Legal Issues for Distributors EU WEEE and RoHS, China RoHS and REACH

1. Jean-Philippe Brisson Senior Counsel Allen & Overy LLP, New York Legal Issues for DistributorsEU WEEE and RoHS, China RoHS and REACH NEDA Summit, Dallas - March 28, 2007

2. Notice This Presentation is for General Information Only and does not Contain Legal Advice

3. Outline • Section 1 EU WEEE • Section 2 EU RoHS • Section 3 China RoHS • Section 4 REACH

4. Section 1 EU WEEE – Update and Implications for Distributors

5. Geographic Scope of WEEE and RoHS • Bulgaria and Romania • Acceded to the EU in 2007 • Bulgarian WEEE took effect on July 1, 2006. Bulgarian RoHS took effect January 1, 2007 • Romanian WEEE registration deadline was April 30, 2006. Romanian RoHS took effect upon accession • Turkey • Issued May 13, 2006 in Official Gazette • Requires related regulations to be issued in the future • Regulations are under preparation and will most likely grant a 1 - 2 year transition period

6. Absence of Enforcement (or almost) - 2 • Ireland • Two penalties under WEEE regulations • Violation of visible fee requirement • Netherlands • One penalty issued against a producer that refused to register for WEEE purposes • One penalty issued against municipal authorities for the failure to establish a municipal take-back site

7. Absence of Enforcement (or almost) - 3 • United Kingdom before the European Court of Justice (!) • Case C-139/06 - Judgment of the Court (Sixth Chamber) of March 1, 2007 • Commission of the European Communities v. United Kingdom of Great Britain and Northern Ireland • Failure of a Member State to fulfill its obligations under the WEEE Directive • Decision not available yet (just the summary)

8. WEEE Review Process - 1 • March 15, 2007 meeting with Commission • Consultants • United Nations University and AEA Technology • Issues for discussion (see working document) • Scope of WEEE Directive • Collection targets • Targets for reuse, recycling and recovery • Treatment requirements

9. WEEE Review Process - 2 • Central registration system • Harmonization of declaration and reporting • Clarification on definition of producer

10. UK Developments WEEE - 1 • WEEE regulations • Came into force January 2007 • Guidance Notes • Dated February 2007 • Environment Agency is the UK’s national WEEE enforcement body • Important deadlines • March 15, 2007: producers must join “Producer Compliance Scheme” • April 1, 2007: producers must comply with labeling and treatment obligations • July 1, 2007: recovery of WEEE must begin

11. UK Developments WEEE - 2 • 37 compliance schemes now approved • Already reporting 2006 sales • May set up your own, but £12,174 application fee • UK WEEE Guidance • Scope • fi and lsit • Component v. finished product • Producer • Domestic, foreign and EU distance selling • Financing obligation • Market share for private household • Individual financing for non-private household WEEE

12. Implications for Distributors - 1 • Question 1 for distributors • Is your distribution of products subject to the WEEE Directive? • I.e., are you putting EEE on the market? • Component v. finished product - EMC Guidelines • Components for assembly into finished products • Not intended to be regulated • Components with a direct function and for sale on their own to end user • Will be regulated as a finished product POTM • Issues • Use of product may be unclear • Distinction is not as clear as it could be

13. Implications for Distributors - 2 • Assuming YES is the answer to Question 1, Question 2 for distributors • Who is responsible for WEEE obligations? • In other words, are you a producer? • EU Commission letter • Shift in approach • Member States can impose the obligation on the person who brings the products in the jurisdiction • Implications for distributors who move products within the EU? • Technically liable under WEEE • Can allocate liability to OEM v. offering WEEE management services

14. Questions for Roundtable Discussion • Have you discussed WEEE issues with your customers? • Have you allocated WEEE liabilities in your contracts? • Are you aware of distributors being subject to enforcement actions? • Who has experience registering in Member States?

15. Section 2 EU RoHS – Update and Implications for Distributors

16. Absence of Enforcement (or almost) - 1 • United Kingdom • NWML sending letters to certain producers July 2006 • No known enforcement action initiated thereafter • NWML pulling products off the shelves • No finding of 100% compliance • But no enforcement action (!)

