UK’s arm’s-length relationship with EU regulators creates opportunities, risks

9 March 2017. By Matthew Holehouse.

The UK will seek an arm's length relationship with the EU's regulatory agencies after Brexit, in a bid to escape the oversight of the EU's top court.

How deeply the UK ends up interacting with EU regulators will be set during the negotiations, expected to start this month. But the government's broad political goal is now clearer: It is aiming to create a system of "sovereign" regulators that set rules for the UK market.

Chemical and medicine regulations are useful examples of the complex issues the UK will face.

Britain will ditch the EU's system of rules on the use of chemicals — known as Registration, Evaluation, Authorisation and Restriction of Chemicals, or Reach — only to adopt a British version, Thérèse Coffey, an environment minister, told UK lawmakers on Tuesday.

The "British Reach" would initially be a carbon copy of the EU rules but could evolve over time, she said.

"Reach is a single-market mechanism and under [the EU Court of Justice's] jurisdiction," Coffey said, adding that both run counter to Prime Minister Theresa May's view of Britain after Brexit.

Health Secretary Jeremy Hunt has previously said the UK would probably withdraw from the European Medicines Agency, which approves medicines for use across the continent, for similar reasons.

This approach will set Britain on a divergent path from that of Norway, a non-EU state which still follows EU single market rules. Norway participates in the expert committees of the European Medicines Agency, the European Chemicals Agency, which oversees Reach, and the European Aviation Safety Agency, which sets air travel standards. It can't vote on decisions made by those bodies.

But the UK does want to keep some ties with the EU agencies, and is aiming for a closer relationship than Canada or Japan enjoy.

Risks of building a new system

The Reach system obliges manufacturers to register the chemicals they trade in the bloc on a database run by the European Chemicals Agency, or ECHA. With 30,000 entries, Reach is designed to reduce risks to consumers and help scientists research new products. The agency also decides whether new chemicals are safe to market.

UK-based companies are alarmed at the prospect of losing the right to sell into the EU market after Brexit, if their authorizations with the agency lapse.

One in five companies could relocate part of their operations to an EU state, with Ireland a likely destination, Douglas Leech of the Chemical Business Association told UK lawmakers this month.

Even if Britain replicates EU rules governing chemicals into domestic laws, it will need to amend these to reflect the fact that the country is no longer part of the ECHA's evaluation committees.

Much of this work will fall on the UK's Health and Safety Executive, which currently enforces the Reach regulation at a cost of 1.3 million pounds ($1.57 million) per year. The new system could cost "tens of millions of pounds," Gabrielle Edwards, who heads environmental issues at the Department for Environment, Food and Rural Affairs, said on Tuesday.

The UK may also want to negotiate to obtain a copy of the Reach database for its own use, Edwards said during a parliamentary evidence session.

The government has tried to reassure companies that the transition to the UK system will be seamless.

"I anticipate that we will have a very similar regime. But there will be the opportunity to make certain choices ourselves about what is appropriate," Coffey said at the same hearing. "Chinese companies have to be Reach-compliant if they want to sell into the European markets, and the same will be true for us."

The UK could, for example, choose to make de-icer with industrial alcohol even if other countries act on calls to ban it, Coffey said. The UK could also introduce tougher rules on animal testing, or authorize new chemicals faster than the EU does.

Keeping in step

A major question is how the UK will keep up with EU rules, since Reach regulations change regularly when new chemicals are developed.

Andreas Herdina, who is in charge of cooperation at the ECHA, told lawmakers that two precedents are available for the UK: Norway's model of "dynamic adaption," which sees it adopt new rules automatically; or Switzerland's approach, which doesn't keep in step.

Managing divergence in laws "is something that is plaguing the Swiss," Herdina said. "The more you diverge, the more the burden on industry."

Herdina warned that UK companies could find EU rules after Brexit less appealing, because the country has lost its seat at the ECHA. "One of the concerns that I would have from a British point of view is … they are not in the room to make comments, even if it impacts on a company in the supply chain of interest to a British company," he said.

Drugs regulation

Drug manufacturers could face different risks after Brexit.

Drug approvals are either carried out centrally by the European Medicine Agency, or a decision by one EU state to authorize a drug is valid in others if a mutual-recognition procedure is undertaken.

The UK's Medicines and Healthcare Products Regulatory Agency, or MRHA, plays a leading role in assessing 15 percent to 20 percent of all drugs authorized by the EU agency, the UK government says.

After Brexit, the UK could move faster in sensitive areas such as treatments involving genetic modification of cells, opening up opportunities for companies.

But the regulator could find itself swamped if it has to approve drugs currently authorized by the EU agency.

Britain could also find itself at "the back of the queue" for innovative new treatments if drug manufacturers conclude that the cost of securing authorization in the UK doesn't justify the financial returns from a smaller market, MHRA head Michael Rawlins said in January.

That would make the UK a less attractive location for Japanese and US drugs makers that want their European headquarters close to the bloc's regulator.

One option could be an "agreement by us, as a sovereign state, with the EU on the mutual recognition of medicines and medical device approvals," Hunt told the House of Commons health committee in January. The UK regulator could "automatically" license drugs if they are approved by the EU, he said.

This would go beyond the relationship the EU has with Canada, under which regulators can share confidential pre- and post- authorization data on drugs but make their own decisions.

It would also go beyond the EU's mutual recognition agreements with states including Switzerland and Israel covering manufacturing standards for drugs and devices it has already approved.

For the EU, building a relationship where the UK participates in a system of shared authorization for new drugs, outside the legal architecture of the single market, would amount to uncharted territory.

	Eliot Gao