Many Companies Face Obligations Under the TSCA Fees Rule
Who is subject to the upcoming obligation to self-identify as a manufacturer of a high-priority substance and pay a portion of a fee of more than a million dollars under EPA’s Toxic Substances Control Act (TSCA) fees rule? Many companies who may be unaware of that obligation, including many importers of finished products, such as electronics or products made with composite wood.
EPA has initiated risk evaluations of 20 high-priority substances. Companies that “manufactured” any of those substances in the past five years must comply with EPA’s fees rule, 40 C.F.R. Part 700, Subpart C, adopted under TSCA § 26(b). Such a company has until:
March 27, 2020 to identify itself as a manufacturer of each of the 20 high-priority substances (possibly as an importer of articles that contain any of those substances) that it manufactured since January 27, 2015.
Sometime around June 20, 2020 to see the final lists of companies responsible for sharing the costs of the fees for the substances that it manufactured.
Not later than October 18, 2020 to pay its share of the fees.
For these purposes, “manufacture” includes, among other activities, domestic synthesis or import of chemical substances as byproducts or impurities, for research and development, and in articles. The fee for each risk evaluation is $1,350,000, with payment obligations shared among the manufacturers of each substance. Manufacturers qualifying as small businesses receive smaller obligations.
The 20 High-Priority Substances
EPA designated 20 chemicals as high-priority substances for risk evaluations under TSCA § 6(b) on December 30, 2019. They include:
3 halogenated flame retardants
7 chlorinated solvents
5 other substances
This triggered an obligation for EPA to publish at the same time preliminary lists of manufacturers of those substances for purposes of the risk evaluation fee. 40 C.F.R. § 700.45(b)(3)(i). EPA missed that December 30 deadline, instead publishing a notice of availability of those lists a month later, on January 27, 2020. The lists themselves are available at the links above or in the EPA docket.
Who Is Subject to the Fees Requirement?
The preliminary lists are of limited assistance in identifying manufacturers of those 20 substances. EPA assembled them primarily from information reported under the Chemical Data Reporting rule (CDR) and the Toxics Release Inventory (TRI) in the previous six years. (The fees rule says EPA will go back five years, 40 C.F.R. § 700.45(b)(2), but the notice says that in this case EPA used six years to capture CDR and TRI data reported in 2012.)
The preliminary lists may be both under-inclusive and over-inclusive. For example, they do not include all importers of products containing a listed chemical, and they may include companies that only qualified as manufacturers because they reported under the TRI as processors or users, roles that do not trigger a TSCA fee obligation.
Every company that “manufactured” a listed substance in the five years prior to publication of the preliminary lists is subject to the fees requirement. 40 C.F.R. § 700.45(b)(5). The notice announcing availability of the lists appeared in the Federal Register on January 27, 2020, so the relevant period of manufacturing extends back to January 27, 2015.
The fees rule does not define the term “manufacturer.” TSCA § 3(9) defines “manufacture” to mean “to import into the customs territory of the United States …, produce, or manufacture.” Thus, importers are considered to be manufacturers, as well as domestic producers.
For many TSCA purposes, EPA excludes from requirements otherwise applicable to manufacturers those companies that manufacture a substance only as an impurity, byproduct, or as part of an article. See, e.g., 40 C.F.R. § 720.30(g), (h). EPA defines “article” in 40 C.F.R. § 704.3 to mean:
a manufactured item (1) which is formed to a specific shape or design during manufacture, (2) which has end use function(s) dependent in whole or in part upon its shape or design during end use, and (3) which has either no change of chemical composition during its end use or only those changes of composition which have no commercial purpose separate from that of the article, and that result from a chemical reaction that occurs upon end use of other chemical substances, mixtures, or articles; except that fluids and particles are not considered articles regardless of shape or design.
For purposes of the fees rule, however, EPA decided not to include any of the usual exclusions, such as those for impurities, byproducts, and substances in articles. When EPA adopted the fees rule in 2018, the preamble explained:
[S]everal suggested exclusions or discounts for those who manufacture a chemical as an impurity or byproduct .... EPA is not adjusting the fee categories in the final rule. TSCA requires EPA to evaluate chemicals under their conditions of use, and conditions of use evaluated may involve manufacture of impurities or byproducts, or chemicals used in niche market applications. As such, EPA does not believe it would be appropriate to exclude these manufacturers from fee obligations for TSCA section 6 activities.
The Response to Comments on the Proposed Rule was even clearer that no exemptions apply:
Numerous commenters encouraged EPA to exempt or exclude certain manufacturers from fee obligations. For example, commenters … suggested that EPA, for example, exclude those who manufacture from an exempt purpose in  CFR 720.30 (g) and (h) (i.e., the exemptions from notice requirements in the new chemicals program); manufacturers of [non]isolated intermediates, impurities, byproducts and small quantities; those who manufacture solely for export, research and development; importers of articles; importers with a negative certification; and importers when used for medical or R&D purposes ….
