A new report from the Organisation for Economic Co-operation and Development (OECD) has urged governments to get serious about the issues of online free-riding by digital marketplaces with regard to Extended Producer Responsibility (EPR) regimes for waste electronic and electrical equipment (WEEE).

The report, entitled ‘Extended Producer Responsibility (EPR) and the impact of online sales’, surveyed the views of stakeholders across the supply chain in predominantly EU and European Free Trade Area (EFTA) countries but also in the US and Canada, addressing the problem of online sellers who don’t adhere to WEEE compliance obligations.

Currently, all producers of electronic and electrical equipment (EEE) in the EU are obligated under the WEEE Directive to declare how much EEE they place on the market, as well as to organise the collection and recycling of their products at the end of life stage, either directly or through a compliance scheme.

The issue of free-riding stems from online retailers, domiciled outside of the EU, which sell products directly to households in the EU from producers in places like China that are not registered with WEEE compliance schemes – bypassing national importers and distributors as well as retailers with a physical presence, such as warehouses.

This puts compliant companies and ‘bricks and mortar’ retailers at a material commercial disadvantage. It is estimated by the report that 5-10 per cent of the OECD EEE market is currently affected by free-riding, a figure that was originally revealed by Peter Börkey of the OECD at a workshop by lighting WEEE compliance organisation Eucolight last September 2017. In the EU, that figure would translate into between 460,000 and 920,000 tonnes of EEE.

The OECD report lists the three main types of free-riding in WEEE EPR schemes as:

• Not undertaking physical takeback obligations;
• Not paying a share of the cost of WEEE management to the required standards; and
• Underestimating the number of products placed on the market, leading to a potential over-estimation of national WEEE recycling rates.

Despite the increased innovation, growth and well-being brought about by digitalisation and the rise of online marketplaces, the report recognises that developments in this sphere can sometimes run ahead of legislation, creating new problems for policy makers. Free-riding poses serious issues for the effectiveness, efficiency and sustainability of EPR schemes, of which there are more than 400 in place across the globe, with more than a third of these targeting WEEE.

The difficulty with tackling free-riding resides in the fact that EPR regulation can prove to be very complex – non-compliance can be as much the result of administrative obstacles and a lack of information as it can be of malintent. The fact that more and more sales are conducted online and across borders also makes it difficult to enforce compliance.

While there is no single, cost-effective way of dealing with online free-riding, the OECD report makes a number of suggestions for potential measures that may go some way to resolving the issue.

Raising awareness and simplifying tracking of transactions

• Make marketplace-style multi-seller platforms inform sellers of their EPR obligations and remove those sellers not registered with a Producer Responsibility Organisation (PRO);
• Introduce e-commerce codes of practice, including voluntary standards for websites that include the display of PRO registration details and certification of EPR compliance;
• Make EPR organisations undertake awareness-raising overseas, informing foreign online marketplaces of the regulations in a given state or territory;
• Link EPR regulations to other obligations, such as reminding producers applying for their EEE VAT registration of their obligations with regard to the EPR regulations; and
• Explore innovative solutions like blockchain technology and smart contracts to improve monitoring.

Strengthening enforcement

• Require the single electronic registration of producers for each jurisdiction that they trade in, with that registration then published on the relevant national authority’s website;
• Provide simple mechanisms so PROs can report suspected free-riders;
• Coordinate enforcement action at the national/supranational level; and
• Develop mechanisms or make it mandatory for customs, tax and trading standards to work in a joined-up way with environmental authorities.

Regulatory measures

• Establish a harmonized framework for registration and simplify compliance across countries/territories and EPR regulations;
• Build into WEEE legislation the ability to prosecute a company for illegal action in another country;
• Provide additional enforcement powers and enable private actions to prevent illegal online selling; and
• Make all websites selling EEE under their own name show their PRO registration details.

‘Unfair burden’

Commenting on the report, Marc Guiraud, Secretary General of EucoLight, said: “EPR schemes, which aim to make producers responsible for the environmental impact of the products they sell, have been key in increasing recycling and collection rates. However, when producers selling online avoid their obligations, they impose an unfair burden in the rest of the system and on compliant producers. The non-declared distance sales also prevent the correct evaluation of the collection rates, and consequently the achievement of the collection targets, which should be based on the total tonnage of products put on the market.”

Lighting is a WEEE stream particularly affected by online free-riding, with up to 20 per cent of lamps in the UK ‘non-compliant’ due to the practice. Nigel Harvey, EucoLight Vice President and Recolight CEO, added: “The OECD report confirms the large scale of WEEE non-compliance through online marketplaces and fulfilment houses. There is an urgent need for regulatory change. The VAT system has been amended to make online fulfilment houses jointly liable for VAT payments for any product they hold in stock in the UK [and] a similar approach is now needed for WEEE.”

The OECD report, ‘Extended Producer Responsibility (EPR) and the impact of online sales’, is available to view on the OECD website.