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Navigating Brexit – How ready is the UK Excipients Sector?

HomeblogNavigating Brexit – How ready is the UK Excipients Sector?
17
Sep
Navigating Brexit – How ready is the UK Excipients Sector?
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The new British Prime Minister, Boris John, has vowed to take the UK out of the European Union (EU) by the 31st October 2019 with or without a withdrawal agreement. To assist businesses prepare for Brexit, the UK Government has been releasing technical notes that highlight the practical steps businesses should take.

The Excipients Industry Forum recently interviewed 42 businesses involved in manufacturing and distribution of excipients in the UK to assess their preparedness for a no deal Brexit and learn what practical steps they have undertaken to mitigate some of the risks. The key finding are summarised here below:

Summary of findings

  • 93% (39) of the companies surveyed said they had scoped multiple scenarios to determine the potential impact of Brexit on their business and customers.
  • 83% (35) of the companies surveyed had had engagements with government and regulatory agencies to either seek information or understand potential risks.
  • 100% (42) of the companies surveyed have engaged with their supply chains to ensure business continuity in the event of a no-deal Brexit
  • 98% (41) of the companies surveyed had examined potential opportunities of Brexit, of which 40% (16) had found some and the other 60% (25) had not.
  • 88% (37) of companies surveyed said they were already prepared to deal with additional customs clearance documentation for imports and exports from the EU
  • On risk mitigation plans, 100% (42) of companies surveyed reported making plans to work with multiple logistics and supply chain contractors as a means of spreading the risk of disruption at UK borders. 91% (38) said there were monitoring demand and were committed to holding extra inventory, as appropriate.
  • 100% (42) of companies surveyed said they already had obtained UK Economic Operators Registration and Identification (UK EORI) numbers. However, only 29% (12) had EU EORI Numbers.
  • On REACH compliance arrangements, 100% of the surveyed businesses said they were ready to deal with EU and UK REACH compliance requirements.

However, the surveyed businesses also told us that preparing for Brexit continues to be be challenging, owing to the many possible scenarios and the lack of clarity from authorities.

  • 98% (41) said the cost of putting into place contingency plans for a no-deal Brexit was high, while 77% found the information bewildering and constantly changing.
  • 41% (17) said uncertainty around Brexit had negatively impacted recruitment and retention of staff
  • 57% (24) said Brexit had taken time and resources from other business priorities

These finds demonstrate that excipients businesses in the UK have worked hard to understand what Brexit means for their operations – both in terms of the risks and potential opportunities. They have allocated time at leadership level and created internal groups to manage Brexit risks. This will go a long way towards mitigating the risks of Brexit.

Key Areas for Consideration Under a No-Deal Brexit Scenario

There still remains great uncertainty around what Brexit will mean. Therefore, it is crucial that businesses continue monitoring the situation to appreciate what changes Brexit will bring to their operations. Here below, we highlight the key areas for consideration, covering people, trade and tariffs, product compliance, data, IP rights, competition and innovation. Our considerations reflect a no-deal scenario, however, they will also be relevant in others:

Movement of People and Labour

Under a no-deal scenario, the UK will lose access to the EU single market, including free movement of people and labour. The UK government has committed to guaranteeing the rights of EU nationals who wish to stay in the UK after Brexit. EU nationals are required to register with the EU Settlement Scheme to effectuate their rights under UK law. Current Home Office guidance on the Scheme can be found here.

Companies should assess how their workforce will likely be affected and put in place mechanisms to inform them about these developments, including taking steps to ensure employed EU nationals retain the right to work in the UK on Brexit day. Equally, businesses employing British nationals who reside/work in EU as well as cross-border workers should ensure that employees have complied with respective national requirements if they are preserve their working rights in the respective member states after Brexit.

Trade, Tax and Tariffs

The UK’s trading status will become a ‘3rd country’ with the EU in the event of no-deal Brexit. Companies will therefore be required to have the correct procedures in place to deal with Customs and Tariffs. Even if an agreement is reached to remain in the EU Customs Union, these are likely to become critical areas after Brexit.

The UK Government has also enacted the Taxation (Cross-border Trade) Act 2018 that, inter alia, establishes an independent UK trade and customs regime; and more specifically, a system for import declarations and duties on non-domestic goods entering the UK market, as well as for export duties and changes to the VAT regime.

We summarise the key issues arising below:

  • The current Customs & Excise rules applying to non-EU/EEA territories will also apply between the UK and EU
  • Customs declarations will be required for those companies that export to or import from the EU. Separate safety and security declarations will also need to be made by the carrier of goods. You can find the current UK import rules here.
  • EU Customs & Excise rules will apply on all goods movements between the EU and the UK as for non-EU trading partners. You can find the current UK guidance on exporting into the EU as a non-EU country here and here.
  • The UK will continue to have a VAT system after it leaves the EU VAT, deal or no deal. The government has indicated willingness to keep VAT procedures as close as possible to what they are now. You can find out more about accounting for VAT on exports to the EU as well as imports into the UK from the EU here.
  • The UK Government has indicated that it is set to remain in the Common Transit Convention (CTC), ensuring simplified cross-border trade for UK businesses exporting their goods into the EU.

