Are you ready for REACH?

Manufacturing News, Source : The Manufacturer US
Published : 10 Jul 2007 19:30

By Christopher Bell, Samel Boxerman, and Kristina Nordlander of Sidley Austin

2007 is an important year for any company that makes, uses, buys or sells chemicals or prod-ucts containing chemicals. On June 1, the European Union’s Regulation on Registration, Evaluation, Authorisation and Restriction of Chemical substances (REACH) came into force. REACH, widely viewed as one of the most important pieces of EU legislation in 20 years, will bring about sweeping changes in the way products are regulated in the EU. Its impact will extend throughout the global supply chain. If you, your suppliers or customers use, buy or sell chemicals or products containing chemicals, you need to start preparing now.

REACH will both affect the availability of chemicals and increase the scrutiny of products containing chemicals. Further, REACH will significantly increase the amount of environ-mental and health data about chemicals and products containing chemicals that must be gen-erated, provided to regulators and made available to the public, all of which will have major market and liability repercussions. Lastly, in a global economy demanding “global-products,” REACH product stewardship compliance strategies will extend to products and services in non-EU markets.

Both suppliers and downstream users covered

REACH applies to EU chemical manufacturers and importers of chemicals into the EU. It also applies to “downstream users” that manufacture or assemble products containing chemi-cals that may be physically released and that are sold into the EU market. Everything from pens to perfumes to paint; minerals to household cleaning products may be affected. Products that release chemicals during normal use or just from simple wear and tear, such as tires or even clothing that release dyes when cleaned, may also be covered. Industries ranging from textiles to electronics to housing products will come under the scope of the new rules.

There will be exemptions for certain products and chemical substances, particularly in sectors where there is already significant regulation, such as pharmaceuticals, cosmetics and food. However, the scope of each exemption varies and many only exempt certain, but not all, REACH obligations.

Shifting the burden: Proving your chemical is safe

Underlying REACH is a key principle: “No data: No market.” This is a major shift from the previous European chemicals regime, under which regulators had to prove that a chemical was not safe before it could be taken off the market. In contrast, REACH, based on the “pre-cautionary principle,” requires companies to produce data to register their chemicals.

If the necessary data are not submitted to support the use of particular chemicals, those chemicals and, in many cases, products containing those chemicals, may not be able to be manufactured in or sold into the EU. Given the significance of the EU market and the influ-ence of EU regulatory requirements, it is possible that chemicals or products that cannot be sold into the EU market might also face barriers in markets outside of the EU.

Registration requirements

REACH imposes significant new chemical registration requirements. Unless exempt, all sub-stances manufactured or imported (including substances currently manufactured or imported) into the EU will have to be registered with the new European Chemicals Agency in Helsinki, Finland. The registration dossier must contain extensive information on the identity of the substance, its production and intended uses, as well as risk information on the nature and de-gree of exposure. The amount of data required will depend on the volumes imported into or manufactured in the EU—although substances produced or imported in levels below one (metric) tonne will not have to be registered. Companies will have to ensure they document what they sell, in what volume, to whom and for what purposes in order to understand (and possibly limit) their obligations under REACH.

REACH establishes a “pre-registration” procedure for certain substances already on the mar-ket. To benefit from extended registration deadlines phased over eleven years depending on the volume and hazard of the chemical, such substances must be pre-registered between June and December 2008. Substances that are not pre-registered will have to be withdrawn unless fully registered by 1 December 2008.

REACH requires that each substance have one registration (“one substance, one registra-tion”). Thus, data must be submitted jointly by firms that manufacture and use the same sub-stance. “Substance Information Exchange Fora” (SIEFs) will be formed to facilitate informa-tion-sharing among manufacturers, importers, downstream users and other data holders. Par-ticipation is mandatory and raises issues about confidentiality and potential competitive coor-dination. Some companies and trade associations are also forming voluntary consortia to co-ordinate and manage REACH registration.

Due to the amount of technical information required, companies should make sure they have the appropriate technical and legal expertise available in order to comply with the new law. Companies based outside the EU cannot register substances themselves. They need to appoint an agent with the relevant expertise in chemicals and their information requirements, or rely on their importer(s), to ensure all registration obligations are met.

Authorization rules

Another area where REACH will have a significant impact on business is the authorization rules. These rules will apply to around 1,500 substances of ‘very high concern’ that will be placed on a ‘candidate list’ and that may later be added to the authorization list. Substances on the authorization list may only be used and marketed if each use by a particular company has been specifically authorized. Authorization will only be granted where risks can be suffi-ciently controlled or are outweighed by socio-economic benefits, and in some cases, only if a less dangerous substitute is not available. These restrictions may also apply to products con-taining chemicals on the authorization list, unless one can demonstrate no exposure to any authorized chemicals.

This company-by-company and use-by-use review is a major shift from the traditional EU and U.S. presumption that once a chemical is authorized, it can be used by any entity for any use. It will be important for companies to determine, at an early stage, if they manufacture, use in their processes, or put in their products, chemicals that are potentially subject to the authorization rules.

Some implications to consider

Extending beyond the EU: The EU hopes REACH will set the ‘gold-standard’ for chemicals legislation throughout the world. Many of the EU’s major trading partners have been monitoring its progress and will be watching closely to see whether REACH’s innova-tions are successful. Countries around the globe may revise their existing chemicals legisla-tion in the next few years using REACH as their guide. Nations might, without creating their own REACH program, adopt the expedient strategy of simply declaring that only chemicals registered under REACH may be used or imported into their markets.

