So it is finally here. After nearly a decade of wrangling, horse-trading and intense lobbying, the European Union (EU)’s comprehensive new regulation on chemicals – REACH – came into force across the 27 member states on 1 June 2007.
REACH will dramatically overhaul the EU’s regulation of chemical substances and of their use in downstream products. The underlying premise of REACH is that Europe’s previous chemical safety regime was not fit for purpose. Of the approximately 30,000 substances currently on the European market, 99 per cent (ie those substances already on the EU market by September 1981) were exempted from safety testing. Member state authorities, on whom the burden for testing the remainder fell, did not make great progress in their efforts to do so.
REACH is intended to fill the resulting information gap. The 2001 meeting of the Environment Council (made up of representatives of EU member state governments) described the rationale for the new regime as being to remedy that fact that: “Man and the environment are potentially exposed from a large number of sources to a large number of chemical substances, the hazardous properties of which have not been identified. ” In 2005, in a speech to the American Chamber of Commerce in Brussels, the EU’s Commissioner for the Environment, Stavros Dimas, explained that: “we have incomplete, or no safety information at all, about 99 per cent of the volume of the chemicals we use… If REACH succeeds in reducing chemicals-related diseases by only 10 per cent, which is a conservative assumption, the health benefits are estimated at more than C50 billion ($64 billion) over 30 years. This means tens of thousands of avoided cases of infertility, cancer, skin diseases, neurological disorders and other illnesses. ”
The European Commission (the Commission) also believes that REACH will improve the European chemical industry’s economic performance by making its products “more valuable, because they will come with good safety information as well as information on how to best manage the risks and how to best use the substances. ” Improved consumer information should also translate into improved consumer confidence in the safety of chemicals. The EU’s own detailed consumer polling has indicated that the top environmental issue for European citizens, in terms of the information they feel they lack, is “the impact on our health of chemicals used in everyday products” .
REACH transfers the burden of providing this information, and of ensuring chemical safety more generally, to industry. Manufacturers and importers of many substances and preparations must register toxicological, ecotoxicological and other data with the new European Chemicals Agency (the Agency) (see inset box: “REACH in a nutshell”). They will also have to seek authorisation for the continued manufacture, importation and supply for use of “substances of very high concern” (SVHC), which the Commission hopes will be gradually phased out of use. What goes on the draft list of substances subject to authorisation (known as Annex XIV) is already turning into the next major battleground between industry and the green lobby.
Much attention has been focussed on the potential impacts of REACH on the chemicals industry, which has been actively engaged in the consultative and legislative process throughout the genesis of the regulation. The chemicals industry, after all, has the most to gain if REACH is a success and the most to lose if it is not, and faces the greatest regulatory burden as a result of these reforms. However, REACH also offers significant opportunities and poses significant challenges for downstream users of chemicals, including manufacturers and importers of household and other consumer products. This article seeks to map those benefits and challenges, focussing in particular on consumer products companies’ direct obligations under REACH and on the supply chain and product liability implications of the new regime.
REACH in a nutshell
Regulation (EC) No 1907/2006, better known as REACH (Registration, Evaluation, Authorisation and restriction of Chemicals), was adopted on 18 December 2006. It applies to most chemical substances, whether on their own, in preparations or used in products (or “articles”), that are manufactured or used in, or imported into, the EU in quantities of over 1 tonne per year. Its principal elements are as follows.
The central requirement of REACH is that chemical substances, on their own or, in preparations, eg a mixture, such as pain, may not be manufactured in the EU, or imported into the EU, in quantities of over 1 tonne per year unless they have been registered. This is the principle of “no data, no market” set out in Article 5 of the REACH regulation. Substances contained in products that are manufactured in, or imported into, the EU must also be registered in certain circumstances, as discussed later in this article.
Registration involves the manufacturer/importer obtaining information on the properties of the substance in question, assessing the risks arising from its use and establishing how those risks can adequately be controlled; and then documenting this process in a registration dossier supplied to the new European Chemicals Agency (the Agency). The registration dossier must include a technical dossier and, for substances manufactured or imported in quantities of 10 tonnes or more per year, a chemical safety report (CSR) that records and summarises a chemical safety assessment (CSA).
