Reed Smith Client Alerts

Introduction In what is a salutary reminder that published European Chemicals Agency (“ECHA”) guidance cannot necessarily always be relied upon to provide an authoritative interpretation of the requirements of the EU’s REACH chemicals regime, the European Court yesterday (10 September) delivered its ruling in a case that has complex and potentially very onerous implications for businesses which import or supply a wide range of products containing certain hazardous chemicals (even at trace levels) within the EEA.

In essence, the ruling means that importers and suppliers of products (for example electronic goods) produced in or destined for the EEA need to know the precise contents of any component “articles” within their product (even though those component articles were supplied by a third party).

The decision has major supply chain verification and management implications, with immediate effect.

Non-EU companies selling such products into the EU (but not acting as EU importer or supplier) should also take note of the decision, as they will be impacted by requests from their EU customers for greater substance content information; inability to supply this on request is likely to be a practical barrier to sales.

The background The case of FDC and FMB v Ministre de l’ecologie, du development durable et de l’energie was referred by the French courts to the European Court for a ruling on how certain duties under REACH concerning Candidate List substances in articles should be applied.

Under REACH, an article is “any object which during production is given a shape, surface or design which determines its function to a greater degree than its chemical composition”.

A wide variety of consumer and commercial products, including electronics, white goods, vehicles, furniture, toys and so on, may therefore fall within this definition.

A Candidate List substance is a substance of very high concern (“SVHC”) that has been included on the ECHA's candidate list for authorisation.

An SVHC is a substance that has been classified as being either carcinogenic, mutagenic, reprotoxic, or persistent, bioaccumulative and toxic.

There are currently 163 Candidate List substances, many of which still have a variety of consumer product applications. They include anthracene oil, acrylamide, and various lead, cadmium and cobalt compounds.

The use of Candidate List substances in articles is not prohibited, but it does trigger immediate obligations under REACH.

Under REACH Article 7, EU producers or importers of articles containing Candidate List substances must notify ECHA of their presence, if they are present above a concentration of 0.1% weight by weight (“w/w”) and if certain other criteria are met.

Under REACH Article 33, suppliers (anywhere in the EU supply chain) of articles containing Candidate List substances above the 0.1% w/w threshold must provide safe-use information to the recipient and (upon request) to consumers, including, as a minimum, the name of the substance.

Failure to comply with these obligations is a criminal offence.

In practice, in any given product (article), certain component articles may contain Candidate List substances which exceed the 0.1% w/w threshold, but as part of the overall finished article the threshold is not met.

The crucial question that the European Court was asked to rule on was whether the duties described above are triggered at individual component article level or only at finished article level (i.e., how these duties should apply in the context of articles assembled from multiple components, which themselves meet the definition of “article” under REACH).

Greece, Ireland and the European Commission adopted an interpretation that the duties are triggered at finished article level only. This was also the approach taken in ECHA’s official guidance on substances in articles, widely relied upon by industry as the best guide to compliance requirements across the EU.

The contrary position was taken by a number of EU member states, including France, Germany and Belgium, i.e., that the duties must be applied at component article level.

The additional burden on industry of the approach advocated by France and others would be potentially very significant.

The decision The European Court has ruled, in effect, that the ECHA guidance is wrong and that the compliance burden is far more onerous than previously thought.

The court has ruled that the relevant duties must be applied as follows:

  1. Article producers (established in the EU) are required to notify ECHA under Article 7 of any articles they produce containing Candidate List substances above the 0.1% threshold, i.e., if they do not produce the component articles used to assemble the finished articles, the duty does not apply to those component articles.
  2. Article importers (established in the EU) are required to notify ECHA under Article 7 of any articles (including any component articles from which they are assembled) they import containing Candidate List substances above the 0.1% threshold, i.e., the duty is triggered at component article level.
  3. Article suppliers (at any point in the EU supply chain) are required to provide recipients and (upon request) end consumers with safe-use information, where the relevant information is available to the supplier, for any articles (including any component articles from which they are assembled) they supply containing Candidate List substances above the 0.1% threshold, i.e., the duty is again triggered at component article level.

What are the implications? The European Court has taken a very precautionary and literal approach to the duties under Articles 7 and 33.

The Court’s approach is not how REACH compliance authorities in many EU Member States have been applying the law up to now.

While the Court was at pains to point out that the relevant ECHA guidance has always made clear that it is not legally binding, in the absence of any more authoritative view, such guidance has in practice understandably been treated by industry and national regulators alike (at least in many countries) as correctly stating the law.

Technically, this is merely ruling on what the existing law says, rather than on a change of law; there is no applicable transition period. In practice, industry may be entitled to expect some leniency in enforcement for a reasonable period of time, at least from those member state authorities that have been labouring under the same apparent misapprehension.

Meanwhile, however, one may expect those countries that advocated for this decision to apply it with immediate effect. Given that the nature of global supply chains often necessitates compliance to the standards of the highest common denominator, a temporarily, more lenient approach in some countries may be of little comfort.

The decision has complex and potentially very costly supply chain due diligence implications for businesses that import or supply articles within the EU that are assembled from multiple components, as well as non-EU companies that export such articles into the EU.

Perhaps of greater concern, given the immediate effect of the decision, is the potential impact on companies’ ability to market the EU products (containing component articles) that have already been assembled and are in stock, and the implications for component articles procured under existing long-term supply contracts.

EU-based importers and suppliers of articles that may contain component articles containing Candidate List substances above the 0.1% threshold will also need to think carefully about the extent of their due diligence obligations, particularly as to how far they must go to obtain sufficient substance content information from their upstream suppliers in order to comply with the Article 7 and 33 duties at component article level.


Client Alert 2015-252