Reach: French SMEs set for pain despite changes - UIC

08 April 2004 17:20  [Source: ICIS news]

PARIS (CNI)--A new study sponsored by French chemical trade group Union des Industries Chimiques (UIC) claims that despite changes the proposed European legislation will still have major social and economic impacts on the country’s economy.

 

The new study into the registration, evaluation and authorisation of chemicals (Reach) regulations has been carried out by Mercer Management Consulting, which undertook the first French assessment  of the likely impact based on a European Commission (EC) White Paper. While the consultancy concedes that the EC lightened the burden of Reach, its report argues that the costs remain high and it spotlights, in particular, the burden for small- to medium-sized enterprises (SMEs) and the downstream sector.

 

In addition to SMEs, the consultancy’s report spotlights four downstream sectors: steel; electronics; automobile equipment; and, textiles.

 

Overall, the consultancy found in results published Thursday that fine chemicals (pharmaceuticals, cosmetics and so on) and specialties would be burdened with 56% of the cost of the tests required under Reach in France. The sectors only account for 21% of total chemicals sales in the country.

 

Mercer claims that the economics will no longer stand up under the extra costs for some 10-30% of the substances in the sectors, and that they could cease production before 2012.  It added that the products are located upstream of a long and complex process chain.

 

"A family of substances can have up to 25 different applications in 35 different markets", added Bruno Despujol, chief consultant on the study.

 

The disappearance of these products would be felt all along the processing chain as chemical formulators and certain sectors will need to re-study and have re-approved by their clients some 20-100% of the mix of their substances. In other sectors of the chemicals industry there was forecast to be mainly productivity losses, and yet in others distortions in trade are envisaged.

 

According to Mercer’s evaluation of the likely costs of Reach for France, based on the Commission’s propsoals adopted last year, the theoretical cost of the tests are Euro800m ($970m).

 

However, due to the domino effect over the whole chain, the global economic impact based on a ten-year model could be as high at Euro28bn, or 1.8% of gross domestic product (GDP). The study claims that Reach would cost the economy some 360 000 jobs, resulting mainly from reduced competitiveness in certain industrial sectors.

 

The study cites the example of the semi-conductor sector, which would see costs increase while prices are too competitive in the global market to be moved higher, leaving margins squeezed. The substitution costs related to alternative products would not be able to be absorbed, leading to heightened risk of industrial relocation. The production of one microchip requires more than 150 substances/formulations, the study said. 

 

The textile sector would also feel the pain of extra costs from Reach, the study argued. Once again, the sector faces tough international competition, and SMEs would will be hard put to absorb the strong increase of their cost structure. SMEs use 300-400 specialties in their products, accounting for 20% of the cost structure, and they can introduce up to 2500 new formulations every year.

 

Mercer’s study added that while French textile producers survive by concentrating on strong added value products, their negotiating powers with regard to suppliers and clients are very weak as the price of finished products can drop by 15% per year.

 

Even in the segment of windscreen wipers, in the automobile industry, where the impacts are smaller, European manufacturers will suffer in terms of costs and innovative capacity, the study argues. It claims that, upstream, 10-30% of additives will be withdrawn from the market, 20-50% of formulations will have to be worked over, and 12-20% of the solvents will not longer be marketed. In this sector, Europe is a worldwide leader thanks to innovation, with research and development (R&D) spend running at 6% of revenues, the study noted.

 

In another example of expected industrial impacts, the Mercer cites the impact of Reach on cold-rolling oils used Europe’s specialised area of thin sheet steel manufacture. The cols-rolling oils sector is relatively protected from international competition, but which would suffer major productivity losses due to losses. The oils consist of 10% additives, of which 20-30% could disappear, leading to 15-100% reformulations and the disappearance of 15-20% of the formulations, it was claimed. 

 

Previously, UIC said the purpose of the study was to continue the lobbying process over Reach now that the European Parliament is reviewing the proposals put forward by the EC.

By: Doris Leblond
+44 20 8652 3214

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