Product Standards and Compliance

Technical barriers are often a bigger barrier to trade than tariffs. For manufacturers and distributors of excipients, these can be technical standards or regulations with which a product has to comply.

European Pharmacopoeia

Under a no-deal Brexit, the British Pharmacopoeia (BP) will continue to be aligned with the European Pharmacopoeia (Ph. Eur. The Ph. Eur will continue to be adopted in the BP, and the BP Commission will continue to reproduce the Ph. Eur in the BP in the future.

Medical Device Regulations

Under a no deal scenario, the UK’s current participation in the European regulatory network for medical devices will cease, with the MHRA taking on the responsibilities for the UK. The UK MDR 2002 framework will be supplanted with the Medical Devices (Amendment etc) (EU Exit) Regulations 2019. We await the final guidance once the UK Government proposals have received parliamentary approval. However, there is a sketch of what is being sought, which can be found here. Information for manufacturers, distributors and authorised representatives of medical devices (as well as in-vitro diagnostics) can be found here.

Regulation of Biocides

Under a no-deal Brexit, the UK plans to establish its own biocide products regulatory regime. The plan is to retain the current EU framework, with changes made only where they are needed to allow operationalization in the UK. Thus, HSE will act as the competent authority instead of ECHA. UK companies wishing to apply for active substance approvals in the EU will continue to apply to ECHA. For a more comprehensive guide, click here.

REACH Framework

Currently, excipients exclusively used in medicinal products have partial REACH exemption. Excipients that are primarily used in other fields, for instance, cosmetics and personal care, fall under REACH regulations. Under a no-deal Brexit, the UK and the EU REACH regulatory agencies will operate independently of each other. It is planned that the UK Government will retain the key principles of EU REACH. You can find out more about UK REACH here.

To maintain access to both UK and EU markets, companies supplying and purchasing chemicals to and from the EU and the UK need to register them with ECHA and the UK REACH/HSE separately.

Data Protection

In the EU, the General Data Protection Regulation (GDPR) 2016/679 is the framework for data protection and privacy and addresses the transfer of personal data outside the EU. Should the UK leave the EU under no-deal, the GDPR will cease to have direct effect on it. However, as the UK is committed to maintaining an equivalent data protection regime. However, the EU Commission’s position is that under a no-deal Brexit, the transfer of personal data from the EU to the UK will equate to a transfer to a third country, potentially impact many companies that routinely transfer data from the EU to the UK (e.g. customer lists). This necessitates that UK companies institute adequate mechanisms to legitimise any data transfers. The latest guidance can be found here.

IP and Trademarks

On 24 September 2018, the UK government published a series of technical notices explaining how a no-deal Brexit will impact intellectual property rights in the UK. Broadly, the protection of copyright works (both in the UK and abroad) will remain largely unchanged after Brexit. Protection of existing registered EU trademarks, EU Designations of International Registrations or registered Community designs in the UK will be through a new, equivalent UK right, which will be automatically created and treated as if it had been applied for and registered under UK law. More information on the UK Government guidance about intellectual property implications of a no-deal Brexit can be found using these links this link: trademarks and designs

Antitrust and Competition

The UK Parliament approved a new regulatory framework, The Competition (Amendment etc.) (EU Exit) Regulations 2019, paving way for a standalone UK competition regime after a no-deal Brexit. As a result, the Competition and Markets Authority (CMA) will be responsible for investigating mergers and cases of anti-competitive conduct which affect the UK market. Businesses operating in the UK must continue to comply with UK competition law as they do now and those operating in the EU must comply with EU competition law. The CMA intends to publish updated guidance in relation in due course.

Innovation

Innovation is critical to the future success of the UK, regardless of the outcome of Brexit. In the event of a no-deal Brexit, there will be some changes that will likely affect research funding, especially EU-funded research programmes.

Secondly, the UK’s R&D incentive schemes have always been intended to spur innovation, especially investment in high value science jobs. The view of those in the know is that Brexit will not have an immediate impact on the R&D incentive schemes. This is because it is the UK Government providing the funds rather than the EU.

What is not certain is the long term impact of Brexit, and more specifically, the impact of the EU’s State Aid regulations on UK R&D tax incentives. On this, only time will tell.

Final thoughts

Brexit has the potential to affect businesses in a number of different ways. It would appear that so far, excipients businesses have responded well to Brexit and are committed to doing everything within their means to mitigate the risks of a no-deal Brexit. Under existing EU law, businesses have different responsibilities depending on their roles in the supply chain (manufacturer, importer/exporter, distributor, agent, etc), so it is still crucial that firms keep monitoring the situation to anticipating how Brexit will impact operations.

 

DISCLAIMER

The information contained in this article is for general guidance on a matter of interest only. Accordingly, the information is provided on the understanding that the authors and the Excipients Industry Forum are not rendering legal, accounting or other professional advice. It should not be used as a substitute for consultation with relevant professional advisers. The Excipients Industry Forum is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this article is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.

 

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