New EU legislation on chemicals is toxic for the industry

By bne IntelliNews June 10, 2008

Bogdan Turek in Warsaw -

The EU's new programme for registering chemical substances could lead to thousands of bankruptcies or the relocation of chemical production by EU companies to the former Soviet Republics, experts warn.

The legislation package called Registration, Evaluation and Authorization of Chemicals (REACH), which took effect on June 1, initially requires all chemical companies in the 27 member states to pre-register by December, free of charge, all chemical substances they produce or import in amounts higher than one tonne annually. The European Chemicals Agency (ECHA) based in Helsinki handles registration. Following pre-registration, the companies must permanently register their products with ECHA and obtain permits for them, at substantial cost. For example, the Polish chemical industry will have to pay some €600m to implement REACH, according to the Ministry of Economy.

"We are afraid many small companies will be out of business," says Andrzej Krzeslak, head of the REACH information office set up by the Polish government. He cited the example of a family business that imports ink from China to make ballpoint pens. The person who called the information office said that with such registration fees, his small firm must end operations.

The new regulations, which replace about 40 earlier EU directives, also require that the chemical companies do costly laboratory research on some 30,000 substances present on the European market that they will be using after 2008. According to estimates by the European Commission, the chemical sector, which employs about 2m people in the whole EU, could spend more than €3bn over the next 10 years on research.

But supporters argue that gains from knowledge obtained from research about the substances in relation to human life protection and improved environment are estimated to be translated into some €50bn over the next 30 years.

Big winners

Krzesniak said there are about 50 large chemical companies in Poland and up to 16,000 small and medium-sized ones. The larger ones make about 80% of the country's chemical products. "It is a programme which favours globalization," he says. "Big companies will survive but smaller ones will face huge problems."

Big companies will pay €1,600 for registration of substances between one tonne to 10 tonnes and €31,000 for amounts exceeding 1,000 metric tonnes. Smaller companies will be obliged to pay €1,120 for up to 10 tonnes and €21,700 for more than 1,000 tonnes.

According to Krzesniak, the problem of bankruptcies does not concern Poland alone, but also many other small companies in the other countries of EU. "They will move out from Europe and we will have to cope with growing unemployment," claims Krzesniak, adding their destination can be Ukraine, Belarus or the other former Soviet republics.

REACH may also affect business between EU and US. Some substances imported from the US will have to be registered and importers will demand lower prices from the US firms in order to compensate for the registration costs. "Renegotiations of contracts will have to take place," says Krzesniak.

Representatives of large chemical companies say that even for them, REACH is a major expenditure. "REACH regulations show that the EU favours large chemical companies since they have much money to do all kinds of research and meet REACH requirements," says Waldemar Grzegorczyk, spokesman for CIECH SA, Poland's largest importer and exporter of chemicals. He says that CIECH will have to pay €14m to adjust to REACH.

For many large companies, the costs of implementing REACH came as no surprise. "We were aware of the problem a couple of years ago and we earmarked money to meet REACH," says Jerzy Jurczynski, the spokesman of the Azoty chemical plant in Tarnow, southern Poland. He said his company generates a yearly profit that isn't enough to meet the requirements.

The European Commission recently member states it will institute tough measures against those companies which will fail to pre-register by December. It said companies that fail to meet the deadline may be declared illegal.

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