Chemical Industry Welcomes Brexit Deal but Holds its Breath

Draft Brexit Withdrawal Agreement Bolsters Hopes but many Uncertainties Still Lie Ahead

  • Draft Brexit withdrawal agreement bolsters hopes but many uncertainties still lie ahead (c) Samot/ShutterstockDraft Brexit withdrawal agreement bolsters hopes but many uncertainties still lie ahead (c) Samot/Shutterstock

The UK chemical industry was quick to support a draft UK-European Union Brexit withdrawal agreement when it was published in mid-November. “We have given it a cautious welcome,” said Steve Elliott, chief executive of the UK Chemical Industries Association (CIA). “The priorities we set out soon after the Brexit referendum over two years ago—frictionless trade with the EU, regulatory consistency and access to skills—are all covered in the deal.”

The agreement was also welcomed by Marco Mensink, director general of the European Chemical Industry Council (CEFIC). But he stressed that it was only a divorce arrangement, which opened the way to negotiations on a post-Brexit EU-UK free trade agreement (FTA). CEFIC and the CIA both wanted this FTA to disrupt EU-UK current chemicals trade as little as possible. He and Elliott were both speaking at a London conference on Brexit, arranged by the CIA months ago, which took place a day after the text of the deal was released by the European Commission.

Even though the chemical industry was relieved to see an agreed document at last on the table after almost a year and half of negotiations, there were still plenty of uncertainties about the future of the deal. UK Prime Minister Theresa May was soon faced with ministerial resignations and the prospect of a no-confidence motion by unhappy Brexit supporters among Members of Parliament (MPs) of her ruling Conservative Party.

Then it has to be approved by the governments of the remaining 27 EU member states before being subject to a vote by both the UK and European parliaments. If it got past all those hurdles, the UK would formally leave the EU on the scheduled date of Mar. 29, 2019, to enter a transition period lasting until the end of 2020 during which an EU-UK FTA would be negotiated.

   “It seems that the real option is between the deal now on the table and no deal which would be disastrous for the UK economy,”
Tom Crotty, CIA president and group director of Ineos

Possible Outcomes

The withdrawal agreement allows for the transition period to be extended, particularly to try to ensure there is a deal on the status of the only land border between the UK and the EU – that between Northern Ireland in the UK and Ireland, an EU member.

But there are two other possible outcomes – no deal at all or a second referendum on Brexit which, according to recent polls, would result in a vote to stay in the EU. Another referendum is strongly opposed by the UK government and, up to mid-November at least, did not have majority backing in the UK Parliament.

The UK chemicals industry has been becoming increasingly alarmed about the prospect of a no-deal, which could result from a vote in the UK parliament against the draft withdrawal agreement. “It seems that the real option is between the deal now on the table and no deal which would be disastrous for the UK economy,” Tom Crotty, CIA president and group director of Ineos, told the meeting.

He urged the industry to be more outspoken about the dangers of a no deal. “The industry needs to stand up and voice its views about the way the politicians are not taking into account the needs of the whole country,” said. Mr. Crotty who is also chair of the Manufacturing Council of the Confederation of British Industry (CBI), the main UK employers group. No deal would mean that the country would crash out of the EU after 45 years of membership without any agreement, especially on a future trading relationship between the EU and the 27 EU member states.

An electronic poll of 150 attendees at the conference, representing a cross-section of the industry, showed that after Brexit 46% wanted free trade with the EU and 36% regulatory “consistency” or an UK-EU alignment in regulations similar to that present. This vote was not surprising since currently 60% of the country’s chemicals exports go to the rest of the EU and 75% of imports come from EU countries. “We are the UK’s biggest exports earner (in goods),” said Mr Crotty.

Complex Supply Chains

A lot of chemicals go in and out of the country within complex supply chains in which substances cross borders several times before the final production step. An industry objective in the negotiations on the EU-UK trade agreement, backed by the CEFIC and the CIA, is that a trading deal should not, as far as possible, undermine these supply chains. CIA and CEFIC aim to continue to maintain a united approach to the trade negotiations, if they take place. “We have very good co-ordination with CEFIC,” said Mr Crotty. “You could not get a cigarette paper between us.”

CEFIC is, for example, backing the CIA’s demand for post-Brexit associate membership of the Helsinki-based European Chemicals Agency (ECHA), which is responsible for the administration of the REACh legislation. Associate membership, which is also an aim of the UK government, would allow the country to continue to participate in the agency’s activities and, more significantly, might gain access to ECHA’s database of information from the safety dossiers of each chemical registered with the agency.

Access to the database is seen as crucial to the ability of the UK in maintaining frictionless EU trade in chemicals and their downstream products. Without the data, UK companies would have difficulties avoiding duplicate registrations of their products with ECHA and a UK equivalent body, while the UK authorities would have problems assessing the risks of hazardous substances being imported into the country from the EU. The UK government wants a post-Brexit EU-UK system of single registrations with ECHA to avoid the costly necessity for duplications, Susannah Storey, director-general of the UK Department for Exiting the European Union (DExEU), told the conference.

“In the EU legislation governing ECHA there is no such thing as associate membership.”
Marco Mensink, director general, CEFIC

Data Ownership Issues

A UK parliament report on post-Brexit chemical regulation, issued on Nov. 7 (2018) and cited at the conference, pointed out that the REACh legislation limited the use of registration data to ECHA activities. A UK government plan to “copy and paste” all ECHA registration data for use by an equivalent UK REACh agency “is not credible and raises serious legal concerns, including over copyright and data protection”, said the report published by the EU committee of the House of Lords.

REACh registration data is owned by the chemical producers and not the agency so that the only recourse for the UK could be a data access deal covering all the REACh registrants, said a legal expert at the meeting. From the industry’s viewpoint, data access is a key issue to be sorted out during the transition period negotiations. “At the end of the transition period the United Kingdom shall cease to be entitled to access any network, any information system and any database established on the basis of Union law (unless otherwise agreed),” says the draft withdrawal agreement.

There are even doubts about a deal on associate membership of ECHA which might open up the agency’s database to the UK. “At the moment we are far from there (an associate membership agreement),” said Mensink. “In the EU legislation governing ECHA there is no such thing as associate membership.”

Currently the UK chemicals industry is performing well with good short-term prospects. “The latest business survey showed 86% of CIA members report sales maintaining current levels or increasing,” said Elliott. “Looking to the future, 61% of companies see expanding export markets as key opportunities for their business in the next 12 months.”

New Strategy

Total investment by the industry will be £4.3 billion this year – at around the annual average for the last few years. According to the results of the poll of conference attendees, 52% revealed that the Brexit turmoil was having no effect on their capital expenditure but much of the rest were holding back on investment decisions until there was more certainty.

In the longer term, a new strategy by the UK Chemistry Council, a joint government-industry body, whose publication coincided with the conference, sets 2030 targets of a 50% increase in production, a 68% average rise in turnover, exports and annual investment and a 35% increase in jobs. The strategy has three platforms of accelerating innovation, particularly in digitalisation, new supply chains and growth in the regions and in infrastructure.

“We are well placed in having four chemicals clusters – in Scotland, and the North West, North East and Yorkshire and Humberside areas in England—which we can use to get our innovation projects off the ground,“ Steve Foots, chief executive of Croda International and joint chairman of the Chemistry Council, told the meeting. But a lot will depend on whether there is a smooth Brexit which assures the UK of a continued close partnership with the EU.

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