Chemicals and a No-Deal Brexit
Legal Issues of a UK REACh System in the Event of the UK Leaving the EU without a Deal
So in the end, both the UK and the EU backed away from the spectre of a no-deal Brexit. Originally, the UK would, as a matter of law, leave the EU on Mar. 29, 2019, with or without a withdrawal agreement. This date was then extended until Apr. 12. Now it has been extended yet again until Oct. 31, 2019. Outside a few enclaves of resistance, notably in the Parliamentary Conservative Party, there appears to be little appetite for, and considerable fear about, the UK leaving the EU otherwise than under a withdrawal agreement. But, as a matter of law, that remains the default position for how the UK will leave the EU on Halloween.
Unless the UK Parliament can find a way to ratify the withdrawal agreement (e.g., by tweaking the non-binding Political declaration), it will either have to leave without a deal, or will have to revoke Article 50. Furthermore, even if a withdrawal agreement is ratified and the UK enters into a transition period, the future trade deal with the EU will, in principle, need to be agreed by Dec. 31, 2020, although this date can be extended. It is possible at this point that no trade deal will be agreed, or no deal will be agreed in respect of the chemicals sector.
For that reason, this article looks at some of the ramifications for the chemicals sector across Europe of a no deal, focusing on REACh.
REACh and Brexit
The EU REACh Regulation (on registration, evaluation, authorizations and restriction of chemicals) is “directly applicable” in the UK, so there is no UK implementing legislation, except in relation to enforcement. Under the European Union (Withdrawal) Act 2018, EU regulations are “direct EU legislation”, which will become part of UK law on the day on which the UK leaves the EU. If the UK leaves under a withdrawal agreement, there will be a transition period during which the EU REACh system would continue to apply in the UK, and potentially thereafter as an “associate member”
However, in the event of a no-deal Brexit (or at the end of a transitional period where no associate membership had been agreed) the UK would not have its own registration system on which to manage and regulate chemicals, so would need to introduce one to be able to implement its own version of REACh in the UK (which we will refer to as UK REACh). There are also significant transitional issues that would need to be addressed in order to replicate registrations in UK REACh, and keep supply chains flowing.
The UK government and the Health & Safety Executive (HSE), its competent authority for EU REACh, first issued guidance on how UK REACh would operate in the event of a no-deal Brexit and has now introduced new legislation to take effect at the relevant time. The first statutory instrument has been passed, but a draft amending regulation has already been issued to deal with a number of issues that the first one did not adequately address. The government has built an IT system that is intended to perform the equivalent function to ECHA’s REACh-IT platform.
There are complex consequences for chemical companies and supply chains, both for UK companies wishing to retain EU-27 market access and for any companies wishing to do business in the UK.
REACh and Supply Chains
REACh works on a “whole supply chain” basis. Companies at the top often have registrations and authorizations that benefit those lower down the chain EU-wide. Under a no-deal Brexit, all registrations and authorizations held by UK companies — and potentially relied upon by many others elsewhere — would become invalid.
UK manufacturers and formulators wanting to continue supplying into the EU would need to transfer their registrations to EU-based companies to act as their only representative (OR) or to do an intra-group transfer of the respective manufacturing activity (e.g. from a UK-based mother company to a EU-based daughter company). Otherwise, they would have to rely on their EU customers making new “importer” registrations. This sort of transfer is not foreseen in the EU REACh text, but ECHA is permitting this to be done, and has opened a special “Brexit window” for this (which was due to close on Mar. 29, but was then extended to Apr. 12, and now Oct. 31). ECHA has advised companies to take the initial steps towards transferring the relevant registrations, but not to complete them until actual Brexit. Similarly, it advises that contracts with new “only representatives” should be made conditional upon the occurrence of Brexit.
UK importers (bringing in products from outside the EU) wanting to continue to supply into the EU don’t have the option of appointing an OR, so would need to consider whether they transfer their import business to a group company in the EU, or whether their customers will have to register under EU REACh as importers.
To keep supply chains open, UK manufacturers and importers would also need to make equivalent registrations under UK REACh to those they held under REACh. Non-UK companies active in the UK will also need to consider their status under UK REACh and whether they wish to appoint an OR to register instead of their UK importer. If this whole process does not operate smoothly, without substantial duplication of effort and cost, EU-27 companies that have purchased from UK companies may look elsewhere for their supplies.
UK REACh: Legal Issues
UK-based manufacturers, importers and ORs who have held EU REACh registrations up 2 years prior to exit date would be entitled to have these “grandfathered” into UK REACh. They will need to enter some basic substance information into UK REACh-IT within 120 days of the exit date and submit a full registration dossier within 2 years of exit. No registration fee will apply.
The main legal issue for these companies would be whether they already own or have full access to the data they will later need to submit a full UK REACh registration. They may also have concerns about maintaining EU market access and need to take action under EU REACh as well.
UK-based companies importing chemicals from within the EU-27 did not previously need a REACh registration, as they were downstream users. However, they would be classed as “importers” under UK REACh and will need to make sure the substances they import are registered.
There are several options for importers. One is registering under UK REACh as an importer and notifying UK REACh-IT within 180 days of exit, followed by a full registration within 2 years of exit. By making the notification, the importer benefits from a 2-year exemption before it needs to submit a full registration. Access to data, could, however be a major issue if the company has not previously been involved in REACh registration. This type of registration will also be subject to registration fees, unlike grandfathered registrations.
