Expert View

Brexit may force exit of UK chemicals business

by Nigel Haigh | 11.05.2017

Nigel Haigh is honorary fellow and former director of the Institute for European Environmental Policy.

Far from freeing up the British chemicals industry, Brexit threatens to land it with “increased costs and red tape” if the UK abandons an EU-wide chemicals registration scheme that is central to the EU’s single market, the UK House of Commons’ Environmental Audit Committee (EAC) has concluded in a report.

The signs are ominous. “We are not going to be part of the single market, and REACH is a single market mechanism,” a Defra official told the EAC in evidence.

The report on the EU’s Registration, Evaluation and Authorisation of Chemicals (REACH) regulations underlines that for the British chemicals industry – the country’s second-largest manufacturer and exporter to the EU – all-important EU single market access is governed as much by common regulation as it is affected by potential post-Brexit tariffs.

REACH, which protects human health and the environment from dangerous chemicals across the EU, has worked well since its inception in 2007 and is now considered the benchmark worldwide for regulating chemicals.

It was the need to put on the political agenda its serious concerns about Brexit’s potential damage to one of Britain’s leading industrial sectors that prompted the committee to rush a shortened report to publication late last week, days before parliament’s dissolution ahead of the UK general election.

Challenging the government’s “Brexit orthodoxy” of a wholesale exit from the EU single market and its regulatory and legal framework, the report calls instead for a pragmatic, piecemeal approach. “The most important element of REACH, which the Government should seek to remain involved in as a minimum, is the registration process for chemicals,” the report says.

The committee’s call for continued if partial involvement with REACH moves the debate on from the binary one that has occupied the experts to date: could the UK remain a fully-fledged party to REACH under the free trade agreement that the Prime Minister seeks, or would it have to abandon REACH and create an expensive alternative UK registration and monitoring system instead?

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    The stakes are high: the UK chemicals industry generates £10 billion in Gross Value Added on an annual turnover of £32 billion and total exports of £26 billion, making it Britain’s second largest exporter to the EU. In evidence to the parliamentary committee, the Chemical Business Association reported that of the 126 companies it represents, Brexit uncertainty has meant 20% are actively investigating moves to EU countries, such as Ireland.

    Chemicals, as well as the full range of products that incorporate them, can only be sold in the EU if the chemicals are registered with the European Chemicals Agency (ECHA), a body established under REACH rules. Even if the UK created an alternative registration system, British products exported to the EU  would still have to be registered with ECHA.

    Moreover, under current REACH rules only EU manufacturers or importers can register their products. The uncertainty as to whether the current UK registrations would remain valid needs to be resolved urgently, says the EAC. If UK registration isn’t recognised after Brexit, exporters will need to rely on EU-based importers to register their chemicals, and EU businesses may switch to EU suppliers to avoid new registration costs.

    But is the committee’s ‘pragmatic’ proposal realistic, or will it be viewed by EU negotiators as “cherry picking”, giving the UK the benefits of single-market access without being bound by EU decisions and restrictions? And since potential future differences between EU and UK standards could threaten single market access, the EU may also insist that the UK accept REACH in full, including Brussels-based rule-making and European Court of Justice jurisdiction, or not at all.

    The report highlights another immediate problem facing the industry – a May 2018 deadline for ECHA registration of low-tonnage chemicals. Since the UK will be a full EU member on that date, UK manufacturers will still have to submit registration dossiers.

    “The timing of Brexit means that companies face significant costs to comply with EU regulations before we leave, with no guarantee that that investment will be useful to them in the future,” said Mary Creagh MP when launching her committee’s report, warning: ”The lack of Government clarity is causing uncertainty and driving billions of pounds worth of businesses to consider leaving our country for the EU.”

    Edited by Geert Linnebank