Contents

April p 2REACH implications for in-house counsels

MAy p 4End of OR controversy? Probably not

June p 6Companies rethink the role of importers under REACH

July/August p 7Securing REACH guarantees from suppliers

septeMber p 8Toll manufacturers under REACH

oCtober p 10How to comply with candidate list obligations

noveMber p 13From pre-registration to pre-SIEF and pre- consortia

DeCeMber p 15Under consideration: REACH consortia formation

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Over the course of 2008 solicitors from Mayer Brown have supplied a regular monthly column to Chemical Watch European Business Briefing, the chemicals management news service. Here is a digest of those articles

in conjunction with

European business briefing

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Much has been said on the complexity of REACH, its wide scope of application and its economic impact on businesses. It does indeed present an onerous administrative, technical and scientific exercise writes Jean-philippe Montfort.

But companies should not forget that REACH also gives rise to serious legal, commercial and strategic issues that may have important consequences if not correctly handled.

The job of in-house counsels is to make sure that issues of concern and major impact to their companies are identified and properly addressed. Below are some of the points they should consider:

pre-registration: Consider future products and key suppliesMany companies are focusing their efforts on the fast approaching pre-registration period that starts on 1 June this year. This is indeed a “must” in order to benefit from the transitional periods provided by REACH for the registration of phase-in substances, and not be forced to cease manufacture or importation while a full registration is achieved.

Importantly, pre-registration is open to “potential” registrants, which means that companies can also pre-register substances that they intend to produce or import, and therefore guarantee EU market entry for future products.

Companies can also use pre-registration for substances they currently buy in the EU, but for which they may want to switch to a foreign supplier in the future, or to guarantee a key supply in case the EU supplier defaults.

Prospective pre-registration will further delay considerably the need to subject substances used in product and process orientated research and development (PPORD) to reporting under REACH. Legal counsels should ensure their businesses seriously consider pre-registering more than the substances they currently produce or import.

ensuring continuity of supplyAny company buying a substance in the EU

is a downstream user under REACH and will need to take steps to ensure the substances that they use or buy will be (pre)-registered under REACH. Substance portfolios and uses therefore need to be reviewed, and contact made with suppliers.

Contractual assurances are recommended to ensure suppliers are taking the necessary steps. These arrangements need to be carefully thought through and require

in-house counsel involvement. For example, for key supplies, purchasers could consider imposing an obligation on EU suppliers to buy from competitors in case of failure to supply for force majeure or other

circumstances.Pre-registration also offers an opportunity to ensure continuity of supply for downstream users. Once they have pre-registered, downstream users can import from alternative sources if their own supplier (or only representative) fails to pre-register in time… or becomes too expensive

Consider legal and strategic implications for data sharing and consortiaAll companies pre-registering the same substance will form a substance information exchange forum (SIEF) and will be required to share data and costs before jointly submitting data for registration purposes. These are complex mechanisms which will often require companies to enter into consortium agreements that specify the rights and obligations of the players involved and will affect their liabilities.

In-house counsels should be involved in defining their company policy on data sharing and consortia and in discussing staffing and strategic considerations in

reACh: implications forin-house counsels

In-house counsels must ensure future products are pre-registered

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Any company buying a substance in the EU will need to ensure the substances they buy or use will be pre-registered under REACH

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REACH consortia. Depending on the number of substances involved and the availability of internal and external resources, they may want to see each draft of a consortium agreement or have to limit their review to only the final drafts, although this will lessen the impact they can make.

Confidential Business information (Cbi) and competition law issuesThese will also arise in the context of data sharing and participation in SIEFs and consortia for the purposes of substance registration. Companies will need to consider how to approach participation in data sharing arrangements in order to protect proprietary information (where this is possible) and minimise the risk of contravening competition laws. In-house lawyers have the expertise to train and alert staff on antitrust issues and ensure that sensitive information is channelled properly in external discussions. But REACH will multiply the contacts – and therefore the risks – and in-house counsels should pay particular attention to making sure that consortia under REACH are not built to discriminate against new entrants or foreign companies. Disproportionate and unjustified entry fees and other tools are often proposed in consortium agreements and may be the tip of the iceberg of a more profound intention to discriminate that may ultimately be revealed and sink all companies concerned into costly antitrust procedures and heavy fines.

prepare for the substitution or defence of substances of very high concernThe publication before June 2009 (and perhaps even in 2008) of a “candidate list” of substances that may be subject to authorisation could lead to a de facto ban on those substances in all except very critical uses. Business customers may refuse to purchase products containing such substances because of risks to continuity of supply, and anticipated pressures from NGOs, distributors and consumers to exclude such substances. This may lead to a ‘black-list’ effect in advance of any legal ban. Companies should assess whether substances they use, or supply, may be affected, and if so prepare strategies for dealing with this, either by providing alternatives or preparing the legal defence for these substances. In-house counsel should be involved early in the process so that they can help prepare for possible future legal remedies.

Distribution and manufacturing agreementsIn-house lawyers should also ensure that existing distribution agreements, toll manufacturing agreements and other commercial arrangements are revised to specify the parties’ respective responsibilities for meeting their REACH obligations, ensure continuity of supply, and address the situation that would arise if the substance supplied ends up on a candidate list.

Toll manufacturing agreements raise a number of difficult issues in this respect, as the toller is the manufacturer and therefore the party that must register if the tolling is

taking place in the EU. Available mechanisms exist to address this, in particular, the use of a third party representative. But they all raise a number of difficult issues, for instance, over rights of access to data acquired in consortia, that have to be addressed.

product liability issuesThe REACH registration and evaluation process will generate a great deal of new data substances, and lead to the collation and publication of existing data. This process is bound to highlight additional concerns in relation to exposure to specific substances. NGOs have already launched initiatives to inform consumers about health risks from exposure to chemicals on the basis of information that will be generated under REACH 8 CW Newslink 29 November 2007 . Availability of new information on hazards, exposure and risks – and increased awareness of these issues – is likely to lead to

an increase of product liability claims and insurance implications for suppliers both inside and outside the EU.

regulatory appealsFinally, from experience with other EU regulatory schemes, one can anticipate that decisions to be taken by authorities under the REACH Regulation (e.g. to require additional testing, force data sharing, refuse confidentiality, refuse authorisation or ban or restrict substances), may be based on perceptions and public pressure rather than hard science and, in some cases, companies will have to appeal against these decisions

before the European Chemicals Agency’s Board of Appeal or in court. This will require careful handling by in-house counsels at various stages of REACH processes to ensure the case is properly documented and that the company has used all the opportunities to be heard provided for by the regulation. Failure to do so may foreclose opportunities for legal challenge.

