Composite Wood Products and Formaldehyde Emissions 101: From California to D.C. and Beyond

1. Composite Wood Products and Formaldehyde Emissions 101:From California to D.C. and Beyond Carol Livingston livingstonc@gtlaw.com  916.442.1111 Wim van Rooyen  vanrooyenw@gtlaw.com  916.442.1111 ©2010 Greenberg Traurig, LLP. Attorneys at Law. All rights reserved. Greenberg Traurig is a trademark and trade name of Greenberg Traurig, LLP and Greenberg Traurig, P.A. This presentation is intended for general information purposes only and should not be construed as legal advice or legal opinions on any specific facts or circumstances.  GREENBERG TRAURIG, LLP ▪ ATTORNEYS AT LAW ▪ WWW.GTLAW.COM ©2010, Greenberg Traurig, LLP. Attorneys at Law. All rights reserved.

2. Applicable Laws/Regulations • California’s Airborne Toxic Control Measure (ATCM) to reduce formaldehyde emissions from composite wood products [17 Cal. Code Regs. sections 93120-93120.12] • Regulations enacted by the California Air Resources Board (CARB) • Applies to composite wood products (CWPs) and finished goods containing CWPs that are sold, offered for sale, supplied, used, or manufactured for sale in California • For full text and more information, visit: http://www.arb.ca.gov/toxics/compwood/compwood.htm

3. Applicable Laws/Regulations • Federal Formaldehyde Standards for Composite Wood Products Act (FSA) • Recently enacted in July 2010 • Essentially adopts the California emission standards and takes them NATIONAL • For full text, see: http://www.govtrack.us/congress/bill.xpd?bill=s111-1660

4. Outline • Background on Formaldehyde • What is Covered? • The Emission Standards • Who Must Comply • Duties of Manufacturers • Duties of Importers, Distributors, Fabricators, and Retailers • Sell-Through Provisions • Enforcement • Federal Law • Compliance in Practice • Questions

5. Background on Formaldehyde • Naturally occurs in all living beings • Sources include motor vehicles, aircrafts, boats, chemical plants, fireplaces, and resins/adhesives used to make composite wood products • Composite Wood Emissions Statistics: • CWPs account for about 5% of formaldehyde emissions in California • BUT, indoor formaldehyde concentrations are between 4-10 times higher than outdoor concentrations • Emissions are highest in immediate months after manufacture, but offgassing continues for several years • Health Effects: • Nasopharyngeal cancer • Eye, nose, and throat irritation

6. Background on Formaldehyde • Regulation of formaldehyde 1992 2004 2008 2010 International Agency for Research on Cancer (IARC) classified formaldehyde as carcinogenic to humans CARB identified formaldehyde as a Toxic Air Contaminant (TAC) with no known safe level of exposure California ATCM became effective Federal FSA enacted

7. What is Covered? • Composite Wood Products (CWPs) • Finished Goods Containing Composite Wood Products

8. What is Covered? • Composite Wood Products • Panels of: • Hardwood Plywood (HWPW) – two types • Hardwood plywood with veneer core (HWPW-VC): HWPW with a core made of a sheet or sheets of veneer • Hardwood plywood with composite core, i.e. a platform consisting of particleboard, medium density fiberboard, or a combination of layers of veneer and particleboard/medium density fiberboard

9. What is Covered? • Composite Wood Products • Panels of: • Particleboard (PB): Panel composed of cellulosic material in form of particles pressed together with resin • Medium Density Fiberboard (MDF): Panel composed of cellulosic fibers pressed together with resin

10. What is Covered? • Finished goods • Any goods or products, other than a panel, containing HWPW, PB, or MDF

11. What is Covered? • Exemptions: The following exemptions apply: • Goods manufactured, distributed, sold, or offered for sale outside of California • Used goods • Antiques • Laminated Products • Curved Plywood • Other technical exemptions (see 17 Cal. Code Regs. Section 93120.1(a)(8))

12. The Emission Standards • Emission standards refer to emissions from the composite wood product panels only • Emission standards are implemented in two phases - PHASE 1 and PHASE 2 - with different effective dates for each phase • Emission standards and their effective dates are also different for the various types of composite wood products (CWPs) • Panels manufactured ON/AFTER the applicable effective date MUST comply with the applicable emission standard

13. The Emission Standards Effective Dates

14. Who Must Comply • Duties and requirements vary depending on whether an entity, for purposes of the regulation, is considered to be a: • Manufacturer: Produces composite wood products, i.e. panels of HWPW, PB, or MDF • Importer: Brings goods across US border and is primarily liable for payment of customs duties on the goods • Distributor: Obtains goods for purposes of resale • Fabricator: Uses composite wood products to make finished goods • Retailer: Sells goods directly to consumers

