Registration Options for Non-EU Companies1
At the core of the REACH Regulation is the requirement that all substances2 imported into the European Union (EU)3 must first be registered with the European Chemicals Agency (ECHA). REACH, however, prescribes that only a company established in the EU can register. This requirement raises important compliance questions for multinational company groups with multiple non-EU entities importing substances into the EU - whether traders or manufacturers. In such cases, the EU-based group companies can register their substances, while the group companies based outside the EU cannot register their substances themselves.
A non-EU company in a multinational group must ensure the registration of its substances under REACH in order to continue marketing and selling those substances in the EU. Such a non-EU company has essentially three options to secure the registration of its substances:
- It could use an Only Representative to register the substances (typically a group company in the EU would be used, but an unrelated third party could also be contracted).
- It could rely on its customers in the EU to register the substances as importers.
- The group could utilize an EU-based company within the group to undertake the role of importer for the group.
In most cases, it is unlikely that customers will be willing to incur the time, effort and cost to register substances they import from non-EU manufacturers or traders. Moreover, obtaining customer commitments to register where a company markets and sells a range of substances to numerous customers in the EU would prove prohibitively impractical.
Appointing an EU company within the group as an Only Representative is a straightforward option for non-EU group companies involved in manufacturing. On the other hand, this option would appear unavailable for non-EU group companies involved only in trading or distribution activities. Even where this option is available, however, it would require that the EU company submit to ECHA one registration per substance for every non-EU manufacturer in the group. In addition to administrative burden, this would result in higher registration fees, as each substance manufactured by each non-EU company would have to be registered separately by the Only Representative, and a filing fee would be payable for each registration (i.e., aggregation of tonnages among all non-EU group companies is not possible).
In contrast, designating an EU company in a multinational group to act as an importer and assume the REACH registration obligations for all the non-EU subsidiaries "manufacturers or traders" could be a third available option. Indeed, this approach may be the only viable option for a group of trading companies that cannot use an Only Representative.
The choice of designating a group company as importer is straightforward where the EU-based company that is chosen to register for the group is included in the "chain of title" for the substances imported into the EU. Where the ownership of the substances passes directly from the non-EU subsidiary to its EU customer, however, the choice may be more complicated. In those cases, registering the EU company as an importer may at first raise a concern that the commercial relationship between the non-EU company and the EU customer must be disrupted to enable the EU entity to take over the role of importer under REACH. However, given the broad definition of an "importer" under REACH, in many cases it may be possible for group companies to designate an EU company as an importer without materially changing the business relationships within the supply chain.
An Importer for REACH Purposes Need Not Take Ownership of the Substances
Importer under REACH means any natural or legal person established within the EU that is responsible for import. REACH defines "import" as the physical introduction of goods (i.e., substances) into the customs territory of the EU. These definitions do not include a requirement that the importer owns the substance. Instead, under the definitions in REACH, it appears possible for a multinational group to satisfy the group's REACH registration obligations by appointing an EU-based group company to be the importer, so long as that company assumes the "responsibility for import".
According to the Guidance for Registration, establishing the responsibility for import depends on many factors. These specifically include who orders the substances, who pays for the substances, who pays the customs duties and who deals with the customs formalities.4 Ownership of the goods appears to be only one of the optional criteria rather than a legal prerequisite to demonstrate "responsibility for import".
It can also be seen from other contexts within REACH that "ownership" of the substance is not the determining factor for establishing REACH registration obligations. For example, the "Only Representative" concept contemplates that the Only Representative is not obliged to own the substance in order to fulfill the REACH requirements. Moreover, the definition of a "manufacturer" under REACH is concerned with what entity is responsible for producing or extracting substances, not whether the entity owns the raw materials or finished goods and is simply purchasing a conversion or tolling service.5
Responsibilities of the Importer
Even though ownership of the goods does not appear to be a necessary requirement for an EU company to be an importer under REACH, REACH requires the importer to nevertheless take some responsibility with respect to the import of the substance. It is probably not enough for the EU-based company simply to declare itself to be the importer and comply with REACH registration requirements.
