At other times, businesses fail to properly control the quality of the goods or services they are supplying, or ignore the safety and interests of consumers. Alternatively, consumers may simply make poor decisions about the proper way to use a product.

Australia, like most developed countries, has a consumer product safety system that works to address these problems. The most recognisable part of this system is the product safety laws which have been developed over time by the Australian Government and by the Governments of each State and Territory. However, the efforts of businesses to ensure the safety of their customers and of consumers to properly inform themselves about the products they are purchasing are both essential to the safety of consumers.

Current regulation of consumer product safety

Australia’s product safety laws seek to minimise the physical and economic harm caused by unsafe consumer products. They also help to promote the confidence of local and international consumers in Australian consumer products.

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. Amongst other actions, the Minister may regulate a product by banning it, ordering its recall, or establishing a mandatory safety or information standard for the product.

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 costs incurred by businesses as a result of successful legal action by consumers help to influence manufacturers and suppliers to take reasonable care in the design, manufacture and supply of their 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.

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.

Background to the review

Objectives of consumer product safety regulation

The Australian Government and the Governments of the States and Territories undertake ongoing work to ensure that Australia’s consumer product safety system continues to meet its goal of minimising the physical and financial costs of unsafe products in a way that best serves the welfare of Australians. Consumers should be able to purchase safe goods and services, unsafe products should be readily detected, reported, and, if necessary, removed from the market, and consumers should be able to obtain redress and compensation where appropriate. While protecting consumers, governments should also promote the efficient operation of markets in consumer products and the efficient use of government regulatory resources.

These objectives are discussed more fully in Chapter 1 of this paper.

In recent years, substantial work has been undertaken by governments through the Standing Committee of Officials of Consumer Affairs (SCOCA) to identify areas in which the regulation of consumer product safety could be strengthened to better achieve the objectives outlined above.³

SCOCA has identified two major areas for improvement in Australia’s consumer product safety regulatory system. Firstly, the system needs to be able to deal with potential safety hazards more swiftly, with a greater emphasis on the prevention of problems, rather than on reacting once consumers have suffered harm.

The second set of problems concern the impact of the system on the efficient trade in consumer products throughout Australia and the efficient use of government regulatory resources. Many of these problems relate to the fragmentation of product safety regulation amongst the different jurisdictions in Australia, accompanied by a lack of uniformity in product safety legislation and its administration.

To ensure that the need to improve Australia’s consumer product safety regulatory system is properly addressed, MCCA has decided to undertake a public review of the system. Details of the public consultation process for the review have been outlined earlier in this paper.

Problems with the current system

As described above, the two most significant challenges facing Australia’s consumer product safety regulatory system are the need to deal more swiftly, and less reactively, with emerging product safety problems, as well as the need to ensure that government regulation does not interfere unnecessarily with trade in consumer products and that government regulatory resources are used as efficiently as possible.

A more proactive system

The current system places the 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. Currently, significant resources are devoted to regulating a small proportion of the consumer products available in Australia. For example, under the TPA only twenty-seven products are currently subject to a mandatory standard. Prescribing and maintaining mandatory standards for a significantly larger number of products would require resources far in excess of those available to governments.

Apart from resource constraints, the ability of governments to regulate unsafe products is also limited by a number of legislative restrictions. A potential problem is that, under the TPA, goods can only be subject to a compulsory ban or recall where they are considered defective and not because they are likely to be used in an unsafe way. There is also a lack of clarity surrounding the legislative coverage of two significant categories of consumer products, namely services and second-hand goods.

The current system also suffers from a weakness in its ability to detect unsafe products at an early stage, before they cause significant harm to consumers. This is, in large part, because regulators do not have access to adequate and timely information on product safety problems. Currently, comprehensive national statistics on product related injuries and deaths are not collected in Australia, nor does an efficient mechanism exist to quickly disseminate information, such as complaint data, amongst regulators in all jurisdictions and to other relevant parties.

