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[The following is a longer and un-footnoted draft of a fifth Policy Digest prepared for a Sydney Southeast Asia Centre joint research project and an ASEAN Secretariat project on harmonising consumer protection law. It is highly relevant also to Japan in light of Kanebo's large-scale recall of some of its skin-whitening products across the region as well as in Japan in 2013.]

1. Introduction

Consumer goods associated with higher risks, and often also extent of harm, tend to generate public regulatory interventions. Food is one example, for which nation states have often legislation quite early on. However, national legislation and implementation is increasingly impacted by international law, particularly World Trade Organization (WTO) or bilateral and regional free trade agreements agreements insist that food safety measures be based on rational and proportionate public health risk assessments, and not constitute disguised trade barriers. This is facilitated by such agreements expressly stating such requirements will be presumed to be satisfied if the national measures are based on food standards agreed in the Codex Alimentarius, administered by two United Nations bodies. The Codex process has remained relatively unpoliticised, based instead on scientific risk assessments, partly because most countries both export and import foods but also because food is a necessity for everyone. This backdrop has also made it easier for other international and regional bodies, including ASEAN and APEC, to collaborate with national regulators and the private sector to develop shared food safety standards in Southeast Asia and world-wide.

Pharmaceuticals and, more recently and in a less interventionist way, cosmetics (goods without, necessarily, any medicinal properties) have also tended to generate regulatory regimes at the national level. At the international level, however, the WTO’s 1994 Technical Barriers to Trade (TBT) Agreement does not expressly create a presumption of conformity from adhering to standards set by specified bodies, when national regulators introduce measures applicable to imports. There is no counterpart to the Codex process; different countries and regions maintain more disparate approaches to assessing and regulating non-food sectors, partly because they may not be exporting as much as importing certain types of goods.

Overall, moreover, the United States (US) often adopts more lenient regulatory regimes compared to the European Union (EU). This is particularly noticeable with respect to cosmetics: the US relies much more on voluntary industry self-regulation (plus more threat of private lawsuits for product liability), whereas the EU favours more interventionist public regulation. Nonetheless, the EU’s 1976 Cosmetics Directive aimed to balance consumer protection with harmonized standards to facilitate cross-border trade, especially within and into Europe. Because the regulatory regime remains stricter than in the US, and EU’s cosmetics manufacturers are more likely to sell into the more regulated European markets than American manufacturers, the EU can also support European manufacturers by encouraging countries and regions in other parts of the world to “trade up” to the EU rather than laxer US regulatory approach, when developing their own laws and practices. Already, by 2004, the lists of ingredients set under the 1976 EU Cosmetics Directive had been adopted by 30 countries, including countries in South America party to the Mercosur and Andean Pact regional arrangements. Other countries, including China and India, have reproduced significant features of the EU model.

Furthermore, although this is not widely known, the EU model has been adopted in Southeast Asia through the “Agreement on the ASEAN Harmonized Cosmetics Regulatory Scheme”. This was signed in 2003 to advance the ASEAN Free Trade Area program, albeit also against the backdrop of the WTO’s TBT Agreement. Schedule A creates the ASEAN Mutual Recognition Arrangement of Product Registration Approvals for Cosmetics, allowing individual ASEAN Member States (AMSs) to agree with other AMSs to allow, without further requirements, the import of products that satisfy the regulatory requirements of the other state(s). However, any such mutual recognition agreements (anyway possible under the TBT Agreement) were envisaged as a temporary step towards harmonizing cosmetics regulation in the region. More importantly, under the 2003 Agreement (Art 2(3)) the AMSs committed to implement by 1 January 2008 the “ASEAN Cosmetics Directive” (ACD) set out in Schedule B. This closely tracks the EU Directive, including by requiring the AMSs to “adopt the Cosmetics Ingredients Listings of the EU Cosmetics Directive 76/768/EEC including the latest amendments”. Supported by the ASEAN-EU Programme for Regional Integration Support, by early 2008 six AMSs had started implementing the ASEAN Directive into their national laws, followed by Thailand, Cambodia, Laos and Myanmar a year and half later, and finally Indonesia from 2013. The ACD regime has therefore been described as “one of the first concrete instances of economic integration between ASEAN countries”.

Meanwhile, however, the EU itself replaced its Directive in 2009 with a Cosmetics Regulation, which on 11 July 2013 came into direct effect in the (now 27) EU member states, rather than having to be implemented by national legislation – sometimes not straightforwardly – as occurs when harmonisation is attempted by means of a Directive. The EU Regulation similarly attempts to enhance cross-border trade through harmonisation, expanding consumer choice while respecting public health, for example by adding new requirements to label cosmetics (such as suncreens) that include nano-particles.