No bright line rule currently exists for establishing the level of responsibility required of an importer. Rather, each company group will need to evaluate its operations in order to determine what activities are sufficient to satisfy REACH obligations. There are variety of actions that could enable the EU-based group company to demonstrate the necessary "responsibility for import" required by REACH. Possible measures include: taking over the logistics of the import (e.g., being the declarant of the customs declaration, directing the customs agent or arranging customs clearance); executing the bill of lading in the name of the EU-based company; having the EU-based company arrange insurance under a global policy for the substances as importer; charging a nominal service fee to the group companies for "importing services"; and documenting by written agreement among the entities of the group that the EU entity is the "importer for REACH purposes" and bears responsibility for registering the substances. In addition, it will be important for the EU-based group entity undertaking the importer role to affirmatively hold itself out as importer and ensure compliance with the communication and information/records maintenance requirements under REACH. Measures such as these would be useful in demonstrating that the EU group company has the "responsibility" for the import and would help the EU company substantiate that it is the importer if a customs authority raises questions.
Consistent with the Spirit of REACH
The approach of designating an EU-based group company as an importer to ensure REACH compliance for the non-EU members of the multinational group is consistent with the underlying goals of REACH. REACH is fundamentally concerned with human health, safety and environmental protection. As such, REACH aims to ensure that responsibility is taken for the management of risks associated with substances. For this reason, in order to comply with REACH, specified information on substances manufactured in or imported into the EU must be collected or developed and information conveyed to those in the supply chain who need it. The central issue is not the ownership of the substances. Rather, the key to achieving the goals of REACH is confirming that someone involved in its manufacture or importation takes the responsibility for ensuring that information on safe use and handling as well as health or environmental risks is communicated through the supply chain so that proper precautions can be taken. If an EU-based group company of a multinational group affirmatively takes the responsibility for this, it should not ultimately matter whether that company is in the chain of title in order to achieve the aims of REACH.
Implications of Registering Through an EU-Based Company as an Importer
A company group may derive benefits from designating a member company to act as the importer for all of the non-EU group companies with only limited disadvantages as compared to other options identified above.
- Ensuring control. A non-EU company can exercise greater control, and will have greater flexibility, over the activities and REACH compliance efforts of the EU entity within its group that serves as the importer, than if it uses an independent Only Representative or relies on others to register.
- Lower costs. Importers will incur lower registration and administrative costs. An EU company serving as an importer can register on behalf of all of its non-EU companies and aggregate the tonnages of the substance that is being imported. Therefore, unlike the situation that arises with an Only Representative, only one registration fee per substance will have to be paid to ECHA. This is also likely to simplify internal administration and reduce costs as record keeping could be consolidated.
- No need to change the commercial transaction. In many cases, an EU-based company can take responsibility as an importer for meeting the REACH obligations without necessitating a change to the underlying transaction between the non-EU company and the EU customer. The imported substances would all reference the EU-based company?s registration numbers, and the EU company would declare itself as the importer of the substances, but should not need to take ownership. Note, however, that it may be advisable in some cases for the EU entity to charge its non-EU group companies a services fee for importing services.
- Option for non-EU traders. This option may prove particularly attractive to trading groups or non-EU traders of groups involved both in trading and manufacturing. Non-EU traders cannot themselves register nor can they appoint an Only Representative. They could request that all of their customers register, but this has the difficulties described previously. They could seek to have their supplying manufacturer register, but in many cases this will be impossible or impractical because of difficulty in tracing origin or lack of cooperation by the manufacturer. Therefore, utilizing an EU-based group entity to act as importer may be the only viable way in order for many non- EU traders to comply with REACH and continue to trade in the EU.
- Obligations for passing information. As an importer, the EU-based company will be responsible for maintaining and updating copies of the Safety Data Sheets (including any other relevant health and safety information) and ensuring that they are passed on to the non-EU companies? customers. They will also need to maintain records of imports (volumes and customers). Thus, the EU entity will have to maintain a certain level of involvement with respect to the imports into the EU. The obligations of the importer will in practice be similar to those of an Only Representative.
- Risks in the event of a structural change to the group. The most significant risk with respect to this approach over the use of an Only Representative arises in the event of the disposition by the group of a non-EU entity. If the non-EU entity were to use an Only Representative, it is likely to have certain rights to the underlying registration, including the ability to transfer it. If the non-EU entity relies on an importer to register, then it would have no rights to the underlying registration for its substances. In the event of a sale of a non-EU group company, this could leave the non-EU company in a position where it has no registration. It would then need to cease exporting to the EU until it could obtain access to the registration materials and establish its own registration through an Only Representative, importer or customer.
Multinational groups looking to establish an efficient strategy for complying with the REACH registration obligations should assess whether to designate an EU-based group company to act as importer instead of using an Only Representative. Indeed, appointing an EU-based group company to be the importer may be the only viable solution for trading groups that cannot use an Only Representative.