May 10, 2017

Very Little Relief on the Way Regarding EPA's NanoScale Chemicals Rule

Seller Beware: Consumer Protection Insights to Industry

EPA has officially announced a wee bit of regulatory relief by handing down a 90-day extension of the effective date on an information gathering rule concerning nanoscale chemicals the Agency had issued in the closing days of the Obama administration. The announcement, however, did not contain the full-throated regulatory relief many had come to hope might be meted out in the form of a complete revocation of the rule by the incoming political appointees from the Trump administration.

On January 12, 2017, EPA issued in final form a reporting and recordkeeping rule issued pursuant to the Toxic Substances Control Act (TSCA). 82 Fed. Reg. 3641. [For more on the announcement of the final nanoscale chemicals reporting rule see our previous advisory.] TSCA was amended in 2016, forty years after its enactment, following a years-long bipartisan effort that produced the first major piece of environmental legislation to emerge from Congress in more than 20 years. Ironically, the nanoscale chemicals reporting rule was proposed by EPA well in advance of the 2016 amendments and is grounded on Section 8(a) of TSCA, a provision not substantially touched by the 2016 amendments. The final rule requires reporting to EPA to both identify and to provide further production and commercial information on chemical substances when they are manufactured, imported or processed in the US at the nanoscale. The effective date of the final rule was delayed from May 12, 2017, to August 14, 2017.

Background on the nanoscale chemical reporting rule.

Nanoscale substances (substances in a size range between 1 - 100 nanometers) are known to offer new and interesting properties when compared to the same substance when manufactured on a larger scale. In recent years, consumer product manufacturers have touted certain products as containing or being improved by the presence of nanoscale chemicals as components, including products claiming antimicrobial properties due to the presence of nanoscale silver and other metals. The advent of the technology, and its marketing, has prompted some controversy, with public interest groups and regulatory agencies speculating about whether nanoscale substances might present differing health and environmental effects when compared to substances which are not produced on a nanoscale. [For background on the controversy in the context of consumer products and the emerging regulatory landscape see our update.] EPA has struggled for more than a decade to gain a better understanding of size and scope of the commercial sector that might be manufacturing and processing chemicals on a nanoscale. The January 2017 TSCA Section 8(a) reporting regulation represented the first federal environmental regulation to impose reporting requirements specifically for nanoscale materials. The new TSCA Section 8(a) regulation includes both reporting and recordkeeping obligations for current and future manufacturersand processorsof existing chemical substances produced at the nanoscale.

Interest in the Agency's original 2015 proposed rule was considerable. Large numbers of commercial producers, trade groups, non-governmental organizations, and numerous intragovernmental comments were received by EPA. After certain revisions, the rule emerged from OMB and was published by EPA on the eve of a change in administrations. The rule was to take effect May 12, 2017; with initial reports required to be submitted within one year thereafter. The 90-day extension granted by EPA will mean the one-year reporting window will not commence until August 14, 2017.

Why did EPA's take this action?

Many manufacturers and processors in the sectors affected by the final rule had expressed hopes that the new regulation, given its timing and connection to the prior administration, might be withdrawn as part of the Trump administration's efforts to reduce regulation and burdens on businesses. In light of the numerous obligations imposed on EPA by the 2016 amendments to the TSCA that require EPA to issue a number of final regulations by the end of June 2017, the nano-chemicals reporting rule seemed to be a prime candidate for EPA to offer to withdraw as a sacrifice the Office of Management and Budget pursuant to the Executive Order 13,771. The 90-day extension is likely a disappointment to entities that had hoped the rule might simply go away, and it provides a salve to NGOs who have been mindful of any signals from EPA that the Agency does not plan to implement the newly-amended TSCA with the vigor they came to expect under the Obama administration. However, the 90-day extension provides additional time for EPA to prepare and issue additional guidance on how the Agency interprets and will apply the rule, which it pledged to do at the time the rule was promulgated.

What does the rule and the extension mean to consumer product makers?

The reporting rule is applicable to entities that currently manufacture, import and process substances on a nanoscale and those who intend to do so. An entity that is not a chemical manufacturer per se, but that makes consumer products might find itself to be a processor under the terms of the final rule. A processor is an entity that prepares a chemical substance for distribution in commerce. Thus, if a business is engaged in the US in modifying or blending a formulation that includes nanoscale chemicals, incorporating such formulation into an article (such as a finished product) for distribution in the US, or using a nanoscale chemical in the manufacture of another substance, the business may be subject to the reporting and record keeping requirements of the final rule. In contrast, an importer of a finished article that contains a nanoscale chemical will be exempt from reporting (however, the article cannot be designed or intended to release a nanoscale substance during use in the US). There is an exemption from the reporting and recordkeeping requirements for small businesses which EPA has defined as any company with sales of less than $11 million per year.

Interpreting the new rule can be complicated, and EPA's promised guidance has not been forthcoming. Given that the failure to report will be deemed a violation of the TSCA, and the 2016 amendments enable EPA to issue civil penalties of up to US$37,500 per day, per violation (with further upward adjustments to reflect inflation), it will be critical that manufacturers, importers, and even persons who merely process a chemical substance that exist on a nanoscale to develop a clear understanding of the regulation and its implications for their business.

© Arnold & Porter Kaye Scholer LLP 2017 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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