INSIGHT: Even prepared firms may fall to Reach

13 March 2008 15:17  [Source: ICIS news]

By Joe Kamalick

 

WASHINGTON (ICIS news)--Although US chemical producers generally appear well prepared for the fast-approaching deadlines of Reach, their business soon may suffer significant disruptions because other manufacturers are not ready.

 

Under the EU’s sweeping programme for the registration, evaluation and authorisation of chemicals (Reach), the crucial pre-registration period of 1 June through 30 November is imminent. 

 

However, according to a new study by PricewaterhouseCoopers (PwC), only about half of US manufacturers outside the chemicals industry are even aware of what obligations they may face under Reach and fewer still are taking appropriate action.

 

The result, says PwC’s Hans Schoolderman, could be “significant business disruptions” as Reach rules begin to block European sales of US products that lack proper registration documentation.

 

In fact, Schoolderman believes that transatlantic supply disruptions are inevitable, and we will only know how severe the turmoil will be when perhaps hundreds or thousands of products barred from Europe start to backup in the supply chain and begin to clog the wheels of production and commerce.

 

Under Reach, during the six-month period from 1 June through 30 November, foreign firms exporting to the EU must pre-register any of some 30,000 substances that are shipped to Europe as chemicals or as components in intermediate or end-user products.

 

The formal process of testing and full registration of all 30,000 substances will begin next year and run through a series of stages and deadlines to June 2018.

 

But before the complex and detailed formal registration process gets under way, those exporting goods to Europe must complete the relatively more simple pre-registration process - if they want to keep exporting their products to Europe while the years-long formal registration process unfolds.

 

If an exporter to Europe does not pre-register its products, then those substances or items will be barred from the EU until each product is run through the formal testing and registration period that essentially begins in the new year.

 

The simple rule on pre-registration, said Schoolderman, is “no data, no market”.

 

The trouble is that a great many US firms are completely oblivious to the regulatory train wreck that is about to hit their exports and supply chains.

 

Schoolderman, who directs sustainability and climate change services for PwC in Amsterdam, said that his firm’s recent survey of 241 senior executives across six industries in 29 countries found that many manufacturers and other exporters outside of Europe are still largely unaware of what Reach will require of them. 

 

The study, “Waking up to Reach,” reports that outside the EU chemical companies have the highest level of awareness and proactive policies dealing with Reach, although even among North American chemical firms awareness and preparation are far from complete.

 

The level of awareness and responsive engagement on Reach deadlines - especially the looming and critical pre-registration period - falls off sharply among industrial manufacturers, forest, paper and packaging (FPP) industries, consumer product manufacturers and automotive firms, according to PwC.

 

For example, PwC said it found the level of awareness among automobile producers to be only 40% and the level of engagement - preparing for pre-registration, talking with suppliers and customers, etc - less than 29%.

 

The problem, said Schoolderman, is that the EU’s development of Reach over a seven-year period was almost exclusively a “chemicals” issue.

 

“This caused a situation in which many non-chemical manufacturers and other companies thought they were not affected,” Schoolderman said.

 

Even among those non-European companies aware of Reach, said Schoolderman, there was a vague sense that Reach was “an environmental initiative rather than a regulation with enterprise-wide implications including, but not limited to, supply chain management, sales, IT and financial and non-financial reporting”.

 

Some of those still in the dark about Reach might only see the light beginning in December this year and certainly in first quarter 2009 when their products lacking pre-registration numbers from the new European Chemicals Agency (ECHA) are denied entry to EU markets.

 

For those unwitting exporters who suddenly find that their products are shut out of the EU, the loss of market share could last for years and might well be permanent. 

 

Remember that if a product is not pre-registered, it will be denied entry until the full, formal and time-consuming registration process is completed. By that time, the exporter’s competitors will have gobbled up its market share.

 

Even though US chemical companies have been intimately aware of the oncoming Reach requirements and deadlines - they have been following and contesting the massive regulatory scheme for seven years or more - they might still suffer because the broad US manufacturing sector is not nearly as well prepared for the pre-registration process.

 

If US exports to the EU are broadly affected by the failure of firms to pre-register their products, the back-up of barred goods could quickly begin to push even further up the supply chain, creating excess raw materials inventories among the manufacturing customers of chemical producers.

 

Almost certainly, many chemical manufacturers will have anticipated this and are already hard at work with both their own suppliers and their downstream customers to ensure, as far as possible, that everyone in the supply chain is prepared.

 

However, the PwC survey suggests that a large portion of the US export community is still oblivious.

 

“My general feeling is that many US companies are about one year behind in the process,” Schoolderman said.

 

The wake-up call for those late starters and those still not aware of the threat will likely come as early as December this year.

By: Joe Kamalick
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