RISK MANAGEMENT
Exporters to China Face New Supply Chain Challenges
March 15, 2007
Jiwei Ye, JPMorgan Chase Vastera

Manufacturers of electrical and electronic equipment will continue to face additional environmental restrictions as 2007 progresses. While the European Union and South Korea are due to enact new environmental regulations later this year, one of the most significant sets of 'green' regulations is almost upon us as the first phase of China's Restriction of Hazardous Substances (RoHS) comes into effect on 1 March 2007. The extremely broad scope of products included in the new regulation underscores the potential that the entire IT industry will be affected.

As China has emerged as one of the world's leading trade nations and a key link in countless global supply chains, manufacturers must ensure that measures are in place to demonstrate and maintain compliance with the new China RoHS. Non-compliance with this directive can result in stalled supply chains, lost revenue, fines and damage to corporate reputation.

What is China RoHS?

Also known as the People's Republic of China's 'Administration on the Control of Pollution Caused by Electronic Information Products', China RoHS is designed to prohibit and reduce the utilization of toxic and hazardous substances in electronic and electrical products. Specifically, manufacturers that export electronic and electrical products into China are restricted and prohibited from shipping items that contain any of these six toxic and hazardous substances: lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls (PBB) and polybrominateddiphenylether (PBDE).

Similar to the European Union's RoHS, China's law takes it up a notch by adding marking requirements, restrictions on packaging and production materials, and testing/certification requirements. In addition, China RoHS covers a larger scope of goods, such as medical products, automotive electronics, radar, large scale manufacturing equipment and certain consumables, such as household appliances and electronic tools and toys.

According to China's Ministry of Information and Industry, "now that the prevention and control of toxic and hazardous substances in electronic information products has begun to reach the global agenda, we have to keep in step, and certainly must strive to turn our electronic information industry into the most environmentally friendly and the most energy-efficient green industry."

The Roll-out of China RoHS

China RoHS is being implemented in two phases. During the first phase of China RoHS, electronic products being shipped to the country must fulfill marking/labeling and material disclosure requirements. Items and packaging material containing one or more of the toxic substances must be clearly labeled using guidelines provided by the Ministry of Information and Industry. A table, in the product documentation, must disclose which toxic substances are contained in the product or component. This disclosure must be written in Chinese.

During the second phase, to be rolled out on a date as yet to be determined, manufacturers must prove that the toxic substances in their products have been removed or substituted. In order to enter the market, these products must participate in a stringent certification process, performed by the Chinese government. Unlike EU RoHS, materials compliance may not be done internally and will need to be tested utilizing one of 18 specified Chinese labs.

What Steps Should Manufacturers Take Now?

• Establish an internal team or engage trade specialists to manage your compliance with China RoHS.

• Familiarize yourself with the law and stay aware of any evolving changes. An English translation of the directive is posted on the American Electronics Association's website: www.aeanet.org

• Familiarize yourself with the list of more than 1,800 specific parts, components and materials that China considers to be 'electronic information products' or EIPs. A list has been posted by the American Electronics Association: http://www.aeanet.org/governmentaffairs/gabl_HK_Art3_EIPTranslation.asp

• Comply with environmental labeling requirements and supporting self-declaration information, in Chinese, relating to the presence of any of the six hazardous substances in your EIPs.

• Perform supplier due diligence. Validate that your supply chain partners are shipping RoHS-compliant products. Maintain an audit trail to track and capture data pertaining to compliance measures you have taken.

• Do not assume that your compliance with, or exclusion from, EU RoHS will result in compliance with or exclusion from China RoHS.

Copyright © ChinaForum 2007