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The European Union
WRITTEN BY: NEAL JOSEPH WAVRA
A Master of Arts in Commercial Diplomacy Project
FACULTY ADVISEMENT FROM:
This paper was researched and written to fulfill the M.A. project requirement for completing the Monterey Institute of International Studies’ Master of Arts in Commercial Diplomacy. It was not commissioned by any government or other organization. The views and analysis presented are those of the student alone.
For more information about the Commercial Diplomacy program and the M.A. project requirement, please visit www.commercialdiplomacy.org.
TABLE OF CONTENTS
The MACD project is the final graduation requirement for all candidates in the Master of Arts in Commercial Diplomacy Program (MACD Program) at the Monterey Institute of International Studies (MIIS). Under the guidance of the MACD Program faculty, students choose a trade issue, analyze it, make recommendations for its resolution and develop a strategy to implement the recommendations. This document on the European Union Draft Directive on Waste from Electronic and Electrical Equipment (WEEE) is an example of the MACD project. As such, the issues are real and ongoing, and to the best of this author’s ability, the content is presented with the intention that it be used by practitioners in the field. However, as a graduate student, certain liberties may have been taken or assumptions made in order to fill in gaps or unknowns. Positions should not be attributed to parties named within. The organization and the presentation of the product are solely the result of the author’s work and do not necessarily reflect the plans of the American Coalition Electronic Industry (ACEI).
That said, the setting for this project is as follows: Acting as an employee of American Coalition Electronics Industry (ACEI), the author analyzed, made recommendations and developed a strategy to be presented to the ACEI Board of Directors at the upcoming meeting. The Board of Directors will decide if ACEI should implement the strategy and if so, will pass a resolution in effect sanctioning action.
Provided herein is a background to the issue followed by commercial, political, legal, and directive analyses, followed by recommendations and finally the strategy. Concluding the document are appendices with pertinent information ranging from the directive to talking points. This document is intended for internal ACEI use only. However, some of the appendices were created for the express purpose of disseminating information to key decision-makers.
A draft directive from the European Union (EU) Director General (DG) XI seeks to minimize the negative effects of waste from electrical and electronic equipment (WEEE). The WEEE Directive, currently in its third draft, attempts to achieve this objective by banning the use of critical substances in electrical products, while requiring producers to pay for disposal facilities and the recycling of products sold both before and after the directive’s inception. Producers are also charged with financing the management of the facilities. DG XI’s WEEE Directive poses a threat to the $181 billion technology industry in the US, as well as to European producers and consumers. The costs attributed to the directive far outweigh the limited benefit to the environment. Thus, on behalf of the US technology industry, ACEI needs to champion an effort to improve the directive to better reflect the interests of industry while supporting the goal of minimizing the environmental impact from WEEE.
BACKGROUND AND CURRENT STATUS
The WEEE Directive
The Waste from Electrical and Electronic Equipment Directive (WEEE) has been in the making for several years. The primary European Government entity responsible for drafting the directive is Directorate General XI (DG XI) Environment of the European Commission. DG XI sought to reduce waste of such electronic equipment as refrigerators, stoves, microwaves, vacuum cleaners, personal computers, printers, calculators, fax and answering machines, radios, luminaries, dialysis machines, smoke detectors, clocks, Game Boys, drills, saws and sewing machines. Seemingly, the intention of DG XI was to target anything through which an electrical current runs.
In order to achieve its goals of 1) preventing waste; 2) reusing and recycling; and 3) minimizing the risks and impacts to the environment associated with recovery and disposal of WEEE, DG XI came up with two provisions. The first provision bans the use of key materials like lead, which are central to the manufacture of electronic components and products, and the second seeks to lay the sole burden for financing the management, recycling, and disposal of WEEE on the producer.
DG XI determined that the use of such materials in electronic products as lead, mercury, cadmium, hexavalent chromium and halogenated flame retardants are dangerous and should be banned. This decision was not based on sound science, a violation of the WTO, and it did not take into account the viability of replacements.
The materials banned are crucial to the production of many electronic products. Take, for instance, lead. Lead solder is used to fuse all circuitry in computers, calculators, radios, etc. Halogenated flame retardants are used on computer casings so they do not burst into flames when a electrical fire occurs. At present, there does not exist an economically or environmentally viable alternative to lead solder and there has not been a scientific study conducted to determine whether these materials in all of their applications are in fact harmful to the environment.
In an attempt to create incentives for industry to incorporate end-of-life reusable materials into production and design, producers were given the sole responsibility for collection and recovery of WEEE with all costs borne by them. This provision stipulates that producers shall establish waste management facilities at their own cost and shall be responsible for the collection and recovery not only of their own particular products, but also of those that are no longer produced, but are similar.
