NZCIC COMMENT ON HAZARDOUS SUBSTANCES
PRICING POLICY

Reference: A. ERMA Consultation Paper dated February 1999
B. Recommendations of the HSNO Industry Review Group

• A note to organisations who've made submissions on proposed fees and charges
• Introduction
• Pricing Policy
• Fee Levels
• Public Notifications
• Codes of practice
• Summary
• Conclusion

• Response to Points raised in Submissions
• Simon Upton press release (Govt to subsidise HSNO applications)

Introduction:

The NZCIC is supportive of the general intent of the HSNO legislation, however, our members are strongly opposed to any attempt to:

• Inhibit access to new technology and scientific advances;

• increase the complexity of doing business in New Zealand;

• significantly increase business compliance costs, contrary to expressed Government policy;

• expose New Zealander’s to accusations of unfair trading practices; and

• disadvantage New Zealand companies compared to their competitors.

The NZCIC response to the pricing proposals (Reference A) are predicated on the assumption that:

• the Hazardous Substances and New Organisms Act will be amended to provide a ‘rapid assessment’ process for approving low risk hazardous substances;

• any ‘rapid assessment’ process will give ERMA New Zealand discretion to determine which low hazard hazardous substances qualify for the ‘fast track’ approach, including exemption from the public notification process;

• the hypothetical Example ‘A’ cited in Reference A indicating a cost of $650 or less for a typical ‘fast track’, non-notified approval represents the most likely scenario for most importers and manufacturers of hazardous substances;

• when required by the degree of hazard posed by a substance, some of the toxicity and ecotoxity data specified can be obtained by extrapolation rather than testing;

• Government will take note of the recommendations of the Industry Review Group (Reference B).

ERMA New Zealand’s assurances that an in depth, environmental risk assessment will not be required for industrial chemicals which are not intended to be released into the environment, are reflected in the detailed implementation instructions.

Pricing Policy:

The chemical industry accepts the ‘user pays’ principle, however, the Government should recognise an element of ‘public good’ in determining whether full or partial cost recovery is required. We also expect any compulsory charges to be transparent, justifiable and representing value for money.

The pricing policy as stated fails to address the following industry concerns:

• The first applicant bears the full cost of obtaining an approval, whereas others can subsequently benefit at no cost. This concept is inherently unfair and is a major issue for many of our members. The possible solutions to this dilemma are admittedly complex and this issue requires further consideration.

• The proposed ‘full cost recovery’ policy does not recognise the considerable effort and expense already incurred by companies in researching, preparing and processing an application through to approval.

• Furthermore, the ‘full cost recovery’ approach should reflect the wider benefit to the community arising from the introduction of innovative and improved products. Uninhibited access to advanced chemistry, including more effective and often less hazardous products, is clearly beneficial to the nation. Therefore, this ‘public good’ aspect should be reflected in the cost structure imposed on industry.

• Unreasonable fees will also actively discourage business in one of the world’s smallest, but sophisticated, commodity chemical markets. The quantity of many chemicals and formulations will not allow excessive charges to be recovered. For example, multi-national DuPont has already decided to withhold several products from the Australian market because of the cost of obtaining approvals under ‘NICNAS’.

• The NZCIC believes the potential income from applications for new hazardous substances will prove to be relatively small and fears any budgetary shortfall could result in further fee increases. International trends indicate manufacturers and importers will be increasingly dealing with specialty chemicals in relatively small quantities. Many of these are expected to qualify for exemption under the expanded R & D and experimental purpose categories, recommended by the Industry Review Group. Others may attract greatly reduced fees under the promised ‘fast track’ rapid approval system (see below).

• The NZCIC’s call for a ‘fast track’ procedure to minimise the procedures and costs associated with importing relatively low risk hazardous substances, has been acknowledged and incorporated in the HSNO Amendment Bill. This procedure should also include recognition of approvals already granted by other credible jurisdictions. A sensible and cost effective rapid assessment and approval procedure will help ensure New Zealand retains access to the latest chemicals for R & D purposes

• The requirement to support applications with data which may not be required or even available internationally, has the potential to dramatically increase an applicant’s costs. This could be largely overcome by ERMA New Zealand progressively phasing in the requirement for certain data, i.e. ecotoxic, in concert with the implementation of similar controls by New Zealand’s major trading partners.

