Chemical Companies See More Risk Than Reward in Brexit

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By Adam Allington

Chemical companies in the U.K. are skeptical about abandoning European Union regulations, including the landmark REACH regulation, as British Prime Minister Theresa May prepares to deliver a big Brexit speech in Italy Sept. 22.

Implemented in 2006, REACH (Regulation No. 1907/2006 on the registration, evaluation, and authorization of chemicals) was among the most sweeping chemicals regulatory structures ever passed, imposing new obligations on manufacturers, importers, and downstream users of chemicals within the EU. Despite one of the biggest lobbying battles over implementation in the EU’s history, viewpoints have now shifted to concerns that abandoning REACH might put British companies at a disadvantage vis-a-vis their global peers.

A survey conducted by the British Coatings Federation (BCF), a trade association representing manufacturers of paint, printing inks, and wall coverings, found that the majority of coatings companies “see Brexit as a risk, rather than an opportunity.”

Tom Bowtell, chief executive of the BCF, said: “Over three-quarters of our members said that a separate U.K. chemical regulatory system would be bad for business.”

In a news release, Bowtell said that maintaining regulatory equivalence with EU regulations, including REACH, Classification, Labeling and Packaging (CLP) and Biocidal Product Regulation (BPR), remains critical for his members.

“The reality of the global chemicals industry is of complex supply chains, with raw materials, intermediates, and finished products crossing multiple borders on a continuous basis,” said Howard Chase, director of government affairs for Dow Europe.

Given the status quo set by REACH, Chase told Bloomberg BNA it’s hard to see why the U.K., or other global consumers, would settle for lower regulatory standards than they have now, and even harder to see how weakening that framework could make U.K. business more competitive.

“The overwhelming requirement on Brexit is to not disrupt the frictionless flow of goods across the U.K. border with the EU27,” Chase said.

“In practice this means tangible items such as no tariffs, smooth customs procedures, and maximum regulatory consistency between the U.K. and the EU single market. If we do not get these things absolutely right, the costs will increase and the attractiveness of the U.K. as a business and investment destination will inevitably fall.”

Registration Investments

Companies already incurred significant cost obligations related to registering chemicals in the REACH database.

Those businesses now say it is unclear whether these registrations will remain valid once the U.K. leaves the EU on March 29, 2019. And that uncertainty is already having an impact on long-term investment decisions by companies.

“In the U.K. our members have already invested heavily in European Chemicals Agency [ECHA] registrations,” said Virginia Acha, executive director of the Association of the British Pharmaceutical Industry (ABPI).

“Will the registrations we’ve made previously still be functional post-Brexit? We have yet to get clarity on that from ECHA,” she said.

Acha told Bloomberg BNA that the ABPI has been lobbying the British government for an extension of REACH regulations for a period of years after Brexit, to allow the industry to make the necessary transitions to its supply chain.

“It’s hard to transition a plant unless you know what specifications you’re transferring it to,” she said.

Likewise, Acha points out that the U.K. currently serves as product testing site for medicines shipped all over Europe. However, if Britain is no longer in the EU, those facilities may need to go somewhere else, and it can takes years to transfer all of the analytical processes and infrastructure between labs.

“Especially if everyone is trying to do this at the same time. We need more time to do that,” said Acha.

With manufacturers planning future product specifications now, businesses point to the need for regulatory clarity to remain REACH compliant for export operations to the EU.

“Chemical regulation is a very difficult process,” said Michael Warhurst, executive director of CHEM Trust, an environmental watchdog group. Warhurst points out that registering chemicals in REACH is a complex scientific process. The EU has tried to make it easier by encouraging companies to work together to share research and costs. If a country is outside the EU, will they still have access to the data?

“The EU has been very clear that it doesn’t share data,” Warhurst said. “They are happy to have other countries copy their decisions, but they do not support sharing data to help them pursue independent polices.”

Regulatory Cliff

Earlier this week more than 100 companies signed an open letter, urging May to seek a three-year transitional period after Brexit, warning that a failure to secure more time to avoid a cliff edge would jeopardize “our collective prosperity.”

The U.K. government is rumored to favor a special post-Brexit extension of customs arrangements, to allow the U.K. time to enter into new free-trade agreements with other countries. At the same time, the government is holding fast to its plan to take the U.K. out of the single market on withdrawal day.

The chemical industry has asked that an extension of REACH continuity throughout any transition period be part of those negotiations. However, after Brexit, there is no indication the EU will agree to grant an extension.

“The EU will want to be seen driving a hard bargain, because they want to hold the rest of the EU together. They are not going to give it away,” said Peter Newport, CEO of Britain’s Chemical Business Association (CBA).

In functional terms, Newport told Bloomberg BNA, the U.K. will need to create or secure continued access to a number of expert committees, IT systems, and tools that are central to the effective operation of REACH.

“Up until the point the U.K. is able to create its own standalone version of ECHA [European Chemicals Agency],” Newport said.

The U.K. House of Commons committee on the future of chemical regulations released a report in April finding that the chemicals regulatory framework established by the EU through REACH would be “difficult to transpose directly into U.K. law.”

The fact that REACH was written under the assumption that participants were operating within the EU also meant that cooperation, mutual obligations, oversight and controls were also baked into the same pie.

“We’ve spent the last 40 years trying to integrate chemical regulation, and now we’re trying to pick it apart in two,” Newport said.

Fallout from Weaker Regulations ?

One of the arguments for leaving the EU was that Brussels was shackling member states with excessive environmental and product regulations.

After Brexit, environmentalists warn that a policy of loosening chemical regulation risks turning the U.K. into a place that attracts hazardous products and chemicals that don’t have a market in the EU.

“Withdrawal from REACH could definitely attract the dirty end of industry,” said CHEM Trust’s Warhurst.

“There could be time delay concerns, between BREXIT and a new British chemical regulatory regime. There could be less spending on pollution control.”

Warhurst points to an onslaught of products ranging in scope from furniture to antibacterial soaps, fabric coatings, plastic bottles, cosmetics—the list goes on. Divining appropriate regulation, he says, is therefore more efficient when countries pool resources and expertise and stand as a bloc in the face of pressure from industry.

But the CBA’s Newport says concerns about environmental risks should be dismissed. “If you believe the U.K. will abandon all environmental regulations, I might question what you’ve been drinking,” he said.

Newport said the government’s position will be to retain EU chemical regulations, and then take a considered view on a risk going forward.

“The U.K. will not become the ‘dirty man’ of Europe, after Brexit. Environmental regulations will continue. They’ll just have the stamp of Her Majesty’s government at the top instead of the blue flag and stars of the EU.”

To contact the reporter on this story: Adam Allington in Washington at aallington@bna.com

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bna.com

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