Industrial Chemicals Bill 2017: A new era of regulation in Australia

The reform package for Australia’s chemical industry will bring about a shift in the way industrial chemicals are regulated. Most notably, it includes the first move away from testing cosmetics on animals.

On 1 June 2017, the Federal Assistant Minister for Health, Dr David Gillespie MP, introduced six bills into the House of Representatives, proposing to bring change to the way industrial chemicals are dealt with in Australia. The Industrial Chemicals Bill 2017 (the Bill) is the key bill, touted to “reduce red tape and improve the safety risk framework for industrial chemicals in Australia”. The other bills deal with transitional arrangements and the introduction of fees and charges. The changes are proposed to commence on 1 July 2018. The Senate referred the six bills to the Senate Community Affairs Legislation Committee for inquiry and report. The due date for reporting has been extended to 8 August 2017.

Industrial chemicals have a varied and wide-ranging role in modern Australian society. They are used in a range of industry sectors such as mining, manufacturing and the building and construction industry. We anticipate this ‘risk-based’ legislation reform will be of great interest to those involved in those sectors and interested members of the public.

Further detailed information about delegated legislation to be implemented, the ‘rules’, is provided in the National Industrial Chemicals Notification and Assessment Scheme (NICNAS) ‘Consultation Paper 5’. This article does not propose to canvass the detail provided in that technical Paper but we note it deals with relevant topics, such as persistent bioaccumulative and toxic substances.

Highlights of the Bill

The Bill establishes a new scheme, the Australian Industrial Chemicals Introduction Scheme (AICIS) that will replace the current scheme, the NICNAS under the Industrial Chemicals (Notification and Assessment) Act 1989 (Cth) (Current Act) which will eventually be repealed.

The Bill notably implements the Government’s 2016 election commitment on animal testing, banning the use of animal testing data for industrial chemicals, where those chemicals are intended solely for an end use in cosmetics.

The Bill encourages self-regulation for the use of lower risk chemicals. It also creates an independent statutory office holder, the Executive Director of AICIS, who will have powers to create ‘rules’ that will be implemented via delegated legislation, administer the AICIS, carry out functions and powers under the Bill and consult with various bodies, including State environmental protection authorities and work health and safety authorities.

Who will be affected by the AICIS?

Those persons ‘introducing’ (that is, importing and manufacturing) ‘industrial chemicals’ (with an ‘industrial use’) will be caught by the AICIS. The Current Act also regulates the manufacturing and importing of industrial chemicals, so those involved in the industry are likely to already be aware of their current obligations to some extent. The Bill does introduce several new concepts.

‘Industrial chemicals’ appear to be more broadly defined in the Bill, however, the Explanatory Memorandum notes the definition covers the same scope as the Current Act but has been simplified and modernised. The definition of ‘incidentally-introduced chemical’ is said to provide more clarity than its equivalent ‘incidentally-produced chemical’.

An ‘industrial use’ similarly appears to have expanded from the Current Act’s definition, but is said in the Explanatory Memorandum to be a modernisation of that term. Key parts of the definition to note are the inclusion of storing, transporting and releasing into the environment (perhaps the less anticipated parts of the definition).

The Bill does not apply to certain types of excluded introductions of industrial chemicals (section 11). Industrial chemicals released at a port or at an airport are not caught by the Bill. Industrial chemicals manufactured for export also escape the reach of the Bill, provided they leave Australia within 25 working days from the day they are introduced. Again we note that ‘introduced’ is to import or manufacture the chemical (s 11(3)(c)) (see definitions in s 9).

Persons holding existing approvals under the Current Act will have their interests protected by way of the transitional arrangements in the Industrial Chemicals (Consequential Amendments and Transitional Provisions) Bill 2017. We will not detail all of the transitional provisions here but some key points are:

• Existing ‘commercial evaluation permits’ will be aligned with ‘commercial evaluation authorisations’ under the Bill;

• Existing ‘low volume’ and ‘controlled use’ permits will be aligned as ‘assessment certificates’; and

• Existing low volume or low concentration exempt introductions as ‘reported introductions’; and

• The continuation of registration under the current law to registration under the Bill, for the registration year beginning on 1 July 2018.

