Repairing the supply chain

What’s the issue?

The EU is currently in the process of taking a wide range of measures to achieve the goals of the European Green Deal to become climate neutral by 2050.  The EU Green Deal aims to tackle the climate crisis on a large scale with a variety of measures.  At the same time the EU has a clear tendency to strengthen consumer rights and corresponding manufacturer obligations, such as the strict requirements for the guarantor with regard to commercial guarantees (regulated in the Directive (EU) 2019/771, "Sale of Goods Directive").  In this context the EU Commission has proposed a EU Directive on common rules promoting the repair of goods.  Now the EU Parliament has adopted the Directive.

According to findings of the EU Commission, ongoing manufacture of new goods consumes valuable resources and critical materials.  It emits greenhouse gases.  Disposal of defective goods, even though they could be repaired, creates avoidable waste.  This results in 35 million tons of waste, 30 million tons of wasted resources and 261 million tons of greenhouse gas emissions in the EU each year.

At the same time the EU Commission concluded that it would be difficult for consumers to have their goods repaired.  Especially "outside the legal guarantee", i.e. if they are no longer covered by statutory warranty rights.  The availability of repair services would be insufficient.  Consumers would often not know who to contact in case their good is defective.  The result would be limited demand for repair services, which would hinder the growth of the repair services sector.  The loss from consumer decisions to replacing instead of repairing goods is estimated at nearly 12 billion EUR per year.  As a result of the premature disposal of goods, the use of refurbished goods would also be limited.

Some Member States have already adopted or are considering regulations on a right to repair.  This leads to different rights for consumers in the Member States, making the implementation of a uniform right to repair more difficult for manufacturers and consumers alike.

What’s new?

On 22 March 2023, the EU Commission presented a proposal for a Directive on common rules promoting the repair of goods ("Repair of Goods Directive") together with an explanatory memorandum.  On 02 February 2024, the EU Parliament and the Council reached a provisional agreement.  Finally, on 23 April 2024, the EU Parliament adopted the Repair of Goods Directive.  It deviates in parts from the EU Commission's proposal.

It comes together with the adoption of the Ecodesign for Sustainable Products Regulation ("ESPR"), which sets the framework for reparability in the production phase.  In addition, on 06 March 2024 the Directive on empowering consumers for the green transition was signed and published, which aims to regulate the demand side and provides for better information on the durability and reparability of goods at the point of sale.

What’s proposed in concrete terms?

The Repair of Goods Directive differentiates between goods which are "inside the legal guarantee" and goods which are "outside the legal guarantee".

"Inside the legal guarantee"

Inside the legal guarantee means that a defect of a good is covered by statutory warranty rights.  In this case, the consumers can still choose between repair and replacement for the defective goods.  However, if the consumer chooses repair, the legal guarantee period shall be extended by additional 12 months after the defective good has been repaired.  Sellers shall inform the consumers about this (Art. 16).  For this purpose, the Sale of Goods Directive is amended.  Member States can even extend this period.

This approach deviates from the EU Commission’s proposal.  According to the proposal, the seller should have been obliged to repair if the costs for replacement were equal to or greater than the costs for repair.  However, the Council and the EU Parliament considered this to be an unacceptable limitation of Article 13(2) of the Sale of Goods Directive, according to which the consumers can choose between repair and replacement.

"Outside the legal guarantee"

The Repair of Goods Directive will also bring fundamental changes where a defect is not covered by the legal guarantee or warranty rights with respect to certain goods, for example where the defect did not exist at the time that the goods were delivered to the consumer or where the lack of conformity becomes apparent only after the legal guarantee period. The affected goods include, amongst others, household washing machines and dishwashers, refrigerating appliances, electronic displays, vacuum cleaners, data storage products, and mobile phones.

The Repair of Goods Directive will introduce new provisions governing the relationship between consumers on the one side and manufacturers and repairers on the other side.  "Manufacturer" means (in accordance with the ESPR) any natural or legal person that manufactures a product or that has a product designed or manufactured, and markets that product under their name or trademark. "Repairer" means any natural or legal person who, related to that person’s trade, business, craft or profession, provides a repair service, including manufacturers and sellers that provide repair services and repair service providers, whether independent or affiliated with such manufacturers or sellers.

In concrete terms:

• European Repair Information Form (Art. 4): repairers can provide a form included as Annex I.  This form contains standardized key information about the repairer and the repair service.  The repairer is not obliged to use this form (deviating from the EU Commission’s proposal).  The form must be free of charge (if provided).  However, the consumer may be charged for the diagnostic service costs where such a service is needed.

• Obligation to repair (Art. 5): the repair obligation is intended to ensure that consumers have someone to turn to whenever they decide to have their good repaired:

  • Manufacturers of certain goods are obliged to repair those goods.  This obligation concerns goods listed in Annex II of the Repair of Goods Directive.  According to Annex II, the following goods will be affected: household washing machines and household washer-dryers, household dishwashers, refrigerating appliances, electronic displays (such as television sets), welding equipment, vacuum cleaners, servers and data storage products, mobile phones, cordless phones and slate tablets, household tumble dryers and goods incorporating light means of transport batteries.