Fee Levels:

It seems premature to debate detailed fee levels until the detailed implementation instructions have been produced by MfE. Our interpretation of the information available, together with ERMA New Zealand'’ response to questions is that:

• many of the specialty chemicals to be imported for the purpose of research, development and evaluation will be exempted from assessment by ERMA New Zealand and therefore attract no fees;

• the charges likely to be incurred for obtaining approval for relatively ‘low risk’ substances will be either:

• less than $600 per item for a non-notified, rapidly assessed example; or

• if the substance falls within an approved ‘generic’ category, then it once again escapes any charges.

The intention to charge for pre-application advice reneges on a widely publicised undertaking given by both ERMA New Zealand and the Government. The NZCIC notes that free ‘public information functions’ are provided by other regulatory bodies and ERMA New Zealand should not be any different.

Unjustifiable charges will not only discourage imports, they will also expose New Zealand to charges of anti-free trade practices.

However, importers and manufacturers are very concerned about the potential fees and charges which they may be liable for under the hazardous substances approval process. This anxiety would be greatly relieved if industry knew what the ‘cut off’ point for assessing hazardous substances will be. Based on the example cited in Reference A, the cost of obtaining an approval for a relatively low risk non-notifiable hazardous substance, would be approximately NZ$650 (US$325) which compares favourably with Australia. If the NZCIC’s proposal that manufacturers and importers bringing in samples of specialty chemicals that will simply be integral to a manufacturing process and not for general release will be exempt is adopted, then importers would be greatly relieved.

• The requirement to fully fund ERMA New Zealand’s operation are considered to be unrealistic and will inevitably result in even higher charges being imposed, thereby further restricting access to innovative products.

• Consultancy fees are to attract a surcharge of +40%. This return to the long discredited ‘cost plus’ mentality is unacceptable – where is the added value to justify the surcharge?

Industry has followed the problems arising from obtaining RMA consent where ‘experts’ are paid to check ‘experts’ at enormous cost for little practical benefit. This unacceptably practice should not be reflected in the HSNO approval process.

Public Notifications:

 

• The Council believes the mandatory public notification process could be streamlined and costs trimmed below the proposed $800 minimum, e.g.

• Ads in major newspapers do not need to include the ERMA New Zealand logo or itemise the controls. Notifications could also be aggregated to reduce the cost;

• A notice on the Internet will suffice for increasing numbers of potentially interested parties; and

• Submitters presumably receive a low cost letter.

Codes of Practice:

There is no justification for automatically charging $1,000 to approve an industry code of practice. The HSNO compliance programme relies heavily on the widespread use of industry codes of practice. Industry will produce the majority of the codes essential to the successful implementation and enforcement of the HSNO performance standards. This initiative should be rewarded, not penalised. The NZCIC is developing several core codes of practice, viz. those which represent national performance standards, in consultation with stake-holders, including ERMA New Zealand.

If ERMA New Zealand is represented on the working party, what else could ERMA New Zealand add to the process?

Incidentally, how would ERMA New Zealand propose to critique and approve international standards?

It is clearly not in ERMA New Zealand’s interest to discourage industry from producing the codes of practice needed to facilitate compliance with HSNO. Any charge should be applied only to codes which have been developed without ERMA New Zealand’s involvement.

Summary:

The above comments are predicated on a number of necessary assumptions. These include the adoption of a rapid assessment process for hazardous substances which appears to be the basis of Example A used in Reference A.

NZCIC members will not accept charges and fees which cannot be justified. The basis for any charges must be transparency and the fee structure must clearly represent value for money, i.e. ERMA New Zealand can be seen to be ‘adding value’ to the bureaucratic process.

There needs to be further discussion regarding a more equitable distribution of costs between:

• the applicant;

• subsequent users of approved substances;

• Government – representing the community and ‘public good’ issues; and

• ERMA New Zealand

Industry expects a thoroughly transparent costing exercise by ERMA New Zealand to demonstrate how operating expenses and costs relating to the approval process can be minimised, including:

• hourly charge out rates which, in the absence of details, appear excessive

• notification processing charges

• charging for an advisory service

• the recognition of approvals by earlier

• a fast track process requiring less time and few resources to administer

A return to the old ‘cost plus’ mentality is unacceptable.

It would appear the potential charge for obtaining a rapid, non-notifable approval for a hazardous substance would be in the order of $650 per application rather than the $1,500 quoted in the example or even the $2,500+ quoted by critics.