The technical dossier contains information on the properties, uses and classification of a substance as well as guidance on safe use. Certain general information is required for all registrations, including information on: the registrant generally, identification of the substance, manufacture and use(s) of the substance(s), classification and labelling and safe use guidance. There are also particular information requirements that vary according to the tonnage in which the substance is manufactured or imported, and to the needs of the CSA. Depending on the relevant tonnage band, varying degrees of information concerning the physiochemical, toxicological and ecotoxicological properties of the substance must be provided. The higher the tonnage, the more information on the intrinsic properties of the substance is required. REACH encourages the submission of existing information wherever possible. New tests are only required when it is not possible to provide the information in any other permitted way and testing proposals may have to be pre-approved by the Agency. For instance, for substances in quantities of 100 tonnes per year or more (ie cases where more expensive tests, many on vertebrate animals, may be necessary) the manufacturer or importer who does not already possess the required information only needs to submit proposals for testing, and the evaluation process will then verify whether the tests proposed are necessary. The aim is to reduce the amount of testing on animals and avoid unnecessary costs.
The CSR records the hazard classification of a substance and the assessment as to whether the substance is persistent, bioaccumulative, and toxic (PBT), or very persistent and very bioaccumulative (vPvB). The CSR also describes exposure scenarios for specific uses of substances classified as dangerous and for PBT and vPvB substances.
Exposure scenarios are sets of conditions that describe how substances should be manufactured or used during their life-cycle. This includes how the manufacturer or importer controls, or recommends control of, exposures of humans and the environment to the substance. The exposure scenarios must include appropriate risk management measures that, when properly implemented, ensure the risks from the uses of the substance are adequately controlled. Exposure scenarios need to be developed to cover all “identified uses”.
“Identified uses” are the manufacturers’ or importers’ own uses, as well as uses that are made known to the manufacturer or importer by his downstream users, and that the manufacturer or importer does not advise against. Relevant exposure scenarios will need to be annexed to the SDS that will be supplied to downstream users and distributors. Where a customer does not want to make its use of a substance or preparation known to the supplier, eg for reasons of commercial confidentiality, it may have to assume the burden of preparing its own CSR for the use in question.
Where a substance is manufactured/imported by multiple businesses, they will usually be obliged to join consortia, for the purposes of sharing information and costs. This reflects the principle of “one substance, one registration”. The data supplied – whose volume increases according to the tonnage band into which the substance falls – will, subject to confidentiality protections, be placed on a publicly accessible database.
The Agency will evaluate a small proportion of the registration dossiers received. It will also evaluate testing proposals made by potential registrants.
SVHCs falling on the Annex XIV “blacklist” will be subject to the authorisation procedure before they can be used or placed on the market. Such substances will include CMRs (chemicals that are carcinogenic, mutagenic or toxic to reproduction), PBTs (chemicals that are persistent, bio-accumulative and toxic) and vPvBs (chemicals that are very persistent and very bio-accumulative). The burden is on the manufacturer/importer of any such substance to convince the Agency, and ultimately the Commission, that such a substance should receive authorisation. In the case of CMRs, an authorisation will be granted if the applicant can demonstrate that the risk from the use of the substance is adequately controlled. For PBTs and vPvBs, and CMRs where the applicant is unable to meet the “adequate control” test, an authorisation may be granted if the applicant can show that the socio-economic benefits of continued manufacture/use outweigh the risks and that there are no suitable alternatives available.
This procedure replaces the current regime for banning or restricting the use of the most hazardous chemicals. REACH prohibits the manufacture, placing on the market or use of an exhaustive list of such substances that will be enumerated in its Annex XVII (which may be amended over time).
REACH’s legal form – a regulation – means that it took effect across the EU on 1 June 2007 without the need for its provisions to be implemented into the law of the member states (as would be the case with a directive). However, member states will be responsible for enforcing REACH and are required to impose “effective, proportionate and dissuasive” penalties for breach by 1 December 2008. Day-to-day enforcement at a member state level will likely affect the consistency of its implementation. Much also depends on the highly influential guidance on the operation of REACH that is currently being rolled out by the Agency (the so-called “REACH Implementation Projects”, or RIPs) and on the outcome of the several legislative reviews of key provisions of REACH that are built into its framework.
Certain substances will fall outside REACH (eg radioactive substances) or its registration requirements (eg substances used as food additives) or will be deemed to have been registered (eg active substances used in biocides). Registration is also not required for substances manufactured or imported at under 1 tonne/year.
Impact of REREACH on commercial relationships
For many consumer products companies, the principal challenge posed by REACH may be to ensure the continued supply of the substances that they (or their component suppliers) need for product manufacture. The Commission has estimated – perhaps conservatively – that REACH will lead to around 2 per cent of existing chemicals being substituted out or otherwise withdrawn from the market. There are a number of ways in which this may happen:
REACH may see new, EU-wide bans on the use of a small number of chemicals banned, via the restriction process.
Substances on the aforementioned Annex XIV list will be subject to authorisation. Applicants may not succeed in convincing the Agency, and ultimately the Commission, of the need to keep such substances on the market, or authorisations may be granted only for particular uses.
