CIRS receives interviews from the European Commission DG Enterprise and Industry about the impact of REACH on the competitiveness of the general chemical industry and non-EU firms.
4 July 2011, CIRS talks about the impact of REACH on the competitiveness of the general chemical industry and non-EU firms. This interview was given by Centre for Strategy & Evaluation Services on behalf of the European Commission DG Enterprise and Industry.
The questions and answers are listed as below:
1. In brief, please provide a description of your organisation and its role in relation to REACH regulation.
Chemical Inspection and Regulation Service (CIRS) provides chemical regulatory consulting services (including registration for REACH regulation) to companies doing businesses in/with EU or China. We are the only representative under REACH. We also provide chemical testing and other technical services to firms in China including the test for the level of SVHCs in articles.
2. Please provide us with any data available concerning the sectors, country or origin and role in relation to REACH regulation of your clients.
We act as only representative for over 2,000 non-EU chemical companies who export chemicals to EU. 95% of them come from China. 3% come from US. The rest 2% are from other non-EU countries. We have registered over 180 substances up to date. Over 60% of our clients are SMEs.
3. Based on your experience, what, if any, are the important issues/problems for non-EU manufacturers and only representatives from the practical implementation of the Regulation (pre-registration, registration, authorisation, restriction)?
Some non-EU manufacturers do not see it as their direct obligation, therefore there is less incentive for complying. Costs are an issue for non-EU manufacturers. The average costs of registration for a substance (1000+/y) are around €50,000/substance but there are also examples where only the letter of access costs over €1 million.
The main issues there is the operation of the SIEFs and the consortia and the fact that costs charged are not transparent. The role of Only Representative is not clearly defined by EU regulation. We will talk about that later.
4. What are the average costs for registration of a substance? What share of the firms’ turnover do they represent? What are the main cost elements/drivers for firms (ECHA fees, access letters, SIEFs/consortia management costs, consultants fees, human resources)? Are there any particular important or additional costs for non-EU firms?
The average cost of registration of a substance with a tonnage band over 1000t per year is around 50,000 Euros while the annual turnover of those companies is around 50 million Euros. However, the cost of registration of each substance varies significantly.
Mostly SIEF /consortium management costs are the deciding factor and they make letter of access very expensive. For example, SAS consortium charges 1 million Euros administrative fees to SIEF members for 18 years. This fee does not even include data fee, dossier and CSR fee. It is not clear how these costs are calculated. A good consortium management company can lower the cost significantly they choose proper technical consultants.
Many Non-EU manufacturers find the price of letter of access too high and this restricts them from proceeding with registration. They either decide not sell in the EU or mainly, so far, to lower the level of sales to bellow the 1,000 threshold and delay the decision to register.
ECHA fees were not stated as critical/important.
Various existing communication support tools do not provide any help and companies end up spending extra resources without getting added value. Email based communication should be sufficient.
5. Are you aware of any issues/problems in relation to the operation of SIEFs (access to data, sharing of costs, ownership rights)? What are the particular issues for non-EU manufacturers in relation to the participation in SIEFs? (e.g. protection of intellectual property, confidentiality?)
Most of non-EU companies depend on buying letter of access to complete their registration process. They usually choose passive or involved status in SIEF. However, they do not have any power to negotiate the price of letter of access. More importantly, there is no negotiation at all. This makes them very vulnerable as they need to pay whatever price charged by a lead registrant or consortium. Even when they find some fees are over-charged by lead registrant or consortium or the cost sharing mechanism is unfair, there is no place/mechanism to file a complaint. To a certain extent the lead registrants seems to acquire a controlling role in terms of the specific substance that may even provide competitive advantage.
6. Based on your experience, what have been the main issues/problems for non-EU manufacturers in relation to the registration process?
The main issue is the cost of data sharing and the price of letter of access.
7. How does the communication between EU-based importers and only representatives work? Are there any issues/problems?
Via Email/Telephone, upon advice from their supplier that OR has been appointed and provision of relevant contact details. EU importers usually come back to us to seek our confirmation or request tonnage coverage documents or check their clients’ registration intentions or report their uses. We usually deal those inquires very efficiently.
8. What, if any, are the issues/problems for only representatives in relation to the implementation of REACH regulation?
The roles and obligations of only representatives are not well defined. For example, whether only representative is allowed to submit application for authorization or C&L notification or not and whether it is only representative’s obligation to update SDS or not. Besides, non-EU companies are not willing to disclose their trade information to their only representative. This makes OR very difficult to fulfil its obligations under REACH, for example, record quantities imported into EU and customers sold to. OR have to collect information from EU importers which is a rather demanding job.
9. How effective has been the support provided by the Agency and the national helpdesks? Are there any other support mechanisms? Have there been any problems with the IT tools set by the Agency?
So far support has been sufficient. IT tools are okay and the support of national authorities (at least based on the experience of Ireland) is very helpful.
We strongly suggest that ECHA set up a complaint centre encouraging companies to submit their complaints about cost sharing mechanism and build a team investigating those complaints.
10. Are non-EU manufacturers informed in relation to their obligations under REACH? Does that vary according to sector, size of companies?
Most non-EU manufacturers are very well informed of their obligations under REACH irrespective of sector or size of companies thanks to the training of service providers and the requirements of buyers in EU.
11. Has there been any impact of the REACH related costs to the prices of chemical substances, preparations and formulation from non-EU manufacturers?