Registration

The Bill continues the role of the Commonwealth in regulating the introduction of industrial chemicals in Australia. Those introducing an industrial chemical will continue to have to be registered to introduce the industrial chemical, registration being valid for a registration year that begins on 1 September. The first registration year will begin on 1 September 2018, as will subsequent years.

As noted above, those registered under the current law for 2018-19 will be taken to be on the register for the 2018-19 registration year under the Bill, so those that applied for registration before 1 July 2018 do not have to reapply. If an application was made but not decided before 1 July 2018, it is taken to be an application under the new law.

Categorisation

The Bill introduces six new categories of authorisation for the introduction of industrial chemicals: a listed introduction, an exempted introduction, a reported introduction, an assessed introduction, a commercial evaluation introduction and an exceptional circumstances introduction. As noted above, some of those categories align with existing categories under the Current Act. Exempted, reported and assessed introductions are categories based on the indicative risk determined by the introducer in accordance with the rules and reflect the new risk based approach the Bill is said to take.

Listed introductions are straightforward (section 25). The industrial chemical can be introduced if done in compliance with the listing. Exempted introductions will be dealt with by the rules (delegated legislation) (section 26). One proposed example is the import of a chemical into Australia and then export out of Australia without the package being opened (provided it complies with the requirements in the rules (those requires again are yet to be confirmed)). Reported introductions (section 27) will involve low risk and higher risk chemicals. Higher risk chemicals which are the subject of a risk assessment undertaken by an international body may be introduced as a reported introduction rather than an assessed one. The international body must have assessed the chemical for both human health and environmental risk. Both exempted and reported introductions are for chemicals not included on the inventory under the Bill and are intended for low risk introductions based on hazard and exposure. These two categories heavily put the onus back on the introducer to assess the degree of risk associated with the chemical.

Otherwise, an assessed introduction (section 28) will apply. These will mostly be used for industrial chemicals that pose a medium to high risk to human health of the environment. Commercial evaluation introductions allow a person to introduce chemicals in accordance with a commercial evaluation authorization. These authorizations are only valid for four years and are limited to commercial investigations and can’t be released into the public domain (section 29). Lastly, the exceptional circumstances introduction category applies to those industrial chemicals subject to that authorization. It does not require an application (section 30) but according to the Explanatory Memorandum will only be granted in the most limited of circumstances.

Assessment certificates

This is the procedure for applying to the Executive Director for the introduction of an industrial chemical where the other categories of introduction do not apply. Division 3 Part 3 of the Bill prescribes the application process.

Confidentiality

Part 6 of the Bill introduces confidentiality provisions that will allow the names of certain chemicals (‘confidential business information’) to be kept confidential where in compliance with the rules. Applicants may apply to mask the proper name and proposed end use (section 96).

Offences

The Bill introduces fault based (i.e. intention) and summary criminal offences as well as a civil (on the balance of probabilities) penalty provision for the same conduct. The range of offences available to the Executive Director is said to allow a ‘proportionate response’ and the Explanatory Memorandum to the Bill also notes the civil penalty will need take heed of the stigma attached to a criminal penalty. By way of example, the penalty for introducing an industrial chemical without authorization to do so under a category carries with it a fault based offence of 500 penalty units, a strict liability offence of 60 penalty units and a civil penalty provision of 500 penalty units. It appears that, generally, the fault based and civil penalties are greater than the penalties under the current Act.

The Bill introduces numerous offences including:

• Failing to be registered before introducing an industrial chemical (section 13) - this offence has a maximum criminal and civil penalty of 500 penalty units or $105,000 (from 1 July 2017 a Commonwealth penalty unit will increase from $180 to $210 under the Crimes Amendment (Penalty Unit) Bill 2017) and a maximum strict liability offence of $12,600;

• Introducing an industrial chemical without authorisation by one of the introduction categories (section 24) – the same penalties as section 13 noted above;

Creation of the Australian Inventory of Industrial Chemicals – how will industrial chemicals be listed on the AIIC?

