The HSNO Act
Implications for the Surface Coatings Industry

Bas Walker, Chief Executive, Environmental Risk Management Authority

I am delighted to have this opportunity to address this convention on the subject of the HSNO Act and its implications. Although my brief is to talk about the implications for your industry, I would like to preface that with an update on where HSNO has got to and where it is going. I might also comment on a few of the challenges facing ERMA New Zealand, as the principal operating agency under the Act.

For reasons that will become evident as I talk this is a very timely opportunity for me, and I hope for you. After what seems like an endless period of gestation it looks as though the hazardous substances components of the HSNO Act are almost at the starting gate. In ERMA New Zealand we think that is not before time - if only because of the steady disintegration of the regulatory regime HSNO is intended to replace. I think too that we are now at the stage where the only way to convincingly answer some of the outstanding questions is to start doing it for real.

But it is patently obvious, and quite understandable, that industry has a rather different perspective. The HSNO legislation is complex and rigorous, and that is likely to both increase the cost of regulatory compliance and make new technical and administrative demands on those businesses affected. That has got to be a concern to businesses, already having to work hard to be competitive and successful. In your position I would be concerned about that as well.

I daresay it doesn't really help for me to tell you that the more consistent and comprehensive approach represented by HSNO is going to benefit the whole community, including industry, by giving better management of hazardous substance risks. Remember that HSNO is not just some bright idea from some bureaucrat or politician. It is a direct outcome of a desire to prevent a repetition of major incidents like the ICI fire. I daresay it also doesn't help to know that we are heading down the same path as the rest of the world - driven by the same kinds of concerns and objectives. But those observations are true all the same.

So what might help? I hope it helps that the ERMA New Zealand is very sensitive to industry concerns and is already working hard to alleviate them. I hope it helps that we are committed to helping you to minimise compliance costs and hassle in the way that you handle HSNO applications and compliance. I hope it helps that through an amendment bill currently in Parliament we are already working pro-actively to improve the legislation. And I hope it helps that we are committed to exploring opportunities for achieving Trans-Tasman harmonisation and maybe mutual recognition - to the benefit of businesses on both sides of the Tasman.

So this address is not about whether HSNO is good bad or indifferent - and I have heard all those views expressed. That argument has been and gone. It is about making it work as cost-effectively and as smoothly as possible - to your benefit in industry, to the benefit of ERMA New Zealand's performance as the regulator, and for the benefit of the whole community.

Some Basics - How Does HSNO Work and What Are the Key Roles and Responsibilities?

I'm sure that everyone in this audience knows about HSNO and has some knowledge of how it works. I hope you will forgive me then if I just set the scene by rehearsing some of the basics.

• There are some key points to make about the HSNO Act:
  First, it is environmental legislation, not industry legislation. Its primary aim is to protect the environment and human health.
  
• Secondly, it is "effects based" ie it 'involves weighing up the risks, costs and benefits of propositions and deciding whether on balance the proposition should proceed.
  
• Thirdly, it is comprehensive. It replaces a raft of other legislation including the Pesticides Act, the Toxic Substances Act, and the Dangerous Goods and Explosives Regulations. Basically if you want to import or manufacture any substance that meets the hazardous criteria, you will need an approval under the HSNO Act.

The Environmental Risk Management Authority (ERMA New Zealand) is the principal operating agency under the HSNO Act. The Authority's primary function is to consider applications to import or manufacture, approve or decline them, and set controls. Authority decisions stand irrespective of decisions made under other legislation. The decisions themselves also cannot be appealed to a higher authority, although appeals can be made on points of law.

However, ERMA New Zealand is not a nominated enforcement agency, although it does have reserve powers under the Act. Enforcement will be largely the responsibility of existing agencies including OSH, the transport authorities, the Police, the Ministry of Health and local territorial authorities.

Commencement of the HSNO Act - Timing and Constraints

The commencement of the HSNO Act rates as the most drawn out saga I have ever been associated with. When I first joined ERMA New Zealand I was told to have the organisation ready for full operations by 1 April 1998. It is now July 2000 and we are still not quite there. I suspect that those in industry who would like the HSNO Amendment Bill passed before the Act commences might very nearly get what they want, simply as a result of unplanned delay. I understand that the report back on HSNO Amendment No 2 could be as early as the end of August which could fit well with the overall timetable, but more on that later.

The superficial explanation for the delay is that the regulations have taken much longer than anyone expected to be developed, because of their complexity, the need to consult and involve industry and for some other reasons as well. However, the extent of the delay suggests to me that we need to dig a little deeper than that - not right now but once the dust has settled on commencement - to see if there might not be better ways of dealing with regulations like this in the future.

