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Although the Brexit situation will remain fluid, the UK chemicals industry must get ready for the worst

Progress in negotiations between the UK and the EU about Brexit continue at an alarmingly slow pace, with both sides committed to different outcomes, as seen at the summit in September in Salzburg. For Prime Minister Theresa May, “Brexit means Brexit”; for the EU, the single market means ‘single’. The EU has repeatedly made it clear that the ‘four freedoms’ of movement for people, goods, services and capital are non-negotiable.

My view, based on discussions with many officials on both sides, is that the UK will leave the EU and Brexit will be difficult. What Brexit really means and what will happen with chemicals in the UK after i are still uncertain. The UK played a crucial role in the REACH process. British companies submitted over 10,000 registrations, making it the second highest contributor after Germany.

As Pascal Lamy, former director general of the World Trade Organisation (WTO), commented, the EU is like an omelette and Brexit is like trying to take your own egg back. It would take a lot of time in any circumstances and much time has elapsed already. Six months passed between the referendum and Mrs May’s first detailed speech on Brexit at Lancaster House.

In this, she said that:

  • no deal is better than a bad deal for the UK;
  • the UK would not be part of the single market or the customs union (since changed to seeking participation in the single market for goods); and
  • there would be a phased implementation of Brexit, now referred to as a transition period.

It then took the UK government two more months to trigger Article 50 of the EU Treaty and set the clock for an exit from the EU on 29 March 2019. Between then and the end of 2017, virtually nothing happened.

Transition period

In March, more clarity was achieved in defining that the future relationship will be based on a comprehensive free trade agreement and strategic partnership, with a transition period through to December 2020. That transition can only happen if a withdrawal deal is struck in time for parliamentary approval, which in practice means before the end of the year.

During this period, everything would stay essentially the same, except for UK representation in the EU institutional framework. With regards to Echa, the UK would have no vote but might still be able to participate in its processes, if this is deemed essential to the effective implementation of EU law at this point in time.

As of early October, only weeks ahead of what is meant to be the final summit where a withdrawal agreement is finalised, no such agreement has been formalised. Two major stumbling blocks remain: the Irish border and the UK’s position on remaining in the single market for goods while not accepting the free movement of people, as envisaged in Mrs May’s ‘Chequers plan’.

There are two main takeaways from the September summit. In terms of content, EU leaders have made it crystal clear that they back  Michel Barnier and that participation in some aspects of the single market but not all is a non-starter.

On the process side, a deal could be made at the eleventh hour but EU leaders’ patience is wearing thin. They have made it clear that they want maximum progress and results at the 18 October summit. Only then will they agree to an extraordinary summit in November to finalise and formalise a deal.

Time is running short and the chance of a ‘no-deal’ scenario continues to grow, despite some very recent positivity. While there are multiple paths to this (no deal is struck, or one that is struck fails to receive parliamentary ratification), the result is the same: a ‘cliff edge’ situation on 29 March 2019. The impact may vary, depending on the EU’s willingness to apply some leniency.

What might happen

Preparing for the worst requires us to look at the most recent statements on both sides. On 24 September, the UK Department for Exiting the EU (DexEU) published a guidance notice entitled ‘Regulating chemicals (REACH) if there’s no Brexit deal’. This was drafted by the Department for Food, the Environment and Rural Affairs (Defra).

Under this proposal, existing standards for the protection of human health and the environment would be maintained by means of the EU Withdrawal Act, preserving the REACH regime as far as possible and maintaining the EU’s current levels of protection. The UK would not set up an Echa-like agency; rather the Health and Safety Executive (HSE) would act as the leading regulatory authority. The UK has already initiated development of IT systems and databases similar to Echa’s.

In terms of process, UK companies which have registered their chemicals under REACH would no longer be able to sell them in the EU, unless they relocate or transfer their registrations to a designated representative in the EU27. However, to ease the process, the UK would ‘grandfather’ these companies’ registrations into its new chemical regime. Companies would then have 60 days to open an account and validate their registration with the HSE and two years to provide it with all the data from their original registration.

British companies which import chemicals from the EU27 will need to register their chemicals with a future UK agency. In the meantime, a so-called transitional light touch notification process would be in place to enable them to continue their business without further interruption. Existing authorisations would be carried over into the new system.

Issues not addressed

Several key elements are missing, however. Nothing is said on how registration updates under REACH are going to be translated into the British system. An important  component in this is data access rights: in its plan, the UK would grant  British companies’ grandfathered chemicals two years to provide a UK database with data registered with Echa. This assumes that Echa will be in a position to give access to the data it maintains and authorise its transfer to the UK.

Finally, the notice talks at length about registrations, a little about authorisations and not so much about evaluations. However, it forgets the missing letter in the REACH acronym: restriction. Whether the 68 substances currently restricted under REACH will be allowed in the UK in the event of ‘no deal’ is not clearly stated. It is unlikely, given the wish to maintain the existing standards of protection for health and the environment, but some clarity would be welcome.

For UK industry and the environment, it would be better to remain in Echa. However, two difficult preconditions exist. Under the Chequers plan, the UK is asking to remain part of REACH and Echa, and to have access to its database but without being fully part of the single market or respecting the ‘four freedoms’. The EU calls that ‘cherry picking’ and will not allow it. In the only other examples of non-EU participation – the European Economic Area (EEA) – the countries involved have accepted holistic participation in the single market.

The second precondition is for the EU to be convinced that the UK staying within REACH and Echa is in its best interests in terms of preserving the environment and health, and making REACH the world’s leading chemical regulation system. This may well be true, but whether it will happen is quite another matter.

Conclusion

All of this is speculative, as everything to do with Brexit is, but I would offer the chemicals industry a few considerations for the coming weeks and months:

  • do expect the EU27 to remain united: you may hear that there are cracks in political views on Brexit in some capitals. However, the UK tried and failed to bypass Michel Barnier;
  • do expect the EU to maintain its support for Ireland: this is an important red line and, although consensus can be found,
  • a resolution is needed;
  • don’t misunderstand the intentions behind the negotiations: this is not a power play, the EU does not want to humiliate the UK but it will not sacrifice its own identity, which has the single market as its jewel in the crown. For the EU, this is all about preserving the integrity of the European project;
  • don’t pin your hopes on the Chequers plan; and
  • do prepare for a no-deal scenario, because that is the only responsible thing to do.
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