State market surveillance: another step on the path to European integration

State market surveillance and its enhancement are crucial aspects of the ongoing reform of Ukraine’s technical regulation system. They serve as essential components in effectively regulating the non-food product market, safeguarding consumer rights, ensuring product safety, and preventing hazardous situations in the market.

Specific authorities are responsible for conducting market surveillance, which involves verifying whether products comply with established technical regulations and requirements. If any non-conformities are detected, measures will be implemented to restrict the use of such products. It is crucial to inform citizens about these restrictions and their associated risks. The primary goal of market surveillance is to protect consumers from potential hazards and encourage companies to proactively monitor the compliance of their products with the established requirements.

According to the existing legislation, Ukraine’s market surveillance authorities include the State Service for Maritime, Inland Waterway Transport, and Shipping, the State Environmental Inspectorate, the State Service on Medicines and Drugs Control, the State Labor Service, the State Service on Food Safety and Consumer Protection, the State Inspectorate for Architecture and Urban Planning, the State Emergency Service, the Maritime Administration, the State Service for Transport Safety, the National Commission for the State Regulation of Electronic Communications, Radio Frequency Spectrum, and Postal Services, as well as the State Special Communications Service.

Implementing market surveillance in Ukraine in 2010 was a significant and logical step in the ongoing reform of the technical regulation system. This reform process gained momentum in the early 2000s as Ukraine pursued accession to the World Trade Organization (WTO) and negotiated integration into the European Union (EU). Unlike the pre-market assessment of product compliance with technical regulations, market surveillance focuses on ensuring that products already available for sale meet safety requirements.

European market surveillance legislation encompasses three important EU directives. These directives include Directive No. 2001/95/EC, which addresses general product safety (listed as item 1.1 in Appendix III), Regulation (EC) No. 765/2008, which establishes general requirements for accreditation and market surveillance of trade in products, as well as EU Council Directive No. 85/374/EEC, which focuses on liability for defective products.

To implement these directives, in 2010-2011, Ukraine adopted three framework laws in the field of state market surveillance. These laws include “On the general safety of non-food products,” “On state market surveillance and control of non-food products,” and “On liability for damage caused by defective products.” Furthermore, in October 2022, Parliament passed the draft law On the Protection of Consumer Rights in its first reading. This proposed law aims to protect consumers during online purchases and grants surveillance and control bodies the authority to restrict access to web resources.

By choosing the path of integration with the European Union, Ukraine committed to reforming its technical regulation system. As part of the Association Agreement with the EU (Article 56.1 – 1) and Annex III (paragraph 1), which Ukraine ratified in 2014, specific agreements were to be made regarding harmonizing horizontal (framework) legislation in this field with EU laws during the first year. Ukraine agreed to adhere to the principles and practices outlined in current EU decisions and regulations. Therefore, as European legislation undergoes changes, Ukraine is expected to implement similar changes in its own laws.

In 2019, the European Union introduced Regulation 2019/1020 on market surveillance and compliance of products. This regulation encompasses various aspects, including e-commerce and the digital environment provisions. Consequently, Ukraine is expected to align its legislation with this Regulation to ensure compliance.

In light of this, on February 21, 2023, the Department for Regulatory Policy and Entrepreneurship released a draft law titled “On Amendments to Certain Laws of Ukraine Regarding the Enhancement of State Market Surveillance and the Technical Regulation System in Accordance with European Union Requirements” for public discussion. This draft law aims to extend state market surveillance tools to cover internet trade and other forms of remote commerce.

Directive 1020 introduces a requirement that a specific entity engaged in economic activities, either a resident of the EU or Ukraine, assumes responsibility for the safety of non-food products entering the EU market (and likewise in the proposed draft law for the Ukrainian market). Currently in Ukraine (and in the EU before the adoption of Regulation 1020), manufacturers, their representatives, importers, and distributors (sellers) are subject to market surveillance. However, new entities that do not fit into the four categories have emerged with the rise of internet trade and the growth of electronic or remote commerce. These entities are referred to as order fulfillment service providers. They do not acquire ownership of the goods but offer warehousing, packaging, addressing, and shipping services. Consequently, although dangerous goods can enter the market through these providers, they are not held responsible for such goods.

