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July 7 — British chemicals companies and companies that use the U.K. as their point of entry into the European single market could face years of uncertainty over their compliance obligations under the European Union's REACH regulation, in the wake of the U.K.’s Brexit referendum.
Legal and industry experts contacted by Bloomberg BNA emphasized that until the day the U.K. departs the European Union, REACH and other EU laws on substances will continue to apply. But beyond that, there are few certainties.
The preferred option for chemicals companies would be that business continues as usual to the greatest possible extent. Steve Elliott, chief executive of the U.K.’s Chemical Industries Association (CIA), told Bloomberg BNA that “the whole of the business community will want to retain tariff-free access to the single market.”
A pre-Brexit survey of the U.K. chemicals sector found that “not one company registered a wish to leave” the EU, Elliott added.
In the scenario of continued single market participation, REACH (Regulation No. 1907/2006 on the registration, evaluation and authorization of chemicals) and other EU chemicals legislation will likely continue to apply in the U.K.
Continued EU single market participation for British chemicals companies, however, will likely be possible only if the U.K. continues to accept the EU principle of free movement of people and if the U.K. is prepared to continue implementing made-in-Brussels laws.
This would directly contradict the policy of the U.K.’s official Leave.EU campaign, which in the run-up to the June 23 referendum called for ending the automatic right of citizens of other EU countries to live and work in the U.K. and for repatriation of lawmaking powers.
Even if the U.K. leaves the EU without a deal on single market access, REACH and other EU chemicals laws will continue to apply in the U.K. until they are replaced by other laws.
REACH is a regulation, or a law that applies directly in the EU member countries without the need for national governments to adopt implementing measures. Other EU chemical safety laws, such as the EU Carcinogens and Mutagens Directive (2004/37/EC), which regulates exposure to hazardous substances in the workplace, are directives, meaning EU countries are required to adopt national laws that implement their provisions.
Ruxandra Cana, a partner with Steptoe & Johnson LLP in Brussels, told Bloomberg BNA that although REACH has not been implemented in U.K. law via a U.K. legal instrument, it is “part of the national legal order” and “has become national law in the U.K.”
Outside the EU, however, although the obligations of REACH might continue to apply in the U.K., such as the obligation to register chemicals or to evaluate substances for their hazards, the EU-level decision-making on REACH might no longer have effect in the U.K., unless arrangements are put in place to allow continuity.
For example, decisions taken by the European Chemicals Agency (ECHA), such as on the listing of a chemical as a “substance of very high concern” (SVHC), might no longer apply in the U.K.
“Decisions by ECHA can only be addressed to EU companies,” Cana said.
In such a situation, the possibility for U.K. companies to challenge aspects of REACH could also be closed down.
With the U.K. outside the EU, and assuming no continuity arrangements are in place, companies would not be able to rely on EU-level interpretations of REACH, Laurens Ankersmit, a trade and environment lawyer with ClientEarth, told Bloomberg BNA. U.K. companies “could no longer go to the EU Court of Justice,” Ankersmit said.
Cana said in such a scenario, questions that U.K. companies raise on the interpretation of REACH would have to be decided by U.K. courts, which could lead to different interpretations of the same issue in the EU and the U.K.
A “worst-case scenario” could be that U.K. companies are required to comply with a U.K. version of REACH for their domestic business and the EU's REACH regulation for their exports to the bloc, Cana said.
She added that this could lead to “double counting, so to speak,” in which companies would be required to file substance registrations to a U.K. chemicals agency and also to ECHA, and those registrations could be subject to decision-making regimes—for example on information requirements—that ultimately could produce different outcomes for the same substance.
Cana stressed, however, that “no-one knows” what the outcome of the U.K.’s exit from the EU will be.
Reshad Forbes, a partner with Van Bael & Bellis in Brussels, told Bloomberg BNA that it was “just too early to say” what the compliance situation will be post-Brexit and it is possible that “the U.K. might not leave” the EU.
Cana said the body of European Union law that applies to chemicals is so extensive that for the U.K. “there will certainly be a level of maintaining a large body of EU law.”
Other EU regulations pertaining to chemicals that currently apply in the U.K. include the Biocidal Products Regulation (BPR, Regulation (EU) No 528/2012); Prior Informed Consent Regulation (PIC, Regulation (EU) 649/2012), which sets export notification rules for hazardous substances; and Classification, Labeling and Packaging of Substances and Mixtures Regulation (CLP Regulation, (EC) No 1272/2008).
Decision-making on the ongoing implementation of these regulations is done by ECHA, whose decisions might not apply in the U.K. in future.
It would be “not defendable” for the U.K. to undertake a wide-ranging scrapping of EU chemicals laws and unrealistic to expect the country to quickly replace EU chemicals laws with its own laws, Cana said.
Marco Mensink, director general of the European Chemical Industry Council, told Bloomberg BNA that the U.K. “has been part of EU decision-making for a very long time,” which could mitigate against significant divergence in the future U.K. and EU chemical safety regimes.
“I'm not sure so much will change. To untangle yourself from the EU system will take quite some time,” Mensink said.
Mensink added that the U.K. and EU chemicals sectors are “very export-driven, with an enormous amount of trade between the two,” and this pointed to “a higher administrative burden” for U.K. chemicals companies post-Brexit.
The CIA's Elliott said the U.K. chemicals sector is the country's “No. 1 manufacturing exporter” and the “largest export earner,” with 60 percent of U.K. chemicals and pharmaceuticals exports going to other European Union countries. Figures from the European Chemical Industry Council show that the U.K.’s annual share of total EU chemical sector revenues is 9 percent, or 46.3 billion euros ($51.35 billion).
Elliott said U.K. companies that export chemicals to other EU countries were concerned about the implications of Brexit for issues such as collaboration over the generation of substance data for the purposes of REACH and being able to buy into letters of access to share data generated by other companies within the single market.
“These sorts of costs can very quickly dwarf the tariff implications” of being outside the EU single market, Elliott said.
If the U.K. is outside the single market, then exporters also would be required under REACH to appoint within the EU agents, known as “only representatives,” who would be responsible for “accounting for compliance,” Cana said.
“Free movement of goods seems to be very much an objective and target” for the Brexit negotiations between the U.K. and the EU, but U.K. companies nevertheless “have to start at least assessing” the extra requirements they might face to continue selling to the single market, Cana said.
Brexit also will have implications for representatives of foreign companies currently located in the U.K. and for non-EU companies that use the U.K. as their gateway to the European single market.
U.S. companies, for example, could face different requirements post-Brexit for their exports to the U.K. and their exports to remaining EU countries.
Kira Matus, a senior lecturer specializing in chemical regulation at University College London, told Bloomberg BNA that non-EU chemicals companies that must comply with REACH for their exports to the EU would want the U.K. chemicals regime post-Brexit “to be as simple as possible” and ideally in line with REACH.
REACH is a “de-facto standard now” for international chemicals companies and post-Brexit, “the EU will continue to be the biggest market in the area,” Matus said.
U.S. companies “might not love it, but they've invested a lot in REACH. They would not be keen on a lot changing,” she said.
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