Reaching crisis point

20 June 2005 00:01  [Source: ACN]

John Richardson discovers that the proposed European Union chemicals legislation will have a big impact on Asia, as many producers struggle to understand its implications

Some of the attendees from small and medium-sized companies (SMEs) at a recent seminar in Kuala Lumpur, Malaysia, on Reach were not even aware of what the acronym stood for, said several delegates who were there from larger concerns.

Just in case you don’t know, Reach stands for the registration, evaluation and authorisation of chemicals, and is a proposed piece of EU legislation. If it becomes law, all chemicals manufactured in Europe and imported into Europe will be subject to Reach. The planned legislation will also apply to certain finished goods containing chemicals.

An EU official attending the seminar, which took place as part of the ChemCon Asia event in Kuala Lumpur earlier this month, added that this was typical of a ‘widespread ignorance in Asia over Reach and its implications for the chemicals industry here.’ The seminar was followed by a three-day conference on international chemical trade and legislation.

The EU official added that the lack of knowledge was making life hard for organisers of seminars, such as ChemCon Asia.

‘They don’t know whether to start with the basics, even down to what Reach stands for, or to assume a certain degree of knowledge and move straight into how to achieve compliance.’

One reason for ignorance might be the belief that Reach will not happen. For a while, the legislation did seem to be hanging in the balance.

However, the first reading of the Reach white paper is due to be held by the European parliament in Q4 of this year, with the official predicting that it was almost certain to pass through the legislature for consideration by the European Commission (EC). ‘The EC very rarely rejects proposed legislation that has been ratified by parliament.’

Some of those close to Reach say this process will be finished by the first half of 2006, meaning that by then Reach is likely to be enforced. Others predict that the ratification process might drag on until 2007. Nobody, however, doubts that what is perhaps the biggest legislative shake-up in the history of chemicals, will become law.

The Asian chemical industry, therefore, does not have much time to get up to speed on Reach. ‘First of all, the industry needs to understand that Reach is not the responsibility of government regulatory ministries and departments, but is the responsibility of each company,’ the official said.

You might say that this article has to date been a little patronising.

Also, we have generalised here; many Asian companies, particularly the larger ones, are up to speed with Reach. The leaders in awareness appear to be the Japanese, with the Japanese government taking its concerns over the planned legislation to the World Trade Organization’s (WTO’s) Technical Barriers to Trade Committee last August.

But it does seem to be that whereas the level of awareness of Reach is high in Japan, this is not the case elsewhere in Asia, even among some of the bigger companies.

How big a deal for Asia?

And so what’s all the fuss about? How big a deal will Reach be for the Asian industry?

This is going to vary enormously between companies, depending on how much of each chemical a company produces, what chemicals it manufactures, the nature of legislation in the country or countries in which it operates, and whether it already exports to Europe. How Reach would work is explained in detail on page 14. It is up to each company, using this and other information, to calculate for itself the cost and time involved.

As for the Asian industry as a whole, nobody seems to have calculated the cost, and we couldn’t even lay our hands on any estimates for anywhere in Asia.

In Europe, it is the opposite. Many studies have already been produced about the financial implications and several more are in the pipeline as the debate continues over the damage that Reach could cause to profitability, and also innovation.

For what it’s worth, to give a possible indication of the extent of the damage to Asia, consultancy KPMG released a study in early May about the impact on Europe, which was used by both sides in the debate to support their arguments.

The headline finding of the study was that Europe’s small and medium-sized enterprises (SMEs) would have to spend 20% of annual turnover in the year when registration occurred, assuming that the companies had to register all of their products.

The study was conducted for the European Chemical Industry Council (Cefic), the European employers’ federation Unice, the EC, and a number of non-governmental organisations.

A second investigation, carried out jointly by the Institute for Prospective Technological Studies and the EC’s Joint Research Centre was also released in early May.

It found out that Reach would have only a moderate impact on costs in the chemicals sectors of Eastern Europe’s new EU member states.

Stavros Dimis, the EC’s environment commissioner, said that the KPMG investigation confirmed the EC’s original estimate that Reach would cost the European chemical industry Euro2.3bn (US$2.79bn) over 11 years.