Part 2 below therefore takes a closer link at key features of the ACD, including some differences that remain compared to the original EU model (and especially the US regulatory regime), as well as implementation and other challenges. As elaborated in Part 3, as well as various concrete improvements that could be made to this approach for harmonizing consumer product safety law, the model might eventually be extended to other sectors and anyway is relevant to general consumer regulators, even if the primary jurisdiction over cosmetics usually remains with health officials.

2. The ASEAN Cosmetics Directive: Features and Challenges

On the one hand, the ACD promotes cross-border trade, both among AMSs and into the region, in two main ways:

• The supplier only has to notify the regulators, in each AMS where the cosmetics are to marketed, about the place of manufacture or initial importation, before placing the product on the market, and then keep the product’s technical and safety information readily accessible for such regulator (Art 1(3)(4)). This replaces national laws that had required prior approval by government regulators, eg in Malaysia, before the cosmetics could be marketed. This change reduces the regulatory burden on suppliers, but also governments because they no longer need to assess every application, and expands choice and timeliness of products coming onto the market for consumers.

• Compliance costs are also reduced for suppliers into AMSs because they need only check that their cosmetics (defined in Art 2, with an illustrative list in Appendix I) comply with ingredients listed under three broad categories:
o A so-called “negative list” of banned or prohibited ingredients (Annex II);
o A “restricted list” allowing ingredients only subject to specified limits, fields of application, or warnings (Annex III);
o A “positive list” permitting only specified colouring agents, preservatives or UV filters (Annexes IV, VI and VII).
Furthermore, under Art 4, these derive overwhelmingly from the listings under the EU regime, developed and updated by the Scientific Committee on Consumer Products. Nonetheless, AMSs were permitted to authorise other ingredients for up to three years from implementing the Directive (Art 5), subject to certain conditions including a reasoned request as to whether or not such substances should remain listed in the “ASEAN Handbook of Cosmetic Ingredients” (Annex VIII). However, such national listings lose effect if the request is denied by the ASEAN Cosmetics Committee (ACC), assisted by its ASEAN Cosmetic Scientific Body to review “ingredient lists, technical and safety issues” and consisting of representatives from the regulatory authorities, the industry and the academe” (Directive Art 10). The latter also advises the ACC if a supplier requests permission to use a new ingredient, for example, based on new safety data.

The ACC comprises regulators assigned by the AMSs, but the “ASEAN Cosmetics Industry, such as ACA [ASEAN Cosmetics Association], will be invited to meetings of the ACC and shall be consulted on all matters concerning the Cosmetic Industry” (Art 6 of the framework Agreement). Further variation can arise compared to the EU listings, if the ACC delays in introducing changes, but the ACA can consider and recommend updates and encourage its members to promote changes even before formally accepted by the ACC.

On the other hand, the ACD regime maintains consumer protection, consistently with the EU rather than US regulatory approach. In terms of pre-market regulation:

• The listings of ingredient are much more stringent, banning for example over 1300 substances compared to only 11 under the US federal regime;

• The ACD includes a general safety provision (GSP): suppliers may not place cosmetics on the market that “cause damage to human health when applied under normal or reasonably foreseeable conditions of use”, taking into account its presentation, labeling, instructions or warnings (although such warnings do not exempt the supplier from other Directive requirements: Art 3). Certification by a qualified “safety assessor” is expected, as part of the Product Information File (PIF) requirement explained below. By contrast, the US regime only imposes an indirect and arguably less extensive obligation, by prohibiting the supply of adulterated (including contaminated) or misbranded cosmetics.

• Claims about cosmetics must comply with the ASEAN Cosmetics Claim Guideline (Appendix III), although: “In general, product claims shall be subjected to national control”. Claimed benefits must also generally be “justified by substantial evidence and/or the cosmetic formulation or preparation itself”, although suppliers can “use their own scientifically accepted protocols or designs in generating the technical or clinical data” if justifications are provided (Art 7).

• Cosmetics must also comply with the ASEAN Cosmetic Labeling Requirements (Directive Appendix II), with the required information to be “in legible and visible lettering” and “special precautions” needed for conditions of use specified in Annexes III-VIII (Arts 6(1)-(2)). Further, AMSs must “ensure that, in labeling, putting up for sale and advertising … text … or other signs are not used to imply that these products have characteristics which they do not have have” (Art 6(3)). In addition, for example, Malaysia has added additional labeling requirements for four product types, including children’s oral care and sunscreen, which were not found in the EU requirements. The national regulators reportedly believed that their (or ASEAN) citizens may have more sensitive skin type or lack awareness of safety issues.