For instance, a consumer purchases a cheap mobile phone charger online. The consumer places an order and makes the payment through a website. The product is delivered by mail, and a Ukrainian individual entrepreneur (IE) is identified as the sender. Unfortunately, the product proves to be of inadequate quality and poses a threat to the consumer and others. The consumer reaches out to the State Service on Food Safety and Consumer Protection as a market surveillance body and reports the danger associated with the product. Presently, the State Service on Food Safety and Consumer Protection lacks the authority to inspect IEs since they are not classified as manufacturers, importers, distributors, or sellers. Since these entrepreneurs have not acquired product ownership, they fall outside the inspection scope. However, if the draft law is adopted and the norms of EU Regulation 1020 are implemented, the State Service on Food Safety and Consumer Protection will be granted the authority to inspect IEs involved in shipping goods. This would enable them to take necessary actions to remove similar chargers from the Ukrainian market. Moreover, if a consumer receives a dangerous charger directly from a foreign seller through the mail, the consumer protection agency will have the ability to influence the internet platform on which the consumer made the purchase. This could involve compelling the website owner to provide information about the product’s hazards or even removing the information about the product from the site.

To address these issues, the proposed draft law suggests adding providers of order execution (fulfillment) services to the list of entities subject to state market surveillance. Additionally, the draft law introduces the concept of an information society service provider, which would grant market surveillance authorities the power to influence and regulate such providers as well.

According to the bill:

• A fulfillment service provider is defined as any individual or legal entity engaged in economic activities that offers a minimum of two services from the following list: warehousing, packaging, addressing, and shipping without acquiring ownership rights over the products they handle, except in cases involving postal services, delivery, or transportation.
• An information society service provider refers to a provider of any service, typically offered for compensation, that is conducted remotely (without the simultaneous presence of the parties) through electronic means. The electronic means used for shipping and receiving goods at the destination involve electronic processing equipment, including digital compression and data storage and transmission and reception through wires, radio, optical means, or other electromagnetic methods. The service is delivered upon the recipient’s request (i.e., utilizing data transmission at the recipient’s specific request).

The draft law proposes that certain types of products with higher safety requirements, such as construction products, personal protective equipment, toys, pyrotechnic products, pressure equipment, gas-fueled devices, radio equipment, electrical equipment, and others, should have a designated business entity. This entity should be a resident of Ukraine and/or the EU, whom state market surveillance authorities will be able to contact regarding requests, including inquiries about product compliance with the established requirements. This designated business entity will cooperate with the state market surveillance authorities and take prompt action in cases where the product does not comply with the technical requirements.

Business entities and consumers will have the option to enter into agreements for joint activities with market surveillance bodies. Furthermore, a provision will be introduced to allow for the free examination of product samples using non-destructive testing methods. The samples will be returned to their owners if no irregularities are identified. Market surveillance authorities will be responsible for ensuring the proper storage and transportation of these samples.

Business entities will have an obligation to furnish the market surveillance authorities with requested information essential for identifying the owners of websites where relevant product-related information is posted. In the case of the charger example, the individual entrepreneur responsible for shipping the charger to the customer would be required to provide the surveillance authority with details about the website owners where the advertisement for the device’s sale is displayed.

The provision exists in Directive 1020. The EU document states it as the right of market surveillance authorities to demand from business entities the necessary information for establishing ownership rights to the website. In contrast, our draft law states it as the duty of business entities. However, implementing this requirement may pose difficulties. The businesses might not have a contractual relationship with the website owners where product information is posted. Additionally, information about the business entity could be displayed on the website without its knowledge, or there might be web platforms allowing free advertisements for product sales. In such cases, companies may not possess information about the website owners.

Furthermore, in order to comply with the requirements of Directive 1020, the authorities responsible for state market surveillance will have expanded powers. Specifically, they will be authorized to conduct inspections of products available on the market through online trade or other methods of remote commerce. They will also have the authority to request explanations, both orally and in writing, from company heads and their representatives and employees, regarding matters arising during inspections and implementing restrictive or corrective measures. Market surveillance specialists will also be granted the right to freely visit and conduct checks on product characteristics in trading and warehousing premises, including land plots and vehicles used by business entities for production or trade. They will be able to inspect product characteristics and verify the compliance of business entities with decisions regarding implementing restrictive or corrective measures.

In Ukraine, there are currently 100 regulations that set requirements for various types of products. State market surveillance bodies are responsible for conducting market surveillance on more than 65 types of products to ensure compliance with these requirements. Their role includes checking the characteristics of goods, such as taking samples and conducting examinations to verify product safety and compliance with regulations. However, according to experts, inspectors from Ukrainian market surveillance authorities often prioritize identifying formal product defects rather than conducting thorough examinations. Furthermore, the State Inspectorate for Architecture and Urban Planning has identified around thirty potential corruption risks associated with surveillance and control activities. Therefore, expanding the powers and scope of legislation regarding state market surveillancemay introduce additional corruption risks for businesses.

