A new study suggests that EU harmonisation could erode the cost advantages that newly-joined states currently enjoy, and could leave British importers liable if products sourced from these countries d

The accession of the 10 new member states took place on 1 May 2004. The business community is one of enlargement's most enthusiastic supporters, enticed by the prospect of an integrated market with 450m customers.

However, a recent survey by EuroChambres found that only 10% of companies in the region are fully informed about new legislation that will affect their businesses and only 8% said company programmes to comply with EU legislation would be completed in time for 1 May 2004. In addition, a new research paper from risk and insurance firm Marsh highlights the fact that as many as 35% of companies in Eastern European newly-joined states are not compliant with rules on consumer protection and product liability.

Marsh warns that any UK companies importing and selling goods from Eastern European suppliers could be liable if the original product manufacturer is not compliant with EU law. EU imports from the newly-joined states amounted to EUR81.4bn in 2002.

Consumer protection is an integral part of the EU's single market legislation.

Companies that operate in EU member states have to comply with 14 directives designed to protect consumer rights. In particular, product liability legislation aims to make manufacturers responsible for complying with product standards and holds them liable for all damages. However, if the manufacturer cannot be identified, the vendor becomes responsible, regardless of geographic location.

"Any company importing or selling goods from countries in Eastern Europe will want some assurance that the goods are compliant with EU directives and national legislation, and that the original manufacturer can be identified," said Alan Williamson, CEO of risk consulting at Marsh. "Otherwise, liability could fall to the vendor."

Weak monitoring and enforcement by the governments of new member states could lead to inconsistencies in implementation of the rules. Economist Corporate Network research found that market surveillance, monitoring and enforcement capabilities are reckoned to be most effective in the Czech Republic and Slovenia. Baltic countries would appear to have furthest to go.

"For all its benefits, EU enlargement will increase the total cost of risk for most companies in Central Europe. In particular, those companies which do not take steps to manage the new risks arising out of their country's accession to the EU will face a significant increase," commented Alan Williamson.

"The inevitable increase in frequency and severity of claims made against manufacturers in the newly-joined states will result in higher insurance premiums. This, combined with the cost of revised processes and product recall requirements, could erode the unit cost advantage that has been so attractive to importers in the EU."