EMS Plays Green Card

While electronics manufacturing services companies face complex challenges from looming environmental regulations in Europe, some industry watchers say the changes could be a positive for the industry over the long term.

The Restriction on Hazardous Substances (RoHS, pronounced ro-hoss or ross) law will take effect in the European Union on July 1. The law bans lead, cadmium, mercury, hexavalent chromium and two polybromides in all electronic products shipped to the EU.

EMS companies such as Celestica (CLS Quote), Jabil Circuit (JBL Quote), Flextronics (FLEX Quote), Plexus (PLXS Quote) and Benchmark Electronics (BHE Quote), among others, make the building blocks of these products -- or the actual product itself -- and have been modifying their facilities and manufacturing processes to prepare for the transition.

"It affects every single electronics product, because they are assembled using leaded solder," says Dan Shea, chief technology officer of Toronto-based Celestica.

After years of preparation, EMS companies appear ready to meet the new regulation but admit that there are bound to be a few hiccups.

"I don't think anyone will get through this without some cuts and bruises," says Eric Austermann, director of environmental services for Jabil, one of many of the sector's companies that has seen its stock slump in the early summer selloff.

Some sectors are exempt from the lead requirement and only need to remove five of the six banned substances. "Mission critical" areas such as high-end communications, enterprise infrastructure, medical and aerospace and defense, for instance, are exempt from the lead-free rule, at least for now.

But companies that violate the RoHS rule will be subject to different penalties, depending on the individual country.

European countries aren't alone in tightening environmental restrictions. In March 2007, China -- which does not have a good reputation for responsible environmental practices -- will enact its Cleaner Production Promotion Law, dubbed China RoHS. The law is stricter and does not include any exemptions.