January 11, 2002
IMPACT OF THE PROPOSED EU CHEMICALS POLICY
ON U.S. EXPORTS
Executive Summary
The European Union (EU) has proposed a policy to require the registration, evaluation,
and authorization of chemicals in commerce. About 30,000 chemicals would have to be
registered, and about 5,000 of these chemicals evaluated after extensive testing. For at
least 850 chemicals, government authorization would be required. Any chemical that is
not authorized would not be allowed into the EU market.
The proposed EU policy will cost between $5.5 billion and $9.6 billion, with a best
estimate of $7.2 billion over its projected 11-year duration. The cost of the program
(equivalent to 3% of EU chemical R&D) will draw resources away from commercial
R&D, which will adversely affect innovation.
U.S. exports of chemicals to the EU, which represent about $17 billion in sales, are also
affected adversely. U.S. exporters are expected to pay about $400 million of the cost of
the program. The imposition of such costs will likely cause some U.S. exporters,
especially small and medium enterprises (SMEs), to withdraw from the EU market
because profit margins will be reduced.
Because the EU policy requires authorization (explicit government approval) for at least
850 chemicals, a subset of these chemicals will be banned from the EU market. The
value of U.S. exports of chemicals subject to authorization was between $200 and $900
million in the year 2000. This figure does not include the export value of some 500
chemicals that the EU expects to add to the authorization list after the program begins.
Should the EU impose fees on exporters of finished products made from chemicals, the
impact will be very wide in scope because chemicals serve as building blocks for all
downstream products. Should the EU fail to authorize commercially important
chemicals, exports of finished products would be adversely affected. Exports of selected
finished products made from just four chemicals on the authorization list are currently
valued at $8.8 billion.
If the EU is successful in targeting finished products made from chemicals, the impact
would be far reaching because (1) production of nearly all U.S. exports involve chemicals
subject to the EU policy; (2) confidential business information would be disclosed,
affecting the decision to export; and (3) innovation would be adversely affected.
1
Introduction
The European Union (EU) has proposed a policy to require the registration, evaluation,
and authorization of chemicals in commerce. According to the EU white paper,
“Strategy for a Future Chemicals Policy”, about 30,000 chemicals would have to be
registered, and about 5,000 of these chemicals evaluated after extensive testing. For at
least 850 chemicals1, government authorization would be required. Any chemical that is
not authorized would not be allowed into the EU market.
The EU envisions a system that minimizes disruptions to European chemical producers.
“Everyone who imports substances into the Community would make a fair contribution
to these [testing] costs.” “The administrative costs . . . will be recovered through a feebased system.” (See white paper, section 3.4.) Clearly, U.S. exporters of chemicals are
affected by the proposal. Less clear is the role of downstream users of covered
chemicals. The white paper raises the possibility that U.S. exporters of products made
from covered chemicals will incur registration, evaluation, and authorization costs.
The purpose of this paper is to show the potential impact of the proposed policy on U.S.
exports to the EU. Three tasks were undertaken. First, the Council developed a model to
estimate the direct cost of data generation to U.S. chemical exporters. Second, the
Council estimated the annual value of U.S. chemical exports at risk under the proposed
policy. Finally, the Council examined the impact of the proposed policy on U.S. exports
of finished products made from chemicals.
Cost of Data Generation
ACC developed a model to estimate the cost of the EU white paper on U.S. chemical
exporters. The model is based on the EU’s assumptions about the number of chemicals
subject to registration, evaluation, and authorization; the cost of data generation and risk
assessment; the timeframe required for the program; and the administrative costs of the
program. Estimates of the per-chemical cost of certain toxicological tests, exposure
assessment, and risk assessment were determined from discussions with ACC companies
and consultants in toxicology and risk assessment. The model assigns U.S. exporters a
share of the program cost equal to the percentage of EU chemical demand met by US
imports.
