In today’s era of globalization and capital flow, chemical production has shifted to the booming Asian market, and Asia has benefited from the large amount of foreign investment in chemical production. As bulk commodities account for a significant share of the chemical industry’s product portfolio, European industry must accelerate the pace of innovation to maintain its leading position. As far as economic policy makers are concerned, the challenge is to provide the conditions to promote a more knowledge-based industry and provide a good foundation for European production. If chemical companies do not meet this challenge, the decline of chemical industry employment in Europe will be more obvious.
Major policy issues and challenges
The proposed reach legislation is the biggest challenge facing the European chemical industry. Reach is under pressure from governments, the European Commission and environmental agencies to review current chemicals legislation. The current chemicals legislation does not cover substances put on the market before 1981. This allowed the continued circulation of hazardous chemicals, and an assessment of the current legislation (published in November 1998) concluded that the regulatory system was failing. In 2003, the European Commission proposed reach legislation to formulate a new comprehensive and consistent EU chemicals policy, which fully reflects the principles of prevention and sustainability.
The draft reach legislation has sparked a two-year dispute between the industry and the European Commission. This legislation is currently under consideration by the European Parliament and the Council of the European Union for adoption under the so-called joint decision procedure. In its current form, reach will require companies to register about 30000 substances with the newly established European Chemicals Agency. Companies have to prove that the chemicals they use do not cause harm to humans or the environment. The ultimate goal is to phase out the circulation of hazardous chemicals by 2020.
The direct impact of reach is on the European Union and its chemical companies. It will bring the single market countries together in legislation while maintaining a high degree of environmental protection. The impact of reach on the 10 new members is expected to be smaller than that of the 15 EU members. As the chemical industry in the new member states is heavily dependent on chemicals imported from EU-15, the impact of the new regulation on the competitiveness of chemical companies is very limited. However, these regulations may cause problems for importers.
For example, according to an impact analysis by the Australian Bureau of agricultural and resource economics, major chemical exporting countries also expect reach to affect their industries. Reach will reduce Australia’s major mineral exports to the EU because it covers major raw materials. However, the shift of exports to other fast-growing markets, especially China, will mitigate this impact to some extent. The study also concluded that the new legislation could lead to the transfer of metalworking from the EU to Asia.
A preliminary study commissioned by the chemical industry on the impact of reach shows that the competitiveness and employment opportunities of the whole industry are declining. However, two recent reports show that reach will do less harm to the chemical industry than previously feared, although the impact is still significant. There are also reports that the industry may even benefit from stricter environmental regulation.
Reach is likely to change the public image of the chemical industry because it will phase out the circulation of hazardous chemicals. Therefore, before registering with the European Chemicals Agency, chemical companies must focus more on developing new materials and technological processes and proving their safety. However, the impact of reach (protecting the environment, consumers and workers from hazardous chemicals) will be shared equally between the sexes.