Legal spotlight: End of OR controversy? Probably not
Of all the issues and areas of uncertainty addressed by the REACH Implementation Projects (RIPs), the provisions on Only Representative (OR) have certainly been among the most controversial, write Giovanni Indirli and Jean-Philippe Montfort.
Initially, the debate centered around the concerns expressed by non-EU based companies wishing to see more flexibility in which entities in the supply chain could appoint an OR. The situation changed dramatically and in February 2008 the European Commission came forward with an unexpected "clarification" of the role of the OR, which would likely have put non-EU companies at a competitive advantage over EU companies. Most recently, and while some non-EU based exporters were planning to adapt to this new development, the Commission has made a U-turn. In April it announced at a conference on pre-registration its new interpretation of the REACH OR provisions CW Article 14 April 2008.
The latest Commission interpretation of the OR provisions is one of the most spectacular developments since the launch of the RIPs. Its previous position, as reflected in the updated February 2008 guidance document on registration, was that the OR should be regarded as an importer in its own right, with the following consequences:
- Once the OR has pre-registered and registered, the OR becomes the exclusive owner of the (pre-)registration. The principal/non-EU manufacturer has no right whatsoever to the (pre)registration: they cannot transfer it to another entity nor can they invalidate it by putting an end to the original mandate;
- If the same EU entity is appointed as OR by two or more non-EU manufacturers of the same substance:
- the OR is regarded as a single potential registrant for data and cost-sharing purposes
- only one registration should be submitted and only one fee should be paid;
- the quantities exported by non-EU manufacturers the OR represents should be aggregated for the purposes of information requirements and the fee to be paid.
The Commission’s previous interpretation took everybody by surprise. It was contrary to what industry had always believed was the role of the OR and was not even requested or lobbied for by the non-EU industry.
Common understanding
Importantly, the text of the recently adopted Regulation on fees and charges approved by the REACH Regulation’s regulatory committee at the end of 2007 seems be based on the initial, common understanding of the role of the OR CW Newslink 16 April 2008. The Commission interpretation, as made clear in February 2008, would have enabled exporters of high volume commodity chemicals to considerably reduce registration costs by appointing a single EU entity as OR for all of them, with the consequences mentioned. Most importantly, they would have been able to claim equal sharing of the cost of data, which is the default rule in case of disagreement between potential registrants in a SIEF as stated in REACH Article 30(1). Aggregation of quantities would have had no impact on them in terms of increased information requirements and higher fees as the individual quantities being exported would already be above the highest tonnage threshold. As a result, the costs of registration for each non-EU manufacturer would have been only a fraction of those incurred by EU manufacturers – an inequality which did not escape the attention of certain Member States like the UK.
Contrary to the Commission interpretation of February 2008, the common (and initial) understanding of the role of the OR has always been that it is nothing more than what its name suggests, a representative of the non-EU manufacturer. As such, its role is to act on behalf of and, we believe, in the name of the non-EU manufacturer, meaning that the OR does not ultimately have ownership of the REACH (pre-)registration but rather the non-EU manufacturer does. In line with this understanding, if the OR loses its status as OR, it and its successor could submit an update of the current registration, still linked to the non-EU manufacturer, in line with the current system for ‘sole representatives’ of non-EU manufacturers in the framework of the notification regime under the Directive 67/548/EEC on classification, packaging and dangerous substances, as amended by Directive 92/32/EEC.
Practical consequences
If the Commission – and stakeholders, including Member States – decide to go along this route, the expected practical consequences would be that:
- The appointed OR entity in the EU (pre-)registers and the identity of the non-EU manufacturer(s) they represent should be included in the (pre-)registration dossier;
- If the same entity is appointed as OR by two or more non-EU manufacturers of the same substance, the OR:
- is regarded as multiple potential registrant for data and cost-sharing purposes;
- will have to submit as many separate (pre-)registrations and pay as many fees as the number of non-EU manufacturers they represent, with information requirements and level of fees depending on the aggregation of quantities restricted to the same supply chain.