The Council estimates the total direct cost of the program to be between $5.5 billion and
$9.6 billion over the course of the program, with a best estimate of $7.2 billion. (This
aggregate estimate of program cost is similar to other estimates, such as that developed
by KPMG and CEFIC.2) This estimate includes all of the costs associated with
1
The actual number of chemicals subject to authorization would probably be much greater than 850, the
minimum number provided in the white paper. For example, the white paper estimates that five hundred
more may be added after testing is completed.
2
See CEFIC, “Barometer of Competitiveness: White Paper on Chemicals Policy”, Fall 2001 and KPMG,
“The European Commission’s Chemicals Policy—Is It Viable?”, summer 2001.
2
registration, evaluation, and authorization, including the cost of administering the
program. The cost may be even higher than these figures suggest because (1) more than
30,000 chemicals may be subject to the program, (2) the authorization process may be
much more burdensome than envisioned by the white paper, and (3) demand for
laboratory capacity may result in much higher prices for testing than current market
conditions dictate.3
Given this program cost, innovation will be adversely affected. CEFIC data show that, at
$7.2 billion over 11 years, the proposed EU policy equates to 3% of chemical R&D
spending in the EU. Because it is likely that the proposed policy will draw resources
away from commercial R&D, the EU chemical industry will be adversely affected. 4
The impact on U.S. exporters is shown in Table 1. Under an equitable (i.e., marketshare-based) allocation system, U.S. exporters would be expected to pay $387 million
over the 11-year period envisioned by the EU. Of the total cost to U.S. exporters, 86%
would be for chemical testing, 4% for risk assessment (including exposure assessment),
and 10% for recovery of administrative costs.
Note that these costs are only those related to information provision and evaluation. Such
costs are considerably less than the value of U.S. exports that would be lost if chemicals
are not authorized. Inappropriate product bans would occur if the EU fails to authorize a
chemical due to incorrect (e.g., a false positive test) information, incomplete (e.g.,
companies miss the deadline) information, or administrative delay.
Table 1. Direct Cost (in millions $) to U.S. Exporters.
Program
Low Estimate
Best Estimate
Component
Registration/Testing
294
333
Administration
40
40
Risk Assessment
12
14
Total
346
387
High Estimate
370
40
20
430
Note: The low estimate signifies a 10% chance that the actual value will be lower than that shown.
Similarly, the high estimate signifies a 10% chance that the actual value will be higher than that shown.
The “best” estimate signifies a 50% chance that the actual value will be higher or lower than that shown.
3
Although the white paper states that 30,000 chemicals would be covered, this figure apparently excludes
unique polymeric substances, of which there are tens of thousands. If each unique polymer were subject to
registration, the estimated cost of the program would be much more than the ACC model suggests. In
addition, history suggests that the authorization process could be very expensive in some cases (several
million dollars per chemical), much more than the average cost figure ($150,000 per chemical) used in the
ACC model. KPMG has determined that the timeframe envisioned in the white paper (11 years) is not
adequate to complete the testing requirements, given limitations in existing laboratory capacity. If
laboratory capacity is limited, the cost of chemical testing will be greater than current market prices
suggest.
4
This scenario provides an incentive for the EU to require importers to pay more than their fair share of the
program cost. For the purpose of this paper, however, the Council assumes equitable cost sharing.
3
U.S. Exports at Risk
According to the EU white paper, U.S. exports will be affected in two ways. The first is
the imposition of fees to cover the cost of the program. The second is the possibility that
products will be banned from the EU market, placing entire categories of U.S. exports at
risk. This section describes quantitatively the value of U.S. exports at risk.
In general, the impact of the proposed policy depends greatly on how fairly it is
implemented. If exporters are targeted inequitably, EU producers will have a competitive
advantage over U.S. exporters, and U.S. exports will be at risk. Even if U.S. exporters
are charged fees that are equitably shared, some exporters (small and medium enterprises
are particularly at risk) will withdraw from the market if the increase in fixed cost cannot
be passed on entirely to customers.