For further details, please contact:Jean-Philippe Montfort8 JPMontfort@mayerbrown.comMr Montfort leads the REACH team of Mayer Brown, a global law firm with extensive experience in the field of chemicals regulation. Mr. Montfort was the project leader for the Reach Implementation Project (RIP) 3.4 on Data Sharing and Consortia.

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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 centred 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 8 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:Q 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;Q 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 understandingImportantly, 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 8 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 consequencesIf the Commission – and stakeholders, including Member States – decide to go along this route, the expected practical consequences would be that:Q 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;Q If the same entity is appointed as OR by two or more non-EU manufacturers of the

end of or controversy?probably not

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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.

reviewIs 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 clarificationThe 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 obstacleThe 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.

For further details, please contact:either Giovanni Indirli8 gindirli@mayerbrown.com or Jean-Philippe Montfort8 JPMontfort@mayerbrown.com

Giovanni Indirli and Jean-Philippe Montfort are members of the REACH team of Mayer Brown, a global law firm with extensive experience in the field of chemicals regulation 8 www.mayerbrown.com

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In the wake of the recent Commission clarification that, under REACH, an ‘only representative’ (OR) must submit one registration dossier per substance for each and every non-EU manufacturer it represents, many companies are revisiting their REACH compliance strategies.

In particular, those companies with several non-EU manufacturing entities which were considering appointing one of their EU-based subsidiaries as an OR, are now questioning whether imports into the EU can be channelled through one EU-based entity and whether that entity could register on behalf of their corporate group as the importer. Given that importers must submit only one registration dossier regardless of the origin of the substance, the question of whether an entity could register as an importer rather than using an OR is all the more pertinent. The crux of the matter will lie in whether the selected entity indeed qualifies as an importer under REACH.

The Regulation defines an importer as any natural or legal person established in the EU who is responsible for import (Article 3(11)). Import means the physical introduction into the customs territory of the EU (Article 3(10)). Therefore, in order to assume the role of importer under

REACH an entity must be: (i) a natural/legal person; (ii) established in the EU; and (iii) responsible for the physical introduction into the customs territory. Other than these basic rules, there is little guidance on how to designate importers.

Also, because under REACH an importer must be “established” in the EU, it may not be the same entity as an importer under other EU/national law. Indeed under EU customs law, there is no such requirement for importers to be established in the EU so this does not offer an analogy that could be used under REACH.

The crucial question will be which EU-based entity is responsible for physical introduction into the customs territory. Indeed, as specified in the REACH guidance on registration (as updated on 29 April 2008) international companies sometimes have several subsidiaries in the EU, all of which can potentially be an “importer” under REACH and it is for the relevant companies to assign the tasks and responsibilities between them. Therefore, when assessing whether an entity is indeed an importer under REACH, regard must be had not just to the individual entity’s characteristics (i.e. being a legal entity established in the EU), but to the tasks and responsibilities of that entity.

The guidance also specifies that whether an entity is responsible for the physical introduction of the goods will depend on many factors such as who orders, who pays, and who is dealing with the customs formalities, but it does not make an exhaustive list of factors nor does it specify whether some of these factors are more important than others. In our view, the following factors should be used to determine whether an entity is the importer under REACH:Q Ownership/title of the goods - who has title/ownership of the goods at the point of “physical introduction” of the goods into the customs territory? Q Risk/liability - who is liable for the goods and when liability/responsibility/risk for the goods passes from the seller to the buyer? This may be the same as when title of the goods is transferred.Q Payment - who makes payment, to

whom and when is payment made for the goods by the buyer? Again, this may occur at the same time as title and/or risk passes from the seller to the buyer.Q Carriage/transportation of the goods - who makes physical delivery of the goods (or who arranges a third party to make delivery/transportation) and who pays for these costs?Q Import duties/customs formalities - who pays the import duties (i.e. the customs duties and other charges payable on importation into the EEA), who is responsible for ensuring compliance with customs formalities, and who is liable for non-compliance?

Clearly, whether a particular entity constitutes an importer under REACH must be assessed on a case-by-case basis. In international sales contracts, who carries out the above duties is often determined by reference to the International Chamber of Commerce’s (ICC) International Commercial Terms (“Incoterms”). For example, with regard to Ex works (EXW) contracts under Incoterms, since the EU based buyers carry out all the relevant duties (risks, customs formalities, transportation costs, etc) they will likely assume the role of importer under REACH. At the opposite end of the spectrum, under Delivered Duty Paid (DDP) terms, since the non-EU based sellers carry out all the relevant duties, an EU based entity with relatively little responsibility for the physical introduction of goods into the customs territory might become the importer under REACH.

The specific supply chain and the particular contractual terms used in the relevant contracts will of course be determinant. There are complex cases such as those supply chains involving a number of EU based entities each playing some role in the physical introduction of goods into the customs territory.

In cases such as these, the determination as to which of the EU based entities is/are REACH importer(s) will require careful weighing of all the factors.

It is important to get this right. Only the company that qualifies as importer under REACH can lawfully import the goods into the EU.

Companies rethink the role of importers under reACh

Mayer Brown is a global law firm with extensive experience in the field of chemicals regulation 8 www.mayerbrown.com

Marcus Navin-Jones8 MNavin-Jones@mayerbrown.com

Jean-Philippe Montfort8 JPMontfort@mayerbrown.com

Article written for ChemicalWatch by Jean-Philippe Montfort and Marcus Navin-Jones

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Much has been said about the need for companies to pre-register their phase-in substances between the 1 June and 30 November 2008, in order to ensure their continued legal production and importation in the EU and companies are taking steps to do so.