History of WEEE Directive
The high-tech industry is the largest industry in the United States. In 1999, it was a $181 billion business — $40.6 billion of which was exported to the EU. If the WEEE directive were enacted, the US electronics industry would incur severe costs to comply with the provisions. It is for this reason and others that the electronics industry has been vocal on this issue since the beginning.
The first draft of the WEEE directive was issued in early 1998. US and EU industry response was predominately negative. They stated that the draft failed to include previously solicited input on the (lack of) science behind material bans and the appropriate responsibility for the management, collection, and recovery of WEEE. Japan also voiced its concerns about these provisions in the directive. In Canada and Australia, both finished-product manufacturers and raw material suppliers voiced serious concerns. Consequent meetings were held to address the substance of the directive, the electronics industry’s concerns for its broad, far-reaching scope, and the process that produced the proposal in the first place.
By July 1998, DG XI circulated the second draft of the WEEE Directive, which industry met with great disapproval. The second draft did not take into account industry’s input and in some cases digressed from the first. As expected, industry’s opposition to the draft increased. While never officially voicing opposition to the principle behind the directive, the electronics industry began to form coalitions within industry associations, such as ACEI and Eurobit/Ectel, to work with DG XI to formulate a directive to meet all parties’ economic and environmental needs.
In November of 1998, USTR initiated a bilateral démarche with the EU. The USG expressed its concern to the Commission regarding the lack of sound science in the development of the WEEE proposal. In particular, the material bans in the directive are not justified by sound scientific testing, nor are there any scientific risk assessments for possible replacements.
DG XI produced its third draft of the WEEE directive in July of 1999. To industry’s chagrin, much of the same language was still present. As a result, the US and EU industries, under the auspices of the TransAtlantic Economic Partnership, placed the WEEE directive on its list of priorities in the Early Warning discussions. Alliances in industry, the TABD, the USTR and US industry continue to address this issue.
WEEE Directive is under review within DG XI.
It is difficult to determine the progress as transparency is
lacking at this stage. Revisions,
if any, are being made in a black box. Outside influence from ACEI
or any other party is unlikely.
However, courses of action do exist to ensure that the two
main provisions of the directive are removed.
European Union Policy Process Overview
It is important to understand the legislative process in the EU to know how and where to influence it, and ensure that the US electronics industry’s interests are incorporated.
The EU Legislative Process
The Commission is charged with drafting and proposing new regulations and policy for the Union. Generally, one of the Directorate Generals of the Commission drafts a directive or proposal. It is circulated to interest parties to gauge support, and input on how the proposal can be improved is solicited. This process may result in the formation of several drafts. In the case of the WEEE Directive, DG XI presently is working on its fourth draft.
Once a proposal is finalized it is released for inter-services consultations (ISC). ISC is the name given to the process within the Commission that allows for negotiations with other DGs to ensure policy coherence. Other DGs likely to take an interest in this issue are: DG I External Relations and Trade, DG III Industry, DG V Social Policy, DG XV Internal Markets, DG XIX Budget, DG XXIII Enterprise, and DG XXIV Consumers. The objective of the ISC process is a formal Commission proposal to be voted on by the “College of Commissaries”. A unanimous vote by the College results in a formal Commission proposal being presented to the EU Council and Parliament for their consideration and potential adoption.
The Council’s purpose is to create Union legislation based on the proposals offered by the Commission. The Council creates legislation by approval of a qualified majority. Each of the Member States of the European Union has a number of votes based on its importance. The breakdown is as follows:
A qualified majority vote is sixty-two of the eighty-seven votes. With minority vote of twenty-three to twenty-five votes, Member States may suspend the passage of a proposed piece of legislation for a reasonable amount of time in order to renegotiate a revised proposal, which then requires a majority vote of sixty-five votes to pass. Once a piece of legislation passes the Council, a period of three years is allowed for adoption and implementation by Member States.
The EU Parliament assures that the general activities of community policy-making reflect the interests of the people. The Parliament may create examination committees to address submissions made by citizens regarding the policies of the Commission. The Parliament would then have the power to appoint an independent mediator to resolve issues between citizens and the Commission.
No legislation is enacted without the approval of the Parliament. The Parliament and the Council can jointly decide to stop the passage of a directive regarding the internal market and the environment.
Yes votes require a majority in the Parliament. There are 626 seats in the Parliament divided in the following way:
 Boucher, F and Echkenazi, J. Guide de l’Europe des 15. Nathan: Paris, 1998, pp. 16-21.