The latest Commission interpretation of the OR provisions is good news for EU-based industry, whereas exporters who have relied on the earlier Commission interpretation will now have to reconsider their REACH compliance strategies and budgets.
Review
Is this the end of the story? Unfortunately it does not look like it. The details and the practical effects of the proposed new interpretation which we attempted to outline above still need to be confirmed and there might still be surprises on other important aspects of interest to exporters, where the Commission is currently reviewing the strict interpretation taken by the ECHA and the REACH helpdesk network.
The main issue here is whether a non-EU manufacturer of a substance or a non-EU formulator of a preparation can appoint an OR for a substance on their own or in a preparation or in a polymer which they do not export themselves, in other words, the issue is whether an OR can cover "indirect" imports. There may be several scenarios. We have selected three not to overly complicate the analysis:
1. A non-EU manufacturer supplies the substance to a non-EU distributor who then exports it to the EU;
2. A non-EU manufacturer supplies a substance to a non-EU formulator who then exports a preparation containing the substance as constituent to the EU;
3. A non-EU manufacturer supplies a monomer to a non-EU polymer manufacturer who then exports it to the EU.
Different interpretation
Article 8 provides that an OR may be appointed by "the manufacturer of a substance, on its own, in a preparation or in an article, the formulator of a preparation or the producer of an article" that is imported into the Community. The non-EU industry argues that all the relevant actors up the non-EU end of the supply chain – manufacturers of substances, including monomers and polymers, formulators and article producers – should be permitted to appoint an OR and that should this actor be the non-EU manufacturer, all actors concerned should be able to decide by mutual agreement which "indirect exports" will be covered by the OR. In previous opinions, ECHA and the REACH Helpdesk network indicated that they did not share this interpretation. In their view, only the company that has manufactured the product that is exported to the EU may appoint an OR and indirect imports are covered only in the case of exports via non-EU distributors, including distributors of preparations and articles. As such, their answers for each of the above scenarios would presumably be as follows:
1. The non-EU manufacturer of the substance can appoint an OR as the product imported is the substance itself, even if it is exported by a distributor;
2. Only the non-EU formulator may appoint an OR as the exported product is the preparation;
3. We are not aware of any clarification having been given for this scenario. However, in the light of the interpretation outlined above, their answer would probably be that only the non-EU polymer manufacturer is entitled to appoint an OR as the substance imported is the polymer, not the monomer.
New clarification
The Commission and the ECHA reiterated this interpretation during discussions with stakeholders during finalisation of the updated guidance on registration in February 2008. However, the new clarification is not clearly reflected in the new version of the guidance. While it is expressly stated that non-EU manufacturers of substances on their own are permitted to appoint an OR in the case of exports via a non-EU distributor, the guidance does not address the other scenarios. This may be a deliberate choice.
Potential obstacle
The Commission’s Legal Service has been asked to give an opinion on these issues, which should be made available shortly. It is hard to predict the outcome of this consultation. Clearly, the absence of flexibility may constitute a major obstacle in cases where the information to be communicated down the supply chain is regarded as Confidential Business Information (CBI). The non-EU manufacturer can avoid disclosure by requiring non-EU actors down the supply chain to appoint an EU entity they trust as OR for the substance concerned, such as one of their EU affiliates. However, this would require agreement between all actors in the supply chain, which may prove difficult in many cases. In fact, the non-EU manufacturer would be able to identify through the OR the ultimate recipients/customers/importers in the EU, which their direct customers may well regard as CBI.
What are the next steps? The Commission and ECHA should present their new position to the Member States and other stakeholders, and seek to reach consensus, after which ECHA will publish updated guidance on registration, with new clarification of the OR scheme.
With the deadline of 1 June approaching, we can only hope that the new clarification and the solutions proposed will be convincing enough to avoid risks of compliance failures and litigation.