17. Absence of Enforcement (or almost) - 2 • Belgium rumor • Training on testing methods as per IEC standard • Products to be collected by end of March • Testing to be open for tender • Belgium official position • Will not confirm or deny the rumor • Agency is equipped to conduct checks on the spot • If positive, then send to lab for additional analysis • No publication in the Gazette for a tender

18. Absence of Enforcement (or almost) - 3 • RoHS Enforcement Network • Last meeting in Paris, late February • Discussion on scope, but no agreement • Discussion of China RoHS • RoHS enforcement manual not continued • UK NWML to assume Secretariat of network for following 18 months

19. Disclosure of RoHS Violations • Requirement under Irish law to disclose any violation of RoHS restriction • In writing; immediately; no de minimis threshold • Violation of the right not to incriminate oneself? • Disclosures in at least two instances • Irish agency wants disclosure irrespective of violation • Shared information with RoHS enforcement network • Other Member States: focus on major violations • “Clash” of compliance cultures • Complying with the letter or the spirit of the law?

20. RoHS Review Process • ERA has completed its review of Categories 8 and 9 • Commission may be considering detaching scope of RoHS from WEEE • Timeline • 1st half 2008: draft proposal • 2008-2010: co-decision procedure • 2010: entry into force of revised RoHS Directive • Study of impacts on innovation by WEEE and RoHS • Stakeholder meeting in May • Commission’s review of new exemption mechanism

21. Exemptions 8 and 22 RoHS • Article 5 provides for four-year review process • Two requests for withdrawals already presented • Exemption #8 on cadmium in electrical contacts • Potential phase-out by 2010 • Exemption #22 on lead in optical isolators • Concern that alternative may be protected by IP rights and not be suitable for all applications • Commission • No action on withdrawal requests • No TAC since November 2006

22. RoHS Exemption Status • 29 exemptions published so far • Revision of each exemption after 4 years • some limited to certain time e.g., #28 Cr-VI – 07/01/2007 • Commission most recently adopted: • 7 exemptions by written procedure (mid-June 2006) • 2 exemptions at TAC meeting (June 26, 2006) • All 9 exemptions published in OJ, October 14, 2006 • Commission currently assessing which additional exemption requests to vote on at next TAC meeting • 23 exemption requests submitted for stakeholder consultation closed on January 10, 2007

23. Proposed Danish Lead Restrictions • Attempt to regulate products that are not subject to EU RoHS • Including Category 8 and Category 9 products • Limit would be 0.01% • Would apply to lead stabilizers in PVC insulation and moldings • Inconsistent with phase-in approach provided for in the RoHS Directive • AeA Europe (James Lovegrove) is preparing a letter to Commission

24. Germany Developments • Temperature controller of interface modules for industrial use • Producer applied for registration to the clearing house to obtain confirmation of exemption on basis of component of lsit/fixed installation • Clearing house disagreed • Professional installation not required • Can be used in several types of EEE • Not permanently installed • SO does not qualify as component of lsit/fi BUT qualifies as Category 9 • Bavaria Administrative Court • Referred to EMC guidelines • Does not need to be fixed or “difficult to install” • But component and system must share “each other’sfate” based on function of component over lifecycle • SO remanded the issue to lower court for further factual determination

25. Germany Developments • Adidas with an electronic chip • Chip and electronic component of the shoe does not fulfill primary function of the shoe • So does not meet definition of EEE • Enforcement • Not much in Germany! • No clear authority • Too many agencies involved

26. Deca-BDE • Exempt from RoHS • Action filed with ECJ • By Denmark and Members of Parliament • Challenge exemption • Court documents are confidential

27. Implications for Distributors - 1 • Question 1 for distributors • If you sell components that are regulated as finished products, then are you the producer? • EU approach for RoHS, EU importer is primarily responsible • Exceptions, Netherlands notably • Same analysis as under the WEEE Directive • Component v. equipment • BUT products you distribute need to comply with RoHS restrictions anyway if they are for assembly into EEE subject to RoHS

28. Implications for Distributors - 2 • Question 2 for distributors • Are you contractually taking responsibility for compliance with RoHS? • Question 3 for distributors • Are you providing a certificate of compliance/materials declaration? • Under UK dd defense, persons who cause violation of RoHS may be held liable

29. Questions for Roundtable Discussion • Are you representing to your customers that your products comply? • Have you addressed contractually RoHS liabilities? • Are you providing CoCs/MDs to your customers? • Do you issue them or you “flip” them from the manufacturer? • Do you test some of your products? • What have you found? • Are you concerned about these issues given the lack of enforcement?

