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Maintaining

Critical
Control:
Outsourcing
REACH Compliance

ACC Docket 44 January/February 2009


on
By Catherine A. Muldo

ti ck in g. Th e period of RE ACH pre


-registra tion has now
k isred? What is your company’s compliance strategy? Ouicatsol regurculaingtion,
Theed. cArle yooucpre pa -sweeping chem
expir t and broad
including the EU’s lates RE ACH to provide
regulator y compliance, yo ur co mp an y. Enabling experts on
d decis ion for rization and
RE ACH, may be a soun lia nc e str ate gy wil l ensure proper autho
effec tive co mp instant access
your company with an s int err up tio n. Outsourcing provides
ing any bu sin es ule imposed
registration, while avoid rig oro us an d on -g oing compliance sched
d maintain the nce
to expertise to meet an urcing RE ACH complia
nte d reg ula tio n. An d, if done right, outso s in yo ur co m-
by this newly impleme substance
los ing co ntr ol ov er critical aspects of the co nfide ntial
ut sure of
can be achieved witho ct to RE AC H, and with minimal disclo
t are su bje
pany’s supply chain tha crets.
ary inform ati on, including trade se
and propriet

ACC Docket 45 January/February 2009


Understanding REACH od and final phase-in registration periods ranging
As defined by the European Chemical Agency from 3 to 11 years.4 For “non phase-in substanc-
(ECHA), “REACH is the Regulation for Registra- es” there is simply a registration period and no
tion, Evaluation, Authorization and Restriction of staggered deadlines established under REACH.
Chemicals.” (Regulation (EC) No 1907/2006). It Catherine A. In almost all cases, these substances must be
Muldoon is chief
is the world’s most ambitious law on public health legal officer with BDP registered before they can be manufactured or
International, Inc., a
and environmental protection. It became law on leading global logistics
imported into the EU. As of June 1, 2008, all non
June 1, 2007, and is designed to consolidate exist- provider. She man- phase-in substances must be registered if they are
ages all corporate legal
ing laws and regulations governing chemicals into matters globally. She to be manufactured or imported into the EU.5
a uniform legal code regulating both existing and earned her BA from The registration period exceeds 11 years for
The Johns Hopkins
new chemicals manufactured in and imported to University and JD from some 30,000 chemicals. No substance covered
the European Union. REACH places significant Seton Hall School of by the regulation can enter the EU without the
Law. Muldoon is vice
responsibilities on manufacturers and importers chair of Corporate proper registration and certification. The obliga-
to collect data and share information about the Counsel Forum of the tory registration dossier requires disclosure of
International Bar Asso-
substances used in their respective products and ciation and a member chemicals in your inventory and in preparations
of and speaker for ACC.
any risks posed by such substances to human She can be contacted at
or finished goods that you export, distribute or
health and the environment. cmuldoon@bdpnet.com. handle. The nature and volume of each chemi-
REACH applies to chemicals used in industry cal affects the final registration deadline, and
and in everyday life whether in their raw form, in therefore, it is critical that it is categorized
preparation of a substance, or as finished goods. Specifically, accurately. The process for calculating the volume of each
REACH requires EU-based chemical manufacturers and chemical is also critical and must be accurate, as volume
importers to “collect all available relevant information on relates to deadline.6 This option of outsourcing provides a
the intrinsic properties of a substance, regardless of ton- means to compliance, while avoiding EU sales interruption
nage manufactured or imported.”1 The intended result is a of REACH regulated products.
comprehensive flow of information concerning the risks of The REACH compliance process is complex: Its risks are
substances throughout the industry and to consumers. Reg- great, and the penalties for non-compliance are daunting.
istration of substances is affected through the submission of Manufacturers and importers are faced with extensive data
a dossier to ECHA which includes information on the sub- gathering and sharing requirements, as well as the possible
stance’s properties, use and safe management. Registration need for costly testing of chemicals to fill information gaps.
is applicable to any substance manufactured in or imported There is potential for divulgence of confidential data and dis-
to the EU in annual quantities of one ton or more per com- closure of trade secrets for the unschooled REACH navigator.
pany, unless there is an exemption.2 Manufacturers, import- It is critical that REACH compliance be handled deftly and
ers, distributors and downstream users all have obligations accurately in order to ensure that your company is compli-
under REACH. Companies wishing to import products ant. Failing to comply with the registration and authorization
to the EU must demonstrate REACH compliance, or their requirements jeopardizes that company’s place and business
products will not be permitted entry to any Member State in the EU market. Manufacturers and importers which fail to
market. This mandate is rigorous and compels companies to comply on time must cease the manufacture and importation
begin the compliance process for REACH without delay. until they comply with the strict REACH timeframes.
The obligations of REACH commence with the begin-
ning of the pre registration period. Pre registration ran Supply Chain Solution: Is Outsourcing REACH
from June 1, 2008, to December 1, 2008. Companies an Option for You?
which pre register chemicals enjoy the benefit of extended In the event that your company is unable (or unwill-
registration deadlines for those chemicals. The company ing) to perform REACH compliance internally, can
must then proceed through the full registration process for your company transfer to a third party the obligation
those chemicals that are to enter the EU market. Deadlines to comply with REACH? Can REACH obligations be
to complete registration for pre-registered chemicals are outsourced? Simply stated, only a natural or legal person
November 30, 2010; May 31, 2013; or May 31, 2018. The established in the EU can be a registrant. If your com-
staggered deadlines depend on “tonnage band and the pany is an exporter of chemicals to the EU and does not
hazardous properties of the substance.”3 have a subsidiary in the EU, the options for outsourcing
For “phase-in substances”—those that were already being are limited. Pursuant to REACH, foreign nationals to the
manufactured or imported into the EU before the enactment EU, with the intention to continue business within the
of REACH on June 1, 2007—there is a pre registration peri- EU market, cannot register their chemicals themselves.