Because manufacturing processes and downstream uses of the subject chemical are not necessarily static or consistent, EPA is not able to exclude manufacturers whose subject chemicals may at one point be used for an exempt purpose or otherwise be exempt from reporting to EPA. Additionally, small quantities of chemicals and chemicals imported in articles may be subject to section 4 test rules and orders, and risk evaluations under section 6. Although EPA may choose to exclude certain conditions of use from the scope of the risk evaluation, such decisions would be made on a case-by-case basis. As such, EPA does not believe it would be appropriate to categorically exempt these manufacturers and importers from fee obligations. Therefore, EPA will not add any exemptions or exclusions from the requirement to pay fees.
The upshot is that companies that manufacture any of the 20 high-priority substances during the relevant period as a byproduct, impurity, or as part of an article are subject to the fee requirements, as well as those that manufactured (or imported) any of those substances as such. In particular, importers of articles (e.g., automobiles, electronics, and composite wood products) are subject to the fee requirements.
What Kinds of Imported Articles Are Likely to Trigger Fees Rule Obligations?
EPA has briefly described the uses of the 20 substances in documents entitled “Proposed Designation of [chemical] [CAS number] as High-Priority Substance for Risk Evaluation” in the dockets for the substances identified in the Federal Register notices initiating the prioritization process and proposing the 20 as high-priority substances.
EPA’s listing of the five phthalates is likely to mean that many product importers have incurred fees rule obligations due to the wide use of phthalates in imported articles. EPA’s 2012 Phthalates Action Plan identified some of the products in which four of the phthalates may be used (citations omitted; some applications may have been discontinued since 2012):
The major use of phthalates is as plasticizers. A major application of plasticizers is in PVC, [poly(vinyl chloride)], where they are added to impart flexibility and other desirable properties. Phthalate-containing PVC products included a variety of industrial and commercial products, as well as specialized medical and dental applications. The particular phthalate or combination of phthalates used in a particular product’s formulation depends on the properties the phthalates impart, as well as their cost. BBP is the most widely used stain-resistant plasticizer in PVC; vinyl tile represents its largest use. A number of uses of DBP have been identified including the manufacture of plastics, paints, wood varnishes and lacquers, use in cosmetics, medical supplies, textiles, propellants, food packaging, dental materials, and paper. More specifically, it is used as a plasticizer in uses such as nail polishes, explosives, and solid rocket propellants. Nearly half of DEHP consumption in the United States occurs in medical devices, such as intravenous (IV) tubing and blood bags. The rest is split between consumer products and construction-related products. DIBP is considered a specialty plasticizer, too volatile to be used in PVC, and is often combined with other phthalates. As such, it is used in nitrocellulose, cellulose ether, and polyacrylate and polyacetate dispersions.
The Centers for Disease Control and Prevention adds:
Some phthalates are used as solvents (dissolving agents) for other materials. They are used in hundreds of products, such as vinyl flooring, adhesives, detergents, lubricating oils, automotive plastics, plastic clothes (raincoats), and personal-care products (soaps, shampoos, hair sprays, and nail polishes).
Phthalates are used widely in polyvinyl chloride plastics, which are used to make products such as plastic packaging film and sheets, garden hoses, inflatable toys, blood-storage containers, medical tubing, and some children’s toys.
The Consumer Product Safety Commission restricts, but does not prohibit, use of the five phthalates in children’s toys and child care articles. 16 C.F.R. § 1307.3.
According to EPA, formaldehyde may be found in:
Resins used in the manufacture of composite wood products (i.e., hardwood plywood, particleboard and medium-density fiberboard);
Building materials and insulation;
Household products such as glues, permanent press fabrics, paints and coatings, lacquers and finishes, and paper products;
Preservatives used in some medicines, cosmetics and other consumer products such as dishwashing liquids and fabric softeners; and
Fertilizers and pesticides.
The formaldehyde listing brings in all importers of articles containing composite wood made with a formaldehyde-based resin. According to the California Air Resources Board:
Composite wood is found in many different types of finished goods such as cabinets, doors, furniture, flooring products, moldings, toys, mirror and photo frames, audio speakers, baseboards, shelving, and countertops.
EPA regulates, but does not prohibit, the use of formaldehyde in composite wood products. 40 C.F.R. Part 770.
The Agency for Toxic Substances and Disease Registry notes that combustion processes can produce formaldehyde, as can some manufacturing processes. Thus, power plants, manufacturing facilities, and vehicle exhaust arguably may produce (manufacture) formaldehyde.
Formaldehyde can also be inadvertently generated as a byproduct of other chemicals.
How Much of the Fee Must Each Manufacturer Pay?
The answer depends largely, but not entirely, on how many manufacturers of each substance EPA includes in the final list of manufacturers for that substance.
The preliminary list for formaldehyde includes by far the most company names (it runs 57 pages). The preliminary list for TCEP includes only one company name.
Since most high-priority substances have multiple manufacturers, the fees rule provides that members of a consortium of manufacturers may split the fee, with the consortium itself responsible for paying the full fee. 40 C.F.R. § 700.45(f)(3). Consortia decide for themselves how to determine how to split fees among their members. 40 C.F.R. § 700.45(f)(3)(iii).
