As the legislative countdown to Brexit begins, Peter Newport, Chief Executive of the Chemical Business Association (CBA), highlights some of the key objectives of the UK’s independent chemical supply chain.
The Brexit Secretary David Davis has described Brexit as ‘an operation of such technical complexity that it makes a moon landing look simple’. As the European Union (Withdrawal) Bill has now entered Parliament, the legislative countdown to Planet Brexit is under way.
Much of the chemical sector, one of the most highly regulated sectors of the economy, is nervous about this relatively unplanned journey to a distant galaxy.
During the past forty years, the industry’s regulatory framework has become a kaleidoscope of directives and regulations originating from the European Union (EU).
However, the Government is determined that EU law must cease to apply and will be transposed into domestic law on exit day. The repeal bill now before Parliament means we are about to start to face the legislative and regulatory realities of the Brexit decision.
For the chemical industry, the devil really is in the detail. At this stage, it is only possible to address some of the main issues because we just don’t have enough information to discuss the complexities that will arise during the withdrawal process.
As the CBA, we have recently surveyed our member companies on the headline issues – the Single Market, Customs Union and the transposition into UK law of key aspects of the industry’s regulatory framework – REACH, CLP, and the Biocides regulations.
I should say, at the outset, that CBA’s objective during the referendum process and during its aftermath has been to accurately reflect the impact of Brexit on the
UK chemical supply chain. CBA’s position is non-political and our sole aim is to protect the interests of our member companies.
Single Market
The chemical sector is one of the very few truly global industries and it is crucial to preserve its ability to trade across national borders on a tariff-free basis.
Some 81% of respondents to CBA’s Brexit Survey said continued membership of the Single Market was ‘Important’ or ‘Very Important’ to their businesses. This included all the large companies responding to the Survey (accounting for virtually all this category of companies holding CBA membership).
Less predictably, perhaps, smaller companies – many of which are UK-centric, buying and supplying chemicals only in the UK – also wish to retain membership of the Single Market.
This applies even to smaller firms currently selling less than 20% of their product portfolio to EU customers. These businesses are clearly unwilling to jeopardise future access to profitable markets.
CBA member companies are concerned that the loss of access to the Single Market and the benefits it involves in addition to the possibility of new tariff (or non-tariff) barriers will significantly undermine the industry’s competitiveness.
Tariff-free access to EU markets is crucial to a chemical sector that is massively interdependent, with high levels of trade and commercial dependency throughout the global chemical supply chain.
Should Brexit negotiations not result in this preferred outcome, the UK chemical supply chain would require a significant transitional period to adjust to any new trading environment.
Customs Union
Similarly, 82% of companies responding to CBA’s Brexit Survey favoured continued membership of the Customs Union (or some arrangement delivering the same benefits).
Without exception, large companies responding to the survey, favoured remaining within the Customs Union as did more than 60% of smaller companies, despite their reliance on third-party logistics services providers.
As with the Single Market, CBA members are seeking a significant transitional period for the industry and its logistics services systems to adjust to any new regime.
Regulatory Framework
Respondents to CBA’s Brexit Survey highlighted three key elements of the industry’s regulatory regime as important to their businesses: REACH (82%), CLP (89%), and Biocides (31%). Compliance with these regulations by UK companies has already represented an investment of many millions of pounds by the industry.
Brexit creates a number of institutional, functional, and legislative challenges regarding the industry’s regulatory framework all of which have potential to increase the industry’s costs significantly.
In institutional terms, the UK will have to either create its own version of the European Chemicals Agency (ECHA) or negotiate for a transitional or long-term relationship with ECHA to allow that body to continue to manage the key functions of REACH.
In functional terms, the UK needs to create or secure continued access to a number of expert committees that are central to the operation of REACH. The same point applies to the IT systems and tools that are an important part of the REACH process.
In legislative terms, the UK industry’s regulatory environment has become enmeshed with European legislation which, in turn, is an important element for globally harmonised regulations. This framework may be essential in negotiating post-Brexit European and international trade deals.
CBA believes that the pragmatic (and most cost-effective) way forward is to adopt the REACH, CLP, and Biocides legislation into UK law on exactly the same institutional, functional, and legislative terms as they are currently operating.
This guarantees future regulatory equivalence; it does not jeopardise existing commercial arrangements, many of which will include regulatory compliance as a central contractual term; and finally, it does not impose further compliance costs on the UK chemical supply chain.
Should Brexit negotiations fail to deliver this outcome in whole or in part, several CBA member companies have expressed an interest in exploring derogations from the industry’s current regulatory framework that allows domestic trading in substances regulated on a risk-based, rather than hazard-based, basis.
Finally, the continuing status of products already registered under REACH in 2010 and 2013 needs urgent clarification (as well as substances scheduled for registration in 2018).
