Law360, New York (July 1, 2016, 2:13 PM ET) -- The results of the June 23 referendum in the UK were positive in favor of a Brexit (the UK leaving the European Union). Since then, a number of commentators are discussing how, when and whether Brexit will happen at all. Notwithstanding all these uncertainties, companies must assess the impact of the probable if not rather certain exit of the UK from the EU. More specifically, the full impact of the advisory referendum result will depend upon the outcome of exit negotiations which the UK must first formally initiate under Article 50 of the Treaty on European Union. For the time being, it remains unclear under what conditions and, more importantly, when the UK will trigger the initiation of exit negotiations. Until that time, EU chemicals law will continue to apply in the UK. Once the procedure is initiated, the negotiations should be completed within two years. This period may be extended by the European Council in agreement with the UK. The current uncertainty stemming from the result of the vote, as such, already shows that companies active on the EU chemicals market — whether established in the EU or not — must develop a proactive commercial and regulatory strategy to deal with the UK’s announced departure.
The extent of the impact of last week’s referendum will largely depend on whether the UK ultimately does leave the EU and, if so, whether it negotiates (i) membership of the European Economic Area (like Iceland, Liechtenstein and Norway), (ii) a bilateral agreement or (iii) simply relies on World Trade Organization membership rights. While all three scenarios have been modeled by the UK government, from a political perspective it does not seem likely that the UK would want to join the EEA, where it would have less of a say than it does as a full EU member.
In so far as EU chemicals law is concerned, three aspects can already be identified as possibly impacted by Brexit. First, the question of continued applicability of EU rules on UK territory. Second, companies established in the UK might no longer be able to act as representatives of companies established in the EU for purposes of compliance. Third, it can be expected that the role of the UK competent authorities in the assessment of chemicals will change. Contractual arrangements currently in place regarding cooperation for purposes of ensuring compliance with specific EU chemicals law obligations will need to be amended.
Applicability of EU Rules on UK Territory
It can be expected that EU chemicals rules implemented until now might continue to be binding on companies importing into the UK. So most of the Registration, Evaluation, Authorization and Restriction of Chemicals (REACH), biocides and pesticides rules might survive and be binding for products imported into the UK. On the other hand, as overregulation by the EU was one of the criticisms made by the so-called "leave" campaign in the runup to the referendum, it cannot be excluded that some aspects of the current EU rules could be modified.
Companies Established in the UK
A large number of companies established in the UK act on behalf of companies established elsewhere in the UK for purposes of compliance with EU chemicals law.
Specifically, under the REACH regulation, manufacturers and formulators of chemical substances established within the EEA can comply with specific obligations, such as registration, either for their own imports into the EEA or on behalf of other importers (as so-called "only representatives"). If the UK will not be part of the EEA, UK-based companies will need to appoint an "only representative" in the EEA to ensure compliance of exports, or leave the compliance obligations on the individual importers.
For those non-EEA companies which have appointed an OR (corporate affiliates or independent representatives) established in the UK, these arrangements will most likely need to be reassessed. If the UK joins the EEA agreement, the OR option would remain, but many companies will consider that a “defensive” switch of their OR to a non-UK based entity is now necessary.
Under the Biocidal Products regulation, the European Chemicals Agency (ECHA) has developed a system of representatives for non-EU companies who are included in the Article 95 list of substances and suppliers (though these representatives do not formally take on obligations of non-EU suppliers). UK-based Article 95 representatives would probably also have to be replaced after the UK is no longer be part of the EU.
Many UK-based companies have been actively involved in leading industry efforts to comply with various obligations under EU chemicals law — be it under various chapters of REACH, biocides, plant protection products (agrochemicals), food or food contact regulations. They have, in many instances, taken the lead or coordinating role in the submission of dossiers or product defense. Contractual arrangements between UK-based companies and other companies will have to be reassessed, since it is unlikely that UK-based companies will be able to continue in their role of providing EU regulatory compliance solutions.
UK Acting as Evaluating Member State
The UK is currently acting as an evaluating member state authority under EU chemicals regimes, including:
- Biocides and plant protection products
- REACH (substance evaluation, SVHCs and restrictions)
In cases where the evaluation by the UK competent authority would not have been completed by the date of the formal exit of the UK, work will have to be reallocated to other member states, or discontinued.
Currently under the community rolling action plan process under REACH (substance evaluation), the UK authority has six ongoing substance evaluations, five substance evaluation processes completed, for which information has been requested (and the UK will need to assess the information submitted as a result), and three evaluations that have not yet been started.
It is likely that the UK competent authority will no longer take new tasks on (substance evaluations, SVHCs, restrictions), and will look to complete ongoing processes before the formal exit date.
Considering the three aspects addressed above, it is imperative that companies do not wait, and perform the assessments relevant for their business now.
In addition, it is important that companies interested in remaining in the market in the UK after it exits the EU evaluate the requirements the UK is likely to impose and ensure they are in a position to comply. We are not aware that planning in the UK to date has focused on this level of detail. The UK does have legacy national legislation in place that predates EU programs such as REACH. The extent to which this will spring back into effect, or be modified to incorporate some elements of current EU programs, remains to be seen. It does seem likely that some transition regime will be available. However, it also seems likely that the UK will impose reciprocal requirements to those imposed on UK-based companies under the negotiated terms of its EU withdrawal. We believe it is prudent for companies not now established in the UK which are interested in continuing to do business in that jurisdiction to consider establishing or contracting with UK entities that can handle the equivalent of a REACH registrant, only representative or third-party representative. Contractual arrangements under which compounds are brought into or exported from the UK also should be reviewed and at hand, so they can be adapted to the new regime whenever that becomes effective.