In many circumstances, however, companies must also ensure that other actors pre-register and then register substances in time. This is the case, for example, for downstream users that are supplied substances or preparations in the EU. This is also the case for EU importers that are to be covered by the ‘only representative’ (OR) designated by their suppliers. They need to make sure their suppliers meet their REACH obligations or they risk no longer receiving the supplies they need. They could also find themselves using and and/or trading materials illegally manufactured or imported, which could be seized by enforcement authorities.

In all of these cases, companies should communicate with their suppliers to ensure that they pre-register and register in time and should obtain legal guarantees that they will do so.

pre-registration deadlineTo this end, companies are advised to insert REACH clauses in their supply contracts and general conditions of purchase. This may serve to cover new business relationships, but it does not address the issue of existing

suppliers. From these, companies should seek guarantees, in particular in terms of pre-registration, sufficiently before the end of the pre-registration period so that if a supplier fails to respond, the company can seek an alternative, REACH compliant source of supply.

Reaching out to existing suppliers is not an easy exercise. Companies operating in the EU may have hundreds, sometimes thousands of suppliers located all over the world that supply either substances, preparations, polymers or articles either in, or outside the EU. Each such situation creates different legal obligations with respect to REACH compliance and must be handled differently.

But addressing a specific tailored communication to each supplier is often practically impossible. Another difficulty is to draft a communication that is at the same time:Q sufficiently simple and straightforward to be understood even by foreign suppliers that may never have heard of REACH,Q sufficiently detailed to specify their obligations or the information they need to supply their customers for them to comply with REACH, and Q sufficiently precise to constitute a legal commitment that covers the supplier’s liability in case it fails to act as required.

Communication strategyIdeally, a stepwise approach should be developed whereby companies first inform their suppliers of their obligations and of the company’s expectations, then request feedback on suppliers’ specific plans, and eventually require these to be transformed into legal commitments. Ideally also, this process should have started months ago. Many companies did indeed begin communicating with suppliers, but often they did not get a suitable response, if any, or were told REACH was not yet applicable, that they were waiting for guidance documents, or that the supplier could not answer specific questionnaires.

For suppliers with multiple customers, the natural approach will be to favour a generic rather than a case-by-case approach and, in as much as possible, to provide commercial

assurances rather than legal guarantees regarding REACH compliance.

running out of timeHowever, now that the time left until the end of the pre-registration phase is limited, and the legislative obligations on each actor have been very largely clarified (even if some uncertainties remain, for example with respect to ORs), our advice to companies that have not yet achieved the necessary steps, would be to combine:Q a generic approach to all their suppliers in the form of a letter that includes a description of their expectations, offers and requests a REACH contact point, and requests binding REACH commitments, Q a more personalised approach (e.g. a physical meeting) with those suppliers that are the most critical for their operations, in terms of sensitivity of supply (e.g. where there are only very few possible suppliers, and/or where there are no alternative products) and importance of the product/processes that use these supplies (e.g. best sellers, major brands);Q the development of safeguard mechanisms in case the necessary guarantees cannot be obtained in time in order to allow or avoid pre-registration and registration of the substances at stake. These could include pre-registering substances as a “potential importer” from another source, finding alternative suppliers or supplies, or changing production sites or commercial channels.

Of course, the above will not suit every specific situation and each case needs to be reviewed individually. But some sort of combination of the above elements is likely to be needed in most cases.

As regards obtaining legal commitments from suppliers, it will be difficult in some cases to amend all existing contracts and here again companies should concentrate on most important and sensible supplies first. They should also keep in mind that obtaining contractual guarantees will not necessarily be sufficient to guarantee continued supply (the failing company can eventually be required to pay damages but that does not bring in the supplies). Therefore safeguard mechanisms should be adopted for sensitive supplies in addition to legal guarantees.

securing reACh guarantees from suppliers

Jean-Philippe Montfort leads the REACH team of Mayer Brown, a global law firm with extensive experience in the field of

chemicals regulation. For further details, please contact Jean-Philippe Montfort

JPMontfort@mayerbrown.com www.mayerbrown.com

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As corporations ready themselves for the end of the pre-registration period and finalise their REACH compliance strategies, they often face an unexpected hurdle: How should they deal with REACH registration of substances that are made by toll manufacturers? Jean-philippe Montfort discusses.

Often, the customer owns the technology, the raw materials, the data and sometimes much more. Yet, in most cases it is the toller, if based in the EU, who is the “manufacturer” under REACH and who is required to register to continue manufacturing the substance lawfully. Often, the toller makes the substance only for a given customer and is not ready or capable to take on the costs of the registration. It is then for the customer to support him. But how can it do so in a way that safeguards its legitimate interest, particularly if it pays for the registration but the toller then ends up as its lawful registrant?

A “toll manufacturing” agreement is an agreement whereby the “toller” agrees to provide a “customer” with an end product or substance that it will manufacture. This is different to a normal supply contract because the customer owns part or all of the technology, and sometimes the incoming raw materials and/or the end products, and only subcontracts the “manufacturing” of the substance.

inter-group contractsOften, the deal is exclusive so that the toller only makes that substance for one customer (but may be tolling many different substances for many different customers). Other features of toll manufacturing agreements vary from one agreement to the other, with, in most cases, the customer taking on many tasks and responsibilities, except for the manufacturing operation itself. Inter-group company agreements may also include tolling agreements or raise similar issues, in particular when several legal entities of the same group share a given production site, with each entity being in charge of the different functions of a fully independent manufacturer.

REACH makes no mention of toll manufacturing nor toll manufacturers and offers no special treatment for these actors in the supply chain. This means that to the extent they qualify as “manufacturers” or “importers” of chemical substances above one tonne per year, they are subject to registration.

Of course, if the toller is located outside

the EU and the customer is importing the substance manufactured, then it is the customer who is subject to the registration obligations.

By contrast, the toller will be considered to be an EU “manufacturer” under REACH if it meets three conditions:Q it is a legal person

Q it is established within the EU,Q it manufactures a substance or extracts substances in their natural state within the EU.

