United States Office of Planning and EPA 230/2-12/78-005
Environmental Protection Management December 1978
Agency Washington, DC 20460 * ^
ENVIRONMENTAL
PROTECTION
AGENCY
x>EPA Impact of TSCA
Proposed Premanufactured^"8
Notification Requirements
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EPA 230/2-12/78-005
IMPACT OF TSCA PROPOSED PREMANUFACTURING
NOTIFICATION REQUIREMENTS
Prepared for
Office of Planning and Evaluation
U.S. Environmental Protection Agency
December 1978
Prepared by
ARTHUR D. LITTLE, INC.
Cambridge, Massachusetts
Contract No. 68-01-4717, Task 2
Arthur D. Little No. 81172-02
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This report is available in limited quantities
through the U.S. Environmental Protection Agency,
Industry Assistance Office (TS-799), 401 M St.,
S.W., Washington, B.C. 20460 (800-424-9065).
Arthur D Little, Inc
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PREFACE
The attached document is a contractor's study prepared with the
supervision and review of the Office of Planning and Evaluation
of the U.S. Environmental Protection Agency (EPA). The purpose
of the study is to analyze the potential economic impact on the
chemicals industry of compliance with the proposed Premanufacture
Notification Requirements. These proposed rules were prepared by
the EPA Office of Toxic Substances to implement Section 5 of the
Toxic Substances Control Act.
This report forms the basis in substance and detail for the summary
of economic impacts presented in Section IV-B of the Preamble to
the proposed regulation (40 CFR Part 720). The study also supple-
ments the Support Document to the regulation, which EPA has issued
in conjunction with proposal of the premanufacture notification
rules and proposed form.
This report was submitted in fulfillment of Contract No. 68-01-4717,
Task 2, by Arthur D. Little, Inc. Work was completed as of December
1978.
This report is being released and circulated at approximately the
same time as publication in the Federal Register of a notice of
proposed rulemaking under Section 5 of TSCA. The study is not an
official EPA publication. It will be considered along with any
comments received by EPA before or during the proposed rulemaking
proceedings in establishing final regulations. Prior to final
promulgation of premanufacturing regulations, the accompanying study
shall have standing in any EPA proceeding or court proceeding only
to the extent that it represents the views of the contractor who
performed the study. It cannot be cited, referenced, or represented
in any respect in any such proceedings as a statement of EPA's views
regarding the subject industry or the economic impact of the regula-
tion.
Arthur D Little, Inc
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TABLE OF CONTENTS
Page No.
List of Tables
List of Figures
I. EXECUTIVE SUMMARY 1-1
A. PURPOSE AND SCOPE 1-1
B. MAJOR FINDINGS 1-2
II. CHARACTERIZATION OF THE CHEMICAL INDUSTRY II-l
A. INTRODUCTION II-l
B. GENERAL CHARACTERISTICS OF THE CHEMICAL INDUSTRY II-l
1. Products and Markets II-l
2. Output, Growth, and Foreign Trade II-2
3. Firms, Establishments, Employment II-2
4. Market Structure II-4
5. Chemical Consuming Industries II-8
C. SEGMENTATION OF THE CHEMICAL INDUSTRY 11-12
1. Objective of the Segmentation 11-12
2. Segmentation Alternatives 11-12
3. Proposed Segmentation Scheme 11-13
4. Chemical Innovation in Non-Chemical Industry 11-15
Segments
D. CHARACTERIZATION OF CHEMICAL INDUSTRY SEGMENTS 11-16
1. Industry Structure 11-16
2. Financial Characteristics 11-21
III. NEW CHEMICAL DEVELOPMENT III-l
A. INTRODUCTION III-l
B. NUMBER OF NEW CHEMICALS III-l
C. NEW CHEMICAL ACTIVITY BY INDUSTRY SEGMENT 111-10
D. RESEARCH AND DEVELOPMENT EXPENDITURES 111-23
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TABLE OF CONTENTS (continued)
Page No.
IV. REGULATORY REQUIREMENTS IV-1
A. INTRODUCTION IV-1
B. THE PREMANUFACTURE NOTIFICATION SYSTEM IV-1
C. NOTIFICATION REQUIREMENTS IV-2
V. UNIT COSTS OF PREMANUFACTORING NOTIFICATION V-l
A. INTRODUCTION V-l
B. ASSUMPTIONS USED IN THE COST ESTIMATION V-l
C. ACTIVITIES INVOLVED IN COMPLETING THE PREMANUFACTURE V-5
NOTICE
D. COST ESTIMATING PROCEDURES V-5
E. GENERAL INFORMATION V-9
F. RISK ASSESSMENT DATA V-ll
G. RISK ANALYSIS AND OPTIONAL DATA V-14
H. SUMMARY V-16
VI. IMPACTS OF PREMANUFACTURING NOTICE REQUIREMENTS VI-1
A. INTRODUCTION VI-1
B. ECONOMIC IMPACT VI-1
C. IMPACTED SEGMENTS VI-5
D. ESTIMATED IMPACT OF TSCA PREMANUFACTURING NOTICE VI-9
COSTS ON RATE OF NEW CHEMICAL COMMERCIALIZATION
E. TOTAL COST OF NOTIFICATION VI-15
VII. ARTHUR D. LITTLE, INC., PROJECT TEAM VII-1
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LIST OF TABLES
Table No. Page No.
1-1 Total, Annual Cost of Premanufacturing Notifi- 1-5
cation Related to Unit Cost of Notification
II-1 Sales of U.S. Chemical Industry, 1964-1977 H-3
H-2 The Fifty Largest U.S. Chemical Producers, 1976 II-5 & II-6
II-3 Chemical Industry Concentration Ratios, 1972 II-7
H-4 Input-Output Relationships for the U.S. Chemical II-9
Industry, 1967
II-5 Major U.S. Industries Directly Dependent on 11-10
Petrochemical Production
II-6 Segmentation of Chemical Business Units for TSCA 11-14
Analysis
II-7 U.S. Chemical Industry Data, 1976 11-17 & 11-18
II-8 Employment Size Characterization of Chemical 11-19
Industry Segments, 1975
II-9 Estimated Number of Chemical Manufacturing Estab- 11-20
lishments: Chemical Industry Sector, 1976
11-10 Representative Annual Sales per Chemical for Small 11-22
Firms
11-11 Profitability of U.S. Chemical Industry, 1964-1977 11-24
11-12 Financial Statements: U.S. Chemical Industry, 1975 11-25
11-13 Smaller Soap and Detergent Company Financial 11-27
Statements, 1975
11-14 Smaller Perfume and Toilet Preparation Company 11-28
Financial Statements, 1975
11-15 Smaller Plastic Materials and Resins Company 11-29
Financial Statements, 1975
11-16 Smaller Industrial Chemical Company Financial 11-30
Statements, 1975
11-17 Smaller Paint and Allied Products Companies 11-31
Financial Statements, 1975
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LIST OF TABLES (continued)
Table No. Page No.
11-18 Profits and Fixed Assets of Smaller Companies 11-32
Versus the Industrial Chemicals and Synthetics
Sub-Industry
11-19 Current Assets and Current Liabilities of Smaller 11-33
Companies Versus the Industrial Chemicals and
Synthetics Sub-Industry
III-l Estimated Distribution of New Chemicals According III-8
to Production Volume and Use
III-2 Results of Telephone Survey of 'New' Chemical III-ll
Production/Sales Volume
III-3 Assumed Sales of Survey Chemicals in Tenth Year 111-12
on the Market
III-4 Initial Classification of New Chemical Introduction
Rates in the Chemical Industry Segments 111-14
III-5 Selected Chemical Industry Patent Activity 111-17
III-6 Annual Development of Grossly Modified Substances, 111-19
1969-1974
III-7 Annual Development of New Substances, 1969-1974 111-20
III-8 Number of Chemical Substances Developed Annually 111-21
III-9 Distribution of 25 Selected "New" Chemicals by 111-22
SIC Code
111-10 R&D Expenditures as Percent of Net Sales for 111-24
Chemical Industry Segments, 1957 and 1963-1975
III-ll 1975 Chemical Industry R&D Expenditures as a Percent 111-26
of Net Sales
111-12 Company R&D Expenditures as Percent of Net Sales for 111-27
Chemical Industry Segments, 1957, 1963, 1967-75
111-13 Ranking of Chemical Company R&D Expenditures, 1975 111-28
111-14 Company Funds for Research and Development, by 111-30
Industry and Size of Company: 1957 and 1963-75
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LIST OF TABLES (continued)
Table No. Page No.
V-l Activities Required to Complete Premanufacture V-6
Notice Form
V-2 Notice Form Data Requirements V-7
V-3 Unit Cost of General Information V-10
V-4 Unit Cost of Risk Assessment Data V-12
V-5 Unit Cost of Risk Analysis and Optional Data V-15
V-6 Summary of Estimated Costs for Completion of V-17
Premanufacture Notice Form
VI-1 Percentage of Establishments with Less than 50 VI-6
Employees for Chemical Industry Segments
VI-2 Economic Data per Establishment for High and VI-8
Moderate Impact Segments (1976)
VI-3 New Chemical Introduction as a Function of TSCA VI-12
Premanufacturing Notification Costs
VI-4 Number of New Chemicals as a Function of Reporting VI-14
Costs
VI-5 Total Annual Cost of Premanufacturing Notification VI-16
Related to the Number of Notice Forms
VI-6 Total, Annual Cost of Premanufacturing Notification VI-18
Related to Unit Cost of Notification
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LIST OF FIGURES
Figure No. Page No.
II-1 The U.S. Petrochemical Industry - 1976 11-11
II-2 Distribution of Chemical Sales Volume for Small 11-23
Companies
III-l Inorganic Chemical Product Ranking by Sales Value III-5
III-2 Organic Chemical Product Ranking by Sales Value III-6
III-3 Cumulative Percent of "New" Chemicals Having 10th 111-13
Year Sales Volumes Less Than Indicated Amount
V-l Skills That May be Required to Complete EPA Pre- V-8
manufacture Notification Form
VI-1 Estimated New Commercial Chemical Introduction, as VI-11
Percent of Current Introductions, Versus TSCA
Premanufacturing Notification Costs
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I. EXECUTIVE SUMMARY
A. PURPOSE AND SCOPE
The U.S. Environmental Protection Agency is proposing Premanufacturing
Notice Requirements under the authority of Section 5 of the Toxic Substances
Control Act. This report presents a preliminary analysis of some of the
impacts of these notification requirements.
As initially proposed, the manufacturers of a new chemical will have
to supply EPA with certain information on physical and chemical properties
of the chemical, potential worker and consumer exposure, and production
and marketing plans. The results of available health and environmental
tests must also be supplied but no new testing is required.
The notification requirements may have the following impacts:
changes in the chemical R&D process;
a reduction in the number of new chemicals introduced and a
change in their composition;
increased expenditures for regulatory compliance (testing and
administrative activities);
economic impact on the chemical industry resulting from a
change in the flow of new chemicals;
economic impact on chemical consuming industries as a result
of a change in the flow of new chemicals;
impact on the national economy, including the balance of payments.
1-1
Arthur D Little, Inc.
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This report deals only with the costs of preparing the notification
form and the potential for reducing the number of new chemicals. The other
categories of impacts are important but are not treated here. The impacts
on industry growth and GNP will require important analytical methodology
development in order to evaluate quantitatively.
This report is based on available published data and estimates by the
Arthur D. Little, Inc., staff. There are very little data available on the rate
of introduction and the composition of new chemicals, and, furthermore, what is
available is sometimes contradictory. In addition, the notification re-
quirements are under development and, as a result, an acceptable notification
submission for different categories of chemicals has not been fully defined.
In light of these two factors, the impact results must be regarded as pre-
liminary indications of impact rather than definitive estimates.
B. MAJOR FINDINGS
The major conclusions from this analysis of the premanufacturing notice
requirements are the following:
1. The Notification Form can be divided into three major components:
Minimum Mandatory submission; Maximum Mandatory submission; and Maximum Total
submission. The incremental unit cost of preparing the Notification Form
is estimated to be $2,500 to $14,000 for the Minimum Mandatory, $3,700 to
$22,000 for the Maximum Mandatory, and $9,000 to $41,000 for the Mandatory
and Optional segments of the form. The Minimum Mandatory submission is
intended to be applicable to chemicals with no consumer or worker exposure
1-2
Arthur D Little; Inc
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while the Maximum Mandatory estimate is applicable to chemicals with public
exposure. In many instances, manufacturers will feel compelled to supply
the optional data and, as a result, it should be regarded as a cost of
compliance. The costs will vary with the size of the firm, the characteristics
of the chemical, and the availability of data within the company. EPA
standards for an acceptable submission and current data availability are
also important determinations of the magnitude of these costs.
2. An estimated one thousand chemicals (- 30%) are introduced for
commercial sales each year. Of these, about 300 are believed to have sales
of more than 1,000 pounds per year. In addition, about 2,000 chemicals are
introduced for sale solely for R&D purposes. Small quantities of chemicals
used for R&D are exempt from the notification requirements, though a precise
definition of the exempt quantities and usage have not yet been developed by EPA.
3. Based on a limited sample of recently introduced commercial chemicals,
50% of these chemicals have yearly sales of less than $50,000 after being
on the market for five years. Eighty percent have sales of less than
$150,000. The percentages do not include chemicals which were commercially
unsuccessful,and the sample of chemicals studied may be biased towards higher
volume chemicals.
4. Based on the distribution of the sample of recently introduced
chemicals, 50% of chemicals currently being introduced for commercial sales
would not be introduced if the TSCA notification costs are $10,000 per
chemical. At a unit notification cost of $40,000, 90% of the chemicals
would not be introduced. This reduction in the rate of chemical innovation
does not reflect the number of chemicals held off the market because of
toxicity problems.
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Arthur D Little, Inc
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5. It is not possible at this time to estimate the number of new
chemicals which will be in different categories of notification cost. As
a result, it is not possible to definitively estimate the number of
chemicals to be introduced or the total cost to chemical producers of
the notification requirements. The estimated range of the number of
chemicals to be introduced and their associated total notification cost
is listed on Table 1-1. The unit costs for completing the major segments
of the Notification Form are used to establish the estimates. If the
average cost of preparing a Notification Form is $3,700 to $22,000 (Maximum
Mandatory section), 750 to 300 forms will be submitted with a total cost
of $2.8 to $6.6 million.
6. Medium and small size chemical companies are likely to be more
severely impacted by the notification requirements than larger companies.
The reasons are that smaller companies are less likely to be willing to
cope with the uncertainties and costs of the notification process and will
be less able to take on the higher risks of R&D.
7. The impact of the TSCA Premanufacture Notice Requirements will vary
among the segments of the chemical industry and the firms in any one segment.