A consortium must notify EPA of its formation within 60 days of the publication of the final scope document. 40 C.F.R. § 700.45(f)(3)(i). EPA must publish the final scope document not later than six months after the initiation of a risk evaluation. 40 C.F.R. § 702.41(c)(8). EPA initiates a risk evaluation with final designation of a chemical as a high-priority substance. 40 C.F.R. § 702.17. That means that EPA initiated the risk evaluations for the 20 substances on December 20, 2019. (EPA published the notice announcing the final designation in the Federal Register on December 30, but the notice indicated that the designations were effective on December 20.) Accordingly, EPA must publish the final scope documents by June 20, 2020. That means that the last date for a consortium to notify EPA of its formation is August 19, 2020.
If there is no consortium for a high-priority substance, EPA will assign each manufacturer of that substance an equal share of the fee, with appropriate reductions for small businesses. 40 C.F.R. § 700.45(f)(4).
If some manufacturers of a substance join a consortium and others do not, EPA has a formula for determining the respective shares of the consortium and those who do not join. 40 C.F.R. § 700.45(f)(5).
The Self-Identification Reporting Requirement
The first requirement, applicable to all manufacturers of one or more of the 20 substances, is to self-identify themselves to EPA for each applicable substance. 40 C.F.R. § 700.45(b)(5). This reporting to EPA is required regardless of whether the manufacturer is included on a preliminary list. According to the notice of availability of the preliminary lists, each manufacturer must self-identify to EPA by March 27, 2020.
Each manufacturer must submit its contact information to EPA through the Central Data Exchange (CDX). 40 C.F.R. § 700.45(b)(5)(i). In addition, a manufacturer may submit at this time information to establish that it should be excluded from having a payment obligation. There are two kinds of exclusions.
EPA will exclude those companies that submit a certification of cessation. 40 C.F.R. § 700.45(b)(5)(ii). At the time of notification, a company may, if appropriate, submit via CDX a certification indicating that the company ceased manufacture of the substance prior to the cutoff date, defined to mean the day prior to initiation of the prioritization process for the substance. 40 C.F.R. § 700.45(b)(6). EPA initiates the prioritization process when it publishes a Federal Register notice identifying a substance for prioritization. 40 C.F.R. § 702.7(b). EPA first identified the 20 substances as candidates for prioritization in a notice published on March 21, 2019, so manufacture had to have ceased prior to that date. In addition, the manufacturer must certify that it will not manufacture the substance again for the next five years.
EPA will also exclude those companies that submit a certification of no manufacture. 40 C.F.R. § 700.45(b)(5)(iii). This applies to companies included on a preliminary list for a substance but which did not manufacture that substance during the five years prior to publication of the preliminary list, i.e., from January 27, 2015 to January 26, 2020. Companies listed due to a TRI report resulting from processing or use, but not manufacture, may be able to submit a certification of no manufacture.
When Will Companies Learn How Many Others Will Share the Fee?
EPA will publish a final list of manufacturers subject to the fees rule for a substance not later than the date that it releases the final scope document for that substance. 40 C.F.R. § 700.45(b)(7). That means that EPA must publish the final lists by June 20, 2020.
When Will Manufacturers Learn How Much They Must Pay?
EPA will inform consortia and individuals of their respective fee amounts. 40 C.F.R. § 700.45(f)(5)(v). The fees rule does not indicate when this will occur, however. It must occur on or after the last date for consortia to notify EPA of their formation, which will be not later than August 19, 2020.
EPA expects to send invoices electronically through CDX to those on the final lists of manufacturers.
When Will Manufacturers Have to Pay Their Shares of the Fees?
A manufacturer must pay its share of the fee for a substance in full not later than 120 days after EPA publishes the final scope document for that substance. 40 C.F.R. § 720.45(g)(3)(iv). The final scope document is due not later than June 20, 2020. That means that payment is due not later than October 18, 2020.
What Is Involved With Paying Fees?
Manufacturers must submit their payments electronically in U.S. dollars using a payment method available at www.pay.gov. 40 C.F.R. § 700.45(g)(1).
What Are the Consequences of Non-Compliance?
Failure to submit a fee as required is a violation of TSCA § 15. 40 C.F.R. § 700.49(b). Violations are subject to penalties of up to $40,576 per fee not paid, according to the latest notice adjusting TSCA penalties for inflation. EPA has not adopted an Enforcement Response Policy that covers such violations, so it is unclear what the actual penalty would be, but it is likely to be less than the maximum amount.
Each potentially affected company may want to review the preliminary lists carefully to see if its name, or the name of an affiliate or its parent company, appears there and, if so, on which lists.
Regardless of whether or not it or its parent company is included on a preliminary list, each company that may have manufactured one or more listed substances may want to confirm whether it did manufacture any of the 20 high-priority substances since January 27, 2015.
Article importers, such as many retailers, may want to review available composition information for the articles they imported, or contact their foreign suppliers for that information, to determine whether they manufactured any of the 20 substances as an importer of articles.
Trade associations whose members may be affected by the TSCA fees obligation may want to notify their members.
Affected companies should plan to report to EPA by March 27, 2020.