Source
ESB
March 22, 2006
Those
manufacturers without a clear environmental compliance strategy face serious
market risks including civil and criminal penalties, product recall, lost of
profits, and market exclusion if they ship products into the European Union
(EU). This warning comes from Allen & Overy LLP, a London-based legal firm
that focuses on international business issues, including RoHS laws. Allen &
Overy has positioned itself as the lead law firm following environmental compliance
issues. Representatives from the firm recently spoke at a RoHS Summit presented
by the National Electronic Distributors Association.
Attorneys
from Allen & Overy outlined the risks to OEMs, electronic manufacturing
service (EMS) providers, distributors and component suppliers. The firm expects
the European Union will adopt the UK’s approach to governing and RoHS
directive. That includes a view that companies will be penalized for negligence
rather than strict liability. Thus, if a product introduced to Europe is found
to be non-compliant, auditors will look at whether the OEM took all reasonable
measures to ensure the product was compliant.
Those
deemed to be a responsible manufacturer – via a “due diligence defense” – will
not be prosecuted. Only those companies showing negligence will be targeted for
penalties. So the producer can avoid liability by showing that it took all
reasonable steps and exercised all due diligence to avoid placing a
non-compliance product on the market. Allen & Overy lawyers note that to
prove due diligence, producers have to obtain certificates of compliance and
keep them for four years. Companies also need to implement due diligence
systems.
Since
the RoHS directive does not prescribe a method of compliance, producers are
expected to take a self-declaration approach. No RoHS labels need to be affixed
to products, and no compliance statements are required with shipment. The EU
assumes that any product on the shelves after the July 1, 2006 RoHS deadline is
compliant.
One
of the issues facing manufacturers is their relationship with EMS providers and
distributors as the industry assesses who’s responsible for making sure
components and finished products are compliant. Allen & Overy lawyers note
that initially OEMs tried to push the problem of compliance down the supply
chain, viewing compliance as a problem for the EMS provider. Plus, they wanted
their EMS providers to go compliant at no extra cost. Meanwhile, EMS providers
asserted they have no liability for RoHS compliance, since the EU views the
brand holder at the responsible party.
OEMs
have recently started to recognize that business model for compliance is more
complicated. The OEM controls the design and BOM – which means they have direct
responsibility for designing compliant products and selecting compliant
components. Yet the EMS provider has control over certain materials and
components, so the responsibility is shared. Also, on a practical level, EMS
providers are assisting OEMs in compliance by obtaining materials declarations
from suppliers and conducting some testing as the request of their OEM
customers.
As
for distributors, the initial reaction among most distributors was that
compliance was not the distributor’s responsibility, and that it is
unreasonable for the distributor to assume potential liability. Even though
distributors mostly took a hands-off position on the liability issue, some
distributors began to offer detailed compliance information to their customers.
Recent trends show that a few distributors are assuming some responsibility for
monitoring components for compliance and they are labeling components as
compliant or non-compliant. These helpful moves have been introduced to promote
the distributor’s competitive advantage and overall quality.
For
component suppliers, Allen & Overy attorneys believe the compliance
requirements imposed by OEMs, EMS providers and distributors trickle down to
the component manufacturer. The challenges facing component suppliers – beyond
simply making sure their products are complaint – is to create formats for data
reporting. Allen & Overy believe this will become a competitive issue among
suppliers. Component suppliers may also face direct liability issues for the
components they sell on their own to EU-based OEMs and EMS providers.
The
final area of concern noted by Allen & Overy is the spare part exemption.
Attorneys believe the industry will face difficulties establishing what spare
parts are exempt. For instance, “Does the exemption allow for whole unit
replacement?” And, what is the definition of a spare part? Allen & Overy
attorneys believe that compliance issues are serious enough to prompt changes
in the competitive landscape throughout the electronics industry.
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