Industry news

The year ahead: 2 Legal issues to affect trade

Feb/ Mar 2009

(1) Consumer Protection Bill

The Consumer Protection Bill of 2007 is aimed at protecting consumers’ right to equality, privacy, choice, information and disclosure, fair and responsible marketing, honest dealing and fair agreements, fair value, good quality and safety and supplier accountability. The bill says that the consumer has a right to fair, just and reasonable terms and conditions that would include protection against unreasonable or unjust prices or terms, or excessively one-sided or inequitable provisions. In addition, notice is required when provisions are unusual or not reasonably to be expected.

Some of the provisions that could affect the retail trade are:

» The bill (which will become an Act as soon as it is signed) encourages consumers to know their rights and requires suppliers to ensure that any agreement with a consumer (e.g. guarantees or new account) is in a plain language that they could reasonably understand they must be made aware of all issues or clauses that could affect the transaction (therefore no hidden small print);
» The bill also guarantees consumers equal access to markets, the right to choose and access to the information they require to make good choices. This could make it more difficult for suppliers to insist that they are the sole supplier of certain goods and services as the right-of-choice provision will prevent a supplier from requiring that a consumer (or retailer) purchase goods or services from him, or a franchisor prescribing to franchises whom to buy from — unless the supplier can show that convenience in bundling the goods outweighs the limitation of choice for the consumer, or provides economic benefit to consumers.
» All marketing and terms and conditions need to be fair, just and reasonable and consumers should expect fair value, good quality and safe products (see article on product safety below);
» Suppliers will be accountable to customers and consumers have a right to be heard and receive compensation if they are unfairly treated;
» A supplier cannot enter into a transaction if it exempts the supplier from liability for any loss directly or indirectly attributable to gross negligence of the supplier or any person acting for the supplier; or anything that constitutes an assumption of risk of. A supplier must not require a consumer to waive any rights or waive any liability;
» When a supplier makes a commitment, or accepts a reservation, to supply services on a specified date and time, but fails because of incapacity to supply the services, the supplier must refund any amounts paid with interest at the prescribed rate, and in addition compensate the consumer for consequential damages for any economic harm sustained as a consequence of the breach.

There is, however, no liability for consequential damages if the shortage of capacity is due to circumstances beyond the supplier’s control and the supplier took reasonable steps to inform the consumer of the shortage in capacity;

The Department of Trade and Industry embarked on a country wide consumer protection awareness campaign at the end of February with the aim to educate and create awareness among members of the public about the impact and consequences of the bill. The campaign, in the form of industrial theatre and leaflets, also shows consumers how to avoid falling into the debt trap.

(2) Product safety laws

In response to the consumerism movement both the US and EU have recently passed sweeping product safety reform legislation and regulations as far as products for children are concerned. It will have a direct impact on the global sporting goods industry, initially affecting imports in those two regions, but very soon the whole world will be affected as these two economic blocks still dominate the world economy at least as far as consumption of goods are concerned.

These new laws require immediate action by brands and manufacturers to ensure their products will be allowed for sale in the US and Europe.

Speakers at a seminar in ispo agreed that the US law is very complicated and there is still large uncertainty on its implementation. Rules and interpretation thereof change almost on an hourly basis. In addition there are also a number of court cases, the verdict of which will also impact the implementation.

One aspect that the speakers agreed upon is the fact that it will be a very costly exercise for all the players in the supply chain. Retailers, distributors and manufacturers will be obliged to disclose certain substances contained in their products, and will also be obliged to disclose their supplier. This information has in the past been regarded as confidential trade information, but in the future it will have to be made public.

Quite serious penalties have been introduced for businesses not adhering to the regulations — fines of up to US$100 000 can be levied on each product that is in contravention of the regulation, with a maximum fine of US$ 15m and/or five years in prison for the directors of the contravening company.

Furthermore, the legislation also gives retailers the right to return products not conforming to the regulations to the distributors or manufacturers who will be obliged to refund the retailer.

In the US the regulations concern products primarily aimed at children younger than twelve. The first category of content that will have to be virtually eliminated from such products will be lead. The first restriction will apply with effect from February 2009 and will culminate in limiting the lead content to less than 100 parts per million by August 2011.

Products containing phthalates is the other restricted category. Phthalates are commonly used in plastics as plasticizers — substances added to plastics to increase their flexibility, for example in swimming goggles. They are chiefly used to soften polyvinyl chloride, or commonly known as PVC.

The so-called 3P group of phthalates is banned where the concentration is more than 0.1%. The other group called the 6P group is banned where it is possible for a child to put such a product in its mouth and where the concentration is more than 0.1%.

At this stage it is assumed that performance sporting goods are not regarded as toys, but there is clearly a substantial grey area.

Countries such as SA should be careful not to be caught by manufacturers who are not able to sell products to the US or the European Union anymore.

The EU already has similar legislation in place and has gone further and created RAPEX, the EU rapid alert system for all dangerous consumer products, with the exception of food, pharmaceutical and medical devices. It allows for the rapid exchange of information between various countries of measures taken to prevent or restrict the marketing or use of products posing a serious risk to the health and safety of consumers. Not only are measures ordered by the national authorities covered by RAPEX, but also measures taken voluntarily by producers and distributors.

Every Friday, the Commission publishes a weekly overview of the dangerous products reported. This gives all information on the product, the possible danger and the measures that were taken by the reporting country. To be reported can cause brands a lot of marketing damage.

The RAPEX system is becoming very popular and has seen the number of reported instances increase by 53% from 2007 to 2008.