The ACD also imposes significant post-market controls:

• From when the supply is notified to the relevant AMS regulator, the supplier must keep readily accessible a PIF including:
o technical information about the product;
o the safety assessment (even something has already been carried out say in the EU, again arguably because skin types or climate in ASEAN may differ);
o supporting data for any claimed benefits from using the cosmetics; and
o manufacturing methods (complying with the ASEAN Guidelines for Cosmetic Good Manufacturing Practice set out in Appendix VI, as well as adequate knowledge or experience under the legislation and practice of any AMS where the product is manufactured or imported).
This file must also include “existing data on undesirable effects on human health” from using the cosmetics (Art 9(1)). It must be kept in the AMS’s national language(s) “or in a language readily understood” by the regulatory authority (Art 9(2)). In addition, the AMS may require (such or further) “appropriate and adequate information on substances used in cosmetics products … be made available”, but only “for purposes of prompt and appropriate medical treatment in the event of difficulties” (Art 9(3)). By contrast, US regulators have limited powers to extract information from suppliers.

• The “Guidelines for Control of Cosmetic Products in Malaysia” clarify that adverse event reports in the PIF must be kept updated. In addition, “A Guide Manual for the Industry: Adverse Event Reporting for Cosmetics Products” from the ACC (2005) defines “adverse event”, requires reporting at least for a defined “serious adverse event”, and sets out time limits (especially for fatal or life-threatening events). It appends a Report Form headed “confidential”, although the Directive or the Guide otherwise does not specifically state that incident reports must be kept confidential by the relevant AMS regulator(s). Arguably, each national regulator should be able to share such reports at least with counterparts in other AMSs. There are also good policy arguments for disclosure to other FTA partners, or indeed the general public (at least in high-risk situations). The EU Regulation requires incident reporting and for the national regulator to disclose to all EU counterparts, whereas under US federal law there is still no reporting duty on suppliers.

• The ACD allows for an AMS to temporarily ban or restrict supplies due to there is a substantiated “hazard to health or for reasons specific to religious or cultural sensitivity”, and national law may also regulate certain product claims (Art 11(1)), if notified to other AMSs and the ASEAN Secretariat (for advice then from the ACC). However, mandatory recall powers are not mentioned, so will depend on other national laws. This is similar to the EU, where they derive from the General Product Safety Directive; US federal regulators lack such powers altogether.

3. Recommendations

The ACD regime is generally seen to have been quite a surprising success story for regional regulatory harmonisation, effectively balancing free trade with consumer protection. The main challenges have been delays and lack of (human and technical) resources for full implementation, especially in developing AMSs and for post-marketing surveillance. Even in Malaysia, for example, audits of PIFs have found significant non-compliance. There have also been problems with suppliers using the definition of cosmetics, including the intended use, to avoid the requirements for prior approval for pharmaceuticals, as well as illegal ingredient product formulations (especially for skin whitening products, widely used in ASEAN), non-cosmetic or misleading claims, incorrect labelling, and fake products. Another difficulty is the lack of a one-stop online portal containing or linking to national laws implementing the ACD, or for ASEAN-wide incident reporting (as for food). ASEAN policy-makers also need to look closely at recent developments in the EU, including the move from a Directive to a Regulation (which no longer allows member states to adopt any different rules), as well as specific innovations such as the nano-particles disclosure duty.

Ongoing capacity issues in AMSs may be further addressed by the regulators with primary jurisdiction over the cosmetics industry working more closely with general consumer regulators. After all, the latter increasingly have general powers to enforce prohibitions on misleading conduct or false labeling. In Malaysia, moreover, the Consumer Protection Act 1999 includes a GSP for all consumer goods (not just cosmetics). General consumer regulators may also be able to provide valuable input into the ACC’s process for updating or reviewing ingredient listings, especially since that body does not expressly require any consultation with consumer groups but only with industry. These regulators, as experts in consumer behaviour generally and with experience in other sectors, can assist even further in assessing and managing risks from reported product failures and health risks, eg through bans. They may also have shared or sole responsibility for conducting mandatory recalls of cosmetics, depending on national laws in AMSs. Finally, general consumer regulators themselves need to build capacity, by engaging with cosmetics regulators, as they may need to exercise powers to bring representative lawsuits for product liability if consumers are harmed (as in Thailand) or to settle such disputes (as in Myanmar).

Despite such ongoing challenges, the ACD approach deserves consideration in other fields where there is strong interest and potential for further harmonizing national laws in AMSs, such as aspects of food regulation, toys (which also continue to generate safety incidents throughout the region), and even some (eg over-the-counter) drugs. Relevant harmonising instruments in the EU could again provide major reference points, while allowing scope for national variations and enforcement, as seen with cosmetics regulation.

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Japanese Law in Asia-Pacific Socio-Economic Context