12 June 2013 18:49 [Source: ICB]
Chemical distributors are facing a range of new EU regulations that will require greater data collection and better supply chain communication
From this year, and for several years following, we will see the enactment of a series of new measures covering the production, use, storage and distribution of chemicals.
Extra effort will be needed to achieve regulatory compliance as the bar creeps higher
Copyright: Rex Features
Meanwhile, the latest phase of the Reach chemicals policy came into effect last month. From now on, this covers chemicals produced or imported into the EU in quantities of 100 tonnes or more, meaning that many more small and medium-sized enterprises (SMEs) will have to become involved. Dossiers for 7,600 chemicals were expected to have been submitted by the deadline of 31 May 2013, and the European Chemicals Agency (ECHA) estimates that 25% of registrations will have come from SMEs.
There are also significant changes for the cosmetics sector, a key end-market for Fecc members, with the cosmetics regulation coming into effect, and the prohibition of animal testing in the cosmetics industry.
The result is an interlinked maze of new and updated regulations. The intent, in large part, is to make regulations clearer and simpler, but it can be difficult for producers and distributors, especially smaller organisations, to know what steps to take to remain compliant, and how long it will take to accomplish those changes.
Arguably the most important single piece of regulatory change for the biocides sector is the new Biocidal Products Regulation. The European Commission's impact assessment of the previous legislation - the Biocidal Products Directive, introduced in 1998 - identified "very high costs" as a result of a lack of data sharing, high costs of compliance, and a need to reduce the complexity of authorisation.
The new version of the regime comes into effect on 1 September 2013, with key changes including the potential for EU-wide authorisations and the expansion of the remit of the regime to include products treated with biocides, reflecting the current focus of the European Commission on the purpose of chemical legislation in the EU.
"This is part of a much broader policy drive in Europe to ensure greater transparency over the substances that are used in a vast array of products," says Matthew Townsend, a partner at UK law firm Allen & Overy, discussing the new treated products amendment. "There is a real focus in the Commission on better disclosure in the supply chain, and this needs to be seen as part of that."
The potential for EU authorisation is another significant change in the regulation, particularly for large companies looking to market the same product in multiple countries across Europe. Raf Bruyndonckx, sector group manager for biocides at Cefic, says: "On paper, EU-wide authorisation would be the ideal one-stop shop for entry into the market in Europe. So in principle it should be the holy grail for product authorisation."
From July, personal care products come under new controls, with an extended animal testing ban
Copyright: Rex Features
However, the fact that it has been introduced as a possibility represents a positive step for the industry, and should not be written off so early, according to Townsend. "There has been some scepticism as to how it will work, and time will tell, but you've got to allow time for that system to bed down.
"It's far from perfect, but I think it's a very good start to what is a very sensible adoption of a single authorisation across the EU."
The new regulation extends the reach of the original biocides directive far beyond the biocides sector to industries that would never otherwise have been included, such as the automotive, paints and textiles sectors. With guidance yet to be finalised, there is potential for confusion at present, according to Bruyndonckx.
"We have stressed that the guidance on treated articles needs to be finalised as soon as possible. Every week, I'm being contacted by downstream user associations on an update. They need to know whether companies are allowed to use such and such substances, and whether their goods require labelling," he explains.
A key issue dogging the Biocidal Products Directive was the time taken for dossier evaluation. The projected time for a decision to be reached following the submission of a dossier was around two years, but in practice no decision has been reached in under three years, and the average time for a decision has ranged from four to five years. Part of the drive to increase the speed of registration has been to involve ECHA, the same body that coordinates Reach. According to Cefic, ECHA has committed to registering 50 substances a year, but the cost has increased dramatically as a result.
"Initially there will be higher costs. On application, the fee to ECHA is €80,000 for utilisation plus annual fees of €10,000 per company, per product," says Bruyndonckx.
LOSS OF FLEXIBILITY
There are also fears that the emphasis on speedy turnaround will reduce flexibility from authorities when dealing with issues of different applications. "One of our greatest fears now is that ECHA will make sure that everything goes as speedily as it can, and thereby not allow any flexibility for fine-tuning the ultimate decision," he adds.
Cost is always an issue with safety regulation, as well as the problem of how to reduce the impact on SMEs, which tend to be disproportionately affected by the impact of the regulatory burden compared with larger companies. The result of this has been a reduction in the number of biocidal products registered, with no dossier submitted as of 2008 for almost 50% of substances for which initial notifications had been submitted.
The Commission has admitted that profitability and cost were key drivers behind this. "For a number of substances the criterion for not supporting their inclusion was evidently financial: the expected profits would never cover the cost of a dossier," the Commission said.
Michael Wilz, head of research and development and product stewardship at Germany-based chemicals distributor Stockmeier, is dubious about the extent to which the new regime helps to redress the balance for smaller companies. "For an SME like us, it is certainly not an improvement, in no way. It could be an improvement for the global players, as the EU authorisation was not foreseen in the old directive. It is not an improvement for most players because chemical trading is mostly done in local areas," he explains.
"A lot of companies can't pay for the biocide product authorisation, and they will have only a few biocides in their portfolio. The big ones will grow bigger, and the smaller ones maybe will disappear," he adds.
Although the Biocidal Products Regulation has drawn significantly from the Reach legislation, a key feature that has failed to cross over is the institution of tonnage bands. "Regulatory costs per product are the same for every company. But, there are companies who sell maybe 100,000 tonnes, and other companies who sell 1,000 tonnes per product, and for the second company with only the thousand tonnes, the regulatory costs are 100 times higher. You can't stay alive in the market," he says.
