November 29, 2005


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

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

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.