ACC Docket 46 January/February 2009


There are three options for such an entity:
• Set up a subsidiary within the EU; Eight Benefits of Managing REACH
• Work through the importer in the EU; or Compliance Internally
• Register through an Only Representative. Managing REACH compliance internally may make
The first two options may have undesirable and unantici- sense for your company. Some of the benefits include:
pated commercial consequences. Creating a subsidiary • Reducing exposure to liability by maintaining control
entity can be costly and burdensome in terms of corporate over the regulatory compliance.
maintenance and management. Working with an importer • Increasing company awareness of key compliance
creates a complicated arrangement as confidential and issues for REACH and other regulatory schemes
proprietary information will be released to a third party. “across the board” in all departments.
Any formula or component of a product will need to be • Maintaining progress on your timeline and having more
disclosed, risking trade secrets and exposing a company control over critical decisions.
to reverse engineering. Also, to the extent that it relies on • Another layer of protection for confidential or
the EU market, the company business is vulnerable to the proprietary material.
filings of an entity with which it may have little connection • Greater influence on the direction and content of SIEFs.
or loyalty. Control and ownership over the registration is • Increased management stake in compliance.
relinquished, making it difficult to alter future distribution • A more cost-efficient means to comply with the
channels in the EU. In fact, if an exporter changes sup- complex regulatory scheme.
pliers, the non-EU manufacturer may lose access to the • Seamless project management—no new faces to work
European market. The Only Representative option provides with or new places to work at.
a mechanism for manufacturers located outside the EU to
participate in REACH pre-registration and registration. The
definition of an Only Representative for REACH purposes the regulation when choosing a vendor. Given what is at stake,
is loose. It must both be a legal entity established in the EU your Only Representative must be fluent in REACH and be
and have “sufficient background in the practical handling of an effective organizer and communicator. Look for evidence
substances and the information related to them to be able to that the Only Representative will bring best practices to the
fulfill the obligations of importers.”7 A critical advantage of table. This entity should have long-standing experience in
the Only Representative is that it is not required to reveal to EU regulations for chemical safety, chemistry and toxicology,
other participants in the data sharing process the identity of environmental risk management, legal issues and information
the “non-Community manufacturer” being represented.8 technology for seamless REACH implementation.
The technical expertise is only one aspect of what is
Specific Outsourcing Advantages for REACH Compli- needed for your Only Representative to be effective. REACH
ance Making the Only Representative Work for You mandates that the registrant undertake onerous data gather-
Certain companies do not have the capacity, or in the ing and submission in order to meet the registration and
instance of REACH, the corporate structure, to establish authorization requirements. As your registrant, the Only
an effective in-house compliance program. As indicated Representative will be tasked with organizing your compa-
by the above deadlines imposed under REACH, time is of ny’s data. As owner of that data, you should require that any
the essence. If you cannot move quickly to comply, the EU information compiled for REACH compliance be transparent
market will be closed to you until you have registered all to you such that you are aware of the status of filings, infor-
substances that fall within the purview of REACH. Your mation requests, decisions made and actions taken. Further,
Only Representative is your adviser for a global REACH the information should be easily traceable so that you can
strategy that works for your company and its particular track results, which offers your company ultimate control.
needs. Such a strategy should complement your internal When your involvement or communication is required, you
compliance department and program through REACH can respond within the critical time.
transaction auditing, training and the development of ap- Finally, your Only Representative should possess excel-
propriate policies for present and future filings. lent communication skills to advocate on your behalf. As
the Only Representative is the registrant, that entity/per-
Selecting a Vendor: Expertise son is the face of your company’s compliance with REACH
Find the vendor best equipped to propel your business for- to ECHA and the Member State’s governmental bodies. In
ward. As this complex regulatory scheme is newly-developed, order to be effective, the Only Representative must present
it is not certain how REACH will be interpreted and enforced. your data in a timely and accurate fashion. Further, your
Thus, there is no substitute for knowledge or technical skill of Only Representative must hold his own when dealing with