Nonetheless, Dimas acknowledged a need for modifications to Reach through the ‘development of specific guidance and tools to facilitate implementation, which will be helpful to all companies, in particular SMEs’.

The EC has accepted that the study demonstrates that the registration costs of volumes of less than 100 tonne of substances would make them less profitable or unprofitable. It recognises, also, that SMEs have less market power to pass on Reach costs.

This heartened Cefic’s trade and policy director, Rene van Sloten, who has deep concerns over the impact of Reach on innovation.

He worries that the cost to SMEs will be so great that they will cut back on research and development. In the end, that would mean less innovation in consumer goods.

Cefic, understandably perhaps, interpreted both studies as supporting its views on Reach.

A crazy system?

At least, though, there was plenty of debate about and interest in Reach on the sidelines of ChemCon Asia.

A large chunk of the debate was over the fact that Reach, as we mentioned earlier, has different deadlines for compliance; these are based on tonnage.

Any chemical either manufactured in Europe or imported into Europe at a volume of one tonne or more per year must eventually be registered under Reach. But the earliest registration deadline will be for high production volume chemicals of 1000 tonne or more per year.

This system was described as ‘crazy’ by a Malaysian speciality chemicals producer. He argued that a risk-based system would work much better rather than a tonnage-based one.

‘Because of the one-tonne limit, just about every chemical produced, regardless of the risk it poses, will come under the jurisdiction of Reach,’ he added.

Several other attendees urged the EU to move towards a risk-based system. They said that this could also help ensure that the more dangerous chemicals were effectively signalled out for early Reach compliance.

The other big concern was how Reach would affect the export of finished goods to Europe.

‘Most articles, for example shoes and textiles, contain chemicals,’ adds the EC’s online document.

‘Some of these would be potentially hazardous to the environment and health, if they are released. Those substances that are intended to be released as part of the utility of the article, for example the ink in a cartridge, will need to be registered if they are classified as dangerous.

‘The same tonnage thresholds and information requirements as for other substances apply.

‘If the release is not intended as part of the functioning of an article, but happens anyway – for example, formaldehyde released from fibreboard – the substance may have to be notified to The Chemicals Agency.’ The Chemicals Agency, which will administer Reach, will then decide whether the product needs to be registered.

This latter provision was the cause of the concern, particularly for low-end finished goods exported from countries such as China to the EU. One delegate gave the example of cheap T-shirts, where dye leaches, even though, of course, this is not intended.

But the EU official argued: ‘Potentially harmful goods, such as the T-shirt example, are already subject to existing regulations, and in some cases have already been excluded from Europe. If Reach helps this process all well and good.’

Humans are highly subjective, of course. Could there be the danger that perceptions influence the application of Reach? Will the army of bureaucrats required for Reach always approach each case with an open mind? Or will some Asian exports from countries such as China be discriminated against because of the perception that they must automatically carry a higher risk? ‘Absolutely not,’ reassured the EU officials.

The proof will be in the pudding, though, with conference delegates predicting that Reach will be referred to the WTO if there is any evidence of discrimination.

As we mentioned earlier, the Japanese government has already taken complaints over Reach to the WTO and has yet to receive a reply. It submitted its complaints last August.

The Reach system requires every manufacturer and importer to register new and existing substances, even if they have already been registered.

The Japanese argue that this might not be in line with a WTO ruling on technical barriers to trade.

Article 6.5 of Reach exempts substances that have already been registered for that use ‘by an actor up the supply chain’. In reality, though, this exemption applies only in the case that producers use substances that have already been registered by manufacturers or importers operating within the EU.

In other words, Japan argues, this amounts to discrimination, as exporters would be placed at a disadvantage.

A further concern was the amount of paperwork that will need to be completed. Forms will have to be submitted, in English or any of the other languages used by the EU, which will then be computer-scanned as part of the registration process.

If a form has not been completed properly, a computer will detect the error, leading to an investigation by a Chemical Agency employee.

Language problems, or lack of familiarity with the forms, might therefore lead to an investigation and possibly delay in shipments to the EU, rather than non-compliance with Reach.