  • The EU Commission shall amend Annex II by updating the list of legal acts of the EU in which repairability requirements are laid down.

  • At the manufacturer's choice, the repair can be provided for free or against a reasonable price.

  • During the repair, the manufacturer may provide the consumer with a replacement good for free or against a reasonable price.

  • In case of impossibility of repair, there is no obligation to repair.  However, the manufacturer may offer the consumer a refurbished good.

  • The manufacturer may engage third parties (such as repairers) to fulfil its obligation to repair.

  • In the case of manufacturers established outside the EU, the authorised representative in the EU will be responsible for the repair.  In the absence of such an authorised representative, the importer or ultimately the distributor of the goods shall assume the obligation to repair the goods.

  • Manufacturers shall ensure that consumers have access to information on indicative prices for the typical repair of the goods listed in Annex II.

  • Manufacturers shall not use contractual clauses, hardware or software techniques that impede the repair of goods listed in Annex II.  In particular, they shall not impede the use of second hand and 3D-printed spare parts.

• Information on obligation to repair (Art. 6): to secure the right to repair, the affected manufacturer must inform the consumers about their repair services.

• European Online Platform for repair (Art. 7): the EU Commission shall establish a European Online Platform for repair (instead of 27 national platforms as proposed by the EU Commission).  This shall make it easier for consumers to find repairers, sellers of refurbished goods, purchasers of defective goods for refurbishment or community-led repair initiatives (e.g., repair cafes), also cross border.  The use of the European Online Platform shall be free of charge for consumers.  The registration shall be voluntary for repairers, sellers, purchasers and community-led repair initiatives.

• Promoting repair (Art. 13): each Member State shall implement at least one measure to promote repairs.  This could be, for example, repair vouchers and funds, information campaigns or support for community-led repair initiatives (e.g., repair cafes), or a reduction in the VAT rate on repair services (in accordance with tax rules).

What’s next?

The Repair of Goods Directive must now be formally adopted by the Council and published in the EU Official Journal.  The Council’s adoption can be expected to be a mere formality because it had already agreed to the provisional agreement with the EU Parliament.  Once adopted, the Member States must transform the Repair of Goods Directive through full harmonization within 24 months of its entry into force.  Full harmonization means that the Member States must adopt the provisions of the Repair of Goods Directive without diverging from it (unless otherwise provided).

Why it matters?

The Repair of Goods Directive is intended to cover the entire life cycle of a good.  It will result in far-reaching changes for various actors along the supply chain.  Sellers and manufacturers in and outside the EU, as well as importers and distributors need to be prepared:

• Consumers may choose the repair of defective goods inside the legal guarantee.  Sellers will be required to carry out repairs, and the legal guarantee period will be extended by additional 12 months in this case.  Sellers may have to use repairers who carry out the repairs for them, and need to agree on appropriate back-to-back protections in the contracts with their suppliers and manufacturers.

• Manufacturers of goods such as washing machines and dishwashers, refrigerating appliances, electronic displays, vacuum cleaners, data storage products, and mobile phones will need to implement the obligation to repair these goods outside the legal guarantee.  This may have a massive impact along their entire supply chain.  Procurement and manufacturing processes need to take into account the obligation to repair, and sourcing and production agreements will have to include respective protections.  Repair chains need to be established and maintained, and this may include the use of third party repairers.  On the consumer end, manufacturers need to decide if the repair is provided for free or against a reasonable price.

• For many sellers ("inside the legal guarantee") and manufacturers of relevant goods ("outside the legal guarantee"), this may mean a fundamental change of how warranty systems are set up.  For example, manufacturers need to assess and reconsider their product warranties, and if they shall be maintained in light of the new obligation to repair.

• The right of repair rules will need to be reflected in consumer terms and conditions.

• All this may come with significant additional financial and organizational effort for sellers and manufacturers.

• The Right to Repair Directive may lead to a new industry of repair services in the EU.  The amendment may be an opportunity for new emerging companies offering repair services for a fee.

• Importers and distributors may be affected by the Repair of Goods Directive if they source goods from outside the EU.

• Even manufacturers that manufacture goods which are not initially covered by the right to repair "outside the legal guarantee" should follow the legislative process.  The goods covered are constantly being adapted by the EU.

The question remains whether sellers and manufacturers can guarantee the provision of repairs as contemplated.  For example it is questionable if the necessary specialists for such repairs are available across the EU.  Moreover, many sellers and manufacturers are already facing the current geopolitical challenges, especially the disruption of supply chains.  It is doubtful whether all addressees of the obligations will be able to bear this additional load.

Authored  by Dr. Florian Unseld, LL.M. (Sydney), Niklas Knop.