The United States Senate ratified the Chemical Weapons Convention on April 24, 1997. The Environment, Health & Safety Group of Pillsbury Madison & Sutro LLP is issuing this client advisory to members of the chemical industry and others who may be affected by the chemical regulatory requirements of the Convention. Industry personnel with responsibility for chemical safety and compliance issues will likely be expected to oversee compliance with these requirements. We will be happy to assist you on issues related to the treaty's requirements.
Overview
The Chemical Weapons Convention (CWC) is a treaty developed over two decades to establish international policing of the production of chemical weapons. It has been ratified by more than 70 countries and took effect April 29, 1997. Through inspections and trade sanctions, the CWC will regulate not only chemical munitions producers, but anyone who produces, stores or sells chemicals that may ultimately be used in synthesizing such weapons.
The CWC may be the most far reaching weapons disarmament and nonproliferation agreement in history--affecting companies that do not consider themselves in any way related to the manufacture of chemical weapons. Companies in the automobile, electronics, paint, paper, pesticide, petrochemical, pharmaceutical and plastics industries will likely be affected.
Most weapons treaties affect only the federal government and its contractors. The CWC, on the other hand, will allow oversight by the international Organization for the Prohibition of Chemical Weapons (OPCW)1 of numerous U.S. private companies that use, produce or consume regulated chemicals. Thousands of companies will be affected--including such "unlikely" entities as ballpoint pen manufacturers (certain ink solvents can be used as precursors in the manufacture of mustard gas) and fertilizer producers (fertilizers can be used in synthesis of certain chemicals as well as explosives). Downstream processors and consumers of regulated chemicals may also face CWC obligations, including reporting requirements, on-site verification inspections and trade restrictions.
The most notable concerns of U.S. companies affected by CWC requirements include: (1) potential loss of trade secrets or confidential business information as a result of declaration obligations and mandatory inspections; (2) criminal and civil liability for violation of domestic enabling legislation; (3) impacts on international trade of chemicals; and (4) the cost of industry compliance.
Key Provisions of the CWC
A. Categories of Chemicals
The CWC covers four categories of chemicals ("treaty-relevant chemicals") grouped by their potential for use in chemical weapons. Three categories are included in Schedules to the CWC; the fourth is described as "Other."
Schedule 1 chemicals have the greatest toxicity, have little or no commercial use and represent chemical agents used in weapons or their precursors (such as Sarin, used in the 1996 gas attacks in Japan). Facilities that manufacture Schedule 1 chemicals are subject to the most stringent requirements. Schedule 2 and 3 chemicals are found in chemical weapons, but also have legitimate commercial uses in pesticides, pharmaceuticals, plastics, inks and paints. Less stringent requirements are imposed on these chemicals to assure they are not diverted from legitimate commercial purposes. The final category (Other) includes numerous organic compounds with a special emphasis on those containing phosphorus, sulfur or fluorine.
B. Declaration Requirements
1. Schedule 1
Schedule 1 chemicals are produced and utilized in the U.S. almost exclusively by the U.S. Government or its contractors. Schedule 1 restrictions will affect approximately 10 U.S. companies. Production will be limited to 100 grams per facility for research, medical, pharmaceutical and protective2 purposes. The total amount of Schedule 1 chemicals produced annually may not exceed one ton (1000 kg). Facilities producing Schedule 1 chemicals will be required to complete the most comprehensive declarations. State Parties (countries that have ratified the CWC) will be required to report the exact location of Schedule 1 chemical plants, the names, the inventory and anticipated production of the chemicals annually and the reason these chemicals are being produced.
2. Schedule 2
Schedule 2 includes toxic chemicals and precursors that can be used for commercial purposes or for chemical weaponry. Approximately 100 U.S. facilities produce, use or consume Schedule 2 chemicals above the threshold quantities specified in the CWC and must report chemical production if they make more than 1 kg, 100 kg, or 1 ton of specified chemicals.
The CWC requires affected facilities to submit initial and annual declarations concerning the identity and quantities of Schedule 2 chemicals they produce, process or consume. These facilities must also provide the name and location of the plant site, its main activities, production capacity for each Schedule 2 chemical, purposes of production and anticipated future production. Any chemical produced in the past for chemical weapons use is subject to additional information requirements.