ACC Docket 48 January/February 2009


non-governmental bodies as well. For example, the Only tremendous amount of responsibility and authority to give
Representative may need to be communicating with other over to your registrant and can lead to grave consequences.
registrants in a Substance Information Exchange Forum For example, because you are dependent on a single reg-
(SIEF) in the likely event that you are required to consoli- istrant, be it your importer or distributor, if you intend to
date information. In addition, you might require that the change your strategy and terminate or add distributors or
Only Representative negotiate on your behalf if you need importers, you are vulnerable to the registrant, who has
to present cost sharing test work or to value data held by retained your registration and can be an obstacle to the entry
the supplier or importers with whom they are working. of your products to the EU. As a consequence of working
with an importer/distributor as registrant, you will need to
Cost make a significant investment in such a relationship.
Regulatory compliance always comes with a price tag, To avoid what may be a hindrance to your ability to control
and REACH is no exception. Ideally, this cost is managed your product’s entry to the EU, REACH carves out the “Only
efficiently so that the benefit is realized in a manner that is Representative.” The “non-EU manufacturer” must alert all
commercially reasonable. What should REACH compliance EU importers in the same supply chain that an Only Repre-
cost? If you are insourcing, you will need the appropriate cor- sentative has been appointed to fulfill the registration require-
porate structure in place to satisfy the logistics of REACH in ments under REACH. This absolves the importer from those
addition to ensuring that your team is up to the technical task, same registration requirements and insulates the manufacturer
which may require personnel hiring/changes and a significant from disclosing proprietary information to the supply chain.
training investment. If you do not have a subsidiary in the The Only Representative provision gives you the choice
EU, REACH requires setting up a company, obligating you to of whom you will inform of your company’s confidential
meet all local Member State requirements and its attendant business information including the substances in your
banking, labor and tax consequences. Further, to manage the inventory, preparation and articles. If there is any concern
on-going REACH tasks in compliance activities, the corporate over reverse engineering, the practice of using an Only
structure must maintain corporate standing and governance. Representative under strict guidelines of confidentiality
Although the adage “never outsource your core value” would quell that concern. The Only Representative is ap-
may be applicable, there is little room for error with REACH. pointed by a “non-EU manufacturer” as essentially a proxy
The cost of outsourcing may be appealing in light of the to handle the registration and data sharing requirements.
various obstacles to compliance for an exporter. How critical
is the EU market to your business? Can you afford to miss Appoint Your Only Representative
a deadline? It is essential that you look first at your business You have chosen your vendor, and the next step is to
objectives and the type of services at which your corpora- appoint that vendor to be your Only Representative to pre-
tion excels. Does REACH fit into your compliance program register, register and if necessary procure authorization for
easily? Dealing with REACH effectively requires more than your substances with the goal of your continued business in
just allocating costs. An effective cost analysis should begin the EU. The Only Representative can only be appointed by
with an honest review of your company’s existing structure the manufacturer, formulator or producer and by this, the
and your team’s technical knowledge of the regulation. That regulation implies that traders or export agents cannot make
piece is then weighed against the cost of securing a qualified such an appointment. It is certainly best if the appointment
vendor to handle outsourced services under REACH. This is made as far up the supply line as possible as these organi-
will likely provide a professional advantage to your company, zations will have a better understanding of the substance.
as your resources will not be diverted from efforts integral to This arrangement should be formalized to avoid confu-
your company’s mission in order to satisfy REACH. A com- sion as to the roles and responsibilities of your company and
pany can rely on experts in regulatory compliance and shift the Only Representative. Although how an Only Representa-
the responsibility of organizing and communicating informa- tive is appointed is not explicitly defined in the regulation,
tion among the authorities, the industry, and consumers. best practices would suggest that the agreement between the
relevant parties be in writing. Clearly, the Only Representa-
Confidentiality/Control tive must be appointed by the non-EU entity, and the role
Pursuant to REACH, the registrant owns the registra- must be predicated upon agreement by the importer. The
tion. If that registrant is your importer or distributer, that recommended practice is to get a letter from your company
entity, rather than you, owns the registration of your data of naming its Only Representative. This is your only protection
substances and is responsible for communicating to ECHA. as the letter should secure the agreement of the participants
In order to be effective, this registrant will require you to in your supply chain relating to the roles and responsibilities
disclose the detailed composition of your product. This is a associated with REACH compliance.

