It goes without saying that negotiating our future relationship with the EU will take years, and that a transition period between the UK leaving and a new trade deal being agreed is imperative. Ahead of next week’s pivotal EU summit when a transition deal will be agreed – or otherwise – here’s what you should keep in mind.
1. It’s not guaranteed there will even be a transition deal
Both sides want a deal; privately, both accept it is essential to avoid a disorderly Brexit. But the UK is quibbling over the terms, while the EU wants ideas from us on avoiding a hard border in Ireland. Finally, a transition deal can only be done, legally, as part of a package with an outline agreement on the future EU-UK relationship – which won’t be clear until October or even December.
2. It may be June before we know
Both sides broadly agree that a transition should be on a ‘standstill’ basis: the UK would, in practice, remain in the single market and customs union and be bound to accept new EU rules. For pharmaceutical companies based here, nothing would change immediately after Brexit. Complicating matters, however, is the fact the UK wants the ability to review any new EU laws which come out during the transition, and the power to challenge new laws to limit the family reunion rights of EU nationals coming here after March 2019. With the EU unlikely to agree, unless the UK backs down, the transition could be at risk.
Both sides had hoped to agree a transition deal at the next European Council on 22 March. Time is running out, and with no sign of progress on the Irish border issue, this could well slip towards summer, increasing the domestic pressure on Theresa May.
3. We will need an extension – but the politics might get in the way
The EU is clear that the transition period “shall end…on 31 December 2020”, effectively moving the regulatory ‘cliff edge’ to 1 January 2021. Privately, both sides accept longer will be needed to establish new trading and customs arrangements – and business is inclined to agree. Yet any extension will be politically toxic for the Conservatives ahead of a general election. Added to this, all EU members would need to approve an extension through a new treaty – which takes at least six months. This means just a year after Brexit, the UK would need to ask to remain in transition.
4. What does the pharma industry need to be settled during a transition?
Looming over everything is whether the UK wants to a full customs union, and whether the UK is willing to remain aligned with EU rules and supervisory arrangements in the longer-term. Without this, border checks, delays and regulatory uncertainty will force pharmaceutical companies to look hard at supply chains, and at where medicines are manufactured.
As well as the basic parameters of trade, the pharmaceutical industry will have specific concerns around how every aspect of production is regulated and approved, from trials to Intellectual Property to practical concerns about stockpiling medicines to cope with customs uncertainty.
It’s not all bad news. There is flexibility in the UK position. Any trade agreement this year will be in outline only; there is scope for the UK position to evolve towards a more ambitious, more closely aligned deal. Pharma needs to decide what‘s needed in that framework text on future trading terms to avoid closing off the industry’s aims for an ambitious deal before detailed talks start in earnest after next March.
5. What can the industry do to prepare for no deal?
Both sides view ‘no deal’ without a transition as a disastrous outcome. It’s unlikely as long as May is Prime Minister, but not impossible if UK politics is further shaken up. The priority for the industry in that scenario will be knowing what short-term deals are needed to keep medicines flowing – whether on customs, inspections or approvals. What’s clear is that the worst could still happen – so the industry has no time to lose in engaging the government and the EU on those fallback possibilities.
Paul McGrade is senior counsel on Brexit at Lexington Communications, having spent nearly two decades at the Foreign Office including as the Eurozone crisis Single Market lead.
Source: Pharma Times
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