3. Schedule 3
Schedule 3 chemicals are toxic chemicals and their precursors that are produced in large quantities primarily for commercial use. No declarations are required if a facility produces less than 30 tons of a Schedule 3 chemical per year. The U.S. Government estimates that approximately 1,000 U.S. firms produce, use or consume Schedule 3 chemicals in excess of this threshold. Significantly, although individual facilities that exceed the threshold must submit initial and annual declarations, information on production and use of Schedule 3 chemicals is submitted to the OPCW on the basis of aggregate national data only. U.S. companies will submit production data to the Bureau of Export Administration (BXA) in the Department of Commerce, which will report it to the U.S. Arms Control and Disarmament Agency (ACDA) in the Department of Defense. ACDA will compile the national data for the OPCW.
4. Other
Facilities producing or using non-Scheduled chemicals such as discrete organic chemicals (DOCs) or a subset of DOCs containing phosphorus, sulfur or fluorine (PSF chemicals) fall under the generic category "Other." Facilities annually producing more than 200 metric tons of DOCs or 30 metric tons of PSF chemicals must comply with CWC requirements. The U.S. Government estimates that approximately 3,000 U.S. manufacturers produce chemicals included in this category. The CWC requires such manufacturers to provide aggregate production data for each facility, the name and facility location, its main activities and the number of individual plants producing these chemicals within a facility.
C. Verification by Inspection
Routine on-site inspections and "challenge inspections" (at-will inspections of facilities suspected of violating the CWC) are the heart of the CWC's nonproliferation enforcement provisions. These requirements are designed to prevent the modification of commercial facilities for warfare purposes. Because lethal agents can be made cheaply and easily without specialized facilities and commercial chemical plants can be quickly converted to chemical weapons manufacture (examples are a covert chemical weapons plant in Iraq and a suspected plant in Libya--both countries notably absent from the list of signatories to the CWC), the CWC's inspections are designed to be intrusive, thorough and immediate. Routine inspections are conducted at Schedule 1 facilities with 24 hours' notice, at Schedule 2 facilities with 48 hours' notice and at Schedule 3 facilities with 120 hours' notice.
Unlike routine inspections, challenge inspections are designed to prevent personnel at government-owned chemical weapons plants and Schedule 1 facilities from eliminating evidence of CWC violations. Thus, challenge inspections are conducted with only 12 hours' notice.
1. Routine On-Site Inspections
Facilities that produce, process or consume Scheduled chemicals are subject to routine inspections. Facilities with Schedule 1 chemicals will be inspected immediately after submission of their declarations and will be reinspected most often. The number, intensity, duration, timing and mode of subsequent inspections will be determined by OPCW based on the risk associated with the facility. No facility may receive more than two routine inspections per year.
Facilities with Schedule 2 chemicals above threshold quantities will be inspected initially within three years after the treaty takes effect. Subsequent inspections will be governed by a facility agreement between the State Parties and the investigation team. The facility agreement will determine, among other things, where inspectors may have unimpeded access, the point of entry for inspectors, the duration of the visit and the facility perimeter. These inspections are to verify that no Schedule 1 chemicals are being produced, that Schedule 2 chemical production is consistent with the declaration and that Schedule 2 chemicals are not diverted to prohibited purposes.
Facilities that produce or anticipate producing more than 200 tons of any Schedule 3 chemical will be inspected initially to determine accuracy of their declarations and to verify the absence of Schedule 1 chemicals. The risk that a Schedule 3 facility will be inspected in any given year is remote. Under the CWC, no more than 20 Schedule 3 plant sites located in any State Party may be inspected per year. This limitation significantly reduces the probability that a particular U.S. facility will be investigated given the large number of these facilities.
Facilities that produce discrete organic chemicals will not be subject to on-site verification until the fourth year of the treaty. The OPCW may decide not to implement verification inspections for these facilities at all.
Prior to the inspection, inspectors may monitor the facility and traffic to and from the facility from an established perimeter. Inspectors have substantial, though not unrestricted, access to records, sensitive equipment and personnel. Even if the facility (or inspection) agreement prohibits access to certain areas, inspectors may request, and must be provided, access to these areas to clarify ambiguities found during their inspection. The inspection team may bring with it any equipment that is approved for inspection purposes by the OPCW's Technical Secretariat.
Companies have a right to retain copies of all information obtained by the investigation team. Information generated by and for the inspection may be kept in a locked cabinet on-site for use during subsequent inspections. The CWC mandates that inspections be conducted in the least intrusive manner possible and recognize the sensitivity of information being reviewed.
A State Party representative may accompany the investigation team and may object to any questions posed or actions taken by inspectors. State Party and facility representatives may not, however, hamper appropriate investigation.