ACC Docket 50 January/February 2009


Plan for the Outsourcing Transition Scope of Work
You have determined that outsourcing is your best You have negotiated the “how” through the appointment
option for compliance, and you have the commitment of of the Only Representative, now pin down the obligations
your Only Representative. The next step is to plan for an and the “what” of the contract, through a very detailed
outsourcing transition of REACH compliance. Transition scope of work. To ensure a meeting of the minds, the
is the number one management problem in an outsourcing scope of work is critical. Flexibility should be built in, but
program. Do you have the internal building blocks for suc- a clear understanding of objectives and duties is required
cess? In order to maximize the relationship, make sure you for success. Specifically, the type of services that may be
thoroughly understand and plan for each activity that will outsourced to the Only Representative in connection with
be a component of the transition. REACH compliance could be stated as follows:
Generally, the success of a REACH outsourcing proj- • Evaluate risks and exposure associated with REACH;
ect depends greatly on your company’s commitment to • Maintain all communications and negotiations with ECHA
compliance and the ability of your management team to and all relevant Member State governmental bodies;
maintain control of the outsourcing relationship. To that • Identify and communicate with all importers, distribu-
end, the focus should be on establishing the relationship tors and downstream users;
and maximizing its benefits. REACH compliance must • Prepare and submit the technical registration dossier;
be a directive from the highest authority. The message • Make the filings, register the chemicals, and pay all
that the Board Room “owns” the project is critical to its attendant fees;
success, since it establishes that the company is invested • Coordinate data exchange and testing strategies with
from top to bottom in ensuring that the outsourcing SIEF group and Consortium members;
relationship is working. • Create and submit safety data sheets and chemical
It is essential that your company build an effective in- safety reports; and
ternal project management team, which may require some • Audit and train where needed;
organization redesign. This team must be empowered with • Prepare notification of substances of very high concern;
all oversight and decision-making authority on every aspect • Address classification and labeling; and
of the REACH project, including scope of work, incentives, • Perform any other obligations resulting from authoriza-
penalties and risk mitigation strategies. The outsourced tions or restrictions.
party is the Only Representative, the legally responsible The Only Representative must meet all applicable
person for the communication and registration of the speci- regulatory standards during the contract term. To avoid
fied substance. Operationally, your team can take on as confusion, specify the regulations and statutes at issue and
much work as you desire behind the scenes. For example, how the Only Representative will comply. Also, the Only
your own technical specialists may organize the testing and Representative must comply completely with all on-going
prepare information for the SIEF, but the final submission and new obligations of REACH. Clearly, it will not be pos-
is done by the Only Representative. sible to define all of the requirements and situations that
may arise during this complex engagement. The only way
Negotiating the Contract to deal with the unexpected is to have a real partner, and
As parties will be bound by its legacy, a healthy out- to assign appropriate value to building a strong relation-
sourcing relationship requires a good contract. Think of ship with the Only Representative. This requires manage-
the relationship as a partnership because REACH com- ment time and effort. Make sure your team has the right
pliance is not an event but a process, which may change personalities to achieve a successful partnership.
depending on your company’s supply and manufacturing
goals and opportunities. The contractor should be appoint- Pricing Terms
ed as the Only Representative to avoid any confusion as In seeking to outsource REACH compliance, there
to its role with respect to REACH administration require- are some general pricing terms to consider in the con-
ments. This will also assure that you are receiving quality tract negotiations to ensure that your company receives
services and appropriate accountability. A good REACH the full benefit of the relationship at a competitive rate.
outsourcing contract will spell out all expectations, terms These are a few terms that address such issues:
and responsibilities in the contract. Although the tempta- • Cost Plus Pricing—This method of pricing is arrived at
tion is to negotiate a win on every term, it is important when the Only Representative discloses its costs and
that the contract be reasonable. It may not benefit you to adds a percentage in for a profit.
push the Only Representative to accept reduced pricing or • Fair Pricing Clause —This sets forth that you can be
unrealistic terms and conditions. allowed to compare your outsourcing cost with the

