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May 1, 2007

4 Min Read
New European chemical rules set to have big impact on sector

At the beginning of next month, Europe’s REACh (Registration, Evaluation and Authorization of Chemicals) regulations affecting additives, compounds, and masterbatches take effect.

Industry observers who have analyzed REACh rules say colorants may be the most impacted by the new regulations.

Processors may not be smiling if some existing ingredients in their recipes are not available in the future under REACh rules.

Initially polymers are outside REACh’s reach, but not additives, compounds, and masterbatches.

The question is will processors be ready? The way REACh stands now, producers of materials and importers, not authorities as is the current case, need to show that substances are safe before they can be placed on the market, so-called reversal of burden of proof (polymers have been left out, unlike monomers, but are expected to be included in the future).

An EU agency to authorize or reject applications has yet to be set up in Helsinki, Finland. Volumes of materials produced or imported into the EU larger than 1000 tonnes/yr will have to be registered within three years, those between 100-1000 tonnes/yr within six years, and registration for products from 1-100 tonnes/yr is 11 years away.

Gunther Lübke from Clariant Masterbatches (Deutschland), and representing Germany’s Masterbatch Association (Frankfurt), warns the extra time and costs for lab tests and paperwork for many small-to-medium-sized masterbatchers could result in presently used ingredients disappearing from the market without adequate substitutes. He says conservative estimates are that 10% of these disappear because they may not receive approval. “If 10% within the 1-100 tonnes/yr sector are pulled from the market, then all masterbatches with 10 or more additives would have to be reformulated,” Lübke says. He says the added bureaucracy and expense will represent a disadvantage for the entire EU chemical sector which produces 31% of the world’s chemicals and generates 1.7 million jobs.

Bernard Merkx, president of the European Plastics Recyclers (EuPR; Brussels), a sector lobby group, and the IK (Germany Association of Plastics Packaging and Film; Bad Homburg), both say REACh could stop plastics recycling activities because they become impractical. “When recycling post-consumer plastics, it is impossible to know which substances have been used to manufacturer the finished product,” making safety data sheets to meet strict REACh requirements impossible, says Merkx.

IK’s spokesman Haimo Emminger says the hypocrisy of these measures is that while the EU has legislated that more plastics waste has to be recycled, the REACh measures actually hinder recycling.

The Masterbatch Association, Europe’s plastics suppliers lobby (PlasticsEurope), and the processors’ associations all say they have provided their members with information on how to deal with the upcoming measures.

Yet Rob Ronday, an independent consultant working with KPMG, a provider of audit, tax, and advisory services, warns that most processors appear to be ill-prepared for what awaits them. A KPMG survey of 102 companies across the continent reported that 39% were unfamiliar with REACh regulations, and of those reporting REACh awareness, 55% had no action plan to cope with the measures while 69% haven’t assessed their suppliers’ reliability under REACh rules.

“This means that although the companies themselves expect a major impact from REACh, they’ve hardly started preparing for it,” Ronday says. “The chemical industry as a whole is not ready for REACh. [Processors] need to get an insight into material and information streams, take proportionate measures based on objective criteria, and limit direct costs to remove pressure from the supply chain.”

He says compliance with REACh could cost processors ?10 million/yr in 10 years. Mark Temme, lead partner in the tax consulting offices of Meijburg & Co. Southern, says a lot of questions regarding costs still remain. “Will insurance coverage for [processors] increase as a result of the REACh regulations? The answer is no one knows today,” Temme says. Another sticking point is whether REACh costs will be tax deductible as ordinary expenses. Should internal and external costs be treated differently? Should REACh costs be capitalized? (If so, can the capitalized expenses be depreciated, and over what period?) He says there are no clear answers so far.

“There is no doubt in my mind that REACh costs and tax consequences will influence investment decisions [within the EU in the future],” Temme says. Help may be on the way. Business software company SAP (Walldorf, Germany) has come out with software it says integrates all phases of the REACh process including registration, evaluation, and authorization to help companies protect their brand and reputation.

Precautions processors can take in reaching REACh

KPMG says plastics processors, masterbatchers, and compounders need to prepare for REACh rules that go into effect next month. Here is KPMG’s checklist:

•Conduct an initial REACh impact assessment

•Involve senior management

•Identify a multidisciplinary team

•Assess level of preparedness and develop an action plan

•Perform portfolio analysis and find ways to limit costs

•Budget appropriately for registration and associated costs

•Assess reliability of suppliers and potential benefits of supply re-routing

•Set up communications plan for customers, investors, or others

•Include REACh as part of the internal audit program

•Assess tax and accounting implications

•Align IT systems with REACh requirements

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