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. Global legislation
RoHS internationally

RoHS-style environmental legislation has taken hold in other parts of the world. We have also seen governmental desires for trans-national approaches to monitoring and enforcement, and this was a key agenda point at the Global RoHS Enforcement International Forum last year held in Shanghai. Companies gearing up to sell products in fast-growing and emerging economies must look before they leap.

The People's Republic of China (PRC) implemented tough new criteria to limit the use of toxic or hazardous substances in electronic information products (EIPs). On March 1, 2007, the Administrative Measure on the Control of Pollution Caused by Electronic Information Products, commonly referred to as China RoHS, became law in China. It encompasses products containing any of the following hazardous substances: lead, cadmium, mercury, hexavalent chromium (Cr VI), polybrominated biphenyls (PBB), and polybrominated diphenyl ethers (PBDE) flame retardants, excluding decaBDE, and any other toxic or hazardous substances or elements to be named by the government.

China RoHS requires all covered products, without exemption, to be labelled and marked. The labelling includes detailed tables that state whether levels of these restricted substances exceed maximum RoHS concentrations and the location of those substances in the product. In addition, a so-called Catalog will be published by China later this year, with a list of products required to meet the maximum concentration values via mandatory certification.

In the United States, in addition to California's own RoHS law and many state-specific bans of selected RoHS metals and flame retardants, California has enacted another major legislation for harmful chemicals, which is being very actively enforced. The so-called Proposition 65 (Prop 65) law limits various substances in products sold within its borders. Products containing potentially harmful chemicals must have a warning label and the law is enforced by the California Attorney General's Office and district and city attorneys. However, under Prop 65 lawsuits for non-compliance can also be filed by individuals acting on behalf of the public interest. The risk of exposure for non-compliance with Prop 65 and consequent negative publicity is therefore currently much higher under Prop 65 than under RoHS.

There have been numerous instances of high-profile disclosure of companies for Prop-65 breaches, due to both public and regulatory investigations. Penalties imposed under the legislation include per-day fines for each violation and injunctions and bans of goods from sale.

In 2007, Greenpeace used Prop 65 to threaten a lawsuit against Apple and alleged that its newly launched iPhones were toxic to consumers. Apple subsequently announced plans to phase all polyvinyl chlorides (PVCs) out of its products by 2008. The company attracted harsh criticism from consumer and environmental groups and generated enough negative publicity to call the company's hall-mark "green" brand into question.

In April 2008, the LA City attorney reached an agreement with Coca-Cola on a Prop 65 lawsuit regarding the sale of soft drink bottles imported from Mexico containing excessive amounts of lead in the labels. Testing found that consumers were at risk of being exposed to lead through hand-to-mouth-contact, and lead occasionally found its way into the soft drink soda itself.

Coca Cola was required to pay more than $1.25 million in penalties and to immediately switch to lead-free paint on all its newly-made products throughout Mexico. It was further required to engage qualified food quality auditors to inspect all Mexican suppliers for potential sources of lead contamination and to phase out all existing leaded bottles throughout Mexico over five years. Coca Cola was also required to take action to keep the relevant products off California shelves and to pay $200,000 in legal fees and $600,000 to charity.

PepsiCo faced and settled a similar law suit in 2006. The company agreed to move to lead-free labels on new bottles of Pepsi to eliminate existing lead-painted bottles for Mexican soft drinks within 10 years. The company paid $500,000 to fund surveillance activities to keep old Mexican Pepsi bottles out of California and $750,000 in investigative and legal costs. Pepsi also paid a $1 million civil penalty and could face an additional $4.3 million in civil penalties if it fails to meet a 95 percent phase-out target for existing bottles with leaded labels.

What next?

The EU's RoHS directive is being actively reviewed for adjustment in 2008 by the European Commission. The Commission is examining the regime's current exemptions which include effects of materials on medical devices and some definitions within the directive as to what products are impacted. Two key foreseeable changes are that a number of new chemicals will be added to the list of substances that manufacturers need to ensure that their products and their components do not contain. Which new chemicals, and how great the changes will be, is now the subject of stakeholder input and a determination is expected from the Commission this year.

It is widely expected that EU RoHS will be broadened in the coming years to include medical devices and monitoring and control instruments. Design engineers for medical devices would no longer have to simply consider the technical performance of components that they intend to use and medical device regulations, they would also need to ensure that they comply with RoHS legislation. Already, changes in the RoHS directive have influenced sectors of the electronics industry that are outside what may be seen as its strict scope, with automotive and even aerospace seeing a trend towards the elimination of RoHS substances.

For medical device manufacturers selling to global markets, potential RoHS changes are of immediate concern. The medical device product development and design cycle has a long lead time. Typically, it can take four years from initial inception through to final availability in the market, meaning that any new "take effect date" of RoHS changes to medical devices in the next four years will require urgent reviews, action and testing, conversion programs and consultancy support for manufacturers to meet compliance but avoid delays in product delivery and development.

Product conversion programs and compliance and testing outsourcing offered by third parties such as Intertek can help manage the pressure. We already have experienced demand in initial consultancy from a number of healthcare and medical device brands to pre-emptively keep ahead of the anticipated changes.

Should the EU regime extend to medical devices, it is foreseeable that some other countries may follow suit, subject to the local existing regulatory provision for medical device materials.

It will thus continue to be a year of challenge and further change for businesses as they are faced with updating their strategies to meet the ever expanding global environmental legislation. But everyone should keep in mind that compliance performance is less dependent on level of effort than on implementation of best practices and enabling those practices with the appropriate compliance infrastructure.

Notes:

1 The EU has banned four heavy metals in the Automotive sector by imposing Directive 2000/53/EC on End-Of-Life Vehicles ('ELV').

2 Purchasing.com: Consumer Electronics Association (CEA) by researcher Technology Forecasters Inc.

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