The role of innovation varies from segment to segment and differs from firm
to firm within a segment. The segments potentially most highly impacted
by TSCA are:
Soaps and Detergents,
Surface Acting Agents, and
Industrial Organic Chemicals»n.e.c.
1-4
Arthur D Little, Inc
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Also potentially highly impacted are relatively small chemical producing
firms throughout the chemical industry, but especially in the following
segments:
Industrial Inorganic Chemicals, n.e.c.,
Plastic Material and Resins,
Synthetic Rubber,
Toilet Preparations, Perfumes, and
Cyclic Crudes arid Intermediates.
1-6
Arthur D Little, Inc
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II. CHARACTERIZATION OF THE CHEMICAL INDUSTRY
A. INTRODUCTION
The chemical industry in the United States is a complex industry with
many different market segments. This chapter provides some general
characteristics of the chemical industry products and markets, size,
growth rate, types and sizes of firms, and a brief description of the
dependence of other industries on the chemical industry.
A segmentation of the chemical industry for the purpose of analyzing
the impact of premanufacturing regulations is proposed and discussed.
Finally, chemical industry segments are discussed in more detail in terms
of industry structure and financial performance.
B. GENERAL CHARACTERISTICS OF THE CHEMICAL INDUSTRY
1. Products and Markets
The chemicals and allied products industry comprises establishments
producing basic chemicals and establishments manufacturing products by
predominantly chemical processes. The industry manufactures 50,000 to
70,000 chemicals, which can be categorized into three basic product types:
Basic chemicals, such as alkalies and chlorine, and basic industrial
organic and inorganic chemicals which are fundamental raw materials
for finished chemical products as well as primary raw material
inputs to other industries.
Synthetic materials, such as plastics, synthetic rubber and man-made
fibers which are used to fabricate individual products, varying from
packaging materials to tires and apparel products.
Finished chemical products, such as drugs, soaps, cosmetics, paints,
agricultural products, and other chemical products.
Basic chemicals account for more than 60% of the annual industry production
n-1 Arthur D Little Inc
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volume (as measured in pounds or tons of production). On a value of
shipments basis, finished chemical products account for nearly half of
the industry output, basic chemicals account for about 35% and synthetic
materials 15%.
2. Output, Growth and Foreign Trade
During the past decade, the value of shipments of chemicals and allied
products, currently over $100 billion, grew at nearly 10% per year, in
current dollar terms, or about 6% in real terms (Table II-l). Over the
1977-1985 period the industry's output is generally expected to grow at
about 4-6% per year, in real terms.
Historically, synthetic materials exhibited a higher growth rate than
basic chemicals and finished chemical products. This trend is expected
to continue through 1985, because of increasing use of synthetics in
vehicles and packaging.
Foreign trade for the chemical industry has been a significant part of
its activity. Historically, the industry has contributed a substantial
positive balance to a declining U.S. balance of trade. In 1976, the United
States exported more than 10% of the chemical industry's production. Imports
account for roughly 4% of the industry's value of shipments. The positive
net export value is currently more than $5.0 billion per year.
3. Firms, Establishments, Employment
The chemical industry (excluding drugs) comprises almost 7,000 firms
operating nearly 10,000 establishments spread throughout the United States
and employing over 70Q,000 workers. Over 50% of the chemical firms only
process or formulate chemicals and do not manufacture chemicals. Processors
or formulators are not directly affected by the premanufacture regulations.
The industry is not among the most concentrated. The 50 largest firms
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Table II-l
SALES OF U.S. CHEMICAL INDUSTRY. 1964-1977
Year Net Sales
($ Million)
1964 36,300
1965 40,100
1966 44,500
1967 47,500
1968 52,000
1969 55,500
1970 58,100
1971 62,020
1972 69,338
1973 83,581
1974 84,928
1975 88,168
1976 101,809
1977 113,3891
The 1972 to 1977 five-year growth rate in sales is 10.3% per year,
in current dollars. These statistics include the drug industry
which is not covered by TSCA.
Source: Federal Trade Commission, Quarterly Financial Reports,
1971-1977; Manufacturing Chemists Association, Chemical
Industry Facts, 1964-1970.
II-3
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(Table II-2) account for less than 60% of total output; the four largest
firms account for nearly one-fifth.
However, some segments are more concentrated (Table II-3). Over the
1962-1972 decade, concentration ratios remained relatively constant,
so it is expected that 1978 concentration ratios by segment would be
similar to the 1972 ratios. Generally, the more concentrated an industry,
the easier it is to pass on cost increases as price increases. Thus, the
TSCA premanufacturing requirements would generally have less of an impact
on the more concentrated industry segments. Among the more concentrated
industry segments are:
Alkalies and Chlorine (SIC 2812),
Industrial Gases (SIC 2813),
Synthetic Rubber (SIC 2822),
Cellulosic Man-Made Fibers (SIC 2823),
Noncellulosic Organic Fibers (SIC 28Z4),
Soaps and Detergents (SIC 2841),
Gum and Wood Chemicals (SIC 2861),
Explosives (SIC 2892), and
Carbon Black (SIC 2895) .
4. Market Structure
The basic chemical industry is characterized by a competitive market
structure. The market is international and very price competitive.
The synthetic materials industry is also characterized by a competitive
market structure. The market is international and very price competitive in
the large-volume synthetics..
The finished chemicals products market is fragmented. A large number
of small firms produce a wide variety of chemical specialties.
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Table II-2
THE FIFTY LARGEST U.S. CHEMICAL PRODUCERS, 1976
Company
Du Pont
Dow Chemical
Union Carbide
Monsanto
Exxon
W.R. Grace
Celanese
Allied Chemical
Shell Oil
Occidental Petroleum
Hercules
Eastman Kodak
American Cyanamid
Borden
Rohm & Haas
Standard Oil (Ind.)
Gulf Oil
Mobil Oil
Ethyl Corp.
Stauffer Chemical
Phillips Petroleum
Texaco
PPG Industries
Diamond Shamrock
FMC
Air Products
International Minerals
Ashland Oil
B.F. Goodrich
Ciba-Geigy
Standard Oil of Cal.
ML Industries
BASF Wyandotte
Olin
U.S. Steel
Chemical1
Sales
($ millions)
6,400
3,900
3,800
3,577
3,238
,961
,926
,738
,574
,401
1,325
1,247
1,190
1,115
1,096
1,080
1,062
1,027
1,009
1,000
990
950
804
802
801
793
780
743
695
690
685
680
675
657
648
Total
Sales
($ millions)
8,361
5,652
6,346
4,270
48,631
3,651
2,123
2,630
9,230
5,534
1,596
5,438
2,094
3,381
1,153
11,532
16,451
26,063
1,135
1,100
5,698
26,452
2,255
1,357
2.145
818
1,260
4,087
1,996
975
19,434
1.286
710
1,377
8,604
Chemical Sales1
as Percent of
Total Sales
77
69
60
84
7
54
91
66
17
25
83
23
57
33
95
9
6
4
89
91
17
4
36
59
37
97
62
18
35
71
4
53
95
48
8
Net
Income
($ millions)
459.3
612.8
441.2
366.3
2,641.0
131.9
69
126.3
705.8
183.7
106.8
650.6
135.8
112.8
(11.8)
893.0
816
942.5
69.1
113.0
411.7
869.7
151.5
140.0
80.2
63.5
135.4
136.0
15.8
-
880.1
58.8
34.9
72.6
410.3
Net
Profit
(%)
5.5
10.8
7.0
8.6
5.4
3.6
3.3
4.8
7.6
3.3
6.7
12.0
6.5
3.3
-
7.7
5.0
3.6
6.1
10.3
7.2
3.3
6.7
10.3
3.7
7.8
10.7
3.1
0.8
-
4.5
4.6
4.9
5.3
4.8
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Table II-2 (continued)
Company
American Hoechst
Reichhold Chemicals
Mobay Chemical
Atlantic Richfield
National Distillers
Chemical1
Sales
($ millions)
600
585
545
534
507
Total
Sales
($ millions)
745
585
545
8,463
1,504
Chemical Sales1
as Percent of
Total Sales
80
100
100
6
34
Net
Income
($ millions)
16.1
20.1
575.2
90.3
Net
Profit
2.7
3.7
6.8
6.0
Williams Co.
Esmark
Lubrizol
Kerr-McGee
Tenneco
Goodyear Tire
Akzona
Pennwalt
Borg-Warner
Continental Oil
481
453
451
437
437
425
423
419
399
385
1,003
5,268
451
1,955
6,423
5,791
729
777
1,862
7,958
48
9
100
22
7
7
58
54
21
5
61.2
82.6
51.0
134.1
383.5
122.0
5.6
34.9
81.7
460.0
6.1
1.6
11.3
6.9
6.0
2.1
0.8
4.5
4.4
5.8
1. Chemical sales data include sales of drugs and pesticides which are not regulated by the Toxic Substances
Control Act.
Source: CHEMICAL AND ENGINEERING NEWS, May 2, 1977.
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Table II-3
CHEMICAL INDUSTRY CONCENTRATION RATIOS. 1972
4 Largest
Companies
72
65
52
34
26
62
96
74
62
43
28
38
22
68
34
43
35
29
24
39
19
67
39
74
16
1 18
31
8 Largest
Companies
91
81
72
52
41
81
91
74
54
42
53
34
83
52
57
53
47
38
57
31
86
54
99
26
27
56
20 Largest
Companies
99
93
91
76
65
98
100
99
85
65
64
74
51
94
77
74
84
83
57
76
52
98
75
100
41
41
84
50 Large
Companie
100
98
99
93
90
100
_
100
92
78
89
91
66
99
96
92
100
99
74
89
76
99
88
_
58
59
96
SIC
Code Industry Segment
2812 Alkalies and Chlorine
2813 Industrial Gases
2816 Inorganic Pigments
2819 Industrial Inorganics, n.e.c.
2821 Plastics Material and Resins
2822 Synthetic Rubber
2823 Cellulosic Man-made Fibers
2824 Organic Fibers, Noncellulosic
2841 Soap and Detergents
2842 Polishes & Sanitation Goods
2843 Surface Acting Agents
2844 Toilet Preparations
2851 Paints and Allied Products
2861 Gum and Wood Chemicals
2865 Cyclic Crudes & Intermediates
2869 Industrial Organics, n.e.c.
2873 Nitrogenous Fertilizers
2874 Phosphatic Fertilizers
2875 Fertilizers, Mixing Only
2879 Agricultural Chemicals, n.e.c.
2891 Adhesives and Sealants
2892 Explosives
2893 Printing Ink
2895 Carbon Black
2899 Chemical Preparations, n.e.c.
28 Chemicals and Allied Products
(1976)
2911 Petroleum Refining
^-Concentration ratios for the Chemical and Allied Products industry were estimated
by Arthur D. Little, Inc., for the year 1976. The Census does not provide concentra-:
tion ratios for the chemical industry as a whole, but only for individual sectors.
Using an estimated total industry sales of $100 billion in 1976 and chemical sales
of the 50 largest firms (Table II-2), concentration ratios were computed for the
industry as a whole.
Source: U.S. Department of Commerce, 1972 Census of Manufactures, Subject and
Special Statistics, MC72(SR2), and Arthur D. Little, Inc., estimates.
H-7
Arthur D Little Inc
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5. Chemical Consuming Industries
Many other industries depend upon chemicals for production of their
products. For example, oxygen (SIC 2813, Industrial Gases) is critical
to steel producers using basic oxygen furnaces. Processed uranium, a sub-
segment of Industrial Inorganic Chemicals (SIC 2819), provides materials
necessary for the nuclear electric power industry. Table II-4 provides
an estimate of chemical industry purchases and sales to other industries
during 1967 (the most recent year for which this data is available).
While all sectors of the chemical industry sell products to other
industries, the industrial organic chemicals segment (SIC's 2865, 2869
and 2911, sometimes referred to as the primary petrochemical industry) is
more critical to a larger number of industries than any other group of
chemical industry segments. The 1978 U.S. Industrial Outlook estimates that
industrial organic chemicals (or petrochemicals) were essential needs for
eight major industries which had a combined value of shipments of $480
billion in 1977.
The full network of relationships between primary petrochemical produc-
tion and the consumer is complex, but is keyed to a number of major consumer
products which either use petrochemicals directly (Table II-5) or use
industrial products based on petrochemicals (Figure II-l). Some of the
more important consumer product groups that provide these linkages throughout
the U.S. economy are: motor vehicles, furniture, home furnishings, soaps and
detergents, appliances, apparel, Pharmaceuticals, and boats, campers and
trailers.
The chemical industry provides raw materials to many other industries
and chemical products to industrial, commercial and residential users.
Eventually, impacts upon the chemical industry due to premanufacturing
regulations will be indirectly felt by consumers.
TT 0 ArthurDLittle,Inc
11o
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Table II-4
INPUT-OUTPUT RELATIONSHIPS FOR THE U.S. CHEMICAL INDUSTRY, 1967
Chemical Industry Buys From:
Chemicals and chemical products
Other services
Transportation and trade
Petroleum and coal products
Primary and fabricated metals
Paper, painting, publishing
Imports
Electric, gas and sanitary services
Other mining
Rubber, plastics & leather
Food, feed and tobacco products
Machinery, except electrical
Stone, clay and glass products
Construction
Other
Total
Chemical Industry Sells To:
Chemicals and chemical products
Personal consumption expenditures
Textile products and apparel
Rubber, plastics, leather
Net exports
Government purchases
Other services
Agriculture, forestry, fisheries
Construction
Paper, printing, publishing
Primary and fabricated metals
Food, feed and tobacco products
Petroleum and coal products
Other manufacturing
Transportation and trade
Other
Total
1967
Value
($MM)
9,712
5,238
2,304
2,019
1,520
1,178
962
885
807
692
627
432
302
274
804
27,755
9,712
7,867
3,298
2,940
2,863
2,656
2,628
2,451
1,477
1,477
1,266
864
726
693
679
3,392
44,999
Percent
35.0
18.9
8.3
7.3
5.5
4.2
3.5
3.2
2.9
2.5
2.3
1.6
1.1
1.0
2.7
100.0
21.6
17.5
7.3
6.5
6.4
5.9
5.8
5.5
3.3
3.3
2.8
1.9
1.6
1.5
1.5
7.6
100.0
Source: U.S. Department of Commerce, Historical Statistics of the United States.