Conclusion:

Unrealistic fees:

• represent a disincentive to industry;

• they fail to recognise the industry’s contribution to enhancing our quality of life;

• the costs already incurred in achieving compliance; and

• are at odds with Government policy commitment to reducing business compliance costs.

Unreasonably charges will seriously inhibit New Zealand industry’s ability to provide world class products for virtually every sector of the economy. Furthermore, excessive fees will undermine the co-operation and goodwill extended by industry, which is vital if voluntary compliance and enforcement initiatives are to be sustained.

The issue of fees and charges, including the concept of full cost recovery from an applicant, needs to be further discussed with industry once the criteria for deciding which hazardous substance will require approval, have been determined.

Uncertainty over interpretation and pricing creates doubt and frustrates business planning. Assurances that ERMA New Zealand will adopt a very flexible and pragmatic approach to implementing HSNO is welcome. However, industry is waiting for the detailed implementation instructions to clarify the actual situation relating to charges and fees.

Barry S. Dyer

Chief Executive

13 May 1999

To organisations and individuals who have made submissions on proposed fees and charges

PRICING

I would like to thank your organisation for responding to our call for submissions on ERMA
New Zealands proposed schedule of fees and charges. This material has been considered by the
Authority. I hope it might be possible to release the final schedule by late May.

Attached for your information is a summary analysis of the submissions received. This was prepared by an independent consultant.

Review of the submissions and initial discussions within ERMA New Zealand have identified a number of aspects of the fees and charges schedule to which we can respond specifically. In most cases this response is toward accommodating points raised in submissions. This response is also attached

Some submitters have raised points which relate to their own circumstances, and these will be individually responded to. Many of the points raised in submissions relate to Government policy and to the requirements of the HSNO Act. In cases like that we have no capacity to respond directly. However, the Authority has written to the Minister for the Environment to pass on points of that nature. The Authority has especially drawn to the Minister's attention continuing concern over the cost implications of the FISNO regime, and the strong call in many submissions for a continuing financial contribution from the Government to the cost of dealing with applications.

Yours sincerely

Bas Walker
Chief Executive

Response to Points raised in Submissions
Applicants to be charged what it actually costs

Many submissions did not appreciate that the underlying pricing policy proposed, for Part V applications especially, is that applicants should he charged what it actually costs. That was the intent of the proposals. The responses indicate that we should continue with that policy in the final pricing schedule, and we propose to do so.

It is especially stressed that the so-called "initial fees" are simply 1st instalment payments. If actual costs turn out to be less than this, money will be refunded to the applicant.

In a similar vein submitters have asked that references to "estimates" should as far as possible replaced with "accurate and measured". We will make this change, especially in relation to pre-application interactions.

Spreading of costs to "user' of approvals

Many submissions argued that it was unfair and a disincentive to innovation, for the first person to gain approval for a substance to pay all the costs. Other "users" of the approval could then "free load".

The framing of the HSNO Act does not make spreading the costs feasible. We have discussed
the possibility of legislative change to enable cost spreading to occur with our Industry
Consultative Group (1CG). The consensus is that the "cure would be worse than the disease
ERMA New Zealand has thus decided not to pursue the notion of cost spreading any further.

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No "Double Payment" for Transitional Approvals

There was a suggestion that applicants would have to pay twice for transitional decision-making, e.g. dangerous goods licences. That is not the case. ERMA New Zealand will not charge at all for this work. The only charges will he those set by or on behalf of, the existing agencies, i.e. OSH, MoH, MAP and territorial authorities.

Comparison of Costs with Other Jurisdictions and with planning benchmarks

ERMA New Zealand is very conscious that some of the proposed fees and charges are higher than those applying in previous, or in overseas, jurisdictions. For that reason amongst others, we will be working hard to bring costs down, both by being more efficient and by promoting legislative change.

To some extent, the higher costs are a reflection of the required move to full cost recovery and different approaches to charging elsewhere, eg in Australia it is common to reimburse up to 80% of cost through an annual levy rather than an upfront cost.. But to a very large extent, they also reflect the requirements of the Act. In particular:

• the need to publicly notify decisions (and applications in many cases);

• the provision for public hearings; and

• the extensive list of matters which the Act requires the Authority to take account of.

It is our intention to move toward the benchmarking of our costs against those of other jurisdictions, and first steps will he taken in 1999/2000. However, it is cautioned that international benchmarking may prove to be of limited value because of legislative differences and different modes of funding.

