The Chemicals Industry – which has a strong presence in the West Midlands – is forecasting a tough 12 months as Brexit uncertainty continues. Here, our Brexit Director Peter Wilding looks at what the industry can do to weather the current storm.
The chemical industry, the nation’s biggest manufacturing exporter, has said more companies in the past three months saw reductions in exports and lost jobs as the Brexit uncertainty continues. In the latest quarterly business survey of member companies, the Chemical Industries Association forecasts an unfavourable year ahead, with businesses predicting a continued fall in exports and drops in margins.
The North West, West Midlands, North East and Yorkshire are the four largest clusters in the UK, with 51 per cent of the 140,000 employees in the £48 billion turnover industry there.
So far, Novartis has announced that it is closing operations down with the loss of 400 jobs looming by the end of December 2020.
Several key issues need to be addressed to allow the West Midlands chemicals industry to plan effectively for Brexit and minimise disruptions to chemical supply chains, including:
• Whether existing registrations under REACH (the EU composite law governing chemicals) by UK-based and EU-based companies will be recognised by the EU and the UK (respectively). If an agreement on chemicals regulation is not achieved or there is a no-deal Brexit, registrations under REACH will not be recognised. As a result, UK-based chemicals businesses would need to appoint a so-called Reach Only Representative (OR) based in the EU to take on the importer obligations under REACH. If an OR is not appointed, the customers of a UK manufacturer would need to either find an EU-based supplier or take on the obligations themselves.
• Whether transitional provisions concerning registration requirements will be negotiated between the UK and the EU. Transitional provisions would help minimise disruption to chemical supply chains by allowing affected entities to continue to export and import chemicals between the UK and the EU while re-registration under REACH for products of UK companies are undertaken by an EU-based entity or registrations under any new UK chemicals regime are undertaken?
• Will a new UK chemicals regime mirror REACH so that data required for registration of chemicals can be used under both regimes? A related issue is whether and how UK companies can continue to use data on chemicals that they have submitted as part of registration dossiers outside of the REACH regime. How a UK regime would interact with REACH would be key to avoiding duplication of effort for the chemicals industry.
• Will the authorisations of hazardous substances (SVHCs) for UK-based companies remain valid after Brexit? As with registrations, this will depend on whether an agreement to that effect is negotiated. In the event nothing is agreed or there is a no-deal Brexit, these authorisations would not be valid. A related issue is whether arrangements for hazardous chemicals under a new UK chemicals regime will be recognised by the EU?
• Will authorisations of SVHCs under REACH be recognised in the UK after Brexit?
In order to settle some of these questions, more detail is needed about the process and timing of the requirements of a new UK chemicals regime (assuming that a no-deal scenario happens) and how a new UK chemicals regime would interact with the REACH regime.
So, on 24 September 2018, the UK government published a technical notice on how a no-deal Brexit may impact on the regulation of the UK chemical companies and those importing chemicals into the UK. The notice states that in the event of a no-deal Brexit the government will establish a UK regulatory framework for chemicals using its powers under the EU Withdrawal Act 2018 (EUWA). The legislation would preserve the REACH regime as far as possible although technical changes will need to be made to reflect Brexit.
The Health and Safety Executive (HSE) would be the lead UK regulatory authority undertaking the functions currently performed by ECHA.
The UK regime would:
• Monitor and evaluate the impact of chemicals on human health and the environment so that existing standards of protection are maintained.
• Minimise disruption to the supply of chemicals.
• Enable the registration of new chemicals through a UK IT system that is similar to the existing EU IT system.
The technical notice also states that in a no-deal scenario the UK would not be legally committed to medium or long-term regulatory alignment with the EEA.
UK market access problems
The technical notice specifies that in the event of a no-deal Brexit:
• UK-based companies registered with REACH would no longer be able to sell into the EEA market without transferring their registrations to an EEA-based organisation such as an OR.
• Importers and UK downstream users currently importing chemicals from an EEA country would face new registration requirements under the UK regime replacing REACH. UK downstream users would not be able to rely on authorisation decisions addressed to companies in the remaining EEA countries.
