Later today the UK will leave the European Union, ending its 47-year membership of the European institutions. Its exit, just over three and a half years after the UK referendum on membership, avoids an immediate “hard Brexit.” In practical terms, this means that businesses have a little more time to “Brexit-poof” their operations. Those who have not acted already should lose no time. There are strategic choices to be taken in addition to the required contractual, data rights and regulatory compliance adaptations.

Transition

The Withdrawal Agreement provides for a “transition or implementation period” which is scheduled to end on 31 December 2020. During this time “Union law shall be applicable to and in the United Kingdom[1] (subject to specific exceptions). This means, for example, that the body of EU Environmental laws - over 200 major legal acts covering areas including chemicals and genetically modified organisms, water and air quality, waste management, nature protection, industrial pollution control and risk management, noise and forestry - will continue to apply in the UK.

The transition period may be extended for a period of 1 or 2 years, if triggered by mutual consent of the parties “before 1 July 2020[2].” The UK government’s current position is that it will not request such an extension, so companies need to plan on the assumption that they must be ready before the end of this year. At the end of the transition period, the UK will be deprived of access to EU networks, information systems and databases[3], which currently support their regulatory activities in the Chemicals, Environment and Life Sciences sectors.

Crucially, during this transition period, the EU is treated as “including the United Kingdom and its competent authorities[4] – even though it is no longer a member state. This is important because many companies have met their regulatory compliance obligations in the Chemicals, Environment and Life Sciences sectors through UK established legal entities. Their pre-market authorisations, registrations and approvals are held by UK entities who would - absent of the transitional arrangements - be unable to satisfy the requirement of being “established in the European Union.” This is found, for example, in the REACH Regulation for registration holders and only representatives and in the Biocidal Products Regulation for authorisation holders of biocidal products.

The UK had adopted a raft of secondary legislation in the Chemicals, Environment and Life Sciences sectors preparing for a “hard Brexit” scenario. This was due to apply from “exit day” (31 January 2020). It included the requirement that companies holding pre-market approvals be established in the UK (mirroring the obligation in the EU-27, noted above) and submit data. The recently adopted European Union (Withdrawal Agreement) Act 2020 pushes these obligations back, so that they will only apply at the end of the implementation period (rather than on exit date)[5].

So, for both the EU and UK regimes, there is a small amount of additional time to transfer regulatory compliance functions to a new qualifying legal entity (established in the correct jurisdiction) or seek a new pre-market authorisation where transfer may not be possible. Moreover, there is time to engage in the data access and compensation discussions which are likely to be a key hurdle to compliance with the UK regimes in the future.

Immediate Changes

While the substantive laws of the EU remain in force in the UK during the transitional period, the role of the UK changes immediately. [6] This is not a minor matter. The UK has played an important role contributing to EU decision-making in the Chemicals, the Environment and Life Sciences sectors. The dynamics of those discussions (and voting patterns where a qualified majority is required) will be significantly impacted. It also ceases to play a direct role in the European Chemicals Agency (ECHA) and the European Food Safety Authority (EFSA), moving forward.

The UK has carried a significant part of the workload in the various EU regimes where member states act as evaluating bodies/rapporteurs, which has had to be picked up by other EU-27 states. Although there has been significant effort devoted to ensuring an orderly handover[7], this does not change the fact that a smaller number of states will have to undertake a workload which has not reduced. Deadlines may suffer as a result. The thirteen areas affected are listed in Annex VII to the Withdrawal Agreement:

  • Biocides
  • Chemicals (REACH)
  • Classification Labelling and Packing of chemicals
  • Clinical trials on medicinal products for humans
  • Feed
  • Genetically Modified Organisms and GM food and feed
  • Invasive alien species
  • Medicinal products, their residues and pharmacovigilance
  • Nutrition and health claims
  • Organic product imports
  • Plant Protection Products (Pesticides) and their MRLs
  • Plant variety rights
  • Ship inspection and surveys

The Future EU-UK Relationship

At the end of the transition period, the UK will either have struck a deal with the EU on a new trading relationship or businesses will face - once more - the prospect of a “hard Brexit”. Even if a trade deal is struck (and a “hard Brexit” avoided), its scope remains uncertain. There remains a very short negotiating period.

For companies in the Chemicals, Environment and Life Sciences sectors it is important to note that the EU will be seeking a level playing field and close harmonisation of standards – as a condition of open access to the EU market (by the UK). This was made clear again on 31 January 2020, in the joint press conference of the presidents of the European Council, European Parliament and European Commission. It was also a key element in the Commission’s proposals to member states, on future negotiations with the UK.

In so far as rules and standards in the UK and EU diverge, companies who want to do business on both sides of the English Channel / la Manche will have no choice but to meet the highest standards applicable. Areas where one might anticipate divergences include:

  • approval, restriction and non-approval decisions on individual substances,
  • the characterisation of substances as endocrine disruptors, and
  • regulation or non-regulation of modern biotechnology techniques such as CRISPR-Cas.

It will be more challenging if future standards are not merely different but incompatible. Early, fact-based, advocacy by industry will remain necessary to avoid such situations arising.

Building a Brexit Strategy

As explained in our previous Brexit briefings, in practical terms, (i) UK operators exposed to the EU-27 market, (ii) EU-27 operators exposed to the UK market, and (iii) operators established outside the UK and the EU-27 and exposed to either market need to:

  • understand the impacts of the Withdrawal Agreement and the transitional arrangements on their operations and prepare to (re)structure them accordingly;
  • monitor and seek to influence requirements which may be established in any future EU-UK trade agreement; and
  • prepare for a possible no-deal scenario at the end of the transition period.

Active management is required, based on a comprehensive understanding of a company’s obligations throughout the supply chain.