15. Duties of Manufacturers • Compliance with Emission Standards: i.e. produce compliant panels on or after applicable effective dates • Third Party Certification by CARB-approved certifier • Quality Assurance Requirements, see 17 Cal. Code Regs. section 93120.12, Appendix 2 • Labeling Requirements • Statement of Compliance to Purchaser • Recordkeeping Requirements, see 17 Cal. Code Regs. section 93120.3(g)

16. Duties of Manufacturers Labeling Requirements • Each panel or bundle of panels must be clearly labeled, including at a MINIMUM: • Manufacturer name • Product lot number or batch produced • Marking to denote compliance with applicable Phase 1 or 2 standard • CARB-assigned number of third-party certifier • CARB highly recommends including the date of manufacture (mm/dd/yyyy)

17. Duties of Manufacturers Labeling Requirements Example: Modern Healthy Composite Wood Co. Lot No. 3, 01/05/2009 California 93120 Compliant for Formaldehyde Phase 1 TPC-#############

18. Duties of Manufacturers Statement of Compliance • Manufacturer must include on the bill of lading OR invoice: • Statement that panels comply with applicable Phase 1 or 2 standard • CARB-assigned number of its third-party certifier

19. Duties of Importers, Distributors, Fabricators, and Retailers • The following duties and requirements potentially apply to all of the above: • Compliance with applicable emission standards in buying and selling goods • Recordkeeping requirements • Statement of Compliance to Purchasers • Labeling Requirements

20. Duties of Importers, Distributors, Fabricators, and Retailers • Compliance With Emission Standards • No testing or third-party certification required • Must take reasonable precautions to purchase compliant panels: • Instruct suppliers to comply with emission standards • Document notices/instructions given to suppliers • Obtain written documentation from supplier verifying compliance

21. Duties of Importers, Distributors, Fabricators, and Retailers • Suggestions: • Require statements of compliance on bill of lading or invoice • Request date of manufacture of panels or panels used in making finished goods purchased • Request manufacturers to identify third-party certifiers and provide formaldehyde testing results on a regular basis

22. Duties of Importers, Distributors, Fabricators, and Retailers • Recordkeeping Requirements • For a minimum of 2 years, must keep records of: • Date of purchase of panels/goods • The name of the supplier • Documentation of precautions taken to ensure compliance • For Fabricators: To whom finished goods were sold Note: also recommended for others to extent feasible

23. Duties of Importers, Distributors, Fabricators, and Retailers • Statement of Compliance • All, except retailers, must include a statement that the goods comply with the applicable CARB Phase 1 or 2 standard on the bill of lading or invoice given to purchaser.

24. Duties of Importers, Distributors, Fabricators, and Retailers • Labeling Requirements • General Rule of Thumb • If there is NO MODIFICATION to a panel or finished good, NOADDITIONAL LABELING is required beyond that of the manufacturer or supplier. • If a panel or finished good is MODIFIED, the requirements for FABRICATORS apply • EXAMPLES: • Using plywood to make a drum, piano, or other musical instrument • Laminating a composite wood product by e.g. adding a decorative surface

25. Duties of Importers, Distributors, Fabricators, and Retailers • Labeling Requirements • Fabricators • Must label finished goods by applying a stamp, tag, sticker, and/or bar code on: • Every finished good produced (highly recommended), or • Every box containing the finished goods • At a MINIMUM, label must include in readable English: • Fabricator’s name • Date finished good was produced (mm/yyyy) • Marking that product was made with CWPs in compliance with applicable Phase 1 or 2 emission standard

26. Duties of Importers, Distributors, Fabricators, and Retailers • Example: ABC Fabricator Co. Produced 02/2008 California 93120 Compliant for Formaldehyde Phase 2

27. Duties of Importers, Distributors, Fabricators, and Retailers • Labeling Requirements • Fabricators • Can the fabricator use a bar code? • Yes, but the fabricator name, date of production, and marking of compliance MUST be visible in readable English separate and apart from the bar code

28. Sell-Through Provisions • What about the SLOW ECONOMY? • What about all my EXCESS NON-COMPLIANT INVENTORY? • What happens to these NON-COMPLIANT GOODS?

29. Sell-Through Provisions • Apply to CWPs and finished goods made with CWPs produced BEFORE the applicable emission standards effective dates, but which failed to sell through by these dates. • Sell-through dates vary by: • Type of composite wood product (HWPW-VC, HWPW-CC, PB, MDF, or thin MDF) • Phase (sell-through dates of Pre-Phase 1 materials and sell-through date of Phase 1 materials) • Status of party/business (manufacturer, importer, distributor, fabricator, or retailer) • CWP panels OR finished goods

30. Sell-Through Provisions • Revised CARB Advisory No. 09-03 provides DETAILED CHARTS of the sell-through dates • There are separate charts for manufacturers, importers, distributors, fabricators, and retailers • Charts are broken down by: • Type of composite wood product • Phase • CWP panels or finished goods See: http://www.arb.ca.gov/toxics/compwood/outreach/09_03_advisory.pdf

31. Sell-Through Provisions • Example of Chart For Importers

32. Sell-Through Provisions • CAUTION: The charts in Revised CARB Advisory No. 09-03 do NOT reflect the latest July 2010 advisory from CARB which extends the sell-through date that applies to distributors, fabricators, and retailers of finished goods made with pre-Phase 1 composite wood products from December 31, 2010 to DECEMBER 31, 2011.

