A European Union (EU)'s directive on Waste Electrical and Electronic Equipment (WEEE), which officially took effect on August 13, raised Chinese manufacturers' production costs and squeezed profit margins. But another directive on Restriction of Hazardous Substances in Electrical and Electronic Equipment (RoHS), due to take effect as of July 1, 2006, is viewed as a more severe threat to the survival of Chinese goods, and companies, in the EU market.

According to the General Administration of Quality Supervision, Inspection and Quarantine, the two directives affect eight categories of Chinese products, including big and small electrical appliances, IT products, electric tools, electric toys, lighting, home electronic equipment and vending machines. US$56 billion worth of exports are expected to be directly impacted.

Zhejiang, a southeast China province with flourishing electronic businesses and an export-oriented economy, is likely to be most affected by the new directive. Statistics show that the province exported US$21.71 billion worth of electronic products and machinery in 2004, and with exports to Europe worth about US$6.17 billion.

A few multinationals knew of the possibility of a new directive beforehand, and started pressing their upstream suppliers in Zhejiang for the right materials early. Earlier this year, Sony Inc. ran a check on its over 4,000 Chinese suppliers and dropped those that didn't meet their requirements. Panasonic, Omron and Foxconn also tightened their supervision of suppliers.

The RoHS requires that for products sold in the EU market, the weight of cadmium in a product should be no more than 0.01 percent of its total; lead, hydrargyrum, hexavalent chromium, polybrominated biphenyl (PBB) and polybrominated diphenyl ether (PBDE) counts should each be no more than 0.1 percent.

"An ordinary electronics product usually contains many components and is made of a combination of materials, so it is hard for Chinese enterprises to replace all these materials in the short term in order to have their products totally accord with EU standards," Shen Guoqiang, general manager of a local electronics company, told the 21st Century Business Herald on August 15.

Shen's company has put together a special team to tackle the problem. The company has so far managed to find substitute materials that meet the RoHS requirements and has set up an environment-friendly production procedure, Shen said.

Other Zhejiang companies are doing the same even if it means raising their production costs.

Local authorities are also doing their part to help domestic manufacturers tackle the issue.

On July 20, the local inspection and quarantine bureau of Ningbo, an important port city in Zhejiang, and NEC Factory Engineering agreed to work together on an international analysis center. The center will test the environment protection performances of electronics and machinery and provide technical support to local exporters.

Meanwhile, dozens of low-voltage electronics manufacturers have also decided to cooperate and deal with the situation as a team.

The cooperation between small to medium-sized enterprises (SMEs) will benefit both themselves and the whole industry.

Moreover, officials with the provincial bureau of quality and technical supervision have warned that the US and Japan, another major market for Chinese products, might follow suit on the standards.

"The whole industrial chain is likely to be shuffled," warned an official with the Zhejiang Provincial Economic and Trade Commission. It is hard to qualify the EU's standards without the joint efforts of manufacturers, parts suppliers and raw material producers, the official added.

He also reiterated that Chinese manufacturers might be kicked out of the EU market if the matter isn't properly handled.

(China.org.cn by Tang Fuchun August 19, 2005)