THE EUROPEAN COMMISSIONS PROPOSED REGULATION OF BORATES WILL SERIOUSLY INJURE THE GLOBAL BORATE INDUSTRY THE PROBLEM

The European Commission intends to assign borates a Reprotoxic Category 2 classification under the Dangerous Substances Directive (67/548). This means that borates will be identified with reproductive and developmental toxicity, all products containing borates will be required to bear a skull and crossbones label, and the use of borates will be banned or restricted in certain products. As explained below, there is no scientific basis for the classification. The new classification will result in shrinking the European market by about 48% by 2009 (a loss of sales of about 143 million for the global borate industry). Cumulative sales lost by the industry in the period 2006 to 2009 are estimated at 428 million. The classification will also substantially impede the industrys ability to test new formulations in order to commercialize new and different end uses of borates. THE PRODUCT Description of Borates: Borates are naturally-occurring minerals containing boron. Trace amounts exist in rock, soil and water. They are essential to plants and part of a healthy diet for people. They are key ingredients in hundreds of products, such as insulation fiberglass, textile fiberglass and heat-resistant glass; ceramic and enamel frits and glazes; detergents, soaps and personal care products; agricultural micronutrients; and other uses including wood preservatives and flame retardants. Producers: There are two principal producers of borates: Borax (owned by Rio Tinto Minerals), which supplies nearly half of global demand, and EtiMines, a Turkish stateowned company. Borax serves customers in nearly 100 countries and has been in business for more than a century. Borax ships about 300,000 tons (one third of Boraxs total sales) of borates and boric acid in bulk to Europe for distribution. Borax produces borates only in California. CONSEQUENCES OF CLASSIFICATION Category 2 Classification: Products containing Category 2 substances must carry the skull and crossbones label, which will result in some Borax customers replacing borates for substitutes wherever possible. In addition, classifications under the Dangerous Substances Directive are cross-referenced in approximately 70 EU regulations, ranging from product use to waste disposal. These regulations ban or restrict direct and indirect use of Category 2 substances in, for example, consumer and cosmetic products. Implications for REACH: The EUs new chemical regulation (REACH) will take effect next year. Under REACH, Category 2 substances are deemed substances of very high

concern" and are subject to an authorization and restriction (potential ban) procedure. Furthermore, they will be included on a published "candidate list" even before being assessed. Approximately 1,500 substances will be on the candidate list, but only a few will be evaluated each year, so an assessment of borates could be many years off. In the meantime, however, the list will likely be viewed as a "black list," stigmatizing the product even before any actual assessment and authorization/restriction has been completed.

COMMISSION PROCESS LEADING TO CLASSIFICATION Commission Divided: The classification debate has been going on for several years. Several DGs and EU Member States argued for a Category 3 classification, which would require less damaging labeling and would not restrict the use of borates. DG Environment and a number of Member States, however, championed a Category 2 classification and forced several other DGs (Enterprise, Agriculture, Trade, Legal Service) to drop their objections. DG Trade demanded that the classification be notified to the WTO TBT Committee; the notification was circulated to WTO Members on May 4, 2007. In February 2007, the Regulatory Committee (Technical Progress Committee) approved the classification proposal by qualified majority, over the objection of six Members States (the minutes of the meeting have not been released, so the identities of the six are not clear at this point). Next Steps: The Commission will include the classification in the 30th Adaptation to Technical Progress (ATP) Directive, which will amend the Dangerous Substances Directive. The ATP Directive will likely be adopted in September 2007 (the reference in the TBT notification to an end-June adoption date was apparently an error), with a deadline for Member State implementation by June 2009. However, companies will likely have to comply with the Category 2 classification of borates at an earlier date, when the EU's new classification and labeling rules (replacing the Dangerous Substances Directive) implementing the UN GHS (Globally Harmonized System) come into force. We understand that the Commission intends to include the classification in the 30th ATP in the future GHS Regulation, which may come into force in July 2008.

