Keep up to date with Brexit coverage by ICIS editors

As the United Kingdom prepares to leave the European Union, the region’s chemical industry faces a period of great uncertainty.Prime Minister, Theresa May, is trying to push her plan through parliament in the face of stiff opposition from within her own party and opposition groups. May leads a minority government and relies on the support of Northern Ireland’s Democratic Unionist Party. The UK parliament has a final vote to approve or reject May’s Brexit deal.

Rejection could throw the entire Brexit process into disarray, leading to the country potentially leaving with no deal, another general election, a second Brexit referendum, or the so called “Norway model”.

Brexit options

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Leave with Theresa May’s deal

  • UK will leave EU on 29 March 2019.
  • Transition period until December 2020, can be extended by mutual consent
  • UK to follow EU rules and remain part of single market until then, allowing frictionless trade in chemicals and other goods and services.
  • But it has no say in EU decision-making during the transition.
  • If no trade agreement in place by end of transition period, a temporary ‘backstop’ arrangement will keep UK in EU-wide customs union until a deal is struck, allowing frictionless trade to continue.
  • To end the ‘backstop’ UK/EU must jointly agree.
  • Where trade agreements have been struck between the EU and other countries, the UK will ask for these to continue during the transition until they have struck new bilateral deals (see links to EU trade deals in Resources section below).
  • Free trade and regulatory alignment, including future access to European Chemicals Agency (ECHA) Reach data – not explicit in the draft agreement – are the core issues for chemicals.

Leave with no deal

  • UK leaves EU on 29 March.
  • With no deal in place the UK reverts automatically to World Trade Organisation (WTO) tariffs

According to Cefic the maximum chemicals tariffs for chemical imports and exports would be 6.5% with its main trading partners including the EU27, USA, Canada, Mexico, Japan, Saudi Arabia, Russia and Korea.

The UK could choose to lower or eliminate tariffs. But under WTO rules as a “most favoured nation” they would have to apply the same tariff levels to all WTO members globally.

As part of the EU, the UK applies WTO tariffs to countries with which it does not already have a trade deal. Average EU WTO chemicals tariffs are 4.5%. UK has stated it aims to replicate the existing WTO tariffs it applies as a member of the EU.

Trade with the EU would be subject to customs inspections and paperwork, potentially causing big delays at ports around the UK.

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  • Crashing out without a deal is favoured by hardline “Brexiteers” but is unpopular with most chemical industry leaders because of the impact it could have on trade and economic growth, at least in the short term.

Stay in the EU

  • Under the “Article 50” process, the UK will leave the EU on 29 March 2019. If, before that date, there is another general election and a pro-remain government is elected, the Brexit process could be halted, in theory. There is some legal debate about if and how this could be achieved as no other country has used the Article 50 process.

Hold another referendum

  • With the UK parliament and populations still so divided over Brexit there are calls for the country to hold a second referendum over EU membership. Those in favour of this move claim voters did not have the full facts when the first referendum took place.
  • There is some doubt if a referendum could be organised before 29 March 2019, the date the UK leaves the EU. It has to first be debated and signed off by the UK parliament.
  • The UK could ask the EU to delay the exit date but that would have to be agreed by all of the EU27.

Membership of the European Economic Area/European Free Trade Association

  • Another option is to adopt the so called “Norway model” during a transitional period whilst it strikes a trade deal with Europe. Norway is a member of the European Free Trade Association (EFTA) and European Economic Area (EEA).
  • In theory Britain could exit the EU and then join EFTA and the EEA. It would then retain full access to the Single Market but would not have to abide by the EU Common Fisheries Policy, Common Agricultural Policy or European Court of Justice. However it would be required to allow free movement of goods, services, people and capital. Controlling immigration was a key reason for the pro-Brexit vote so the Norway model may not be a popular choice for the UK.