The commercial impact of the European Union (EU) Directorate General (DG) XI Environment directive, Waste from Electrical and Electronic Equipment (WEEE), is potentially great. One key provision of the directive imposes bans on materials like lead, which are central to the manufacture of electronic components and products. Another provision seeks to lay the sole burden for financing the management, recycling, and disposal of WEEE on the producer. The WEEE directive, if approved by EU member states, would threaten not only the US industry but also other electronic equipment producers, including those in Europe. The industry estimates that increased materials costs will run from $140 to $900 million, and additional infrastructure, materials evaluation and qualification costs will likely run into the tens of billions. The two provisions will cost US businesses, on average, $20 million per company. If the two key provisions were removed from the directive, individual companies would still have to pay for problems associated with WEEE, but would be free to do so in a more environmentally and economically efficient manner. Without the two provisions, individual companies stand to save, on average, $15 million in compliance costs.
Impact of WEEE Directive on US Industry
The high-tech industry is the largest industry in the United States. In 1999, it did $181 billion in business — $40.6 billion of which were exports to the EU. Trade in electronics between the US and the EU accounts for $62.5 billion, or one-fifth of the total transatlantic trade. If the WEEE Directive is put into force, the US electronics industry will incur prohibitive costs to comply with the provisions.
One study estimates that the WEEE Directive would cost industry up to $900 million just for increased materials costs. The results of an online consultation conducted by DG XV on the WEEE Directive show that the average compliance cost for the US firms that responded was approximately $20 million per year. These costs will impact the growth of an industry that is expanding at an annual rate of fifteen percent. The essential materials restrictions will create costs for replacement materials, and will also stifle the development of new and potentially less waste-producing technology that could further expand the industry.
The other provision of the directive, that manufactures assume costly and burdensome collection and recovery for used household products, will create an undue burden on manufacturers. Exact costs are near impossible to determine. Different studies determined that on average it costs anywhere from 10 to 500 euros/ton to recycle large household equipment. Regardless, the costs of duplicating waste management systems, which already exist, for the sole purpose of recycling and disposing of one percent of the EC waste stream is disproportional and a waste of resources. This is contrary to the objectives of the directive.
Impact of WEEE on EU Industry
Many of the same economic burdens borne by US industry will be felt by EC industry. DG XV conducted consultations within the EC on the impact of the WEEE Directive on business. The “Third Consultation of the Business Test Panel” and the “Online Consultation of Business” both illustrate the effects of the WEEE Directive on the commercial interests of European business. The final conclusions are that “the strict responsibility of producers for the management of electrical and electronic products at their end of life might prove to be burdensome” and that due to the industry perceived problem regarding substance bans, exemptions and phase-out time frames “might need to be reconsidered.” This analysis combines the two consultations. The following are the findings:
Commercial Analysis Table 1: Impact on Business
Commercial Analysis Table 2: Impacted Business by Size
Commercial Analysis Table 3: Average Compliance Costs per Country
Business response is clear. The WEEE Directive will cause a financial and administrative burden detrimental to commercial growth. A study prepared by the McKinsey Global Institute concluded that Europe’s poor job creation performance over the past thirty years (especially when compared to the US) was attributable in large part to product market regulation. By increasing regulatory barriers and burdens to marketing products and services, European regulation increases costs and decreases choice for consumers of those products and services, and hence decreases demand. By removing the two detrimental provisions from the draft, US companies will save on average $15 million, funds which would be better spent for research and development of new and safer production materials and for the development of a joint effort for recovery of household products.
DG XI’s explanatory memorandum, which justifies the directive, argues that the main financial benefits to be reaped from the draft will stem from reduction of landfill and incinerator demand. No figures have been set forth. What is certain is that WEEE represents one percent of the waste stream in the EU. The economic benefit realized by targeting one percent of the waste stream pales in comparison with the burden of billions of dollars in new costs for manufacturers and recyclers, which will impede growth, while also eliminating choices for consumers. By eliminating the two prohibitive provisions from the directive, industry will not have to bare an unnecessary financial burden and can more efficiently utilize its resources to address the issues regarding waste from electrical and electronic equipment.
 Document: Bans on Essential Materials, p.3
 Hunter and Lopez- Torres. Analysis of Explanatory Memorandum for draft WEEE Directive, p. 16
 DG XV conducted two consultations on the WEEE Directive: “Third Consultation of the Business Test Panel” and “Online Consultation of Business” both dated 6 August 1999. They can be found at www.europa.eu.int/comm/internal.market/en/update/panel/panel3en.pdf
 DG XV: “Third Consultation of the Business Test Panel”, 8/6/99
 Hunton & Williams, “Analysis
of Explanatory Memorandum”