The impact will be felt not with a bang, but with a whimper
ANDREW CLARKE closely guards his recipe for yolk-coloured ink, known in the trade as a yellow 13. But the process is simple enough. Powdery pigment is mixed with solvent, varnish and thickener, many of the supplies imported from abroad, and then milled between steel rollers into a glossy syrup. His factory in Yorkshire specialises in bespoke orders for coatings used to make food cartons, magazines and circuit boards. His small laboratory is lined with pots of resins and wetting agents, and machines that measure the fineness and viscosity of his creations.
Brexit, which comes into full effect on January 1st, worries Mr Clarke. The European chemicals market is fragmenting. He fears the substances that give his coatings their distinctive qualities may slowly disappear from sale in Britain, leaving him reliant on inferior substitutes. “If we are trying to sell to Europe, we might be offering our best stuff, but an eu competitor could come in using the state-of-the-art raw material, which in our customers’ eyes is significantly better,” he says.
The future of the British chemicals industry is Brexit in microcosm. Boris Johnson wants a trade deal that eliminates all tariffs on goods, including chemicals. Yet even if he gets this, it will do little to soothe the headaches that arise from leaving the single market. A project that promised to throw off the eu’s system of regulation will instead replicate it in miniature, creating a Brussels-on-Thames. Chemical firms, foreign airlines, lawyers and internet companies—all will face new burdens if they wish to keep doing business in Britain.
At root is a grand misunderstanding. Brexiteers often think of the eu’s single market as a mere rule book. Thus, they suggest, Britain simply needs to copy those rules into domestic law, and then tweak them at leisure. But the single market is better thought of as an ecosystem: an elaborate regime of registration, surveillance and enforcement. Goods and services percolate freely across national borders because governments can rely on Brussels to keep watch for unwanted adulterations.
Reach, the bit of the single market governing chemicals, is especially strict. Firms selling into Europe must submit lengthy dossiers detailing how their products were made, and appoint an agent on European soil, who can be collared if things go wrong. The system is overseen by the European Chemicals Agency (ECHA) in Helsinki, which has 600 staff and a budget of more than €100m ($120m). The enforcement is done by a network of national agencies, such as Britain’s Health and Safety Executive (HSE), based in Liverpool. The result is a free-flowing pool of 23,000 chemicals for Mr Clarke and his continental rivals to choose from, underpinned by a vast database of safety information which regulators can scour for risks.
Theresa May, Mr Johnson’s predecessor, asked to stay in Reach, having been convinced there was little to gain from divergence. But this was rejected by the eu, who called it “cherry-picking”. So Britain will try to replicate the regime at home, under the title of “uk Reach”. The names of chemicals originally registered by British companies will be copied into domestic law. The hse will take on the echa’s job, funded by fees on users. European companies will need a legal footprint to trade in Britain, and British companies vice versa.
The most difficult task will be replicating the echa’s database. Ministers at first insisted they could simply copy-and-paste it. They could not: it is stuffed with commercially-sensitive intellectual property, and there is little incentive to give a departing state a leg-up. The eu has so far rebuffed Britain’s request for a chemicals data-sharing clause in the trade deal.
Instead, the government will require Mr Clarke’s suppliers to submit the data themselves. But many dossiers were produced by consortia of companies, and there is little reason for a French firm to bail out a British rival. BASF, a big German chemicals firm, reckons registering with uk Reach will cost them £70m ($90m). Small British distributors whose continental suppliers file paperwork under the eu system may find themselves designated “importers”. One boss calculates a bill of £1m in registration fees if he has to lodge all the substances he imports, on an annual turnover of £15m: “We’d be bankrupt in a week.”
George Eustice, the environment secretary, now admits some firms may find the task “both expensive and time-consuming”, and this summer delayed the timetable for lodging dossiers for some products from 2023 to 2027. But more time does not help much, says Peter Newport of the Chemicals Business Association. “It’s a change from a guillotined beheading to a death by a thousand cuts over a six-year timescale,” he sighs.
There are two scenarios for how this will play out. One is that ministers push on with uk Reach, and substances are pulled from the British market as manufacturers conclude that registration costs make low-volume products unviable. The so-called “salt-and-pepper” additives used in tiny quantities in paints are particularly vulnerable. The flow going the other way is already shrinking. Only 70% of the British firms that registered chemicals with the echa before Brexit have started transferring their dossiers to new legal entities in Europe, the regulator notes. “We’ll become very insular, and they’ll become equally self-absorbed,” says Mr Clarke. As a result, Britain would be a less attractive place to open an assembly line.
The second scenario is that uk Reach founders. The deadlines could be pushed back further, or the new rules left unenforced. With an empty database, says Michael Warhurst of chem Trust, an environmental charity, the regulator in Liverpool would be less able than the one in Helsinki to spot hazards, or to defend its decisions against deep-pocketed companies in court.
The promise of Brexit was that Britain would be the master of its own regulation, acting more nimbly or stringently than the eu if it wished. But the outcome Mr Warhurst fears would not be deregulation by design, but one forced upon ministers because their ambitions to match European standards have failed. A big market means Brussels can afford to be strict in its regulation. Britain will learn that it cannot.
By SHERBURN IN ELMET/ The Economist
