Two EU directives requiring electronic waste recycling will affect competitiveness of small companies.

New EU environmental legislation, which will require manufacturers of electronic equipment to recycle by 2006, will make it more difficult for small Irish computer makers to compete with multinationals, a new report claims.

Gartner, the global technology consultancy, concludes that the legislation will raise production costs, reduce margins and accelerate consolidation among mid-tier and smaller European PC vendors.

The new laws, which cover a range of electrical and electronic goods, from fridges to televisions, will affect indigenous PC makers such as Iquon Technologies, Osmosis and PC Pro.

Multinationals with operations in the Republic - such as Dell Computer, IBM, Apple Computer, and HP - will also be affected by the legislation.

But these firms already have programmes in place to collect consumers' high-tech cast-offs and will be better placed to adapt to the new system, says the report.

Gartner conducted its assessment following the recent decision by the EU to approve two directives aimed at managing electrical and electronic waste in Europe from December 2005.

The Waste from Electrical and Electronics Equipment Directive requires manufacturers to collect, treat, recycle and reuse their electronic products.

It sets a target date of December 2005 to begin annual collection of goods from business and private households.

A second directive - the Restriction of Certain Hazardous Materials Directive - requires manufacturers to find replacements for lead, mercury, cadmium and other chemicals such as flame-retardants in plastic circuit boards and plastic covers.

The deadline for compliance with this directive is January 2008 with only the lead in monitors exempt.

Gartner believes the new laws will create a significant barrier to entry into the European market as few new manufacturers would have adequate disposal and recycling strategies.

The new laws will particularly affect US computer manufacturers, which export up to $6 billion (€6.01 billion) in consumer electronics annually, says Gartner.

"If these manufacturers can't or won't comply with the directives, that export number could drop significantly," the report says.

Gartner expects delays from legal challenges but believes the new directives, when implemented, will alter mid-tier and small PC vendors in Europe significantly because most of these firms won't be able to generate economies of scale to make collection of waste cost-effective.

Mid-tier and small firms will not be able to afford to invest in the R&D necessary to develop manufacturing processes that exclude banned substances.

Also, these small manufacturers will have to invest in new materials and new equipment - which increase operating costs - at the same time as they try to focus on pricing to differentiate themselves from larger firms.

The findings have been dismissed by one of the most prominent indigenous PC manufacturers here, Cork-based PC Pro. Mr Conor O'Donovan, managing director of PC Pro, said larger manufacturers would face higher costs because of the volume of PCs that they sold.

Manufacturers were likely to pass on the extra costs of recycling to their customers and there would be a rise in the price of all electronic goods, he added.

An Enterprise Ireland spokesman said yesterday that Irish firms were working towards meeting the new directive by 2006 and there was a certain amount of recycling going on already. He said smaller PC makers, who adopted larger brand names for their products, would not be affected by the legislation as the brand would be liable for all recycling costs.

Mr Martin Davis, general manager of Dell's asset-recovery business, said the firm already had recycling programmes in place for business customers.

He said Dell had received very few recycling requests from consumers for their computers, probably due to low levels of PC penetration here.

Recycling would not be the major issue for smaller PC makers, said Mr Davis. He believes that the high cost of complying with the new hazardous materials directive would be the crucial element.

The new laws have not yet been approved by EU governments but are expected to be passed shortly.