Given the lack of specific guidance in the relevant REACH technical guidance documents and the number of elements that the customer deals with in relation to the substance manufactured, including all the intellectual property involved, companies are often hesitant to designate the EU toller as the REACH manufacturer. This is often unavoidable, however, even if a case-by-case review of the fundamental elements of what constitutes “manufacturing” is required to do so, including a review of who is in “control of the manufacturing process”, as discussed in the ‘manual of decisions’ adopted in the framework of the EU dangerous substances Directive.

vested interestsHowever, merely concluding that the toll manufacturer is indeed the EU manufacturer of the substances, and that it therefore must register the substances it manufactures above one tonne per year, is however not sufficient. The toller may not be aware and/or willing to take on this responsibility and the associated costs. Or, the customer may have other vested interests in controlling the registration of the substance for which it often will hold data and other intellectual property.

Below is a non-exhaustive list of issues that must be considered on a case-by-case basis when reviewing and adapting toll manufacturing agreements to ensure compliance with REACH:

Q Location/general approach towards REACH registration:If the toll manufacturer is established outside the EU and the customer within it, the customer can register as an importer, in which case it will control and own the registration dossier. It could also act as the ‘only representative’ (OR) of the toller to cover several importing legal entities but then the OR agreement must carefully consider a series of issues to ensure the customer remains in control. If both the

toll manufacturers under reACh

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toller and customer are established outside the EU, only the toller can appoint an OR to cover importers and this may be delicate for the customer, in relation to its own EU customers, in particular if the toller arrangement is confidential. Where both entities are established inside the EU and the toller is the REACH manufacturer, customers often seek to act as third party representatives (“TPR”) for the toller to control the registration, but this also gives rise to confidentiality and other issues, such as data rights.

Q Confidentiality:Toll manufacturing arrangements are often confidential, in that the customer does not want his own end-customers to know who is the actual manufacturer of the substance it is selling. If confidentiality is key, then appointment of an OR by the foreign toller is not easy as REACH requires foreign manufacturers to inform EU importers of the OR arrangement. Within the EU, a TPR arrangement may be tempting because in that case the TPR (the customer) would be the visible party in discussions in Substance Information Exchange Fora (SIEFs). There are, however, inherent problems with the use of the TPR concept for tollers. In many consortia agreements, TPRs are not accepted or must reveal the identity of the company they represent. The customer/TPR may therefore be tempted to simply act in the consortium as a regular member (actual or potential manufacturer

or importer), but the non-disclosure obligations and right of access provisions in the consortium agreement may preclude the toller from registering the substance using the information/data obtained by the customer/TPR in the consortium. Resolving these issues requires careful handling of the consortia agreement provisions on membership, affiliates, disclosure, right of access and others.

Q Registration dossier rights:If the customer is obliged or otherwise decides to compile the registration dossier, it will often have to pay for the registration costs. However, the registration itself will belong to the toller as the manufacturer. Therefore, the customer will want to ensure that it did not invest for the sole benefit of the toller. When the toller only produces for a single customer under an exclusive contract, the customer will only compile a registration dossier relating to the specific quantity being produced for him. It will also seek to include in the contract provisions to limit for the duration of the exclusive tolling arrangement, the right of access to the registration data granted to the toller.

However, if the toller manufactures the same substance for several customers, it becomes quite difficult to organise the registration in a way that allows the toller to continue manufacture for all customers, while protecting the vested interest of those that contribute data to the registration

dossier of the toller and pay the registration costs. This requires careful consideration and drafting of contractual provisions related to e.g. data ownership, termination, liability and indemnity between the parties.

All these issues must be considered urgently by toll manufacturers and customers alike before the sun sets on pre-registration; otherwise these often intimate and delicate relationships may be compromised or REACH compliance jeopardised. Sometimes, companies are often acting as customer and toller, respectively, for different substances, and they will need to consider both sides of these deals. In turn, this should help to ensure that these deals are fair to both sides.

Toll manufacturers could be appointed as ‘only representatives’ to cover several importing legal entities

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Jean-Philippe Montfort leads the REACH team of Mayer Brown, a global law firm with extensive experience in the field of

chemicals regulation. For further details, please contact Jean-Philippe Montfort

JPMontfort@mayerbrown.com www.mayerbrown.com

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After pre-registration of phase-in substances, the forthcoming publication of the first list of substances of very high concern - the ‘candidate list’ will mark another important step in REACH implementation. While pre-registration has been mainly an affair for chemicals manufacturers and importers, dealing with candidate list effects will be the responsibility of suppliers of articles. Indeed, the publication of the list will trigger communication obligations for companies that supply articles containing candidate list substances in excess of a certain concentration. How will that work in practice? What should companies do to ensure compliance? Jean-philippe Montfort and giovanni indirli investigate.

backgroundThe REACH Regulation establishes a process for the identification of substances of very high concern (SVHCs) that will eventually be included in the list of substances subject to authorisation. Substances considered to meet SVHC criteria will progressively be identified on a list published on the European Chemicals Agency (ECHA) website. This is commonly referred to as the “candidate list” of substances proposed for authorisation. The process for their eventual inclusion in the list of authorised substances in Annex XIV to REACH will take time - substances on the candidate list will first need to be prioritised by ECHA before becoming subject to the authorisation process.

In the meantime, however, the publication of the first candidate list will immediately trigger the communication obligation provided for in Article 33 of REACH. Any supplier of an article (article producers, importers and distributors) containing a candidate list substance in a concentration above 0.1% weight by weight (w/w) is required to provide the recipient of that article, such as professional end users and distributors, including retailers, with sufficient information, available to the

supplier, to allow safe use of the article. Article 33.1 requires that, as a minimum, this should include the name of the substance. Article 33.2 then provides that the same information must be provided to consumers within 45 days of receipt of a request.

ECHA’s Member States Committee has now agreed on 15 of 16 nominated chemicals to place on the first candidate list, which is expected to be published in October.

A first version of a ‘registry of intentions’ has also been published to give an indication of other dossiers that may be prepared in coming months including five proposed by the Commission for SVHCs .

