The European Product Safety System and the Supply

The European Product Safety System and the Supply Chain Marcello Manca Vice-President & General Manager UL Environment Inc OECD Conference on Corporate Responsibility June 15, 2009 – Paris, France Copyright © 2008 Underwriters Laboratories Inc. ® Underwriters Laboratories (UL)

2 The European Product Safety System and the Supply Chain (2) (3) (4) about UL product safety the world today moving forward Copyright © 2008 Underwriters Laboratories Inc. ® (1) Underwriters 2 Laboratories

3 Underwriters Laboratories Working for a Safer World Since 1894 21, 000, 000 UL Marks on products annually 447, 000 safety messages reach consumers 609, 885 follow-up inspection visits 98, 454 product evaluations 72, 542 manufacturers of UL certified 19, 450 product types evaluated by UL 6, 666 UL employees worldwide 1, 201 published safety standards 127 UL inspection centers worldwide 99 countries with UL customers 62 facilities worldwide Data as of 31 st December 2007 Underwriters 3 Laboratories Copyright © 2008 Underwriters Laboratories Inc. ® products

4 Underwriters Laboratories Working for a Safer World Since 1894 to help make the world safer in the places where people live and work Underwriters 4 Laboratories Copyright © 2008 Underwriters Laboratories Inc. ® Underwriters Laboratories began in the 19 th century and enters the 21 st century with the same purpose…

5 Everyone wants Safe Products… Producer s Produ ct Safety Conformit y Assessme nt Bodies others… Copyright © 2008 Underwriters Laboratories Inc. ® Distributo rs Regulator s Consume rs Workers Underwriters 5 Laboratories

6 Everyone wants a Safety System that delivers. . . Confidence everyone affected easily understands and believes Coherence has clear criteria that is applied equally to all parties ensures safe products are placed in the market …and evolves to improve detected weaknesses and overcome new challenges Underwriters 6 Laboratories Copyright © 2008 Underwriters Laboratories Inc. ® Compliance

7 The European Product Safety System launched over 20 years ago to support one of the cornerstones of the single market: the free movement of goods The mechanisms in place to achieve this aim are based on prevention of new barriers to trade, mutual recognition and technical harmonization (1) (the visible face) (SDo. C / 3 rd party bodies) Compliance (standards / direct compliance) Essential Requirements (set out in the legislation) The scope of EU “Product safety” laws refers (also) to the physical health and safety of citizens with regards to non-food products European citizens must be confident that the products they use, consume or simply come into contact with are safe and do not present any danger to their health and physical safety (2) (1) summary from EC DG Enterprise “Blue Guide”; (2) summary from EC Health & Consumer DG “Product Safety” factsheet Underwriters 7 Laboratories Copyright © 2008 Underwriters Laboratories Inc. ® Conformity Assessment procedures

8 Europe (and the world) has evolved… …from: …to: • EEA market of 30 countries • no European identifiers • three European symbols: ▪ ▪ € ▪ ▪ • creation of a larger EU market » internal trade • competing on a globalized market » global trade • in-house design & production » localized production • outsourced world » global design & supply-chains • product diversification • product specialization • manufacturing • design, brands & distribution • conformity assessment, perceived as a “trade barrier” • conformity assessment, perceived as a “fair trade catalyst” Copyright © 2008 Underwriters Laboratories Inc. ® • single market of 12 countries Underwriters 8 Laboratories

9 Focus on Electric & Electronic (E&E) products… an highly simplified Product Safety system does not work in an increasingly complex Electric & Electronic industry large manufactu ty laws 10 leading bran 522 locations, 30 ds produced in cities, 24 countri ( 18% EU; 10 % Americas; 40% China ; 38% rest GPSD + LVD + EM C Ro. HS + WEEE energy labelling SDo. C = CE self declaration manufacturer/dis tributer self-decl compliance with EU essential requ ares iremen and affixes CE m arking (module A) ts EU safety es of Asia ) extended supply chains 1 end product is estimat safety critical com ed to have 10 to 100 suppliers of ponents and subassemblies complex produc t life-cycle becoming shorte r, bu changes in design t with numerous product , features & com ponents E&E industry ris ks (1) 2007 Rapex Report Underwriters 9 Laboratories Copyright © 2008 Underwriters Laboratories Inc. ® EU Product Safe ring networks

10 Underwriters Laboratories researched the failure rates for first time product submittals and found these failure rates vary by product type from 14% to 45%, averaging 28%(1) During our regular factory inspections, UL evaluates the products being manufactured to check compliance with specification originally tested & certified, on average 10% of the inspections detect non-compliant products(1) It is easy to imagine honest reasons why products fail to comply with technical requirements, particularly when one deals with complex products and supply-chains: • Failure or inappropriate specs of components and subassemblies • Legitimate misunderstanding of requirements in standards & regulations • Lack of technical means or safety engineering knowledge to test and evaluate compliance of components, sub-assemblies and end-products • Manufacturers & suppliers do not know how to bring products into compliance The (pre-market) cooperation between manufacturers and a reliable 3 rd party conformity assessment body, like Underwriters Laboratories, prevented unsafe products to reach the places where people live and work (1) 2007 UL data Underwriters 10 Laboratories Copyright © 2008 Underwriters Laboratories Inc. ® What are we seeing…