H-9 Arthur D Little, Inc
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Table II-5
MAJOR U.S. INDUSTRIES DIRECTLY DEPENDENT ON
PETROCHEMICAL PRODUCTION
I. Manufacturing
Industrial Products
Rubber Products
Fabricated Plastic Products
Batteries and Related Equipment
Electric Lighting and Wire
Fabrics, Yarn, and Tire Cord
Mixed Fertilizers
Paint
Construction*
Consumer Products
Motor Vehicles
Appliances
Crops
Apparel
Pharmaceuticals
Home Furnishings
Tires
Phonograph Records
Rugs and Floor Covering
Furniture*
II. Wholesale and Retail
Motor Vehicle Dealers & Parts Suppliers
Furniture, Home Furnishings, and
Floor Covering Stores
Electrical Goods and Appliances Stores
Drug Stores
Apparel and Accessory Stores
Wholesale Che/nicals
Paint, Coatings, Wallpaper Stores
Sporting Goods and Hobby Shops
Luggage and Leather Stores
Air Conditioning and Refrigeration
Equipment
Wholesale Crops
III. Services
Automotive Repair Shops
Electrical and Electronic Repair Shops
Reupholstery and Furniture Repair
Shops
Dry Cleaning Plants
'Not all sectors of each industry are dependent on petrochemicals For example, we estimate
only 10% of construction and 60% of furniture output is directly dependent on petro-
chemicals
Source: Arthur D. Little, Inc., estimates
11-10
Arthur D Little, Inc
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11-11
Arthur D Little, Inc
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C. SEGMENTATION OF THE CHEMICAL INDUSTRY
1. Objective of the Segmentation
A major objective of segmenting the chemical industry is to have
business units suitable for an economic impact analysis; that is, segments
for which new chemicals become a new component of a managed portfolio of
similar chemical products within a product line.
Another major objective of the segmentation is to make it possible to
evaluate the impact of TSCA regulations on different R&D activities in the
chemical industry. Research and development activities vary considerably
across industry segments.
Another objective of the segmentation is to make it possible to evaluate
the impact of TSCA on companies of different sizes and on different types of
production (basic manufacturing versus secondary formulation). Some
segments of the chemical industry do not generally develop new chemicals and
are not directly affected by the premanufacturing regulations.
2. Segmentation Alternatives
For the purpose of evaluating the impact of premanufacturing regulations,
several segmentation schemes were examined: segmentation by type of
manufacturing activity; segmentation by value of sales or employment size
of the firm; and segmentation according to the U.S. Department of Commerce's
Standard Industrial Classification codes for the chemical industry.
The advantages and disadvantages of each of these segmentation schemes
are discussed in the following subsections.
a. Segmentation by Manufacturing Activity
A traditional three-segment approach would divide the chemical industry
as follows:
Basic chemicals
Chemical Intermediates
Chemical Products
or
11-12
Chemical Production
Chemical Processing
Chemical Products
ArthurDI ittlplnr
-------
For this study, such a three-segment approach would not be
sufficiently detailed to reflect the impact of the regulations. New
chemical innovation varies widely within any one of the three segments.
These three segments could better be classified as sub-industries rather
than segments.
b. Segmentation by Size of Firm
While a segmentation by employment or value of sales size of the firm
may be appropriate, the degree of new chemical innovation is expected to
vary considerably within a size category. Also, within the chemical
industry, different markets are served by companies of the same size.
Hence, using this segmentation scheme it would be difficult to estimate
impacts of the regulation. However, within any segment of the industry,
the size of the firm should be considered because R&D activities and new
chemical innovation are likely to vary with the size of the company.
c. Segmentation by the 28 Chemical Industry 4-Digit SIC Codes
The Standard Industrial Classification (SIC) system disaggregates the
chemical industry in 28 segments of major product groups. Economic data are
available at the 4-digit SIC code level, but lines of business differ within
some 4-digit SIC codes and the level of new chemical innovation differs
considerably within some 4-digit SIC codes. A segmentation based on the
SIC code groupings is desirable because of the availability of data.
However, for this analysis, a segmentation more disaggregated than the 4-digit
SIC level is required.
3. Proposed Segmentation Scheme
Using the 4-digit SIC grouping as a start, a 41-segment disaggregation
has been developed (Table II-6) . This segmentation scheme includes many
4-digit SIC codes, with some subdivision to 5- and 6-digit SIC codes, where
appropriate, because of:
"-13 Arthur D I.ittlelnr
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Table II-6
SEGMENTATION OF CHEMICAL BUSINESS UNITS FOR TSCA ANALYSIS
Number
SIC Code
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
2812
2813
2816
28193,4
28197
28198
28195,6,
28213
28214
2822
2823
2824
2841
2842
2843
2844
2851
2861
28651
28655
28652,3
28691
28692
286931
286933
286935
28695
2873
2874
2875
2891
2892
2893
2895
28992
28994
28991,5
38
39
40
41
29111,2,3,4,5
29116
29117,8,9
29110
Industry Sector
Alkalies and Chlorine
Industrial Gases
Inorganic Pigments
Inorganic Acids
Potassium and Sodium Compounds
Chemical Catalytic Preparations
Other Inorganic Chemicals, N.E.C.
Thermoplastic Resins and Plastics Materials
Thermosetting Resins and Plastics Materials
Synthetic Rubber
Cellulosic Man-made Fibers
Organic Fibers
Soaps, Detergents
Polishes and Sanitary Goods
Surface Acting Agents
Toilet Preparations, Perfumes
Paints and Allied Products
Gum and Wood Chemicals
Cyclic Intermediates
Cyclic Crudes
Synthetic Organic Dyes and Pigments
Miscellaneous Cyclic Chemical Products
Miscellaneous Acrylic Chemical Products
Flavor and Perfume
Rubber-Processing
Plasticizers
Synthetic Organic Chemicals, N.E.C.
Nitrogenous Fertilizers
Phosphatic Fertilizers
Mixing Fertilizers
Adhesives and Sealants
Explosives
Printing Ink
Carbon Black
Fatty Acids
Gelatin, Except Ready-to-Eat Desserts
Salt, Essential Oils, and Chemical Preparations,
N.E.C.
Gasoline, Jet Fuel, Kerosene, Distillate and
Residual Fuel Oil
Liquified Refinery Gases
Lubricating and Unfinished Oils, Asphalt
Other Finished Petroleum Products, Including
Waxes
Source: Arthur D. Little, Inc.
11-14
Arthur D Little, Inc
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differences in lines of business,
relative size of the 4-digit segment, and
the degree of expected new chemical innovation.
Size-of-firm data by 4-digit SIC codes are available; however, these data
are generally not available at the 5-digit level.
The 41 segments differentiate among the major chemical business activites,
though smaller product categories are still combined. Within these 41 segments,
larger and smaller firms will probably be differentially impacted by TSCA.
4. Chemical Innovation in Non-Chemical Industry Segments
Some firms, primarily producing non-chemical products, also produce
relatively small amounts of chemicals, either as by-products or to be assured
a source of supply for some chemical required for other products. Very little
information is available concerning new chemical innovation by such non-
chemical firms. Dun & Bradstreet (D&B) does provide information on non-
primary chemical production of firms, because D&B allows for as many as six
4-digit SIC codes to be shown for each establishment. An EPA tabulation of
D&B data on non-primary chemical production was screened to remove segments
obviously producing chemicals as by-products, and the following industry segments
were selected as possibly being involved in new chemical innovation:
SIC Industry Segment
1459 Clay and related minerals
1474 Potash soda and borate minerals
1499 Nonmetallic minerals, n.e.c.
2611 Pulp mills
3111 Leather tanning
3274 Lime
3312 Blast furnaces, steel mills
3624 Carbon and graphite products
5161 Wholesale chemicals
7391 R&D Labs
While some of these industry segments could develop innovative chemicals for
their own use or use by others, it is less common for these companies to market
such chemicals commercially. The number of new chemicals introduced by non-
chemical industry companies is expected to be small. For this analysis they
have been excluded. _T 1C
IJ-15 ~ Arthur D Little Inc
-------
D. CHARACTERIZATION OF CHEMICAL INDUSTRY SEGMENTS
1. Industry Structure
Chemical industry segments vary significantly in terms of value of
shipments, value added, capital expenditures, number of employees and
number of establishments (Table II-7) .
Smaller establishments are generally less able to pass on a fixed
cost because larger competitors can spread similar fixed costs over a
larger volume of products. Some segments have a large percentage of
small establishments (more than 70% of the establishments employ less
than 50 workers). An employment size characterization of chemical
industry segments by establishment provides insights into the size of
establishments within 4-digit SIC codes (Table II-8).
Many establishments in the chemical industry process or mix chemicals,
but do not manufacture or produce chemicals (i.e., where a molecular
change occurs). The processors will not be directly regulated by the
TSCA premanufacturing regulations. No published information was available
to determine the exact number of establishments manufacturing or producing
chemicals (i.e., where a molecular change occurs) as distinct from the
number of establishments simply processing chemicals (i.e., mixing or
formulating chemicals). Since establishments processing chemicals are
unlikely to invent new chemicals, an estimate was made of the number of
chemical manufacturing establishments that are likely to be directly impacted
by the premanufacturing testing requirements. Overall, 4,586 of the 9,748,
or 47% of the establishments in the chemical industry were estimated to
be chemical manufacturers by Arthur D. Little, Inc. (Table II-9).
Information from small chemical producing companies (less than $10
million in sales) on typical annual sales per chemical shows tnat tne vast
11-16
Arthur D Little, Inc
-------
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11-19
Arthur D Little, Inc
-------
Table I1-9
ESTIMATED NUMBER OF CHEMICAL MANUFACTURING ESTABLISHMENTS:
CHEMICAL INDUSTRY SECTOR, 1976
Number of
SIC Number of Manufacturing Manufacturing
Code Industry Sector Establishments Establishments Establishments
2812 Alkalies and Chlorine 52 100 52
2813 Industrial Gases 528 100 528
2816 Inorganic Pigments 111 80 89
2819 Industrial Inorganic Chemicals 459 90 413
2821 Plastics Material and Resins 428 90 385
2822 Synthetic Rubber 62 50 31
2823 Cellulosic Man-made Fibers 20 20 4
2824 Organic Fibers 56 40 22
2841 Soaps, Detergents 545 30 164
2842 Polishes and Sanitary Goods 934 20 187
2843 Surface Acting Agents 166 90 149
2844 Toilet Preparations, Perfumes 607 10 61
2851 Paints and Allied Products 1,477 10 148
2861 Gum, Wood Chemicals 117 80 94
2865 Cyclic Crudes and Intermediates 169 90 152
2869 Industrial Organic Chemicals 481 90 433
2873 Nitrogenous Fertilizers 101 100 101
2874 Phosphatic Fertilizers 136 100 136
2875 Mixing Fertilizers 565 20 113
2891 Adhesives and Sealants 467 20 93
2892 Explosives 79 60 47
2893 Printing Ink 418 20 84
2895 Carbon Black 34 100 34
2899 Chemical Preparations 1,340 50 670
2911 Petroleum Refining 396 100 396
9,748 47 4,586
Source: Arthur D. Little, Inc., estimate based on U.S. Department of Commerce,
Bureau of the Census data.
n-20 Arthur D Little, Inc
-------
majority of chemicals has a relatively small volume of sales. Almost 90%
of the number of chemicals sold had an annual sales value per chemical of
less than $100,000 (Table 11-10 and Figure II-2). While the number of
companies providing information is relatively small, it is likely that
most small chemical producers produce chemicals having a relatively small
annual sales value. Since the vast majority of chemicals sold by these
smaller chemical producers has an annual sales value of less than $100,000
per chemical, even relatively small increases in the cost of new chemical
introduction will have a major impact on the relative number of new chemicals
introduced by smaller companies.
2. Financial Characteristics
Over the period between 1964 and 1977, the after-tax profitability of
the chemical industry has averaged 7.1% of sales. The range of after-tax
profit as a percent of sales over that period has been between 5.9% and 8.4%
(Table 11-11). Over the past seven years, the before-tax profitability of
the industry has ranged from 10.4% to 12.1% of sales, with an average of
11.2%.
At year end 1975, long-term debt was 20.7% of total liabilities for the
Chemical and Allied Products (SIC 28XX) as a whole and 23.6% for the
Industrial Chemicals and Synthetics (SIC 281X, 282X, 286X) sub-industry.
Most chemical production (as distinct from chemical mixing or formulation)
occurs in the Industrial Chemicals and Synthetics sub-industry, so this
sub-industry deserves special attention. The Industrial Chemicals and
Synthetics sub-industry is slightly less profitable, is more capital intensive
(net fixed assets are 45.6% of total assets versus 39.2% for the whole
indus.try) , has slightly more debt, and slightly less equity than the Chemicals
and Allied Products industry as a whole (Table 11-12).
H-27
Arthur D Little, Inc
-------
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10,000 100,000 1,000,000
Annual Sales Per Chemical
10,000,000
Source: Arthur D. Little, Inc., information from small chemical
producing companies.
FIGURE 11-2
DISTRIBUTION OF CHEMICAL SALES VOLUME FOR SMALL COMPANIES
11-23
Arthur D Little, Inc
-------
Table 11-11
PROFITABILITY OF U.S. CHEMICAL INDUSTRY 1964-1977
Year
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
Net Sales
($ million)
36,300
40,100
44,500
47,500
52,000
55,500
58,100
62,020
69,338
83,581
84,928
88,168
101,809
113,389
Income
Before Tax
($ million)
NA
NA
NA
NA
NA
NA
NA
6,700
7,788
9,978
10,285
9,668
11,268
11,806
Income
After Tax
{$ million)
2,900
3,200
3,500
3,260
3,530
3,590
3,430
3,778
4,422
5,686
7,152
6,703
7,610
8,047
Income
After Tax as a
Percent of Sales
7.9
7.9
7.8
6.9
6.8
6.5
5.9
6.1
6.4
6.8
8.4
7.6
7.5
7.1
Source: Federal Trade Commission, Quarterly Financial Reports, 1971-1977; Manufacturing Chemists
Association, Chemical Industry Facts, 1964-70.
11-24
Arthur D Little, Inc
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Table 11-12
FINANCIAL STATEMENTS: U.S. CHEMICAL INDUSTRY, 1975
Income Statement
% of Net Sales
Chemicals and Allied Products
(SIC 2800)
Industrial Chemicals
and Synthetics
(SIC 28ix", 282X, 286X)
Net Sales
Expenses
Profit before Taxes
Profit after Taxes
Balance Sheet
% of Total Assets
Assets
Total Current Assets
Net Fixed Assets
Other Noncurrent Assets
Total Assets
Liabilities
Total Current Liabilities
Long-Term Debt
Other Long-Term Liabilities
Stockholders' Equity
Total Liabilities
Return on Total
Assets (Before Tax)
3
Sales/Equity Ratio
100.0
89.0
11.0
7.6
41.9
39.2
18.9
100.0
17.8
20.7
5.1
56.4
100.0
12.37»
2.0
100.0
89.2
10.8
6.9
38.3
45.6
16.1
100.0
17.0
23.6
6.4
53.0
100.0
11.1%
1.9
Encompasses all segments of the chemical industry including drugs and pesticides,
which are not regulated by TSCA, and excluding chemicals produced by refiners.
2
Return on total assets before tax is profit before tax divided by total assets.
o
The sales/net worth ratio is total sales divided by net worth (or owners' equity).