Article 33Important features of Article 33 include the following:

Q Unlike the notification obligation for candidate list substances in Article 7.2, the communication obligation in Article 33 is exclusively triggered by the concentration of the substance in the articles supplied. It therefore applies regardless of the annual volume of candidate list substances in products supplied. Q All article suppliers are subject to communication obligations, not only article

producers and importers, as is the case with the notification obligation;Q The obligation to communicate information to recipients of articles (Article 33.1) applies as soon as the inclusion of the SVHC in the candidate list is published on ECHA’s website (unlike the communication in response to consumers’ request under Article 33.2 for which a 45-day delay applies).Q Article 33 applies not only to articles that have been produced or imported after the publication of the list, but also to those produced or imported before that date and held in stock at the supplier premises at the time of the publication of the list, provided that they are “supplied” in the EU after that date.Q There remains a serious disagreement between Member States on the application of the 0.1% threshold. The guidance document on requirements for substances in articles indicates that ‘article’ refers to the product as produced or imported (this may be a mono-material simple product or a multi-material complex/assembly) and that the 0.1% w/w concentration should be calculated against the weight of the whole article. However, six Member States still disagree with this interpretation and take the opposite view that the concentration of

how to comply with candidate list obligations

Consumers will have a right to information on SVHCs in articles within 45 days

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SVHC should instead be calculated against the weight of the material in which the SVHC is present or at component level. Their position has been notified in writing to ECHA and a reference to this effect has been added to relevant parts of the guidance document.

how to obtain informationArticle 33 will oblige article suppliers to determine if, and in what concentration candidate list substances are contained in articles. Article suppliers are also expected to document the result of their compliance checking. This does not mean that article producers should always generate hard evidence. In a number of cases, the article supplier should be able to exclude the presence of a candidate list substance in its articles, for example, if the candidate list substance is a gas that evaporates. Concentration limits for relevant substances in existing supply contracts can also be a means to demonstrate the absence of candidate list substances in the articles supplied. In all other cases, relevant information should be gathered through supply chain communication.

Communications up the supply chainIn principle, producers of articles know what materials their articles are made of. However, that does not necessarily mean they know the detailed composition of the preparations and articles that are supplied to them and that are used to produce the articles they sell. Safety data sheets (SDS) contain information on the presence of SVHCs already classified as dangerous in preparations. However, they do not specify their exact concentration, nor do they include information on non-classified SVHCs present in the preparation. Furthermore, SDSs are generally not supplied with components or parts that are used as raw materials.

To discharge their obligations under Article 33, article suppliers will have to actively ask their suppliers to provide them with information on SVHCs contained in preparations or in articles used to produce the articles they supply in the EU.

Considering the complexity of some supply chains and the billions of articles marketed in the EU, this is a titanic exercise, especially in the case of imported articles, for which non-EU companies may not be prepared to provide relevant information. REACH guidance

recommends that article importers inform their suppliers outside the EU of the relevant REACH requirements and make special arrangements to receive information.

Below are some of the main options open to suppliers of articles to obtain the information needed to discharge their duties under Article 33:

Q Monitor each publication/update of the candidate list and ask suppliers every time SVHCs are included in the candidate list whether the presence of those SVHCs in the articles can be excluded, or if the

supplied articles contain those substances and in what concentration. This will limit the number of chemical substances to be reviewed but multiply the number of communications, as a new communication

will be needed each time the candidate list is updated.Q Ask suppliers to monitor the candidate list and provide relevant information as soon as they establish that a candidate list substance is present above 0.1% in a supplied article. This may seem to be an attractive option but it may prove difficult to rely upon in the case of complex, international supply chains where some of the suppliers abroad do not even know what ‘REACH’ stands for. Q Ask the supplier to obtain and communicate full compositional

information in advance of the publication of the list. This option may be considered by some producers in circumstances where the reputation of major brands is at stake, but seems hardly recommendable on a large scale, not to mention the fact that compositional information is often considered to be confidential business information, and that receipt of this information would involve increased liabilities with regard to handling the information so received.Q Test the supplied products for content in candidate list substances. This clearly is an impossible option on a large-scale basis as it may require interruption of supply for the time necessary to conduct the testing. Also, the guidance document recommends that chemical analysis is used as a last resort in selected cases.Q Any combination of the above.As an alternative, some companies have elaborated a company-specific ‘restricted

Considering the complexity of some supply chains and the billions of articles marketed in the EU, obtaining the necessary information is a titanic exercise

Non-EU firms may not want to provide information on SVHCs to customers in the EU

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substance list’ (RSLs) to identify those substances that are likely to fulfil the SVHC criteria before they make it onto the candidate list. They contractually require their suppliers to avoid use of RSL substances in their products. Supplier guarantees of compliance with RSLs would allow their customer, the supplier of the articles, to ensure compliance with Article 33. Of course, should a newly identified SVHC not be on the company’s RSL, the article supplier should communicate up the chain, as in the first option above.

Eventually, it is for every supplier to select the most appropriate option or combination thereof, taking into account the specific nature of their supply chain and the availability and sophistication of the resources available in the chain.

Communication down the supply chainThe next step is for suppliers of articles to inform recipients of articles in the EU if the articles they supply contain candidate list substances above 0.1% w/w. The customers/article recipients may in turn be article suppliers or industrial and professional users and need this information to either fulfil their own duties under Article 33 or to take measures necessary to protect their workers or comply with other applicable EU and national legislation. If the article is used to make assembly products, this information will also form the basis for the calculation of the concentration of SVHC in the new article, as indicated in the guidance.

Below are some of the main options open to suppliers of articles to communicate information down the chain in accordance with Article 33:

Q Monitor each update of the candidate list and communicate to customers that the supplied articles contain/do not contain the listed substances above 0.1%.Q Proactively inform customers that the company is monitoring the candidate list and will inform its customers as soon as they have information that a SVHC is present above 0.1% in a supplied product.Q Respond to customer questions on an ad-hoc basis, including on request, to confirm absence of substances on a customer black list.Q Any combination of the above.Article producers and importers may also receive enquiries drawing attention to their need to fulfil their Article 33 duties, asking how they intend to do so. The continuing

disagreement on the interpretation of Article 33 and 7.2 will certainly not facilitate communication. Certain dissenting Member States have already announced that they will use the stricter interpretation as a basis for enforcement action and this might prompt recipients of articles located in these countries to ask their EU suppliers to apply the stricter approach.

handling consumer requestsArticle 33.2 requires that the information that article suppliers provide to article recipients should also be provided to consumers within 45 days of receipt of a request.

