EU REACH Chemicals Proposal: Challenges For American General Counsel

Saturday, April 1, 2006 - 01:00

What Is This All About?

Proposed European Union (EU) legislation aimed at overhauling the way chemical substances are regulated, popularly known as REACH, is expected to become law at the end of this year.1 REACH will entail a complete reversal of responsibility for the risk assessment process whereby it will be for industry to prove that their chemicals are safe for human health and the environment as a market pre-requisite. The cost impact of this on business will be significant. Failure to submit to the proposed new system will mean exclusion from the market and infringements will result in sanctions. REACH will affect both upstream chemical producers and downstream professional users, not only within the EU but also internationally. REACH raises a number of issues that general counsel will have to face as set out below.

What Does REACH Cover?

REACH stands for the Registration, Evaluation, Authorisation and Restriction of CHemicals. Within its scope fall chemical substances and, controversially, articles, i.e produced objects made up of chemicals but with functions going beyond their chemical makeup.

A number of chemical substances will be totally excluded from REACH, such as radioactive substances. Further, a number of substances will be excluded from the Registration and/or Authorisation processes, notably, food additives, cosmetics, medicinal products, biocides and pesticides. Therefore, the first step for general counsel is to determine whether their company's chemicals and/or articles will fall under REACH.

What About Liability?

Under REACH, manufacturers, importers and downstream users will be responsible through a legal duty of care for ensuring that the manufacturing, placing on the market, importation or use of chemicals do not adversely affect human health or the environment, i.e the burden of proof will fall on industry, extending down the chain of supply. This responsibility is expressed very widely and, to the extent that this may be possible, companies will need to put in place mechanisms to deal with this, such as through contracts with suppliers and customers.

What Is Registration?

The central plank of REACH is Registration, which requires all firms manufacturing substances in, or importing chemicals into, the EU, in quantities of a tonne or more per manufacturer or importer per year, to submit relevant information to a proposed new EU chemicals agency,2 i.e., "no data no market." The information submitted will have to cover intrinsic properties and hazards, and the uses of the chemicals identified, either, by the importer or manufacturer, or, by their customers. It should be noted that the information requirements will increase according to different tonnages, and, either limited or special Registration requirements apply in a number of areas.

Due to the large number of chemicals expected to be registered, a phased approach is being proposed under which the deadlines for Registration will be set according to either the volume of the chemical on the market or its hazardous nature. There will also be a timetabled pre-Registration process aimed at facilitating the phase-in.

Ensuring full compliance with Registration will not necessarily be straightforward; for example, identification of the uses of chemicals, which might not be so easy to obtain from customers. Further, businesses will have significant testing costs, and, companies will need to plan carefully ahead in order to meet Registration deadlines. In addition, significantly, under Registration certain data-sharing will be made compulsory. Companies manufacturing or importing the same chemicals will be able to form consortia and share information needed for Registration, for which contractual arrangements will have to be made. In so doing, businesses will have to ensure that they do not breach EU anti-trust/competition rules.

What Does The Risk Assessment Involve?

A key part of Registration involves manufacturers, importers and downstream users undertaking and then submitting a so-called "Chemical Safety Assessment" along with a so-called "Chemical Safety Report." The "Chemical Safety Report" will document the "Chemical Safety Assessment," which is essentially a risk assessment in which the registrant takes account of the life-cycle risk management measures that they intend to either implement for their own uses of a chemical or which will be proposed to downstream users for their intended uses of a chemical.

Identifying, applying and recommending risk reduction measures will be a tall order for businesses and although certain criteria are provided to enable companies to undertake the "Chemical Safety Assessment" and put together the "Chemical Safety Report" this exercise will not be straightforward and will involve the implementation of a thorough compliance strategy, especially as getting it wrong may entail liability and sanctions.

What Public Information Requirements Are Involved?

REACH requires that certain information will need to be provided at large. This is essentially divided into two areas. First, as regards "Safety Data Sheets" - these currently exist and will continue with extended requirements obtained from the "Chemical Safety Assessment" and will constitute the main source of relevant information that will be required to be supplied from manufacturer, importer or downstream user down the supply chain. Second, information for which a "Safety Data Sheet" is not required - manufacturers and importers of chemical substances will also have to provide downstream users with the information they need to be able to take any necessary action, in particular concerning Authorisation and, if relevant, as regards marketing and use restrictions. Downstream users also have an obligation to supply information up the supply chain so that identified risk reduction measures can be refined where necessary, notably as regards exposure. A downstream user will have to report their use of a chemical to the new EU chemicals agency if they use it in a way that was not intended by their supplier.