11 What are we seeing… The LVD Admin-Cooperation group organized a cross-border market surveillance project focused on Luminaries, 15 EU countries involved (1) | 226 products | 41% manufacturers + 53% importers + 6% ‘unknown’ | origin = 38% EU + 33% outside-EU + 29% ‘unknown’ | The European Commission reports(2) on the Electrotechnical sector: • 10% to 70% market share of non-compliant products • up to 99% of imports from 3 rd countries are non-compliant It does not take dishonesty to get a self-declaration (SDo. C) wrong, but add increasing economic pressures and dishonesty to the equation the potential for creating unsafe conditions and an unbalanced market place grows exponentially (1) 2006 project IP 0106 LUM | voedsel en waren autoriteit; (2) EC Impact Assessment SEC(2007) 173 Underwriters 11 Laboratories Copyright © 2008 Underwriters Laboratories Inc. ® • 12% no CE marking • 71% no or incomplete SDo. C • 25% no brand name • 87% no or incorrect technical file • 72% failed one or more technical requirements (EN 60589)

12 The risk of unsafe products escalates and the costs of (non) compliance can increase considerably: • manufacturers need to invest in “safety engineering knowledge” and “testing capability” to evaluate their products and the ones of their suppliers & subcontractors • larger companies often develop functions to manage “design”, “compliance”, “suppliers & distributors control” and “procurement”, to deal with their extended and complex design, production, subcontracting & distributing networks • smaller companies often don’t have such means, knowledge or technical capabilities, and rely on other (smaller) companies, that relied on others… creating an “ad-hoc trust-me compliance system” • in either case everyone in the product supply-chain carries the crippling costs of “cascading liabilities” • reputable firms are more likely do the right thing and incur the costs of honest action, putting them at a competitive disadvantage to those who would cheat the system, effectively imposing an “honesty penalty” Underwriters 12 Laboratories Copyright © 2008 Underwriters Laboratories Inc. ® …under complex supply chains

13 as recent examples unfortunately showed, costs of “Lack of Compliance” are much higher… Systematic high-level Recalls (2006, 2007, 2008) • 20 million Toys, due to magnetic parts and lead in the paint • Toothpaste, tainted with brake-fluids thickener and anti-freeze • 9 million lithium-ion Computer Batteries overheating • Milk-powder, contaminated with melamine kills babies (1) (2) (3) (1) 2007 Rapex Report (2) WSJE 03. Nov. 08 (3) Reuters 17. Sep. 08 Copyright © 2008 Underwriters Laboratories Inc. ® We are living in a financial crisis that results from de-regulation that began in the 90’s • it happened in the US financial markets • market forces were expected to be the “regularizer” • Today the financial crisis affects everyone around the globe. It started due to a poorly regulated and uncontrolled “supply chain” of financial mechanisms used in the credit markets (loose) mortgage restrictions (sub-prime) mortgages (bad-dept) credit institutions (toxic) securities (bad-dept) financial institutions (toxic) derivatives (global) financial crisis Underwriters 13 Laboratories

14 …and Consumers clearly know it Just under half of Europeans think that : • some non-food products are unsafe (48%) while similar percentages either think that: • all products are safe (17%) or • a significant number of products are unsafe (18%) (1) The absolute majority (75%) of European citizens have heard in the last 12 months of non-food products being recalled from the market (1) EC Special Eurobarometer 298 | Oct. 02008 Underwriters 14 Laboratories

15 we believe in Safety Systems that deliver: Compliance • Coherence • Confidence an “ideal” Safety System model Consensus Standards Assessment & Certification • components pre-qualification • end-product verification • re-evaluation of modified products or components 3 rd party Factory Surveillance • factory pre-qualification • ongoing product inspection at factory Third-party Certification is a proactive system working to prevent injury and property loss. It is analogous to preventative medicine. SDo. C - Suppliers Declaration is analogous to ignoring the treatment of a disease and then having invasive surgery to cure it. Copyright © 2008 Underwriters Laboratories Inc. ® 3 rd party Pre-market 3 rd party Post-market Surveillance • ‘blind-shopping’ & verification • anti-counterfeiting • regulatory cooperation Accreditation & Qualified staff operating on a increasingly complex supply chain requires a preventative system for public safety complex supply chain Underwriters 15 Laboratories

Marcello Manca marcello. manca@it. ul. com | www. UL. com Copyright © 2008 Underwriters Laboratories Inc. ® Underwriters Laboratories