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January 1, 2009

DROWNING IN PAPERWORK

Small and mid-sized service centers and manufacturers work through burdensome and difficult-to-comply-with regulations that require companies to prove the makeup and origin of materials.

Paula McGuire, quality manager at Precision Steel Warehouse Inc.’s Charlotte, North Carolinabased service center, is drowning in an alphabet soup of paperwork and headaches. Various regulations that require companies to prove the makeup and origin of materials have created a burden that a number of small and mid-sized service centers and manufacturers aren’t quite sure how to handle, and in some cases have insufficient guidance about what to do.

“It’s a nightmare trying to get all this information,” McGuire says, adding that “we may not be asking our mill sources the right questions.” To reply to European chemical safety regulations that took effect in 2007, she must, for example, provide data on possible carcinogens that might be in the raw materials sent to Precision Steel by its suppliers. Just a year ago, none of this data was needed.

The latest paperwork requirement is the European Union’s new regulation on the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), intended to ensure their populations are safe from potentially hazardous chemicals. It required that certain substances such as chemicals and mixtures of substances be pre-registered by Dec. 1, 2008, with the European Chemicals Agency (ECHA) in Helsinki, Finland. Companies were required to have pre-registered to continue production in Europe or import from other countries. Joseph Piela, president of Skorr Steel in Brooklyn, New York, which sells stainless steel plate directly to EU businesses and indirectly through domestic customers, failed to pre-register by the deadline. “We looked it up [online],” he says. “Unfortunately there was very little information.”

Malachy Hargadon, environment counselor for the EU’s Delegation of the European Commission to the United States, in Washington, D.C., says substances not preregistered by the deadline won’t be put on the market. Enforcement is primarily in the hands of each member state. Companies that missed the deadline cannot import to the EU until a full registration dossier has been submitted and associated fees paid, he says.

The ECHA Web site (http://echa.europa.eu/pre-registration_ en.asp) says it will announce by Jan. 9 when it will be able to publish a list of companies that qualified under the pre-registration deadline. The agency received 2.6 million pre-registrations detailing more than 140,000 substances, some 20 times more than the expected volume. The ECHA now has to publish the list of pre-registered substances so companies start sharing data on the Substance Information Exchange Forum, Hargadon says.

Companies that pre-registered substances have a longer lead time for the full registration process. The formal, full registration process, which requires more data to demonstrate that a substance is safe, will be imposed on companies that missed the pre-registration deadline.

“Less than half of U.S. companies that should be preregistered actually [got] it done. We’re headed for a train wreck, I’m afraid,” says Shaun Donnelly, senior director of international business policy for the Washington, D.C.-based National Association of Manufacturers (NAM) and former assistant U.S. trade representative for Europe and the Middle East.

While large multinational corporations have lawyers and chemists on staff who can determine exactly what the regulation requires, “We are very concerned about our small and medium[-sized] members,” Donnelly says.

Information about the regulations has become something of a moving target. Up until the last minute, the EU issued new explanations and clarifications. “This has really been handled in a very unprofessional way by the European Union,” Donnelly says.

While NAM and other business organizations find the new regulations overly burdensome, expensive and potentially discriminatory against imports, Donnelly believes the EU won’t back off because of scrutiny from the environmental lobby.

“We always want to be ahead of the curve. We sell that service to our customers,” McGuire says. “But it’s hard to be a leader in innovation if we can’t get the data. I’ve found that a lot of people are just as ignorant as I am. It’s the blind leading the blind.”

“It’s very challenging up and down the supply chain,” NAM’s Donnelly says.

BEYOND REACH

If it’s not REACH, it’s the North American Free Trade Agreement, the U.S. Defense Department’s Defense Federal Acquisition Regulation Supplement (DFARS) or the EU’s Directive on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (often cited as RoHS).

Under DFARS, companies must certify that certain specialty metals were melted in the United States or in about 20 other qualifying countries. David Sheer, vice president and general manager of the Steel Supply Co. in Rolling Meadows, Illinois, sees more DFARS requests when business slows, as it has in the past six to eight months, and companies are more willing to pick up lower-paying government work. “We’ve lost some orders because suppliers couldn’t certify” where the metals were melted, he says.

That’s also been a headache at Skorr Steel. Under DFARS, steel from places such as Japan, South Africa and South Korea is excluded from the list of qualified countries that have been approved under the Defense Department’s Buy American Act or the Balance of Payments programs. “It’s an annoying and irksome situation,” Skorr Steel President Joseph Piela says. “The prices are wonderful, but I can’t touch them because of the DFARS situation. That’s preposterous.”

He also has run into situations where the company is asked to quote a price for a customer and only when the confirmation comes in does Skorr Steel receive a list of restrictions, DFARS among them. It can be 10 pages long. His sales staff has to go through line by line to make sure they can meet all the restrictions. Sometimes, they simply don’t know the answers. “We’ve lost a number of orders because we couldn’t comply,” he says.