Not Too Late to Develop a Strong Strategy for 2020 CDR

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TAKEAWAYS

  • The TSCA Chemical Data Reporting requirement is an important mechanism that helps EPA establish regulatory restrictions and enforcement initiatives.
  • The next filing deadline is November 30, 2020 and requires the submission of information on the processing, use, distribution, and disposal of listed chemicals in calendar years 2016 through 2019.
  • Because the type of rigorous internal file-dive necessary to comply with the CDR requirement can lead to the identification of non-compliance with TSCA requirements, companies are recommended to conduct CDR reviews under the auspices of counsel to maximize privilege and position themselves to react quickly in the event that compliance deficiencies are identified.

The Toxic Substances Control Act of 1976 (TSCA) is the main chemical regulation statute in the United States. Section 2 of TSCA authorizes the United States Environmental Protection Agency (EPA) to require industry to supply it with information, which EPA can then use to regulate to the distribution and use of chemicals in commerce. TSCA Section 8(a) provides an important mechanism by which EPA implements this authority. Specifically, this provision of the statute establishes the Chemical Data Reporting (CDR) rule, which requires subject businesses to report on the use and disposal of certain chemical substances that they manufacture or import.

Information obtained through the CDR process allows EPA to prioritize certain chemicals for risk evaluation, a process that may result in heightened restrictions if not outright bans on those substances. It also allows EPA to scrutinize specific businesses for inspection and, perhaps, enforcement.

CDR reports are due every four years, and the next filing deadline is November 30, 2020. It is not too late for businesses to get their houses in order for purposes of complying with the CDR Rule.Below are some practical tips to help them do so.

Chemical Data Reporting

To comply with Chemical Data Reporting, manufacturers must provide EPA with certain information regarding the chemicals they manufacture or domestically import to the United States. Entities that manufacture or import chemical substances for commercial purposes must report information if the chemical substance is listed on the TSCA Inventory, and if it is produced in volumes of 25,000 pounds or more at a site during any of the four years in a reporting cycle. Certain chemicals deemed to present particular toxicity and environmental risks are subject to a reduced reporting threshold of 2,500 pounds. Several full and partial exemptions from the reporting requirement exist. Some of these reflect the exemptions from the pre-market notification requirements of TSCA Section 5 and are, therefore, highly technical in nature. Companies must also report use and exposure information based on data for the principal reporting year, which is calendar year 2019.

Businesses subject to the CDR requirement must provide information that is known or reasonably ascertainable regarding chemical identity and structure, manufacture, use, exposure, disposal, and health and environmental effects. Practical difficulties may arise when such information is not readily at hand (e.g., a chemical supplier claiming confidentiality over the ingredients of products that are imported or used to manufacture other substances). It is therefore important to understand what EPA means by “reasonably ascertainable” information. This concept is somewhat vague, and EPA has provided guidance on the types of fact-finding that it expects companies to perform to obtain this information for purposes of preparing complete CDR reports. For example, submitters are expected to ascertain details regarding the processing and use of chemical substances that they manufacture through reasonable inquiries within the full scope of their organizations, not just based on the specific knowledge of management and supervisory personnel; however, the standard does not necessarily require that the manufacturer conduct an exhaustive survey of all employees. Reasonably ascertainable information may include information contained in marketing studies, sales reports, customer surveys, or Safety Data Sheets in the business’ files.

This information must be included on a Form U using specific codes and reported electronically via EPA’s Central Data Exchange (CDX). A single Form U is used for all the chemicals that a given facility reports. The mechanical aspects of CDR reporting should not be taken lightly. Much of the information that goes onto a Form U must be completed using task codes, the selection of which is not entirely intuitive. Moreover, the use of the CDX database can be a time-consuming and difficult process. Since incorrect or incomplete CDR submissions are subject to enforcement, companies are recommended to plan ahead and enlist the support of outside experts experienced in performing CDR submissions if they do not have such expertise in-house.

Because of the way EPA has defined certain key terms, CDR reporting responsibility can be allocated among various parties in the chain of commerce. This can create confusion when, for example, the importer of record arranges a deal and shipment to an ultimate buyer but does not take possession of the imported chemical. Ambiguity related to who has the reporting responsibility can also arise when a company imports several different chemicals all from different import brokers. However, if no report is submitted at all, EPA will hold each responsible “manufacturer” liable for failure to report. If there are several entities in the chain of commerce, the entities may form a consortium to submit their reporting information jointly and split the cost of the applicable fee. It is up to the members of the consortium to determine how fees would be split, and it is highly recommended that the split be adequately documented and memorialized in a formal agreement. Consulting with legal counsel can help determine whether you are a manufacturer, whether you fall into an exemption, or whether the reporting duty may fall on another party.