ACC Docket 51 January/February 2009


averages on the open market and negotiate for price re- contract. There are methods to incorporate incentives
ductions if your Only Representative’s costs are higher. and accountability in these uncharted waters of REACH.
• Most Favored Nation—This stipulates that charges must be First, to ensure that you have the right talent on the team
at least as low as the Only Representative’s lowest charges of your Only Representative, it may be in your best inter-
to other companies for substantially similar services. est to structure the contract to address project staffing.
The contract should specify that you get the best people
Other Key Outsourcing Contract Terms working on your account and as much personnel conti-
Ultimately, your objective is compliance with a newly- nuity as possible. You are seeking a guaranty of perfor-
passed regulation, and this must be written into your mance. To that end, the parties can develop incentives and

Registration Deadlines
When a company pre registers it benefits from extended B. May 31, 2013:
deadlines. The deadline depends on tonnage band and Phase-in substances that were manufactured or imported
hazardous properties of the substance as follows: into the EU at least once after June 1, 2007, in quantities of
100 tons or more per year per manufacturer or importer.
A. November 30, 2010:
Phase-in substances that were manufactured or C. May 31, 2018:
imported into the EU at least once after June 1, 2007, in Phase-in substances that were manufactured or imported
quantities of 1,000 tons or more per year per manufacturer into the EU at least once after June 1, 2007, in quantities of 1
or importer. tons or more per year per manufacturer or importer.
This deadline also applies to other substances which The highest tonnage “per year” manufactured or imported
are classified in accordance with Directive 67/548/EEC after June 1, 2007, determines the deadline for registration.
and R50 /53 and are manufactured or imported into the EU Substances not pre-registered but which are imported for the
at least once after June 1, 2007, in quantities of 1 ton or first time into the EU after December 1, 2008, may benefit from
more per year per manufacturer or importer or 100 tons or the above staggered deadlines if the information requested
more per year per manufacturer or importer, depending on for pre-registration is provided within six months of the first
the substance and the category. import into the EU and no later than 12 months before the
relevant registration deadline.

Timeline: REACH Registration


>1000 tons/yr
P
CMR 1 +2 (>1 ton/yr Registration
R50/53 (>100 tons/yr)
End of
>100 tons/yr P Registration phase-in