Source: Robert Morris Associates, 1976.
n-25 Arthur D Little, Inc
-------
The Industrial Chemicals and Synthetics sub-industry may be compared
with selected segments of the chemical industry to determine differences
between segments of the industry. There are also differences within
segments by the size of the firm. Tables 11-13 through 11-17 show 1975
financial statements for smaller firms within the following segments:
Soap and Detergents (SIC 2841),
Perfumes and Toilet Preparations (SIC 2844),
Plastic Materials and Resins (SIC 2821),
Industrial Chemicals (SIC 281 and 286), and
Paint and Allied Products (SIC 2851).
Note that only firms with less than $50 million in total assets are
included in the financial statements. The smaller firms in these segments
are less profitable and less capital intensive than the Industrial Chemicals
and Synthetics sub-industry (SICs 281, 282 and 286), for which data are
available for firms of all sizes (Table 11-18).
While stockholders' equity as a percentage of total assets is comparable
for the five segments and the Industrial Chemicals and Synthetics sub-industry,
smaller firms in the five segments have a much higher percentage of current
assets and current liabilities than the Industrial Chemicals and Synthetics
sub-industry as a whole, i.e., including larger firms (Table 11-19).
Furthermore, within each segment, financial characteristics vary
considerably with the size of the firm. For all segments, generally the smaller
firms are less profitable, have less stockholders' equity as a percentage of
total liabilities, and have a higher percentage of both current assets and
current liabilities.
One may conclude that smaller firms in the chemical industry are generally
less profitable (as measured by profitability as a percentage of sales) than
larger firms and smaller firms are less strong financially than larger firms.
Note, however, that return on total assets for smaller firms is sometimes greater
than that for larger firms, and sometimes smaller.
Arthur D Little, Inc
-------
Table 11-13
SMALLER SOAP AND DETERGENT COMPANY FINANCIAL STATEMENTS, 1975
(SIC 2841)
Income Statement
% of Net Sales
Asset Size: Under $250 M to $1.0 MM to
$250 M1 $1.0 MM $10.0 MM
All
Sizes
Net Sales
Expenses
Profit before Taxes
100.0
97.2
2.8
100.0
93.9
6.1
100.0
92.9
7.1
100.0
93.6
6.4
Balance Sheet
% of Total Assets
Assets
Total Current Assets
Net Fixed Assets
Other Noncurrent Assets
Total Assets
76.7
17.2
6.1
71.3
22.7
5.9
60.9
32.6
6.5
68.6
26.4
5.0
100.0
100.0
100.0
100.0
Liabilities
Total Current Liabilities
Long-Term Debt
Other Long-Term Liabilities
Stockholders' Equity
Total Liabilities
Return on Total ?
Assets (Before Tax) _
Sales/Net Worth Ratio
50.8
13.4
1.4
34.4
100.0
6.2%
5.1
35.0
10.5
0.0
54.5
100.0
17.0%
4.6
-32.2
13.7
0.1
54.0
100.0
13.2%
3.6
29.2
14.5
0.0
56.3
100.0
11.4%
3.9
M means thousands, and MM means millions.
2
Return on total assets before tax is profit before tax divided by total assets.
The sales/net worth ratio is total sales divided by net worth (or owners' equity).
Source: Robert Morris Associates, 1976.
11-27
Arthur D Little, Inc
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Table 11-14
SMALLER PERFUME & TOILET PREPARATION COMPANY FINANCIAL STATEMENTS, 1975
(SIC 2844)
Income Statement Asset Size:: $1.0 MM^to $10.0 MM to All
% of Net Sales $10.0 MM $50.0 MM Sizes
Net Sales
Expenses
Profit before Taxes
100.0
97.8
2.2
100.0
88.6
11.4
100.0
-J59..6.
10.4
Balance Sheet
% of Total Assets
Assets
Total Current Assets
Net Fixed Assets
Other Noncurrent Assets
Total Assets
80.4
14.4
5.2
60.3
33.9
5.8
62.2
32.1
5.7
100.0
100.0
100.0
Liabilities
Total Current Liabilities
Long-Term Debt
Other Long-Term Liabilities
Stockholders' Equity
Total Liabilities
2
Return on Total
Assets (Before Tax)
Sales/Net Worth Ratio
30.4
8.2
0.4
61.0
100.0
5.4%
3.9
26.7
12.3
0.0
61.0
100.0
19.4%
2.4
27.5
11.9
0.0
60.6
100.0
13.4%
3.7
M means thousands, and MM means millions.
Return on total assets before tax is profit before tax divided by total assets.
3The sales/net worth ratio is total sales divided by net worth (or owners' equity)
Source: Robert Morris Associates, 1976.
11-28
Arthur D Little, Inc
-------
Table 11-15
SMALLER PLASTIC MATERIALS & RESINS COMPANY FINANCIAL STATEMENTS, 1975
(SIC 2821)
Income Statement Asset Size:
% of Net Sales
Net Sales
Expenses
Profit before Taxes
Balance Sheet
% of Total Assets
Assets
Total Current Assets
Net Fixed Assets
Other Noncurrent Assets
Total Assets
Liabilities
Total Current Liabilities
Long-Term Debt
Other Long-Term Liabilities
Stockholders' Equity
Total Liabilities
Return on Total
Assets (Before Tax)
3
Sales/Net Worth Ratio
Under
$250 M
100.0
96.5
3.5
68.3
30.4
1.3
100.0
49.9
19.8
1.7
28.6
100.0
4.5%
7.6
$250 M to1
$1.0 MM
100.0
97.9
2.1
67.0
27.5
5.5
100.0
45.3
11.6
1.3
41.8
100.0
8.5%
6.0
$1.0 MM to
$10.0 MM
100.0
95.5
4.5
56.8
38.8
4.4
100.0
33.8
17.8
0.9
47.5
100.0
9.4%
4.5
$10 MM to
$50 MM
100.0
92.4
7.6
55.6
31.6
12.8
100.0
26.2
19.1
0.3
54.5
100.0
10.6%
3.0
All
Sizes
100.0
94.0
6.0
56.5
33.8
9.7
100.0
29.7
18.3
0.5
51.5
100.0
8.8%
4.8
M means thousands, and MM means millions.
2Return on total assets before tax is profit before tax divided by total assets.
3The sales/net worth ratio is total sales divided by net worth (or owners' equity).
Source: Robert Morris Associates, 1976.
11-29
Arthur D Little, Inc
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Table 11-16
SMALLER INDUSTRIAL CHEMICAL COMPANY FINANCIAL STATEMENTS. 1975
Income Statement Asset Size
% of Net Sales
Net Sales
Expenses
Profit before Taxes
Balance Sheet
% of Total Assets
Assets
Total Current Assets
Net Fixed Assets
Other Noncurrent Assets
Total Assets
Liabilities
Total Current Liabilities
Long-Term Debt
Other Long-Term Liabilities
Stockholders' Equity
Total Liabilities
Return on Total
Assets (Before Tax)
Sales/Net Worth Ratio
(SIC 281X, 286X)
: $250 M to1
$1.0 MM
100.0
95.3
4.7
65.2
27.2
7.6
100.0
37.7
10.5
0.8
51.0
100.0
11.5%
5.3
$1.0 MM to
$10.0 MM
100.0
92.8
7.2
59.0
34.2
6.8
100.0
38.9
17.5
0.2
43.4
100.0
13.2%
4.4
$10.0 MM to
$50.0 MM
100.0
90.0
10.0
61.0
32.3
6.7
100.0
27.7
17.2
1.1
54.0
100.0
19.1%
2.9
All
Sizes
100.0
90.9
9.1
60.7
32.6
6.7
100.0
30.3
17.1
0.9
51.7
100.0
13.2%
4.3
M Means thousands, and MM means millions.
2
Return on total assets before tax is profit before tax divided by total assets.
o
The sales/net worth ratio is total sales divided by net worth (or owners' equity).
Source: Robert Morris Associates, 1976.
IT_3Q Arthur D Little, Inc
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Table 11-17
SMALLER PAINT AND ALLIED PRODUCTS COMPANIES FINANCIAL STATEMENTS. 1975
(SIC 2851)
Income Statement Asset Size :
% of Net Sales
Net Sales
Expenses
Profit before Taxes
balance Sheet
% of Total Assets
Assets
Total Current Assets
Net Fixed Assets
Other Noncurrent Assets
Total Assets
Liabilities
Total Current Liabilities
Long- Term Debt
Other Long-Term Liabilities
Stockholders ' Equity
Total Liabilities
Return on Total
Assets (Before Tax)
Sales/Net Worth Ratio3
Under
$250 M1
100.0
96.6
3.4
64.8
29.6
5.6
100.0
30.3
13.4
4.4
51.9
100.0
12.7%
5.3
$250 M to
$1.0 MM
100.0
96.6
3.4
69.4
21.4
9.2
100.0
36.1
13.4
0.4
50.1
100.0
7.0%
4.9
$1.0 MM to
$10.0 MM
100.0
96.4
3.6
67.2
26.1
6.7
100.0
31.6
10.9
1.0
56.5
100.0
7.9%
4.2
$10.0 MM to
$50 MM
100.0
94.9
5.1
64.3
28.7
7.0
100.0
24.2
13.4
3.0
59.4
100.0
8.7%
3.0
All
Sizes
100.0
95.4
3.6
65.4
27.6
7.0
100.0
26.8
12.7
2.3
58.2
100.0
8.2%
4.5
M means thousands, and MM means millions.
2
Return on total assets before tax is profit before tax divided by total assets.
o
The sales/net worth ratio is total sales divided by net worth (or owners' equity).
Source: Robert Morris Associates, 1976.
11-31
Arthur D Little, Inc
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Table 11-18
PROFITS AND FIXED ASSETS OF SMALLER COMPANIES VERSUS THE
INDUSTRIAL CHEMICALS AND SYNTHETICS SUB-INDUSTRY
Segment
Smaller Companies Only
Soaps
Perfumes, etc.
Plastics, etc.
Industrial Chemicals
Paints
Before Tax Profit Net Fixed Assets
as a % of Sales as a % of Total Assets
6.4
10.4
6.0
9.1
4.6
26.4
32.1
33.8
32.6
27.6
All Companies
Industrial Chemicals and
Synthetics Sub-Industry
10.8
45.6
Source: Small company information - Robert Morris Associates, 1976.
Industrial Chemicals and Synthetics Sub-Industry information -
Federal Trade Commission.
11-32
Arthur D Little, Inc
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Table 11-19
CURRENT ASSETS AND CURRENT LIABILITIES OF SMALLER COMPANIES
VERSUS THE INDUSTRIAL CHEMICALS AND SYNTHETICS SUB-INDUSTRY
Current Assets as Current Liabilities as a
Segment a % of Total Assets % of Total Liabilities
Smaller Companies Only
Soaps 68.6 29.2
Perfumes, etc. 62.2 27.5
Plastics, etc. 56.5 29.7
Industrial Chemicals 60.7 30.3
Paints 65.4 36.8
All Companies
Industrial Chemicals and
Synthetics Sub-Industry 38.3 17.0
Source: Small company information - Robert Morris Associates, 1976.
Industrial Chemicals and Synthetics Sub-Industry information -
Federal Trade Commission.
11-33
Arthur D Little, Inc
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III. NEW CHEMICAL DEVELOPMENT
A. INTRODUCTION
The chemical industry will be affected by TSCA premanufacturing notice
requirements because the added costs of introducing a new chemical may reduce
the number of chemicals introduced. This chapter discusses new chemical
development activities. The discussion is divided into three parts:
Number of new chemicals,
New chemical activity by industry segment, and
Research and development expenditures.
Estimates were based on available data. This approach led to serious data
limitations because much of the required information is not collected.
B. NUMBER OF NEW CHEMICALS
An estimated 3000 new chemicals are available for commercial purchase
each year. Of these, only about 300 are produced in quantities greater than
1000 Ibs. Of the remaining 2700 new chemicals, about three-quarters (2000)
are used almost exclusively for R&D purposes, and the rest can be regarded
as purchased for commercial consumption in quantities smaller than 1000 Ibs.,
though some portion of this may also be for R&D. These estimates are based on
consideration of the results of a survey of chemical producers by the Manufact-
*
uring Chemists Association, and firms that prepare buyers' guides or chemical
directories, and on the number of new chemical patents issued.
Although there are a number of estimates of the number of new chemicals
introduced annually, very little quantitative data are available. Such
information has not been required in the past. Furthermore, the lack of an
economic-based classification system for new chemicals has led to considerable
confusion concerning the economic significance of new chemicals in terms
of their annual sales values.
*S_tudy of the Potential Economic Impacts of the Proposed Toxic Substances
Control Act as illustrated by Senate Bill S. 776, Foster D. Snell, Inc.,
February 20, 1975.
III-l
Arthur D Little, Inc
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As with most other products, chemicals tend to follow the product life
cycle concept. In other words, most chemicals go through the following stages
of development:
embryonic
growth,
mature, and
aging, as illustrated below.
Chemical Life Cycle
U
S
o
(-1
bO
aging
O
>
time
As an example, some of today's important commodity chemicals, such as
various resins and plastics, were in the embryonic stage in the 1930's. After
45 years these chemicals are entering the mature stage.
By definition, all truly "new" chemicals begin in the embryonic stage
usually in the research labs of a university or chemical manufacturer. This
is when the new chemical will first appear in either the technical research
III-2
Arthur D Little, Inc
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literature or the patent literature and thus be included in the Chemical
Abstract Service Registry of Chemicals. The latest, 9th Collective Index
to Chemical Abstracts contains 7.4 million entries in the Chemical Substances
Index. New substances are currently being added at a rate of about 350,000
per year. However, this number does not represent only the new chemicals
developed, but includes chemicals, drugs, pesticides and some mixtures that
are "discovered" by the Chemical Abstracts Service in reviewing both old
and new chemical literature worldwide. Some of these substances may have been
manufactured in only milligram quantities.
The EPA Inventory of Chemicals consists of chemicals that have been
manufactured, imported, or processed for commercial purposes in the United
States since January 1, 1975. The number of chemicals on this list will not
be known until some time in 1979, but the total is expected to be between
50,000 and 70,000 unique chemical substances. Because any chemical in the
Inventory escapes classification as a "new" chemical, and thus is exempt
from TSCA premanufacturing notification requirements, there was a strong
incentive for chemical manufacturers to list every eligible chemical.
As a result, most chemicals in the Inventory sell in extremely small
quantities, relative to such "articles of commerce" as chlorine, sulfuric
acid, polyethylene, and oxygen.
As one indication of the market differential between the large-volume
commodity chemicals and most of the chemicals in the Inventory, the following
comparisons are useful:
III-3
Arthur D Little, Inc
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According to a preliminary analysis by EPA, about
half the Inventory chemicals sell in quantities of under
10,000 pounds per year.