The result of all these factors is a regulatory system which reacts, with variable speed and effectiveness, to unsafe products that are manufactured and which come to the attention of governments. There is a need for a system that ensures 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 government. A strengthened regulatory system could seek to provide businesses with greater incentives to ensure that unsafe products are not manufactured in the first place.

A more efficient system

While seeking to protect consumers from the harm caused by unsafe products, governments in Australia consider the impact which their regulatory actions have on the broader welfare of Australian consumers and businesses. This includes the effect of government regulation on trade in consumer products and the efficient use of public funds for product safety regulation.

The development of product safety legislation over time in each jurisdiction in Australia has created some obstacles and additional costs 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. These legislative inconsistencies are compounded by differences in the manner in which jurisdictions administer and enforce similar legislative provisions.

The involvement of multiple jurisdictions in regulating the safety of consumer products also results in duplication of effort which places pressure on 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.

At the Australian Government level, the allocation of responsibility for product safety regulation 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. There are also questions regarding the ACCC’s role in effectively reviewing product safety decisions by the Minister.

Options for reform

Chapter 4 of this paper discusses a range of options for strengthening Australia’s consumer product safety regulatory regime to address the areas for improvement described above. These options are discussed briefly below, as they relate to the two key areas for improvement in the current system.

A more proactive system

General Safety Provision

One option discussed in Chapter 4 is the introduction of a General Safety Provision (GSP), which would impose a legal obligation on businesses to only place safe consumer products on the market.

A GSP could be framed in a variety of ways, which would influence its effectiveness in protecting consumers and its impact on businesses. A number of issues would need to be addressed in developing an Australian GSP, including: the standard of safety required; whether any products would be exempted; the types of businesses affected; and whether any additional obligations would be imposed on businesses along with the general safety requirement.

By placing greater responsibility on businesses to ensure that only safe products are marketed, a GSP would seek to address the reactive nature of the current regulatory system under which governments deal with product safety hazards as they come to the attention of regulators. In addition, when potential problems are identified, a GSP could allow governments to take more effective precautionary action to protect consumers.

The introduction of a GSP could also provide businesses with greater flexibility in the delivery of safe products to consumers and result in fewer impediments to product innovation. This is because a GSP would focus on the desired safety outcome for consumers, rather than on the specific means of achieving a safe product.

A GSP would also pose some challenges. Businesses may be uncertain about its application and what constitutes a ‘safe product’. This uncertainty, combined with the broad coverage of a GSP, may increase the costs to businesses of complying with government product safety regulation.

Revised definition of unsafe products

The ability of the Australian Government to act quickly to remedy product hazards is limited by the requirement in the TPA that a good can only be subject to a compulsory ban or recall if, amongst other things, it ‘will or may cause injury’. This restriction means that the Australian Government can act against a good if it is defective, but not if it is unsafe as the result of foreseeable misuse. This could be remedied by introducing more flexible wording into the TPA.

Coverage of services and second-hand goods

As discussed above, there is a lack of clarity surrounding the current legislative coverage of services and second-hand goods. Amending the product safety provisions of the TPA and relevant State and Territory laws to cover services could increase the protection of consumers by allowing all governments to ban certain services considered unsafe and to introduce safety and information standards designed to ameliorate the dangers inherent in the provision of other services.

In respect of second-hand goods, it could be possible for all jurisdictions in Australia to develop, and agree on, a general policy statement concerning the treatment of second-hand goods which clarifies the responsibilities of sellers, while allowing regulators to continue to deal with such goods on a case by case basis. An alternative may be to amend product safety legislation to specifically provide for second-hand goods.

Monitoring, reporting and recall obligations

The ability of the system to respond swiftly to product hazards could be strengthened by requiring businesses to monitor the ongoing safety of their products and report to governments about any products which: are under investigation for possible safety risks; have been associated with serious injury and death; or have been the subject of a successful product liability claim. This approach would reduce the time between when a business begins to investigate a product hazard and the initiation of government action, if this proves necessary.

