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Angela Logomasini - REACH EU Chemical Policy

Angela Logomasini - REACH EU Chemical Policy

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Published by: Competitive Enterprise Institute on Dec 06, 2010
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202-331-1010 www.cei.org Competitive Enterprise Institute
Regulations enacted in the European Union(EU) increasingly are having worldwide effects,warranting greater attention among policymak-ers in the United States and around the world.Not only do EU directives affect the 27 EUmember nations, but EU regulations also canbecome trade barriers and affect thousands of businesses around the globe that are directly orindirectly linked to the EU’s substantial share inthe world market through international trade.The EU’s new chemicals policy—called REACH(Registration, Evaluation, and Authorization of Chemicals)—should be of special concern, as itwill have serious worldwide impacts. REACHofficially took effect in June 2007.REACH uses the so-called precautionaryprinciple by requiring companies to prove thattheir products are safe before their introductioninto commerce. Currently, government officialsmust bear the burden of proving that a productis unsafe before removing it from the market.REACH would reverse that burden, demand-ing that firms conduct extensive tests to dem-onstrate product safety. Because manufacturerscannot prove that anything is 100 percent safe,that policy would likely produce arbitrary banson many relatively safe substances and woulddiscourage innovation.As the name implies, there are several regu-latory components of REACH. The registra-tion phase mandates that firms register prod-ucts with the government when they produceor import them at levels of one metric ton ormore per year. The second stage—evaluation—involves consideration of whether the govern-ment will demand further study of chemicals.
The EU’s Chemical Policy
 Angela Logomasini
The Environmental SourceCompetitive Enterprise Institute www.cei.org 202-331-1010
Chemicals deemed as substances of “specialconcern” during evaluation must undergo thenext stage—authorization. After demandingfurther study and review of chemicals duringauthorization, regulators then decide whichsubstances to ban or regulate and which togive final approval.The REACH proposal includes some ex-emptions for things that are obviously safe,such as water, as well as some products regu-lated under other directives, such as medicalproducts, food additives, cosmetics, and pes-ticides. In addition, REACH exempts mostpolymers, but the commission likely will tryto include those in the program at a futuredate. Existing regulations currently cover onlyfirms that manufacture chemicals. REACHcovers anyone who produces, imports, or usesa regulated substance. REACH also coversdownstream users, which include formulators(such as paint manufacturers) and firms thatuse chemicals in their production processes oras ingredients.
Economic Scope
The cost estimates of the REACH programcould be as high as €5.2 billion, according aEuropean Commission–funded study.
How-ever, nearly all the estimates likely understatethe costs of the program, because they consideronly a fraction of REACH costs—the registra-tion costs. The study does not consider the costsof the latter, potentially more expensive, stagesof the program: the evaluation and authoriza-
1. Joan Canton and Ch. Allen
 , A MicroeconomicModel to Assess the Economic Impacts of the EU’s NewChemicals Policy
, (Brussels: European Commission/DGEnterprise, November 2003), http://europa.eu.int/comm/ enterprise/reach/docs/reach/effects_new_chem_pol-icy-2003_11_17.pdf.
tion of chemicals. Nor does the study considerindirect impacts associated with the cancella-tion of chemicals under REACH. The Euro-pean Chemical Industry Association, known asCefic, has indicated that it expects that firmscould stop producing as much as 30 percent of substances currently produced at relatively lowlevels (1 to 100 metric tons per year), becausethe costs of regulations may make such prod-ucts unprofitable. In addition, REACH willreduce innovation significantly, because lowerprofits and the costs of registration will leavefewer resources for new product research anddevelopment. In addition, there may be fewerkinds and reduced amounts of raw materialsavailable as importing costs grow substantiallyhigher.All studies acknowledge that REACH willlead manufacturers to stop producing someproducts rather than go through registrationbureaucracy. The impacts associated with theelimination of just a few substances during theregistration phase—not to mention the loss of products during the evaluation and authoriza-tion stages—could be substantial. Accordingto a study by KPMG, “Formulators typicallyuse a particular critical substance in many of their formulations. So the loss of only a fewcritical substances would affect a large partof their portfolio, resulting in large-scale re-formulation.”
In addition, cost studies have found thatREACH will reduce innovation and harm busi-nesses in the EU nations that need developmentthe most—the newer EU members in Eastern
2. KPMG Business Advisory Services,
REACH— Further Work on Impact Assessment: A Case Study Ap- proach
(Amstelveen, Netherlands: KPMG Business Ad-visory Services, April 2005), http://europa.eu.int/comm/ enterprise/reach/docs/reach/kpmg_summary.pdf, p. 21.
International Policy202-331-1010 www.cei.org Competitive Enterprise Institute
Small businesses throughout Europealso will have a particularly hard time, accord-ing to nearly all studies. One study notes, “Theheaviest burden will be on SMEs [small andmedium-sized enterprises] which cannot con-sistently fulfill the REACH requirements andso it is predicted that most of them may facefinancial troubles, may be taken over by biggerones, or even shut down.
REACH’s impact isn’t going to fall only onEurope, because the United States and othernations are inextricably linked to the EU econ-omy through trade. The United States exportsmore than $20 billion in chemical productsand invests more than $4 billion in the EUchemical and related industry sectors annually.In addition, U.S. firms export more than $400billion in products containing chemicals, someof which may fall under the scope of REACHregulations. The United States also importsmore than $40 billion of chemicals from Eu-rope each year.
The U.S. government mission to the EU haspointed out that REACH is expected to ad-versely affect tens of billions of dollars of tradein chemicals and products. Affected sectorswill probably include textiles, pharmaceuticals,electronics, automobiles, and advanced materi-als. According to the European Commission’s
3. Institute for Prospective Technological Studies (IPTS),Implementation of REACH in the New Member States(Brussels: European Commission, 2005), http://europa.eu.int/comm/enterprise/reach/docs/reach/ipts_summary.pdf.4. Ibid., 91.5. Gary Litman, “Comments on the EU CommissionConsultation Document Concerning the Registration,Evaluation, Authorization, and Restrictions of Chemicals(REACH),” U.S. Chamber of Commerce, Washington,DC, July 9, 2003.
own study, users of specialty chemicals likelywill suffer serious repercussions.
Trade Implications
REACH also promises to have protection-ist effects that likely will trigger World TradeOrganization (WTO) disputes. In a presenta-tion to the EU Parliament in January 2005,Marco Bronckers, chair of the WTO and inter-national trade law professor at the Law Uni-versity of Lieden, detailed many of REACH’strade-related problems. For example, he notedthat under international trade agreements,regulations must be “not more trade restrictivethan necessary to fulfill a legitimate objective,taking account of the risks non-fulfillmentwould create.”
REACH’s volume-focusedrequirements are likely to violate this WTOrequirement. Because low-risk substances willbe regulated under REACH simply becauseof their high volume, the regulations may bedeemed arbitrary.
Questionable Benefits
Most of the claims made about REACH’sbenefits involve speculative comments sprin-kled throughout various studies. Those specu-lations have taken on the character of gossip;they gain credibility simply by being repeated,and some are embellished in subsequent re-iterations. A review of underlying data findseither that references are lacking or that the
6. Ibid.7. Marco Bronckers, paper presented before the Euro-pean Parliament, Joint Public Hearing,
A WTO Perspec-tive: Imported Products,
January 19, 2004, http://www.europarl.eu.int/meetdocs/2004_2009/documents/DV/ Bronckers/bronckersen.pdf.

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