What is it?
A new environmental regulation is starting to take effect in the EU which has taken commodities traders and bankers by surprise and is making their lives difficult. It’s called REACH – the Registration, Evaluation, Authorisation and Restriction of Chemicals.
Everyone in the EU involved in the manufacture, import, downstream use or distribution of any of about 30,000 chemical substances is affected. Although the primary targets for this environmental and health protection measure are manufacturers and importers of chemicals, traders of commodities that contain chemicals – such as petroleum products and metals – are only now realising they come within its remit.
Traders importing into the EU are directly affected, as they are classified as importers by REACH and therefore required to register the chemical substances the commodities contain if they want to continue to import.
Traders buying within the EU are indirectly affected, as they are classified as ‘distributors’. They must check that the manufacturers or importers have registered the chemicals, because if they have not the distributors will be unable to sell them in Europe.
Who dreamed it up?
The Environment Directorate General of the European Commission. The Commission has set up a European Chemicals Agency (ECHA) in Helsinki to handle the registration process and manage all aspects of the legislation.
What are the main provisions?
REACH requires a wide range of substances to be registered with the new European Chemicals Agency. If they are not registered, they cannot be traded in Europe.
But registration is only part of the story. The ECHA will evaluate the chemicals to assess how dangerous they are to the environment and human health. It will then authorise those it deems OK, and ban those it deems bad.
The regulation came into force last year, but the key deadline is this year – all companies involved in the manufacture or import of chemicals must pre-register them between June 1 and December 1, 2008 if they want to continue placing them on the European market. Full-registration will take years and will not be completed until 2018.
What’s in the small print?
Traders and banks are caught within the definition of ‘distributor’ on page 56 of the 849-page regulation, which makes it clear they cannot sell chemicals in the EU unless they’ve been registered by the manufacturer or importer.
What does the industry say?
“It’s one of the most ambitious pieces of environmental law ever to come out of Brussels,” says Matthew Townsend, a partner in law firm Allen & Overy.
“Even if a bank does not trade commodities, it might take security over them, in which case it needs to be confident that the borrower has taken steps to register the substances. If not, when it comes to enforcement, the security could be worthless.”
Dr Joanne Lloyd, director of REACHReady, part of the Chemical Industries Association, says: “I spend most of my time not talking to chemicals companies, because they’ve been preparing for REACH for years, but to the rest of the supply chain who’ve got caught up in it. This includes banks, which need to take into account how the companies they lend to could be exposed to the regulation.”
How much will it cost?
The Commission’s cost/benefit analysis estimates the costs to the chemicals industry and users at €5.3bn between now and 2018. It estimates the benefits to be a 10% reduction in chemicals-induced diseases. In the case of cancer alone that would result in 4500 fewer deaths a year which, “on the basis of a €1m value of life”, would save “roughly €50bn over a 30-year period”.
What do the regulators say?
“With the entry into force of REACH, the EU is providing itself with the most progressive chemicals legislation in the world,” said environment commissioner Stavros Dimas.
The law of unintended consequences
REACH was originally aimed at chemicals companies but during the drafting process its scope was broadened.
Could we live without it?
Yes.
