China RoHS: Beyond the Requirements

The "China RoHS" clock is ticking. It could be a time bomb that blows up portions of your business or a timely bonanza that drives up revenue. The difference will depend on how seriously you, your customers and your competitors take China RoHS.

Rather than re-hashing well-publicized China RoHS requirements, the purpose of this article is to address under-reported aspects of the law, e.g. regulatory clarifications, operational recommendations and likely 2007 key trends.

China's Economic Miracle
When I first visited Shanghai in the 1970's - less than a year after Mao Tse Tung died -there was minimal industrial activity. By 1985, electronics accounted for 3% of China's exports. Today, it accounts for 35%. China's electronics exports to the EU alone were worth $US380B in 2005. And so, by the time I returned to Shanghai in December, 2005, to conduct an EU RoHS training, the situation had changed beyond my expectations.

In the first half of last year, China's GDP grew nearly 11%. In Q2, 2006, the industrial sector expanded by 13.8%. Today, China is the #1 consumer of grain, meat, coal and steel and the #2 consumer of oil. In the last 10-15 years, it had the largest telecommunications build-out ever - with a 25% average YOY growth. In 2004, China's expanding middle class bought more than 16M computers, 40M TVs and 80M cell phones. 

Environmental Problems
The underside of economic growth is often waste, climate change and other problems. China is no exception. Today, it has 5 of the world's 10 most polluted cities. According to a 2005 statement by China's Deputy Environment Minister, China's energy intensity ratio is 20 - 100X that of more developed countries. Most striking to me, however, was the finding of a 2005 Yale/Columbia study on environmental sustainability: of 146 nations rated, China ranked 133rd.

More directly relevant to China RoHS, the World Bank indicates that "China recently surpassed the US as the world's largest municipal solid waste generator…No country has ever experienced as large or as rapid an increase in waste generation".
 
As a further gauge as to the extent of China's environmental problems, the World Bank estimates that reducing the problems could cost up to 8% of China's GDP. Thus, while there is concern that China RoHS is a trade barrier and intellectual property threat, it most directly represents one of many environmental solutions being implemented by the government. As such, it is worth noting some of the aspects of China RoHS that are either more or less complex than EU RoHS.

Benchmarking EU and China RoHS: What is More Complex?
-- No Phase 1 exemptions for products sold domestically: companies manufacturing medical devices and other products out of scope from EU RoHS must comply
-- Many materials and components are within scope
-- Suppliers have legal liability as well as finished goods manufacturers
-- Companies need to determine the environmentally-friendly use period of their product

Of all the complexities, the most impactful is the Phase 2 pre-market testing and certification of products that will be listed in the to-be-published "Catalogue for Priority Prevention of Pollution from Electronic Information Products".

What is Less Complex?
-- Same six substances at the same Maximum Concentration Values
-- Compliance has been simplified for platings and parts under 5mm³
-- China will likely adopt forthcoming international testing standards

Additionally, there are two other noteworthy areas. First, China has clarified in its December, 2006, FAQ that the March 1, 2007 deadline refers to the date a product was manufactured rather than launched on the market. If your company stocks inventory in Chinese warehouses or retail stores, this was a major Christmas present. One of our customers talked about "popping champagne".

And second: relatively speaking, complying with China Phase 1 is straightforward. Do some prep work. Get the right people in the room. Work off templates. Move steadily through the requirements. According to one customer estimate, 70-75% of China RoHS compliance was accomplished in less than a day - with no staff member there for the entire time.

China RoHS-Related Trends in 2007
What should executives, engineers and others expect and plan for?

-- Most importantly, 2007 will be the Year of PPM Data
Publication of the China RoHS Phase 2 Catalogue will drive forward the need for ppm data. Companies whose products are included in the Catalog will face pre-market testing and will likely have one year to do what many of them never did re: EU RoHS, i.e. gather hard proof that every homogenous material complies.

Certainly, many companies worked very hard to comply. But, for any of a dozen reasons, they did not fully comply or they justified their compliance on notoriously unreliable Y/N supplier statements.

In one sense, those companies did what most of us do when we drive 55 mph in a 50 mph zone, i.e. we take a risk management approach that there is not a police officer nearby; if there is, the officer will stop one of the other cars breaking the law; and, if the officer stops us, we can plead our "due diligence" case to get a reduced fine. With China RoHS Phase 2, however, mandatory toxicity testing for companies will be like drug testing for athletes: testing positive will likely lead to fines, suspensions, bans, and/or bad headlines.

Additionally, companies should pay attention to the UK's enforcement agency - the National Weights and Measurements Lab - which has stated that Y/N certificates will be insufficient, as well as to enforcement activities in other countries that may enforce EU RoHS according to strict liability rather than due diligence.

On the plus side, gathering ppm data in 2007 will be less daunting. Thanks to a lot of hard work by INEMI, IPC and others, companies can now use IPC 1752 forms - especially when they are embedded in a database (http://www.goodbyechain.com/content/view/14/32/) with XML import/export functionality and are accompanied by a well-defined implementation plan.

Even better, companies can purchase large portions of their data from third-party providers and short-circuit data collection time, cost and stress. As indicated in a recent EMS case study (http://www.goodbyechain.com/index.php?option=com_content&task=view&id=58&Itemid=68), this works especially well when purchased data is part of a managed service; includes a data-container database; and is part of a customer-approved process demonstrating continuous progress.

-- 2007 Enforcement Actions
Will China enforce its RoHS Directive in 2007? Hard to say. But company officials should note enforcement precedents in non-RoHS areas. For instance: the Zhejiang Provincial Department of Industry recently took action against 4 brand-name laptops. Last Fall, the leading Asian cosmetics company suspended product sales in China because authorities found toxic metal compounds in the cosmetics. And, more broadly, China has punished 33 multinationals for violating environmental regulations over the last 3 years.

Equally important, it is very likely that the EU will instigate enforcement actions in 2007. The UK, Belgium, and other countries have "quietly" been surveying companies and preparing cases. Nearly seven months after EU RoHS took effect, it would be foolhardy to assume a similar grace period for the next 12 months.

Furthermore, we shouldn't forget California, where the RoHS Directive took effect on January 1, 2007 for a limited sub-sector of products. Governor Schwarzenegger has been one of the most aggressive US politicians in regard to implementing "green" legislation. His administration will likely be aggressive in enforcing green legislation.

-- 2007 Will be the Year Green Goes Mainstream
For several years, the GoodBye Chain Group has advocated that our industry is in a 30-year macro-shift in how products are made, used and disposed. It started with the early Extended Producer Responsibility Directives and will stretch out until 2015-2020 when the EU expects our industry to achieve "sustainable manufacturing".

Within this macro-shift, RoHS, WEEE and other Directives have been narrowly-defined stepping stones. Very shortly, however, REACH will cut across every industry with potentially profound downstream implications. And the Energy-using Products Directive will drive eco-design and life-cycle analyses. In combination with China RoHS' Phase 2 pre-market testing requirement…and in line with the growing number of companies generating revenue from greener products …REACH and EUP will accelerate the transition.

Accompanying that transition will be a cascading number of strategic and operational shifts, e.g. concerns about "compliance" will turn into a focus on "competitive advantage". More companies will see the financial benefits of "Corporate Social Responsibility". And we will see a hockey stick upswing in green implementation practices. In future articles, we will address many of these trends and their benefits to our industry.

Harvey Stone is a Managing Director of the GoodBye Chain Group, a consulting company specializing in RoHS and WEEE compliance; Design-for-Environment solutions; and ISO 14001 implementations. In addition to assisting customers, Harvey is a frequent presenter and workshop leader at industry events.