Another issue is that the regulation can cut into the flexibility of suppliers, Wilz adds. "In the past, we did different dilutions of substances for different customers, but this is no longer possible. A different dilution of an active substance is a different product, meaning... double costs, and this is not possible for a small customer."
The regulation also carries strengthened measures on data sharing, particularly in registrations requiring animal testing. The onus has been placed on the data holder and applicants for authorisation to take steps to share data.
Changes are also in progress for the EU's Seveso directive, which concerns the safe storage of hazardous chemicals - including some biocides - onshore. The third iteration of the directive was announced in July 2012 and is to come into effect on 1 June 2015.
The update is being prompted by the need to comply with changes to the classification of chemicals in the EU under the new regulation on Classification, Labelling and Packaging of Substances and Mixtures (CLP). This is replacing the classification set out in the EU's Dangerous Substances and Dangerous Preparations Directives.
Alterations to the legislation are not drastic. However, distributors will need to pay attention as they may find that storage site classifications have moved from the lower tier to the upper tier of the regime, or that they are now affected by the legislation when they were not in the past.
Seveso III will also drastically increase the level and quality of information that will need to be disclosed by distributors storing chemicals. The onus will shift towards companies actively providing information, instead of simply making it available on request.
The CLP regulation, also overseen by ECHA, is integrated with Reach in that information in the classification and labelling inventory created by the regulations will be submitted as part of suppliers' Reach registrations. CLP introduces new scientific criteria to assess hazardous properties, with new harmonised warning labels to replace existing risk and safety terms.
Changes are also looming for the European cosmetics industry, which 79% of Fecc member companies are active in supplying. From July 2013, the measures are intended to simplify the cosmetics requirements in the European Economic Area (EEA) by condensing them into a single regulation. As is the case with other significant revisions to EU chemicals sector legislation, the updated regulation centralises data storage and notification with the European Commission and the European Personal Care Association (Cosmetics Europe), instead of at member state level.
The revised regulation also places a greater onus on companies to be pro-active in submitting and retaining data, stating that businesses need to submit notifications themselves and to retain relevant documentation, instead of trusting an industry association to store it.
As with Reach's treatment of substances of very high concern (SVHCs), the regulation aims to reduce the usage of hazardous substances. The regulation has also been updated to incorporate nanomaterials, which are increasingly prevalent in cosmetics, and incorporates the EU-wide ban on animal testing for cosmetic articles, extending to finished products and ingredients. The ban extends to the sale of products where the ingredients in a product have been subject to animal testing.
REACH ROLLS ON
The ongoing process of Reach registration, which passed its first phase on 1 December 2010 and passes its final deadline on 1 June 2018, is intended to increase safety, coherence and transparency in the sale of chemicals produced in or imported to the EU. Companies are still coming to terms with the level of disclosure and quality of information required to successfully register a chemical.
ECHA registration director Christel Musset estimates that of the 5,500 registration dossiers submitted on intermediates - chemicals that are not sold in the general market but used for manufacturing - for the first deadline in 2010, 2,388 dossiers had anomalies of varying levels of severity.
As in the case of the Biocidal Products Directive, costs have been revealed to have the potential to be vastly in excess of original estimates. Some 70% of Phase I registrations cost between €25,000 and €250,000 per substance and per registrant, but Commission data shows that costs can run to more than €1m when including registration fees, data collection and consortia costs.
The impact of the regime on SMEs has also been highlighted by the Commission, prompting ECHA to cut fees for smaller companies by 35-95% for registrations and 25-90% for authorisations, funded partly by a 4% registration fee hike and a 3.5% authorisation fee increase for larger companies. There is also the risk that lower-margin commodity and basic chemicals producers - already struggling with high production costs compared to the US and the Middle East - are unable to cope with the increased operational costs brought by Reach.
"[The shrinking basics industry] does not mean that we have to discontinue overnight all the commodity chemicals. There is definitely a need to see how long companies can remain competitive, but you do see some premature departures from companies that wish to cut their losses," Geert Dancet, executive director of ECHA, has admitted.
Distributors also have a role to play in Reach, with the responsibility of passing health and safety information up and down the supply chain. This includes passing any information customers provide about their products to suppliers. Customers also need to pass information about the uses of their products, which needs to be passed on to suppliers.
There is also a requirement that companies will not distribute substances that have not been pre-registered or registered under Reach, and to keep all necessary information on file for at least 10 years after the last time a preparation was made. Distributors could provide a similar role under the Biocidal Products Regulation, as end-users adjust to their inclusion in the regime.
"Distributors will need to be able to provide information to their customers, so they are a very important conduit for this type of data. I think it has the potential to change behaviours," Allen & Overy's Townsend says. Although the introduction of a new series of regulations is challenging, the need to take into account the impact of Reach has left the industry better positioned to respond to other measures, such as the biocidal regulation, Townsend concludes.
"There will always be operators who come to this rather late, and then have to deal with the consequences retrospectively. But I think we're in a much better place than we were before Reach came into effect, as I think the overall level of knowledge and understanding of these type of requirements is greater, partly as a result of Reach," he adds.
However, it is a question of whether smaller companies will be able to remain in the market with the additional burdens of the regulations. As Wilz of Stockmeier, says: "We sell nearly 100 different biocidal actives in our chemical trading. To authorise all will cost around €20m. This is impossible to pay. We have no resources to do it by our own.
"So we can only sell biocidal actives if the manufacturer will provide us with authorised products or derived authorisations. Otherwise we have to go out of the market."
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