UK: A WEEE Guide to Business User Responsibility in the UK

The global electronics and IT industry continues to frantically roll out measures to deal with the European Union’s initiatives to regulate the design and disposal of electrical and electronic equipment (EEE). This ‘green’ regime finally started to take effect under member state laws in August 2005.

It may be thought that the new law will not concern the average UK business or office. This is not the case, although the principal burden will rest with producers. If a business is established within the EU and uses electronic equipment, it may also be caught out the minute it procures, replaces or disposes of its IT equipment.

The underlying WEEE Directive ¹ requires producers (and importers) to establish and pay for programs to secure the collection, re-use, recycling and recovery of EEE discarded by households or business users. This is in essence the principle of ‘producer responsibility’. Retailers will also need to establish take-back systems. Most items with an electrical plug or powered by a battery ² are caught by the Directive, although strictly speaking it should be checked whether the equipment in question is enumerated in the Annexes of the Directive which set out 10 categories of WEEE (covering IT and telecommunications equipment, phones, radios, TV’s, certain lighting equipment, tools, smoke detectors, etc). There are exceptions, exemptions, grey areas (eg, components and industrial manufacturing machinery) and inevitable differences in the national laws and procedures bringing the Directive into effect.

The EU’s green regime of course extends further than WEEE. The RoHS Directive ³ supports the recycling and recovery stages by phasing out the use of certain hazardous substances (principally lead, cadmium and mercury) in EEE imported or manufactured in the EU as from 1 July 2006, thereby avoiding expensive specialist treatment. The proposed REACH Directive ⁴ would controversially impose a stringent licensing and risk assessment regime for the continuing import or EU production of certain toxic chemicals frequently involved in the manufacture of LCD screens, semiconductor products or other high-tech chemical based inventions. Both of these directives will affect the supply chain and, no doubt, eventual price of products.

The deadline for EU wide implementation of the WEEE Directive into national law was set for August 2004. The laws were due to commence this summer, although some member states are still in delay. As for the UK, the Department of Trade and Industry (DTI) announced ⁵ on 10 August 2005 that producer registration would take place beginning of 2006, with primary producer and retailer responsibility commencing June 2006. The final Regulations are expected to be implemented any day now, although they are still in draft form at the time of writing (September 2005).

Global companies will need to review the position in each member state in which they are operating. The DTI has commissioned a useful summary report of the status of member state implementation (the Perchards Report, available over the DTI’s website www.dti.gov.uk/sustainability/weee) and specialist legal advisers and consultants can assist in verifying the precise status of the law and advise on compliance policies.

Although the greatest financial and administrative burden will fall to producers, this may end up being translated into a 1 per cent to 4 per cent cost increase on the price of a product, depending on the complexity of such product.

Quite apart from the price of products, a business user will not be able to throw old equipment into the bin or onto a refuse tip if it wants to avoid fines and criminal sanctions. In reality, a business user is unlikely to do so with core IT systems as its IT supplier will be removing old equipment and replacing it in the ordinary course of business. Mobile phone suppliers tend to take back old phones. Sometimes staff will be able to buy used office equipment for their own private use. Finally, some items may end up going to charity (assuming they take electrical equipment).

Less obviously, and somewhat surprisingly, a business user may be directly on the hook for meeting certain targets for the treatment, recovery and recycling of its obsolete equipment. Criminal sanctions could potentially apply, even for failing to keep records and to report compliance to the relevant supervisory authorities.

Liability will depend on whether a business user is the ‘business end user’. According to the DTI (and remembering this is not a legally binding opinion), it will need to be the business holder of the equipment who last uses it in the course of doing its business and who then takes the decision to discard the equipment. Therefore donating it or selling it to staff or to another business would ‘pass the buck’.

The extent of a business user’s potential liability will depend on the final UK Regulations implementing the WEEE Directive. The Directive allowed member states a degree of flexibility in implementing the business user liability regime, and variation on a member state basis is therefore inevitable.

A business user’s responsibility under the current draft UK Regulations depends on two basic variables:

• Whether the WEEE is ‘historic WEEE’. Was it ‘put on the market’ before 13 August 2005? The point when a product is ‘put on the market’ is a key concept underlying the Directive. ‘Put on the market’ means, according to the European Commission’s Frequently Asked Questions ⁶, the initial action of making a product available for the first time on the community market, with a view to distribution or use in the community. ‘Making available’ can be either for payment or free of charge. A product is not put on the market if it is transferred to a manufacturer for further assembly. It is however put on the market when it is transferred (legally or by passing possession) from the stage of the manufacturer with the intention of distribution or use on the EU market.

• Whether an IT Supplier is required to replace the WEEE on a like-for-like basis.

Where historic WEEE is replaced on a like-for-like basis, the normal rule of producer responsibility will apply. The producer will be on the hook for financing the costs of treatment, recovery and sound disposal of the replaced equipment, irrespective of its make. No primary liability is imposed on business users under law and no charges should, in theory, arise where an IT supplier offers to take back refreshed equipment. But what is ‘like-for-like’? Non-binding DTI guidance (July 2004) suggests that the replacement equipment must have essentially the same function as that which it replaces. This could arguably include replacement by fewer units but with improved functionality.