Of special interest are U.S. exports of chemicals subject to authorization. If the EU fails
to authorize a chemical, the product cannot be sold in the EU market. This possibility
underscores the importance of understanding the value of U.S. exports of both chemicals
subject to authorization and products made from chemicals subject to authorization.
Exports of Chemicals. In the aggregate, the United States exported roughly $17 billion
worth of chemicals to the EU in the year 2000, which represents 6.3% of EU chemical
demand.5 Chart 1 shows the relative value of U.S. chemical exports to the EU by
industry segment. Basic chemicals represent 65% of the total value of chemical exports.
Chart 1. U.S. Chemical Exports to the EU (Year 2000)
Basic
Specialties
Consumer Products
Source: CEFIC, U.S. International Trade Commission
5
The Council used CEFIC data on the 1999 value of extra-EU imports ($57.6 billion), extra-EU exports
($99.3 billion), and EU production ($402.7 billion) to determine the share of EU apparent consumption of
chemicals (i.e., demand) met by U.S. imports ($25.6 billion). This figure for the value of U.S. chemical
imports is greater than the $17 billion figure provided elsewhere in this paper because it includes life
science products (pharmaceuticals and crop protection chemicals) that are not subject to the proposed EU
chemicals policy.
4
Chart 2 shows the major categories of basic chemicals that are exported from the US to
the EU. Bulk petrochemicals and intermediates represent 44% of the total value of basic
chemical exports, followed by polymers (36%) and inorganic compounds (9%).
The U.S. International Trade Commission keeps statistics on the value of exports to the
EU by product type. All U.S. chemical exports are potentially subject to the proposed
EU policy. Of particular interest chemical exports that will be subject to authorization.6
Table 2 lists six chemicals that are subject to authorization and are exported in significant
amounts to EU countries. In the year 2000 (the most recent year for which data are
available), these chemicals represented $171 million in U.S. exports.
Chart 2. U.S. Basic Chemical Exports to the EU
bulk petrochemicals
polymers
inorganics
other
Source: U.S. International Trade Commission
Table 2. U.S. Exports of Selected Chemicals Subject to Authorization.
Chemical Subject to Authorization
Value of U.S. Exports (millions $)
Acrylonitrile
43
Propylene oxide
43
Phenylenediamine
39
Phenol
27
Chromium oxides
13
1,3-Butadiene
6
Total
171
Source: U.S. International Trade Commission
6
ACC used a list of chemicals that are currently listed by the EU as Category 1 or 2 carcinogens,
mutagens, or reproductive toxins (CMRs). According to the EU white paper, these chemicals will be
subject to authorization.
5
Unfortunately, U.S. data on chemical exports are seldom grouped by specific chemical,
but rather by category (e.g., heterocyclic compounds). To estimate the upper-bound
value of U.S. chemical exports subject to authorization, the Council matched the U.S.
ITC list of export categories against the EU list of chemicals in need of authorization.
From this exercise, the Council concluded that as much as $918 million in annual U.S.
exports are subject to authorization.7 Therefore, on the basis of U.S. export information,
chemicals that will be subject to EU authorization represent somewhere between $171
million and $918 million in annual exports.
This estimate (between $171 million and $918 million) is likely to be low because, as
noted in the EU white paper, the current list of chemicals in need of authorization is
likely to expand by an additional 500 chemicals after the evaluation phase.
Exports of Finished Products. Should the EU charge U.S. exporters fees to cover data
generation for chemicals used in finished products (a circumstance contemplated in the
white paper), the impact would be wide in scope. Virtually all of the major products
exported from the U.S. to the EU are made from commercial chemicals. Even if the EU
only targeted products made from chemicals on the authorization list, the number of
products would be large. Of the chemicals on the authorization list, 22 are commercially
important, representing $18.6 billion in annual U.S. production (see Table 3). Selected
end use products made from just four of these chemicals represented $8.8 billion in U.S.
exports in the year 2000 (see Table 4).
Another troubling issue of particular relevance to finished products is confidential
business information. Information collected and made public under the EU policy in
some cases represents confidential business information (e.g., the identity of chemicals
used in a lubricating fluid may be the source of competitive advantage). If exporters are
required to disclose confidential business information, U.S. exports to the EU will drop.
In the long run, innovation and productivity will suffer.
Conclusions
At a minimum, U.S. exporters will be forced to pay a share of the cost of data generation
under the proposed EU policy. This cost, which is expected to be between $346 and
$430 million over the 11-year life of the program, will either be (1) passed on to
downstream customers in the form of higher prices or (2) absorbed and profit margins
reduced, affecting the decision to export. The second option becomes more likely should
the EU develop a system that unfairly burdens U.S. exporters.8
7
This number is conservative because the Council did not match ITC export categories having less than $5
million in annual value against the authorization list.
8
The EU could implement a system that unfairly penalizes U.S. exporters if it (1) charges exporters on a
non-market share basis or (2) does not accept testing data generated by the exporter.
6
Table 3. U.S. Production Value of Chemicals Subject to Authorization.
Chemical
Value of U.S. Production
(millions $)
Acrylamide
138
Acrylonitrile
1,265
Asbestos
5
Benzene
3,329
Benzyl chloride
50
Beryllium
236
1,3-butadiene
1,107
1,2-dibromo-3-chloropropane
30
Dibutyl phthalate
9
Epichlorohydrin
752
Ethylene dichloride
2,622
Ethylene oxide
4,689
2-ethoxyethanol
49
Hydrazine
55
Lead chromate
18
Methyl chloride
233
Phenols, ammonia liquor extract
5
Propylene oxide
1,354
Sodium dichromate
235
Trichloroethylene
159
Vinyl chloride monomer
2,157
Zinc chromates
30
Total
18,527
Sources: Chemical Marketing Reporter, Chemical Week, SRI Chemical Economics Handbook, and the
U.S. International Trade Commission.
Table 4. Value of U.S. Exports Made from Chemicals on the Authorization List.
Chemical
Selected End Use1
Value of U.S. Exports
(millions $)
Acrylonitrile
Telephones
31
Business machines
7,485
Propylene oxide
Boats and boat hulls
230
Tubs/shower stalls
6
1,3-Butadiene
Tires (for aircraft and motor
190
vehicles)
Belts/gaskets/hoses
188
Phenol
Printed circuit boards
641
Plywood, particleboard, and
laminated wood
75
Total
8,846
Sources: U.S. International Trade Commission, SRI Chemical Economics Handbook
1
Only some commercially important end uses were identified and quantified.
7
If profit margins were reduced, small and medium enterprises (SMEs) would experience
a disproportionate impact. Theoretically, this scenario should occur in any competitive
market where an increase in fixed cost is imposed through government policy. Because
markets for commodity chemicals are competitive, the Council believes that the EU
policy would force SMEs to exit the EU market rather than accept lower profit margins
for their products.
Should the EU fail to authorize commercially important chemicals, the impact on U.S.
exporters could be significant. Between $171 million and $918 million in annual U.S.
exports are at risk for chemicals that will be subject to authorization. Because the EU
believes as many as 1,350 chemicals would be in need of authorization, the value of U.S.
chemical exports at risk is likely to be much larger (an upper-bound estimate of $17
billion annually).
If the EU is successful in targeting finished products made from chemicals, the impact
would be far reaching because (1) production of nearly all U.S. exports involve chemicals
that would be subject to the EU policy; (2) confidential business information would be
disclosed, affecting the decision to export; and (3) innovation would be adversely
affected.
Prepared by Keith B. Belton, Martha Moore, Emily Myers, and Kevin Swift
American Chemistry Council
January 11, 2002
8