How WEEE freeriders are costing the industry millions

Written by: Nigel Harvey | Published:
HMRC loses up to £1.5bn per year in VAT payments through online marketplace

The growth of online shopping is harming the environment thanks to ‘freeriders’ escaping WEEE compliance – but there is a solution.

Buying from online marketplaces gives consumers access to a vast range of products, frequently available on next-day delivery, from a huge number of suppliers, many of whom are based outside of the UK.

That range of choice is one of the reasons they have been so successful. But it can also result in non-compliance of product – and suppliers – with European and UK standards and legal requirements.

And because the supplier is frequently based on the other side of the planet, the ability of UK enforcement bodies to take action is very limited.

Non-compliance with WEEE

WEEE regulations require producers of new electrical equipment to finance the collection and recycling of waste electricals. The amount they pay is dependent on the market share, by weight, of the product they sell. That is fair – larger producers pay more, and smaller producers pay less.

But when some companies avoid compliance, such as many selling through online marketplaces, they avoid WEEE payments altogether. Such companies are called ‘freeriders’.The actions of freeriding has a triple-whammy impact:

  • The non-compliant companies have a competitive advantage over compliant companies.
  • The costs to the compliant companies is even higher than it should be, because there are fewer companies to fund the recycling that takes place ­– recycling which includes the waste arising from product sold by freeriders.
  • And, worst of all, the financial viability of the WEEE system is undermined. As online sales grow, and compliant businesses suffer, the long-term funding needed to keep the system going gets compromised.

The scale of the problem

To assess the scale of the problem, WEEE compliance scheme Recolight looked at one leading online marketplace – Amazon. We searched for “LED lightbulb” and examined the first 120 products listed.

We then cross-checked the company name with the register of WEEE-compliant companies, published and updated monthly by the Environment Agency.

The results were alarming. Of the first 120 listings, 91 (or 76%) appeared to be non-compliant freeriders, which would therefore make no contribution to UK recycling costs.

Of those 91 freeriders, 74 (or 81%) were based in China/Hong Kong and hence outside the jurisdiction of UK enforcement bodies; and over 70% had product available ex-stock in the UK, for next-day delivery.

Furthermore, virtually all the products were multi-packs of LED bulbs, with large numbers of recent English-language reviews, implying large sales volumes.

The WEEE Scheme Forum (WSF), the UK trade association of WEEE compliance schemes, undertook a similar, but larger-scale, online marketplace study in early 2018. The results were again of considerable concern.

What seems clear from this research is that smaller products, which are easier to transport, are more likely to be non-compliant.

It is only fair to note that, where the online freeriders were UK-based, it is possible that they were purchasing product from compliant businesses. But this only accounts for a small proportion of the freeriders detected. Most were based outside the UK, and so could not make this claim.

Why are online marketplaces susceptible?

A key contributor to the problem is the nature of the fulfilment models operated by online marketplaces. Producers based in, for example, China can arrange for their product to be held in stock in the UK, awaiting an order.

The UK consumer gets next-day delivery. But the company in China still owns the products and is legally responsible for compliance with UK and EU law.

The operator of the warehouse, often the online marketplace, can deny any liability for compliance.

It seems therefore that the fundamentals of that fulfilment model create an environment in which non-compliance can thrive. And it is legitimate businesses, and ultimately the underpinning financing of the UK’s recycling system, that is put at risk.

More than just WEEE

It seems very likely that this problem goes well beyond WEEE, and into other extended producer responsibility regimes such as waste packaging and waste batteries. It has been estimated that HMRC loses up to £1.5bn per year in VAT payments through online marketplaces.

Within the past few months, HMRC has moved to make online marketplaces and fulfilment houses “jointly and severally liable” for VAT. That is a great step, which clearly puts huge pressure on the online retailers to ensure VAT is paid.

And yet the problem is wider still. The Lighting Industry Association recently purchased six electrical products, available for next-day delivery, where Amazon is acting as the fulfilment house and has stock in its UK warehouses. The safety testing it undertook showed that five of the six have ‘major non-compliance issues’, some of which are safety related.

International recognition

The Organisation for Economic Co-operation and Development (OECD) recently published a report on the problem. It concluded that the online freeriding problem resulted in 5-10% of all electrical products being non-compliant with the WEEE directive.

The report recommended a range of possible actions to address the issue, one of which was to require online platforms that operate a fulfilment house to take on the responsibilities of producer of the products that they list from non-compliant companies. That would apply, whether or not they are technically the seller

Next steps

There is no doubt that urgent action is needed. Online selling continues to grow – and with it the non-compliance that undermines the financing of much UK recycling.

Defra has been contemplating a voluntary agreement between major online marketplaces as a way of addressing the problem. Although quicker to implement than regulatory change, that is unlikely to be sufficient as a long-term solution.

Compliance is mandatory for UK-based producers, so to put online operators on a voluntary footing risks becoming an effective way of maintaining the unlevel playing field.

Defra recently ran a consultation on WEEE, which included a question related to online freeriding; 74% of respondents stated that the current regulations had “no” or “low” impact on addressing the problem.

Many consultation respondents suggested that Defra should amend the WEEE regulations to require online sellers and fulfilment houses to take on the responsibility of “producer” for the product they sell or stock on behalf of internet sellers.

That aligns with the findings of the OECD, and uses very similar principles adopted by HMRC to address the VAT problem.

It is to be hoped that Defra will include it in the forthcoming Resources and Waste strategy. It could also be written into the UK’s WEEE regulations with only a few minor amendments. We at Recolight would certainly support it.

And with many UK producers suffering from this unfair competition, it cannot happen a moment too soon.

Nigel Harvey is CEO of Recolight


This material is protected by MA Business Ltd copyright.
See Terms and Conditions.

Comments
Name
 
Email
 
Comments
 

Please view our Terms and Conditions before leaving a comment.