Brexit: canary down the mine

04/11/2017

We are being told by diverse sources that the UK negotiating team is trimming back its ambitions for the next round of talks in Brussels, limiting them to "taking stock" – much to the bemusement of M. Barnier and his people.

The thinking was that the UK wanted to speed up the talks, with continuous sessions, yet there now seems a reluctance to get to the table at all. All we can rely on is a planned meeting between Barnier and Davis next week, for reasons which have yet to be disclosed.

The tempo of talks, however, is by no means the only means of measuring the progress of the negotiations. In fact, the true measure is the extent to which the needs of the real world are met.

And there are perhaps few better to stand as a "canary down the mine" than the chemical industry. – the biggest exporter of manufactured goods after the automotive industry, delivering £26 billion a year to our balance of payments.

One certainly might have thought that, with such a vital national interest at stake, the government would be pulling out all the stops to ensure that the industry was protected from the worst effects of Brexit. Certainly, there can be no dispute - as I wrote in my first major piece on the issue - that the potential downside is severe. But, at the time of writing – last January – uncertainty prevailed.

Yet, when the House of Commons Environmental Audit Committee (EAC) reported in April, on "the Future of Chemicals Regulation after the EU Referendum", it too reported that uncertainty prevailed, particularly over the validity of current REACH registrations after the UK leaves the EU.

Given the importance of this issue, the Committee urged the government to "clarify their position on the future regulatory framework as a matter of urgency". There was no equivocation. In a land where "Brexit means Brexit", "urgent" must mean urgent.

But, when the Government responded in September, it offered nothing at all of substance that might reassure the industry.

As to the formal response, it said that the Government "recognises the costs that industry has already invested to comply with EU legislation and the status of existing or future REACH registrations made by UK-based companies are a key consideration". It then went on to say: "We have been listening to what businesses and others have been telling us about their concerns for the future and the potential impacts and opportunities of EU Exit, and will continue do so".

But for those looking for substance, there simply was none. Thus, on 25 October – less than a fortnight ago – we had Mary Creagh, chair of the EAC tell us that responses had shown that the many people and businesses working in the chemicals industry were concerned by the Government's failure to set out a vision for the sector post-Brexit.

"The industry is clear", she said, "that they will still need to meet EU regulations after leaving in order to export into the EU. However, the Government position remains vague. This uncertainty could cost the taxpayer millions of pounds and leave our second largest export sector in disarray". Thus did Creagh conclude: "The Government should act quickly to provide clarity about the UK's chemical industry and European regulation after we leave the EU".

Effectively, the only difference in the passage of six months was that, in effect, Mary Creagh had downgraded "urgency" to become a demand that the Government should "act quickly". There's progress for you.

What is equally strange, in many ways mirroring the approach of the commercial aviation industry, is the lack of any alarm from the chemical industry. From Ellen Daniels, Head of Public Affairs and Policy of the British Coatings Federation (BCF), we get this:

The BCF is working closely with government and the industry to provide as much information as possible on the impact of any negotiation outcome on the coatings sector. There is a lot of talk in the media about the possibility of a "no deal" scenario, but rest assured we will keep working on behalf of members to make sure we get the best possible outcome from the Brexit negotiations.

From the Chemicals Business Association, about the same time, we get merely a complaint that the Government has failed to respond to the challenge "or recognise the unique nature of the regulatory issues facing the chemical industry".

Rather than raise the alarm, the Chemicals Industry Association merely called for "clarity" on whether a Brexit transition arrangement "can be put in place and under which conditions, as a matter of urgency", while the Royal Society of Chemistry murmured about "significant uncertainties".

Going back a while, to just after the referendum, we had a statement from an organisation, the like of which could only be known to a handful of people. This was the Only Representative Organisation (ORO).

Based in Brussels it, as its name implies, represents a breed created by the Reach Regulation, the bodies who represent third country chemical manufacturers in order to carry out their REACH responsibilities.

Those UK-based "only representatives" are in a difficult position, threatened by annihilation once Brexit takes effect. They can no longer represent their companies, as a result of which some specialists have been advising third country manufacturers to consider a "defensive switch" of their OR to a non-UK based entity.

Predictably, with interests at stake, the ORO states that advice on considering defensive switches are unfounded from a regulatory and commercial perspective. ORO, it says, "is observing this very closely and once significant new developments become clear will inform accordingly". For the time being, it adds, "any regulatory actions would be considered premature, considering that the direction this will lead too is not yet clear".

What the ORO is considering is the possibility that transitional measures will be implemented "to allow legal entity transfers etc., should REACH no longer be applicable in the UK". And that remains its position as of 2 November.

Therefore, it seems, no one is prepared to rock the boat. The best clue is that the industry (or significant components of it) is relying on the outcome of successful transition negotiations.

Whether the industry has been given any assurances by Ministers there is no way of knowing, but this is a risky strategy. For, while the UK Government is being close-lipped about the implications, the EU's European Chemical Agency is being a lot more helpful.

On its own website yesterday, it decided to advise UK registrants that, as a consequence of the UK's decision to leave the EU, any REACH registrations awarded by the Agency "without prejudice to any provisions of the withdrawal agreement" only apply "until the United Kingdom ceases to be a Member State".

Clearly, as far as the EU is concerned, and the agency can speak for it, once the UK leaves the EU, none of the chemicals produced under UK registrations can be marketed in the territories of EU Member States. This has the potential, as reported yesterday, to do "tremendous damage" to the industry.

However, until it gets the go-ahead from the European Council – which may or may not be in December – the UK will not even be able to discuss transition arrangements. And then, there is absolutely no certainty as to what the outcome might be. The industry will have to live with uncertainty for a while longer.

The crucial point will come next year, with a deadline of 31 May, when the next (and main) tranche of registrations are due. UK chemical companies are going to have to decide whether to continue with UK-based applications, or transfer their operations to Only Representatives based in other EU Member States.

Without the certainty which will probably continue to be elusive, chemical companies – like the banks – will be voting with their feet. To that extent, although they are largely invisible to the media (but then, what isn't?), the chemical industry is the canary down the mine. When it starts moving will be the time to head for the exit – those that can.