INSIGHT: Europe’s SMEs could see Reach compliance costs come down

06 February 2013 17:00  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--Small-to-medium sized chemical companies have been rightly worried for years about the European Union’s over-arching Reach legislation, alongside tougher rules governing the classification and labelling of chemicals.

But a crunch point is looming when the first registrations under Reach of chemicals marketed in the EU in the 100-1,000 tonnes band are due.

As the first wave of Reach registrations up to a 30 November 2010 deadline showed, the registration process is complicated, sometimes difficult to manage and potentially exceedingly costly.

The European Commission on Tuesday admitted that Reach was causing some chemical players real difficulties, leading to the withdrawal of certain products from the market. The costs of registration had been higher than expected, it said.

Documents released by the Commission under its review of Reach illustrate the extent of the impact of the registration process. The burden is expected to rise as lower tonnage chemicals, often produced by Europe’s small- to medium-sized enterprises (SMEs) are caught in the Reach net.

Some 25% of manufacturers and importers of chemicals have decided to remove one or more chemicals from the EU market because of Reach, the Commission says. It admits that this is probably because registration costs would make trading of the chemical unprofitable.

Work commissioned by the Commission has shown that Reach registration costs can be greater than €1m ($1.4m) taking into account registration fees, data collection and consortia costs.

Costs are in the €25,000-€250,000 range for 70% of Reach registration costs, per substance and per registrant.

The Reach registration process has been aided by the introduction of so-called Substance Information Exchange Forums (SIEFs) run by industry players and designed to help share health, safety and toxicity data of a substance or group of substances prior to registration. It is thought that SIEFs have helped drive costs down but they are not popular with smaller players.

Letters of access, or the right to refer to a registration document of another SIEF member, can represent more than 50% of Reach registration costs for some companies. SME’s see these as, in the words of the Commission, “a tool used by large firms to push small competitors out of the market”.

The Commission believes that Reach is helping the EU achieve greater market harmonisation – easier intra-EU trade – but it looks as though industry is bearing much of the burden. Most (91.5%) of companies surveyed as part of the review “could not identify any particular contribution of Reach in relation to trade”, the Commission says.

Putting the competitiveness of EU companies subject to Reach in a wider, global context, does not seem to be easy but the Commission says the short-term financial situation of most firms is reported to be negatively affected.

“The severity of this impact depends on the type of product traded,” it adds. “For firms in highly competitive markets – as is the case for basic chemicals and metals that are treated as commodities – already low profit margins appear to have been further squeezed, as there is limited capacity to transfer these costs to customers through price increase.”

Speciality chemical makers appear to be more confident that they can raise prices and sustain profit margins without damaging their competitive position overall.

After only five years, the data on which the Commission and others can make an appraisal of the impact of Reach is limited, although it is clear that chemical producers have been subject to a significant bureaucratic and financial burden.

The larger companies, generally, and Europe’s chemical industry trade associations have been supportive of the drive to harmonise chemicals regulation but not always in agreement with the ways in which the EU has sought to achieve that harmonisation.

Initial reaction to publication of the Commission’s Reach review was mixed although some stakeholders were highly critical of the lack of clarity in the legislation and the potential impact on SMEs.

The Commission, for its part, is proposing that the European Chemicals Agency (ECHA) and industry trade associations try harder to help SMEs keep costs down as they prepare to register substances under the May 2013 deadline. A possibly more significant, final Reach registration deadline (for substances in the 1 tonne to 10 tonnes range) is in 2018.

The recommendations include possibly imposing a flat fee on SIEFs for letters of access and a graded scale of registration fees from the ECHA. More user guidance is needed, the Commission says, with attention given to SMEs.

“The registration deadlines 2013 and 2018 are of particular concern to small- and medium-sized enterprises and specialty chemicals producers, because the registration costs for low volume chemicals are relatively high in proportion to their respective sales,” Germany chemicals trade association, the VCI, said on Wednesday. It represents 1,650 companies in the sector.

“This means that crucial times are still ahead in Reach implementation.”

($1 = €0.74)

By: Nigel Davis
+44 20 8652 3214

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