It all sounds pretty scary. But it is worth stressing that Reach in its current format is not a done deal. Further adaptations of the draft law are still possible, provided enough lobbying takes place.

To give just two examples of how Reach can be a ‘moveable feast’, Internet consultation into the legislation led to the decision that no registration or evaluation would take place for polymers.

However, there is a caveat. ‘This situation will be reviewed, as soon as a practical and cost-effective way of identifying dangerous polymers on the basis of sound technical and valid scientific criteria can be established’.

But there are lots of different industry groups lobbying for changes. Those who lobby the hardest and the loudest might get their own way.

For example, pressure from European manufacturers and importers of finished goods led to another amendment to Reach: downstream users of chemicals will not normally be required to complete chemical-safety assessments or chemical-safety reports. This will, instead, be the responsibility of the producer or the importer of chemicals to register the substances.

In Asia, as we’ve said, only the Japanese seem to be pushing hard on Reach, which was confirmed by phone calls to industry associations (see box on page 13).

Time is running out for Asia to exert the pressure needed to change Reach into a more workable piece of legislation for this region’s chemical industry.

Much ado about nothing?

The possibility that Reach will clash with WTO requirements, despite the EC’s insistence that this will not be the case, led conference attendees to speculate that Reach might be impossible to enforce.

One delegate said: ‘Could it all end up being much ado about nothing? If the WTO becomes involved, and also the big multinationals are unable to source low-cost raw materials from Asia, Reach might come into force, but it could become a lame duck.’

‘At least, though, it would have kept lots of bureaucrats in work for a great length of time.’-

Industry Association response

The Indian Chemical Manufacturers Association (ICMA) has not published its members’ reactions to Reach, said an ICMA spokesman. Instead, it has made known its members’ concerns to India’s Ministry of Chemicals.

He said: ‘We voiced our worries – that there will be problems for Indian chemical exporters, our costs will go up, and so on’.

A spokesman for the Petrochemical Industry Association of Taiwan (PIAT) said it had had only internal discussions with members. ‘Our opinions were published in our internal newsletter. We have not gone to the Taiwanese government with this problem, because we think it will not be such a big problem for us… it will be a bigger problem for the EU countries, because, for example, they export more fine chemicals to Taiwan than we export to them. We prefer to wait and see what happens. After all, even EU members such as Germany are not happy with Reach.’

Over in the Philippines, an official from the Ministry of Trade and Industry dealing in trade relations with the EU said that only a tiny number of small producers – members of Spik (Association of Chemical Industries in the Philippines) – had expressed their concerns about Reach. He said they had made their feelings known through the EC’s Internet consultation on Reach. ‘Most producers did not react because they felt they wouldn’t be affected – hence, they did not broach the issue with the Board of Investment.’

The official noted that Singapore’s Ministry of Trade and Industry had made the concerns of the island’s chemical producers known through the EC’s Internet consultation. According to him, other Asean (Association of Southeast Asian Nations) countries largely agreed with Singapore’s arguments and so felt there was no need to repeat them.

In Malaysia, an official from the Malaysian Petrochemical Association said its members had held only internal discussions on Reach. She declined to say whether they were concerned about the impact of Reach on their businesses, and added: ‘We have made no representations to the government on the issue.’

What is Reach all about?

Why is a new EU chemicals policy needed?

The current legislative framework for chemicals is inadequate. It has not produced sufficient information about the effects of chemicals on human health and the environment, and where risks are identified, it is slow to assess them and introduce risk management measures. These shortcomings have potentially put human health and the environment at risk. The current system has also hampered research and innovation, causing the EU chemicals industry to lag behind its counterparts in the US and Japan in this regard.

How will registration under Reach work?