We are certainly committed to mating comparisons with our own plaming benchmarks, and making comparisons over time. Average costs were predicted in the statement of intent (SOI) for 1998/99 and a report against this will be made in the Annual Report for the year. We will continue that practice in future years.

Apportionment of costs between applicants and submitters

Many submissions have asked for dearer guidelines for the apportionment of costs between applicants and submitters. However, it is difficult to go further than we have gone. The current policy is that apportionment can only arise in the context of charges made by ERMA New Zealand which relate specifically to the holding of a hearing. Apportionment will be considered if the only reason for holding a hearing is that submitters have asked for it, and the associated submissions are considered to be vexatious, frivolous or completely irrelevant. The actual degree of apportionment will be determined by the Authority as a part of the hearing, taking account of what actually happens at the hearing and any "submissions" made by the applicant or submitter.

Reduction of initial fees

Most submitters thought the so-called "initial fees" were too high. They were set to reflect what we thought would be minimum costs. The name is now changed to read "1st instalment" which is a more accurate description. The levels are also currently being reconsidered with a view to ensuring that sufficient account is taken of variations m complexity between different types of application, and to more genuinely reflect the first instalment of cost rather than the minimum total cost. The result will be to significantly reduce the level of the first payment in almost all cases. However, it is strongly cautioned that this will not translate into a reduction in total cost; it just means that only a portion of the cost will be reflected in the initial payment (or 1st instalment).

Allocation of the Government contribution in the first year

Very few submissions commented directly on the allocation of the Government contribution to costs, which will be at least $1 million in 1999/2000. However, this allocation has been reviewed taking account of informal comments with the following result.

· The charge-out rates will be set so that as best we can estimate the charge-out rates will be stable over time, ie represent long-term rather than short-term costs. Any difference will be funded from the Government contribution.

· A set dollar discount will he applied to the total charges and fees for applications, which at a minimum will cover the entire cost of public notification. This provision is being applied as a transitional measure to reflect representations we have made for changes in the Act which will substantially reduce the actual costs of notification.

· For the 1999/2000 year only section 26 new organism determinations will be wholly Government funded. This provision reflects the need imposed by the HSNO Act to demonstrate that some organisms were present in New Zealand prior to the Act commencing.

· A quantity of funding will be set aside to enable generic issues raised by applications to be examined without charge to the applicant. Allocations of this funding will be by the Authority itself and will occur on a case by case basis.

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Elimination of the "mark-up" on consultant costs

The mark-up on consultant's costs was proposed to enable overheads to be allocated evenly over all direct costs. Otherwise (for example) applications dealt with entirely by staff would be disadvantaged relative to those dealt with using consultants.

The reaction to this has been very negative and we will thus remove the mark-up from consultants. Overheads will have to be re-allocated to staff/Authority member costs and this will increase the charge-out rate for these costs by around $10 per hour, all other things being equal.

Reduction of public notification costs

Suggestions have been made for reducing the cost of public notices including reducing or eliminating the logo and not listing controls. These and other suggestions will be actioned and any savings fed directly into reduced fees and charges. Unfortunately, placing public notices on our website is not a legal way of meeting the requirements of the Act.

Charging in advance limited to 30 days

Yes, we will implement this. This approach will contribute to reducing the level of the lst instalment (Previously the initial fee).

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The proposed volume of the substance should affect the cost

While there is some sympathy with this view, considerable distortions would result if we did other than charge costs to where they Mi. The principal driver of cost ii thus the time needed to properly deal with applications, and this will be influenced by a range of factors including the degree of risk, intended uses and the quality of the information provided.

Justification for charge-out rate

Some submitters have asked for a justification of the staff/Authority member charge-out rate of $130/hr that was set out in the consultation paper. This rate has been reviewed, taking account of latest estimates of cost, numbers of applications expected and the appropriate allocation of overheads. As indicated, the first year charge-out rate may differ from actual costs, because of the Government contribution to costs.

The current estimate for the longer4erm (represented by the 2000/2001 financial year) is $1 10/hour but this has yet to be MI)r confirmed. On this basis and assuming that the charge-out rate for Authority members and staff is the same, the breakdown of total hourly cost for staff is as follows:

A more detailed breakdown is being prepared in conjunction with ERMA New Zealand business planning for 1999/2000, and will be made available on request.

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