REACH: impact study will not end controversial lobbying struggle

Although the new KPMG study broadly confirms the Commission’s own impact assessment, it raises serious issues about the business impact of the proposed legislation on SMEs and downstream users.

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28-04-2005 08:50 2 min. read Content type:

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Although the new KPMG study broadly confirms the Commission’s own impact assessment, it raises serious issues about the business impact of the proposed legislation on SMEs and downstream users.

The REACH impact study carried out by KPMG for the European chemical industry (CEFIC) and business association UNICE was made public on 27 April.

In the final report, KPMG insists that the study is not intended to provide a general macro-economic impact assessment resulting in loss of GDP or employment. It underlines the study only provides business case studies based on interviews.

Key findings of the report:

The withdrawal of chemicals used as primary raw materials is deemed "unlikely", contrary to previous industry allegations that some products would end up being pushed out of the market because of increased costs.
Direct costs for registering substances to the future European chemicals agency were found to be "significant" for one individual chemical supplier (20% of annual turnover). For other suppliers, the report assumed they would "succeed in passing on" registration costs to customers without specific mention of particular difficulty;
In terms of competitiveness, it emerged from the report that "the increase in product costs ranges from 6 to 20%". However, these costs only have to be paid once, not every year, and they can be distributed over time (4% over five years instead of the full 20% over one year);
"Delocalisation just because of REACH is unlikely." But REACH "may add to delocalisation pressures, especially for commodities," adds the report in a context note;
Direct costs related to REACH are expected to "have limited impact on the profitability of the downstream users". But, in a context note, the report adds that "even a low impact on profitability could be a serious issue" given the chemical sectors' low profit margins and global pressures on profitability;
On innovation, "no increase in R&D expenses are expected", only "limited diversion of resources";
The report indicates "low vulnerability" to REACH compliance for large chemicals suppliers as far as availability of substances and raw materials are concerned. However, vulnerability was found for the two SMEs tested.

Positions

Commenting on the meeting of the high-level group, Enterprise commissioners Verheugen and Environment Commissioner Dimas explained in unison that there had been a very constructive debate in the group. They also highlighted that the KPMG study did not add much to the debate as it confirmed most of the conclusions of the extended impact assessment undertaken by the Commission itself. Mr. Verheugen stated that there was "light at the end of the tunnel" for this debate. However, he also explictly said that "REACH will not ruin the European chemicals industry" and that the "financial" battle (the debate about the costs) is over.

At a press conference, business federations UNICE and CEFIC stressed that the study was not “intended to quantify direct or indirect costs from a macro-economic perspective”. It had to examine the “mechanisms of business decisions… throughout the value chain”; Klaus Mittelbach of the German BDI commented that on the issue of costs, the findings of the new report are "comparable" to the Arthur D. Little impact assessment carried out for industry in 2003;

The business representatives said that they accepted all the conclusions of the KPMG study and underlined the following issues:

suppliers will try to maintain their portfolio but at a cost "which can account for up to 20% of annual turnover" (the report itself mentions costs between 6 to 20% in one specific case);
contrary to the KPMG report, industry thinks it is unlikely that suppliers will be able to pass on the costs to the next level of the value chain; this will therefore lead to higher costs and infringes on the industry's competitiveness;
because suppliers will concentrate on the maintainance of their portfolios, there will be less room for innovation than the Commission expects;
confidentiality of information, especially when forming consortia for registration, remains a serious issue.

The industry suggests several improvements with, as the most important one, a pre-registration phase with prioritisation of the most dangerous substances. Although still criticising the "biased methodology" of the KPMG study, green NGOs EEB and WWF concluded that the report contradicts the worst case scenarios of the industry and is in line with the Commission's own impact assessment. Furthermore, the NGOs:

stressed the importance of mandatory data sharing (OSOR), which can reduce the costs, especially for SMEs;
underlined the fast that the report also highlights the benefits that the interviewed companies see, such as better information and risk management;
pointed to the fact that the report clearly mentions that delocalisation because of REACH is "unlikely".

Background

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