This 10,000 pound quantity is a million times smaller
than the individual annual production volumes of the too
15 industrial chemicals.
Fewer than 600 of the chemicals in the Inventory have
annual sales greater than $1 million.
Only 5000 to 10,000 achieve sales volumes high enough to
be listed in the most complete directories of commercial
chemicals. The remainder are too small to be included.
Graphic indications of the sales value ranking of the largest-volume
inorganic and organic chemicals are given in Figures III-l and 11.1-2^
respectively. The sales values of the largest-volume chemicals drop off
rapidly, dropping below $1 million in annual sales at the 59th largest-volume
inorganic chemical and the 460th largest-volume organic chemical.*
Assuming that there are 60,000 chemicals in the Inventory, only
one chemical in 116 has annual sales greater than $1 million, and only
one in 85 has annual sales above $100,000.
The population of existing chemicals provides the framework for
estimating the characteristics of new chemicals. First, new chemicals are
usually in an embryonic stage of development. Second, relatively few chemicals,
whether "new" or "old" ever achieve annual sales volumes above $100,000.
On the basis of interviews with the publishers of several leading
It should be noted that the figures for organics do not include interplant
transfers.
Arthur D Little, Inc
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1000
100
I
Q.
10
o
Q
1.0
0.1
10 20 30 40
Ranking
Note: Inorganic Includes Interplant Transfers.
Source: U S. Dept. of Commerce - Current Industrial Reports.
50
60
FIGURE 111-1 INORGANIC CHEMICAL PRODUCT RANKING BY SALES VALUE
III-5
Arthur D Little, Inc
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III-6
Arthur DUttleJnc
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commercial directories it appears that about three percent of the chemicals
listed in a directory are new each year. The most complete directory has
about 10,000 entries. A commercial chemical is normally defined as one with
a minimum sales level of either $1,000 or 1000 Ibs. per year. About 300 new
chemicals meeting one of these criteria are introduced annually. This
definition excludes a large number of new chemicals (perhaps another 700) that
sell in volumes of under 1000 Ibs.
The total number of new chemicals available for purchase each year
in relatively small quantities is probably about 3000. Many of these are
purchased only for R&D purposes. This estimate is based on consideration
of the Snell report, the annual number of new chemical patents issued, and
a limited number of interviews with industry observers and representatives.
For example, one manufacturer of R&D chemicals adds about 1000 new titles
to his catalog every year.
As provided for in the Toxic Substances Control Act, small quantities
of chemicals used for R&D purposes are exempt from regulation under Section 5.
Because a final definition of R&D chemicals has not been written at this time,
it is difficult to classify chemicals as being either 'R&D' or 'commercial'
chemicals. In order to come to some conclusions concerning potential impacts
it has been necessary to make a number of assumptions.
For purposes of this analysis it is assumed that the number of new
commercial chemicals introduced each year is about 1000. The assumed
classification of new chemicals is shown in Table III-l. It must be understood
that very little information is available on this specific subject and that
these estimates are presented solely for purposes of this preliminary analysis
of TSCA premanufacturing notification impacts. As will be shown below and
in Chapter VI, even these order-of-magnitude estimates allow several important
conclusions to be drawn.
III-7
Arthur D Little, Inc
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TABLE III-l ESTIMATED DISTRIBUTION OF
NEW CHEMICALS ACCORDING TO PRODUCTION
VOLUME AND USE&
(Numbers of Chemicals)
Sales
Use
Under 1000 Lbs
Over 1000 Lbs Total
R&D
2000
2000
Commercial
700
300
1000
Total
2700
300
3000
a. Estimates are subject to at least a + 3,0% uncertainty.
Source: Arthur D. Little, Inc., estimates.
III-8
Arthur D Little, Inc
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Data were not available for commercial chemicals sold in quantities
smaller than 1000 Ibs. per year, but it is assumed that few, if any, manu-
facturers would find it profitable to supply chemicals having an annual sales
value less than $1,000. This sales level or 1000 Ibs. annual sales are often
used as indicators of emerging commercial importance. At the lowest extreme,
many new R&D chemicals sell in annual quantities of only a few pounds and a
few hundred dollars, or less. Almost no regulatory cost can be borne at
this level.
In order to determine several characteristics of new chemicals that
are required for this analysis, 25 "new" chemicals were selected for study on
the basis of being added to the Chemical Week "Buyers' Guide" between 1973 and 1978.
This represents an extremely small sample of the estimated 5000 new chemicals
introduced in this five-year period that would have been subject to premanufacturing
notification requirements. The sample is also somewhat biased because the
Chemical Week Buyers' Guide is oriented toward the industrial segments of the
chemical industry. This bias implies a higher sales volumes than will be
achieved by all of the 1000 new commercial chemicals currently introduced
each year.
III-9
Arthur D Little, Inc
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The results of telephone discussions with the manufacturers of the 25
chemicals are presented in Table III-2. As indicated in the Table, 11 of the
25 chemicals were either no longer manufactured or were sold only for R&D purposes.
Most of the 14 sold commercially were introduced in the mid-to late 1960's.
Although two of these chemicals were still sold mainly for R&D purposes 10-12
years later, most of them achieved sales volumes of $10,000-400,000 annually by
1977. In order to place these chemicals on a consistent basis for purposes of
the impact analysis, the sales values have been "normalized" to a 10th year sales
figure. This has been done by assuming linear growth during this 10-year
period (Table III-3).
The projected sales after 10 years can be translated into a figure relating
the cumulation percentage of these chemicals achieving various levels of annual
sales. These values are shown on Figure III-3. Fifty percent of the chemicals
have sales of less than $85 ,000 after ten years on the market, while 80% have
sales of less than $300,000. The estimating procedure implies that the sales
after five years would be half of those shown on the figure. The assumption of
a constant increment of annual growth is not an accurate representation of the
likely sales history of these chemicals. However, most of them have been on
the market long enough to justify a limited extrapolation of data, where no
other information is available. In spite of the limitations of the approach,
the results provide useful indications of the sales distribution of a small
sample of new chemicals.
C. NEW CHEMICAL ACTIVITY BY INDUSTRY SEGMENT
A preliminary classification of the 41 chemical industry segments according
to anticipated new chemical development activity is presented in Table III-4.
The classification information was developed on the basis of three key inputs:
1) patent activity, 2) survey information from a 1975 study prepared for the
Manufacturing Chemists Association, and 3) Arthur D. Little, Inc. estimates. The
classification is on the basis of numbers of chemicals developed since this relates
directly to TSCA costs.
111-10 Arthur D Little, Inc
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TABLE III-2
RESULTS OF TELEPHONE SURVEY OF 'NEW[ CHEMICAL
PRODUCTION/SALES VOLUME
1977 Sales
Chemical Manufacturer Estimate
No . No .
Pound s
Dollars
Estimated
Value Per
Pound
First Year
of Sale
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17-25
1
1
1
1
1
1
1
1
1
1
1
(thousands) (dollars)
1,000,000
650
.65
225
150
n.a.
n.a.
100,000
5,800
n.a.
n.a.
65,000
400
1,000
24
116
n.a.
10
155
119
n.a.
10
520
24
45
107
775
n.a.
n.a.
1.55
20.50
n.a.
n.a.
8
60
45
1965,1978
2
1
1
1
1
n.a.
85,000
46,000,000
n.a.
n.a.
150
404
11,040
n.a.
n.a.
n.a.
4.75
.24
n.a.
n.a.
1969
1950' s
1950's
1968
1968
1967
1965
1958
n.a.
1968
1972
1968
n.a.
1967
1975
n.a.
Notes
reinitiated
manufacture
will cease
manufacture
production
discontinued
mainly R&D
it
production
discontinued
No longer manufactured, or sold only for R&D purposes.
1. A new chemical for purposes of this survey was defined as one newly listed in
the Chemical Week Buyers' Guide between 1973 and 1978. R&D sales of the chemicals
were excluded.
Source ; Arthur D. Little, Inc., industry interviews.
III-ll
Arthur D Little, Inc
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TABLE III-3
ASSUMED SALES OF SURVEY CHEMICALS IN TENTH
YEAR ON THE MARKET
(thousand dollars)
Year of Assumed 10th
Chemical No. Introduction Year Sales
1 1965 367
1 1969 267
2 1955 67
6 1967 17
7 1965 83
10 1968 200
11 1972 833
13 1966 8
14 1967 183
16 1966 50
17-25 No longer manufactured, or sold only for R&D purposes
a. Linear growth has been assumed for the first ten years
Source: Arthur D. Little, lac., estimates based on Table III-2,
111-12 Arthur D Little, Inc
-------
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-------
TABLE III-4 INITIAL CLASSIFICATION OF NEW CHEMICAL INTRODUCTION RATES
IN THE CHEMICAL INDUSTRY SEGMENTS
New Chemical
Segment
Number
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
Introduction
Code
D
D
D
D
C
A
B
B
B
B
D
B
A
D
A
B
C
D
C
C
B
B
B
A
C
C
A
D
D
D
C
D
D
D
C
D
D
D
D
C
C
New Chemical Introduction
SIC Code
2812
2813
2816
28193,4
28197
28198
28195,6,9
28213
28214
2822
2823
2824
2841
2842
2843
2844
2851
2861
28651
28655
28652,3
28691
28692
286931
286933
286935
28695
2873
2874
2875
2891
2892
2893
2895
28992
28994
28991,5
29111,2,3,4,5
29116
29117,8,9
29110
Code
Industry Segment
Alkalies and Chlorine
Industrial Gases
Inorganic Pigments
Inorganic Acids
Potassium and Sodium Compounds
Chemical Catalytic Preparations
Other Inorganic Chemicals, N.E.C.
Thermoplastic Resins and Plastics
Materials
Thermosetting Resins and Plastics
Materials
Synthetic Rubber
Cellulosic Man-made Fibers
Organic Fibers
Soaps,Detergents
Polishes and Sanitary Goods
Surface Acting Agents
Toilet Preparations, Perfumes
Paints and Allied Products
Gum and Wood Chemicals
Cyclic Intermediates
Cyclic Crudes
Synthetic Organic Dyes and Pigments
Miscellaneous Cyclic Chemical Products
Miscellaneous Acyclic Chemical Products
Flavor and Perfume
Rubber-Processing
Plasticizers
Synthetic Organic Chemicals, N.E.C.
Nitrogenous Fertilizers
Phosphatic Fertilizers
Mixing Fertilizers
Adhesives and Sealants
Explosives
Printing Ink
Carbon Black
Fatty Acids
Gelatin, Except Ready-to-Eat Desserts
Salt, Essential Oils, and Chemical
Preparations, N.E.C.
Gasoline, Jet Fuel, Kerosene, Distillate
and Residual Fuel Oil
Liquified Refinery Gases
Lubricating and Unfinished Oils, Asphalt
Other Finished Petroleum Products,
Including Waxes
Total No. of Segments per Code
A = relatively large number of new chemicals expected
B = relatively moderate number of new chemicals expected
C = rplatively small number of new chemicals expected
D = almost no new chemicals expected
Source: Arthur D. Little, Inc. estimate.
TTT-U
5
9
10
17
Arthur D Little, Inc
-------
The results of this classification show that five of the 41 segments
tend to be heavily involved in the development of new chemicals:
28198 Chemical Catalytic Preparations
2841 . Soaps and Detergents
2843 Surface Active Agents
286931 Flavor and Perfume
28695 Synthetic Organic Chemicals, N.E.C.
In addition, new chemical introduction is moderately important for nine
of the 41 segments:
28195,6.9 Other Inorganic Chemicals, N.E.C.
28213 Thermoplastic Resins and Plastics Materials
28214 Thermosetting Resins and Plastics Materials
2822 Synthetic Rubber
2824 Organic Fibers
2844 Toilet Preparations, Perfumes
28652,3 Synthetic Organic Dyes and Pigments
28691 Miscellaneous Cyclic Chemical Products
28692 Miscellaneous Acyclic Chemical Products
Support for this classification comes from a variety of sources, as
noted previously for numbers of new chemicals. Each of these sources is
discussed below.
1. Patent Activity
Although patent activity in certain segments of the chemical industry is
by no means a direct indication of the importance of new chemical development
to that segment, the number of new patents issued may be correlated to some
extent with new chemical development. A brief discussion of U.S. chemical
industry patent activity is therefore relevant to the classification problem.
111-15
Arthur D Little, Inc
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The U.S. Patent Office has three major categories for classifying patents:
"chemical," "electrical" and "mechanical." Until the 1930s chemical patents
accounted for less than five percent of the patents issued annually. Since
then the percentage of patents issued in this category has climbed to about
one-fourth of the annual total.
A limited analysis of patents issued in 1973 reveals the following
information:
About 20,000 chemical patents were issued,
When drugs, pesticides and other non-TSCA-related patents are
eliminated, the number shrinks to about 1,500,
Of these TSCA-related patents, about 400 were assigned to individuals,
foreign companies, or the U.S. government.
Thus, some 1100 patents of U.S. companies would be potentially affected by TSCA
premanufacturing notification requirements, at the pointperhaps many years
laterwhere the new chemical would be commercialized. These numbers must be
qualified, however, First, not all patented compounds are introduced commercially,
and second, not all new chemicals are patented. Nevertheless, the numbers
serve as an order-of-magnitude indication of the minimum numbers of new chemicals
discovered annually.
In order to establish a relative scale of the importance of new chemical
development activities in the 41 industry segments, 1977 chemical patent data
was related to the SIC system upon which the segmentation scheme was
based. Individual patents from 80 standard patent classes were assigned to
individual 3- or 4-digit SIC categories. In some cases no clear assignment
could be made and, a perfect mapping was not possible. The results of this
effort are presented in Table 1II-5. As indicated in the table, the greatest
chemical patent activity is in SIC 286, Industrial Organic Chemicals.
111-16 A , ... , .
Arthur D Little, Inc
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2. The Snell Survey
According to the Snell survey SICs 282 (Plastics, etc.), 284 (Soaps, etc.)
and 286 (Industrial Organics) dominate the new chemical development process,
together accounting for 78% of the substances achieving commercial success
in the 1969-1974 period (see Table III-6).
A similar profile of "new Substances" is presented in Table III-7.
Again, SICs 284 and 286 dominate the new chemical development process, together
accounting for 85% of the substances achieving commercial success in the 1969-
1974 period.
The rate of "new" industrial organic chemical development by small
(under $30 million in 1972 sales) chemical companies was far higher than the
industry average, This seems to be in general agreement with information
developed later in the "Research and Development Expenditure" Section.
Specifically, analysis of data describing the R&D activities of various
industries and industry segments, indicates that the level of company funding
of R&D falls off much more slowly as a function of company size than is the
case in other industries.