General counsel for both upstream producers and downstream users should therefore put in place mechanisms that set out their respective responsibilities accordingly.

What Does Evaluation Mean?

There are two types of Evaluation: first, as regards dossier Evaluation, which will be a kind of checklist ensuring, for example, that certain testing requirements have been met; second, as regards substance Evaluation, which will be undertaken where there is reason to believe that a chemical may present a risk to human health or the environment - this will be determined on a prioritisation basis, to be developed by the new EU chemicals agency and the EU Member States.

It is not clear yet how prioritisation of substance Evaluation will work in practice - upstream producers should therefore consider if they might fall under this process and put in place a clear plan for dealing with it, both in terms of the substantive science and the procedural hurdles.

What Does Authorisation Mean?

All uses of chemicals with intrinsic properties of so-called "very high concern" will have to be authorised, once a chemical has been so identified through the process. "Very high concern" means that the effects of the hazardous properties of such chemicals on living organisms are usually irreversible.

Authorisation will apply to particular uses of a chemical and will only be granted if the producer or importer can show that risks from the uses in question can be adequately controlled, or that the socio-economic benefits of the use of the chemical outweigh the risks and there are no suitable alternatives. In the latter case, the possibility of substitution will need to be considered. Authorisation will be valid down the supply chain, with certain regulatory obligations for downstream users.

General counsel will therefore need to consider if their company's chemicals could be subject to Authorisation, and if so, they will need to put in place a clear plan for dealing with the process, including developing an appropriate strategic approach as such chemicals are inevitably going to be politically sensitive. Further, dealing with substitution and also demonstrating socio-economic benefits will also need to be thought through carefully.

Finally, it should be noted that the Authorisation process is not the only use control mechanism under REACH as any chemical may be subject to either manufacturing or marketing and use restrictions if certain risks to human health or the environment arise that need to be addressed, regardless of whether these chemicals are subject to Registration or not. A special process for the determination and implementation of restrictions applies under REACH and so again general counsel will need to consider if this might apply to their company's chemicals and develop a strategy to deal with this accordingly.

What About Confidentiality And Data Protection?

Certain information will automatically be considered as not being confidential and for certain other information a claim of confidentiality will have to be made out where harm to commercial interests of the company are at stake. As for data protection, in the sense that certain information generated to be used, for example, in the "Chemical Safety Report," can be protected and free-riders prevented from using such information, this is not really covered under REACH. General counsel should therefore be careful to ensure that its confidentiality rights are being protected throughout the REACH process and also develop mechanisms to deal with data protection, where possible, through the application of intellectual property rights also bearing in mind the abovementioned data-sharing requirements of REACH.

What If Things Go Wrong?

EU Member States will have to apply sanctions for infringement of REACH according to their national laws, which will need to be adopted once REACH has been finally agreed. As this is not determined at a uniform EU-wide level, there will be concern here as to variances in approach throughout the EU Member States where penalties may vary in both substance and practice. General counsel is recommended to devise a compliance programme for the company in order to minimise the risk of breaching REACH.

It should be noted that appeals can also be made before a so-called "Board of Appeal" in a limited number of areas, for example, concerning certain aspects of Registration and Evaluation. Further, there is also the possibility of taking legal action in the form of judicial review before the European Court of Justice both against decisions of the Board of Appeal and, also, where no right of appeal exists against the Board of Appeal, against decisions of the new EU chemicals agency. General counsel should ensure that a good paper trail is being kept by the company in case it needs to use these avenues of redress.

Finally, it should also be highlighted that general counsel must be generally vigilant to ensure that REACH proceeds correctly in terms of due process, and, also, that the company's rights of access to information under REACH are also respected.

Paul Smith is head of the Eversheds LLP safety and environmental group and Andr Bywater works in the Eversheds LLP Brussels office.

Please email the authors at andrebywater@eversheds.com or paulsmith@eversheds.com with questions about this article.