33. Sell-Through Provisions • See CARB Advisory No. 10-01 at: http://www.arb.ca.gov/toxics/compwood/outreach/10_01_advisory.pdf • Only applies to FINISHED GOODS with PRE-PHASE 1 MATERIALS • Only applies to DISTRIBUTORS, FABRICATORS, AND RETAILERS • Does NOT apply to manufacturers or importers

34. Sell-Through Provisions • Concerns: • IMPORTERS: Last date to sell finished goods with pre-Phase 1 material is December 31, 2010 • DISTRIBUTORS, FABRICATORS, AND RETAILERS: Last date to sell finished goods with Phase 1 hardwood plywood with veneer core (HWPW-VC) is June 30, 2011 (6 months prior to last date to sell finished goods containing all pre-Phase 1 composite wood products!) • Are you ready for Phase 2? • Will you sell through all Phase 1 HWPW-VC by June 30, 2011?

35. Sell-Through Provisions • Current Sell-Through Dates for Finished Goods

36. Enforcement • Facility inspections by CARB or local air district personnel, including audits of records and securing samples for testing • Civil Penalties (California Health & Safety Code section 42402 et seq.): • Strictly liable for up to $1,000 per offense • Potentially strictly liable for up to $10,000 per offense unless entity establishes that violation is not the result of intentional or negligent conduct • For negligent violations, up to $25,000 per offense • For knowing violations, up to $40,000 per offense • For willful and intentional violations, up to $75,000 per offense • EACH DAY is a SEPARATE OFFENSE

37. Enforcement • In the alternative, there is potential for criminal penalties if referred to the California Attorney General or DA’s office (California Health & Safety Code section 42400 et seq.)

38. Federal Law • Formaldehyde Standards for Composite Wood Products Act (FSA): http://www.govtrack.us/congress/bill.xpd?bill=s111-1660 • Amendment to the Toxic Substances Control Act (15 U.S.C. 2601 et seq.) • Applies to HWPW, PB, and MDF, and finished goods containing these materials, sold, supplied, offered for sale, or manufactured in the United States

39. Federal Law • Essentially adopts the California emission standards [see section 601(b)(2)] • Requires the U.S. EPA to promulgate regulations to implement the standards no later thanJanuary 1, 2013 • Regulations will include provisions relating to labeling, chain-of-custody requirements, recordkeeping, sell-through provisions, etc. • Standards will become effective 180 days after date regulations are promulgated

40. Federal Law • Important Differences • De Minimus Exemptions • NOT as to emission standards themselves, but as to other regulatory requirements • To be determined by U.S. EPA via rulemaking • Sell-Through Provisions • Will be based on a designated DATE OF MANUFACTURE (no earlier than 180 days following promulgation of the regulations by U.S. EPA) • Goods manufactured BEFORE the designated date of manufacture will NOT be subject to the emission standards

41. Compliance in Practice • Two Key Issues • Buying: Must buy goods in compliance with applicable phase OR within your supplier’s sell-through period • Selling: Must sell goods in compliance with applicable phase OR within YOUR applicable sell-through period

42. Compliance in Practice • Important Questions to Ask • What is my status? • Am I an importer, fabricator, distributor, etc., under the regulation? • What do I buy and sell? • What type of composite wood product(s) does the finished good contain? • What is my supplier’s status? • Do the goods or materials I purchase either: • Comply with the applicable phase OR • Do they fall within the supplier’s sell-through period?

43. Compliance in Practice • Important Questions to Ask • Will I be able to sell through products within my applicable sell-through period? • Determine current inventory of SKUs/products that need to be sold through • Project approximate dates by which these could realistically sell through • Determine sell-through dates for purchasers • Will you sell-through all Phase 1 HWPW-VC by June 30, 2011? • DO NOT CREATE YOUR OWN PROBLEM

44. Questions?

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46. Index of Important Acronyms • ATCM – Airborne Toxic Control Measure (California regulation) • CARB – California Air Resources Board • CWP(s) – Composite Wood Product(s) • FSA – Formaldehyde Standards for Composite Wood Products Act (federal legislation) • HWPW-CC – Hardwood Plywood with Composite Core • HWPW-VC – Hardwood Plywood with Veneer Core • IARC – International Agency for Research on Cancer • MDF – Medium Density Fiberboard • PB – Particleboard • TAC – Toxic Air Contaminant • US EPA – United States Environmental Protection Agency