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The European Union's (EU's) Restriction of Hazardous Substances (RoHS) directive took effect in July 2006 to ban the use of lead and five other substances from electronics equipment and other products. As we reflect on the past two years under RoHS, we ask ourselves a few questions: What lessons have been learnt by businesses? And what happens next?
The backdrop to the introduction of RoHS in 2006 was one of increasing environmental regulations worldwide and increasing concern for human health and safety and ecosystems around the world. Ongoing technological innovation together with consumer desire to have the latest gadgets is leading more products to be disposed of more frequently. Waste generated from these products has grown at a rate four times faster than common household waste. Hazardous chemicals in products were fast becoming a health and environmental concern. RoHS was created to limit the concentrations of certain hazardous substances in products ranging from mobile phones and toys to photocopiers and hairdryers.
When RoHS came into effect, manufacturers had two options: either do nothing and face the consequences of non-compliance, or redesign products with components that would meet the legislation. The past two years have seen companies taking both approaches and some interesting changes within the industry.
RoHS adoption trends
Many companies were not willing to face the risk of damage to their business from non-compliance and redesigned their products. Even certain exempt businesses have changed or are starting to change their products and supply chain to convert materials and parts to be RoHS compliant. RoHS has influenced sectors of the electronics industry in the past two years outside what may be seen as its strict scope. The automotive and even aerospace sectors have trended towards RoHS-style elimination of some substances for example1.
To achieve RoHS compliance, many manufacturers moved forward by passing compliance down their supply chain. However a key challenge was getting assurances from the supply chain, where there were none. Manufacturers required suppliers to provide certificates of compliance but also to show supporting evidence such as test reports to prove that their products meet RoHS requirements.
From the time raw materials are received until the time final products are distributed, both procurement and manufacturing has the potential to introduce non-compliances. The only complete way to know a product is compliant is to understand the composition of each part or component and thereby the materials used to manufacture these parts. Both monitoring and control needs to be implemented to control risk in the supply chain. One time compliance is not the panacea for brand protection. RoHS compliance must be continually validated.
The key for businesses that have successfully managed RoHS has thus been mitigation of risk and limiting these non-compliances to an acceptable minimum. Most who have achieved this have created a compliance strategy, typically creating and collecting material disclosures, and have established effective communication with their suppliers. Some have invested in expensive test infrastructures or partnered with third-party experts to obtain RoHS assurance. Others have even established a restricted substances management system. All have reasonable due diligence in mind, but also weigh cost versus risk.
Cost of implementation
And what has been the cost of RoHS to the industry? Research from a study conducted for the Consumer Electronics Association (CEA) by researcher Technology Forecasters Inc. (TFI) found that the RoHS directive cost the global electronics industry more than $32 billion for initial compliance and about $3 billion annually to maintain compliance. The study also found the average cost per company was $2,640,000 to achieve initial RoHS compliance and another $482,000 for annual maintenance.
However, those who have spent money on RoHS compliance also cited additional benefits such as having improved their supply chain processes in the process. Many outsourced compliance to third-party companies to implement global conversion program and to gain efficiencies after seeking initial consultancy advice. Some gained market share. Others reduced their product offerings to address RoHS. Many companies in the last two years have started to also leverage their "RoHS compliant" status as a core part of their corporate social responsibility and environmental strategy.
Enforcement trends and non-compliance
So, for those companies that chose not to ensure adherence to RoHS, what has been the consequence?
Failure to comply with RoHS comes with direct business consequences beyond only monetary fines. While some companies may have made a commercial decision to "run the risk" of a fine without the cost of compliance, this overlooks the wider business costs. Exposure of non-compliance leads to the cost of implementing a product recall and disposal process and write-downs of obsolete inventory. However, more significant is the long-term opportunity costs of lost sales, damage to the company's brand from negative publicity and loss of market share that may never be regained.
What have the governments of the European Union done to enforce the RoHS directive? The regime allows authorities to impose fines and ban products from sale where they are in breach. Rumors of companies being asked to provide proof of their due diligence have prevailed over the past two years. To date, the industry has not seen the publication a lot of high-profile RoHS prosecution cases, although authorities clearly publicize that (legal) actions have been taken. In addition, recent collaboration between EU governmental authorities suggests that better monitoring, information sharing and publication of failed products is afoot.
In 2007, the Safety Technology Authority of Finland moved to improve RoHS monitoring by identifying qualified third parties to perform the testing for surveillance. Next, the Nordic European Countries of Denmark, Sweden and Norway implemented a more coordinated RoHS monitoring and enforcement program. This saw authorities "split the load" of monitoring across the different product types and industry sectors. By sharing information they aimed to achieve deeper and better monitoring more efficiently.
In 2007, Danish authorities found non-RoHS-compliant disposable cameras for sale and forced the importer to remove the goods from the market. While the company was not named, the cost of the recall and removal of the goods would have allowed competitors to take market share, imposing significant long-term damage on the importer's business. In the UK, the RoHS enforcement body, NWML successfully concluded its first "prosecution" for noncompliance with RoHS. A British company settled out of court with NWML for breaches of the lead ban.
The Nordic authorities carried out a survey of 152 electronic products earlier this year. A preliminary assessment of the results was then released by Sweden's KEMI chemicals regulatory authority. In Sweden, 60 products were analyzed, with three found to be non-compliant. In Denmark, 29 products were analyzed with six non-compliant, while in Finland, 63 products analyzed with 13 non-compliant. Examples of non-compliance included electric glue guns in which the nozzle contained an excess of lead. These were imported from China and resulted in a prosecution due to lead in solder and in plastic. KEMI will release a complete report later this year and the authority plans more RoHS investigations throughout 2008.
Nordic authorities are also understood to have identified some instances of RoHS non-compliance within bigger brand companies. However, where companies have been able to demonstrate that they have a thorough system of RoHS monitoring in place and were able to quickly and effectively track, recall or fix the non-compliant products, authorities have perhaps been less punitive in their handling of the cases. Companies showing a failure through recklessness or a lack of due diligence are less likely to have the same treatment.
Currently, the authorities in EU countries are more widely considering the adoption of Nordic's monitoring model. This is on the agenda for discussion at this year's meeting by European RoHS enforcement bodies. It is likely that we will see more cross-border information sharing regarding non-compliant companies and products among all EU countries as the enforcement bodies make their RoHS monitoring efforts more effective by joining forces. A more co-ordinated approach is likely to see more incidents of non-compliant-RoHS products being identified across Europe and incidents published in the annual or regular reports of these bodies.
This trend towards greater co-ordination between individual European governments to enforce EU regulations more efficiently together is being seen in other legislative areas. For example, the EU's new chemicals registration regulation REACH has instituted a formal enforcement committee forum within the regulation itself, with the stated purpose of enhancing cooperation and aligning enforcement of that regulation.
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