EU’s radical new chemicals policy may trigger WTO Action

On 1 June 2007, the EU’s new and far-reaching chemicals policy – REACH (“Regulation concerning the Registration, Evaluation and Authorisation of CHemicals”) entered into force in all EU Member States. The text extends to an almost overwhelming 849 pages and the European Commission anticipates that it could apply to approximately 1500 chemicals. REACH shifts the burden of proof onto industry to show that industrial chemicals and substances used in everyday products, including, for example, cans, toys, paints and electronics, are safe. Producers, importers, downstream users and distributors of chemicals both within and outside the EU will be affected. Failure to register substances will mean they may no longer be manufactured in, or imported into the EU. Furthermore, many substances may either be banned or withdrawn from the market as a result of the costs of compliance. REACH proposes a number of timetables, the first significant one for business being 1 June 2008 to 1 December 2008 during which pre-registration of substances will be required with the new European Chemicals Agency (ECHA). For more information on the impacts of REACH, see Herbert Smith’s Environmental Law Briefing of January 2007: http://www.herbertsmith.m/NR/rdonlyres/660BEAB8-2F05-4A63-BE02-2B293795B99E /3323/EnvironmentalLawBriefingJanuary2007.pdf  .

Ever since REACH was proposed, questions have been raised as to whether it is compatible with WTO rules. Three of the ways in which REACH might be found to be incompatible with WTO law are explained below.

  • First, any provisions of REACH that have discriminatory effects or which create unnecessary obstacles to trade could be challenged under the WTO Agreement on Technical Barriers to Trade (TBT). The TBT Agreement requires that national technical standards, including those otherwise justified for environmental or health reasons, may not lead to unnecessary obstacles to international trade. The TBT Agreement goes beyond the principle of non-discrimination, as it mentions that even non-discriminatory measures may pose unnecessary obstacles to trade and therefore conflict with the TBT rules. Whilst it does not seem likely that REACH as a whole is WTO-incompatible, any provisions of REACH that have discriminatory effects or which create unnecessary obstacles to trade may be challenged under the TBT Agreement.
  • Second, a violation of WTO law may arise in the area of data confidentiality. Article 38 of the Trade-Related Aspects of Intellectual Property Rights Agreement of 1994 (TRIPS) is binding on all Members of the WTO and requires them to protect undisclosed information of commercial value and data submitted to governments in approval procedures against unfair commercial use, except where necessary to protect the public. Under REACH, companies have to disclose proprietary confidential data. Concerns have been raised, in particular by the Institute for Trade, Standards & Sustainable Development, that REACH fails to accord sufficient legal protection to private IP rights (proprietary testing data, formulae and other trade secrets).
  • A third potential issue relates to the precautionary principle, which allows measures to be imposed where there is simply a likelihood of risk rather than a scientifically proved risk. REACH is based on the precautionary principle because industry is responsible for the testing and the safety of the chemicals it puts on the market in excess of one ton. However, a WTO Report of 29 September 2006 ruled that the precautionary principle is too controversial and unsettled in international public law to serve as a basis for panel rulings.

The European Commission, not unsurprisingly, believes that REACH is WTO compliant. It has stated that “The REACH system has been designed to put EU and non-EU producers of chemicals on an equal footing thus the requirements for imported chemicals and chemicals manufactured within the EU are the same. The REACH system also takes into account comparable non-EU data-and test-results on chemicals, especially those resulting from internationally recognised tests. The requirements set down are the minimum necessary to ensure that the health and safety objectives established can be achieved”. However, other countries, including the US and Australia, have voiced their concern, believing that REACH is more trade restrictive than necessary. It may well be left to a WTO Panel to decide who is right.