Legal and accounting aspects of the WEEE Directive

Any company that manufactures or imports electrical goods can no longer afford to ignore the WEEE (Waste Electrical and Electronic Equipment) Directive. Despite continued hitches and delays, the implementation of this complex piece of EU legislation is inevitable. The link between the Directive and a company's bottom line may seem unclear, but the fact is that failure to plan effectively for WEEE could leave a business open to considerable financial risk - at best the unexpected costs of eleventh-hour compliance, and at worst prosecution.

With the DTI recently announcing a further postponement of the legislation, EEE (electrical and electronic equipment) producers who are not prepared would be well advised to use this time to make WEEE compliance a top priority.

Leading environmental compliance organisation Valpak has been working with legal and finance experts to ensure that its members receive the best possible guidance.

Valpak plans to offer a collective approach to full WEEE compliance through a fully outsourced compliance scheme aimed at both Producers and Retailers.

In September 2005, the organisation was appointed to administer the Distributor Deposit Scheme on behalf of the British Retail Consortium (BRC).

Justin Pavry, an associate in the Global Environmental Law Group at Allen and Overy, comments on the legal implications of the WEEE Directive.

For many companies which produce electrical items, the WEEE and RoHS (Reduction of Hazardous Substances) Directives represent the most significant pieces of EU legislation to date, yet many firms remain insufficiently prepared.

Because of the lead-in times required to ensure that components that go into finished products are compliant, the electronics industry has been gearing up for the RoHS Directive (which has a deadline of 1st July 2006) for some time.

As a result, however, many companies' plans for WEEE compliance have been put on the back burner.

If you fall into this category, it's time to turn to WEEE.

By taking steps now to understand your obligations you will gain the opportunity to plan effectively and thereby reduce the risk of liability while at the same time stealing a march over your less prepared competitors.

As a producer, the best way to begin assessing how the WEEE Directive will affect your business is consider to a few questions.

Are the products I sell 'EEE'?.

In order to be subject to the Directive's requirements, the electrical items you sell, whether as a manufacturer, importer or distributor, have to fall within the definition of EEE set out in the Directive.

EEE essentially means any equipment that is dependent on electricity to work properly and which falls within one or more of a broad range of categories defined by the Directive.

In most jurisdictions, only producers of finished products (as opposed to components) will take on the recycling and other obligations.

However, different EU Member States may take a divergent view on this, so you will need to check the position of every Member State in which you do business.

If so, do any exemptions apply?.

The WEEE Directive exempts certain categories of EEE, including EEE intended specifically for military purposes, so-called large-scale stationary industrial tools and implanted and infected medical devices.

More generally, the Directive does not apply to EEE that is part of another type of equipment not subject to the Directive.

Clearly, deciding whether your products fall within the scope of the Directive merits detailed analysis to ensure you are appropriately prepared.

Am I a 'producer'?.

Although distributors are subject to certain requirements for taking back WEEE when selling new EEE, the bulk of obligations under the Directive fall on the 'producer'.

Essentially, the producer is defined as either the person whose brand name appears on the product or who imports the product into the relevant jurisdiction.

Importantly, however, in many cases the distributor will be the importer and will therefore take on producer obligations.

The 'producer' definition is being interpreted by Member States as allowing for only one producer of any one product.

This means that, within the EU, the manufacturer is designated as the 'producer', whereas this responsibility falls to the importer if the goods are manufactured elsewhere.

What are my obligations as a 'producer'?

Although the obligation to fund the collection, treatment, recovery and disposal of WEEE is probably the Directive's most attention-grabbing feature, producer compliance actually comprises a number of elements.

These include: registration - producers must register with the relevant authority of the Member States in which their EEE is placed on the market.; and financing obligations - the scope of a producer's obligation to fund the collection, treatment, recovery and environmentally sound disposal of WEEE differs depending on whether the WEEE in question is 'historical' or 'new' (ie put on the market pre or post 13th August 2005) and if it is either 'separately collected' household WEEE or nonhousehold WEEE.

In summary, as a producer you will be responsible for funding the collection, treatment etc of: a proportion (based on your current market share) of 'historical' household WEEE that finds its way into the separately collected waste stream; your own 'new' products when they become household WEEE and are separately collected, although this element of the Directive is unlikely to be implemented for a considerable time; 'historical' nonhousehold WEEE that your 'new' products are replacing (unless you agree to pass this obligation to the end user); and your own 'new' products when they become nonhousehold WEEE.

In each case, you will need to provide analysis to the regulator to demonstrate the targets are being met.

Although the Directive only provides for the transfer of obligations to end users to the limited extent described above, some manufacturers are seeking to pass on other financing obligations contractually.

If you decide to go down that route, you need to be aware that the responsibility at law for discharging the obligations will remain with you and then consider whether you are happy for the other party to discharge the obligations in your name.

It's also important to consider in principle what contractual protection you will need to put in place.

There are three labelling requirements that producers must meet.

First, producers must mark all EEE put on the market after 13th August 2005 with the crossed-out wheelie bin symbol.

Producers must also mark the product so that the producer is clearly identifiable and it is clear that the product was put on the market after 13th August 2005.