3. Industry Estimates
A final input to the industry classification was a series of discussions
with industry experts at Arthur D. Little and with a limited number of industry
representatives. The discussions with industry representatives focused on
the sample of 25 "new" commercial chemicals described earlier. When these
chemicals are classified according to SIC code, the importance of certain
segments to new chemical development is apparent. The results of this
classification are presented in Table III-9. Most of the chemicals (about 70%)
fell into SIC 286, Industrial Organic Chemicals; about 15% fell into SIC 281,
Industrial Inorganic Chemicals. The remainder (about 15%) fell into SIC 283,
Drugs, which is not covered by TSCA.
111-18 Arthur D Little, Inc
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111-21
Arthur D Little, Inc
-------
TABLE III- '9 DISTRIBUTION OF 25 SELECTED
"NEW" CHEMICALS BY SIC CODE
SIC Code Number of Chemicals Percent of Total
2869 12 48
2865 5 20
2819 4 16
2833a 3 12
28313 1 4
Totals 25 100
a. Not covered by TSCA.
Source: Arthur D. Little, Inc., based on random selection of
new chemicals appearing between 1973 and 1978 in
Chemical Week "Buyers' Guide."
111-22
Arthur D Little, Inc
-------
D. RESEARCH AND DEVELOPMENT EXPENDITURES
An analysis of industry R&D expenditures is another approach to the
problem of measuring the importance of new chemical developmenteither
for the chemical industry as a whole, or for specific segments of the
industry. The chemical industry is a major participant in U.S. R&D
activity. Since one important goal of R&D is the development of new
chemicals and/or products, one may reasonably draw the conclusion that new
chemicals and/or products are of proportionate high importance to the
industry.
Chemical industry funds for R&D have ranged from a high of 4.6% of net
sales in 1967 to a low of 3.4% in 1974 as indicated in Table 111-10. Although
there was a slight increase in 1975, a general downward trend in R&D
expenditures as a percent of net sales seems to be the rule, not only for
the chemical industry, but for most other manufacturing industries as well.
Most of the data available concerning chemical industry R&D activities
have been compiled by the National Science Foundation. These data are
generally available for manufacturing companies for the period 1957-1975
in a report* released by NSF in 1977.
In terms of total R&D funds as a percent of net sales, the chemical
industry, compared with other manufacturing industries, is mid-range, having
a 3.6% R&D funding rate in 1975. Industries such as Food, Textiles, and
Primary Metals rank significantly lower (under 1%), while Office, Computing,
and Accounting Machines rank significantly higher (10.9%).
Research and Development in Industry, 1975, National Science Foundation,
Washington, D.C., released November, 1977.
111-23
Arthur D Little, Inc.
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For the chemical industry as a whole 1975 R&D activities can be
further broken down into three product groups as indicated in Table
III-ll. The highest relative R&D spending activity is in SIC 283, which
is exempt from regulation by TSCA. Furthermore, companies in SICs 281 and
282 make twice as high an investment in R&D as the companies in SICs 284
through 289. To the extent that R&D spending is directly linked to the rate
of new chemical development or the development of significant new uses of
existing chemicals, this means that the companies in SICs 281 and 282 will
be most affected by TSCA premanufacturing notification requirements. On
the other hand, this R&D funding pattern may simply reflect the lower
profit potential associated with developing new chemicals in SIC 284 through
289, in which case companies in these classifications will be most affected
by TSCA premanufacturing notification requirements. A new chemical in
these classifications may typically have a much lower dollar sales volume
and thus be less able to absorb TSCA costs.
A slightly different perspective of chemical industry R&D activity
emerges when "company," as opposed to "total," R&D funding rates are reviewed,
as is done in Table 111-12. Total R&D funding includes both federal and
company funding. The most significant difference to be noted is the
relatively high ratio of company to total R&D funds for the chemical industry
(3.3/3.6=92%). For industries that rank higher than the chemical industry
in terms of total R&D funding, the ratio of company to total R&D funds is
much lower, indicating that the chemical industry has historically been
among the least dependent on federal R&D funding.
R&D funds as a percent of set sales do not drop off significantly
among the top 20 chemical companies as shown in Table 111-13. On the other
hand, this same measure of R&D activity drops off by a factor of three or more
when moving from the four largest company R&D programs to the next four
programs in Office, Computing, and Accounting Machines or Electrical Equipment
5 Arthur D Little, Inc
-------
TABLE III-ll 1975 CHEMICAL INDUSTRY R&D EXPENDITURES AS A PERCENT
OF NET SALES
Industry SIC Code 1975 R&D Expenditures
(% of net sales)
Industrial Chemicals 281-82 3.6
Drugs and Medicines 283 7.5
Other Chemicals 284-89 1.8
3.6
Source: Arthur D. Little, Inc., estimates.
111-26
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)-l
3
0
C/3
111-27
Arthur D Little, Inc
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TABLE II1-13 RANKING OF CHEMICAL COMPANY RGD EXPENDITURES, 1975
(Ranked by Size of R&D Program)
Industry
Chemicals and Allied Products
Industrial Chemicals
Drugs and Medicines
Other Chemicals
Machinery
Office Computing and
Accounting Mach.
All Industry
R&D Funds as Percent of Net Sales
First 4 Next 4 Next 12
SIC Code Companies Companies Companies
28
281-82
283
284-89
35
357
5.0
5.0
10.8
2.7
9.9
13.8
9.7
4.3
4.3
6.3
0.9
6.2
2.9
9.6
5.4
2.2
6.3
2.5
3.0
3.6
11.2
Source: Research and Development in Industry, 1975 National Science Foundation,
Washington, D.C., released in November, 1977.
111-28
Arthur D Little, Inc
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and Communication. It should be noted that these data are for company-
funded R&D programs, not total R&D. This is important because it
demonstrated a broad base of R&D activity by comparison to other industries.
In other words, the importance of innovation goes beyond the top few
companies in the industry.
Chemical industry R&D funds, at $2.4 billion, were the second-largest
(after Electrical Equipment and Communication, $3.0 billion) of any industry
recorded in 1975 (Table 111-14). The chemical industry accounted for 167,
of company R&D funds spent in 1975.
Arthur D Little, Inc
-------
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l5_j*n fr*'*- 5
>fa
Motor vehicles and motor vehicles
Other transportation equipment
Aircraft and missiles
Professional and scientific instrum
Scientific and mechanical meas
instruments
Optical, surgical, photographic
other instruments
Other manufacturing industries .
Nonmanufacturing industries . .
§ ^
P ol
B CX ...
Distribution by size ofc
(based on number of em
Less than 1 ,000
1 ,000 to 4,999
5,000 to 9,999
10,000 to 24,999
25,000 or more
her electrical equipment group.
National Science Foundation.
I Science Foundation
1 Included in the 01
'Estimated by the
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1 See table 1 , footnote 1 .
'Not separately available but included in total.
'SIC codes 3391 and 3399 included in the nonf
4 Data not tabulated at this level prior to 1972.
111-30
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IV. REGULATORY REQUIREMENTS
A. INTRODUCTION
This chapter describes the premanufacture notification system, with
particular emphasis on the role of the proposed regulation. Specific data
reporting requirements are discussed in Chapter V.
B. THE PREMANUFACTURE NOTIFICATION SYSTEM
Section 8(b) of the Toxic Substances Control Act (TSCA) requires the
Environmental Protection Agency (EPA) to publish an "inventory" of chemical
substances manufactured or imported into the United States. The Agency is
in the process of compiling this list and intends to publish it in 1979.
Effective 30 days after the publication of the inventory, any person
who intends to manufacture (or import) a new chemical substance, defined as
one not listed on the inventory, must notify EPA at least 90 days before
commencing production. Persons intending to manufacture a chemical for a
"significant new use" (yet to be defined by EPA) must also submit a notifi-
cation to EPA. This report deals only with the new chemical notification
requirements.
Upon receipt of the premanufacture notice, the Agency has 90 days in
which to complete its review. Under Section 5(c) of TSCA, EPA may extend
this period to 180 days for good cause.
During the review period, EPA may take action under Section 5(e) or
5(f) regulating the production or use of the chemical substance. In the
event that the Agency has insufficient data upon which to make "a reasoned
evaluation of risk", Section 5(e) authorizes EPA to restrict the manufacture,
IV-1
Arthur D Little, Inc
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processing, distribution, use or disposal of the chemical pending develop-
ment of the necessary data. If the chemical may present an "unreasonable
risk to human health or the environment", Section 5(f) gives the Agency the
authority to regulate in any way necessary to eliminate any unreasonable
risk, including a ban if necessary.
EPA will not "approve" or "certify" chemicals. If regulatory action
has not been taken upon the expiration of the premanufacture review period,
the manufacturer is free to begin commercial production.
C. NOTIFICATION REQUIREMENTS
The proposed rules require manufacturers to complete the premanufacture
notification form, which describes in detail the date EPA considers essen-
tial to the premanufacture review.
The notification form is divided into the following segments:
Mandatory Data
General Information
A. Manufacturer Identification
B. Chemical Industry
C. Marketing Data
D. Schematic Flow Diagram
Risk Assessment Data
A. Chemical Properties, Fate Characteristics, and Effects Data
B. Exposure from Manufacture
C. Exposure from Processing Operations
D. Exposure from Cor.sumer Use
IV-2
Arthur D Little Inc
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Optional Data
Risk Analysis and Optional Data
A. Risk Analysis
B. Structure Relationships
C. Industrial Hygiene and Environmental Safeguards
D. Engineered Safeguards
E. Industrial Process and Use Restriction Data
F. Economics, Benefits, and Other Non-Risk Factors
Some of the questions on the notice form are "open ended" by the very
nature of the subject matter. (For example, "List the identity ... of
those impurities which may be reasonably anticipated to be present in the
chemical substance . . .") In completing the form, manufacturers are
required to answer questions to the degree that data are "known or reasonably
ascertainable" to them. This is defined in the proposed rules as "all
information that a reasonable person similarly situated might be expected
to possess, control, or know, or could obtain without unreasonable burden
or cost." It is likely that this criteria will be interpreted by EPA to
relate to both the size of the firm and the potential profitability of the
chemical.
The proposed rules do not require manufacturers to perform health and
safety testing on new chemicals unless:
a Section 4 test rule has been promulgated for a category of
chemicals of which the new chemical is a member; or
the new chemical appears on a list of chemicals EPA publishes
under Section 5(b)(4) of TSCA.
However, submitters must report data on any health and safety tests they
have performed, or are otherwise in their "possession or control".
IV-3
Arthur D Little, Inc
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V. UNIT COSTS OF PREMANUFACTURING NOTIFICATION
A. INTRODUCTION
Among the direct and early costs to the chemical industry in comply-
ing with the requirements of the Toxic Substances Control Act (TSCA) are
those incurred in connection with completing and submitting Premanufac-v
ture Notice Forms to the Environmental Protection Agency as indicated in
Section 5 of the Act. This chapter makes a preliminary assessment of
these costs, based on a number of assumptions and scenarios (Section B).
The estimated costs are the result of an initial probe designed to gen-
erate order-of-magnitude values that would be of use to the Agency at
this time.
B. ASSUMPTIONS USED IN THE COST ESTIMATION
According to the Proposed Rules for Premanufacture Notification for
New Chemical Substances, Part 720, those who submit a Premanufacture
Notice must provide the information requested in the form "insofar as
such information is known to or reasonably ascertainable by him." Since
this criterion of "reasonably ascertainable" information has been defined
by the Agency in a very broad manner (Part 720.23b (2)), one of the major
uncertainties in the estimates generated is the extent of information
that will ultimately be required to satisfy this criterion. Because a
rigorous definition of "reasonably ascertainable" may not be possible,
most guidance concerning the amount and quality of information to be sub-
mitted on the forms will be contained in the instructions to the Pre-
manuf acture Notice Form. These instructions have not, as yet, been
issued.
V-l
Arthur D Little, Inc
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The estimates of the cost of preparing the Notice form are based
on our view of the likely response of a prudent firm. It is probable
that a firm will submit the form with the expectation that it will be
acceptable both in terms of the sufficiency and nature of the data sup-
plied. The costs and increased market risks of a six-month delay in
manufacturing approval (or a longer delay in litigation) will be a large
incentive for firms to try to satisfy EPA expectations with the initial
notification. The estimated costs of completing the notification form
reflect this assumption.
Some additional assumptions have been made with respect to what the
Agency might consider "reasonably ascertainable" information. Among the
factors that could influence this evaluation are:
Company size,
Uses of chemicals, and
Distribution and fate of chemicals.
These factors have a direct relationship to the administrative costs
of submitting a Premanufacture Notice.
Company size would appear to have a predominant influence on the
amount and quality of data available and on the information EPA will re-
quire to be reported. The existence of substantial research arms in larger
companies would mean that rather extensive chemical characterization and
test data might be available and would require reporting in the Premanu-
facture Notice. As the size and, thus, the capabilities of a chemical
company become smaller, it is expected that the magnitude of information
will decrease, as will the ease of assembling this information.
V-2
Arthur D Little, Inc
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How a chemical is used will also have a marked influence on the types
of information that will be generated and on the costs of collecting and
reducing the information to a format that is compatible with the Premanu-
facture Notice Form. At the simplest level, one can assume a single chem-
ical used as an intermediate in a closed system by the company that manu-
factured it. Under this scenario, a substantial fraction of the form will
not be relevant, and the time and materials required for its completion
would be expected to be modest. At the other end of the spectrum, one can
assume that a chemical is used as an important component of some consumer
product that is not formulated and sold by the company that manufactures the
chemical. In such a case, the necessity for acquisition of information from
secondary users could present a logistic and administrative task of sub-
stantial magnitude and cost.
Under the initial notification requirements, the results of any chem-
ical property determinations and health and environmental testing that
has been done will have to be submitted, but no new testing will have to
be undertaken. Although the costs of testing have not been included in
the unit cost estimates reported here, the costs of preparing the data
for submission to the Agency have been included. If the Agency determines
that additional tests are necessary, it has the authority under Section 5e
of the Act to seek the performance of those tests through court action.
Some, and perhaps many, firms can be expected to do testing they would not
otherwise do, to avoid the delays of a 5e action, or will do testing as a
result of a 5e legal proceeding. The costs of performing these tests have
not been included in this analysis.
The ranges of estimates given in the following section reflect some
of these uncertainties. The lower estimate is likely to apply to the
following:
V-3
Arthur D Little, Inc
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(1) Chemicals not expected to have significant health/environmental
effects or expected to have only low exposure;
(2) Chemicals for which much of the required data are already avail-
able on file and accessible; and/or
(3) Chemicals with limited distribution and use.
The upper estimate is likely to apply to:
(1) Chemicals expected to have potential adverse health/environmental
effects and significant worker/public exposure;
(2) Chemicals requiring extensive engineering/market analysis and test
data evaluation; and/or
(3) Chemicals with widespread distribution and use.