My own personal view - and I stress that it is personal - is that fundamentally we are asking regulations to do too much. Regulations are formal legal documents which always struggle to accommodate technical detail, and which are difficult and time consuming to change - either to correct mistakes or adapt to changing circumstances. A much better approach in my view is to restrict regulations to the broad framework, principles and constraints - and look to less formal documents such as Standards and Codes of Practice to provide the prescriptive detail. If that alternative approach had been taken with HSNO I venture to suggest that HSNO would now be up and running.

We would also be much better placed to cope with the changes that will inevitably be prompted by real experience once the Act starts.

It will be interesting to see if things actually develop that way in the future.

Be that all as it may, forecasts from the Ministry for the Environment indicate Cabinet approval of the regulations in late July and completion of the 28 day introductory period by late August. However, ERMA New Zealand has made it clear that we would prefer a clear two months of warning once a firm commencement date can be fixed, and past experience indicates that we should allow a bit of slippage. All of that suggests that the earliest feasible target date might be 1 October. At the ERMA New Zealand Annual Conference in Christchurch last week the Minister suggested that commencement might be during October, which is in the same ball park.

However, the "wild card" in this is the HSNO Amendment Bill. Irrespective of what the ideal might be, we cannot ignore the impact of the Amendment Bill and the need to plan for its implementation. ERMA New Zealand is currently looking at this aspect and analysing the options, which in essence range from staged implementation i.e. the main Act first, through to sufficient delay to enable both the Act and the Amendment Bill to take effect at the same time.

The HSNO Amendment Bill: Implications

Before I go on to talk about commencement a brief word on the HSNO Amendment Bill. If the Bill goes through as presently drafted it will be good news for industry in the sense that it will simplify routine approvals and reduce costs. In anticipation of that we are planning to implement the existing Act in a way which comes as close as possible to the intent of the Amendment Bill. Once the Bill has been reported back from Select Committee, this will be a reasonably safe approach to adopt from a legal perspective. That is one reason why we are comfortable about commencing the main Act in advance of the formal commencement of the Amendment Bill, if that option is preferred.

For the surface coatings industry the Amendment Bill will cement in place two key improvements. They are:

• A more extensive exemption for research and development, which will include development work such as product trialling. This will especially benefit companies engaged in innovation.
  
• A so called "rapid assessment" process which will provide a short cut route for dealing with applications which are low hazard, low risk or are minor variations from an existing approval. This last would for example benefit paint manufacturers who may wish to make minor changes in formulations.

The Lead up to Commencement

I have talked to audiences like this about the lead up to commencement several times in the past, but I think a quick refresher might be useful.

The principal trigger point is of course the promulgation of the regulations, and contemporaneously with that or earlier if possible, the formal announcement of the commencement date. Subsequent to that, the following key events are planned:

• As soon as possible after promulgation we plan to confirm a pre commencement programme which will consist of the elements that follow.
  
• About one month prior to commencement there will be a major release of information. This will include an overall commencement guide, a set of three user guides covering the making of an application, thresholds and classifications, and controls; final application forms; information on the enforcement regime and a package of information on test certifiers. We also plan to have a complete set of sample applications and decisions available. I should warn however that because of budgetary constraints some of this material will have to be sold on a cost recovery basis.
  
• Inside the last month we will then hold a series of five regional workshops aimed at giving industry a chance to hear about commencement at first hand and ask questions. The venues will be Auckland, Hamilton, Wellington, Christchurch and Dunedin. Each workshop will be held in partnership with an industry organisation sponsor.

So What Happens on Commencement Date

So much for the lead up to commencement, but the key question for industry is what happens on that commencement date? What new responsibilities will industry have and what are the implications?

Well the short answer to the question of what happens is bluntly - not very much.
That is because all existing activity will be covered by the transitional provisions of the Act which largely maintains the status quo until;

• either the transitional provisions expire
  or
• existing substance approvals are transferred to the HSNO Act.

The status quo includes enforcement. Until approvals start to come through (and that is likely to be no earlier than six weeks after commencement for full approvals) enforcement will be against existing licences and other instruments.

I will talk further about the transfer of existing substance approvals shortly.

Where the Act will bite immediately will of course be for anyone wishing to import or manufacture a new hazardous substance. To be honest we have very little feel for the initial volume of business, although our instinct is that it will be slow to start with and build up only gradually. That is compounded of two factors - on the one hand an understandable reluctance to be "first cab off the rank" and on the other, a very evident effort by prospective applicants to get as much as possible through under the old system.

Transfer of Substance Approvals
General background

Much of the focus on HSNO - and that applies to ERMA New Zealand as much as anyone - has been on applications under Part V of the Act. But for much of industry particularly those using a suite of substances which will only change slowly - the real focus should be on the transfer of substance approvals rather than Part V. Just as a reminder the transfer process is about taking substances which are in existing legal use, and setting them into the framework of a HSNO approval. Basically that means classifying substances and putting controls on them which reflect the requirements of the HSNO regulations.

