The government has published legislation to create a 'UK REACH' and a UK chemicals agency and, for the first time, we have a clear picture of how these important chemicals regulations will work after Brexit. The government has also accepted that the impact may include 'significant costs' for businesses.
EU Regulation No. 1907/2006 on the Registration, Evaluation, Authorisation and Restriction of Chemicals ('EU REACH'), governing the regulation of chemicals for the protection of human health and the environment, is one of the most complex legislative instruments ever created by the EU, and it has long been accepted by UK government that re-creating the regime within UK law is far from straightforward. The REACH (etc.) (Amendment etc.) (EU Exit) Regulations 2019 ('the REACH Amendment Regulations'), laid before parliament on 9 January, might sound dull and (for those who have bothered to read them) be rather impenetrable, but they are of critical importance for a huge section of the UK's economy, including both the UK’s chemicals industry and all those in manufacturing and services who rely on chemicals.
In this short briefing note we provide our initial comments on the REACH Amendment Regulations, beginning with a summary of when, if and how the REACH Amendment Regulations might come into force.
When do the REACH Amendment Regulations apply?
Everything depends on when, how and even if the UK leaves the EU, but here is a quick summary of the potential scenarios.
In the event of no deal, the REACH Amendment Regulations will come into force on ‘exit day’ as defined in the European Union (Withdrawal) Act 2018 – that is, 29 March 2019.
Even if the Prime Minister’s Withdrawal Agreement (or something similar) is approved by Parliament, this only kicks the can down the road, with the UK remaining a participant in EU REACH only for a period. It’s important to remember that the Withdrawal Agreement only addresses the terms of the divorce and sets a timetable for future discussions (‘the transition period’) which lasts until 31 December 2020. The discussions on the future EU-UK relationship would need to continue, but all of the political signs have been that UK’s continued participation in EU REACH would be unacceptable to the EU-27 (see our briefing note on the political issues and the political declaration on the future relationship here). The UK is therefore highly likely to need its own chemicals agency to replicate the work of the European Chemicals Agency (ECHA). Sooner or later, even in a ‘deal’ scenario, there will be a UK REACH and a UK chemicals agency. The REACH Amendment Regulations provide the best blueprint we have for how that regime would function.
For completeness, it is worth noting that remaining in the common market (the ‘Norway +’ model) or indeed staying within the EU (the ‘no Brexit’ model) will of course mean that the UK could continue to participate in EU REACH, and the REACH Amendment Regulations would become redundant and never come into force. Whatever people's assessment of the possibility of this coming to pass, it's prudent to at least plan for a UK REACH, and so we recommend paying close attention to the REACH Amendment Regulations.
What do the REACH Amendment Regulations say?
We now have answers to some of the big unknowns, as well as further detail on the points that have previously been disclosed by government ministers and officials. The main points are as follows:
Businesses operating in the UK and the EU will need a separate registration in both markets
One of the most important features of the EU REACH Regulation is the principle of 'no data, no market', and this concept – that businesses must provide robust data about a substance’s hazard properties before that substance can be place on the market – is realised through a system of registration with ECHA. Unsurprisingly, the principle of registration is replicated in the UK REACH system, notwithstanding the fact that many will be frustrated by having to doing so and the costs that will arise as a result.
To assist, the REACH Amendment Regulations provide for transition. Existing EU REACH registrations held by UK-based companies (including UK-based Only Representatives) will automatically ‘transfer’ to become UK registrations. This means that qualifying registrants will not have to re-register their substances in the UK, no new fees will be payable and they will continue to have access to the UK market. Further, this will also apply to those companies who took the prudent step of changing the legal entity to an EU affiliate on their ECHA registrations within the two years prior to 30 March 2019 in preparation for Brexit, making sure that UK entities are not penalised for protecting their EU market access.
That sounds positive (and cost free). However, there is a (rather significant) catch. The UK Agency would no longer have access to the substance data held by ECHA, and so it needs to build that database itself. Therefore, although qualifying EU REACH registrations will automatically ‘transfer’, all transferring UK registrants will need to provide that data over the period of two years, in two stages. For the first stage, basic data about the market and the substance will need to be submitted within 60 days of exit, and the second stage requires the full information appropriate to the registrant’s tonnage band to be submitted within two years.
Further, it is not the case that all those operating in the UK market will have access to the substance data. Under EU REACH, it was not necessary to own the data studies, only to have purchased the right to refer to existing data (most commonly through the ‘letter of access’ mechanism). Such purchases often guaranteed only limited rights, and in many cases the right purchased was simply a right to refer to data studies for EU REACH registration purposes. Such access rights are unlikely to be sufficient for UK REACH registrations.
Therefore, this re-submission of data will likely have significant financial impacts for businesses in the UK market, both for those who need to purchase access to data and also for those who can make financial returns for the data studies in their ownership. We recommend that work is needed now to understand and map out the position on data access rights and data ownership. Two years is not a long period of time.
Those using chemicals supplied by EU-27 entities will become importers
UK businesses that purchase chemicals from entities based in the EU-27 might now become importers under UK REACH, with a much more significant regulatory role. It’s the logical conclusion to the requirement for a registration in each market, but it may well take many UK businesses by surprise. For years, these businesses will have been ‘downstream users’ under EU REACH, with limited regulatory roles, and so registration will be a new concept.
Again, the REACH Amendment Regulations provide transitional support to these companies through an interim notification system, allowing UK companies to be able to continue buying substances from the EEA without interruption after leaving the EU. However, under the notification system, those importing chemicals from the EEA will need to submit basic data on the company, substances and information on safe use within 180 days. Full registration is then required within two years (providing time for companies to renegotiate access to data from EU partners).
