Much of the smoke has yet to clear on the outcome of the UK's referendum vote and decision to leave the European Union. Significant changes in key government departments have taken place, and equally fundamental changes in the political kaleidoscope and opposition, as the UK prepares to give effect to the vote, and to work out the nature of its future trading arrangements with the European Union and the rest of the world. We most certainly do not profess to have all the answers, and anything we say will need updating in the near future, but we offer the following comments on the impact of these changes on the chemical sector.
Industry body Cefic noted on 24 June that the UK contributes 9 per cent (€46.3 billion) of total EU chemicals sales of €531 billion. EU chemicals exports to the UK are about €22.3 billion, and EU chemicals imports from the UK are about €20.3 billion.
At present, the EU REACH chemicals Regulation 'REACH' is part of the law in the European Union, and the UK is part of the European Union, for at least two years from the point where the UK triggers the Treaty provision to begin the process of leaving the EU.
The EU Classification, Labelling and Packaging Regulation 'CLP Regulation' is adapted for European purposes but closely based upon the United Nations Globally Harmonised System of Classification and Labelling of Chemicals (GHS), and may therefore need separate consideration from REACH itself.
As and when the UK opts to repeal the relevant provisions of the European Communities Act 1972, the primacy of the Court of Justice of the European Union would cease, and, unless simultaneously replaced, the legal basis for implementation in the UK of many thousands of EU Directives, and the enforcement of directly effective EU Regulations could come to an end.
It is quite likely that the UK would be quite unable to review all of these individual laws and regulations and to pick and choose between the ones it wishes to retain or discard in the time available, two years or so, from the triggering of Article 50 of the Treaty of the European Union. It is therefore possible that instead the UK would look for a means of importing the whole of existing EU law as is into UK law and then reviewing it in its own timeframe. After all, the REACH Regulation itself took four and a half years to negotiate, and it took nearly four decades to make comparable progress on the TSCA legislation in the USA. For an under-resourced and hard-pressed civil service, the only thing one could say with certainty (and British understatement) is that there will be many competing demands on their time and attention, and those of their Ministers.
On the merits of retaining or discarding REACH, it is worth noting the extent to which REACH, or something like, it has now been adopted in other countries around the world, such as Korea Turkey, China and so on.
It will also be the case that as the UK's trading arrangements with Europe are fundamentally re-assessed in the next few years, the European Union will carry on applying REACH, and countries and firms aiming to trade with the European Union will need to factor in the need for REACH compliance in their plans to meet the needs and expectations of their EU customers. Essentially, REACH boils down to being able to answer the question "what is in it?": the ability to supply detailed information on the substances placed on the market on their own, in mixtures or in articles. Being able to deliver REACH compliance and the information that REACH requires will therefore be a legal requirement for the next two years anyway, and a commercial requirement for any firm supplying substances, mixtures or articles into the EU. Similarly, suppliers to larger firms which themselves undertake trade with the EU will continue to experience pressure to supply the information that REACH requires. Being able to do so will deliver a commercial advantage to other non EU firms in the supply chain that are unable to do so.
REACH is a massive and complex system that aims, and claims, to deliver real benefits in terms of protection of human health and the environment. It is undoubtedly burdensome, and costly, although significant efforts are being made through the system of REACH Reviews and REFIT exercises to make it less so, particularly for Small and Medium Enterprises. However, as suggested above, any decision in the future to abandon REACH without a well thought out and better alternative would have profound consequences for trade between the UK and EU in chemical substances, mixtures and articles.
The issues for the short term are straightforward. The REACH and CLP Regulations remain the law until the UK makes legislative changes. For the medium term, the position becomes less clear. Present indications from government are that firms should still aim to meet the REACH 2018 deadline and the application of REACH to many thousands of SMEs through its application to substances handled in small volumes of 1 tonne or more. But the position for UK Registrants of substances, and the 5,000 or so UK based Only Representatives of non-EU manufacturers, and the position of UK firms engaged in applications for REACH Authorisation are less clear at present.
Small wonder that the Chemical Stakeholders Forum have been pressing for early clarification of government policy for the chemicals sector. It may be that the most immediate challenge for the sector will be to command the attention of distracted civil servants, Ministers and negotiators facing multiple demands. That is going to demand prompt and effective cooperation across the chemicals industry.
Meanwhile, we are here to help our clients in every way that we can.
For more information, please contact Michael Barlow or your usual Burges Salmon contact.