Wall Street Journal  [Printer-friendly version]
December 13, 2006

EUROPEAN UNION APPROVES SWEEPING CHEMICALS CURBS

[Rachel's introduction: The Wall Street Journal says, "The tough new
law will require manufacturers and importers to document how some
30,000 chemicals are used in products from cleaning liquids and
plastics to furniture and electronics. About 1,500 chemicals deemed
most dangerous to humans and animals will be at the heart of a new
regulatory battleground for manufacturers and chemical producers
doing business in or with the EU."]

By Mary Jacoby

BRUSSELS -- The European Union greatly expanded its campaign against
industrial pollutants, with lawmakers approving sweeping restrictions
on chemicals that could upend global manufacturing and supply chains
and saddle thousands of companies with huge costs.

The tough new law will require manufacturers and importers to document
how some 30,000 chemicals are used in products from cleaning liquids
and plastics to furniture and electronics. About 1,500 chemicals
deemed most dangerous to humans and animals will be at the heart of a
new regulatory battleground for manufacturers and chemical producers
doing business in or with the EU -- the world's second-richest
consumer market.

Precise rules underpinning the law will be hashed out over the next
decade, making it hard to gauge the full cost or identify where supply
problems might arise. But the uncertainty alone will complicate
business planning and product development.

"There's mounds of uncertainty," said Eric Karofsky, a senior analyst
with AMR Research in Boston, a manufacturing-consulting firm. Because
it is unclear which substances will pass EU muster, "If you're a
manufacturer, how do you go ahead and plan your business?"

A new agency in Helsinki, Finland, will compile a database of
chemicals and their properties from data industry will be required to
submit over the next decade, with the first phase of the regime
expected to be in place by spring 2007. The most toxic substances
could end up banned.

The direct costs of supplying safety information about a substance
range from €20,000 to €400,000 ($26,528 to $530,560), depending on the
volume of data requirements, according to the Parliament.

Companies on the front line of the issue -- chemicals, electronics and
plastics makers among them -- are bracing for the effect of the
landmark legislation, dubbed Reach for "registration, evaluation and
authorization of chemicals." Many U.S. manufacturers appear to be
counting on being considered so-called downstream users of targeted
chemicals, as opposed to the manufacturers or importers that will be
responsible for the substances' documentation. But how those roles are
defined remains to be seen, and could prove tricky.

German chemical company BASF AG has budgeted "hundreds of millions of
euros" to comply with the law and help its network of suppliers
navigate the new bureaucracy, said Wolfgang Gerhard, BASF senior vice
president for corporate and governmental relations. The company began
two years ago setting up a database to track how thousands of
substances are used in industrial processes, he said.

Finnish cellphone maker Nokia Corp. makes 150 products using 30,000
components and 500,000 direct and indirect suppliers, said Markus
Terho, the company's director of environmental affairs. Nokia would
have to show chemicals are being used safely in each step and switch
to less-toxic alternatives.

Chris Huntley, a spokesman for Dow Chemical Co. of Midland, Minn.,
said the latest version of Reach is much improved, but that his
company is concerned about how fast regulators will be able to
register the 1,500 products. He said companies will have just 3.5 years
to complete the process, while Dow understands the EU can register
just 20 to 25 substances a year. "If they can't do it within four
years, you could end up with a system that doesn't provide the
confidence" it will work well, Mr. Huntley said.

He couldn't offer specific estimates of the cost of registering Dow
products, but said it will be similar to BASF's -- in the hundreds of
millions of euros.

Dan Turner, a spokesman for DuPont Co., said the Wilmington, Del.,
company will adopt a "business as usual" attitude for registering
products containing perfluorooctanoic acid, used in the company's
Teflon nonstick products. Studies show PFOA collects in women's breast
milk, and have caused various illnesses in animals, but Mr. Turner
said Dow doesn't believe PFOA is toxic.