To minimise the disruption to the supply of chemicals, there would be a transition period where:
• Existing REACH registrations held by UK-based companies would be "grandfathered" directly into the UK regime replacing REACH. These registrations would need to be validated with the HSE by opening an account in the new UK IT system and providing some basic information on the existing registration within 60 days of the UK leaving the EU. Companies will then have two years to provide the HSE with the data that supported their original EU registration and is held on the ECHA IT system.
• A light-touch notification process will operate to allow UK companies that do not hold a REACH registration and that currently import chemicals from the EEA by relying on a registration held by an EEA-based company to continue to do so without a break. These companies will have 180 days from the date of exit to notify the HSE and provide some basic data on the imported chemicals. Full registration would need to be undertaken at a later date to be determined following a review of the process.
• All existing authorisations for using higher-risk chemicals that are held by UK companies would be grandfathered into the new UK system. The information and data needed would be the same for both separate registrations that businesses will have to make with the ECHA and HSE if wanting to place new chemicals on both the EEA and UK markets.
EU market access
The technical notice states that UK companies with existing REACH registrations that want to maintain EEA market access need to transfer to an appropriate EEA-based entity (such as an affiliate or an OR). UK companies that want to register new chemicals for the EEA market after the UK leaves the EU would need to register those with ECHA via their EU customers.
What about the classification, labelling and packaging of chemical substances (CLP)?
At the time of exit, the UK CLP regime would be based on the existing EU CLP regime to provide continuity for businesses, with amendments to enable functions presently carried out by the EU (including those performed by ECHA), instead being carried out in the UK by the Health and Safety Executive (HSE).
Most CLP requirements would continue to be applied in the UK, including:
• Duties on UK manufacturers, importers and downstream users to classify, label and package the substances and mixtures they place on the UK market.
• Obligations on suppliers to identify, examine and evaluate available scientific and information on substances and mixtures to ensure all the requirements of classification are fulfilled.
• All labelling requirements.
• Packaging requirements, including those for child resistant closures and tactile warning devices.
• Testing arrangements, including the prohibition of testing on humans or non-human primates for the purposes of CLP.
• Duties on manufacturers and importers to notify details of the self-classifications for the substances they place on the market. In future, these notifications will be made to the HSE instead of ECHA.
Although the existing arrangements would continue to apply, there would be changes, in particular:
• Importers of chemicals into the UK from EU countries would need to be sufficiently competent to comply with the duties and obligations on an importer, just as they would if importing chemicals into the UK from a non-EU country.
• Companies would interact with the HSE for UK CLP functions, for example, submission of notifications of classifications of chemicals.
• The HSE would be the CLP competent authority for the UK. Existing harmonised classification and labelling for named substances or groups of substances would continue to have legal effect in the UK. HSE would be able to put in place new arrangements for mandatory classification and labelling.
• Companies would be required to use new UK arrangements and the HSE's IT tools for a UK mandatory classification and labelling list (of substances) and a UK notification database. The new arrangements would be operational after 29 March 2019, if there's no deal.
• The EU-based importer of chemicals into the EU from the UK would be responsible for those chemicals and may, therefore, need details of the chemicals involved from the UK-based company.
• In future, the UK would be free to make its own decisions about chemical hazard classification, including whether to align with decisions made in the EU or other countries.
The chemicals industry has repeatedly expressed its concerns about the impact of Brexit on chemical supply chains between the UK and the remaining EU member states, which are closely interwoven. The Chemicals Industry Association (CIA) reacted to the technical notice by stating: "businesses have already spent in excess of £550 million investing in registrations under EU-REACH. Requiring companies to duplicate pre-existing registration duties for a UK-REACH will not only weaken our international competitiveness but more importantly, offers nothing more to strengthen health and safety".
In short, Brexit will cause a major regulatory headache for those companies involved in the production, use, distribution or export of chemicals and any product or application including substances covered by the current legal regime. This will require a total re-boot of the contracts that cover manufacturing processes and the compliance regime that all affected companies use today.
Here at FBC Manby Bowdler we have a stellar team of experts who can help you take control of your business whatever the politicians decide.
If you would like to contact Peter Wilding to discuss any of the above please contact him on 01694 724440, 07901 008220 or email email@example.com.
Download this Briefing here.