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Brexit leaves industrial firms staring into regulatory void
April 26, 2017 / 12:57 PM / 7 months ago

Brexit leaves industrial firms staring into regulatory void

LONDON (Reuters) - Summit Therapeutics is about to start pivotal tests of a novel antibiotic discovered by UK scientists to treat a sometimes deadly bowel infection, but Britons could be the last patients to get it after Britain leaves the EU.

The British Union flag and the European Union flag are seen flying behind a clock in the City of London, Britain, January 16 , 2017. REUTERS/Toby Melville/Files

The biotech company headquartered outside Oxford is one of thousands of manufacturers, from aerospace engineers to makers of plastic mouldings, facing an uncertain future as Britain’s departure from the European Union leaves a potential regulatory vacuum in its wake.

While London plans a mammoth cut-and-paste job to convert EU law into domestic legislation, dubbed the Great Repeal Bill, this will not answer the question of what happens to the work of EU agencies that have legal powers to regulate industry.

Some manufacturers are already seeking to write into supplier contracts a clause asserting who should shoulder the burden of additional costs if Britain creates its own regulators, duplicating the work required to trade in the UK and Europe.

“We will do clinical trials in the UK, but the question is what will be the process for getting UK approval?” Summit’s Chief Executive Glyn Edwards told Reuters.

“The big issue is really for UK patients. If there isn’t some kind of mutual recognition and participation in the EU system for drugs, then the focus will be on getting first approval in Europe because the market there is so large.”

Officials say relations between regulatory bodies after Britain leaves the EU is a matter for Brexit negotiations in the run-up to the divorce scheduled for March 2019.

The minister in charge of Prime Minister Theresa May’s “Brexit department”, David Davis, told parliament at the end of March the government would build relationships with its European partners that enable it to maintain common standards. He refused to go into details about how this would work, however.

May has called a snap election for June 8, hoping to strengthen her hand with a bigger parliamentary majority so she can secure what she calls the best deal for Britain in the Brexit talks.

One option might be to agree special relationships with certain EU regulatory systems, either on a transitional or long-term basis. 

Currently, for example, drugmakers in the European Economic Area, or single market, can tap the entire market of 500 million potential patients with a single EU marketing approval. The single market includes Iceland, Liechtenstein and Norway as well as the EU.

May has ruled out Britain being a part of the single market, however, and the rest of the EU may in any case baulk at allowing London to use its regulatory machinery after it leaves.

Further, EU agencies are beholden to the European Court of Justice, whose jurisdiction Britain is determined to escape.

“The issue of how quickly these things can be clarified is really important,” said Andrew Bonfield, finance director of National Grid and chairman of the 100 Group, representing finance heads of FTSE 100 companies and some big private firms.

“People need to know how they are going to operate,” he told Reuters. “I cannot see a solution which would enable the UK to be under EU regulation if we are talking about a proper exit from the EU.”

Opposition Labour lawmaker Chris Leslie believes it would be difficult for Britain to be a “rule taker” from EU agencies in the long term, since regulation could be used as a tool to gain an edge over rivals.

“Different groups will press for variance to get a short-term competitive advantage over European competitors,” he said.

Escaping the “yoke” of EU regulation, or “taking back control”, was one of the reasons campaigners gave to vote in favour of Brexit in the June 2016 referendum.

TINY MARKET

In the case of drugs, leaving the nearly 900-person European Medicines Agency, which is set to move from its current base in London, would mean Britain would need a stand-alone UK regulator to decide if drugs are fit for use. [nL5N1HD32O]

Since companies must pay fees to have new drugs assessed and separate filings involve extra work, the cost of accessing a British market that accounts for only 2-3 percent of global sales would likely delay the introduction of new medicines into the UK.

Industry figures who have met the government to discuss the issue say they do not expect UK rules to diverge enormously from EU ones after Brexit, but they are concerned about the lack of clarity about what they will look like.

It is a particular worry for small, resource-limited businesses like Summit, which was founded in 2003 as a spin-out from the University of Oxford and has a staff of 45.

Ultimately, Summit might even relocate. The company already has a U.S. office and it will almost certainly set up an organisation in continental Europe to be within the EU zone.

“Brexit tilts the balance less in favour of remaining based corporately in the UK,” Edwards said.

Other industries have similar questions. The chemicals and plastics industry has invested heavily to meet strict EU rules on safety and environmental standards, known as REACH, and could now face new UK regulations.

Tim Thomas, a policy director at manufacturing and engineering trade body the EEF, said companies were concerned.

“Businesses are, understandably, asking questions about future regulation and regulators, as future changes will need to be built into commercial arrangements,” he said. “Different regimes are likely to bring with them new costs and burdens.”

Aerospace firms fear losing oversight from the European Aviation Safety Agency, which endorses product quality, while airlines warn of disruption if Britain is cut out of Europe’s single aviation market.

The need to create a British regulatory system will require legislation, piling up an already daunting workload for lawmakers now further delayed by the June election.

“It will take a phenomenal amount of parliamentary time and this new parliament (after the election) will be much, much more busy than anything we’ve seen in the last two years,” said Leslie.  

“There are a whole array of areas that lots of people haven’t quite got their heads around yet.”

Additional reporting by William James; Editing by Guy Faulconbridge and Sonya Hepinstall

Our Standards:The Thomson Reuters Trust Principles.
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