In particular, the draft law proposes to grant market surveillance bodies the authority to use any information, documents, established facts, statements, and received information as evidence during product characteristics checks, regardless of their format and storage medium. However, this broad definition may create opportunities for abuse and corrupt actions by market surveillance authorities. It is recommended to avoid such vague definitions in the bill and instead provide clear guidelines on the specific documents and information that can be requested from business entities. Additionally, it is advisable to include in the legislation the obligation for market surveillance bodies to prepare a list and description of identified, typical, and potential corruption risks associated with their activities. This should be accompanied by proposals for minimizing such risks and a list of actions companies can take if they identify such risks or actions by surveillance authorities.

In situations where non-compliance with technical requirements or the presence of danger in products is detected, market surveillance agencies have the authority to implement various restrictive (corrective) measures, including:

• restriction or ban on providing products on the market;
• withdrawal of products from circulation;
• product recall.

The proposed draft law suggests including the following additional measures when products present risks under specific conditions or for certain users:

• placing clear and easily understandable warnings on the products in the national language, informing consumers about the risks associated with the products
• establishing prerequisites or requirements that need to be met before products can be made available on the market
• warning end-users who are at risk promptly and appropriately, including by publishing specific warnings in the official language

The proposed draft specifies the procedures for conducting inspections of product characteristics in cases where goods are offered on the market through online trading or other remote trading methods. According to the draft law, products are considered to be provided on the market of Ukraine if they are targeted toward end users in Ukraine. An offer for sale is deemed to be targeted toward end users in Ukraine if the company engages in activities directed at the Ukrainian market, such as providing delivery to Ukraine, offering product information in the national language, enabling payment from Ukraine, etc. Merely having an online interface accessible in Ukraine is insufficient to consider that the products are provided on the Ukrainian market.

If dangerous, risky, or non-compliant products are identified in online trade, and it is not possible to establish the location or contact the manufacturer or seller, market surveillance bodies are authorized to identify an information society service provider whose online interface contains information about such products. For instance, if Company A sells a product through the website of Company B, and it is determined that the product is unsafe, Company A is obligated to remove or limit access to information about that product on the website. Failure to comply may result in the market surveillance authority issuing an order to Company B to withdraw the advertisement. If Company B fails to comply, the market surveillance body will take measures to inform users about the non-compliance of such products, including via relevant information systems.

Furthermore, according to the draft law, sanctions in the form of fines are imposed on the provider of information society services (in this case, Company B) for the following violations: 1) failure to comply with an order to restrict access to the online interface containing content about products that present a significant risk – amounting to one thousand tax-free minimum incomes of citizens; 2) failure to comply with an order to remove or limit access to content about products that pose a risk and/or do not meet the established requirements – amounting to three hundred tax-free minimums.

Another innovation of the draft law is the establishment of the Unified Communication and International Cooperation Office in the field of market surveillance. The Unified Office will be operated by the central executive authority responsible for shaping state policy in economic and social development (presumably, the Ministry of Economy). The Unified Office will have the responsibility of ensuring and coordinating Ukraine’s participation in international activities related to market surveillance and product control. It will also represent the agreed position of market surveillance bodies and other relevant entities in collaboration with market surveillance bodies of other countries, including those of the European Union.

Conclusions

The possibility of online sales poses new challenges for state market surveillance, as it becomes more difficult to verify the compliance of products with established requirements. Therefore, there is a need to enhance the monitoring and inspection tools for goods sold online.

Enhancing market surveillance of online goods is a significant objective for the government and society as a whole, as it contributes to ensuring safety and protecting consumer rights. The proposed draft law aims to incorporate European legislation, specifically Directive 1020, into the current Ukrainian legal framework, thereby extending market surveillance to internet trade.

We believe the draft law should be adopted, but certain provisions need to be enhanced and clarified. Specifically, more detailed descriptions are needed for the definition of a fulfillment service provider, along with clear criteria that business entities can use to classify themselves in this category. Furthermore, the definition of goods offered on the Ukrainian market and the concept of offering to end consumers require further clarity. The draft law currently states that providing information about products or the ability to order them is considered an offer for sale on the Ukrainian market, while the mere availability of an online interface, which includes information and payment options, is not considered an offer. 

Furthermore, it is recommended that the draft law or the CMU Resolution that stipulates the list of products subject to market surveillance and the corresponding surveillance bodies include a clear and specific list of documents that may be requested from business entities during inspections.

In order to mitigate corruption risks and prevent abuses by market surveillance authorities, it is advisable for the government or the market surveillance bodies themselves to develop and publish a comprehensive list and description of common and potential corruption risks. This should be accompanied by proposals to minimize such risks, along with an outlined course of action for economic entities in the event they identify such risks or encounter questionable actions by surveillance authorities.