The Bill establishes the Australian Inventory of Industrial Chemicals (AIIC). A registered person may introduce an industrial chemical if it is listed on the AIIC (and they comply with the terms of the listing on the AIIC). As noted above, industrial chemicals that fit the exempted or reported categories will not be listed on the inventory and it is up to individuals to determine whether these categories are applicable. The rules will provide guidance about that. Paper 5 which is currently open for consultation indicates that chemicals not included on the AIIC and not specified to be a particular category will be assessed by individuals applying a risk matrix for environment and human health.

There are approximately 40,000 chemicals already listed on the Australian Inventory of Chemical Substances under the Current Act. These are proposed to all transfer over to the AIIC on or after 1 July 2018, under the Industrial Chemicals (Consequential Amendments and Transitional Provisions) Bill 2017 (see section 39 of that Bill).

If a person wants to add a new chemical to the AIIC, that person will need to hold an assessment certificate for the chemical. Once an assessment certificate issues for a chemical, where that certificate has been held for five years, the Executive Director must list the industrial chemical on the AIIC (provided the assessment certificate is still in force after the Executive Director and other issues relating to confidentiality have been dealt with). Industrial chemicals listed in this manner will be published on the AICIS website.

Alternatively, where the holder of an assessment certificate wants an industrial chemical listed before the end of five years after obtaining an assessment certificate, it must apply for that listing and demonstrate the industrial chemical is not subject to a condition that restricts when the chemical can be listed and also the application requirements (sections 83 and 167). The rules are yet to inform much of those application requirements (e.g. information and documents required).

Animal testing

The Bill is the first legislative step taken in Australia towards prohibiting the testing of industrial chemicals on animals, where the industrial chemical is solely for use in cosmetics. The Government’s Department of Health estimates it will prohibit the testing of chemicals for approximately 99% of the cosmetics introduced in Australia (which means imported or manufactured). We note the Minister did not indicate what percentage of industrial chemicals currently introduced under the current Act rely on animal testing data. Anti-animal testing groups have criticised the reforms, stating there is very minimal animal testing of industrial chemicals for cosmetics in Australia. However, even if that is the case, it is the first step taken behind many other countries that have already adopted an anti-animal testing stance. Australia is following in the footsteps of the European Union (the leader in reform in this area) and other countries such as India, Norway, Taiwain, Turkey, New Zealand and South Korea. The United States is currently considering a ban and China has recently moved away from compulsory testing of industrial chemicals for end use in hair, skin and nail products, perfumes and makeup.

Post 1 July 2018, where a person is determining the category of introduction of an industrial chemical, or an assessment certificate application is made for listing on the AICS (where the end use of the industrial chemical is solely for cosmetics) the information relied on to support the applicant must not use or include animal test data obtained from tests conducted on or after 1 July 2018 in circumstances prescribed by the rules (sections 103 and 168).

It is intimated in Consultation Paper 5 that the rules will set out two exceptions to that rule, namely where animal test data obtained after 1 July 2018 showed an industrial chemical was potentially hazardous to human health and where data showed risks to the environment (and where it was shown that there were no validated non-animal alternatives).

Although the Bill does not ban the importation of products already manufactured overseas, which contain industrial chemicals that were tested on animals, it is still a step in the right direction following the international trend away from animal testing. Generally, new alternative methods of testing products are becoming increasingly popular (albeit some still in the development phase, such as using stem cell technology). Other non-animal testing techniques include using hens’ eggs to predict eye irritation and clinical trials on humans, both of which are becoming increasingly accepted.

Given animal testing of industrial chemicals is phasing out internationally, the next step forward for reform (which hopefully will be in the very near future) should be the banning of test data obtained from testing on animals for determining the category of introduction of industrial chemical, or to support an application for an assessment certificate for the introduction of an industrial chemical (but not just those used solely for cosmetics). Of course, exceptions will be made if there are sufficient concerns for the environment or human health.