For any block of substances eg dangerous goods, the key start-up event is really their transfer to the HSNO Act. Once transfer occurs controls switch to the new regime as does enforcement activity. We are very conscious that ERMA New Zealand will have control of this process. Accordingly I would like to-give you the same undertaking I have given the enforcement agencies - that is the we win not trigger transfer until we are satisfied that the systems are fully in place to cope with all of the ramifications.

The transfer Project is well under way but is looming as a major block of work. Other things being equal, we think it will take the full five years of transition available once the Amendment Bill is passed, to complete the transfer process. And even then it is likely that a considerable number of substances will be marked for a full reassessment at a later date. This parallels the experience in other jurisdictions.

Some comments on progress to date

We expect that some real challenges will emerge as the transfer project progresses. One immediate problem is that the gathering of information is proving to be more of a problem than anticipated - and this is for assessed substances for which, theoretically, there should be a full suite of information available.

To fill the gaps we will need industry cooperation and assistance. I am hopeful that cooperation will be forthcoming given that it is in everyone's interests to have substances in active use transferred rather than left to become illegal. Realistically however this will not always be the case. We have therefore raised with the Select Committee considering the HSNO Amendment Bill, the possibility of giving the Authority power to require the provision of assessment information. This power commonly exists in comparable overseas jurisdictions.

On a more positive note, there are some good signals emerging from our preliminary work on NOTS - notified toxic substances.

There are an awful lot of NOTS - about 130,000 in fact. But our preliminary analysis shows that 28 companies account for over half of those notifications. In fact one company accounts for almost 20% on its own. That suggests that if we worked directly with those 28 companies, we might be successful in quickly shrinking down the NOTS to a more manageable number. And the results to date - although we are still at a very early stage - look very promising.

As well as reducing the number of NOTS , the initial visits have resulted in a general agreement for a number of companies involved in a common area - it happens to be pigments and dyestuffs in this case - to get together to see if their products could be grouped for transfer. This might, for example, apply to product lines which have similar compositions and vary only in their minor or non-hazardous components.

We are again very encouraged by this and hope to persuade other industry groups to get together in the same way.

Dealing with Trial Cases; the Importance of Seeing How it Works in Practice

One of the realities of dealing with new, cutting edge legislation is that all of the theorising and preparation in the world is no substitute for the real thing. For that reason the jury will stay out on HSNO until we get past the start date and begin dealing with real situations and applications.

However, you can get close to the real thing by looking at trial cases. This is being done in two ways right now, and I would encourage all of you to take an interest in the outcomes.

Trial cases to do with the thresholds

The first set of trial cases is being run through the Plastics Institute and the Paint Manufacturers respectively, and is aimed at applying the threshold regulations to demonstrate that a whole category of substances (polymers in the case of the Plastics Institute) are not hazardous. If they can be demonstrated to be not hazardous then they fall outside the scope of the Act. These trials are still in progress but have very important implications. We believe there is considerable scope for classes of substances to be excluded via this mechanism. I note for example that the minerals industry has expressed interest in doing a similar study for mineral fertilisers and for mineral fillers such as calcium carbonate, and I think that would be of considerable interest to the paint industry as well.

In the case of the Paint Manufacturers study - and Colin Gooch is probably in a better position than me to talk-about the detail - the focus of the work is on what both NICNAS in Australia and the EPA call "Polymers of Low Concern" or PLCS. I understand that polyesters are being looked at in particular. However, if it we could reliably establish that all PLCs fell outside the HSNO hazardous thresholds, then that would be of very considerable importance in eliminating substances from coverage by the Act.

Trial Cases to Do with Part V Applications

The second set of trial cases is being run through ERMA New Zealand but funded through the Sustainable Management Fund (SMF), and involves the development of four trial decisions on different types of hazardous substance application. This work is a further development of work carried out earlier this year on the preparation of seven sample applications. As well as providing valuable information for prospective applicants, the exercise is providing valuable training for our own staff and also a practical test of the regulations. As I said before this is where the rubber really hits the road!

The results will be published as a package for each application, which will include a commentary by ERMA New Zealand. The exercise is well advanced but will not be able to be completed until we have final regulations available.

I should note too that the samples being analysed do not include a "rapid assessment" sample, although one of the cases could probably be considered under that heading. That is because the "rapid assessment" route has not yet been confirmed, and could well look different once the Select Committee has done its work.

A Challenge for ERMA New Zealand: Financial Constraints in 2000/01

I will talk about challenges for industry shortly, but I should share with you one challenge that we will face next year and the implications.