A second is asking their supplier to register under UK REACh as an OR. The importer can still submit a notification as mentioned above, and benefit from the 2-year exemption, and then the OR would need to complete its registration within the 2-year period. (Alternatively, the OR could complete a full registration within 180 days if it wants to remove all obligations from the UK importer). This would apply whether the UK company has previously been importing from the EU, or has been importing from outside the EU but through a manufacturer’s OR based elsewhere in the EU. This could be a sensible compromise position and removes the need for the importer to secure access to data. However, it relies on good faith or a strong contract between the parties, and on the EU supplier being willing to submit and pay for a new registration. If the OR does not complete its registration as planned, the UK importer could lose market access. The importer may also be limited to buying from the company the OR represents if it does not proceed with its own registration.
Non-UK companies wishing to supply chemicals into the UK would need to liaise with their UK importers regarding registration options as noted above. If based outside the EU, these companies will have already had to consider REACh. They may already have an OR registration in the UK, giving them the option of grandfathering it, and moving their existing REACh OR registration to another OR in an EU-27 country.
If they currently have a non-UK OR then they will need to appoint a UK OR, but if the UK company notifies, as mentioned above, they would have 2 years from exit to complete that registration, and still be able to supply product in the meantime.
Suppliers based in the EU-27 could be disadvantaged here. They do not have an existing REACh OR registration that they can grandfather into UK REACh. Like other suppliers, they may want to retain control of the UK REACh registration dossier and data, but may have to pay for and complete a full UK REACh registration within 180 days, or two years if the importer makes the initial notification.
UK REACh: Data Issues
To complete UK REACh registrations, a full dossier of information and data would need to be submitted within two years of the exit date. The companies obliged to make these registrations may not currently have access to the necessary data. ECHA has developed a database that includes details of all chemicals registered under REACh. This includes data on chemical names and properties, and registrant companies, plus data extracted from and copies of the dossiers submitted by companies under REACh. Some elements of it are publicly searchable, others are only available on a more limited basis. Amongst other things, it will be protected by database rights and copyright, which ECHA is likely to own.
The UK government initially suggested that it could “cut and paste” data from the REACh database. However, it is now clear that companies must provide all of the data. To have copied data, the UK would have needed a license from the owner. Copying any significant part of the database without one, even just the publicly searchable elements piecemeal, would infringe copyright and database rights. ECHA is under no obligation to grant such a license.
Dossiers submitted to ECHA will also be subject to copyright, and parts may be protected as trade secrets or confidential information. The UK government is asking companies to submit copies of these dossiers to UK REACh-IT, but the companies may not own or have sufficient rights to use this data.
The copyright in each document in the dossier will usually be owned by the entity or entities that created it, or possibly by third parties, such as testing houses or consultants engaged to produce reports. In those circumstances, companies’ ability to provide copies to the UK government and permit them to be subsequently copied and published would depend on the scope of their original license. Copyright owner consent would be needed even if they were only used for submission to ECHA or REACh compliance.
To further complicate matters, there are data sharing arrangements that are specific to REACh, because joint registrations were encouraged to avoid unnecessary new studies and tests. Many REACh registration dossiers have been developed and submitted by consortia of companies under a joint submission or substance information exchange forum (SIEF) agreement.
Under these, companies grant each other rights to use and refer to the various parts of the dossier, but generally only for EU REACh purposes. Further use, such as for UK REACh, is often not permitted without the consent of all consortium members. Even if consent were given, there could be additional costs to purchase additional rights to use data in UK REACh. Alternatively, UK companies that do not own their REACh registration data could need to generate their own studies at additional cost.
Conversely, if a UK company owned data but had granted rights to a REACh consortium, it might automatically leave the consortium when the UK leaves the EU. In such cases, the consortium agreement is likely to govern what happens to such existing rights. For example, the data may be irrevocably licensed to the REACh consortium, but the UK company may no longer benefit from future cost sharing or payments for access to it. This would depend upon the terms of individual agreements and could present issues for both sides.
The potential creation of UK REACh is a complex regulatory and commercial challenge. The UK Government is having to create a substantial and comprehensive chemical regulation system, and address many regulatory and practical issues that arise from splitting away from the EU REACh system. Companies in the chemical sector are having to negotiate complex supply chains and make adjustments and duplicate registrations to ensure that they can retain market access, both in the UK and the EU.
Such is the complexity that the UK REACh regulations, which had only just passed through parliament, already has a draft set of amending regulations to address and correct a number of issues that had not been foreseen by the initial drafting. It is likely that further issues will continue to come out of the woodwork, as more companies and advisors try to apply the new regulations to their particular supply chains and circumstances.
At some stage, the way in which the UK leaves the EU (assuming it does ultimately leave the EU, which becomes less likely with every delay), and the nature of the future trading relationship between the UK and EU, will be determined. When this happens, there should be clarity about the extent to which there will be a separate UK REACh regime. Until then, and especially while a no-deal, whether generally or affecting the chemicals sector, remains on the table, it’s important for businesses to consider how well they are prepared for disruption in the European chemicals sector.
Squire Patton Boggs
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London EC2M 4YH