The year 2020 has been a roller coaster, delivering a proverbial new story of the year seemingly every month. Even focusing exclusively on the regulatory world, 2020 was filled with highly impactful events and emerging trends, any one of which would have dominated headlines in any other year. As we look back at these watershed regulatory events, it is important to prepare for the future as they will continue to be felt into 2021 and beyond.
Business Impact of COVID-19
Through a business lens, the effect of COVID-19 evolved as it spread across the globe. The first wave in China resulted in factory closures, causing widespread supply disruptions in many industries, notably medical devices and manufacturing. Numerous manufacturers pivoted production to meet the sudden spike in demand for personal protective equipment (PPE) and other materials that could combat the spread of the virus, such as hand sanitizer. This put a strain on companies as they struggled with unfamiliar regulatory requirements. The Food and Drug Administration (FDA), for example, issued dozens of recalls for types of hand sanitizers made with restricted substances. In reaction, access to critical manufacturing and sourcing capabilities has emerged as one of the most impactful lessons learned from the 2020 COVID crisis.
The virus, the measures to stop its spread, and subsequent economic downturn also exacerbated the risks associated with forced labor. The depressed conditions of the economy created an exploitative environment in areas with poor government oversight and/or a lack of supply chain transparency. Unlawful labor practices executed in 2020 will persist for years to come and, as they come to light and result in regulatory restrictions and sanctions, they will present long-term reputational risks to those companies that were involved.
On May 26, 2020, the European Union (EU) Medical Device Regulation (MDR) was set to take effect. However, in a very rare decision, the EU deadline was pushed back a year during the first wave of the pandemic. The regulation concerns the production of medical devices and requires due diligence, disclosures, and labeling with regard to the presence and use of certain substances known to be harmful to humans. The extension allowed companies to focus their efforts on combating COVID-19 and provided more time to acquire the substance data necessary to meet the new requirements. The new deadline is May 26, 2021, for the EU MDR and May 26, 2022, for the EU In Vitro Diagnostic Regulation (IVDR), which was similarly postponed.
Unlike EU MDR, the EU Waste Framework Directive and its January 5, 2021, deadline has held firm, requiring the reporting of substances of very high concern (SVHCs) to the Substances of Concern in articles, as such or complex objects (Products) (SCIP) database. Industry groups have made numerous requests for an extension due to the pandemic and other factors. However, with the Registration, Evaluation, Authorisation, and Restriction of Chemicals (REACH) Regulation being in force for over a decade, the request was dismissed by the European Commission. Accordingly, the database has been accepting dossiers from in-scope companies since late October, and the push to meet the complex data requirements will be a regulatory focus well into 2021.
CSR Stays on the Radar, ESG Emerges as a Core Topic
Corporate social responsibility (CSR), as demonstrated through environmental, social, and governance (ESG) policies and disclosures, continues to be a top consideration for investors and consumers, prompting action by both industry and governments. Early in 2020, concern surrounding the mining of cobalt led to many companies adopting enhanced due diligence processes to root out human rights violations in their supply chain.
Additionally, enforcement of Section 307 of the U.S. Tariff Act, which blocks the importation of goods made wholly or in part by forced labor, hit record-setting levels. This was driven largely by allegations of Chinese forced labor camps in the Xinjiang region. Several pieces of legislation that enhance restrictions on goods with supply chain ties to the region are making their way through the U.S. congress, and will continue to present a risk to companies in 2021.
For the UK, the year ends how it began, with concerns about the long-term ramifications of Brexit. On January 31, 2020, the UK formally separated from the EU and a transition period lasting until December 31, 2020, began. The period maintained the status quo in trade, regulations, and other areas of life, permitting the two sides to reach an agreement and navigate their futures. As of the publishing of this blog, no such agreement has been reached, suggesting a hard Brexit is an increasingly likely probability.
The UK government has issued numerous guidances for companies to help them understand the confusing array of rules set to take effect at the end of the transition period. For example, England, Wales, and Scotland will be regulated under UK REACH, but most products produced in Northern Ireland (still part of the UK) will be regulated under the EU REACH Regulation. The UK has also established its own timelines for companies to meet regulatory requirements. The regulatory divergence now in place in Europe will be a source of risk and frustration for companies selling into both the UK and EU markets now and in the foreseeable future.
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