2. Challenge Inspections
Because routine inspections may not always be effective, the CWC provides for challenge inspections. These allow any State Party to request an on-site inspection of any facility or location in the territory, or in any other place under the jurisdiction or control, of any other member country, to clarify questions of possible noncompliance, regardless of whether it produces treaty-relevant chemicals. The language could be read to extend beyond chemical manufacturing facilities to other premises unrelated to chemical manufacturing--including other types of storage or manufacturing facilities and business locations. These inspections place a burden on the challenged party to prove compliance with the treaty.
The OPCW Executive Council may refuse requests for challenge inspections that are frivolous, harassing or beyond the scope of the CWC. It is generally believed that challenge inspections will be directed at government-owned chemical weapons plants or Schedule 1 facilities. If a private facility in the U.S. is subjected to what it believes is a frivolous, harassing or inappropriate challenge inspection that has not been rejected by the Executive Council, the facility may seek injunctive relief from a U.S. court.
Even under the CWC, facilities are not defenseless against challenge inspections. After negotiations with the inspection team, facilities may take advantage of "managed access" provisions to deny access to certain investigators, restrict access only to those areas necessary to prove compliance, cover sensitive equipment and restrict sampling. If access is limited, the inspected party is obligated to make every reasonable effort to provide alternative means to clarify compliance concerns. In addition, the challenge inspection may not exceed 48 hours.
CWC Domestic Implementation
The CWC requires that each State Party pass appropriate domestic implementing legislation. The 104th Congress had proposed implementing legislation with the President's support.3 That legislation provided substantial civil and criminal penalties (including imprisonment for life) for different violations of the CWC's mandates. The reporting deadlines imposed by the treaty will likely slip until implementing legislation is passed and regulations are promulgated.
U.S. companies that manufacture treaty-relevant chemicals may be subject to BXA regulation. While the BXA may have trouble acquiring adequate funding and personnel for an assignment with such a broad scope and short timelines,4 the ACDA is assisting BXA to prepare informational bulletins, fact sheets and videos to explain the CWC to U.S. citizens and businesses.
Concerns for U.S. Industry
Potential loss of confidential business information (CBI) and intrusive inspections by foreigners are perceived as the most troublesome aspects of the Treaty. Trade restrictions and the costs of compliance are present but less serious issues.
A. Protecting CBI under the CWC
CBI obtained during CWC inspections and in declarations could arguably fall into competitors' hands. The CWC is sensitive to CBI and contains strict confidentiality standards, including a Confidentiality Annex which states that a facility need only present the minimum information necessary to establish compliance. Information released to inspectors may be designated confidential if requested by the State Party and if the OPCW's Technical Secretariat agrees that the information is deserving of confidential treatment. Confidential data and documents turned over to inspectors must be kept under lock and key at the OPCW. Restricted information at OPCW will be disclosed only on a need-to-know basis. To prevent improper disclosure of CBI, the Director-General of OPCW may enact punitive sanctions against employees or agents who misappropriate confidential information.
Under the treaty, the types of information made available to State Parties are limited; however, information provided to BXA and ACDA may be subject to a Freedom of Information Act (FOIA) request. FOIA's trade secrets and national security exceptions are within the discretion of the regulatory agency and do not represent an absolute bar to disclosure of sensitive information. Any proposed implementing legislation for the CWC should provide a partial statutory exemption from disclosure under FOIA since increased protection of CBI was a concession point during ratification. Prior legislation (S.1732) would have allowed information obtained under the CWC to be disclosed to OPCW, Congress or federal agencies for enforcement purposes or use in other proceedings, or if disclosure were determined to be in the national interest. The extent of disclosure restrictions under the new implementing legislation should be known shortly.
CBI can be misappropriated, and recovery for an aggrieved private party is difficult. However, provisions were made during ratification to withhold U.S. funding unless the immunity of an individual misappropriating CBI is waived. Suits against the U.S. and its agents are generally restricted under the Federal Tort Claims Act. An injured party may argue that there was a taking of private property by the government without just compensation or may sue a government agent individually if constitutional rights were violated.5 Such remedies are costly to pursue and likely will not result in full compensation for the loss.