Parker Hannifin Corp. of Cleveland, which makes a wide array of items
such as hoses and hydraulic equipment used by thousands of other
manufacturers, hopes that in most cases it will be considered a
"downstream user" and thus avoid dealing directly with the regulatory
hurdles. Rick Taylor, the company's director of environmental
compliance, says one change he anticipates is shifting from directly
importing chemicals into Europe for Parker's plants there -- in which
case Parker would be responsible for certification -- to buying those
chemicals from a supplier that already has dealt with the legal
hurdles.

The big cost for companies like Parker, Mr. Taylor says, is likely to
arise when suppliers suddenly stop selling certain chemicals because
they don't want to deal with registration. That would require Parker
to reformulate a product, which could create a cascade of problems
with its customers.

Uncertainty is widespread among nonchemical companies about what, if
anything, they may have to do. In a survey of 127 global makers of
electronics products released this week by Technology Forecasters of
Alameda, Calif., just 13% said they believe their products would be
affected by Reach, while more than half -- 52% -- said they didn't
know.

Europe has been a leader in imposing rules to get electronics
companies, auto makers and others to clean up their acts. The Reach
initiative comes on the heels of an edict called the Restriction of
the use of certain Hazardous Substances, or RoHS, which took effect in
June. It requires any electronics maker doing business in the EU to
eliminate or sharply curtail six toxic substances, including lead,
cadmium and mercury. In 2005, the EU put into effect a directive
called WEEE -- for Waste Electrical and Electronic Equipment -- that
required electronics makers to set up recycling and disposal systems
for their gadgets.

The three-year debate over the Reach law was at times emotional and
personal. Environmentalists warned of babies drinking contaminated
breast milk, while a member of the European Commission, the EU's
executive arm, tested her blood and discovered 28 chemicals found in
furniture, carpets and food that are potentially harmful to hormonal
and reproductive systems.

Industry groups argued they already make strong efforts to use
chemicals safely. A program run by the Organization for Economic
Cooperation and Development in Paris already collects much of the data
the EU law seeks, and covers industries in North America and most of
Europe.

But environmentalists convinced European policy makers those programs
aren't enough. "Hazardous industrial chemicals are widespread in house
dust, rainwater, wildlife, in our own blood and that of unborn
infants," said Justin Wilkes of WWF, formerly the World Wildlife Fund.

The U.S. has also expressed concern about the law, worried about its
effect on U.S. exports. But EU leaders said the legislation would set
a global standard and called on the U.S. and other nations to adopt
similar restrictions.

The scope of Reach is vast: It will apply to any product made in or
imported into the 480 million-person EU. Given the global nature of
manufacturing and trade, companies large and small around the world
will have to grapple with the rules.

"The costs of compliance are incalculable," said Adrian Harris,
secretary-general of Orgalime, a trade association representing
European electronics, metalworking and mechanical industries.

Under Reach, manufacturers will be required to substitute safer
alternatives to the 1,500 most dangerous chemicals known or suspected
to cause cancer, birth defects and other serious illnesses. Most have
never been subjected to rigorous testing because they were in use
before many countries began passing environmental-protection laws in
the 1980s.

If an alternative doesn't exist, industry would need to fund research
and development to try to find one. But in a compromise reached last
month, regulators will be able to make exceptions for chemicals whose
use in certain instances is considered more beneficial than
detrimental to public health. Environmentalists called that compromise
a giant loophole for the €586 billion ($776 billion) European
chemicals industry.

An additional 140 substances not only considered toxic but that also
linger for a particularly long time in the bodies of humans and
animals face removal from the market. Such substances include flame
retardants and other chemicals used to make carpets and textiles,
electronics, paints and wax, and pots and pans.

It isn't clear how much the legislation will ultimately cost
businesses. "It's huge. Nobody knows," says Steven Russell, a lawyer
with the American Chemistry Council trade group in Washington. Some
idea can be found in RoHS legislation that went into effect in June.
The cost to U.S. electronics makers alone to remove the six substances
from their manufacturing chains will be an estimated $30 billion,
according to AMR's Mr. Karofsky.

-- Timothy Aeppel in Pittsburgh, Jim Carlton in San Francisco, Steve
LeVine in Dallas and the Associated Press contributed to this article.

Write to Mary Jacoby at mary.jacoby@wsj.com1

Copyright 2006 Dow Jones & Company, Inc.