Some important features include:

Q As with the communication to article recipients, the obligation to respond to consumers’ requests applies to articles supplied after the publication of the list; there is no obligation to respond to a consumer’s request in relation to articles supplied before that date. Q Only those suppliers who have supplied the article after the publication of the list are required to respond to consumer requests. These may be article producers or importers, distributors or retailers. Article suppliers up the supply chain who have already supplied the article concerned at the time of the publication of the list do not have any obligation with regard to articles that article suppliers down their supply chain have supplied to the consumers after that date. They may nevertheless be expected to receive requests from the retailer to provide relevant information and should therefore be prepared to provide that information in any case, which may prove difficult.Q Only individual consumers to whom the product has been made available can request the information. NGOs acting exclusively in their name and on their own behalf are

not in principle entitled to request information pursuant to Article 33.2. Q In case of articles for which batch to batch variations in product composition are possible/likely, indication of product reference or the batch to which it belongs may be necessary to avoid providing inaccurate information.

Here again, several options exist, including:Q Responding to consumer questions (either directly or forwarded by customers) on an ad-hoc basis;Q Proposing to customers that consumer inquiries should be directed to the company to handle requests;Q Proactively preparing and publishing on company websites statements to show that the company is monitoring the candidate list and will publish an updated statement each time the candidate list is updated on the absence/presence of listed substances above 0.1% in its products.

ConclusionsIn our view, there is no doubt that the required level of transparency in the supply chain that Article 33 requires, the confidential nature of some of that information, and the lack of unanimous interpretation of Articles 33 and 7.2, makes compliance with Article 33 duties for all articles produced or imported in the EU a totally unrealistic proposition.

Eventually, it will be a question of “due diligence”. As in many cases companies will not be able to ensure that all the articles they supply are free from candidate list substances above 0.1%, their key objective should be to determine what level of due diligence they need to put in place to ensure their products are “safe”.

This information should then be communicated down the chain as soon as they obtain information that their products do contain a candidate list substance above 0.1%.

For further information please contact Jean-philippe Montfort or giovanni indirli

8 jpmontfort 8 gindirli

Jean-Philippe Montfort leads the REACH team of Mayer Brown. Giovanni Indirli is an Associate of the company, also based in Brussels.

Mayer Brown is a global law firm with extensive experience in the field of chemicals regulation.

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This article is the first in a series of articles devoted to ‘substance information exchange fora’ (SIEFs) and consortia under REACH to be published in Chemical Watch.

With the pre-registration period ending, a new period will open up where companies will enter into discussions with other pre-registrants to undertake the following steps:1) Verify whether the substances they have pre-registered are indeed the same according to the criteria of the European Chemicals Agency (ECHA) REACH guidance document on substance identification;2) Form a SIEF between themselves to share data and agree on classification and labelling; 3) Organise the joint submission of data for registration purposes.

All these issues have been addressed in the guidance document on data sharing, which is based on REACH Implementation Project (RIP) 3.4 for which we acted as project leader.

The diagram above illustrates the different phases discussed in RIP 3.4. As is reflected

in the above chart, the formation of a consortium between potential registrants is not required under REACH. Indeed, the word consortium does not appear in the REACH text. However, it will be difficult for companies to organise their cooperation within the SIEF and the joint submission of data without some form of legal contract that sets out their rights, obligations and

responsibilities. These agreements are usually referred to as consortium agreements.

In the first place, however, there will often be a need for companies to exchange information relating to the substances they

have pre-registered to verify sameness and discuss means of cooperation to achieve their REACH objectives. This is referred to as the ‘pre-SIEF’ or ‘pre-consortium’ stage, which will be the focus of this first article.

samenessThe pre-SIEF is also not mentioned in the REACH Regulation. It was introduced in RIP 3.4 as a result of the European Commission’s interpretation that the REACH Regulation requires a separate registration dossier, and therefore a separate SIEF, for each substance, using the identification criteria specified in RIP 3.10. Given that the pre-registration entry points (mainly EINECS numbers) do not necessarily sufficiently characterise the identity of a given substance, it is necessary to verify whether the substances pre-registered under the same EINECS number are indeed the same substance under the RIP 3.10 criteria before a SIEF is created and can start to operate.

This interpretation of the Regulation,

From pre-registration to pre-sieFs and pre-consortia

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which in our view was not the only possible interpretation of the text, has serious consequences. In particular, a SIEF will be formed only after the pre-registrants agree that their substance is the same, a process that is not regulated and in which ECHA will not intervene. Companies are therefore left on their own to sort out, open and organise SIEFs. With many substances pre-registered by dozens, sometimes hundreds of companies, and sometimes important business interests at stake, there will inevitably be situations where the pre-registrants do not agree on sameness and SIEF formation issues. What happens then, is entry into a non-regulated zone. Is the SIEF formed when a majority of potential SIEF members agree that their substances are the same? What happens to those who disagree? The problem is that the data sharing obligations under REACH only apply between SIEF members and therefore only once a SIEF is formed.

Verifying sameness also means that information must be exchanged between pre-registrants on the identity of their substances, which may raise confidentiality issues that will need to be addressed. This is where companies will typically enter into pre-SIEF or pre-consortium agreements.

pre-consortium agreementsPre-SIEF or pre-consortium agreements typically have two main purposes: Q To organise the exchange of information between pre-registrants to verify sameness;Q To discuss means of future cooperation and, in particular, whether or not the parties wish and agree to enter into a consortium agreement.

In some cases, however, an agreement can achieve only one such objective, either because the pre-registrants only want to

discuss sameness or because the parties already know their substances are the same and want to only discuss next steps.

Regarding sameness discussions, there will indeed be situations where all pre-registrants already know the substances are the same, or where there is no confidential information on purities or impurities because there is only one well known production process that everyone uses. In other cases the degree of confidentiality may vary, requiring different protective measures - from the signature of a basic confidentiality agreement and/or limiting the number of employees accessing

the information, to the use of independent third parties to review and assess critical company information. The pre-SIEF agreements will therefore have to reflect the sensitivity of the confidential information and provide for adequate measures.