Regarding the wider universe of substances subject to registration, the manufacturer or importer may decide that the expense and burden of complying with REACH do not justify the continued manufacture of the substance in, or its importation into, the EU. Where demand for a substance for a particular use is small, the manufacturer/importer might similarly decide not to register for that use (or may seek to pass on the costs to the relevant, limited customer base).
In most cases, however, it will clearly be in the commercial interest of manufacturers, importers, distributors of chemicals and their customers to work together to address issues of security of supply and to achieve registration. A customer will therefore provide information on its uses of a given substance to its ultimate manufacturer/importer of a given substance (either directly or via the supply chain), the manufacturer/importer will register it for that use, and life will continue much as before.
However, businesses may also seek to work out a variety of solutions based on their relative resources and bargaining power. It is not difficult to foresee attempts by major multinational consumer goods companies, whose business may account for a large portion of a speciality chemicals company’s revenue, to seek to negotiate long term supply agreements containing warranties that guarantee that the supplier will pre-register in good time (see inset box: “1 June 2008: a date for your diary”) and use best efforts to achieve successful registration at the appropriate juncture. Conversely, major chemicals manufacturers or importers will likely attempt to pass on the costs associated with registration to their smaller customers and may demand the prompt supply of the use information needed to support registration.
Other areas of commercial contracts that may be subject to heavy negotiation may include the following.
Term and price: given the length of the REACH registration timetable (see inset box: “REACH in a nutshell”), the need for collaborative effort between supplier and customer throughout that period and the potential volatility in prices to which REACH may lead, it may be even more in customers’ interests than before to attempt to lock in suppliers to long term agreements that minimise price variability.
Warranties: customers may attempt to obtain express guarantees from their chemicals suppliers on the fitness for purpose of the substances they purchase for the buyer’s intended use, the accuracy of exposure scenario and risk management information contained in any Safety Data Sheet (SDS) or otherwise, whether the supplier is materially REACH-compliant, etc.
Intellectual property/confidentiality: customers may have to supply sensitive information on end uses to their suppliers, who may then share it with other chemical producers and importers in the context of a SIEF/registration consortium. In such circumstances, the limits of the use of that information would need to be defined. Product liability: as indicated below, REACH may dramatically and unexpectedly increase some businesses’ product liability exposure and apportionment of these risks may be addressed by way of warranties, indemnities or insurance requirements.
Direct obligations under REACH
The direct regulatory impact of REACH on consumer products companies and other downstream users of chemicals will vary widely, depending principally upon the capacity in which any given corporate entity acts in relation to any given substance or preparation.
EU-based manufacturers and importers of substances and preparations
As previously noted (see inset box: “REACH in a nutshell”), primary registration obligations fall on companies that manufacture substances or preparations in the EU or import them into the EU, in each case in quantities of over 1 tonne per year (registration obligations in relation to substances in articles are considered separately below). Relatively few consumer products companies will manufacture substances or preparations, although it is noted that the Commission’s view of what constitutes “manufacturing” – the production or extraction of substances in the natural state (eg purification and distillation) – is wide. However, many more will source the chemicals they use as processing aids, in manufacture more generally or even to clean the factory floor, from outside the EU. “Import” has been expressed by the Commission to mean the physical introduction of a substance, preparation or article into the customs territory of the Community, so a company on the French side of the Franco-Swiss border buying cleaning fluid (or paint or varnish or ink) directly from a company in Geneva would be that preparation’s importer. Such businesses will have to think carefully about their supply arrangements if they are to avoid being fixed with potentially burdensome registration obligations under REACH. There is also the possibility that the volume of substances imported into the EEA and EFTA will have to be counted when determining tonnage, for the purposes of registration, authorisation etc.
EU-based manufacturers and importers of products from which a chemical is intended to be released
Companies that manufacture “articles” containing chemical substances in the EU, or import them into the EU, may be required to register the presence of those substances under Article 7(1) of REACH. The REACH regulation defines an article as any object that, during production, is given a special shape, surface or design that determines its function to a greater degree than does its chemical composition. Many common household products might be considered to be articles. A substance in an article must be registered in the same way as any other substance, where the following conditions are met. The substance is intended to be released during normal and foreseeable conditions of use. What is meant by “intentional release” is far from clear. Previous Commission guidance has suggested that intentional releases would include the situation where the article functions by releasing substances or preparations (eg release of ink from a felt tip pen), where the article’s function depends on the substance or preparations that are emitted or ‘lost’ during use (eg release of detergent from a cleaning wipe) or where the article has a secondary function or quality achieved through the release of substances or preparations during use (eg release of perfume from a dishwasher tablet). This guidance may well change: we understand that the Commission and its scientific advisors are currently reviewing their position in relation to the scope of Article 7(1).
