EU Referendum

Brexit: a potentially explosive issue


On 5 September last year, David Davis told us that his officials, supported by officials across Government, were carrying out a programme of sectoral and regulatory analysis, which will identify the key factors for British businesses and the labour force that will affect our negotiations with the EU.

At that point, he said, they were looking in detail at over 50 sectors and cross-cutting regulatory issues, a statement he was to modify on 2 February this year, when he claimed that the number of sectors covered had grown to 58.

On this blog, though, we've recently looked at 20 sectors and can see hundreds more that need to be considered, if the department for the UK's exit from the EU is only covering 58, then we're in serious trouble. One of those sectors which Secretary of State might have missed is the growing market for the very specialist equipment used in potentially explosive atmospheres, the so-called "hazardous area equipment" market.

Worth $8.3 billion globally (2013), with Europe taking nearly 35-40 percent of the overall market (about £2 billion annually), it's not exactly going to set the world on fire (to coin a phrase), but it does support a number of high value businesses.

The sector is certainly significant enough to have attracted specific regulation from the EU, currently as Directive 2014/34/EU "on the harmonisation of the laws of the Member States relating to equipment and protective systems intended for use in potentially explosive atmospheres", repealing and replacing Directive 94/9/EC. This is the so-called ATEX Directive, from the French, "ATmospheres EXplosibles".

Currently the Directive has been transposed into UK law as the Equipment and Protective Systems Intended for Use in Potentially Explosive Atmospheres Regulations 2016, coming into force on 8 December 2016. This means they form part of the UK statute book and will not need to be re-enacted by the Great Repeal Bill. Despite that, they may need substantial amendment, depending on the outcome of the Article 50 and free trade agreement talks.

Not least of the problems will be that key parts of the Regulations deal with the setting up of Notified Bodies which must carry out conformity assessment and certify product compliance, without which the products cannot be sold in EU Member States.

However, for the purpose of this EU law, Notified Bodies must be "established under the national law of a Member State and have legal personality" (Article 21). On Brexit, the UK will no longer be a Member State and the existing UK bodies will no longer be able to certify ATEX products for circulation in EU Member State territories.

When it comes to export, the UK Government thus has a choice of two immediate options. In the first instance, it can seek, as has the Swiss Government, a Mutual Recognition Agreement on conformity assessment, alongside a formal agreement to maintain regulatory convergence – achieved by keeping the 2016 Regulations in force and by undertaking to enact future Union legislation. That way, UK Notifying Bodies could continue to certify ATEX products.

As an alternative, the Government can advise UK manufacturers that want to continue selling into the EU to seek certification from listed Notified Bodies currently established in the territories of other Member States.

That may involve little change, as some UK Notified Bodies have subsidiaries or sister organisations already established in other Member States. Much of the work can be done by the UK organisations acting as sub-contractors, under the direction and authority of the EU recognised bodies. There are, though, eight UK Notified Bodies, which also provide other services. Delisting could damage their commercial standing and their ability if attract business in a very competitive field.

As to products which have already been certified by UK bodies, there are differences in view as to whether these can remain in use in other EU Member States after Brexit.

In Article 27(2) of the ATEX Directive, we see that, where the Notified Body has ceased its activity, "the notifying Member State shall take appropriate steps to ensure that the files of that body are either processed by another Notified Body or kept available for the responsible notifying and market surveillance authorities at their request".

In the case of Brexit, UK Notified Bodies are forced to cease activity because they are no longer established under the law of a Member State. But, in a development that has not been anticipated by the Directive, the notifying Member State ceases to exist.

Therefore, the EU has no power over the UK and cannot require it to ensure that files are processed or kept available. It could then be argued that there is a technical breach of Article 38.1(e)-(h), in which case under Article 38(2), any of the post-Brexit Member States can "restrict or prohibit the product being made available on the market", and even "ensure that it is recalled or withdrawn from the market".

I am not going to argue one way or another whether this might transpire, although Ian Rippin, UK Managing Director of the CSA Group (a major Notifying Body) seems prepared to concede that certification remains valid only up to the point where we leave.

Whatever the small print, it takes little imagination to work out that, if an EU Member State in the aftermath of Brexit took action against British-certified products, the European Commission (or even the ECJ for that matter) might not consider as its first priority rushing to the defence of UK interests.

As for Mr Davis and his officials, they would do well to put this matter firmly on their agenda (if it isn't already there). Amongst other things, there should be seeking from the "colleagues" a declaration of continuity for this and other legacy certification, to remove any uncertainty.

This, one might say, would defuse what could otherwise become a highly explosive issue, one which would have nothing to do with the chemical make-up of the atmosphere. A small but valuable business could otherwise be at risk.

That notwithstanding, for the future, the UK government could elect to take a bolder approach for the longer term. As we see in this article, written by a Professor Dr Thorsten Arnhold, a "German European", the EU is not the only player in town.

More and more, Arnhold says, manufacturers and users are gravitating to global standards – in this instance the Geneva-based International Electrotechnical Commission (IEC) and its IECEx system, which has global reach.

As Chairman of IECEx, Arnhold might be a tad biased, but he does make the point that the ATEX market is already global business, serving the petroleum and gas industries (its major customers) which is not interested in a plethora or regional standards.

As long as there is a recognised global standard, Both the traditional ATEX and even more the new edition of ATEX bring little additional value to the manufacturer nor to the process industry as the customer. Says Arnhold, "once useful, they are increasingly seen as a necessary evil for the industry".

Taking a cue from this, the UK could reject slavish conformity with EU law and instead adopt the IECEx standards, with their conformity assessment systems. It could then negotiate mutual recognition of standards, based on the doctrine of equivalence.

What is particularly interesting here is that IECEx has been working closely with UNECE and its WP.6, adopting its Common Regulatory Objective system. Through this, it has produced a Common Regulatory Framework for Equipment Used in Environments with an Explosive Atmosphere, which links to the IECEx standards, giving them an enforcement framework.

In many respects, this is pioneering work and it affords the UK, post-Brexit, the opportunity to forge a new direction for regulatory harmonisation, breaking free of the Brussels-centric law machine and creating an independent structure for future standards setting.

This could prove doubly necessary as the ATEX Directive is part of a package with includes Directive 1999/92/EC, "on minimum requirements for improving the safety and health protection of workers potentially at risk from explosive atmospheres", which has been transposed into UK law as The Dangerous Substances and Explosive Atmospheres Regulations 2002.

These, for the moment, look as if they could stay on the statute book relatively unchanged as they do not have a direct and immediate effect on the certification of goods for export.

Their relevance, though, is that the Directive on which the Regulations are based is one of the many measures which constitute "a practical step towards the achievement of the social dimension of the internal market". As such, the EU may put continued conformity on the table as part of "conditionality" it will require for agreeing a comprehensive free trade agreement.

This brings in the whole ambit of health and safety legislation which could add unwelcome complications to negotiations, with the ATEX Directive as the spearhead – thus pointing up the complex inter-relationships between apparently discrete legislative categories.

In particular, this one, relatively arcane area of EU law could have massive implications for the Brexit talks, not least in defining the post-Brexit standards-setting model, to be used for trade purposes.

One thing is for sure, it certainly needs to be on Mr Davis's list of 58 sectors and, if it isn't, that list should quickly grow to 59. But then, as we observed, that list should already be in the hundreds, which is going to make cramming them all in to a two-year negotiating period a rather interesting (some might say impossible) exercise.