Our industry has made heroic efforts to become more competitive, to improve quality, to cut costs, to be environmentally responsible. But they are still not enough according to regulators on both sides of the Atlantic. A rising tide of regulation is now washing at the foundations.

This tide may not drown us but it will make it difficult for us to breathe. In the last issue of PaperAge, W. Henson Moore, president of the American Forest & Paper Association (AF&PA), listed five factors that affect the industry's global competitiveness. Having read it, I looked at the rest of my mail and in it was something unpleasant. It was the annual report by CEPI, the Confederation of European Paper Industries—Europe's equivalent of the AF&PA. Its report also listed a few factors that constrain the industry. But first, Henson Moore's “black five”: sustainable fiber supply, high taxes, international trade, market access, and the high cost of complying with environmental regulation.

CEPI's list is as follows: raw materials supply, competitiveness, energy, chemicals, and transportation.

Both associations have common grievances. The U.S. issues are familiar to readers, but the European issues may be less so.

Raw Materials Supply
For years CEPI has lobbied the regulators with the message that wood and recovered paper are natural, renewable and recoverable. It has urged the EU for a comprehensive policy towards the industry. But exactly the opposite is happening. The EU regulators do not see the industry as a “forest cluster” which is linked to forestry, papermaking, woodworking, packaging, printing, publishing, cabinet-making and transportation. They see each sector in isolation and legislate accordingly. For example, the EU sees the industry's paper recycling process as waste treatment.

Competitiveness
For European papermakers, just when things seemed to be going well, they didn't. The accession of 10 new members in May 2004 to the new Europe also brought in a load of bureaucracy in the form of 25 new commissioners and their staff. So, certain issues of critical interest to CEPI's members were deferred. New decision-makers entered the machinery, and for CEPI this meant building—again—new networks to the commissioners and their advisors.

Energy
Energy is a political issue in Europe. The continent is dependent on Arab oil, Russian and Algerian gas. The forest industries have stayed out of the debate because of their impressive record of energy efficiency, CHP, reduced emissions and recycling practices. But the political obsession with climate change and emissions trading, and the lack of price competition among European energy suppliers, now seriously threatens to push up energy costs for the industry. One CEO said, “It's like waiting to be hit.” In contrast, for the AF&PA, Henson Moore seems to have won a small victory for his members.

Chemicals
This is the really bad news. The nemesis is called REACH: Registration, Evaluation, Authorization and Restriction of Chemicals. Its implications are that it could impose costs of $13 million a year on a large recycling mill. This is the likely cost of testing and analyzing magazine grades for chemical substances and notifying REACH of the findings. Extra costs of this magnitude will destroy profitability. Industry sources state that this could do two things: (1) Shift production from secondary raw materials back to virgin fiber; (2) Force recycling operations to mills outside Europe.

The regulators are concerned that there is no system for recording the exact composition of recovered paper. Does anyone know what's in it? The collector of recovered paper is known, but there is no data on either the source or the exact supplier of the original paper products which have been discarded as waste. If the collector is now compelled to provide that data, the implications for the recovery infrastructure are catastrophic. REACH will become law in 2007.

Transportation
There are no major issues here for the industry other than modest emissions, so there has been little intervention by the regulators. What papermakers have to decide is: What is the best mix of road/rail/water links for them from the mill gate to the consumer? Stora Enso has designed, and is operating, its own sealed containerized system across Europe. Other companies are looking at systems which serve their needs, many of which depend on location and markets.

At present, the European paper industry is a big player in the EU. It employs 275,000 people directly and another three million in the forest-based industries cluster. It has nearly 900 companies and about 1,300 mills. It has an annual turnover of $72 billon, and 87% of the wood used by the industry comes from the EU.

But if all of the imminent legislation of the EU becomes law, the industry will cease to be a big player, jobs will be lost and mills will close. Accordingly, the regulators will pad out their numbers, bump up their expenses, be decorated and believe they will have done a good job in applying regulations, the consequences of which will be lost on them.

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