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

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

3 Underwriters Laboratories 3 Underwriters Laboratories Working for a Safer World Since ,000,000,000 UL Marks on products annually 447,000,000 safety messages reach consumers 609,885 follow-up inspection visits 98,454 product evaluations 72,542 manufacturers of UL certified products 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 31st December 2007 Copyright © 2008 Underwriters Laboratories Inc.® 3 Underwriters Laboratories

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

5 5 Everyone wants Safe Products… Product Safety Producers Distributors Consumers Workersothers… Conformity Assessment Bodies Regulators Copyright © 2008 Underwriters Laboratories Inc.®

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

7 Underwriters Laboratories 7 The European Product Safety System 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 scope of EU “Product safety” laws refers (also) to the physical health and safety of citizens with regards to non-food products (2) 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 Copyright © 2008 Underwriters Laboratories Inc.® (the visible face) Conformity Assessment procedures (SDoC / 3rd party bodies) Compliance (standards / direct compliance) Essential Requirements (set out in the legislation)

8 Underwriters Laboratories 8 Europe (and the world) has evolved… …from:…to: single market of 12 countries  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.®

9 Underwriters Laboratories 9 Focus on Electric & Electronic (E&E) products… complex product life-cycle becoming shorter, but with numerous product changes in design, features & components extended supply chains 1 end product is estimated to have 10 to 100 suppliers of safety critical components and sub-assemblies large manufacturing networks 10 leading brands produced in 522 locations, 30 cities, 24 countries ( 18% EU; 10% Americas; 40% China ; 38% rest of Asia ) SDoC = CE self declaration manufacturer/distributer self-declares compliance with EU essential requirements and affixes CE marking (module A) EU Product Safety laws GPSD + LVD + EMC RoHS + WEEE energy labelling #2 in RAPEX notifications (1) with very limited market surveillance 22% notifications & 32% risks: shock, fire, burns ( #1 in 2006 before toys recalls ) EU safety E&E industry risks (1) 2007 Rapex Report Copyright © 2008 Underwriters Laboratories Inc.® an highly simplified Product Safety system does not work in an increasingly complex Electric & Electronic industry

10 Underwriters Laboratories 10 What are we seeing… 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 Copyright © 2008 Underwriters Laboratories Inc.® (1) 2007 UL data

11 Underwriters Laboratories 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’ | 12% no CE marking 71% no or incomplete SDoC 25% no brand name 87% no or incorrect technical file 72% failed one or more technical requirements (EN 60589) 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 (SDoC) 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 IP0106LUM | voedsel en waren autoriteit; (2) EC Impact Assessment SEC(2007) 173 Copyright © 2008 Underwriters Laboratories Inc.®

12 Underwriters Laboratories 12 …under complex supply chains 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, 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” Copyright © 2008 Underwriters Laboratories Inc.®

13 Underwriters Laboratories 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 (1) Toothpaste, tainted with brake-fluids thickener and anti-freeze (1) 9 million lithium-ion Computer Batteries overheating (2) Milk-powder, contaminated with melamine kills babies (3) 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 (1) 2007 Rapex Report (2) WSJE 03.Nov.08 (3) Reuters 17.Sep.08 Copyright © 2008 Underwriters Laboratories Inc.® (loose) mortgage restrictions (sub-prime) mortgages (toxic) securities (bad-dept) credit institutions (bad-dept) financial institutions (toxic) derivatives (global) financial crisis

14 Underwriters Laboratories 14 …and Consumers clearly know it Just under half of Europeans think that (1) : 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%) 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

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

Underwriters Laboratories Marcello Manca | Copyright © 2008 Underwriters Laboratories Inc.®