Registration is the basis of Reach. Manufacturers and importers will be required to gather information on the properties of their substances, which will help them manage them safely, and submit the information in a registration dossier to a central data base. Companies will be required to register all substances produced or imported in volumes of one tonne or more per year per manufacturer or importer. A new independent agency at European level will receive the dossiers and manage the database. Information requirements will largely depend on volume, but may be tailored to the intrinsic properties and conditions of use of certain substances

Registration will involve providing information on:

The intrinsic properties and hazards of each substance (such as physicochemical, toxicological and eco toxicological properties). This information – if not already available – can be found through a variety of means such as computer modelling and epidemiological studies, or through testing. Where testing is necessary and involves animals, it will be kept to a minimum by requiring companies to share existing data. This will also reduce the associated costs. Any proposals for testing on animals will also be subject to a ‘dossier evaluation’.

The use(s) of the substance identified by the importer or manufacturer or by their customers. A report of an assessment of risks for human health and the environment, and how those risks are adequately controlled, for the identified uses for substances produced or imported in volumes of ten tonne or more per year per manufacturer or importer (known as chemical-safety reports). For lower volumes, safety information produced for the safety data sheets will be submitted as part of the technical dossiers.

To cope with the large number of ‘existing’ substances a phased approach is proposed. The deadlines for registration are set according to the volume of the substance on the market or the hazard. The shortest deadlines apply to very high-volume substances (above 1000 tonne), and carcinogenic, mutagenic or reproduction toxic substances above one tonne. These will have to be registered within three years.

Will each registration require testing?

No. There is already a lot of information available, and Reach accepts the submission of existing information. New testing will be required only where there is no sufficient information available and other sources of information are not appropriate. Registrants will be required to share animal testing data; this will avoid many new tests.

What is evaluation?

There are two types of evaluation: dossier and substance evaluation. Both evaluations will be performed by competent authorities in the member states.

Dossier evaluation will be conducted to check proposals for testing on animals and ensure that unnecessary animal testing is avoided. Registration dossiers can also be subject to a dossier evaluation to ensure their compliance with the registration requirements.

Substance evaluations can be performed when there is reason to believe that a substance may present a risk to human health or the environment (for example, because of its structural similarity to another substance or for other reasons). Therefore, substance evaluations will look at all the registration dossiers submitted for the same substance and take into account any other available information.

It is expected that substance evaluations will focus on those substances that may pose the greatest risk to human health and the environment. The agency will develop risk-based criteria to assist with the prioritisation of substance evaluations.

To help ensure that the system operates efficiently, a competent authority from one member state will be designated in each case to carry out an evaluation based on rolling plans they will develop, setting out the substances they will evaluate. The outcome of an evaluation may be that the registrant(s) have to provide additional information, either to bring their registration into compliance with the requirements or to help clarify risks.

If all member states agree to request more information, the agency will take the decision. If not, the EC decides whether or not more information should be requested.

What is authorisation, and which types of chemicals will require authorisation?

All substances of very high concern will be subject to authorisation. Authorisations apply to particular uses of the substance in question. Authorisation will be granted only if the producer or importer can show that risks from the use in question can be adequately controlled, or that the socio-economic benefits of the use of the substance outweigh the risks. In the latter case, the possibility of substitution should be considered.

The authorisation decision will take into account substitution plans showing, for example, that the industry is researching substitutes. Third parties will also be able to provide information to the agency about possible substitute substances or technologies.

Examples of substances that will be subject to authorisation are:

- CMRs (carcinogenic, mutagenic or toxic to reproduction), category 1 and 2,

- PBTs (persistent, bio-accumulative and toxic), 

- vPvBs (very persistent, very bio-accumulative).

- Substances identified as having serious and irreversible effects to humans and the environment equivalent to the other three categories; for example, certain endocrine disrupting substances (substances disturbing the body’s hormone system). These will be identified on a case-by-case basis and be subject to authorisation.

How long will it take to register all chemicals under Reach?

Substances that are already on the market will be phased gradually into Reach.

Substances produced in high volumes and CMRs will have to be registered first. Registration deadlines will be calculated from the year the legislation enters into force so that the new obligations will apply from:

- year 3 for high production volume chemicals (1000 tonne or more/year/manufacturer or importer) and CMRs in volumes of 1 tonne or more;

- year 6 for production volumes in the range of 100-1000 tonne;

- year 11 for low production volume chemicals (1-100 tonne).

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly