Ah, the boring and mind-numbing stuff of regulations. A big yawn for many of us. Yet new legislation can be the soft infrastructure that rebalances the rules of the game in favour of sustainable practices. Hence all the hubbub around the REACH legislation (Registration, Evaluation, Authorisation of Chemicals) in Europe, which was passed as a proposal today in the European Parliament. This is the "controversial law that will force industry to register and test thousands of potentially harmful chemicals." According to the Financial Times,
Reach will force companies to demonstrate that about 30,000 substances already on the market can be used and produced without posing a threat to human health and the environment. They will have to register the substances with a new EU chemicals agency and, in many cases, will have to pay for extensive tests to establish whether a chemical is safe or not.
After years in the works, REACH proves that the EU is capable of working on a very complex and comprehensive piece of legislation. Its impetus was increasing public concern over the many toxic substances that now populate the ecology of our everyday lives -- tiny substances in our clothes, appliances, computers, and in household dust. Concerns over a rise in allergies, and other environmental health related diseases, have been linked in the European public's mind to these chemicals. And scientifically speaking, there is a growing body of evidence that may prove this as well. The truth is we don't really know much about the life cycle of these chemicals, and how they might recombine with other nasties circulating in our air, waste piles, and water.
Environmentalists are not claiming a victory, however. The legislation was significantly watered down after intensive business lobbying, which claimed (as they always do) that these regulations would be too onerous on industry, and will put Europe in a competitive disadvantage in global markets. This is also just the beginning: the law now has to be passed by the individual European parliaments.
By all means, let's develop efficient and non-bureaucratic approaches to regulation. This is just common sense. But the argument that this will impinge on the performance of European companies, well, this is getting to be so old logic -- a short-sighted, tiresome and outdated meme. The zero-sum business lobby approach to these issues also has to be a problem we address soon. Why does regulation automatically mean a bad thing? Sure costs are added. But these might be nothing compared to other medium and longer term costs that would be suffered without legislation. A longer view makes us see the following inevitabilities: increasing regulatory interventions and/or the reinvention or replacement of chemicals used in our industrial system. If companies reinvented how they use chemicals in their businesses, then regulation wouldn't be needed. As McDonough and Braungart say in Cradle to Cradle: Remaking the Way We Make Things.
In the meantime, companies will benefit from this regulation in three ways.
Improving public image: Chemical companies have taken a PR beating of late, so this can only help them help themselves. (Except this little bit about "claiming victory for diluting the legislation." The public might see companies more favourably if they were proactively building a better future than protecting their untenable position.)
Aiding innovation: This will help give incentives to create new business models and sustainable products. This might also encourage "closed loop" or "cradle to cradle" manufacturing processes.
Managing risk: Having just covered here the TBLI conference and listened to lots of asset managers, legislation helps companies manage their risks better. REACH will help incorporate in their balance sheets the true nature of their risk exposures and thus ensure a measure of stability, something markets love. Waiting for the class action suits or shareholder activism is a head-in-the-sands approach, and never good for maintaining a good stock price.
As for putting Europe behind the global eight ball (a reference to the game of pool, for the uninitiated), this is also hyperbole. In fact, the dirty little secret in the global regulatory game is that Europe is setting many of the standards for large corporations and commerce.* Recall the famous blocking of the GE-Honeywell merger, the first signal of the EU's growing power. This was a wake-up call to Washington, which had little of its lobbying muscle in Brussels. (Alas, it does now.) As we wrote about in the Role of Regulation, another path-breaking piece of legislation foreshadowing REACH this August was the Waste Electronic and Electric Equipment (WEEE).
The reason companies are complying to EU regs is simple. Most companies still produce for mass markets. Retooling factories for different product specs is expensive. Since the EU is larger than the US in sheer numbers, it's just easier to adopt the higher standard because this means the products will be acceptable in many more markets versus building a business model around the lowest common denominator. This is a great example of how regulations can raise the bar. Yet as much as we applaud REACH, we're going to have to go further. We haven't even begun to see the true costs of these chemicals yet from a health or environmental point of view. That tipping point will come. My bet is that REACH will be a catalyst. It will show companies the value of retooling their industrial processes to a more sustainable manufacturing paradigm, and then much like the voluntary company compliance we're seeing with Kyoto, they will just make this business-as-usual.
Most Americans belittle the EU as this inept highly bureaucratic, old world club with very little power and clout on the global stage. This is certainly true when it comes to military matters and classic realpolitick, the conventional benchmarks from which we judge superpower status today which come from the past's "might makes right" interpretation of how the world works. While this will never go away completely, we're arguably entering a different world where "soft power" and "cooperative advantage" matters just as much if not more -- and this is where Europe has been quietly leading.
*References: This is well argued in The United States of Europe by journalist TR Reid, which I recommend as an easy and entertaining overview of Europe's emerging global role and why it's an important experiment in governance to watch.
Rifkin in his book the European Dream also makes this point quite thouroughly. Thanks for posting.
Excellent piece, Nicolle-Anne Boyer. Thanks.
1. Regulations like REACH will have global effects. Manufacturers from other countries won't be able to sell their products in the EU, which is (arguably) the world's largest market, unless they comply. Which is what they will do, since (1) manufacturers are businesses, (2) all businesses want to grow, (3) growing means conquering new markets, (4) once you set foot in the EU, you must comply, or you can't grow here. As you indicate, for countless products it doesn't make sense for a manufacturer to produce the same product twice, once based on high standards, once based on low standards; it's probably rational in many cases to immediately produce for the higher standards.
2. REACH is historic in the sense that industry itself is now forced to carry the diffuse health and environmental costs and risks inherent in its products, from the second on it starts producing, that is, at the beginning of the cycle. Whereas until now, society as a whole had to carry these costs.
This is the way Europe should progress and can influence and change global problems.
We can do this on many more fronts, even on the front of social justice and environmental justice proper (say: producers who manufacture in China, but who do not comply with stringent EU labor norms, won't be able to sell in Europe).
Call it protectionism with a reason. But it works and it is a good kind of protectionism.
We all hope that the US would use it's power as a large market to do the same, - to the benefit of all.
Has anyone begun a database of chemicals and consumer products that are banned in Europe but still for sale in the US? With REACH in effect, that list will grow exponentially, and such a database would be a great activist tool. Having their products loudly proclaimed to be "Banned in Europe" could shame US companies into raising their standards, even if they're not interested in the EU market.
For more information on the legislation, here is the link:
There are many links out there from lobby groups, so if you're looking for the actual regulations make sure you verify the source.
The EU is clearly the vanguard in raising safety and environmental standards and it certainly will have a global effect in the long run and I'm for it. But I worry that there will be a slowing of this process due to the growing economic power of developing countries with large markets but lax regulation.
I hope that as new companies emerge in India and China, for example, that they will be forced to comply with REACH if they hope to sell products in the EU. I think this will benefit India, China and world immensely in the long run, after these companies finish whining about the initial cost.