A further option may be to introduce a requirement for businesses to recall products which they find to be unsafe. This obligation could be accompanied by a power for governments to be able to audit and assess those recalls and other voluntary recalls.

These obligations could be introduced independently or accompany the introduction of a GSP.

Information strategies

There are a number of other options aimed at enhancing the ability of regulators to swiftly detect and respond to product safety hazards. One of these is research, supported by governments and industry, into the cost of product safety injuries and their causes. If maintained over time, this research could allow governments to better assess the success of product safety regulations and be able to target their regulatory efforts more effectively. Additionally, such data could be used to support information and advertising campaigns targeted at specific groups of consumers.

Further options could include: the establishment of an early warning information system, possibly based on hospital admissions data; and a centralised electronic data base designed to ensure that consumer complaint data as well as other important product safety information is available to all regulators and other relevant parties.

A more efficient system

Harmonisation of product safety legislation

Chapter 2 of this paper identifies a range of problems arising from the lack of consistency in product safety legislation amongst jurisdictions. These problems include the additional costs faced by businesses in complying with different legislative requirements. Several legislative models are discussed, which could lead to improved legislative consistency. These include a ‘single law and regulator’, ‘template legislation’, ‘uniform legislation’ and ‘core consistent provisions’. The first three options could allow for the establishment of a single set of rules governing consumer product safety Australia-wide.

In considering the application of these models to Australia’s consumer product safety laws it is necessary to weigh the importance of achieving legislative consistency, both initially and over time, with the needs of individual jurisdictions for legislative flexibility.

Harmonisation of administration and enforcement

Achieving legislative consistency will not necessarily prevent businesses from facing significant differences in administrative and enforcement practices across jurisdictions. Consistency in administration and enforcement may be enhanced through improved coordination across jurisdictions, such as through a centralised complaints database. Alternatively, the ACCC could undertake additional enforcement activities on behalf of State and Territory Governments.

Decision making at the Australian Government level

At the Australian Government level, options exist to clarify roles and accountabilities. One option may be to amend the TPA to provide the ACCC with powers over administrative/enforcement decisions, allowing the Minister to focus on questions of product safety policy and the appropriate legislative framework.

Decisions taken by the ACCC as a result of this shift in responsibilities could be taken alone or made subject to consultation with an advisory panel representing stakeholders, including businesses and consumers.

In order to ensure that affected businesses have adequate opportunity to appeal decisions of the ACCC or the Minister, such decisions could ultimately be subject to appeal through either a tribunal or the court system.

The wider international context

Finally, it is important to consider the wider international context under which consumer goods are traded when considering options for reform of the product safety system. Reform should support the international competitiveness of Australian businesses and the goods and services they supply.

Organisation of the paper

This paper is designed to provide a basis for public consultation on the review. Chapter 1 of the paper discusses the objectives which a consumer product safety system should achieve. Chapter 2 describes how Australia’s system currently operates and the areas in which it may be improved. Chapter 3 examines international approaches to regulating the safety of consumer products and the lessons for Australia from the methods adopted in other countries. Finally, Chapter 4 presents a range of options for enhancing Australia’s consumer product safety system through addressing the areas for improvement identified in Chapter 2.

Following Chapter 4 a number of issues for consideration are provided to help guide the preparation of written submissions to the review. However, interested parties need not confine their submissions to addressing these issues.

¹ Directions in Injury Prevention; National Injury Prevention Advisory Council; Commonwealth Department of Health and Aged Care, April 1999.

² Watson, W and Ozanne Smith, J; Consumer Product Related Injury in Australia: Hospital and Medical Costs to Government; Monash University Accident Research Centre, Report No 83, 1995.

³ In particular work prepared for SCOCA by the Tasmanian Department of Justice and Industrial Relations.

Next: Chapter 1 - Features of a Consumer Product Safety System

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