In most cases, this will be achieved by adopting the Cenelec standard (or the relevant national equivalent) although care should be taken to ensure the way you use the standard also ensures legal compliance.

Producers must have a means through which they can guarantee that they will be able to finance the management of separately collected WEEE from domestic households.

Guarantees may also be required in relation to nonhousehold WEEE.

This will usually be fulfilled by joining a collective compliance scheme.

How do I meet these obligations?.

Producers may opt either to go it alone, which would require the set up of their own private scheme which may be administratively complex, or sign up with a compliance scheme, such as Valpak.

The health and safety implications, need for waste licences and obtaining sufficient storage space are just some of the issues a producer will have to deal with if it opts for the DIY compliance route.

Depending on the quantity and rate at which your products end up in the waste stream and whether you already have systems in place to treat and recycle your products when they become waste, compliance schemes could offer a convenient and cost-effective solution.

Producers will be able to join one compliance scheme which can offset both B2B and B2C obligations.

The national variations in WEEE implementation mean it's essential to get specific information about the above issues for each EU jurisdiction in which you operate.

Opting for a compliance scheme to meet the bulk of your obligations will cut through much of the red tape.

However, you will still need to determine whether the products you sell are caught by the Directive in the first place, as well as ensuring labelling and information requirements are fulfilled.

The Directive is highly complex and you may wish to consider seeking a review of requirements in each Member State by appropriately qualified lawyers.

Convoluted as it may appear, this is in fact a very brief run through the Directive.

Hopefully it will enable you to focus in on the key points and allocate resources accordingly.

David Gavins, Director of Ernst and Young, comments on accounting for WEEE.

At its heart, the WEEE Directive is a piece of EU producer responsibility legislation designed to combat the one million tonnes of electrical waste disposed of in landfill by the UK each year.

Its intention is to define where the cost burden should rest for the recycling and disposal of electrical waste.

Businesses will face two principle costs: recycling and the cost of compliance, comprising data capture, administration and systems and processes.

Significant ambiguities remain around all these factors, meaning that it is very difficult to accurately predict how much WEEE is likely to cost.

From an accounting perspective, the Directive's reporting requirements are paramount.

At a basic level this will entail a number of key documents being amended to include producer registration details.

These include invoices, credit notes, dispatch notes and delivery dockets.

In the wider scheme of things WEEE will require businesses to take a holistic approach to reporting, with information from sales, services, manufacturing and shipping being integrated to produce a comprehensive picture of compliance.

The UK's WEEE legislation for producers contains a number of principles.

It is essentially a 'pay as you go' system, with a charge being allocated to participants in the market according to their market share.

According to IFRIC 6 (International Financial Reporting Interpretations Committee), it also makes a clear differentiation between business to consumer (B2C) and business to business (B2B) WEEE.

In addition, this states that 'participation in a market during the measurement period is the obligating event' - obligation does not arise as the products are produced.

It remains unclear whether 'constructive obligations' will arise from WEEE - in other words, if past participation in a market will be taken to create a requirement to provide for future WEEE costs.

However, at present this looks unlikely.

This may sound complex, but in reality the UK Directive is simpler and less onerous than some European equivalents.

In Germany, for example, producers not only pay for historic waste but are also required to set aside funds which will provide a guarantee covering the cost of whatever future waste may arise.

For companies trading internationally, the legislative differences across Europe will be one of the key accounting challenges when dealing with WEEE.

Issues such as whether to follow International Accounting Standards (IAS) or Generally Accepted Accounting Principles (GAAP), and the possibility of local accounting guidelines mean that EEE producers doing business with Europe would be well advised to seek specialist assistance in ensuring they manage and document their WEEE responsibilities correctly.

Although WEEE is a piece of EU law, each member state has local autonomy as to how they transpose it into their own legislative framework.

In principle this has allowed government and industry bodies to exert more control over the way in which the UK implements WEEE.

However, in practice this also means companies which trade across Europe will be dealing with 25 different interpretations of the Directive, leading to 25 different accounting treatments.

As a consequence, compliance and reporting will be a challenge for even the most WEEE-ready organisations.

Developing a strategy to deal with the complexities of the Directive is vital, whether your firm is trading solely within the UK or operating further afield.

As a starting point, the following checklist offers some basic steps to achieving this: ensure you are registered with the relevant agency in each country; know exactly what is being sold by weight to each customer sector, ie B2C/B2B; and set up your accounting systems so you can report accurately on sales by customer channel, net weight and net returns.

According to the most recently proposed timetable produced by the Department of Trade and Industry (DTI), the arrangements for implementing the WEEE Directive could reach the statute books by 1st January 2007, with a phased implementation taking place between April and July 2007.

So there's no time to waste in establishing your WEEE strategy.

The way forward is to be aware of the Directive and anticipate its impact on your business as accurately as possible by seeking out expert advice.

It is also important to talk to your supply chain, both up and down stream, to find out how they are intending to comply and what knock-on effects their actions may have on you.

This legislation affects the entire electrical industry, from manufacturers to importers and re-badgers.

Whatever your business, make sure it's ready for WEEE day.