The total amount of the substance present in the articles exceeds 1 t/a per producer or importer. The substance has not yet been registered for that use by its actual manufacturer or importer.
EU-based manufacturers and importers of products that contain SVHC
EU-based manufacturers and importers of articles that contain SVHC must notify the Agency of the SVHC’s presence where the following conditions are met
The SVHC is present in the article in a concentration above 0.1 per cent (w/w). Our experience of advising clients in relation to compliance with the RoHS Directive and the penta/octa ban (see inset box:
“The greening of EU product policy”) suggests that this may not be simple to evaluate.
The total amount in the range of articles produced/imported exceeds 1 tonne per annum per producer or importer. The producer or importer cannot exclude exposure to humans or the environment during normal or reasonable foreseeable conditions of use and disposal of the article. In practice, it may prove extremely difficult for any company to exclude any human health or environmental impact across the whole product lifecycle (eg landfill disposal).
The substance has not already been registered for the use in question. The purpose of the notification provisions is to allow the Agency and the Commission to take a view on the need for future restrictions on the use of SVHCs. However, there is no confidentiality in information so notified, which is therefore likely to come into the public domain. This is reinforced by the provisions of Article 33 of REACH, which requires suppliers of articles that contain SVHCs meeting the 0.1 per cent w/w criterion identified above to:
- provide safe use information to anyone who receives the article (which might include consumers); and
- identify the substance in question and provide safe use information to any consumer who requests it, free of charge and within 45 days of the request being made.
Consumer products companies who use substances or preparations in the workplace
All consumer products companies with operations in the EU will make use of chemicals in the workplace. They will therefore be treated as “downstream users” of chemicals for the purposes of REACH. These are defined as Community-based companies and individuals, other than the manufacturer or importer, who use a substance, either on its own or in a preparation, in the course of an industrial or professional activity.
Many downstream users will face limited obligations under REACH. Principally, they will need to satisfy themselves that the substance or preparation they are using has been registered for their intended use, or source it elsewhere if not, and then apply any risk management procedures identified in the materials supplied with it. Where the substance or preparation is supplied with a SDS, downstream users may not use it except in accordance with any exposure scenario set out therein. If the downstream user’s intended use is not covered, and the supplier is not willing to alter the SDS, then it may be forced to conduct its own Chemical Safety Assessment or find an alternative source of supply. Where the SDS indicates that the substance in question is subject to authorisation, any attempt by the downstream user to use it outside the terms of that authorisation will require the downstream user, or the supplier, to make a fresh authorisation application to the Agency. More generally, all downstream users are required to:
- report new information they may uncover on, for example the hazards of a particular substance back upstream;
- allow workers and union representatives access to chemical hazard information in relation to workplace chemicals; and
- retain information in relation to any obligation under REACH for at least 10 years.
Consumer products companies based outside the EU
REACH is not intended to have extraterritorial effect. However, non-EU companies must still be mindful of its impact. Take the example of a US-based product manufacturer that sells its products into the EU. If substances in those products are subject to the registration or notification requirements described above, then responsibility for compliance would fall on the first legal entity to import the product into the EU – which may well be a customer, a third party distributor or some other entity (eg an import/export affiliate) that is ill-equipped to manage these requirements. Article 8 of REACH offers one solution in these circumstances: the appointment by the “non-Community manufacturer” of an “only representative” within the EU, who will then assume the actual importers’ duties under REACH. Another would be for the overseas company to re-route and channel its distribution via a trusted, EU-based affiliate or importer, which would then sell on to other European customers.
Product liability exposure
One group that the Commission has ignored in its assessment of the likely benefits of REACH is lawyers. REACH is likely to lead to a surge of administrative litigation and even business disputes over the coming years: it is an important piece of legislation for many businesses, but a poorly drafted one. There is plenty of scope within the REACH text for interpretation and disagreement, whether between businesses or between regulators and the regulated.
