Risky Business

By Rutger Oldenhuis

As the dust settles after December 13, 2024 – of course you all know by now that’s the date when the General Product Safety Regulation (GPSR) came into effect – numerous ambiguities remain. Flaws, gaps, and even loopholes are crying out for more clarity. At the time of writing this blog, we are still awaiting the European Commission’s guidance document, which is expected to provide some of this much-needed clarity.

It was all the more surprising to discover DELEGATED REGULATION (EU) 2024/3173, issued on August 27, 2024, under the GPSR. Is it just me, or is this regulation mysteriously hard to find online? Would it sound paranoid to suggest that this scarcity might be intentional, given its potentially significant implications for companies selling consumer products in the EU? Here’s what’s going on.

Unlike in for example the United States, regulators in the EU cannot simply declare a product unsafe. A risk assessment must first be conducted based on established guidelines. Depending on the outcome, the product may indeed need to be withdrawn from the market, especially if a “serious risk” is identified.

In the US, no such structured risk assessment process exists, which can lead to a degree of arbitrariness in decision-making. After all, when exactly is a product deemed dangerous enough to be removed from the market? Often, a recall isn’t necessary, even if a serious accident has occurred with a product. Conversely, there are situations where a recall is necessary without any incidents being reported. Whether a recall is warranted depends heavily on the specific circumstances and must be evaluated on a case-by-case basis.

The EU therefore has a structured methodology that regulators are supposed to follow before taking corrective action. Conducting such a risk assessment requires considerable knowledge and experience. Unfortunately, I regularly notice that this knowledge and experience are lacking among authorities. They either do not apply this method correctly or fail to do so consistently. It is crucial to scrutinize the assessment thoroughly. I am not exaggerating when I say that, in some cases, the very survival of a company can depend on the outcome. Unfortunately, companies do not always have the resources to legally challenge a flawed risk assessment, even though doing so could often yield positive results.

Anyway, the good thing about the current system is that there are actually guidelines to evaluate against. In that sense, you’re not at the mercy of an authority’s opinion. That authority must be able to provide a convincing risk assessment. And that’s exactly where things are currently going wrong.

Under the new Delegated Regulation, regulators are now empowered to assume the highest risk level in certain situations without conducting a risk assessment. This can happen, for instance, when specific injuries have been reported. However, this approach undermines the entire risk assessment methodology because the severity of an injury alone does not indicate the likelihood of its occurrence. Remember that under the GPSR, companies are required to report serious accidents. Under this Delegated Regulation, authorities would be empowered to conclude that a serious risk exists – and mandate a full recall – without conducting a risk assessment.

Moreover, regulators can assume the highest risk level without conducting a risk assessment if a company has voluntarily taken corrective actions. In other words, if a company chooses to err on the side of caution and voluntarily warns its customers, even when the risk isn’t serious, regulators could still independently determine that a “serious risk” is present – triggering all the consequences that follow.

Why is it necessary to grant regulators more authority to pull products from the market without conducting any risk assessment? I find this both puzzling and concerning. It risks distorting risk evaluations and could lead to overly cautious or even unjustified regulatory actions. It seems to undermine the very principles of evidence-based regulation. It could also lead to companies becoming much more reluctant to take voluntary corrective actions.

Then again, in a world where bizarre and absurd decisions seem to be increasingly common, this one probably won’t make it to the history books.