With regard to consortia formation, pre-consortium agreements usually only provide that the parties shall discuss whether they agree to form a consortium between them and on what basis, the agreement being superseded by a formal consortium contract, if formed. Usually, by signing a pre-consortium agreement, companies do not commit to engage and participate in a consortium agreement if eventually formed by some of the pre-registrants.

From experience, pre-consortium agreements are often weak in their specification of the information to be exchanged between parties and the steps to be taken to decide whether or not to form a consortium. Sometimes pre-consortium agreements very simply and broadly provide that they shall provide “all information required” for that decision. In other cases, they spell out tasks that seem to go beyond what is necessary to make that decision, for example, where the parties agree to “preparatory work which can be conducted in a preliminary phase such as data gathering, data analysis, discussion and clarification of key issues”. In our opinion, pre-consortium agreements are not, generally speaking, the most appropriate vehicle to set out an

exhaustive list of the data gathering and analysis obligations. However, should these provisions be included in the pre-consortium agreement, they need to contain similar obligations to the consortium agreement regarding the process that must be followed and the responsibilities for gathering and analysing existing data.

Pre-consortium agreements also typically provide provisions to alert parties of their obligations under EU antitrust rules and to confirm their commitment to comply at all times with these provisions. As we will have the occasion to discuss in subsequent articles, antitrust considerations relating to consortia not only require preventing direct exchange of commercially sensitive information and ensuring that the parties do not use the cover of REACH discussions to organise prohibited market practices. They also relate to non-discrimination, and a difficult question is whether companies should invite all pre-registrants in pre-SIEF and pre-consortium discussions or whether they can reserve these discussions for selected pre-registrants.

The antitrust risk is that, if a group of competitors, especially if they constitute an oligopoly holding significant market power, collaborate in REACH related tasks without allowing actual or potential competitors to also collaborate, the latter may be at a competitive disadvantage, which may restrict competition in breach of EU antitrust rules. There may be legitimate reasons to restrict membership in a consortium, but these reasons must be objectively justified, taking into account whether less restrictive means to achieve these objectives exist.

In view of the above, in as much as pre-consortium agreements are designed to discuss and negotiate the provisions of the future consortium agreements, they should in principle be open to all pre-registrants, as well as downstream users who have a legitimate interest in participating.

In subsequent articles we will cover consortium agreements per se, including membership, organisational, data sharing and other issues. We shall also discuss the relationships between SIEFs and consortia. Stay tuned!

Q Training on SIEF and consortia: Mayer Brown offers company-specific training to help staff understand, prepare for and comply with their obligations after pre-registration. It includes a specific module on antitrust issues as they relate to REACH. For further details, click below:8 Mayer Brown training

Pre-consortium agreements are often weak on specifying the information to be exchanged

Jean-Philippe Montfort leads the REACH team of Mayer Brown, a global law firm with extensive experience in the field of

chemicals regulation. For further details, please contact Jean-Philippe Montfort

JPMontfort@mayerbrown.com www.mayerbrown.com

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In last month’s column, we discussed pre-SIEFs and pre-consortium agreements as a means for pre-registrants to get together, review the sameness of their substances, agree whether or not they should form a “Substance Information Exchange Forum” (SIEF) between them, and to start discussions on possible formation of a consortium agreement.

In this article we discuss some of the main issues that require consideration regarding formation of a consortium for REACH registration purposes, including the consortium’s relationship with the SIEF and the consortium’s scope, objectives and legal form. For the purposes of this article, our starting point is that pre-registrants have concluded their pre-SIEF discussions, have agreed that they shall form a SIEF between them and have entered into consortium formation discussions.

Consortia and sieFsAs mentioned in our previous article, the word “consortium” does not appear in the REACH text and companies are not under any obligation to join consortia under REACH. By contrast, potential registrants of phase-in substances are obliged to be participants in a SIEF.

Participation in a SIEF includes an obligation to provide existing studies to other members, agree on classification and labelling, and collectively identify the need for further studies. Therefore, whereas potential registrants may choose to join a consortium and take on contractual obligations with regard to REACH registration, this will not relieve them of their obligations as SIEF participants, unless all SIEF participants join the consortium and the consortium agreement covers all possible SIEF issues. However, even if this is the case, the SIEF will remain “active” to deal with potential new entrants who pre-register a substance or submit an inquiry to the European Chemicals Agency (ECHA).

If the SIEF participants disagree on the need to form a consortium and/or if only some of them (for example the producers as

opposed to importers, or the producers and importers as opposed to downstream users and other categories of potential members) agree to form a consortium or meet the membership criteria, this will inevitably raise two issues: Q The compliance of any membership restrictions with antitrust requirements (we will address this in a future article);Q The coexistence of a consortium and a SIEF for the same substance with different members.

The coexistence of a SIEF and a consortium raises difficult issues. As discussed in the ECHA Guidelines on Data Sharing, the process organised by the REACH Regulation is based on the principle that each potential registrant shall request the data it is missing from other SIEF participants and shall agree with them on the price to pay for these data. The general presumption when forming a consortium is that all members wish to collect all available data in a pool and share among themselves the data and associated costs. These two approaches are usually referred to as the “individual” or “SIEF” route on the one hand and the “collective” or “consortium” route on the other. The difficulty with the SIEF route is that it will lead to each participant having different sets of data, which makes it difficult if not impossible for them to achieve joint submission. They will therefore most likely have to opt out from the joint submission of data. The consortium route by contrast is geared towards joint submission.

If a consortium is formed and pools existing data, this does not relieve consortium members who are data owners from the obligation to respond to requests for data from other SIEF participants and share data using the default mechanisms

under consideration:reACh consortia formation

Relationships between REACH consortia and SIEFs require careful thought

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provided for in the REACH Regulation (equal sharing against a right to refer to the full study report). In practice, consortium agreements frequently do not deal with the relationship between consortium members and other SIEF participants in sufficient detail and clarity and this issue is therefore likely to become a cause of confusion and/or disputes in the future. Consortium members will seek to protect the consortium rules and avoid granting access to studies at a premium compared with consortium costs, while other SIEF members will seek to resist any attempt to make them pay as if they had participated in the consortium. This will require careful handling and may lead to litigation.

