Forbes November 29, 2005 EU CHEMICALS DEAL OUT OF REACH The European Parliament has approved a compromise position on the EU's proposed regulatory regime for chemicals -- the REACH system -- and the United Kingdom hopes to finalize a deal before its six-month rotating presidency of the EU ends at the end of 2005. The EU's proposed regulatory regime for chemicals (Registration, Evaluation and Authorization of Chemicals, or REACH) is one of the most heavily lobbied pieces of legislation in EU history. Environmentalists and consumer groups argue that REACH is vital for the protection of human health and the environment, while industry groups argue that it is a threat to the competitiveness of both the chemicals industry and downstream users. The proposal still represents a massive regulatory undertaking, with cost estimates typically ranging from 3 billion to 5 billion euros ($3.5-$6.0 billion dollars) spread over the next 11 years. The REACH proposal was developed in response to a gap in the EU's regulatory regime for chemicals. While present EU regulations subject new chemicals (those marketed only after 1981) to a rigorous authorization process, most existing chemicals (those put on the market before 1981) were not subject to safety testing. REACH was developed to address the growing concern that some existing chemicals may pose unacceptable risks. Today, existing chemicals are presumed safe unless particular dangers are identified. REACH will essentially reverse the burden of proof, requiring manufacturers and importers to provide information on risks and risk-reduction measures, which demonstrate that their chemical products are being used safely: Registration: Producers and importers will register chemicals with a newly established European Chemicals Agency. Evaluation: The new Agency will coordinate a network of national agencies in evaluating registered substances that may present risks. Authorization: Chemicals deemed by the Agency to be of very high concern will be subject to an authorization procedure. Substances judged as posing unacceptable risks may be banned. REACH would also apply to imports, and it would have potentially significant implications for trade. The U.S. and Japanese governments have expressed concern over REACH, warning that it might constitute a non-tariff barrier to trade in violation of World Trade Organization rules. Aside from potential legal challenges, critics argue that REACH will damage the international competitiveness of the EU chemicals industry. On Nov. 17, the European Parliament approved a watered-down version of REACH that has several notable features: Exemptions: In an effort to appease small and medium-sized enterprises, the compromise version would exempt chemical substances produced in very low volumes, which include approximately 20,000 of the 30,000 existing chemical substances, from the full registration and testing requirements. Waivers: The compromise legislation would also permit the European Chemicals Agency to grant waivers from the REACH testing requirements to companies for higher-volume chemicals, if the companies could provide adequate justification of the risks. Environmental Concerns: While the revised legislation went far to address industry concerns, Parliament maintained two controversial aspects of the authorization procedure favored by environmentalists. The "substitution principle" would require companies to replace dangerous chemicals with safer substitutes. Furthermore, authorizations granted by the Chemicals Agency would only be valid for five years. Opt-Outs: The Parliament's text confirms the "one Substance, one Registration" principle, which requires companies that use the same substance to share testing data and costs involved in the registration process. However, Parliament has allowed companies to request opt-outs from this data and cost sharing where confidentiality issues are at stake. The Commission, the Council of Ministers, the European Parliament and the member states remain divided on the issue: * Germany is home to the EU's largest chemicals industry, and the Merkel government's position on REACH will prove critical. * The controversial "substitution" principle is likely to be a sticking point. * Under Parliament's version of REACH, authorizations could be limited to five years. The Council is likely to remove this provision. The Parliament's vote on REACH brings the landmark legislation one step closer to adoption. However, member states in the Council are likely to reject some aspects of the Parliament's text, leading to another round of revisions in 2006. The legislation is unlikely to come into effect before late 2006 or early 2007.