THERE IS NO JUSTIFICATION FOR THE COMMISSIONS CLASSIFICATION History: Borates have been used for centuries with no risk to people, animals or the environment under normal handling and use. Even those who handle borates every day have experienced no adverse health effects. Commissions Justification: The original classification proposal was based on an assertion that oral ingestion and dermal absorption of borates resulted in reproductive and developmental toxicity risks. Industry objected on grounds that there were no such risks associated with normal handling and use of borates, a factor that the Commission is

required by law to consider. The Commission subsequently, and at a late stage in the process, abandoned its original rationale. In fact, an explanatory memorandum (EM) that accompanied the proposal for the 30th ATP implied that oral ingestion and dermal absorption through normal handling and use do not present a basis for classification of borates. The Commission now asserts that there are risks associated with inhalation exposure in the workplace. Notably, the Commission has not sought to regulate the alleged workplace risks through more precise occupational health and safety regulations. Commissions Regulation is Unprecedented: No other jurisdictions in the world have enacted, or are in the process of enacting, regulation of borates anywhere near the level of what the EU is intending to do. There are no relevant international standards regarding the regulation of borate risks. However, the EUs proposed classification would be substantially more restrictive than other jurisdictions. Commissions Motivation: The Commissions motivation appears to be bureaucratic rather than protectionist. For example, the Commission may be concerned that a different classification of borates would open a Pandoras box of previous classification decisions where the correct application of the normal handling and use criterion might have resulted in different outcomes.

THE CLASSIFICATION IS INCONSISTENT WITH THE TBT AGREEMENT The Relevant Regulations Are Technical Regulations Covered by the TBT Agreement The Regulations Prohibiting Use of Category 2 Substances: The TBT Agreement applies to technical regulations. The Agreement defines a technical regulation as a [d]ocument which lays down product characteristics or their related processes and production methods, including the applicable administrative provisions, with which compliance is mandatory.1 The regulations prohibiting use of borates in specific products meet this definition. o The Regulations Are Documents: The Dangerous Substances Directive, the ATP Directive, REACH and the host of other downstream regulations that cross-reference the classifications under these directives are all documents.

The Appellate Body interpreted this definition in European Communities Trade Description of Sardines, WT/DS231/AB/R, 26 September 2002, and European Communities Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/AB/R, 12 March 2001. In Sardines, the Appellate Body stated: We interpreted this definition in EC Asbestos. 1 In doing so, we set out three criteria that a document must meet to fall within the definition of "technical regulation" in the TBT Agreement. First, the document must apply to an identifiable product or group of products. The identifiable product or group of products need not, however, be expressly identified in the document. Second, the document must lay down one or more characteristics of the product. These product characteristics may be intrinsic, or they may be related to the product. They may be prescribed or imposed in either a positive or a negative form. Third, compliance with the product characteristics must be mandatory. Sardines, para. 176.

o The Regulations Pertain to Identifiable Products: The regulations pertain to products enumerated in the regulations. Use of Category 2 substances in such products is restricted or banned. o The Regulations Lay Down Product Characteristics: Products covered by the regulations cannot contain Category 2 substances, including borates, or may only contain small amounts of such substances. o The Regulations Are Mandatory: The documents mandate that producers exclude or limit borates in specified products or uses. The Regulations Imposing Labeling Requirements: The TBT Agreements definition of technical regulation expressly states that it includes labeling requirements as they apply to a product, process or production method. Therefore, the regulations that require the inclusion of a skull and crossbones label on products containing borates or boric acid are technical regulations.

The Classification and Regulations Are More Trade Restrictive Than Necessary: Article 2.2 provides that technical regulations shall not be more trade restrictive than necessary to fulfill a legitimate objective, including protection of human health. Regulation of the Product Is Unjustified: The rationale for the prohibition on use of borates and the labeling requirement has nothing to do with the product itself, but with the production process. Therefore, there is no justification to regulate trade in the product itself in the manner the regulations contemplate. Any risk could be addressed through worker protection rules. Less Burdensome Alternatives Exist: To the extent any scientifically demonstrated risk exists with respect to the product, less onerous regulation would resolve the problem. There is no risk associated with normal use of the product, but only with gross misuse. Therefore, an alternative labeling requirement (e.g., a labeling requirement warning against abusive oral ingestion) would suffice.

The Commission Did Not Properly Assess the Risks: Article 2.2 provides that, in assessing risks, relevant elements of consideration are, inter alia, scientific information or intended end-uses of products. The Commission did not take these elements into account. No Consideration of Scientific Information: There is no scientific evidence that normal handling and use of borates and boric acid, or their intended end use, pose any risk to human health. The only scientific data regarding health risks associated with borates relates to oral intake of borates by rats.2

The EUs original justification for the classification was based on the product, rather than the production process. The Commissions analysis relied on studies conducted on rats. However, these studies are inapposite because (1) they are based on very high oral intake levels (which humans would never achieve

No Consideration of End Use: The basis for the classification has nothing to do with the end use of the product but with the production process.

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except in case of gross abuse, e.g., eating significant quantities of detergent for every day for several months); and (2) humans would vomit long before dangerous levels were ingested (rats cannot vomit). The EU has since abandoned this rationale for the classification.