A Real World Example of the Impact of EU Regulation

During the run up to the brexit vote, there’s been a lot of debate about whether or not EU regulations are bad or not, running the gamut from fatuous regulations on the amount of curvature allowed in cucumbers to fairly obviously beneficial ones like preventing the use of lead paint in children’s toys. I happen to have personally dealt with the fallout from one EU regulation, so I though I’d share it with you all.

I was hardware manager at a UK computer security company in 2006. We had successfully released the company’s first hardware product, and it was shipping in North America and most of the big EU markets (the UK, France, Germany, and Spain). Due to paranoid fear of the GPL on the part of our lawyers in the UK, the product used FreeBSD rather than Linux. Everything seemed to be going pretty well.

rohsThen, on July 1, 2006, RoHS came into effect in Europe. This meant that electronic equipment sold in Europe had to be manufactured using new processes that avoided some fairly toxic elements, notably, lead. The problem for us was that our product included a SCSI adapter that was not RoHS compliant. Our supplier scrambled and found exactly one that complied. The new controller worked perfectly with Linux, but the FreeBSD did not support it.

Fortunately, we had a skilled developer on staff who was a FreeBSD contributor, and he was able to get the new controller working with FreeBSD (and we contributed his fixes back to FreeBSD). We then had to upgrade all of our existing customers with the new operating system, because we wanted all customers on the same version of the firmware. Also, all of the inventory in our European warehouse had to be shipped back to the US and replaced with the new RoHS compliant hardware.

I’m not saying that RoHS isn’t a good idea, but because it applies only in the EU, and none of the hardware we used came from the EU, it’s hard to see in this case how it benefited anyone. Our company (a UK company) and our supplier (a US company) spent a lot of money to change to the new hardware. The OEM of the adapter continued to make non-RoHS compliant products for the rest of the world; they only built the RoHS compliant board to be able to sell into the EU. Our customers in the EU got to enjoy higher costs thanks to the RoHS compliant adapter being more expensive.

So in this case RoHS was bad for the UK, the EU, and the US. Asia (where the OEM was based) may have got a slight benefit from learning how to manufacture without lead, but had to incur huge costs and create duplicate product lines, and were still using the dirtier manufacturing techniques for the cheaper hardware they were selling to the rest of the world. So realistically, it was a loss all round.

According to the IPC, RoHS costs a typical distributor “millions of dollars,” a staff increase of 5 percent to 7 percent, and man hours from its legal, marketing and IT departments. RSJ Technical Consulting (a company whose business is helping other companies comply with regulations) estimate R&D and capital costs [of RoHS] for a typical electronics company average 1.9 percent of annual revenues and for small and medium companies (SMEs) the cost is as high as 5.2 percent of annual revenues. (Source: The High Cost of Compliance: A RoHS Retrospective).

For a SME in the UK, this means targeting the EU can make them uncompetitive in the US, Asia, and other markets. If adopted by all countries, RoHS would be a positive, but without wide adoption, as an environmental measure, its impact is limited. As a protectionist measure (which, AFAIK, it was not intended to be), it failed in our case, because only a electronics-manufacturing-growth-2013small part of the software came from the UK (most of it written in Canada), and all of the hardware was assembled in the US and manufactured in Asia.

RoHS is only one regulation. Looking at growth rates for the Electronics Industry over the last 3 years tells a bigger story. In 2013, Asia’s industry grew by 4%. The EU’s shrank by 1%. In all three of the last 3 years, the EU has had the lowest growth in electronics manufacturing, lower than Asia, North America, and Australia/New Zealand/South Africa.legend

While the lackluster growth of Europe’s electronics industry is not all down to EU regulations, it is down to EU economic policy, to which the UK is bound to comply to a high degree. Whether this justifies the UK’s exit from the EU or not, it certainly gives credence to questioning whether EU policy and regulation are working in the best interests of Europe.

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About jimbelton

I'm a software developer, and a writer of both fiction and non-fiction, and I blog about movies, books, and philosophy. My interest in religious philosophy and the search for the truth inspires much of my writing.
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