RoHS and non-compliance: Expect to see penalties

By Sally Cole Johnson, Contributing Writer -- Electronic Business, 6/13/2006

On July 1, the European Union’s RoHS (Restriction of Hazardous Substances) Directive goes into effect and brings with it, among other things, the need for companies to prove that they have implemented reasonable steps to restrict hazardous substances from their products.

A substantial number of companies will not able to defend themselves, according to a recent Technology Forecasters study. The study revealed that the majority of midsize to large electronics companies are still working on their due-diligence defense, some are finished and a significant number have yet to adequately begin the task.

After more than 50 years of relying on tin-lead solders, the electronics industry is transitioning to a lead-free solder. With many materials/technology transition challenges addressed during the past several years and somewhat under control now, companies need to focus on RoHS compliance issues, such as how they will establish that they’ve conducted proper due diligence in designing and managing the content of their products if they’re contacted by one of the 25 European countries’ enforcement agencies about products they’ve shipped.

RoHS compliance is complicated, as most companies will attest, and it affects the entire supply chain. A critical item on your compliance checklist should include communicating your requirements across your supply chain and integrating that back into your products, says Jim McElroy, CEO of the International Electronics Manufacturing Initiative (iNEMI)—a consortium of electronics manufacturers, suppliers and related organizations.

“RoHS compliance requires traditional program management techniques, such as putting plans together, scheduling and tracking. If you don’t do it this way, you’ll be at risk of missing critical points,” he adds.

And missing critical points can be costly. Many companies remain unaware of the penalties associated with RoHS enforcement.

“The biggest post-July 1, 2006, surprise will occur when the first electrical or electronics producer is taken to task for escapes (more than the maximum allowable percentage, by weight, of a hazardous substance found in a product),” predicts Pamela Gordon, president of Technology Forecasters. “You can expect that it will happen, because the EU has a fairly serious track record when it comes to enforcing environmental regulations,” she adds.

“From an EU strategy perspective, you’d think it would like to ding a couple of the ‘big boys’ first, to get the word out that it’s serious,” McElroy says. “People will pay more attention if some of the initial penalties go to large firms. This may seem unfair, and it’s just speculation, but don’t be surprised to see it happen.”

Larger firms are well aware of the penalties associated with RoHS noncompliance, but McElroy notes that iNEMI is still surprised by how many smaller companies just don’t know the situation or haven’t really learned about the impact they may feel.

Each of the EU’s member states is responsible for enforcing the law, and there are three categories of enforcement. “Among these are barring the product from entry into their country,” explains Gordon. “In other words, a penalty is the loss of revenue and potentially market share when a competitor’s compliant product is let in. The second category is fines. Ireland, for example, is threatening fines of up to 15 million euros for manufacturers whose products are found to contain any of the banned RoHS raw substances. Not only will violators’ products be banned from the market but the companies will also receive fines. The third category is personal liability, so there is the potential for jail terms. In Greece individuals can face up to three years in prison for violations.”

Electronics companies are also undergoing an evolution, from an environmental perspective, in the way they design products.

“As one of our members put it, companies need to think about this in a systemic way and build it into their development process. This will be a hot potato for some time to come as more and more environmental regulations are proposed and passed,” says McElroy.