China ROHS is Serious Business: A Compliance Roadmap

1
China ROHSis Serious BusinessA Compliance
Roadmap

• International Trade Administration
• U.S. Department of Commerce
• Webinar
• January 11, 2007
• Anne Davidson, Davidson Consulting Services
• Ken Rivlin, Allen Overy LLP

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Notice

• THIS PRESENTATION IS FOR GENERAL GUIDANCE ONLY
  AND DOES NOT CONTAIN DEFINITIVE ADVICE

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Agenda

• China RoHS Compliance Roadmap
• Concluding Comments

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China RoHS Compliance Roadmap

• Know the law
• Anticipate impacts/risks to your business
• Identify internal compliance/performance
  requirements
• Conduct compliance gap analysis
• Develop implement compliance strategy
• Monitor regulatory developments for new
  requirements
• Confirm supply chain readiness
• Regularly reassess compliance strategy

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Compliance Roadmap Basic Elements Know the Law

• Phase I Starting March 1, 2007,
  manufacturers/importers of EIPs required to
• self-declare hazardous materials content label
  accordingly (in Chinese)
• Include recyclability logo and, if EIP contains
  banned substances above maximum concentration
  value (MCV), label must indicate Environmental
  Protection Use Period (EPUP), product must be
  marked with manufacturing date, the
  importer/manufacturer must provide a table that
  indicates which banned substances exceed the MCV
• comply with Chinese packaging legislation -
  principally labeling requirements
• comply with Chinese design, manufacturing and
  sales requirements.
• Phase II Once China RoHS Catalog is
  published, listed EIPs must (i) comply with
  substance ban, (ii) be tested under the China
  Compulsory Certification (CCC) regime and labeled
  accordingly.

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Compliance Roadmap Basic ElementsAnticipate
impacts/risks to your business

• Are you ready? Are you sure? How do you know?
• If not, why? Is it you? Your supply chain
  partner(s)?
• If not, how long (and how much ///) will it
  take to get ready?
• Technical systems up and running
• Operations management and processes
• Design products, materials, packaging
• Procurement
• Account management/sales
• Labor knowledge base/skills/training
• Other business systems or requirements

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Compliance Roadmap Basic Elements Anticipate
impacts/risks to your business

• If you cannot comply, what will happen?
• No import into China
• No sales in China
• Required re-design or part replacement
• Delay in time-to-market
• Lost revenues profits
• Reputational and relationship costs
• Lost market share
• Excess inventory
• Other

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Compliance Roadmap Basic Elements Anticipate
impacts/risks to your business

• Legal Impacts
• China RoHS regulatory penalties, fines
• Contractual breaches (failure to perform,
  environmental clause, breach of warranty )
• Failure to follow company internal policies
• Shareholder, business partner lawsuits
• Public disclosure obligations (Sarbanes Oxley)
• Legal Assessment Action Necessary
• Assess and, where possible, renegotiate contracts
  with suppliers, customers and distributors
• Tighten certificates of compliance, materials
  declarations to include new environmental
  requirements
• Assess and monitor compliance management systems

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Compliance Roadmap Basic ElementsIdentify
Internal Performance Requirements

• Internal implementation
• Assess compliance readiness
• Technical requirements
• Examples data management system to collect
  report disclosures, compliance certificates,
  material declarations, IPC-1752 standard,
  labeling processes
• Performance Requirements
• Engineering/design
• Operations
• Testing/auditing
• Quality control i.e., ISO 9001/2000 QC 080000
• IT
• Procurement/materials
• Knowledge base required workforce skills
• Effective Communication

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Compliance Roadmap Basic ElementsConduct
Compliance Gap Analysis

• Assess current capabilities ability to comply
• Internal readiness
• Steps needed to implement compliance plan
• Leverage existing policies/processes
• Identify additional needed resources
• Establish compliance timeline
• Use due diligence defense as a guide
• External readiness
• Assess readiness of suppliers, distributors,
  customers
• Develop implement strategy to bridge compliance
  gaps

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Compliance Roadmap Basic ElementsDevelop
Implement Compliance Strategy

