20 May 2022

Product Compliance in Supply Chains

  • Briefing

The question on everyone’s lips is supply chain obligations. Companies are establishing procedures in order to systematically record, organise and review work processes. At the same time, product-related compliance requirements are also gaining importance. These are linked to specific characteristics and properties of products throughout their entire life cycle and are therefore very similar to company-related due diligence obligations from supply chains. European legal provisions in particular increasingly demand compliance with and assurance of product-related requirements over the entire life cycle of a product. It is therefore no longer sufficient to check the end product once for compliance with regulatory requirements; the import of products at the borders of the EU is also becoming less important as a starting point. In-house organisational structures are required to ensure compliance with these requirements on an ongoing basis throughout the entire production process. To illustrate this, we have chosen a selection of current and common examples from this vast range of product-related requirements:

Conflict Minerals Regulation

The EU Conflict Minerals Regulation on has been in force since January 2021. In Germany, this is additionally supplemented by the Mineral Resources Due Diligence Act (MinRohSorgG). According to these laws, companies that import tin, tantalum, tungsten, their ores and gold into the EU in certain quantities are subject to special product-related due diligence obligations. They have to establish a functional risk management system and comply with due diligence, documentation and inspection obligations for imported products with regard to human rights violations in mining areas and through trade. These obligations are not just limited to imports, but must be passed on to the respective contractual partners in the supply chain. In order to facilitate adequate risk identification, an obligation to provide information can be included in supply contracts in order to pass on the due diligence obligation in the supply chain.

Draft regulation for deforestation-free supply chains

The increased awareness of sustainability and climate protection among the population has highlighted the need for product-related due diligence obligations to ensure comprehensive protection of the ecosystem. A key issue is the worldwide increase of uncontrolled deforestation for the extraction of raw materials and the production of certain consumer goods. On 17 November 2021, the EU Commission presented a proposal for a regulation that comprehensively links the provision and export from the EU market of cattle, cocoa, coffee, palm oil, soya and timber and their products. These products are typically linked to deforestation. Companies importing these products into the EU or exporting them from the EU are subject to comprehensive documentation obligations regarding suppliers and customers, as well as the obligation to assess risks and report to authorities as soon as they have indications of non-conformity with deforestation-free requirements in the supply chain. Traceability and control are to be guaranteed. In the event of violations of the planned obligations, fines should be imposed and it could be possible to confiscate the raw materials in breach of the regulation or the resulting proceeds.

Draft regulation on batteries

The mobility transition as part of the Green Deal is now in full swing across the EU. This has already led to a comprehensive electrification of public and individual transport, which has multiplied global battery production by a factor of 19. For a more environmentally friendly and sustainable production as well as disposal of dead batteries, the EU Commission presented a proposal for a regulation on batteries and dead batteries on 10 December 2020 and aims to complete the legislative process by mid-2022. The regulation addresses all companies involved in battery manufacturing and recycling. The requirements for companies include information obligations through the supply chain on (i) the carbon footprint of the battery from production to disposal (life cycle), (ii) how raw materials necessary for the production of the batteries are sourced (in particular the recycled content of cobalt, lead, lithium and nickel) and (iii) the content of hazardous substances of the batteries. The draft regulation provides for a gradual increase in due diligence requirements by 2035. For example, companies importing industrial and traction batteries into the EU will have to disclose the recycling content of cobalt, lead, lithium and nickel from 1 January 2027. From 2030, batteries will then have to comply with minimum recycling quotas for the respective substances, which will increase further in 2035. At the end of the batteries’ life, the manufacturers will be held accountable within the framework of end-of-life management.

EU F-Gas Regulation

Companies in the chemical and pharmaceutical industries have always been aware of product-related duties of care. There are comprehensive regulations that are primarily intended to prevent risks to life, limb and health for the proprietor and the user, while at the same time minimising the environmental impact of the substances, mixtures, goods and products concerned. In the course of efforts to protect the climate, the Regulation on Fluorinated Greenhouse Gases (F-Gas Regulation) has been regulating the import of special gases and products that contain or require these gases (such as special cooling devices) since the beginning of 2015. For companies supplying fluorinated greenhouse gases, there is an obligation to check for leaks, to document the check and to make the information available to the competent authority.

PIC Regulation

Companies that trade internationally in industrial chemicals, pesticides and plant protection products must inform the countries affected by the import of the properties of the substances and obtain their consent to the import on the basis of the Regulation on the Export and Import of Hazardous Chemicals (PIC Regulation, prior informed consent), which has been in force since 2014..

EU Drug Precursors Regulation

Since 2004, the Drug Precursors Regulation has regulated trade in substances that can be used for the production of narcotic drugs and psychotropic substances. Accordingly, companies must fulfil licensing obligations for certain imports and exports of the listed precursor substances, as well as documentation and information obligations.

Sustainable Product Initiative and product passports

The examples show that product responsibility is increasingly being extended to the entire life cycle of a product. Developments at the European level have been further accelerated in the implementation of the Green Deal through the Circular Economy Action Plan (CEAP) and the accompanying Sustainable Products Initiative (SPI). Through the amendment of the Ecodesign Directive, product requirements are to be set specifically for products that are not already the subject of existing, special legislation. The EU Commission presented a draft regulation on this on 30 March 2022. In order to implement it, detailed requirements for the quality of individual products are to be developed. Among other things, the durability, reusability, upgradability and reparability of products are to be strengthened, and the recycling shares are to be increased. Not least in view of the increasing number of requirements, the question arises as to the possibility of proof and tracking. As a possible traceability and monitoring mechanism, the introduction of a digital product passport is therefore proposed, which will record all information on product characteristics and origin. What concrete information this product passport will contain still has to be determined by the delegated acts referred to in Article 4 of the Regulation once it comes into force.
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