Where WEEE is, however, not replaced on a like-for-like basis, the basic rule for the disposal of historic waste is reversed. The business user will be responsible for:

• collection, treatment, recovery and environmentally sound disposal;

• ensuring treatment facilities are authorised by the regulators;

• meeting recovery and recycling targets (at least in theory);⁷ and

• recording, and reporting to the relevant authorities (either the DTI or the Environment Agency) on compliance with such targets.

This may well be a surprising fact. Most businesses will not have introduced procedures to cover these legal requirements, and the delay to the application of the UK Regulations to June 2006 may just offer the breathing space required. This responsibility is primary, and cannot be contracted out of. A business may choose to sub-contract performance to a specialist firm and probably find the service being increasingly offered and individually itemised and charged by an IT supplier. A business should take care to check that the services in fact cover its primary responsibilities in law and indemnities for breach are negotiated.

The default position for equipment ‘put on the market’ after August 2005 is reversed and primary producer responsibility will apply to all WEEE disposed of by businesses. This includes responsibility for financing the collection, treatment, recovery and environmentally responsible disposal of such WEEE.

Caution must be exercised, however, if the parties enter into an ‘alternative arrangement’ to provide for the costs of financing the collection, treatment, recovery and environmentally sound disposal of WEEE, as this would have the effect in law of shifting the producer’s responsibility on to the customer. It is not altogether clear whether this applies also where the parties agree to share the costs. It is also not certain whether this arrangement would have to be with the full knowledge of the business user. One can imagine a situation where the supplier includes charges in the agreement in respect of these WEEE costs without highlighting this fact sufficiently. In effect, this could qualify as an alternative arrangement in which a business agrees to pay for WEEE costs that would otherwise fall to the producer.

The importance of this is that by entering into an alternative arrangement, a business will automatically inherit the numerous other primary responsibilities that are also associated with historic WEEE which is not replaced (see above).

Legal advice should be sought to ensure the primary supply contract is clear on this point and does not inadvertently impose these responsibilities on the unwitting business end-user.

Even sub-contracting the performance of these obligations to specialist WEEE disposal agencies will not remove the primary liability of a business under law. These sub-contracts would therefore need careful reviewing.

Spare a moment of thought for producers and retailers. The draft Regulations as well as additional obligations under RoHS laws, REACH (in future), and other green initiatives are having a fundamental impact on the life-cycle management of producers and retailers alike. Rolling out European wide (and indeed global) compliance schemes are complex projects at the best of times, without having to deal with discrepancies in national interpretations of the Directives and grey areas in member state laws. Most global producers importing into, or established within, the EU have been working on compliance programmes for years and it is only recently that any measure of ‘market practice’ is starting to emerge, at least with global players. Compliance across Europe is principally sought in the medium term by joining national or pan-national compliance schemes which fulfill the majority (and sometimes all) of the obligations under the WEEE legislation for their members.

On a practical side, the whole scheme will need to be enforced, and not just in the UK. It is currently not wholly clear how the UK will fund the resources and channels needed to enforce the regulations in cross-border supply or US import arrangements, for example. Clearly, further DTI guidance is desirable in this area.

Looking at the UK proposals, it can be appreciated that producers and business users alike will need to implement careful accounting measures that have regard to the potential asset retirement costs associated with historical waste.

US companies importing or selling products in the EU as ‘producers’ will be looking to the Financial Accounting Standard Board (FASB) which recently published a Staff Position (FAS 143-1, 8 June 2005) suggesting appropriate accounting procedures for historic WEEE (although it may in future need to address contingent liability for non-historic WEEE in case of ‘alternative arrangements’).

According to the DTI, enactment of The Waste Electrical and Electronic Equipment (Producer Responsibility) Regulations 2005 is imminent and this will also finally verify the UK position with respect to responsibilities of business end users in relation to WEEE.⁸

In the meantime, the DTI’s announcement of a further delay to the implementation of the new law will give UK business users much needed time to prepare. Over the course of the coming few months, businesses around the UK will need to put in place the appropriate procedures, know-how and contracts to deal with their primary obligations, if they want to avoid the criminal sanctions and fines imposed by law. IT Directors, procurement teams and legal counsel alike will no doubt want to review forthcoming and existing IT supply and outsourcing contracts (particularly those with equipment refresh obligations) to ensure they are adequately protected.

Further information:

• The status of implementation of the WEEE and RoHS Directives into UK law can be monitored on http://www.dti.gov.uk/sustainability/weee/.

• Further information on the REACH Directive is available on http://www.mofo.com/news/updates/files/update1241.html.

• We have prepared checklists, advisory presentations and documentation for our clients to assist in this area (contact Sandra Kilbourne in our London office).

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