Higher risk chemicals and sharing of information

The Executive Director can decide to refuse to issue an assessment certificate for a chemical (see section 37 of the Bill). Refusal to issue an assessment certificate was not possible under the Current Act. This is another way the Bill focuses its attention on higher risk chemicals.

The Bill introduces a power for the Executive Director to make rules that prohibit the introduction or export of an industrial chemical where it is the subject of a prescribed international agreement or arrangement (section 163(1)). A prescribed international agreement is an international agreement to which Australia is a party and is prescribed by the rules. A prescribed arrangement is defined to be any international arrangement that provides for countries to ban, restrict or otherwise regulate the introduction, use or export of an industrial chemical for the purposes of protecting the environment, public health or occupational health and safety (section 9). Interestingly, Australia does not have be a party to that agreement. The Executive Director must notify the proposed prohibition 20 business days prior to prohibiting the chemical and requiring those persons who do introduce or export the industrial chemical to notify the Executive Director about the movements of the industrial chemical in and out of Australia (section 163(2)). That information can then be shared with a country, an “appropriate authority of a country” or a relevant international organization (section 163(3)). This power will allow the Executive Director to ensure that hazardous chemicals or those with the potential to be hazardous are properly managed and where necessary, prohibited from Australia.

Judicial review

The Bill spells out the decisions of the Executive Director that can be subject to requests for reconsideration of the decision (section 166). The further reconsideration decision is subject to application to the AAT.

Conclusion

The due date for the Senate Community Affairs Legislation Committee’s report has been extended until 8 August 2017. It will be interesting to see what the Committee concludes in response to the divergent submissions made by groups with environmental, health and industry concerns.

There is still a great deal of detail to be confirmed by the rules, so to some degree the full extent of the proposed legislation is yet to be confirmed. By way of example, the definition of ‘manufacture’ in section 9 of the Bill, a key term in the context of the introduction of industrial chemicals under the Bill, excludes certain methods of production and extraction of industrial chemicals. These methods still need to be made certain by the making of the rules. Consultation Paper 5 provides a large amount of information about the potential rules to be implemented. Consultation on Paper 5 is open until 12 July 2017 on the NICNAS website and we strongly encourage those interested in introducing new, unlisted chemicals not included on the AICS to participate in the consultation process.

Another criticism of the Bill is its prospective nature: it fails to deal with the use of animal testing data on existing, unassessed chemicals listed on the AICS and only deals with the new chemicals proposed to be imported or manufactured. The Government’s response to that is that it is not practical to deal with the 40,000 chemicals already listed with respect to animal testing. Some animal rights groups have publicly stated they are disappointed with the delayed implementation of the reforms and also the limited scope of the Bill. However, conversely, some industry feedback has been that the Bill will introduce additional regulatory red-tape for companies. The Bill is said to hopefully sit somewhere between both sides to the argument.

However despite these criticisms, the Government’s steps towards streamlining what is said to be an outdated and overly complicated regulatory environment for industrial chemicals should be encouraged and supported.

The industrial chemicals market in Australia is significant. The Second Reading Speech of the Bill advised that the Australian import and export of industrial chemicals in 2015/16 accounted for approximately $62 billion in imports and exports. Further regulation of this industry is a necessary step towards greater control of industrial chemicals within Australia.

Environmental, social and governance performance is increasingly being recognized as a key part of corporate risk management and also, according to General Motors’ Director of Global Sustainability David Tulauskas recently, a mainstream input for financial analysis. In an interview featured in the 2016 General Motor’s sustainability report, Mr Tulauskas noted, “even credit agencies are starting to use ESG data”. Greater regulation of the use of industrial chemicals follows that general trend for business to have serious regard to environmental and health issues. It also follows the international trend to reduce our reliance on information about industrial chemicals obtained via animal testing and the reform will be recognised around the world. Ideally these amendments will keep a closer watch on industrial chemicals in a way that is streamlined for business. The self-assessment of categories of introduction is a key step in that direction. The Government and future governments will have to monitor whether that self-assessment regime is effective and safe, for both human health and the environment.