The prices of some chemical substances have gone up a little, but not all substances. The demand and the price of raw materials have clearly greater impact on the prices of chemical substances that REACH regulation.
12. Has the regulation led to the decision of non-EU manufacturers to withdraw substances from the EU market? Do you have any data available on the number of substances, number of firms, volumes of production? What are the main reasons for withdrawing substances from the market (candidate/SIN list, costs, others)?
Yes, many of our clients have decided to lower tonnage band to postpone registration or given up EU market completely. Based on our estimation, only about 10%~20% of pre-registered substances will be registered by non-EU companies eventually although this is also a reflection of the very large number of substances pre-registered by firms.
For substances with tonnage band of 1000t/y+, only 5%~10% of pre-registered non-EU companies have registered before 2010 and some wait for the lower tonnage registration. The cost of registration is is most cases the primary factor.
For example, CIRS has represented over 10 manufacturers of Silica with tonnage band above 1000t per year and only one of them has decided to register Silica because of the huge cost of letter of access (200,000 Euros).
13. Has the regulation led to increased cooperation across the supply chain? What are the costs and the benefits associated with the requirement for cooperation with downstream users? Based on your experience what, if any, are the particular issues for non-EU manufacturers?
REACH definitely has increased cooperation across the supply chain. It is very important to communicate REACH related information (registration number, registration intention, uses, SDS) along the supply chain.
However there are also issues with the extended SDS that are particularly long and complicated. Many firs end up not really using them/reading as they do not have the resources/time. The issue of use description is one of the key issues in relation to that
14. Based on your experience, has there been any evidence of business relocation that is linked with the introduction of REACH?
Yes, several big traders from China have set up their European offices to register their substances as importers because non-EU traders cannot appoint only representatives. CIRS has no experience of relocation of production facilities inside or outside EU.
15. Has the regulation created incentives to non-EU manufacturers to develop/use new substances? How useful is the knowledge created during the registration process (data, testing) and the exchange of information with downstream users? Has it helped businesses develop new substances or formulations? Do you have any relevant data? Are there any obstacles? What are they?
To this point REACH has not created any incentives for non-EU companies to develop or use new substances. However, the knowledge about REACH will help non-EU companies to deal with other chemical legislation or chemical legislation in other countries.
The introduction of substances in the candidate list does not lead to incentives for substitution at this stage. The entry of substances in the authorisation is expected to create such demands.
REACH provisions concerning PPORD will help the conduct of R&D as it reduces the costs. However in the initial period the additional costs for compliance may hinder innovation. Still the evidence so far is very limited.
16. Based on your experience, has the regulation helped businesses improve the human and environmental risk management measures? Has this brought important savings to businesses?
The main purpose of REACH registration for those non-EU companies is to gain access to the EU market and very rarely will they change their human and environmental risk management measures due to REACH. REACH does not bring important savings to those businesses either.
However if new non-EU regulation ove in the direction of REACH (as in the example of Korea) this may change. In China the new regulation concerns only new chemicals and does not create significant obligation to firms.
17. Are you aware of possible uneven distribution of benefits and costs across different sub-sectors? How does the regulation affect the competitiveness of EU firms in relation to non-EU companies?
REACH does not increase the competitiveness of all EU firms, but it does increase the competitiveness of large firms in EU which have stronger financial resources. The cost of registration is a great challenge for many small and medium sized EU firms especially when the price of letter of access is excessive. Some big firms can even make money from REACH registration because they own data and can sell them at a very good price after adding fees such as administrative fees and risk premium, etc.
It is not an issue of EU versus non-EU firms, but more of large firms gaining against SMEs.
18. Have there been important barriers to trade before the introduction of REACH? If so, has REACH helped remove these barriers and develop a harmonised market? Are there still barriers to trade?
REACH has helped build a single market in EU and the market seems to be more transparent at this stage. This is a good thing for non-EU companies as they don’t need to comply with chemical legislation in each country any more. At the same time in the past there seemed to be limited enforcement of chemical regulation and this is now changing. The experience from Irish authorities as an Only Representative is that checks do take place.
On the other hand, REACH is also seen as a barrier to trade as it represents an additional cost that did not exist in the past.
19. What is your experience, if any, from market surveillance by Member States? Are there any problems / issues emerging so far in relation to intra-EU trade and market surveillance mechanisms?
We do not have much experience with this.
20. What is the experience to date of the operation of the internal market since the adoption of the regulation? Can you identify potential/actual winners and losers?
We do not have much experience with this.
21. Are you aware of any instances where the regulation has been misused by firms in order to gain advantages in the market?
It is very hard to tell in a short term. In the longer term, SMEs might be put in disadvantages. Even though there is a discount on ECHA fees for SMEs, those discounts are not that helpful when the price of letter of access is excessive.
22. What is the general view (positive/negative) of non-EU manufacturers in relation to the requirements set by REACH? How do they compare with regulations in other non-EU countries?
Most of non-EU manufacturers think that REACH is a barrier to trade. They also understand that REACH is a trend and other countries might follow EU. They do compare REACH with regulations in other non-EU countries.
23. Based on your experience, what parts of the implementation process need change/improvement? What should be these changes?
Customs bodies in Member States need to be (more) involved in the implementation process in relation to the control of substances/articles imported.
24. What, in your view, are the potential long terms impacts (5 – 10 years) of the Regulation to the non-EU firms?
Big companies will survive and probably have greater market share in the EU. Small companies especially traders will switch to other markets otherwise they might get eliminated.