European Union's Reach legislation can have a major impact on SMEs

Play your cards right

05 February 2008 00:00  [Source: ICB]

The EU's Reach legislation requires careful planning from handlers of chemicals at all stages - from development to manufacture, transport and use

Fred Du Plessis & Frans Van Antwerpen/ Kline & Company

FOR THE small and medium-sized enterprises (SMEs) that are active in the European chemical industry, compliance with the new Reach (Registration, Evaluation, and Authorisation and Restriction of Chemicals) regulations will be a challenge.

But how they play their cards will determine if the preregistration period and the months that follow will be a time of opportunity or reckoning.

Reach focuses on all manufacturers, importers, distributors, and downstream users that have any involvement with chemical products. Under the regulation, companies may play various roles. They may be a manufacturer of one chemical and a downstream user of another, for example.

Company obligations vary greatly. Reach requirements are stricter for manufacturers and importers than for downstream users and distributors.

To register a chemical substance, manufacturers are required to collect data on physiochemical, toxicological, and ecotoxicological properties of substances. The amount of data to be submitted will depend on the anticipated production or imported volume and the characteristics of the ­substance involved.

Downstream users and distributors are only obliged to communicate information on risks to health and the environment from their use of a chemical substance and to take action in implementing risk reduction measures.

TO REGISTER OR NOT TO REGISTER?

So what does this mean for the SMEs in the European market? It is expected that they will be more affected by this legislation than will large companies.

Because SMEs have smaller production volumes than large companies, their cost of registration per unit is higher. Faced with these costs, some SMEs may decide not to register, or even not to preregister certain substances. Bad idea.

It is advisable for a company to preregister the chemical substances it is producing, even if the volume is currently below 1 tonne/year, the lower limit for registration.

Preregistration is an easy process, particularly for products that are already marketed in the EU. It allows a company to continue to produce and/or market its chemicals in the EU, and there is no obligation to register a product at a later date.

But most importantly, the company will become part of a Substance Information Exchange Forum (SIEF). SIEFs are groups of companies registering the same chemical substance that share data and costs.

In addition, the EU has taken a number of measures to mitigate the effects of the Reach legislation on SMEs' capacity for innovation and the creation of jobs.

SMEs are more likely than larger companies to be registering products with a volume below the 100 tonne/year level. And if SMEs preregister in this range, they will not have to register for 11 years after Reach came into force, unless they sell chemicals of high concern, such as persistent, bioaccumulative, and toxic substances or very persistent and very bioaccumulative (vPvB) substances.

Other steps to help SMEs include a registration exemption for products with sales or research volumes below 1 tonne/year. And no chemical safety assessments are required for volumes between 1-10 tonnes/year.

CHALLENGES FOR SMEs

Despite these measures, many SMEs will still be hit hard. Most do not have in-house expertise to tackle the Reach process, and they often have limited financial resources.

There might not be a feasible return on investment to register some products. It is therefore a strong possibility that some SMEs will remove products from their portfolios at the registration deadlines.

Many SMEs are downstream users of substances and need to make sure that their suppliers cover their end uses in the registration process. Therefore, specifying the uses of chemicals is as important as specifying the properties.

CATALYST FOR CONSOLIDATION

On a positive note, Reach will also present opportunities for SMEs. When the SIEFs are formed in December, the SMEs will know who has preregistered certain substances and who did not preregister.

This could open up strategic opportunities for SMEs to divest product lines, purchase new lines, or even acquire competing companies. As a result, we expect that Reach will be a catalyst for consolidation in the industry, and companies that are well prepared for this scenario should emerge with a stronger market position.

SMEs with products catering to certain niche applications with high profit margins may benefit if they can overcome the costs of registration, which may represent a new barrier to entry for competitors.

Most of the companies in the lubricant industry are downstream users of chemicals, and as such, do not have to register their blends. However, the industrial lubricants sector consists mostly of specialty products that are produced in much smaller quantities than automotive lubricants.

Consequently, the additives or additive packages are also often produced in much smaller quantities by SMEs, and these companies might decide that it is not economically feasible to register such low-volume products.

Therefore, it is expected that in many cases, the substances used in blending industrial lubricants will no longer be available, and that these lubricants must be reformulated or withdrawn from the market altogether.

NEW ROLES

The overriding impact of Reach on the chemical industry will be the shift in responsibilities from public authorities to the industry in addressing the risks from chemicals and providing safety information.

The authorities have prescribed a specific testing and risk minimization strategy, the execution and associated costs of which are the responsibility of industry. See page 34 for selected benefits and threats of the Reach legislation.

To ensure that the Reach process runs smoothly, the European Chemicals Agency (ECHA) will serve as a central entity to manage the technical, scientific, and administrative aspects of the system and ensure consistency in the decision-making process.

In addition to the systems developed by the ECHA, support is provided by industry associations, national governments, large manufacturers of chemicals, and consulting companies.

REGISTER - OR ELSE

The EU's new chemical legislation, Reach, was implemented June 1, 2007, with the first action - preregistration - required June 1-November 30, 2008. Any chemical substance not preregistered in that period will be banned from production or marketing in the EU as of December 1, if the annual volume is larger than 1 tonne/year. 

REACH REGISTRATION DEADLINES

Date	Volume (tonnes/year)
December 2010	>1,000
June 2013	100-1,000
June 2018	1-100

Source: Kline & Company

Fred du Plessis, based in Oxford, UK, is senior vice president of Kline & Co, a worldwide consulting firm. He directs the European management consulting organization.

Frans van Antwerpen, who is based in New Jersey, US, is an expert in the metalworking fluids market, and a project manager in the lubricants practice at Kline & Co.

For more on Chemicals and the Economy, go to www.icis.com/blogs/chemicals-and-the-economy

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