Commentary: Brexit threatens trade

As the UK government moves ever-closer to its self-imposed deadline of the end of March 2017 for triggering Article 50 – the start of the two-year Brexit process – fears are being voiced that trade in chemicals with the EU may grind to a halt unless an orderly transition can be negotiated.

Almost all commercially traded chemicals in Europe are covered by the EU’s Reach regulation, which allows trade to take place legally between compliant sellers and their customers. With the departure of the UK, existing British Reach registrations will no longer be valid unless transitional arrangements can be agreed with the EU.

If an agreement is not forthcoming, then, as a leading chemicals compliance lawyer points out in this week’s issue (see page 30), chemicals trade with the EU could be severely affected after the UK’s EU departure, which is scheduled for March 2019.

Elizabeth Shepherd of Eversheds Sutherland gave oral evidence at February’s Environmental Audit Committee inquiry into the Future of Chemicals Regulation after the EU Referendum in London. She states: “Without transitional provisions there would be a market freeze as it is unlikely a detailed trade agreement will be completed by then.”

The UK government has made it clear that it does not plan for the country to adopt EU regulations in the way members of the European Economic Area such as Norway have done. This means a bespoke UK Reach or equivalent will need to be created, along with something to do the job of the European Chemicals Agency (ECHA) and all the complex IT systems it has set up to administer EU Reach over the past decade.

As Shepherd points out, this will take time so the UK may want to negotiate transitional arrangements to allow for a continued role for ECHA, at least in the short term. The agreement could also include some system for mutual recognition for Reach registrations. This would only work if UK Reach is very similar to EU Reach.

EU’S TOUGH STANCE

The UK government will go to the EU with its wish list for chemicals regulation arrangements but how likely it is to have them granted is anyone’s guess. The EU commission president, Jean-Claude Juncker, says he expects the overall negotiations to be “very, very, very difficult”. In the UK, there is already resistance to the suggestion that the UK should agree to pay the divorce bill of €55bn-€60bn, which has been mooted by EU officials.

Juncker says UK will face very difficult negotiations

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For UK chemicals a lot rides on the success of these negotiations. Without an agreement and smooth transition the country’s chemical sector – and those doing business with it – may face new obstacles to future trade.

Shepherd says that when we leave the EU, in theory, any Reach registrations held by UK legal entities would no longer be valid. EU customers would need to make their own Reach registrations unless UK manufacturers appoint Only Representatives (businesses within the EU which handle registrations on their behalf).

How are UK companies going to make new supplies into the EU of substances which need authorisation under Reach? Those UK companies could no longer submit an application for authorisation to ECHA. What if an application by a UK company for authorisation under Reach is on-going when the UK leaves the EU? Would the EU reject them, or would they effectively remain “in limbo”?

The UK’s main industry trade body, the Chemical Industries Association is also clearly worried. Nishma Patel, Chemicals Policy Director told ICIS: “Without a transitional regulatory deal, businesses based both in the UK and rest of the EU are expected to face major supply chain disruption. This is not just about duplication of compliance costs but there is a real threat to long-established supply chains breaking down and loss of markets if no transitional measures are in place.”

Patel adds that there is a clear need for a smooth exit from the EU with a plan for regulation that gives certainty for companies to continue doing business on what the CIA hopes will be single market terms.

UK-based chemical distributors also face problems in the face of Brexit. One of the sector’s trade associations, the Chemical Business Association also gave evidence to the enquiry. It fears distributors may be excluded from EU trade unless the Reach regulation is amended. CBA believes its members will not be allowed to appoint OR’s because they are only for manufacturers, not distributors.