The following factors have a bearing on the notification costs:
(1) Learning curve - At the outset, the time required for companies
to complete the Premanufacture Notification Form will reflect
their unfamiliarity with the form itself and with the responses
from the Agency to the submitted forms. The time estimates pro-
posed reflect an early locus on the learning curve. It is ex-
pected that the administrative costs will decrease with time as
companies become familiar with the Notice Form and Data Format
Forms and may find Lt to their advantage to arrange their own
data collecting and recovery protocols to fit with Agency re-
quirements.
(2) Data required by other agencies - No estimation was made to deter-
mine whether data developed for other Federal agencies or for the
satisfaction of state or local requirements would also be appro-
priate for use in completion of the Notice Form. Although similar
V-4
Arthur D Little, Inc
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data may be required by other agencies, it is expected that the
diversity of format and different needs of these organizations in
comparison to the requirements of EPA will necessitate a unique
effort to complete a satisfactory Notice Form.
(3) Small-volume manufacturers - In the estimation of the administra-
tive time and costs, it was assumed, at a minimum, that the chemi-
cal companies considered had at least a modest level of knowledge,
expertise and sophistication. However, the small-volume manufac-
turers may not have this level of expertise to enable them to
develop "reasonably ascertainable" information; thus, their costs
would be correspondingly low. With the expectation that the Agency
may consider these small-volume manufacturers separately and may
require only an abbreviated Notice Form with resulting lower costs,
the anticipated responses of such manufacturers were not included
in the estimates.
C. ACTIVITIES INVOLVED IN COMPLETING THE PREMANDFACTURE NOTICE
Activities required to complete the premanufacture notification form
can be categorized as data development, data collection/compilation,
administration, and management review/control (Table V-l). The data re-
quirements as specified in the Notice Form are listed in Table V-2, and
the specialized areas of expertise that may be required to complete the
form are shown in Figure V-l.
D. COST ESTIMATING PROCEDURES
Because of time and resource limitations, a categorized estimation
procedure was used rather than a detailed line item accounting procedure.
The following factors are central to an understanding of the procedures
used to obtain the time and cost estimates and to interpret them.
V-5
Arthur D Little, Inc
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TABLE V-l
ACTIVITIES REQUIRED TO COMPLETE PREMANUFACTURE NOTICE FORM
DATA DEVELOPMENT
testing/monitoring
engineering estimates
- market analysis
DATA COLLECTION/COMPILATION
- manual retrieval from files
literature review
computer searches
ADMINISTRATION
- preparation of notice forms
PROFESSIONAL SUPERVISION AND MANAGEMENT REVIEW/CONTROL
initial determination of technical requirements
review of technical accuracy and completeness of form
- legal review of prepared form (including confidentiality)
- management review and approval
- monitoring of EPA review
(Additional activities would be involved if additional data are requested
or the notice is considered invalid.)
V-6
Arthur D Little, Inc.
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TABLE V-2
NOTICE FORM DATA REQUIREMENTS
SECTION
Part I - General Information
A. Corporate Identification
B. Chemical Identity
C. Marketing Data - Production Volume
D. Federal Register Notice
E. Process Flow Diagram
Part II - Risk Assessment Data
A. Chemical Properties, Environmental Fate Characteristics, and Human and
Ecological Effects Data
B. Exposure from Manufacture
1. Worker Exposure
2. Environmental Release
3. Disposal
4. By-products, Co-products, Feedstocks and Intermediates
5. Transport
C. Exposure from Processing Operations
1. Worker Exposure
2. Environmental Release
3. Disposal
D. Exposure from Consumer Use
Part III - Risk Analysis and Optional Data
A. Risk Analysis
B. Structure Relationships
C. Industrial Hygiene and Environmental Safeguards
D. Engineered Safeguards
E. Industrial Process and Use Restriction Data
F. Process Chemistry
G. Economics, Benefits and Other Non-Risk Factors
V-7
Arthur D Little, Inc
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FIGURE V-l
SKILLS THAT MAY BE REQUIRED TO COMPLETE EPA PREMANUFACTURE NOTIFICATION FORM
PART
A.
B.
C.
D.
E.
PART
A.
B.
C.
D.
PART
"*
I - GENERAL INFORMATION
Manufacturer Identification
Chemical Identity
Marketing Data
Federal Register Notice
Schematic Flow Diagram
II - RISK ASSESSMENT DATA
Test Data
Exposure from Manufacture
1. Worker Exposure
2. Environmental Release
3. Disposal
4. By-products, etc.
5. Transportation
Exposure from Processing
Operations
1 . Worker Exposure
2 . Environmental Release
3. Disposal
Exposure from Consumer Use
III - RISK ANALYSIS AND OPTIONAL
w
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pr^ ^E ^C pTj
<2 iJ co g u
X X
X
X X
XX XX
X
X X
X
X
X
X
X X
X
X
X
X X X X
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W
2
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X
X
X
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X
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X
X
X
STS
AL HYGIENISTS
TAL SCIENTISTS
ANS
M 2 S3 M
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M 2 M
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-------
(1) The staff time and costs required to complete each major
section of the Notice Form were estimated by professionals
familiar with the relevant areas and were based on an over-
view of the data and information requirements and not on a
detailed analysis of the Notice Form on a line-by-line basis.
(2) This method of estimation results in uncertainties that may
yield variations of 50% or more in the given numbers. Thus,
the values shown on the tables may give the impression of a pre-
ciseness that is not intended. When used elsewhere in the
report, the unit cost estimates have been rounded to two signi-
ficant figures although these values have an error range of
±50%.
(3) The estimated costs are the result of the assumed average hour-
ly rates (Clerical/Administrative - $10/hr; Professional/
Technical - $25/hr; Managerial/Legal - $50/hr) multiplied by
the estimated time requirements in hours.
The uncertainty of the cost estimates introduced by the estimating pro-
cedure is magnified by uncertainty, at this time, as to how the regulations
will be interpreted.
E. GENERAL INFORMATION
The unit costs of completing the General Information section of the
Premanufacturing Notice Form are estimated to range from about $800 to
$2,900 per chemical (Table V-3).
Section A is concerned with administrative information that can be
supplied by appropriate administrative aides in most companies. In very
small operations, this section (or possibly the entire form) may be com-
pleted by the owner or manager of the operation.
V-9
Arthur D Little, Inc
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TABLE V-3
UNIT COST OF GENERAL INFORMATION
Information Required
to Complete Form
Time Requirements (hours)
Mid-Level
Business
Administrative and Legal/
and Clerical Technical Managerial
Costs ($)
(1)
Section A
Manufacturer Identi-
fication
Section B
Chemical Identity
Section C
Marketing Data
Section D
Federal Register Notice
Section E
Schematic Flow Diagram
TOTAL
2-4
2-4
2-4
2-8
4-8
4-16 2-4
4-16 2-4
4-40
9-21 16-80
2-4
7-13
60
120-240
220-640
220-640
220-1,280
840-2,860
(1) Assumed: $10/hour for administrative and clerical
$25/hour for mid-level business and technical
$50/hour for managerial
Source: Arthur D. Little, Inc., estimates.
V-10
Arthur D Little, Inc
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Section B requires information on chemical identity that will be
supplied by members of the scientific staff of an organization, inas-
much as the data are highly technical. With the requirement for name
and CAS number identification, literature resource (library) personnel
may also be involved in the completion of this section.
Section C requires the submission of marketing and production data
with input from appropriate personnel. The information in this section
will, in many instances, be highly speculative.
Section D concerns the Federal Register Notice that is required by
TSCA for all submitters of the Section 5e Premanufacture Notification
Form.
Section E requires a description of manufacturing and processing
operations presented as schematic flow diagrams. Although the specific
criteria for this diagram are not yet completed by the Agency, it is
assumed that professional and technical inputs will be required to pre-
pare this section.
The estimated time to complete Part I includes 9-21 hours of clerical
effort, 16-80 hours of mid-level business or technical effort, and 7-13
hours of managerial effort.
F. RISK ASSESSMENT DATA
The costs of completing the Risk Assessment part of the Premanufac-
ture Notice Form are estimated to be about $2,900 to $19,000 (Table V-4).
Section A is concerned with chemical properties, fate characteristics
and effects data. Although the Agency has chosen not to issue guidance
with respect to testing procedures at this time, Part 720.23 of the pro-
posed rules sets forth in detail the requirement for submission of test
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Arthur D Little, Inc
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TABLE V-4
UNIT COST OF RISK ASSESSMENT DATA
Information Required
to Complete Form
Time Requirements (hours)
Administrative
Mid-Level
Business
and
Section A
Chemical Properties
Fate Characteristics
Effects Data
Section B
Exposure from Manufac-
ture
10-80
10-40
16-120
20-200
Legal/
and Clerical Technical Managerial
8-20
4-20
Costs ($)
(1)
900-4,800
800-6,400
Section C
Exposure from Processing
Operations
Section D
10-40
10-200
5-20
600-6,400*
Exposure from Consumer
Use 10-20 10-40 5-10
TOTAL 40-L80 56-560 22-70
600-1,700**
2,900-19,300
(1) Assumed: $10/hour for administrative and clerical
$25/hour for mid-Level business and technical
$50/hour for managerial
*The upper estimates in this category are extremely uncertain and are dependent
on the sales and use patterns of chemicals, which vary widely.
**This category could be zero for chemicals not having any general population
exposure. The fraction of these in comparison to the total has not been
estimated.
Source: Arthur D. Little, Inc., estimates.
V-12
Arthur D Little, Inc
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data in the possession or control of the submitter "regardless of their
age, quality or results." Because the Agency has not as yet published
the document Formats for Data Submitted under the Toxic Substances Control
Act, the cost estimates for the preparation of the available test data and
its presentation in the designated format must be viewed as uncertain and
preliminary.
The data required by Sections B and C cover several levels of chemical
exposure, including worker exposure, environmental release, disposal, by-
products and transport. The data available to complete each of these areas
will be highly variable depending on the specific nature of the chemical
and the strategy behind its manufacture. For example, a chemical that is
being manufactured for a limited market with the hope that a large and
diversified distribution will ultimately be developed may not have a large
body of information associated with it in the subject areas required by the
Premanufacture Notice Form. In contrast, for a chemical which has a large
planned market of known buyers and uses, there will very likely be a com-
plete dossier on disposal, by-products and transportation. For worker
exposure and environmental release, planned values and expected charac-
terizations may be available. However, the specifics of these types of
information may require actual plant operation which may not begin until
the Premanufacture Notice is submitted and found to be acceptable.
Another item that will affect the administrative costs is whether the
Exposure from Processing Operations section will be completed by the
manufacturer submitting notice or by the customer who will process the
chemical substance. Clearly, the former option will be substantially more
V-13
Arthur D Little, Inc
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costly to the initial manufacturer. In any case, completion of this
section will entail costs associated with introduction of a new chemical.
The estimated cost to complete Part II requires 40-180 hours of cleri-
cal effort, 56-560 hours of mid-level effort, and 22-70 hours of managerial
effort.
G. RISK ANALYSIS AND OPTIONAL DATA
This portion of the Risk Analysis section of the notification form
deals with secondary factors that can affect the human and environmental
risk from chemicals or that may reduce the need for data required under
Part II. While this part is designated as optional, certain portions of
it will almost certainly be completed and submitted, given the broad spec-
trum of chemicals that may be introduced into commerce and the diverse
use and distribution patterns of these chemicals.
The estimated cost to compete Part III of the Premanufacture Notifi-
cation Form is $5,600 to $20,000 (Table V-5). These estimates are based
on the assumption that a chemical company will make a thorough and detailed
effort in considering the different issues raised by Part III. Many
applicants will undoubtedly choose to be extremely selective in their con-
sideration of the issues, and some may choose not to respond to all,
thereby resulting in a potentially wide range of administrative costs.
The estimates include 65-230 hours of clerical effort, 84-452 hours of
mid-level effort and 55-120 hours of managerial effort.
V-14
Arthur D Little, Inc
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TABLE V-5
UNIT COST OF RISK ANALYSIS AND OPTIONAL DATA
Information Required
to Complete Form
Time Requirements (hours)
Mid-Level
Business
Administrative and Legal/
and Clerical Technical Managerial
Section A
Rick Analysis 10-20
Section B
Structure Relation-
ships 10-20
Section C
Industrial Hygiene
and Environmental
Safeguards 10-40
Section D
Engineered Safeguards 10-40
Section E
Industrial Process and
Use Restriction Data 5-10
Section F
Process Chemistry
Section G
Economics, Benefits and
Other Non-Risk Factors 20-100
TOTAL
65-230
10-80
10-40
20-100
20-100
4-16
4-16
16-100
84-452
10-20
5-10
10-20
10-20
20-50
55-120
Costs (_$)
(D
850-3,200
600-1,700
1,100-3,900
1,100-3,900
150-500
150-500
1,600-6,000*
5,550-19,700
(1) Assumed: $10/hour for administrative and clerical
$25/hour for mid-level business and technical
$50/hour for managerial
*Because of the broad spectrum of types of information considered under this
category, there is an extraordinarily high level of uncertainty.
Source: Arthur D. Little, Inc., estimates.
V-15
Arthur D Little, Inc
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H. SUMMARY
The total cost to complete the Minimal Mandatory portions of the Pre-
manufacture Notice Form is estimated to range from $2,500 to $14,000
(Table V-6). This estimate is based on the assumption that Section II.C.,
Exposure from Processing Operations, and Section II.D., Exposure from
Consumer Use, will not be required in some cases because of the nature
of the chemical for which the notice form is being submitted. In general,
this would apply to chemical intermediates and captive products that would
be produced in only one location and would not result in exposure to the
general population.
As additional portions of the notice form are completed as required by
individual situations (e.g., manufacture at secondary sites; general expo-
sure via a consumer product, etc.), the costs to complete all of the manda-
tory sections might range from $4,000 to $20,000.
It is expected that large-volume manufacturers of chemicals with public
exposure would complete the "optional" portion of the notice form (Part III -
Risk Analysis and Optional Data) and that the total cost of preparing the
Notification Form may, in some cases, exceed $40,000.
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Arthur D Little, Inc
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TABLE V-6
SUMMARY OF ESTIMATED COSTS FOR COMPLETION
OF PREMANUFACTURE NOTICE FORM
NOTICE FORM SECTIONS ESTIMATED COST RANGE ($)
Mandatory Information
Part I: General Information 840-2,860
Part II: Risk Assessment Data
Section A: Physical, and Chemical Properties,
Environmental Fate Characterists, and
Effects Data 900-4,800
Section B: Chemical Exposure from Manufac-
ture 800-6,400
SUBTOTAL I 2,540-14,060
(Minimum Mandatory Form)
Section C: Exposure from Processing
Operations 600-6,400
SUBTOTAL II 3,140-20,460
Section D: Exposure from Consumer Use 600-1,700
SUBTOTAL III 3,740-22,160
(Maximum Mandatory Form)
Optional Information
Part III: Risk Analysis and Optional Data 5,550-19,700
TOTAL COSTS - COMPLETE FORM
MANDATORY AND OPTIONAL PARTS 9,290-41,860
Source: Arthur D. Little, Inc., estimates.
