During the negotiations leading to the UK/EU free trade agreement after Brexit, an apparently ideologically driven decision by the UK has led to the costly duplication of the system for registration of hazardous chemicals. What are the implications for this important industry?
North West is the home of the British chemical industry
The chemical industry has been important in the North West of England for nearly 200 years. Originally built on plentiful supplies of salt, coal, and limestone, and supporting the local manufacture of glass, soap, paper and textiles it’s still a major employer and one of the UK’s largest exporters.
The EU continues to be our major trading partner for chemicals
Before Brexit, the EU was by far our most important trading partner for chemicals: around 60% of UK exports, and 75% of imports were traded with them. The industry got some of what they wanted from the UK/EU Free Trade Agreement – notably tariff and quota free trade, although they are still affected by the increased bureaucracy involved in import and export.
But one aspect – the registration of potentially hazardous chemicals – has ended with the UK duplicating the EU system. The European system is known as Reach: registration, evaluation, authorisation and restriction of chemicals. It is administered by the European Chemicals Agency (ECHA). The ECHA had a budget of over €110mn in 2021 and nearly 600 staff.
Why Reach matters
Clearly the UK chemical industry cannot ignore Reach if it wishes to continue to trade in the EU. The ECHA explains Reach as:
“In principle, Reach applies to all chemical substances; not only those used in industrial processes but also in our day-to-day lives, for example in cleaning products, paints as well as in articles such as clothes, furniture and electrical appliances. Therefore, the regulation has an impact on most companies across the EU.
“Reach places the burden of proof on companies. To comply with the regulation, companies must identify and manage the risks linked to the substances they manufacture and market in the EU. They have to demonstrate to ECHA how the substance can be safely used, and they must communicate the risk management measures to the users.”
UK-based companies have spent many millions of pounds and many years getting products registered within Reach. Clearly, from a practical perspective, the pragmatic way to deal with the requirement to manage the hazards associated with chemicals would have been for the UK to continue to follow the standard and remain part of this system. Instead, the UK chose to duplicate the system, a decision which will reverberate for a long time.
Why the UK now has its own version of Reach
The decision to duplicate EU Reach and not even to attempt to negotiate some kind of close association was a choice made by the Johnson Government and was a change from the approach taken by Teresa May. In 2020 the Chemical Industries Association and the European chemical industry trade body (Cefic) published a joint paper in which they stated they wanted to remain part of the European system to avoid duplication of costs – estimates of up to £1billion were made. As a minimum they wanted a data sharing agreement. Neither was achieved.
This was a political choice and not an inevitable consequence of the vote to leave the EU. However, remaining in EU Reach would have (1) meant accepting rulings from the European Court of Justice (2) prevented the UK acting in its own interests – for example by approving chemicals that were not permitted in the EU and (3) restricted the UK’s freedom of action in negotiating free trade agreements with other countries, such as the US, which have different (perhaps less strict) standards. However, the importance of the EU means that UK companies must now manage two systems instead of one. It’s a fight between theoretical freedoms and practical benefits in the real economy.
The UK Reach regulations were a snapshot of the EU Reach regulations, adapted for use in a single country (note that EU Reach still applies in Northern Ireland). They are administered by the Health and Safety Executive (HSE). But because the UK failed to negotiate access to the key ECHA database of hazardous chemicals, the UK system starts with literally an empty database, which must be re-populated. Under the UK legislation, which is intended to give companies time to make the transition, this process must be completed within the next six years from October 2021. In the interim, companies will be allowed to continue to use their existing EU Reach registrations.
Divergence is inevitable
While all parties recognise the importance of regulating hazardous chemicals, the present situation is bound to lead to divergence between UK and EU regulations and the need for UK based companies to deal with two systems, while smaller EU companies may decide to exit the UK market because of additional costs.
Divergence is inevitable because the EU is pushing ahead with major reforms, in part to answer criticisms of the system and in part to support the EU Green New Deal. The UK is no longer able to influence this development. The UK system will evolve too, as the UK Government creates its own strategy for chemicals. This is not simply a desire on the part of the UK to de-regulate where it can but follows from the fact that the UK and EU will have different strategies and priorities.
What does the industry think now?
A Google search for “advantages of Brexit for the chemical industry” draws a blank. Instead, it highlights a series of practical ongoing issues, for example those identified by the Chemical Industry Journal and Chemistry World:
- The enormous and growing cost of complying with UK Reach – latest estimates from DEFRA are £1.3-£3.5bn.
- The capacity of the HSE to administer UK Reach. Its budget and staffing levels are tiny compared to the ECHA.
- Some materials not available in the UK because of registration costs.
- Potential for chemicals banned in the EU to be dumped on the UK market.
CHEMTrust campaigns for better regulation of chemicals and shares these concerns about the effectiveness of the new regime. Further, they believe the system will be less transparent and more susceptible to lobbying by industry bodies.
Regulation is not the only issue: Brexit threatens this important UK industry with additional costs and barriers to trade, and this will change investment decisions in the long term. Chemical plants are huge assets which run for decades and usually form part of complex supply chains. They cannot be easily turned on and off, nor can their products be quickly redirected to remote parts of the world. Brexit is a reality, but the 2016 vote did not specify how the separation be UK and EU should be achieved. It seems that ideologically driven decisions have made the UK a less attractive place for one of our most important industries.
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