EPA may seek civil and criminal penalties for TSCA non-compliance. The Agency may seek up to $37,500 per day in civil penalties for each violation and up to $50,000 per day in criminal fines. Penalties are calculated on a per chemical basis, and not on a per report basis. This gives rise to the potential for large penalties, since many commercial products are mixtures comprised of multiple chemicals, each of which is subject to regulation. In practice, EPA assesses penalties based on equitable factors set forth in its Enforcement Response Policies.

Recent Changes to the CDR Requirement

Earlier in 2020, EPA promulgated several amendments to the CDR rule, which clarify the upfront substantiation of Confidential Business Information (CBI), the scope of the byproduct exemption, and the specific information to be provided for different use scenarios. Most importantly, these amendments broadened the definition of a “small manufacturer.” EPA’s amendment adjusts the sale standard for inflation, increasing the sales threshold from $40 million to $120 million under its first size standard and from $4 million to $12 million under its second size standard. Under the final rule a manufacturer/importer is considered “small” if its total annual sales, when combined with those of its parent company (if any), are less than $120 million, and it manufactures/imports under 45,400 kilograms of a chemical. Furthermore, a manufacturer/importer is considered “small” if its total annual sales, when combined with those of its parent company (if any), are less than $12 million, regardless of the quantity of substances manufactured/imported.

There exist some exceptions to the small manufacturer exemption. For example, if TSCA mandates testing and reporting of certain chemicals, such as chemicals of concern, manufacturers of those chemicals must report regardless of size. Since the TSCA regulations have been significantly developed since the last submissions period, some manufacturers who were previously not required to provide EPA with CDR submissions may very well need to provide a report this year. (As outlined in these EPA guidelines, companies must now provide upfront substantiation for most confidentiality claims, the highest-level foreign parent company must now be reported, in addition to the highest level domestic parent company, and the contracting company can now initiate the reporting of a co-manufactured chemical.) Consulting with legal counsel may provide insight as to whether the small manufacturer exemption applies to your company.

CDR as an Internal Compliance Review

A proper CDR review thus entails a detailed file review, which can lead to the identification of compliance shortcomings. Common deficiencies that tend to be identified during a CDR review include:

  • Evidence of non-compliance in CDR reporting from past reporting cycles;
  • Misapplication of the exemptions from the PMN requirement in connection with the past manufacture or import of chemicals not listed on the TSCA Inventory;
  • Failure to comply with the terms of Significant New Use Rules or Section 5(e) Consent Orders, for chemicals whose manufacture or import is subject to special restrictions;
  • Failure to properly complete TSCA Import Certifications; and
  • General systemic non-compliance with TSCA due corporate governance shortcomings or the unsettled nature of the law.

Involving lawyers early in the CDR review process is recommended to maximize the confidentiality and privilege protection of a compliance audit. For example, pursuant to the attorney-client privilege, any communications with counsel, evaluation of compliance by counsel, or recommendations for corrective action provided by counsel would be protected, unless the privilege were to be breached. The aegis of privilege allows companies to engage in frank deliberations with attorneys and experts to investigate and resolve any potential shortcomings.

Besides the issue of privilege, involving lawyers early on in the process will position companies to react swiftly in the event that non-compliance is identified. An important decision that faces businesses that identify non-compliance is whether or not to self-disclose the violations under EPA’s Audit Policy, which grants substantial penalty relief for companies that voluntary notify and correct violations of environmental law. The window for making such notifications is tight—21 days from obtaining facts that give rise to a reasonable suspicion of non-compliance. Moreover, before any violation is self-disclosed, it is important for the business to have a sense of how it will return to compliance and implement measures to prevent a recurrence. Thus, companies stand to benefit from the early involvement of lawyers, as opposed to scrambling to react after a violation has been identified.

Finally, companies should bear in mind that knowledge of certain types of TSCA violations (e.g., Section 5) trigger immediate requirements to quarantine products distributed in commerce. This requirement can give rise to supply chain disruptions and cause companies to default on supply contracts. Thus, TSCA violations that may be identified during a CDR review also can give rise to third-party litigation. Involving lawyers in the CDR review process can ensure that companies have counsel who understand the audit and compliance process.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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