When the funding level for ERMA New Zealand was first set it was tantamount to little more than an educated guess, and that is not surprising given that the Act was brand new and did not even have regulations at that stage. Experience since indicates that the funding is too lean and that is an issue which we will have to address with government over the coming year. Funding levels for ERMA New Zealand are of course intrinsically bound up with the issue of cost recovery from applicants, so the issues will have to be considered together.

A major cause of cost pressure incidentally is the transfer of substances programme. As one illustration of why - when funding levels were first set toxic substance notifications numbered around 7,000 and that was thought to be a reasonably stable number - they now number around 130,000. The pressure will be relieved somewhat by extending the transitional period out to 5 years, but not entirely so.

Financial constraints will thus limit what we can do in 2000/01 and this will impact on matters of interest to industry. In particular;

• We will not be able to carry our generic issues investigations programme into the hazardous substances area, which means that in the meantime generic issues will have to be dealt with when they arise in the context of particular applications. Issues which we would have investigated under more favourable circumstances include (for example) estimation of aggregate toxicity, multiple chemical sensitivities, the setting of environmental exposure levels (EELs), and endocrine disruption.
  
• And, we will be limited in the number of Codes of Practice able to be developed and approved at ERMA New Zealand expense. Codes will still be able to be developed, and we will continue to encourage industry to be pro-active in this regard, but our participation in the work will have to be either cost-recovered or funded externally. In this regard it is important to continue drawing attention to the Sustainable Management Fund (SMF) as an important source of funding for industry work on Codes of Practice.

The Challenge for Industry

So - having given you all that background what are the challenges facing industry with HSNO?

The first challenge, or necessity really, is to be well informed. HSNO has been out in the open since 1996, there have been numerous conferences and workshops, and ERMA New Zealand in particular has published and will continue to publish a wealth of written information. The new HSNO web-site (www.hsno.govt.nz) will also be fully operational soon. In fact I suspect there is already too much of some categories of information out there rather than not enough.

HSNO is complex - there is no argument about it. So if the written material does not make sense do not hesitate to follow up. We are happy to handle e-mail, phone and written enquiries - although we don't have a large staff so that if too many take up that offer we will start to stagger. A good alternative ought to be your own industry organisations.

As well as being well-informed yourselves, I would ask as strongly as possible that you encourage those you deal with - suppliers, partners, customers - to become well informed as well. The usual pattern with new legislation such as HSNO is that information filters out relatively slowly to those on the periphery of the action. We need to short circuit that.

A graphic example of how hard it is to get people up to speed is provided by the matter of unauthorised GMO developments which has featured in the news over the past two months. It has transpired that the majority of the research institutions in New Zealand and this includes all seven of the established universities - have been guilty of not ensuring that their staff were familiar with HSNO requirements. This despite the fact that the Act has been in full operation for GMOs for almost 2 years. A further graphic example is provided by the even more recent affair of the import of a cholera vaccine containing a GMO. Not only did the importer not realise this was contrary to the HSNO Act - but the Ministry of Health failed to pick it up for almost 2 years as well.

Which leads on to the second challenge which is to ensure that you are compliant with HSNO. Compliance does not just mean making applications when required - it also means understanding the controls applied under the HSNO regime and ensuring they are implemented. However, industry also needs to be pro-active in identifying areas where good Codes of Practice would encourage and make it less costly to achieve compliance, especially for smaller businesses.

And I suppose the ultimate challenge is to try and get HSNO working for you rather than against you. A large part of this is understanding the HSNO regime and thus knowing how to minimise compliance costs while ensuring effective risk management. In means in particular;

• Having a sound knowledge of how to apply the thresholds and exemptions so that you are clear about what needs an approval and what does not. You may be surprised to find what falls outside those critical thresholds.
  
• Knowing how to minimise the costs of making an application, for example by making generic applications which cover a whole range of substance compositions or type; for example by making full use of assessment data from overseas jurisdictions, and by making sure you provide the information we need rather than making us hunt for it, most probably at your expense.
  
• And finally using your HSNO obligations to leverage improved environmental and safety performance more generally, to the broader benefit of your business.

Conclusions

In this address I have tried to identify some of the challenges for you under HSNO, but also challenges that we in ERMA New Zealand face in getting the system operational. I hope that my comments have given you food for thought and we would welcome hearing from you if you want to follow up on points raised.

The underlying message in this is that HSNO may have gone quiet but it has not gone away. You need to start thinking seriously about your state of preparedness and to gear that thinking around a HSNO start date which is probably inside the last quarter of year 2000. The key to having control of your destiny under HSNO is to know and understand the territory - know whether you are likely to be immediately affected (Probably not in many cases), know about thresholds and exemptions, know how to deal with applications and know what is involved in achieving compliance.

On our part in ERMA New Zealand we remain committed to making HSNO workable and to working with industry, and other stakeholders, to reduce costs and bureaucracy while ensuring that HSNO also achieves its environmental purpose.

Thank you.