EU-UK ‘separate’ markets post-Brexit, ECHA membership, regulatory alignment to be decided

(Adds CIA and Cefic chemical trade groups’ reaction to Thursday’s EU-UK political declaration on post-Brexit relationship in paragraphs 26-30)

LONDON (ICIS)–The chemicals industry’s demand for “frictionless trade” between the UK and the EU post-Brexit, as well as regulatory alignment, is still not guaranteed after a statement leaked on Thursday showed the two parties have still to decide on those issues.

Free movement of people, one of the four pillars of the EU’s Single Market, will finish once the UK leaves the EU, the document added.

The industry has been demanding to stay within the scope of the EU’s chemicals regulator, the European Chemicals Agency (ECHA), although according to Thursday’s latest news that is yet to be decided.

“The parties will also explore the possibility of cooperation of UK authorities with EU agencies such as the European Medicines Agency, ECHA and the European Aviation Safety Agency (EASA). In this context, the UK will consider aligning with EU rules in relevant areas,” said the document, which can been read on this link.

“To this end, they intend to consider mutual recognition of trusted traders’ programmes, administrative cooperation in customs matters and mutual assistance, including for the recovery of claims related to taxes and duties, and through the exchange of information to combat customs fraud and other illegal activity.”

Free movement of labour within the EU means its citizens can live and work anywhere across the 28-country union. The other three “freedoms” – in EU’s jargon – are free trade in services, capitals and goods.

The chemical industry’s trade group in the UK and the EU, CIA and Cefic, had also sought “access to talent” post-Brexit, defending the permanence of free movement in order to be able to hire across the 500m-people single market.

The statement, leaked to the UK’s daily newspaper The Guardian, can be consulted here.

The political declaration leaked to the press, and endorsed by the European Council’s President Donald Tusk, could still be subject to change.

“The Commission President [Jean-Claude Juncker, the head of the EU’s executive body in charge of Brexit negotiations] has informed me that it [the political declaration on post-Brexit relationship] has been agreed at negotiators’ level and agreed in principle at political level, subject to the endorsement of the leaders,” said Tusk on social network Twitter.

Analysts in the UK are forecasting that the political declaration may pave the way for the country’s Prime Minister Theresa May to get the backing of Parliament for the Withdrawal Agreement announced last week.

However, some supporters of Brexit found no relief in Thursday’s statement, highlighting how the European Court of Justice (ECJ) would still have a say in legal conflicts affecting the two parties after Brexit.

“Flimsy, non-binding gestures of a services agreement and an end to free movement should not turn Brexiteers’ heads,” said Leave.EU, the official group representing Brexit supporters.

Quoting the political statement, Leave.EU said that there will be “deep regulatory cooperation” and the UK would “align with” EU rules, one of the red lines for those supporting a clean break with the EU.

“All under the scope of the ECJ. Shambolic!,” concluded the lobby group.

The declaration leaked on Thursday said: “The parties envisage having a trading relationship on goods that is as close as possible, with a view to facilitating the ease of legitimate trade.

“These arrangements will take account of the fact that following the UK’s withdrawal from the EU, the parties will form separate markets and distinct legal orders.”

However, it added that in order to facilitate trade in goods, “the parties envisage comprehensive arrangements” that would create a free trade area, “combining deep regulatory customs and cooperation”, underpinned by provisions ensuring a level playing field for open and fair competition.

The “provisions to ensure” a level playing field would give the ECJ the role that Brexiteers reject.

“The economic partnership [post-Brexit] should ensure no tariffs, fees, charges or quantitative restrictions across all sectors, with ambitious customs arrangements that in line with the parties’ objectives and principles above, build and improve on the single customs territory provided for in the Withdrawal Agreement which obviates the need for checks on rules of origin,” the document leaked on Thursday said.

Towards the end of the negotiations between the two parties for a withdrawal agreement, rules of origin became a hot topic.

Rules of origin are intended to determine where a product was made for trade and customs purposes, but they could stand to present substantial difficulties to chemicals producers in both the UK and the EU.

Financial analysts in the UK pointed to how sterling had surged on Thursday, following the leak, but adding that the fundamentals remain unchanged. They highlighted how there is still a long way to go to clarify the future relationship between the two parties.

“Sterling has spiked on the back of a leaked copy of the declaration on future relations between the UK and the EU. Despite the positive language, it is difficult to find much in the text that we didn’t know already,” said Joshua Roberts, analyst at JCRA, a financial risk management consultancy.

“There is a reasonable chance that the market response is the result of trading algorithms activated by a positive headline, rather than the start of a bigger move.”

By Thursday afternoon, the EU Commission had made public the political declaration leaked to the press earlier on the day.

Chemical industry trade groups, the CIA and Cefic jointly said that the declaration continued to “keep alive a successful resolution” to the chemical industry’s concerns.

“In particular, the explicit reference to exploring the possibility of cooperation of UK authorities with EU agencies such as the EMA, ECHA and the EASA is an important platform for our industry,” said CIA and Cefic’s director generals Steve Elliott and Marco Mensink.

“Given this commitment, chemical businesses in the EU27 and the UK will be working with negotiators to ensure the UK’s continued participation in ECHA.”

While the political declaration said free movement of labour would end, and does not guarantee free trade and regulatory alignments, both trade groups insisted their priorities remain the same: “Frictionless, tariff-free trade; regulatory consistency; [and] access to skilled people.”

Pictured: EU Commission President Jean-Claude Juncker (left) and UK Prime Minister Theresa May meet in Brussels on 21 November
Source: Xinhua News Agency/REX/Shutterstock

Focus article by Jonathan Lopez

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