Sector News

Uncertainty surrounding the outcome of Brexit negotiations is forcing UK chemical companies to set up subsidiaries in other European jurisdictions to handle regulatory requirements, the CEO at the country’s Chemical Business Association (CBA) said on Tuesday.

Peter Newport said that the lack of clarity about the format of Brexit and its impact on chemical supply chains and regulation is making his members take action now to ensure they can continue doing business with the important European market.

“Businesses are already moving: our members are advising us that they are already pressing the button. One CBA member has been in face-to-face discussions with government departments, telling them that in late 2017 he established a new company in Europe,” said Newport.

This company is swapping its REACH registrations – required by EU’s chemicals regulations – into a new European subsidiary and will seek to develop new markets in that country, he added.

Moreover, he said the EU country the company is moving operations to has lower corporation taxes than the UK, adding that the business may declare profits and pay tax in the new location, denying the UK government tax revenue, he added.

Newport revealed that larger pan-European companies either have or plan to switch REACH registrations to EU subsidiaries to protect them and may move parts of their businesses away from the UK.

The news comes as a leaked UK government report published by UK news site BuzzFeed on Tuesday named the chemical sector as the worst affected by Brexit in whichever form it eventually takes.

“We’ve been telling the government that chemicals will be a key sector impacted by Brexit and that chemicals impacts other ‘darling’ sectors such as automotive and pharmaceuticals that the government sets as priorities,” said Newport.

He pointed out that some substances can be shipped across the channel several times as intermediates, so tariffs and customs delays will hurt not only chemicals but the UK and EU economy.

“There is a growing realisation amongst the EU27 [the EU minus the UK] and the UK government that supply chains are complex. After 40 years many are closely integrated and unravelling them is not going to be simple,” the CBA CEO said.

“But we are in the hands of the negotiators: we want to see a move from negotiations based on dogma to become based on realities.”

Newport said he feared that if nothing is finally agreed until the end of the negotiating process, then everything would be at risk for chemicals until the last minute.

“Uncertainty is the killer – that’s why we’re pressing the government to get on and deal with the negotiations,” he said.

The CBA wants the UK to remain part of the EU’s REACH system and to pay fees to the European Chemicals Agency (ECHA) if necessary.

The UK must be prepared to submit to the rulings of the European Court of Justice (ECJ) over chemicals regulation if that is demanded by the EU.

“We don’t know if there will be a totally seamless regulatory environment but if we are selling to another market we must follow their rules. If the UK wants a UK REACH that’s fine, but our members have already paid to register under [EU’s] REACH,” said Newport, pictured right.

He said most REACH registrations will be completed by 2019 so UK companies do not want to lose the benefit of all the registrations they have already paid for.

Without a transitional deal, ECHA has pointed out that after Brexit the UK will become a third country so UK REACH registrations will not be valid in the EU.

At the same time, EU27 chemical companies will also suffer because some substances registered under REACH have data owned by UK companies.

“Until late 2017, the UK government was a bit like a black hole – a lot of information was being put in but nothing was coming back out. Now there are signs of what the government would like to see and reassurance they have heard what we’ve been saying,” said Newport.

The BuzzFeed report quotes a loss of between 2% and 8% to UK GDP growth over the next 15 years.

This would depend on whether the country crashes out of the EU under World Trade Organisation (WTO) rules or enjoys continued single-market access through membership of the European Economic Area (EEA).

By Will Beacham

Source: ICIS News