New Regulatory Burdens in Product Safety and Consumer Protection

On January 11, the Federal Official Gazette published certain amendments to the Federal Law of Consumer Protection. This is a reform that strengthens the authority on the matter - the Consumer Protection Agency (PROFECO) - and generates new burdens and potential liabilities for companies. Although this was a broad amendment, we would like to firstly focus, because of its relevance, in the fact that now companies will have to modify processes, reduce legal risks, limit the scope of the responsibilities of the company and its employees, as well as communication measures with the authorities and consumers: the new obligations and liabilities concerning "product safety".

Introduction to “Product Safety” in Mexico

Traditionally, the provisions regarding product safety are understood as the set of norms that tend to reduce the risk of unintentional damage to products purchased by the consumer, such as appliances, toys, baby devices, textiles, among others. These are standards that the industry must comply with, which involve increasing costs and technical barriers, whose purpose is to protect consumers. The scope of the new Mexican regulation does not distinguish products, so it covers all those that are part of a "consumer relationship" and that represent a risk to the life or physical integrity of consumers. This means that it includes the products described above, as well food, beverages, drugs, vehicles, etc.

With this, the Mexican regulation is aligned with that of the main developed economies, particularly with its equivalent in the United States of America, where the risks of defective products faced by companies have specific regulations. In fact, these are international experiences where better business processes and practices have been developed and the ability to deal with potential risks more effectively. Cases such as "recalls" force companies to have greater clarity in their processes when faced with product crises, for which attacking the issue in a decisive and efficient manner is a priority, in order to avoid damaging their reputation.

Thus, the reform in question includes a series of different regulatory burdens on companies, increases substantially the risks in case of infringement and the potential liabilities for eventual damages that may be caused to consumers by the use of defective products or services. In fact, the new regulation establishes procedures and actions that suppliers must carry out in case they identify a product that may represent a risk to consumers, such as: alerts, recalls and destruction of such products, repair and replacement policies, communication and dissemination measures with consumers, as well as with authorities, among several aspects. Additionally, stemming from the reform, PROFECO will have increased authority and ability to impose sanctions in case of infringement.

Main Changes to The Federal Law of Consumer Protection in Product Safety

In Mexico, leading companies have developed management of alerts and self-regulatory recalls. However, these have been more for the development of good practices than by a law requirement. The legal grounds in the matter that the authority has used in recent years, is based on the legal obligation that companies have to inform PROFECO about goods, products or services that may be defective, and so to proceed to take measures that prevent these to cause harm on consumers. There was no legal obligation to alerts or recalls thus. This has changed radically with the new provisions that were recently published:

• The reform revolves around the goods, products, and services that could put the life, health, safety or economy of the consumer at risk. Therefore, the health and patrimony of consumers are protected.
• The PROFECO is given new authority, such as: issuing alerts; disseminating alerts from other national or foreign authorities; order and disseminate recalls; remove defective or harmful products from the market; order the repair or replacement, as well as the destruction of the products to prevent their commercialization.
• New or stronger enforcement measures are defined, such as ordering administrative arrest for up to 36 hours and temporary closures, among others.
• Fines in case of breach, noticeably increase. The foregoing, without detriment to the financial expenses of the legal processes that the company must comply, as well as the eventual damages or losses for which it must respond.
• New requirements are introduced- that PROFECO may demand from companies, which affects its organizational and industrial processes: reporting on the number of consumers affected and notified, number of products marketed and their geographical distribution, company actions, terms, calendars and other measures to comply.

Gardere Is Ready to Advise Your Company on Product Safety Before the New Reforms

Since the reform project was presented in 2014, Gardere began designing an integral service in terms of product safety. Our broad experience in consumer protection, as well as in product responsibility, in administrative and civil matters, is greatly enriched by allying ourselves with Espacio Público, so as to jointly provide this service.

Espacio Público is a firm that has a solid and interdisciplinary team in matters of crisis management, recalls, consumer protection and specifically product safety. This team is led by Bernardo Altamirano Rodríguez, who was the Federal Consumer's Attorney General (2011 and 2012) and has participated in multiple international fora on product safety (International Consumer Product Safety and Health Organization, NAFTA Summit on Product Safety, Forum for Consumer Protection and Product Safety organized by UNCTAD and the SIC of Colombia, among several). Bernardo Altamirano has been, in addition, professor in the main product safety regulation course, imparted at the University of St. Louis, at the John Cook School of Business (Product Safety Regulation).

Therefore, Gardere and Espacio Público are ready to provide a whole package of integrated services of aggregated value regarding safety product, which includes, among others, the following:

1. Legal, industrial, commercial, logistics and public relations advice, in the preventive field to guide the application and correct interpretation of the law in your own company, chain of distribution and marketing, as well as in the relationship with authorities. Similarly, in the corrective plan, advice and training in the right handling of crises, recalls and alerts, including representation in the correct submission and follow-up of the corresponding procedure before PROFECO.
2. Provide practical explanation and training in the preventive field for the due compliance of Official Mexican Norms (NOMs) and product safety standards that are applicable according to the type of goods or services in question in order to reduce possible risks.
3. Identify the main risks faced by your company and contribute to address them, mitigate them and lay the foundations of their crisis management capacity, in the event of defective products. This involves defining legal, organizational, communicational and technological measures, as well as the correct elaboration and implementation of policies which address the best corporate practices in this regard.
4. Prevent the reinsertion into the formal and informal market of unsafe products through the offer of mechanisms or services for collection, safe handling, transportation, custody, storage, recycling, destruction or final disposal, allowing, if applicable, their tax deduction.
5. Aspire to circular economies (CE) with non-conforming products which can lead to good practices of social and environmental responsibility. This allows a crisis to be positively capitalized.
6. Monitoring and tracking of the main alerts and recall of products that are developed in Mexico and in the rest of the world.
7. Design communication measures with consumers and authorities to keep them informed about the progress of recalled products and alerts. The above in traditional media, electronic and social networks.
8. Draft and negotiation of agreements and legal documents that help your company comply with the corresponding obligations in terms of product safety and applicable Mexican Official Norms, as well as having the appropriate and legal defense, actions, indemnities and indemnifications in case of third party responsibilities.

Gardere has extensive experience regarding consumer protection and administrative regulation of goods and services, as well as carrying out administrative and legal procures in such matter, advising manufacturing companies, distributors and retailers.

Within the legal advice provided in this matter, Gardere will continue with its specialized services of defense and representation in civil, commercial and administrative procedures, in case of controversy in product safety matters, as well as in, mainly, collective actions that may stem from possible damages emerged from products that may not comply with their safety requirements.