Thus, facilities should be aware of the CWC's requirements and provide no more than the minimum required information. Companies should also assure that CBI has been prominently marked "confidential" and should clearly request (1) that BXA and ACDA treat it as confidential and (2) if it is to be provided to the OPCW, that the ACDA request confidential treatment by OPCW. Company representatives should be aware of the location and nature of all CBI at their facilities before and during any inspection. It may be advisable to segregate CBI relevant to the CWC investigation from nonrelevant CBI (which should be covered, removed or maintained in areas closed from viewing or access during an inspection).
B. Trade Restrictions
The CWC prohibits companies from trading Schedule 1 chemicals with non-State Parties. Further, it only allows the trading of Schedule 1 chemicals with State Parties for certain nonprohibited commercial purposes.6 For three years after the CWC takes effect, end-use certification will be required for any transfer of Schedule 2 chemicals to a non-State Party, verifying that the transferred chemicals were used only for nonprohibited purposes. After this three-year period expires, trade of Schedule 2 chemicals will be limited to State Parties. For transfer of Schedule 3 chemicals to non-State Parties, companies must obtain end-use certifications.
C. Costs of Compliance
Businesses impacted by the CWC will incur increased costs to assemble information and prepare declarations to be submitted to BXA. Initial declarations will be the most expensive. Subsequent annual declarations should be relatively simple. Costs will also be incurred to meet inspection team needs. Increased expenditures will be needed for CWC training and preparation for inspections (especially preparations to identify and protect CBI); however, these up-front costs will save money over time by reducing the likelihood that CBI will be released or misappropriated (with associated legal fees for attempts to recover the CBI or obtain compensation).
Conclusion
If the CWC is implemented, it will mark a profound change in disarmament and nonproliferation agreements. While the development of international environmental standards such as ISO 14000 have had implications for trade, now for the first time on a large scale, private industries will be subject to declaration obligations, on-site verification inspections, international production limitations and trade restrictions by an international governing body. U.S. companies can--and must--begin preparing by increasing the awareness of their management and key employees regarding CWC obligations and by identifying and protecting CBI at their facilities. Managers should be aware of the chemicals produced, processed, consumed at, and imported to or exported from their facility. They should also be able to determine whether such chemicals qualify as treaty-relevant chemicals. Companies should review their records management practices to assure that they can quickly obtain the necessary information to comply with the CWC and, if possible, segregate CBI from nonconfidential information.
Preparing for Inspections
Companies can take a number of steps to minimize the impact of inspections at their facilities. Some suggested steps include:
- If a facility agreement is not negotiated for a Schedule 3 facility between the State Party and the inspection team, facility representatives should negotiate an inspection agreement defining the rights and obligations of the inspectors.
- A facility representative capable of answering questions should accompany inspectors. If the inspection team divides up, facility representatives should accompany each group.
- The facility should not allow inspectors from federal agencies such as the EPA or OSHA to accompany the State Party representative or the OPCW inspectors on the grounds of the facility. This inspection is not an environmental or health and safety inspection and any attempt to expand its scope should be prevented.
Because companies will have little time to respond to an announcement of an inspection, it is imperative to anticipate issues such as the protection of confidential business information (CBI) at each facility. For most U.S. companies, the more questions that are answered satisfactorily during the initial investigation, the less likely the OPCW will be to demand subsequent inspections.
- A company should identify all documentary and physical evidence that it considers confidential and take steps to protect the confidentiality of this information before, during and after an inspection, especially if it may be revealed to the OPCW either at the inspection or through a declaration.
- Companies should consider designating inspection guides at each facility and initiating training on CWC requirements and inspection procedures. Each facility should have at least one individual who is aware of the authority of OPCW's inspection teams, the facility's right to protect its CBI and the appropriate scope of different types of inspections.
- Employees managing the inspections should be familiar with the company's declarations which are subject to verification.
Endnotes
1 The OPCW will be headquartered in The Hague and will monitor international compliance with the CWC.
2 Defined in the CWC as "directly related to protection against toxic chemicals and ... chemical weapons."
3 S. 610, introduced by Senator Richard Lugar on April 17, 1997, is identical in form to legislation introduced in the 104th Congress. S. 610 does not reflect the conditions to ratification passed by the Senate on April 24, 1997 and will be modified accordingly. Although the Senate has agreed to consider passage by the Memorial Day break, there is no similar legislation pending in the House of Representatives.
4 BXA's Under Secretary has stated that BXA needs an additional 42 personnel and $5 million to implement the CWC effectively.
5 Bivensv. Six Unknown Agents of the Federal Bureau of Narcotics, 403U.S. 388 (1971).
6 At least 30 days' prior notice to the OPCW and detailed annual declarations of transfers are required.