Editor's note: What follows is a speech delivered to attendees of the Hayek Lecture Series in Brussels earlier this month.
The title of today's discussion is "Did the EU Get the Chemicals Regulation Right?" A title like that makes the job of a panelist pretty easy, when you can clearly and unequivocally answer the question with a one-word answer: NO!
The proposed chemical policy the EU is being steered towards would quite simply be an unmitigated disaster not only for Europe but for the global economy. The European Commission's proposal for the REACH directive (or Registration, Evaluation, and Authorization of Chemicals, for the uninitiated) is, I believe, disproportionate, badly planned, and based on unsound thinking.
We, of course, all support the laudable aims of the Commission in setting out this policy. We all want to improve not only human safety but also the impact we have on the environment around us through our chemical usage. But those aims will not be best achieved with a heavy-handed and disproportionate measure, which will stifle innovation and severely damage competitiveness.
As a result of the EU proposal, some 30,000 chemicals currently in use in the EU will all require a rigorous and expensive round of testing and analysis even though the vast majority of these chemicals has been safely in general use for a generation. The unintended consequences of such a plan will not only be severe for the developing world, as suggested by our topic for today, it will have unintended consequences for us all, developed or developing.
Let's begin by looking at the facts. The annual sales of chemicals produced in the EU are worth an estimated 400 billion euros. Each year, the USA alone exports more than $200 billion worth of chemicals to Europe and invests more than $4 billion in the chemicals sector in jobs and plants here. Conversely, the EU exports more than 40 billion euros of chemicals to the USA. These figures do not include the huge imports and exports of "downstream" products that will also be affected.
It is hard to see how an issue which will have such a huge economic impact on two of the world's largest economies would not also be a kick in the teeth for the developing world.
Let us take one example, from my own country, the UK. In the North of England there is a business which since 1890 has been manufacturing ultramarine for the paint and coloring market. This is a substance used since ancient Egyptian times and considered safe to such an extent that, at the manufacturing plant, you can see it piled up ready for packaging. It is not a lucrative market it is a small, niche industry but even though no-one has ever made a single complaint over safety in over 100 years of production, this firm will be forced to undergo the expensive registration process costing about £1 million because of the amount of product they produce, not the risk that it poses.
And this I believe is where the big danger will come for the developing world. Of course, I am not suggesting for one minute that the loss of ultramarine would cause economic meltdown. However, the effect these regulations will have on other chemicals and pesticides that are essential to industry and agriculture in developing countries could devastate both their economies and food production. For old products that are not particularly profitable, many firms will simply decide not to go through the registration procedure.
Why should a company make such a huge investment when chemicals may be nearing the end of their life in terms of the sophisticated European market? Economic necessity could take them out of production. But it is precisely these kinds of products that are so valuable and useful in Third-World and developing countries. Many essential chemicals will simply be withdrawn.
The Third World cannot afford the precautionary principle and is not concerned with theoretical risk. They care about fighting pestilence, about coping with disease, about producing enough food from a harsh and hostile environment that can often only be tackled with the blunt instrument of pesticide use.
It is difficult to tell people that they should be concerned with the environment when their bellies are empty and their crops have failed. Is it acceptable for the well-fed, wealthy, and contented Western world to deny developing countries access to chemicals that we have had the luxury to use for many years, simply because our priority is to improve the environment, whereas theirs is to feed the hungry?
However, there is yet another area of unintended consequence that we have not yet considered. The REACH directive will, I believe, have a devastating effect on the chemicals industry here in Europe. We live in a global marketplace where companies continually relocate to those areas which offer the most lucrative business environment. The extra burdens placed on the chemicals and related industries as a result of REACH will drive it out of Europe. Companies, due to economic necessity, will leave Europe for more favorable environments, taking with them many of the 3 million jobs currently in these industries. As a conservative estimate, the European Chemicals Industry suggests that almost 700,000 jobs will be lost.
They will not go to the Third World, but they may well go to industrialized developing countries. Already we have seen call centers for multinational companies being moved to India. Telephone the Microsoft helpline and you will speak to an operator in Delhi. Why not then move your chemicals plant and indeed your production plants for finished items such as TVs or calculators to countries where the absence of such costly registration procedures, coupled with cheaper labor costs, lower environmental requirements, and general business regulation will mean that you can slash your production costs?
If the EU plan is to reduce risk, it is not achieving it with this exercise. It is simply shifting the risk out of sight and out of mind. This however does offer an opportunity for some developing countries, widening the gap between developing and Third World countries yet further.
There is one further unintended consequence, which as a politician is of major concern to me if not to the developing world. Ford motor company suggests that the Commission would receive between 55,000 and 80,000 chemical safety reports from the automotive industry alone. The size of the central European bureaucracy needed to deal with this is staggering.
However, even more important to me as a politician is the suggestion that up to 12 million animals will be required to conduct the tests required for registration. As an MEP, my postbag is often varied, but by far the largest topic which constituents write to me about is animal welfare. The single biggest overall postbag I have ever received was the hundreds of letters lobbying me to vote in favor of a ban on animal testing in the EU.
It seems perverse, as well as being political suicide, for me to suggest that in the face of such public opinion, we as Europe's lawmakers should be demanding fresh and I would suggest unnecessary animal testing on this kind of scale. Of course, people will suggest that non-animal tests should be and are being developed. But the harsh reality is that on the timetables demanded by this directive, non-animal alternatives will not be available in the majority of cases.
So what is the answer? A more focused, efficient REACH based on the resources available should look first to existing information on risk, use, and exposure information. This would, at a stroke, cut a huge amount of testing, reduce the number of animals needed, and allow the authorities to prioritize testing so that high-risk chemicals can be registered and evaluated and where necessary alternative products can be found.
Any registration and testing procedure must be conducted purely on the basis of risk, rather than completely arbitrary categories based on the physical amount of the chemical produced. Most importantly, it should be achievable not only in terms of time scale and resources available but also in terms of the ability of the industry that is threatened to react and cope with the requirements.
Neil Parish is a Member of the European Parliament for the UK. He serves on the Environment and Consumer Affairs and Agriculture Committees. He is also a farmer. This speech was also reprinted on TechCentralStation.com.