V-17
Arthur D Little, Inc.
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VI. IMPACTS OF PREMANUFACTURING NOTICE REQUIREMENTS
A. INTRODUCTION
TSCA premanufacturing notice requirements could have important impacts
on the chemical industry. Preliminary conclusions have been drawn concerning
the costs of preparing notice forms and the segments of the industry likely
to be most affected, and a crude estimate has been made of the potential
reduction in new chemical introductions. No costs for health and environ-
mental testing have been included in this analysis.
The economic impacts of a reduced flow of new chemicals on the chemical
producing and the chemical consuming industries have not been evaluated. A
general characterization of the types of economic impacts that could poten-
tially result from the notification requirements is presented in the following
section.
B. ECONOMIC IMPACT
The premanufacturing notice requirements of TSCA have the potential for
far-reaching impacts on the U.S. chemical industry and chemical consuming
industries. Effects are likely to be seen in the following areas:
changes in the chemical R&D process;
reduction in the number of new chemicals introduced and a change
in their composition;
economic impact on the chemical industry in the form of reduced
growth resulting from a reduction in the flow of new chemicals;
VI-1
Arthur D Little, Inc
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economic impact on chemical consuming industries as a result of
a reduction in the flow of new chemicals;
impact on the national economy, including the rate of GNP growth
and the balance of payments.
The following sections of this chapter report the results of a preli-
minary analysis of the costs of preparing the TSCA premanufacturing notification
form and of a possible reduction in the introduction of new chemicals. Other
types of impacts have not been evaluated, although potential impacts in other
areas could be of far greater importance over the longer term. While the
economic impacts have not been quantitatively evaluated, some qualitative
comments about them can be made.
It is difficult to generalize about the chemical industry, but two
characteristics underlie the potential for economic impacts:
Most chemicals begin their commercial life at low sales volumes;
therefore, R&D expenditures have to be justified on the basis of
low-to-moderate revenues over the first five to ten years on the
market.
Chemicals compete both with each other and with non-chemicals in
their major use categories. Especially over the longer term, there
is a significant elasticity of demand for most chemicals because
substitutes of some type are available. As a result, the manufacturer
of a new chemical may not have great latitude in pricing.
These two characteristics combine to produce the potential that even
modest notification costs could reduce the number of chemicals introduced.
VI-2
Arthur D Little, Inc
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Over time, this reduction could affect the economic performance of the more
innovative chemical industry segments and the firms in those segments.
The markets in which the new chemicals would have competed will be
served by other chemicals or such non-chemicals as metals, forest products,
natural fibers, etc. Had the new chemical been commercially successful, it
might have provided better performance or lower cost. Its absence may mean
the customer is being served at higher cost or is receiving poorer performance.
The effect of the notification requirements on the industry segments
will probably be a lower return on investment in R&D. In time, this may
be reflected in a lower growth rate for the segment, as chemicals produced
by other segments or non-chemicals retain or take over market share. The
U.S. trade balance may also oe affected in time because product exports
generally follow successful marketing in the United States.
The role of medium-size and smaller firms in the chemical industry could
be changed by the premanufacturing notice requirements. The effect of the
notice requirements will be to raise the barriers to entry of new products
while leaving the costs of existing products unchanged. In some segments
of the chemical industry, medium-size companies have relatively high rates of
new chemical introduction. If the notification costs are high, medium and
small companies may be more restricted in introducing a new chemical than a
larger company. The larger company may have quicker access to a larger
market and may be willing to invest for a longer-term return. The larger
company may also be more willing to make a larger investment in a new chemical
with a large market potential because the consequences of failure are less
likely to be catastrophic for the company.
VI-3
Arthur D Little, Inc
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Consequently, the viability of some medium and small companies in the
chemical industry may be threatened over the longer term. Some may be
acquired and others may reduce their R&D activities and confine themselves
to manufacturing existing chemicals. Greater concentration in the industry
may result. This has generally been the effect of higher barriers to new
product introduction in the drug and pesticide industries.
The magnitude of these economic impacts depends on the cost of notifi-
cation and the degree of uncertainty that manufacture of the chemicals will
be allowed by EPA.
VI-4
Arthur D Little, Inc
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C. IMPACTED SEGMENTS
The TSCA premanufacturing regulations will have a relatively high impact
on small chemical manufacturing companies (as opposed to chemical mixing,
formulating, or processing companies) that develop new chemicals. Chemical
mixing, formulating, or processing companies do not generally produce new
chemicals and so are not directly impacted by the TSCA premanufacturing
regulations. Innovative new chemical development is moderate to high in the
following chemical industry segments:
SIC Share of Establishments With
Code Segment Less Than 50 Employees
2819 Industrial Inorganic Chemicals 62
2821 Plastics Material and Resins 56
2822 Synthetic Rubber 50
2824 Organic Fibers 16
2841 Soap, Detergents 83
2843 Surface Acting Agents 77
2844 Toilet Preparations, Perfumes 79
2865 Cyclic Crudes and Intermediates 49
2869 Industrial Organic Chemicals 51
With the exception of Organic Fibers, all of the segments listed above have
a relatively high percentage (greater than 49%) of establishments with fewer
than 50 employees, indicating a relatively high proportion of small companies.
Table VI-1 provides a complete listing of chemical industry segments likely
to experience a relatively high impact by showing the expected number of new
chemicals versus employment size of establishment for chemical industry segments.
Those segments having a relatively large number of new chemicals expected to
be developed and a high percentage of relatively small establishments are
more likely to experience a relatively high impact.
Comparisons of each industry segment having a moderate to high level of
new chemical innovation with chemical industry averages are useful in character-
izing economic impact. Three segmentsSoaps and Detergents, Surface Acting
Agents, and Toilet Preparations and Perfumeshave a high percentage of small
Arthur D Little, Inc
VI-5
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establishments; the average establishment in these segments is much smaller than
the average for the chemical industry. One segment, Industrial Inorganic
Chemicals, has establishment averages very similar to the industry's, but
this segment includes a small number of very large establishments producing
commodity chemicals as well as a large number of very small producers. The
other five segments include establishments that are generally larger than the
industry average. Small establishments within these (TSCA) segments are likely
to experience a relatively high impact from the regulations. Table VI-2 shows
value of shipments, number of employees, and capital expenditures, per
establishment, for each of the segments that have a moderate or high level
of new chemical innovation.
While the impact of TSCA will vary among firms within any one sector
depending on the importance of new chemical innovation for any particular firm,
the segments most highly affected appear to be:
Soaps and Detergents,
Surface Acting Agents, and
Industrial Organic Chemicals, n.e.c.
Also highly affected are relatively small chemical producing firms throughout
the chemical industry, but especially in the following segments:
Industrial Inorganic Chemicals, n.e.c.,
Plastic Material and Resins,
Synthetic Rubber,
Toilet Preparations, Perfumes, and
Cyclic Crudes and Intermediates.
VI-7
Arthur D Little, Inc
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D. ESTIMATED IMPACT OF TSCA PREMANUFACTURE NOTICE COSTS ON RATE OF
NEW CHEMICAL COMMERCIALIZATION
The rate at which new chemicals are commercialized is dependent on the
same risk/return balance which is at the base of all rational, economically-
driven business decisions.
A new chemical is introduced because the firm expects to profit, either
directly or indirectly, from the introduction. The basis of this expectation
is that the chemical (or an associated product, in the case of captive use
of the chemical) will have some distinct features which will allow it to be
sold at a price, in quantities, and for a length of time which will allow the
company to pay its operating costs, recoup its investment (in R&D, in plant
and equipment and in other areas), and achieve a level of return on its
investment which is attractive vis-a-vis other investment opportunities.
Anything which increases the cost of introducing a new chemical has the effect
of raising the hurdle of success by raising the level (or certainty) of
returns required to maintain the same rate of return on investment (ROI).
Because the TSCA Premanufacture Notification Requirements will raise the
cost of introducing a new chemical but will presumably have little effect
on the level or certainty of returns, it is logical to expect that relatively
fewer new chemicals will be commercialized with the premanufacture notice
requirements in effect. This is true even without considering the more
direct effect of the premanufacturing review by EPA which will be to eliminate
some chemicals from consideration because of proven or suspected toxic effects.
The reduced number of chemicals will, in turn, further increase the investment
cost for new chemicals because a reduced number of 'successful' chemicals will
be, in effect, supporting the R&D investments in a correspondingly increased
number of 'unsuccessful' chemicals.
VI-9
Arthur D Little, Inc
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Because information and experience are unavailable concerning the
numbers of chemicals which will be screened out of the new chemical development
process by TSCA Section 5 tests, this analysis takes another approach and
focuses on the level of notification costs which may reasonably be expected to
be supportable by the chemicals which are successfully commercialized. It is
important to realize that because of the approach taken, in which the testing
costs of 'unsuccessful' chemicals are not considered, the number of successful
new chemicals may be overstated.
To relate TSCA Section 5 compliance costs to numbers of new chemicals, it
was necessary to develop data concerning representative sales levels achieved
by a sample of relatively new chemicals and to make some basic assumptions
about the profitability of these chemicals and the amount of profit which
would be sacrificed to cover Section 5 costs. For purposes of this analysis,
it was assumed that the maximum supportable testing cost was equivalent to about
two percent of the chemical's gross sales value during its first ten years on the
market. This is roughly equivalent to sacrificing'one-third of profits during
this period, assuming a normal industry profit ratio of about six percent on sales.
By using these assumptions and the results of the limited industry analysis
which identified what are assumed to be typical sales levels for relatively
new chemicals, it was possible to develop Figure Vl-1 and Table VI-3,which
relate TSCA Section 5 notification costs to numbers of new commercial chemicals.
As shown in the table, TSCA Section 5 costs of about $40,000 would be expected
to reduce the number of new chemicals per year by about 90%. Assuming that
1000 chemicals are introduced yearly in the absence of TSCA notification
reauirements, about 100 would be introduced if the average cost of notification
is $40,000.
1. See Chapter III for a presentation of the basic data.
VI-10
Arthur D Little, Inc
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VI-ll
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TABLE VI-3
NEW CHEMICAL INTRODUCTION AS A FUNCTION
OF TSCA PREMANUFACTURING NOTIFICATION COSTS
TSCA Costs No. of New Commercial Chemicals
$ 0 1,000(a)
5,000 700
10,000 500
20,000 30°
40,000 100
(a)
Annual rate of commercial chemical introduction in the absence of TSCA
notification requirements is estimated to be 1000 + 30%.
Source: Arthur D. Little, Inc., estimates.
VI-12
Arthur D Little, Inc
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Because the TSCA Section 5 administrative cost information developed
as part of this report is presented as a range of values at three different
levels of reporting, it is appropriate to present the estimated number of
new commercial chemicals data in the same fashion. This is done in Table
VI-4. If one assumes that the weighted average of the notification cost for
all new chemicals falls in the range of $3,700 to $22,000 (Maximum Mandatory
data), then the number of new commercial chemicals introduced annually would
be predicted to fall from a level of about 1,000 today to a number somewhere
between 300 and 750.
A more rigorous analysis of the likely change in the chemical introduc-
tion rate would require a classification of the currently introduced chemicals
by their cost of notification. From this classification, an estimate
could be made of the likelihood that chemicals in each category would be
introduced. This data is not available now and the average cost approach
has been used.
VI-13
Arthur D Little, Inc
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TABLE VI-4. NUMBER OF NEW CHEMICALS AS A FUNCTION OF REPORTING COSTS
Notification Form Segments Cumulative Unit Cost
None 0
Minimal Mandatory 2,500 - 14,000
Maximum Mandatory 3,700 - 22,000
Maximum Total 9,000 - 41,000
Number of New Chemicals
1,000 a
800 - 400
750 - 300
550 - 100
a. Annual rate of commercial chemical introduction in the absence of
TSCA notification requirements is 1,000 + 30%.
Source: Arthur D. Little, Inc., estimates.
VI-14
Arthur D Little, Inc
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E. TOTAL COST OF NOTIFICATION
The total annual cost of premanufacturing notification to chemical
producers is a function of the number of notification forms submitted each
year and the average cost of preparing the forms. The number of forms
submitted is in turn a function of the average preparation cost. If the
average cost is $10,000, about 500 forms will be submitted and the total
cost of their preparation will be about $5 million.
Table VI- 5 lists the total annual cost of notification if 1,000, 600,
300, or 100 forms are submitted. The total cost ranges are differentiated
by the ranges in the expected unit costs of the major sections of the
notification form. For example, the Maximum Mandatory portion of the form has
a unit cost of preparation of $3,700 to $22,000. If 300 notices are sub-
mitted with preparation costs in this range, the total cost of preparation
will be $1.1 to $6.6 million.
There will be a wide variability in the actual cost of preparing indi-
vidual notification forms. For example, notices for chemicals with a
projected use as a totally enclosed intermediate may have a notification
cost of $2,500, while a chemical with wide public exposure may have a noti-
fication cost in excess of $40,000. It is not possible at this time to
estimate numbers of chemicals likely to fall in different unit cost of
notification categories. As a result, it is not possible to make a defini-
tive estimate of the number of forms to be submitted or of the actual, total,
annual cost of notification.
Table VI-5 presents a full spectrum of potential total notification
costs. The table does not take into account the likely number of notice
forms to be submitted at different average unit notification costs. For
VI-15
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VI-16
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each unit notification cost range, there is a corresponding range of the
number of notification forms likely to be submitted. The ranges of poten-
tial submittals can be translated into total notification costs. These
values are shown on Table VI-6.
If the average cost of notification is in the $3,700 to $22,000 range,
which is representative of the unit cost for the Maximum Mandatory portion of
the Notice Form, 750 to 300 notices are likely to be submitted. Two
hundred and fifty to 700 chemicals would not be introduced and no notifi-
cation submitted. At the 750 to 300 rate, the total annual cost of
notification would be in the $2.8 to $6.6 million range.
These estimates are based on the assumption that approximately 1,000
chemicals are being introduced commercially each year in the absence of the
notification requirements. Relatively little data is available to firmly
establish the chemical introduction rate. Its value is more completely
expressed as 1,000 - 30%. The notification cost estimates are also subject
to this variation.
VI-17
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VI-18
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VII. ARTHUR D. LITTLE. INC.. PROJECT TEAM
Richard Williams
Alice McHugh
Fiona Blair
Kirkor Bozdogan
John Delahanty
Glenn DeSouza
Katherine Neill
Joanne Perwak
Paul Sanderson
Roger Shamel
Douglas Shooter
Andrew Sivak
Alfred Wechsler
Project Director
Project Coordinator
VI I-1
Arthur D Little, Inc
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