New legislation could lead to some chemical companies leaving Europe, Businness Correspondent Jonathan Jones reports.

CONTROVERSIAL proposals by the European Union to regulate chemical production will not only affect chemical producers, but the entire supply chain, from manufacturers to the end users who use basic chemical ingredients in their products.

The Reach (Registration, Evaluation and Authorisation of Chemicals) legislation shifts the responsibility from public authorities on to companies to prove the chemicals they use are harmless, with companies being forced to provide data to prove it.

Failure to do so could result in a fine of up to ten per cent of the company's annual turnover, which could be especially damaging for the small and medium-sized businesses that are the focus of the legislation.

Bill Perfitt, UK director of Public Affairs at Huntsman's Wilton site, said: "Companies like ours aren't the main focus of the new legislation, as we make large volumes of a relatively small range of chemicals.

"Those that we produce, such as Ethylene and Benzene have been around for a long time and the legislation work on them has already been done."

He added: "As we understand it, it is the smaller companies, especially in the speciality sector, producing smaller volumes of a large range of chemicals, that are the focus of the new legislation.

"In total, we believe around 30,000 substances will require testing, which could severely disadvantage the region's chemical industry."

A consultation document on the proposals was published in May, with companies across the UK being asked for their opinions on the plans that could cost the industry more than £25bn by 2020.

James Thompson, solicitor in the office of business lawyers Eversheds, in Newcastle, said: "Although the new legislation will lead to great health and environmental benefits, it will place a huge burden on all industries which use chemical products, which could see the producers raising their prices. These price rises will inevitably be passed on to the consumer by the retailers.

"Another knock-on effect of the legislation could be that businesses choose to move their operations out of the EU, believing it cheaper to produce their products elsewhere, in the US and the Far East.

"Such a move, which may not actually be a long-term solution, will have a deep impact on the European economy."

"Companies within the industry need to start their long-term planning now to take into account how the legislation could affect them, and their customers."

The Chemical Industries Association supports the European Commission's aims of developing a new chemical regulatory system, but believes the legislation could seriously damage the EU's attractiveness as a location for the chemical industry.

A spokesman for the association said: "The chemical industry is not opposed to new chemicals regulation. It seeks better legislation than currently exists, or that is currently proposed by the European Commission. Chemicals policy is a concern for all manufacturing industry, not just the chemical sector."

The association is working with the European Chemical Industry Council (CEFIC) to ensure that the European Commission develops a regulatory system that is practicable, distinguishes between risk and hazard, has realistic deadlines and enhances innovation, while minimising any adverse effect on competitiveness across the EU's manufacturing industry as a whole.

The spokesman said: "The Chemical Industries Association believes that Reach can still be a workable system and we have been working closely with CEFIC to offer constructive suggestions on how this can be achieved."

He added: "The European Commission has already carried out a preliminary impact study, which highlighted substantial potential impacts on the chemical industry and on the European economy as a whole.

"Similar studies carried out in France and Germany concluded with similar negative results. It is therefore essential that an independent third party conducts a study prior to the draft proposals being put before the European Parliament."

However, Dr Stan Higgins, chief executive of the North-East's Pharmaceutical and Speciality Cluster, which represents speciality chemical companies in the North-East, believes the new legislation is unnecessary.

He said: "The further imposition of more regulation and testing regimes is bound to have an impact on the global competitiveness of this important industrial sector in the North-East.

"Pharmaceutical and Speciality Cluster companies in the North-East have a significant impact on the region's economy, accounting for around 150 companies employing 14,000 people directly. It supports a further 70,000 jobs in the supply chain across the UK. The sector accounts for around 20 per cent off all manufacturing employees in the North-East. A third of the UK's GDP comes from pharmaceutical companies, some of which are based in this region.

"The Pharmaceutical and Speciality Chemicals Cluster and its members are working hard to ensure the sustainability of this industrial sector in the region and the UK, so they are naturally concerned about the wider impact of this new legislation."