30. Section 3 China RoHS – Implications for Distributors

31. Status of Components under China RoHS - 1 • EIP List • Includes “electronic components” • But the specific component must be listed in the list itself • and the scope of China RoHS is different from EU RoHS • Question 14 FAQs • States that components are not covered by EU RoHS! • China RoHS “directly regulates all products in the supply chain” • Gives the impression that components are directly subject to China RoHS

32. Status of Components under China RoHS - 2 • Question 39 FAQs • Product manufacturer is liable for “any problems caused by the components, and the responsibility borne by the component supplier shall be pursued retroactively by the product manufacturer on its own.” • “If a component, sold as a separate product, is found to not be compliant with the requirements set by [China RoHS], the supplier will be held liable.”

33. Status of Components under China RoHS - 3 • EIP Marking requirement • EPUP and Material Table • Article 4(1) Marking Standard • EIP “purchased for manufacturing” • Supplier do not need to mark EIP • But shall supply the purchaser (i.e., the OEM) with all necessary information required for marking • Like EU RoHS, if component is for assembly into a product intended for Chinese market, it must comply • Is China RoHS compliance the same as EU RoHS compliance? • Packaging Standard • 2001 Standard

34. China RoHS Questions for Discussion • Do you distribute products in China? • Have any of your customers asked you to label your components? • Have any of your customers asked you to certify compliance with China RoHS?

35. Section 5 REACH Implications

36. Two Electronics Industry Models REACH responsibilities differ for: • Companies who import “articles” into the EU • Finished goods • Components and parts • Companies who have operations in the EU • Repair • Servicing • Assembly • Manufacturing

37. Model 1: Importing Articles • 2 “prongs” of requirements to worry about • Substances “intended to be released under normal or reasonably foreseeable conditions of use” • Substances which are “of very high concern” are present • If your customer is the EU importer, they will likely ask you for information about substances in your products or request that you verify REACH compliance

38. First Prong: Substances Intended to be Released • You may need to submit, or appoint an EU representative to submit on your behalf, a registration (starting as early as June 2008) if: • Any substance in your article is “intended to be released under normal or reasonably conditions of use” and • That substance is present in those articles in quantities totaling over 1 metric ton per year per producer/importer • No registration required if the chemical manufacturer (or someone else) has already registered for your use

39. Substances Intended to be Released from Articles(?)

40. Second prong: Substances of Very High Concern • You may need to submit a notification (starting as early as June 2011) to authorities if: • Any substance in your article is an SVHC identified on a “candidate list” to be published in June 2009, • That substance is present in your article in a concentration of 0.1% by weight, and • That substance is present in those articles in quantities totaling over 1 metric ton per year per producer/importer • No notification required if the chemical manufacturer (or someone else) has already registered for your use • Separate obligation to provide information on safe use (at minimum, name of the substance) to B2B recipients of the article if 0.1% threshold is met

41. Example of SVHC • Polybrominated Diphenyl Ethers (PBDEs) used as a flame retardant in : • Housings for TVs, computers and other electronics, or • Polyurethane foams for mattresses, seat cushions, carpet padding, foam packaging, insulation materials • May be substituted by Tetrabromobisphenol-A

42. Questions and Issues Arising out of REACH • “Borderline cases” of intentional release • Pens, ink cartridges, firecrackers, car batteries • “Preparations” in containers instead? Any practical effect? • What will be on the SVHC “candidate list”? • “0.1% by weight” standard applicable to finished product, component or homogeneous materials? • RIP 3.8 (Technical Guidance Document on Substances in Articles) will be updated (when?) to clarify some of these issues • Do you know what substances are in your products?

43. Model 2 – Operations in the EU • Companies who have operations in the EU • Repair, servicing, assembly, manufacturing • Will be subject to REACH • Assessment of chemical usage in the EU • Is the chemical and its use registered by chemical manufacturer? • You probably don’t know! This is why you need an assessment • Yes – fine, DOC and some other obligations • No? • Register yourself • Change supplier or manufacturing process

44. Questions • Which model do you fit? • Do your products contain SVHC? • How do you know • Is it too early to act? • Note that there no issue of component v. finished product

45. JP Brisson, Senior Counsel, Allen & Overy LLP, New York jp.brisson@allenovery.com Felise Cooper, Associate, Allen & Overy LLP, New York felise.cooper@allenovery.com Allen & Overy LLP 1221 Avenue of the Americas New York, NY 10020 USA Tel: 212 610 6300 JP: 212 610 6394 Felise: 212 756 1178 These are presentation slides only. The information within these slides does not constitute definitive advice and should not be used as the basis for giving definitive advice without checking the primary sources. Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term “partner” is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP's affiliated undertakings.