>1 ton/yr P Registration

Data Sharing

Authorization

Not yet on the market Non-Phase-in Substance Registration

June 1, 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

ACC Docket 52 January/February 2009


penalties to ensure that a high quality team is put (and ing and structuring the contract. In short, a good contract
kept) on your account and that they are contracted to will spell out all the requirements of REACH compliance
perform. Where there is a risk to meeting the milestones including a clear statement of expectations and respon-
of REACH, you mitigate that risk by identifying it and sibilities, the scope of the work and the fees, the open
deploying a good strategy and process to manage it. The exchange of information and status reports, a process for
parties may agree to a continuous improvement provision changing the scope of work (in the event something un-
stating that the Only Representative will improve its ser- foreseen arises that requires additional attention), person-
vices levels yearly while meeting the ongoing obligations nel requisites for performance, incentives and penalties.
of REACH. This can be a clear incentive to both parties This is new territory. Don’t be afraid to make demands or
to make efficiency improvements if your contract grants audits in the contract to maintain a check and control on
a profit split between the parties in the event that such performance of your Only Representative.
improvements are quantifiable. In addition, clearly defined
penalties, such as a liquidated damages clause in the con- Maintaining Your Competitive Edge While
tract, may be critical to success. If crafted well, the risk of Ensuring Compliance
payment to recoup losses for inadequate performance will The pre-registration period is over. If the EU market
motivate your Only Representative to ensure compliance is critical to your business, you need a solution to ensure
with the REACH milestones. REACH compliance. In your company’s cost benefit
Finally, confidentiality must be underscored in this analysis, management must consider the value of the EU
context. You will need to disclose all chemicals within market and how the company expects to remain competi-
your substances to your Only Representative in order for tive while ensuring compliance. What factors will drive
those substances to enter the EU market. Otherwise, your your decision whether to outsource REACH compliance?
Only Representative cannot comply. You should mandate A successful outsourcing relationship for REACH
by contract that your Only Representative to maintain the compliance is ideal to maintain a company’s competi-
information with the strictest of confidence and use that tive edge while allowing trusted experts to handle the
information for the sole purpose of REACH compliance. arduous, complex and ongoing compliance schedule.
Any other disclosure must be strictly proscribed. Other- It is clear that with the right outsourcing assistance, a
wise one of the key reasons for using the Only Representa- company will maintain ownership of the registration
tive, maintaining control of your information, is defeated. and control over the process of what, when and how its
Trade secrets, proprietary, or other highly sensitive information is filed under REACH.
information that provides a competitive advantage must
be kept confidential indefinitely. Have a comment on this article? Email editorinchief@acc.com.
Since the parties are in control of the terms of the
NOTES
engagement, there is no limit to creativity when negotiat-
1. ECHA, “Guidance on data sharing,” sec. 5.2, (Sept. 2007)
(visited June 24, 2008) http://reach.jrc.it/docs/guidance_
ACC Extras on… Maintaining document/data_sharing_en.pdf.
2. ECHA, “Pre-register to benefit from extended deadlines” (visited
Critical Control June 24, 2008) www.echa.europa.eu/pre-registration_en.asp.
3. ECHA, “Pre-register to benefit from extended deadlines,” (visited
Program Materials June 24, 2008) www.echa.europa.eu/pre-registration_en.asp.
4. ECHA, “Guidance on Registration,” sec. 1.7.1.1 (May 2008)
• The ABCs of Environmental Due Diligence (2001). Articles
(visited June 24, 2008).
with caselaw, SEC rules, model site access, and confiden- 5. ECHA, “Guidance on Registration,” sec. 1.7.1.2 (May 2008)
tiality agreements, sample webpage and web-enhanced (visited June 24, 2008) www.reach.jrc.it/docs/guidance_document
due diligence chart. www.acc.com/vl/public/programmate- /registration_en.pdf.
rial/loader.cfm?csmodule=security/getfile&pageid=20684 6. ECHA, “Guidance on Registration,” sec. 1.7.2 (May 2008) (vis-
• Best Practices in Tracking Environmental Law Worldwide ited June 24, 2008) www.reach.jrc.it/docs/guidance_document/
(2004). www.acc.com/vl/public/programmaterial/loader. registration_en.pdf.
7. ECHA, “Guidance on Registration,” sec. 1.5.3.4 (May 2008)
cfm?csmodule=security/getfile&pageid=20417
(visited June 24, 2008).
8. ECHA, “Guidance on Registration,” sec. 1.5.3.4 (May 2008)
ACC has more material on this subject on our website. Visit (visited June 24, 2008) www.reach.jrc.it/docs/guidance_document/
www.acc.com where you can browse our resources by prac- registration_en.pdf.
tice area or use our search to find documents by keyword.

ACC Docket 54 January/February 2009