INSIGHT: Reach already chilling US trade

22 May 2008 16:35  [Source: ICIS news]

By Joe Kamalick

 

WASHINGTON (ICIS news)--The EU programme for registration, evaluation and authorisation of chemicals (Reach) is already chilling US trade with Europe as exporters abandon marginal business rather than face the cost and grief of Reach.

 

Over the next six months as the Reach pre-registration process unfolds, as many as 8,000 to 10,000 specialty chemicals and polymers now being sold into EU markets will be pulled back, sources predict.

 

The cold breath of Reach may even chill sales of some industrial chemicals for specific use in European markets, US regulatory specialists say.

 

“There is no question but that some US companies are deciding not to register some of their products under Reach,” said Joe Acker, president of the Synthetic Organic Chemical Manufacturers Association (SOCMA).

 

Acker said that at a meeting last week with SOCMA member firms and others he learned that some companies have decided to give up low-margin exports to Europe because of Reach.

 

“From what I’m hearing, there are many small companies that sell chemicals that go into other products and some direct chemical sales who are saying that their profit margins do not support the resources and fees for registering in Reach and then the costs of the testing,” Acker said.

 

“There are estimates that about 8,000 substances, maybe even 10,000, now sold into Europe will not be continued to those markets anyway because their producers don’t want to trouble registering them,” Acker added.

 

“A lot of companies are confused, and even as the pre-registration deadline draws near, many of them just don’t know what to do,” he said.

 

For example, Acker said, “The fragrances and flavourings segment is really upset - they’re really furious - because they can’t decide whether to register their products or not”.

 

If they don’t enter their products in the six-month Reach pre-registration period that opens 1 June and ends 30 November, their products will be barred from EU markets.

 

“But many of them are afraid that if they register, they will be putting their highly proprietary formulations at risk of piracy and counterfeiting,” Acker said. Compromise of those proprietary formulas could not only cost them business in Europe but ultimately worldwide.

 

Jim Cooper, vice president for petrochemicals at the National Petrochemical & Refiners Association (NPRA), agreed that the rigours and costs involved in Reach registration will likely have the greatest trade-killing impact on specialty chemicals, but he said petrochemicals might also be affected.

 

“The way these business decisions pan out, specialty chemicals can have some pretty slim profit margins, so producers have to weigh the cost of registration and testing against how long it might take to make that money back on such narrow margins,” Cooper said.

 

“It could take a long time,” he said. “So those narrow-margin specialties will be the first to go. Even if the producers have other business in Europe, the specialties will be the first to go.”

 

If the US manufacturer of a highly proprietary but narrow margin specialty chemical decides the Reach costs are not worth it, Cooper said, “it then will be up to the European customer to decide how valuable that product is, how necessary it is and whether they’d be willing to cover the registration costs themselves if the chemical is critical to their business”.

 

For high-volume petrochemicals, said Cooper, some producers might anticipate that under Reach an industrial chemical will ultimately be restricted for a specific use. “Then it becomes a question of whether the manufacturer wants to support registration for that use of a given chemical,” he said.

 

Cooper noted that for some higher volume commodities, profit margins can be very thin. “And in Reach the multi-generational testing requirements can get very expensive, can run to millions of dollars,” he said. “So a registrant may forego that particular use or let the end user do the registration if need be.”

 

“But there is no question that is soon going to be affecting the overall supply chain,” Cooper said.

 

Shaun Donnelly, senior director for international business policy at the National Association of Manufacturers (NAM), said that “At this point we don’t yet have any specific, confirmed examples of US, European or other firms giving up on or being driven out of European markets” because of Reach.

 

“But there is a lot of uncertainty out there, and I expect it will grow,” he said. “It’s not going to fade away.”

 

With 14,000 member firms, NAM is the largest US multi-industry trade association and includes many chemical manufactures in its fold. Even a whisper of Reach-related market de-selection among NAM companies would be significant.

 

Rae Ann Johnson, an attorney at the Manufacturers Alliance said that in a recent meeting with executives of about 40 alliance member companies, “most indicated that they are still in the process of reviewing information and considering the pre-registration process”.

 

However, she said that alliance member firms - which include about 450 of the largest manufacturing entities - “have not given any indication that they would be cutting back on any of their European business or doing without that business because of Reach”. 

 

She noted though that large manufacturers have the kind of market share and margins in Europe that are likely to warrant the costs and trouble of Reach registration.

 

Even so, SOCMA’s Acker holds that the trade impact of Reach may be more profound than many now suspect.

 

The real impact will likely become all too apparent when the pre-registration process ends in November and unregistered products begin to bounce back from their one-time European markets. The first quarter 2009 data for US export trade to EU countries should tell the tale.

 

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By: Joe Kamalick
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