Perhaps more directly relevant to readers of this Guide, however, will be REACH’s product liability impact. As previously noted, there appears to be concern among EU consumers as to the potential health and environmental effects of the chemicals used in consumer products. This has been ably exploited by the environmental lobby in their calls for new legislation. By way of example, one particularly dramatic report by Greenpeace and the World Wildlife Fund , published shortly before the European Parliament’s first formal consideration of the REACH proposal in November 2005, examined the presence of “known or suspected hazardous chemicals from eight chemical groups… in [human] umbilical cord blood” . The report, which was filled with suitably emotive imagery of babies, foetuses and pregnant women, noted that “[i]n recent years, Greenpeace has analysed a range of everyday consumer products for the presence of a number of (potentially) hazardous chemicals and looked for these same chemicals in house dust and rainwater. The results add weight to the suspicion that these chemicals can ‘leak’ from products.” Examples of chemicals in consumer products identified by the NGOs as being of concern include brominated fire retardants and polyvinyl chloride (PVC) in office computers and other electronic equipment, dichlorodiphenyltrichloroethane (DDT) in food, perfluorocarbons (PFCs) in carpets, textiles, leather, paper and board, phthalates in a variety of PVC products and the antibacterial agent triclosan in sportswear, mattresses and food cutting boards.
Such a climate favours product liability litigation. There are remarkable similarities between the list of “toxics” targeted by the green lobby in Europe and the “top ten” lists of household chemicals that already appear on the websites of US plaintiff lawyers advertising for claims. Those websites contain lurid language concerning the “nerve deadening chemicals” supposedly found in air fresheners, the “known carcinogens” supposedly found in carpet and upholstery shampoo, the use of antibacterial agents “tied to liver damage” in some cleaners, etc. Even in the less litigious European claims environment, we have already seen the first cases in relation to the alleged health effects of chemicals released from air fresheners (which the defendant manufacturer won).
The worst case, and fortunately least probable, scenario is that new testing and modelling conducted under REACH will provide evidence that a substance used for years in a mass market consumer product, or in the workplace, poses serious human health or environmental hazards that were not previously known. This hazard information would then be published on the Agency’s website, for all, including activist groups and claims farmers, to access. In the US, where plaintiff lawyers are already targeting chemicals and household goods companies in their search for the next set of deep pockets (see inset box: “the US plaintiff bar’s top ten”), the historic and ongoing litigation concerning products containing asbestos, lead paint and even perfume allergies are unhappy indicators of what might happen next. In Europe, such litigation could provide an interesting test for the development risk/state of the art defence contained in Directive (374/85/EEC), on which the EU’s strict liability consumer protection regime is based. It will become increasingly important for product manufacturers on both sides of the Atlantic to monitor the state of the science as REACH begins to bite.
A more probable outcome of REACH is that it will oblige some consumer products companies doing business in Europe to change the formulations of their products and/or the instructions for use that they supply to consumers. The principal risk here is once again for multinationals, whose operations straddle both the EU and more litigious markets such as the US. New product formulations or instructions for use, based on hazard information that may well be readily accessible on the Agency’s website, might provide prima facie evidence of a “reasonable alternative design” for the purposes of US litigation. Moreover, an argument that “what is good enough for European consumers should be good enough for Americans” might play well with a jury. Ensuring cross-border consistency of product formulation and quality becomes even more important under REACH than it has been in the past. The Commission has said it hopes that REACH will lessen long term product liability risks, as the use of potentially more hazardous substances declines. That is of course probable. However, for some, the same may not be true of litigation risk in the short to medium term.
Preparing for REACH
REACH may well be, in the words of The Economist, “the biggest regulatory behemoth to appear for years” , but it is one of many pieces of legislation that have changed the regulatory framework for consumer products in Europe (see inset box: “The greening of EU product policy”). Compliance with this myriad of legislation is an increasing challenge both for EU industry and for overseas businesses who require access to the EU market.
Exactly how REACH will work in practice, and its full ramifications, should become clearer towards the end of 2008, when the guidance from the ongoing REACH Implementation Projects will be available and full registration will have begun for new chemical substances and pre-registration for existing ones. In the meantime, both the chemicals industry and downstream users of chemicals, in the EU and elsewhere, should continue to monitor developments and prepare for the likely business impacts of the REACH reforms. Practical steps to take now include:
- Prepare an inventory of substances and preparations used by group companies in the EU and/or of products exported to the EU;
- Identify in respect of each such substance/preparation/article, and for each such company:
- whether it is a manufacturer/importer, distributor or downstream user;
- the quantities in question; and
- to whom the substance/preparation/product is supplied;
- On this basis, map each company’s registration, notification and authorisation requirements;
- Evaluate the risk that any substance/preparation used by any group company may be withdrawn from the market;
- Begin collecting the information on substances’ intrinsic properties and hazards that is already in the group’s possession, as well as use and exposure information from customer
- Review document management and retention policies to ensure that key data is captured and maintained, to form the basis for future registration or applications for authorisation, and to assist in defending any future product liability claims that might be brought; and
- Start to consider the approach to take to commercial contracts with both upstream suppliers and downstream customers (see above).