Impacts of REACH

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Impacts of REACH – Increase of exposure to risk and the need for insurance

The European Union is working on creating a practicable, standardized management system for chemicals produced in and imported into the European Union.

REACH stands for a system of Registration, Evaluation, and Authorization of Chemicals. The main goal of the REACH-system is to create better transparency about the danger of chemicals used in the product chain by creating a central database with information about the characteristics and handling of chemicals[1] while maintaining the competitiveness and enhancing the innovative capability of the EU chemicals industry.

The increased knowledge about the substances is expected to lead to safer use of chemicals, lower economic risks of users of the substances, and reduce the high costs caused by occupational diseases due to exposure to chemicals[2]. The REACH-system is intended to be conducive to facilitating occupational health and safety, to reducing the risk of liability, and to strengthening the trust of users and companies in chemical products. The challenge is to strike a careful balance between the need for protection and workability for the companies involved.

The European Commission[3] found that its legislative framework for chemicals is inadequate as it:

- does not provide sufficient information about the effects of chemicals on human health and the environment, and thus;

There are different rules for “existing” and “new” chemicals[4], which hinder adequate transparency for consumers. The identification and assessment of risks have been proven to be slow, as has been the subsequent introduction of risk management measures. The current system is seen as also having hampered research and innovation, causing the EU chemicals industry to lag behind its counterparts in the US and Japan .

Based on the foregoing findings, the two most important aims of a new chemicals policy were identified as:

1. Improvement of protection of human health and the environment from the hazards of chemicals; and

The Commission outlined its strategy for ensuring a high level of chemical safety and a competitive chemicals industry in the White Paper on Strategy for a Future Chemicals Policy, which was adopted on February 2001 (COM (2001) 88).

The White Paper is based on the following seven objectives that need to be balanced within the overall framework of sustainable development:

2. Maintenance and enhancement of the competitiveness of the EU chemicals industry;

The system proposed in the White Paper was transformed into a draft proposal of a directive adopted by the Commission on October 29, 2003 .

The aim is to establish a completely new concept of the European Chemical Law envisaging among other objectives:

- To integrate the downstream users[5], as well as the manufacturers and importers of chemicals,

IV. What are the implications and consequences of REACH; what is the impact on business?

- The costs for registration and admission respectively will increase the prices for chemicals and the products made from or with chemicals. Especially low volume specialties (1 – 25 t/a) [7] could increase in price up to 100%. This would result in the European Market losing up to 40% of the currently available products.

- Because of financial and personal reasons a lot of downstream users and SMEs[8] will not be able to accomplish the complex REACH-process by themselves.

- Registration takes time, thereby delaying a fast launching of new chemicals into the market. “Time-to-market” of European products is thus more difficult.

- Valuable know-how of the companies about innovative products and their use will be made public.

- Unlike the existing legislation, REACH will require the producers to testify and demonstrate that they have not manufactured dangerous products. The downstream users will also have to comply with REACH.

- Failure to comply with REACH can result in potential liability for both producers and downstream users.

V. How should the legislation ideally be designed to accommodate the goals of REACH?

Manufacturers and businesses working in the chemical industry recognize the Commission’s intention to reshuffle the existing legislation on chemical products and the need for transparency and consumer protection. But the proposed system does not guarantee this and is meant to impose new administrative and bureaucratic burdens on the economy as a whole.

In order to reach the goal – the creation of a harmonized, unified, practicable management system for chemicals – the proposal has to be revised in many aspects. The goal to protect humans and the environment must be reached more effectively and with fewer bureaucratic measures:

- Practicability of the REACH-system has to be increased for downstream users: Not every use of chemicals should be part of a bureaucratic test in order to take the load off of the users of chemicals.

- REACH should be converted to a risk-based approach: Chemicals known to be safe should not have to be part of an expensive registration and testing process. Not the quantity but the risk of a chemical should be the benchmark. The risk is the function among dangerousness, quantity and exposure of the substance.

- There should be a clear distiction to other areas of law: REACH should not be expanded to areas where regulations already exist (e.g. waste disposal). Double regulation has to be avoided.

The directive is currently being revised by the European Parliament and the European Commission[9]. The changes that will be implemented concern:

- Implementation of the OSOR-model (“One-Substance-One-Regulation”). The companies shall have the opportunity to voluntarily build consortiums and thus save expenses; and

- Clarification of the question of how chemicals in imported products should be treated under REACH. This will result in massive competition in the chemicals industry.

Conclusion for the Insurance Business: REACH out now and prepare your clients

- REACH is currently being revised and there will be a new proposal within 2005.

- The bottom line is, that all chemical products that are imported into the EU have to be

certified and scrutinized whether they are dangerous or not.

- However, if non-EU countries want to sell their manufactured products effectively in the

EU they will be required to voluntarily comply with REACH in order to stay competitive

in the European market.

Important for the insurance industry is the fact that in the EU the manufacturers of chemical products will have an overall liability and the downstream users (fabricators of composed or adapted chemical products or users of the original or adapted chemicals) are liable to the consumer. Both the manufacturers and the downstream users will have the burden of proving the safety of the chemicals.

This is where the market for the insurance industry lies – to “think around the corner,” by advising clients of their potential for increased liability based on REACH, and the need for requisite insurance to cover such liability.

[1] Enterprises that manufacture or import more than one ton of a chemical substance per year will be required to register it in this central database.

[2] Skin diseases result in the loss of 3 million working days each year at an estimated cost to industry of €600million. Male sperm counts in the EU are failing, possibly due to chemical contamination (Environment for Europeans, Issue 18, December 2004). Also, chemicals are linked to respiratory and bladder cancers, respiratory diseases, eye disorders, asthma etc.

[3] The Commission is the politically independent institution that represents and upholds the interests of the EU as a whole. It is the driving force within the EU’s institutional system: it proposes legislation, policies and programs of action and it is responsible for implementing the decisions of Parliament and the Council.

[4] Chemicals put on the market before 1981 are called “existing” chemicals. Chemicals introduced to the market after 1981 are termed “new” chemicals.

[5] Downstream users may be any industrial user of chemicals, whether formulators of preparations (e.g. paint producers) or users of chemicals such as oils and lubricants in other industrial processes.

[6] REACH shifts the burden of proof from the injured person to the manufacturers, downstream users etc.

[7] Tons per year.

[8] Small and Medium Enterprises.

[9] The EU's decision-making process involves a number of institutions, in particular: 1. the European Parliament, which represents the EU's citizens and is directly elected by them; 2. the Council of the European Union, which represents the individual member states; 3. the European Commission, which seeks to uphold the interests of the Union as a whole. This "institutional triangle" produces the policies and laws (directives, regulations and decisions) that apply throughout the EU. In principle, it is the Commission that proposes new EU laws but it is the Parliament and Council that adopt them.