Model agreements help but are only part of the storyIn short, a REACH consortium agreement is an agreement with the object of ensuring that the members achieve compliance for specific substances. Specifically, agreements normally ensure that members adhere to the REACH data sharing and joint submission requirements. Successful agreements reconcile the fundamental tensions between these REACH requirements and competition/antitrust law obligations. Furthermore, they ensure that members comply with these REACH requirements while at the same time they do not relinquish members’ control over data rights and/or compromise members’ confidential information.

Given the timeframe for the registration of high production volume (HPV) chemicals and others by 1 December 2010, and the number of substances at stake, there is a need to start the data gathering and evaluation process as soon as possible and avoid lengthy discussions on consortium formation. This is why certain trade associations, law firms and others have begun to formulate industry specific REACH consortia model agreements in the hope that a single model agreement will become the industry standard, reducing the time needed (and requisite expense in reviewing) different consortia agreements. This is clearly the way to go. The danger is that the existence of these models has created the perception that the work has been done and that consortium formation is a straight forward task.

The majority of companies which have already been involved in consortium formation know that the existing model agreements are not “turn key” contracts that

merely require signature. In the main, they establish a legally coherent structure and offer suitable provisions to deal with many of the issues raised by REACH consortia. However, they also leave a large number of issues to be decided on a case-by-case basis. These can relate to scope, objectives, membership, structure, data and cost sharing formula, and responsibilities of the parties including those of the lead registrant. Also, consortia agreements are long, complex legal documents requiring,

among other things, a detailed understanding of the consortium itself, REACH requirements, applicable competition law and relative market power of the members, liability issues, tax implications and the repercussions of applicable law on enforceability of contractual terms.

These must all be discussed in order to fully understand and appreciate how and whether the consortium will function in

practice. Finally, model agreements may not resolve many of the inherent tensions between particular consortium members for example, potential and actual consortium members, data rich and data poor members, upstream and downstream members, associate and regular members.

Consortium objectivesAs mentioned above, the formation of a SIEF will allow potential registrants to share studies with other participants, agree on

classification and labelling and collectively identify needs for further studies. It also requires them to appoint a lead registrant to jointly submit the registration dossier for the substance at stake.

In most cases, REACH registration consortia are likely to take on the same objectives. However, potential consortium members should also consider covering additional REACH objectives such as evaluation and/or authorisation of

‘Consortium agreements often don’t deal with the relationship between consortium members and other SIEF participants in sufficient detail... and this issue is likely to become a cause of confusion and/or disputes’

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substances, as well as non-REACH objectives such as achieving a suitable regulatory status for the substance in other parts of the world.

Importantly REACH also allows potential registrants to choose whether their joint submission will include a Chemical Safety Report (CSR) and guidance on safe use, or whether these parts of the registration dossier will be prepared separately. It is important for the consortium members to agree at the outset the scope of their joint submission. The main driver towards a broad joint submission is the cost of generating the CSR and guidance, which can be shared if produced jointly. The main difficulty is likely to be if it is necessary to exchange possibly sensitive use and exposure information to produce a joint CSR.

Consortium scopeAnother key consideration at the initial stage of consortium formation is the substances that it will cover. While there is to be a single SIEF for each individual substance, a consortium can cover several different substances/SIEFs and/or a specific set of substances or specific uses or exposure scenarios.

It is therefore necessary at the outset to agree on the “scope” of the consortium, for example by listing in an annex the substances that are to be covered. If this is the result of complex or controversial sameness discussions, this should be reflected in the preamble and, if necessary, detailed in an annex to the consortium agreement.

Defining the scope of a consortium may be delicate and raise antitrust law concerns if the selection of substances or the degree of purity/impurities accepted does not cover the whole range and may de facto affect the market potential/access of those representing non-selected substances/qualities.

The scope of the consortium will also affect its structure. Often, not all members in a large consortium will wish to achieve REACH compliance for all the substances covered by the consortium agreement. These groups must reconcile the need for a central decision-making process for common tasks with a decentralised decision-making process for each substance-related sub-group. Indeed, only those concerned with a particular substance and paying for the studies specific to that substance should be able to take the decisions that affect them.

should consortia have legal personality or not? More often than not, and in order to gain time and save administration costs, consortia are established without legal personality (ie. the consortium is not incorporated or otherwise established as a legal entity).

Depending on the applicable law, this will impact on the liability of the individual members particularly in regard to the acts and/or omissions taken in relation to the consortium as a whole and/or the consortium bodies.

In most cases, even if the members can organise in the consortium agreement their respective responsibilities, they will remain jointly liable towards third parties for the acts of the consortium and/or its bodies.

Alternatively, consortia may be afforded legal personality. The relevant corporate vehicle will depend upon the applicable law and the aim of the consortium itself (eg. it may be not for profit). This may be recommended for large and multi-purpose structures with potential high stakes in terms of liabilities.

Less frequently, a consortium may be established as a European Economic Interest Grouping (EEIG). Rules of establishment of an EEIG and whether or not an EEIG is afforded legal personality vary from Member State to Member State and membership of an EEIG impacts on member liability for consortium acts and/or omissions.

tax implicationsAnother influencing factor in deciding

the relevant corporate vehicle to be used for REACH consortium purposes is the relevant tax implications on members and their affiliate companies. Tax liabilities primarily relating to the forecast revenue streams generated from the sale and/or purchase of data, auditing and reporting requirements and other such issues demand further consideration before a decision can be made.

As a result, one way or another, the consortium vehicle used and the applicable law to be relied upon in consortium affairs and disputes have a fundamental impact on a consortium member’s liability and other issues and should be carefully considered.

The issues outlined above are some of the main considerations to be taken into account during the initial stages of consortia formation. In our next column, we will address consortium membership issues and related antitrust considerations, including granting consortium membership to SIEF participants and other third party applicants.

‘The scope of the consortium will also affect its structure.Often, not all members in a large consortium will wish to achieve REACH compliance for all the substances covered by the consortium agreement.’

For further information on this issue, please contact Mayer brown

8 jpmontfort 8 Mayer Brown 8 mnavin-jones

Jean-Philippe Montfort leads the REACH team of Mayer Brown. Marcus Navin Jones is an Associate of the company, also based in Brussels.

Mayer Brown is a global law firm with extensive experience in the field of chemicals regulation.

© 2008 M

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