After Brexit – What next for the Chemicals and Pharmaceutical Industry?

October 03, 2016

While the political and social fallout from the Brexit vote is still being debated and assessed by media
commentators and the public at large, one thing is clear: the vote will have major implications for the
chemicals industry. The question for the chemicals industry is what next for the various regulations and directives governing the chemicals industry (e.g. REACH, PPPR, BPR, CLP, and Directive 2001/83. This paper looks at the implications with respect to two legal acts that currently regulate the chemicals industry (including pharmaceuticals) – Directive 2001/83 and the REACH regulation. The chemical industry (including pharmaceuticals) is one of the UK’s biggest manufacturing sectors, and is the country’s biggest manufacturing exporter. It employs about 500,000 people directly, and supports several hundred thousand jobs throughout the economy. According to Chemicals Industry Association, chemical and pharmaceutical businesses in the UK (represented by the Association) contributed over £15 billion to the GDP of the UK, with exports of nearly £50 billion each year.

As withdrawal is not set to occur for at least two years, as outlined under Article 50 of the Lisbon Treaty, the immediate impact of the Brexit vote is likely to be minimal since these Regulations and Directives will likely remain in place unless the UK government decides to change them. The medium-term impact willmainly derive from the outcome of the negotiations between the UK government and the EU. The options are very limited and most forecasts foresee an interest on both sides to maintain the status quo or something as close to the status quo as possible since a short-term slowdown or a long period of uncertainty could cause gaps for example in the regulation of medicinal products in the UK since pharmaceutical regulations are currently largely determined at the EU level. However, the possible options for the UK at the end of the negotiations could be:

• The UK Medicines and Healthcare products Regulatory Agency (MHRA) adopts the Swiss model
(i.e. MHRA work independently to authorise medicinal products but work closely with the EMA under sharing agreements and mutual agreements) or
• The MHRA work with the EMA although the UK is outside the EU (similar to the EEA countries
Norway, Liechtenstein and Iceland).
• The UK develops a totally UK centric drug approval system since pharmaceutical regulations are
currently determined at the EU level.

The most common legal acts drawn at the EU level that directly affect the chemicals and pharmaceutical industry in the UK include amongst others the REACH Regulation and the Biocidal Products Regulation (BPR). REACH created the European Chemicals Agency (ECHA) and Titles XIII and XIV of REACH required each Member State to appoint a Competent Authority (CA) and maintain an appropriate control system for enforcement.
REACH also recognises the need for high levels of co-operation, co-ordination and exchange of information between the Member States, the European Chemicals Agency (ECHA) and the European Commission regarding enforcement. This arrangement will remain in the foreseeable future and will not affect the REACH 2018 deadline. While it is not yet clear what the outcome of the negotiations between the UK and the EU could be, the expectation is that the UK will try and negotiate to obtain a situation similar to the one that Norway currently has in place with the EU.

The so-called Norway model means that the UK decides to adopt all EU Regulations but stays out of the EU. This option carries the most risks from a political point of view. Norwegian officials can attend expert level meetings organised by the European Commission to discuss proposals for Regulations and its ministers are invited to attend some EU ministerial council meetings when it is relevant for both sides, but they have no way of influencing the outcome since they have no vote. The Norwegian Prime Minister recently described this arrangement as a situation that forces Norway to act
like a lobby organisation in Brussels. Furthermore although Norway’s membership in the European Economic Area (EEA) does not cover certain areas of EU cooperation (e.g. agriculture, fishing) it is part of the Schengen agreement. Norway’s participation in the single market means Norway implements according to some estimates about three-quarters of all EU laws. This option is not likely tobe acceptable even to people who campaigned to stay in the EU.

Another possible option is for the UK to negotiate to stay out of the EU as well as the EEA, which will require that the UK stays out of the common market. Although this looks like a worst-case scenario for the UK chemicals industry, it was actually seriously discussed by some politicians with the expectation that the UK will be free to negotiate trade deals with other countries without any interference from the European Commission.
In this case, all UK chemical companies that export products to the EU would have registration and authorisation obligations under REACH as other companies in the US, China Japan and Canada.
Because only EU-based companies organisations can participate as registrants under REACH, UK
companies will have to either nominate their importer or appoint a third party in the EU as their Only
Representative to fulfil REACH responsibilities. Most importantly, UK companies that violate REACH will be subject to penalties in the country they exported to. Penalties for REACH violations vary by member state and could be as high as €55 000 000 in Belgium; €4500 000 in Poland. EU Member state could also utilise other legal and commercial instruments such as injunctions, market withdrawal and product confiscation. This seems to be the option with the greatest risk and cost implications for the UK chemicals industry.
A third option could be for the UK to stay out of the EU but negotiate some form of deal with the EU in which the UK has no obligations, but has full access to the common market without the associated free movement of people – the so-called Norway light model. Although this will be the best option for the chemicals industry, it is difficult to see why the EU will accept such an arrangement since this will
open the door of contagion within the rest of the EU: the possibility that other member states nations
might also drop out of the union, which could prove terminal to the European project if that member
state happened to be a founding member state within Eurozone.
Although all that is possible to do at this stage is to speculate on the post-Brexit Chemicals regulation
approach in the UK, there are only two certainties at this stage: one is uncertainty and the other is that the European Medicines Agency (EMA) will re-locate from its current headquarters in London.
Smithers Viscient will continue to monitor the developments and keep its clients in the chemicals and
pharmaceutical Industries informed on potential compliance issues in Brexit’s aftermath.