REACH Extends its Reach - Board Europe March/April 2008

Board Europe - March/April 2008

REACH Extends its Reach

What CFOs and Others need to know about the new EU legislation

The European Union's REACH legislation went into effect in June 2007, but only now are companies beginning to realize its full impact. Put simply, REACH (Registration, Evaluation and Authorization of Chemicals) requires companies to assess the risks and hazards of the products they sell in Europe that use chemicals. Board Europe spoke recently with Michael Penman, a former ExxonMobil manager and head of Penman Consulting BVBA, a Brussels-based firm specializing in regulatory issues for the chemicals and petrochemicals industries.

First, why should nonchemicals companies pay attention to REACH?
Everybody is somewhere a user of chemicals, from food manufacturers to aerospace companies. If I'm a steel maker, for example, I might think that I'm not affected, because REACH is about chemicals and I make steel. But if my steel coil uses a chemical coating, then I'm subject to the same regulatory requirements as the maker of that coating. In short, I now have to go back to my suppliers and make sure that they are compliant with REACH, and my customers will demand the same of me. The consequences of REACH will be considerable for most companies doing business in Europe.

What does REACH require companies to do that they did not have to do before?
They now have to demonstrate positively the safety aspects of all the chemicals they manufacture or use, throughout the supply chain. The burden of proof has transferred from the regulatory agency to the industry. The regulatory com munity used to say 'we're going to come look into what you are doing'. Now they say: 'prove it to me'. Today it's the company that has the burden of proof that their products are safe. This is a major change.

What is it about REACH that makes it particularly onerous?
Firstly, it's the sheer scale of the regulation. It covers everything from the manufacturing side to the downstream uses. The second thing is that it requires people to provide much more information than before, and thirdly, they have to talk up and down the supply chain. There is a lot of disclosure required, a lot of potentially confidential information. If you don't do it right, you could be giving away a lot of sensitive information.

What happens if companies don't get it right?
The beginning of Article 2 basically says 'no data, no market'. If you do not provide all the required information for safe use, you are not allowed to market the product. First, this affects your own products that you put on the market. But you are also relying on third-party suppliers, and you have to ensure that they are compliant so that you can continue to use those substances that are critical to your manufacturing process. If the supplier of the coating fails to get it right and has to withdraw from the market, then you as the maker of steel coils will no longer have the coating you need.

Do you expect to see shortages of low-volume chemicals because of REACH costs?
There will be times when people won't like the costs, and they may opt out. It is like any market situation, there will be winners and losers. But I think the market will sort this out. People who do badly because they can't control the costs will tend to disappear, and others that can control costs will take their place. The important thing is not to 'sleepwalk' into these costs.

Do companies need to take action right away?
This year there is a requirement to notify the European Commission for what they call pre-registration, for anything you may have to register in the future, and if you don't do this now then later you will have to do a full registration straight away. So action is required now. But it's important not to overdo that process. Companies need to do a careful analysis of what they really need to register, rather than simply registering everything. Cost management is very important here. You have to build it into your business model, or it could affect your relationships with your customers, your suppliers. You have to make sure it doesn't impact your business.

Does REACH require highly specialized knowledge?
Yes, the regulation is very technical. A lot of companies will need help. The technical guidance runs to thousands of pages, and it obviously involves environmental, toxicology, exposure sciences. Most companies have never done this sort of thing before, such as analyzing exposure aspects. If you use a dangerous substance, you need to understand how exposure affects risk, and this is very technical.

Could this also be an opportunity, a way to gain competitive advantage?
For companies that get this right, there is a potential benefit, working with customers and suppliers, being able to demonstrate technical competence, managing your supply chain better. The costs will be vast. This will make it difficult for foreign companies to bring things in to Europe. For medium-sized US companies, it will be difficult. They will need legal representation in Europe. Otherwise, they might not be allowed to market their products.

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