• Company Leadership
• Commitment to compliance critical
• Clear communication
• Modify/enforce environmental compliance policy
• Environmental Compliance Team
• Cross-functional (i.e., operations, legal, IT,
  engineering, design, materials, quality, account
  management, import-export )
• Educate company
• Interface with company leadership
• Conduct gap analysis
• Develop compliance policies/strategy
• Communicate/implement compliance strategy
• Integrate strategy into standard company
  operations

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Compliance Roadmap Basic ElementsConfirm
Supply Chain Readiness

• Effective business partner relationships
• Communicate firm compliance requirements
• Determine business partner compliance readiness
• Cooperation to achieve compliance requirements
• Accurate, timely information
• Materials declarations, certificates of
  compliance
• Audits, testing
• Other
• Performance history
• Assist suppliers achieve compliance readiness
• If necessary -- identify alternative suppliers
• Compliance extends across supply chain
• Customers
• Suppliers
• Shipping sales

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Compliance Roadmap Basic ElementsMonitor
Regulatory Developments

• Products/parts/components included in Catalogue
  (not yet published)
• More to come from MII re
• The Catalog
• CCC certification
• Details regarding design, testing and China
  imports/sales
• Engage with legal advisors trade associations
• Stay up-to-date
• Participate in lobbying efforts
• Build network of knowledgeable friends

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Compliance Roadmap Basic ElementsRegularly
Reassess Compliance Strategy

• Continued management support
• Compliance becomes part of ordinary course of
  doing business
• Incorporate legal, regulatory changes
• Maintain due diligence records and procedures
• Audits
• Quality controls
• Open door communications
• Up-the-ladder reporting
• Identify weaknesses move quickly to correct
• Continued supply chain partner commitment/engageme
  nt

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Final Thoughts

• Critical to monitor international legislative
  developments and your competitors/suppliers/cu
  stomers/distributors compliance
  efforts/positions
• Assess and if necessary amend your compliance
  strategy, assuring consistency/coordination
  across borders/business units
• Identify, anticipate and seek to mitigate risks
• (Re)consider your contractual position(s)
  relative to customers, suppliers and distributors
• Continue to seek/maintain buy-in and leadership
  from senior management
• Establish/maintain strong communication channels
  with supply chain partners (COCs, other data
  sharing)
• Understand specific requirements and be prepared
  to address them (labeling, testing, etc.)
• Documentation is key best practices, due
  diligence defense

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Helpful Links

• US Mission to EU Environmental page
  http//www.buyusa.gov/europeanunion/weee.html
• European Union Resources Documents
  http//www.buyusa.gov/europeanunion/eu_docs.html
• US Commerce Department WEEE/RoHS Documents
  http//www.buyusa.gov/europeanunion/commerce_docs.
  html
• US Commerce Department Status of WEEE
  implementation by country http//www.buyusa.gov/e
  uropeanunion/commerce_docs.html
• UK National Weights Measures Lab RoHS Page
  http//www.rohs.gov.uk/content.aspx?id9
• Includes RoHS Enforcement Guidance Document
• SEMI EHS Home Page
• http//wps2a.semi.org/wps/portal/_pagr/113/_pa.11
  3/272?dFormatapplication/msworddocNameP006479
• AeA Europe http//www.aeanet.org/AeACouncils/Euro
  pe_Main.asp
• AeA China Working Group Home Page
• http//www.aeanet.org/GovernmentAffairs/gabl_Chin
  aRoHSpage0905.asp
• China Ministry of Information and Industry (MII)
  (in Chinese) http//www.mii.gov.cn/art/2006/03/02/
  art_521_7344.html
• INEMI Ten Steps to RoHS Compliance
  http//thor.inemi.org/webdownload/newsroom/Article
  s/Lead-Free_Watch_Series/Feb05.pdf
• Design Chain Associates http//www.designchainas
  sociates.com/
• CA DTSC RoHS Law Information http//www.dtsc.ca.go
  v/HazardousWaste/EWaste/upload/Restriction_on_Elec
  tronic_Devices_01-05-06.pdf
• Spitalfields LLP WEEE and RoHS Website
  http//www.euenvironmentalcompliance.com