REACH: Impacts on Industry Supply Chains
April 28, 2005
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A European Commission group released conclusions of an impact assessment on industry supply chains of the proposed REACH (Registration, Evaluation and Authorisation of Chemicals) regulatory framework.
The studiy considered the impact of REACH on supply chains using data supplied by individual firms in the chemicals, automobile, and flexible packaging and inorganic (metals, cement, paper and pulp, etc.) industries. The results of a fourth sector, electronics, will soon be finalized.
The group also considered a general survey of the situation in new European Union member states, which will be complemented by a separate report on the results of case studies involving individual firms in Poland, the Czech Republic and Estonia.
The following key messages can be drawn from the initial study:
- There is limited evidence that higher-volume substances are vulnerable to market withdrawal following the REACH registration requirements. However, lower-volume substances under 100 tons are most vulnerable to being made less- or non-profitable by the REACH requirements.
The one-off costs of registration can demand a significant share of the available cash flow for chemical producers, in particular small-, medium-size enterprises (SMEs). This may lead to a decision not to register part of company portfolios where the one-off costs of registration represent a substantial portion of annual profit. This effect would mainly relate to substances which are not considered by chemical suppliers to be technically critical to their customers. However, this could trigger the need for some reformulation at the formulator and downstream-user level and may reduce the diversity of substances at the disposal of formulators for innovation.
- There is limited evidence that downstream users will be faced with a withdrawal of substances of greatest technical importance to them.
The study shows that chemical suppliers and formulators will prefer to register substances that are technically important to downstream users in order to keep their portfolio and avoid the potentially high costs of reformulation and/or re-engineering which could otherwise result for their customers. This also applies for the limited number of substances within the assessed sample that could be regarded commercially vulnerable under REACH. Where there is limited communication in the supply chain, it is not possible to rule out the risk that some limited withdrawal of substances may occur in practice.
- SMEs can be particularly affected by REACH because of their more limited financial capacity and lower market power in terms of passing on costs.
SMEs generally have more limited resources to implement the new legislation. The study found that some SME chemical suppliers could face financial difficulties to comply with REACH, particularly if they would have to register many substances at the same time. Low-volume substances produced by SMEs are more likely to be vulnerable to being made less- or non-profitable. SMEs also have been shown to face more difficulties in passing through testing costs to downstream users.
- Companies have recognised some business benefits from REACH.
The study found a number of business benefits of REACH within the investigated supply chains, especially to formulators and downstream users. Benefits mentioned by certain companies include:
- Better information about substance properties and dangerous components in preparations.
- Easier risk management.
- Rationalization of substance portfolio.
In October 2003, the European Commission adopted a proposal for a new EU regulatory framework for chemicals, COM (2003) 644. Under the proposed new system, dubbed REACH, enterprises that manufacture or import more than one ton of a chemical substance per year would be required to register the substance in a central database.
The aims of the proposed new regulation, according to the European Commission, are to improve the protection of human health and the environment while maintaining the competitiveness and enhancing the innovative capability of the EU chemicals industry. REACH would give greater responsibility to industry to manage the risks from chemicals and to provide safety information on the substances, which would be passed down the chain of production.
The proposal is now being considered by the European Parliament and the Council of the EU for adoption under the so-called "co-decision" procedure.
The complete list of European Commission conclusions and further information on REACH can be found at http://europa.eu.int/comm/enterprise/reach/index.htm and http://europa.eu.int/comm/environment/chemicals/reach.htm.
Source: European Union.