Market outlook: Brexit –where next?

The UK government acknowledges that Reach, the EU Regulation on Registration, Evaluation, Authorisation and Restriction of Chemicals, is amongst the one third of EU environmental law which cannot simply be copied and pasted into UK law through the “Great Repeal Bill”.

The Environmental Audit Committee (“EAC”), a cross-party select committee of 16 MPs, chaired by Mary Creagh MP, is giving specific consideration to the future of Reach in the UK, as part of its inquiry into the 
Future of Chemicals Regulation after the EU Referendum. The future application of Reach has important implications for future trade within the EU. As a Single Market regulation, it harmonises conditions under which chemicals and articles can be supplied.

The EAC’s inquiry is considering three areas:

Transposition – challenges to using the Great Repeal Bill to put Reach into UK law; how Brexit negotiations will impact the UK’s ability to transpose Reach; and the role the devolved administrations should play;

Administrative, policy and regulatory implications – how to transfer administration and enforcement from the European Chemicals Agency (“ECHA”) to domestic bodies; the likely implications for industry in terms of regulatory, environmental and safety standards; and whether the UK Government has the expertise and resources to regulate Reach in the UK; and

Future of the chemical industry – scope for divergent UK chemicals regulation on Brexit; principles that a UK regime should follow; the likely practical implications of a UK-only regime on the environment, public safety and UK industry, plus key features of a UK regime to ensure these concerns are not compromised.

Brexit will soon be a reality for UK chemicals. March 2019 is the target date

Vickie Flores/REX/Shutterstock

DISCUSSING REGULATIONS 

More than 60 responses have already been received, including from a range of trade associations and environmental NGOs. The inquiry remains open and is still accepting written submissions. The EAC held the inquiry’s first oral evidence session on 7 February 2017 and a second oral evidence session on 16 February 2017.

I was one of three panel members during the first oral evidence session. The panel considered questions from Committee members, including the potential models of chemical regulation, practical implications for business, risks to trade and possible transitional measures.

I explained how the chemicals industry has embraced Reach as a robust system of chemicals regulation. I also explained that Reach is only one part of chemicals regulation. There is also legislation on biocides, ozone depleting substances, persistent organic pollutants, substances requiring prior informed consent, and the classification and labelling of products. All of these are Single Market-related EU Regulations that are directly applicable in the UK, for which no UK implementing legislation, have been necessary. By contrast, UK law which implements directives, for example relating to waste and environmental permitting, is already administered and enforced by UK-based bodies such as the Environment Agency and/or local Planning Authorities, so the conversion into UK law should be relatively straightforward.

I discussed the difficulties that businesses would face if a UK form of Reach diverged from that in the EU. Reach creates a common system making it easier for UK exporters to ensure regulatory compliance in order to trade with European countries. A divergent system would mean that UK businesses that wish to continue trading with the EU may have to comply with two sets of laws, meaning additional costs for UK exporters.

CONCERN OF DIVERGENCE

At present, the UK has full participation in the assessment and decision-making processes relating to Reach and other aspects of chemicals regulation. For example, ECHA’s Member State Committee is composed of representatives of each Member State, as is the Forum for Exchange of Information on Enforcement of the Reach, CLP and PIC regulations. Post Brexit, there is a real concern of divergence between UK and EU Reach, with the UK ceasing to have access to the data and intelligence currently available at an EU level. The UK risks always being “behind the curve” when it comes to implementation of a common regulatory system. The House of Lords European Union Committee’s report on Brexit’s impact on the environment highlights the importance of the Government seeking to maximise the UK’s informal influence on EU discussions on chemicals legislation post Brexit, including the development of EU standards.

I emphasised the importance of creating transitional provisions to allow UK businesses to access ECHA, existing registrations, and a continued process for registration from the end of the two-year Article 50 period. Without these provisions, there would be a market freeze because it is unlikely that a detailed trade agreement will be completed by then.

The role of ECHA and other EU institutions in regulating the chemical sector cannot be overstated. In addition to managing Reach registration dossiers, ECHA runs the Classification and Labelling (C & L) Inventory, its Board of Appeal determines data sharing disputes and it hosts public consultations required under various Reach mechanisms.

In addition, ECHA’s committees play a critical role in preparing opinions on a range of issues, for example, ECHA’s Risk Assessment Committee and its Committee for Socio-Economic Analysis on the potential impact of a restriction on a substance being manufactured, placed on the market or used, and assessments in the context of applications for authorisations. Equally important is the work of ECHA’s Biocidal Products Committee in preparing an opinion on whether an active substance should be approved, prior to the European Commission taking the final decision.

Detailed consideration is needed of the changes which will be required, not least to introduce the Health and Safety Executive (HSE) (or another body) in place of ECHA. From a practical perspective, ECHA’s Reach-IT, ECHA’s online dossier submission and communication tool will also need to be replaced with an equivalent system. This is likely to take time, and as part of the exit negotiations, the UK may look to incorporate some transitional provisions into the withdrawal agreement, allowing a continued role for ECHA at least in the short term. The Government has rejected an unlimited transitional status. It has, however, indicated that it is open, on an issue by issue basis, to considering a phased process of implementation to allow businesses time to plan and prepare for new arrangements.

The withdrawal agreement could include some system of mutual recognition for registrations in both EU and non-EU Member States (there is currently no “equivalence” recognition under Reach). This would mean EU customers of UK Reach-registered exporters being treated as downstream users, and vice versa, hopefully avoiding the need for a whole raft of new registrations. This will only work in practice however if there is broad equivalence between UK Reach and EU Reach.

ORDERLY DEPARTURE

Theresa May has stated that the UK will give notice to the European Council to leave the EU by the end of March 2017, meaning that the UK will not leave the EU before the end of March 2019. Mrs May aims to reach an agreement on the UK’s future trading partnership with the EU by the time this two-year period ends, after which she wants a “smooth, orderly Brexit”. This means that the UK remains bound by Reach and other EU chemical regulation for the short-to-medium term, including the legal obligation to register substances under Reach by the May 2018 deadline (when around 70,000 new registrations are expected, over three times more than prepared for previous Reach deadlines). In the meantime, business should reflect on how best to manage their compliance obligations bearing in mind the current uncertainties, whilst building maximum flexibility into their data sharing arrangements to ensure that data may be used for UK Reach purposes.

Elizabeth Shepherd is head of environment and a chemicals compliance specialist with law firm Eversheds Sutherland