Chemicals will, of course, be used by a great number of businesses within the UK, and it is a far wider group than those who consider themselves part of the chemicals sector. All such businesses must now consider their supply chains, and determine whether there will be a need to register as an importer. At the same time, EU manufacturers should consider whether to register through a UK entity or appoint an Only Representative under UK REACH, to ensure continued participation in the UK market.
The Health & Safety Executive becomes the UK chemicals agency
The roles and responsibilities of ECHA will be taken on by the UK’s Health & Safety Executive ('HSE'). This raises significant questions over resource. ECHA is a large organisation in its own right, with a significant body of expertise. Further, ECHA does not do everything itself: it also calls upon the technical expertise and resources of the competent authorities in the 28 (soon to be 27) member states for complex work such as substance evaluation. Will the UK Agency seek to replicate all of this workload, or will it simply ‘rubber stamp’ decisions taken by ECHA? It is worth noting that, although there will be a duty on the UK agency to commission external scientific advice to develop its opinions, the REACH Amendment Regulations would allow the UK Agency not to do so where ECHA has already published robust opinions. If it is the former, it requires significant resource. It also gives rise to the very real possibility of ECHA and the UK Agency arriving at different conclusions, with the potential for divergence between UK REACH and EU REACH. If it is the latter, we may nevertheless see challenges to the ‘rubber stamped’ opinions on the grounds that’s ECHA's opinions should have been given more scrutiny, with the differing appeal routes themselves giving rise to different decisions (see below).
Appeals will be heard by the First Tier Tribunal
Under EU REACH, decisions of ECHA can be challenged through the Board of Appeal: a specially constituted appeal board that is independent of ECHA and has jurisdiction to re-take decisions and come to a different conclusion.
Under UK REACH, the appeal route would be to the First Tier Tribunal. The First Tier Tribunal is an existing tribunal system that already hears regulatory appeals in other areas of environmental protection regulation, and so it is not a surprising choice.
However, having run appeals in both the UK tribunal system and before the Board of Appeal, we know that there are some significant differences between the two. We will prepare a more detailed briefing note in due course to consider the potential consequences of, and issues arising from, the utilisation of the tribunal system for UK REACH, but at this stage it is important to note that this is not simply a direct replication on the ECHA Board of Appeal within the UK.
It’s also worth considering the potential for divergence. No doubt the First Tier Tribunal and the ECHA Board of Appeal might at least consider each other’s decisions, where the advocates make those decisions known to the appellate body, but those decisions would not be binding precedent, and it's highly plausible that different decisions from each appellate body will give rise to a divergence between EU REACH and UK REACH over time.
The Secretary of State will fulfil the role of the European Commission
Under EU REACH, certain decisions, such as whether to restrict a substance or whether to grant an authorisation to a company to use a substance of very high concern, are taken by the European Commission, acting with the expert advice from ECHA. Such decisions always have a political dimension as there will always be an impact on market participants (an obvious example being the manufacturers of substances proposed for restriction). Under UK REACH such decisions would be made by the Secretary of State. Again, this is not surprising, and mirrors the Secretary of State's role under other regulatory regimes. However, it does raise an obvious question about whether such decisions will become even more politicised: the Commission is of course a political body, but the Secretary of State is a directly elected individual sitting in the cabinet of the ruling government, and if the UK economy has a strong financial interest in restricting a substance (for example), these questions could become rather difficult for the incumbent Secretary of State. Again, there is the potential for significant divergence between UK REACH and EU REACH as these difficult judgements come to be assessed on a case by case basis.
Geographical extent
On chemicals, government is eager to preserve the integrity of the UK single market, and the REACH Amendment Regulations apply throughout the UK, notwithstanding the fact that environmental protection (a key aspect of the chemicals regulation) is a devolved matter. There are however provisions for partnership with the Developed Administrations and their agencies.
Importantly, although entirely unsurprisingly, the REACH Amendment Regulations only set out how chemicals will be regulated on the UK market. The UK government and parliament cannot, of course, make any provision for continuing access by UK businesses to the EU market. The position here is clear: unless the EU makes unilateral moves to accommodate UK businesses (which is, politically, rather unlikely), the UK becomes a third country on exit and registrations or authorisations with ECHA held in the name of UK entities ‘cease to exist’. We have been working with UK entities supplying into the EU market to prepare a strategy for continued access to the EU-27 after Brexit and in each case the strategy has been tailored specifically for the particular operations of the business in question, with no ‘one size fits all’ model. The most important action at this stage is to ensure preparations are underway.
A UK Chemicals Strategy?
The REACH Amendment Regulations is of course defensive and reactive: it preserves (so far as it is possible to do so) the status quo. What about the future direction? As the UK plots its own course outside of the EU, it will need to plan (for the first time in decades) its own strategy for chemicals regulation. This strategy has been promised by DEFRA as part of its commitments in the 25 Year Environment Plan to be the first generation to leave the environment in a better state than we found it. We don't yet have a date for the strategy, but the broad expectation is that it will appear this year. Watch this space.
How can Burges Salmon help?
Our market leading REACH, chemicals and product stewardship team has significant experience in the UK and the EU on chemicals and products regulation. We are advising clients on bespoke Brexit strategies dependent on the objectives and ambitions of each client’s business. We recommend that all UK chemicals businesses carry out a thorough review of the rights of access to data required and that all businesses – both in the chemicals sector and beyond – perform an analysis of the supply chain risks for the chemicals they use. If you are interested in discussing these issues further please contact Michael Barlow or your usual Burges Salmon contact.