Two years ago the European Union issued two environmental directives relating to the use of hazardous substances in the manufacture of electrical and electronic equipment and for the recycling of waste electrical and electronic equipment - respectively, the RoHS and WEEE Directives ("European Directives"). The Chinese Government has now followed suit. On 28 February 2006, the Ministry of Information Industry ("MII"), National Development and Reform Commission, Ministry of Commerce, General Administration of Industry and Commerce, General Administration of Quality Supervision, Inspection and Quarantine and State Environmental Protection Administration jointly promulgated the Measures for Administration of the Control of Pollution by Electronic Information Products ("EIP Measures") which came into force on 1 March 2007. It is also referred to as the 'China RoHS' by the electronics industry. To help industry and the public to understand the purpose and the implementation of the EIP Measures, the MII issued formal guidelines on 3 March 2006 and subsequently on 5 June 2006 (revised on 1 December 2006).

The EIP Measures state that the MII will be responsible for developing a standard labelling protocol to which importers and manufacturers will be expected to adhere. Further, the protocol must comply with both the requirements of the Chinese Government and industry standards relating to the control of toxic and hazardous elements in electronic information products. The protocol has recently been published by the MII and is known as the "Markings for Control of Pollution Caused by Electronic Information Products". The MII has also has announced the implementation of two other standards, namely, the "Requirements for Concentration Limits for Electronic Information Products Hazardous Substances" and the "Testing Methods for Regulated Substances in Electronic Information Products". In addition to these protocols, the Chinese Government continues to develop a protocol for the Chemical Composition of Lead-free Solders and four other protocols relating to lead-free solder materials.

Objective of the EIP Measures

As with the European Directives, the EIP Measures aim to safeguard the environment and human health. More specifically, the Chinese Government seeks to reduce the extent of pollution caused by the disposal of electronic products and promote the production and sale of environmentally friendly products by reducing toxic and hazardous substances used in their manufacture.

Scope of the EIP Measures

All 'electronic information products'  that are manufactured in, sold in and imported into China will be caught by the EIP Measures and 'electronic information goods' refer to electronic radar, electronic communications and broadcasting products, computers, electronic home appliances, electronic measuring instruments, specialised electronic products, electronic components and parts, electronic applications as well as electronic materials and accessories. As these terms are rather general and vague, the MII has published a more detailed list, elaborating on each of the sub-categories of electronic information products to which the EIP Measures apply.

In particular, the Chinese Government is currently concerned with six types of toxic and hazardous substances, namely, lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls (PBB) and polybrominated diphenylethers (PBDE), which are the same substances that are the subject of the EU Directives.

The regime for reducing pollution generated by electronic information products

The regulatory regime for electronic information products can be described as a two level process.

The first level of control

The first level of control takes place immediately after the implementation of the EIP Measures. It is a self governing process because at this level, the Chinese Government merely requires that all electronic information products placed on the market in the P.R.C. by manufacturers and importers must be labelled if they contain toxic and/or hazardous substances in order to keep consumers informed. The labelling can be on the product itself but if this is not feasible, it can be stated in the product catalogue.

The particulars required in the labelling of such toxic and/or hazardous substances are as follows:

• the name;

• the levels; and

• the 'period of environmental use', that is, the period within which:

(1)toxic and/or hazardous elements will not leak out or transform into some other elements; and

(2) the use of the products will not cause serious damage to the environment, human health or property as deemed by the manufacturer or the importer. Note that endorsement by the Chinese Government is not required when determining the period of environmental use. However, the period of environmental use period is different from the life of the product itself.

In addition to particulars relating to toxic and hazardous substances, manufacturers and importers are required to state on the label whether the products are recyclable after being discarded and also provide information about the packaging material.

The second level of control

The second level of control is a 'management by catalogue' approach. In essence, all products listed in the Catalogue for Priority Control of Pollution by Electronic Information Product (the "Catalogue") will be strictly scrutinised by the Chinese Government and will undergo mandatory verification to achieve the China Compulsory Certification (also known as the 3C verification) before they can be placed on the market in the P.R.C. Further, importers and manufacturers of such products will need to ensure that the levels of toxic and hazardous substances do not exceed the stipulated restrictions and if applicable, substitutes or replacements for toxic and hazardous substances are used instead.

All currently known electronic information products that contain toxic and hazardous substances will be included in the Catalogue. In future, the Catalogue will be updated and amended continuously in accordance with a set of procedures prepared by the MII in consultation with other departments. Generally speaking, electronic information products will be included in the Catalogue if the technology is sufficiently mature and if it is economically feasible to do one of the following:

• replace or substitute the toxic and hazardous substances contained in such electronic information products; or

• keep the levels of toxic and hazardous substances in such electronic information products below the stipulated thresholds.

Because the procedures for formulating the Catalogue are still in draft form, the precise mechanism for the creation of the Catalogue and the timetable for implementing the second level of control remain unclear.

Penalties

The EIP Measures provide that manufacturers and importers will be penalised if they fail to apply the appropriate markings or fail to adhere to the standards for controlling toxic and hazardous substances in electronic information products when manufacturing, importing and labelling such goods. However, the EIP Measures are silent as to the level and extent of liability in the event of a breach. There is also no mention of whether the manufacturers and importers are obliged to recycle electronic information products to the extent that they are recyclable and who is going to bear the recycling costs.

Business implications

Compliance issues

Since 1 March 2007, importers and manufacturers in the P.R.C. will need to ensure that all electronic information products put on the market must be marked in accordance with the EIP Measures, that is, to comply with the first level of control. This applies to both old and new models and regardless of whether they are sold for retail or wholesale purposes, or as replacement parts for maintenance purposes. However, this does not apply to test machines, prototypes and models for research and development as well as other activities that are not associated with the sale of products.

Further, to the extent that the category or type of electronic information product is listed in the Catalogue, manufacturers and importers are required to obtain verification from the Chinese authorities. This did not have immediate effect on 1 March 2007. It is still unknown when the Catalogue will be ready.

Cost

It is inevitable that complying with the EIP Measures will affect production costs and it is anticipated that the overall production costs will increase by anywhere between 10% to 20%. This creates great pressure on manufacturers as it is likely that it will affect their competitiveness, and small and medium-sized firms in particular. Further, businesses outside the electronics industry will be affected, such as those providing ancillary products such as packaging. One example is the printing industry. To comply with the EIP Measures in providing product packaging, printers may need to replace existing equipment or raw materials with environmentally friendly alternatives.

Conclusion

It is encouraging to see that China is trying to keep up with international policies and initiatives in safeguarding the environment and human health. However, it remains to be seen how the EIP Measures will work in practice following their implementation in March 2007. Further, as the Chinese Government has not yet announced when the second level of control will commence and some of the standards accompanying the EIP Measures have yet to be published, there is still some degree of uncertainty over the extent to which the EIP Measures will affect the electronics and associated industries.