Even if other countries do not adopt REACH, the data generated to meet REACH’s require-ments may have legal and risk management implications outside of the EU, including creat-ing reporting requirements. For example, these new data may obligate companies to make new disclosures about their products under the Toxic Substances Control Act (TSCA) in the U.S. Moreover, the high profile of these data may also influence the views of regulators and other interested parties regarding the risks of particular chemicals and affect potential product liability exposure.

Further, participants in the global supply chain may, simply as a matter of convenience, de-mand that all chemicals, components and products supplied to them meet all requirements of REACH, without regard to the ultimate markets at issue. If the global spread of the EU’s RoHS Directive limiting the use of hazardous substances in electronics is any guide, the ini-tial and most visible impact of REACH might be seen in contracts, purchase orders and so-called “supplier declarations.”

Evaluating your exposure: In order to understand your exposure to REACH and its potential impact on your business, you need to know (1) what chemicals do you use; (2) how you use them (i.e., process chemicals, product ingredients, coatings, etc.); (3) the source of the chemicals; (4) where the chemicals end up (i.e., in products, released from products due to wear and tear or other releases, in wastes, water discharges, etc.); and (5) what markets you sell into. With this baseline set of information, you can begin the process of evaluating how REACH may affect your business, ranging from threats to the availability of key chemicals to revising product formulations to anticipating likely customer demands and needs.

Preparing for alternatives: REACH will impact the availability of chemicals (both process chemicals and product ingredients), as well as components that contain chemicals. For example, a firm that buys a chemical product that is unregistered or becomes subject to an authorization will likely have to seek alternatives. This could entail a range of options, in-cluding attempting to get the chemical registered (which may require costly and time-consuming research), working with other suppliers to obtain substitutes, as well as process or product design changes which may require a significant amount of lead time.

Pooling resources: It is likely that REACH will cause significant resource problems for small businesses, as they may be disproportionately affected by the costs of the data-gathering and registration obligations. In order to face these costs, small businesses may con-sider pooling resources with other firms (e.g. by setting up consortia to manage data require-ments and joint registrations), while managing the risk that confidential information will be exposed to competitors and ensuring that competition (or antitrust) laws are observed.

The candidate list for authorization: Due to resource constraints, only a limited num-ber of high-concern chemicals on the ‘candidate list’ for authorization may become formally subject to the company and use-specific restrictions contemplated by the authorization proc-ess. However, it is widely anticipated that just being on the candidate list will have a stigma-tizing impact that could distort demand for these chemicals or products using them, as cus-tomers might demand that products not contain any chemicals on the list. It could also deter companies from trading in the EU market if they believe there is a risk that their right to use a particular substance may at any time be withdrawn.

Expanded civil liability: Requiring more evaluation of the environmental, health and safety risks of products may increase potential legal risks. Some of these may arise in a sup-ply chain context. For example, if a chemical supplier fails to register a substance, its down-stream purchaser may lose or be unable to fill existing contracts as a result of not being able to manufacture a finished product without that particular substance. The suppliers may face legal claims from their customers in such situations. In another scenario, consumers may bring private lawsuits against firms claiming the companies have failed to notify their users about the dangerous properties of the substances. This will become an increasingly important issue, particularly as European countries are beginning to embrace class action suits. REACH could also increase liability concerns in other countries, including the U.S., as more environ-mental, health and safety risk information becomes available to regulators and the public.

In today’s global marketplace, the long arm of REACH will bring about sweeping changes in the use of chemicals not just in the EU, but across the globe. Companies that prepare care-fully now will be well-positioned to protect their markets and products in the years ahead.

About the authors

CHRISTOPHER L. BELL, partner with Sidley Austin's Environmental Practice group in Washington D.C., represents clients in civil and criminal litigation, investigations and compliance counseling regarding water, waste, air, chemicals (TSCA and FIFRA), and cleanup (CERCLA and RCRA) requirements. He advises clients on international issues, including product regulation and stewardship, transnational movement of chemicals and waste, trade and the environment, and sustainable development. He evaluates and implements compliance assurance and environmental management systems and conducts audits covering environmental, pharmaceutical, medical device and general corporate compliance and ethics program.

SAMUEL B. BOXERMAN, partner with Sidley Austin's Environmental Practice group in Washington D.C. and former Trial Attorney with the Environmental Enforcement Section of the U.S. Department of Justice, represents clients in a variety of environmental regulatory, administrative, and complex litigation matters, including defending federal civil enforcement actions and private party environmental actions. Mr. Boxerman also regularly counsels clients on a wide range of environmental compliance matters and assists clients developing and implementing environmental management systems under the ISO 14001 environmental management systems standard.

KRISTINA NORDLANDER is a counsel in Sidley’s Brussels office, where she focuses on EU competition and regulatory law. She has particular experience in competition and regulatory issues affecting the chemical and pharmaceutical sectors, and a wide range of EU regulatory issues, with an emphasis on chemical regulation, including REACH compliance and classification and labeling under the EU Dangerous Substances Directive. Ms. Nordlander advises clients on the full range of EU competition issues, including joint ventures and cooperation agreements, merger control proceedings, cartel investigations, litigation before the European Courts, and antitrust compliance.

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