Oral evidence: The Future of Chemicals Regulation after the EU Referendum, HC 912
Tuesday 21 February 2017
Ordered by the House of Commons to be published on 21 February 2017.
Members present: Mary Creagh (Chair); Peter Heaton-Jones; Caroline Lucas; Scott Mann; Kerry McCarthy; John Mc Nally; Dr Matthew Offord; Mr Gavin Shuker.
Questions 36-116
Witnesses
I: Dr Camilla Alexander-White, Programme Manager, Environment & Regulation, Royal Society of Chemistry, Nishma Patel, Chemicals Policy Director, Chemical Industries Association, and Douglas Leech, Technical Director, Chemical Business Association.
II: Susanne Baker, Head of Programme, Environment and Compliance at techUK, and Mike Murray, Head of Quality and Environmental Standards, the Association of the British Pharmaceutical Industry.
Written evidence from witnesses:
– Chemical Industries Association
– Chemical Business Association
– techUK
– Association of the British Pharmaceutical Industry
Examination of Witnesses
Dr Camilla Alexander-White, Nishma Patel and Douglas Leech.
Q36 Chair: Apologies, we are starting late. We have had a lot of things to discuss. I am delighted to welcome today Nishma Patel, Chemicals Policy Director from the Chemical Industries Association, Dr Camilla Alexander-White, Programme Manager for Environment and Regulation at the Royal Society of Chemistry, and Douglas Leech, Technical Director at the Chemical Business Association. If I can kick off, please. We as a committee are grasping REACH. We do not have the benefits of your professional experience and wide-ranging knowledge. I wonder if you could begin by helping us set out its impact on the chemicals industry and what benefits UK companies and consumers derive from the UK being part of REACH. Nishma, would you like to start, please?
Nishma Patel: Sure. Thank you. Maybe just to give a bit of background to the industry in the UK itself, CIA represents and leads the manufacturing of chemicals and pharmaceutical ingredients as well. Overall, about 70% of chemicals and pharmaceuticals manufactured in the UK are represented through CIA and its membership. In terms of value added, it is about £14 billion a year, 10% of the value added in terms of the manufacturing sector as a whole, so quite significant in terms of production. It is the fourth largest in Europe, and 11th in terms of worldwide, so quite a significant representation in terms of UK manufacturing.
If you talk about chemicals regulation and the impact it has had on consumers and use, looking at it from a global perspective first, most of our members are dealing with a set of chemicals regulation, whether it is REACH in the EU, whether it is a similar REACH regime in China or Korea, or the TSCA in the US. Increasingly, around 65% of that—65% of the chemicals produced in the world—respond to REACH-like legislation. REACH is becoming or has become the type of legislation that companies increasingly have to respond to, with some differences, but the overarching principles remain the same.
Looking closer to home and to EU REACH, I think there is recognition, within industry at least, that it brings benefits, both in terms of human health and environmental protection. It has definitely generated a lot more information for companies. They have been better informed on how chemicals should be managed, not just in the workplace, but further down the supply chain. Within that, those further down the supply chain, the article manufacturers, those that have not really been closely linked to chemicals now have a better understanding of what they are handling and what they are dealing with, and putting the right measures in place as well. So, overall, it has had a good impact in terms of human health and environmental protection, and it has provided that level playing field within Europe as well.
If we look at the competitiveness side, whether REACH has enhanced competitiveness and brought that forward, I think there is a big question mark around that for industry. There have been a lot of unintended consequences that REACH has brought to competitiveness. There is a lot of cost; there is a lot of burden and resource that companies have been challenged with. It is a very complex legislation, as you mentioned earlier. There have been instances where companies have very small teams doing regulatory affairs and have not really realised that there are the legal complexities to deal with around REACH. There are all the IT updates that go with it and keeping up with the technical guidance, as well as maintaining and registering an information dossier, a technical dossier for REACH. In some companies, the smaller and medium-sized companies, it is usually around two people doing this job, as well as their day job. It has meant that companies in some cases have moved the R&D people—those who have more technical competencies—to regulatory affairs, which in turn has had an impact on a company’s ability to innovate. Around competitiveness and innovation, I don’t think REACH has been a good player but it has benefits at the same time.
Q37 Chair: You said you are not sure about competition and innovation, but our brief says that intra-EU sales increased by 43% over 10 years from 2005 to 2015. The REACH Centre attributes this to the removal of trade and non-trade barriers. Does anyone have any observations to make on that? Do we think there is a causal link?
Nishma Patel: Perhaps within Europe it has meant that there has been a bigger movement of chemicals within that region because there is that level playing field within REACH. If you then compare, say, a company located within a European member state with, say, a company based in the US or another part of the world, the investment is done a lot more comfortably by that company outside of Europe than it is within Europe, because of the complexities that REACH brings. Companies feel a lot more confidence investing elsewhere in the world than they do within Europe. A lot of business plans, a lot of new products that are coming into the market, very much take a big approach, or REACH plays a big part in whether they would actually invest a product in Europe as opposed to another place in the world.
Douglas Leech: We represent chemical distributors or importers; they buy from various different places. We have noticed that a lot of members have started to buy from the EU rather than buy from outside the EU. That is where some of the trade has changed a bit, because it is easier to be in compliance with REACH from a company that already has the registration than to have to rely on a non-EU manufacturer to do the registration and/or to do it yourself. A lot of that has been a cost. Some of our members, as I say, have gone to EU-source material only, whereas others have still invested a lot more money into doing the various different registrations and so on, to have control so they can continue to buy. There are a lot of chemicals that are not manufactured in Europe. They are only manufactured in countries like, for instance, China and America. We don’t make certain ones anymore, so to continue using them they have to be imported in.
Q38 Chair: What about the cost of compliance for your members, and the way that that falls on SMEs compared with larger companies?
Douglas Leech: A lot of our members have done what is called joint registrations. They have bought into a letter of access to companies or registrations that already exist. At the moment there is a rush to the next registration deadline, which is the end of May 2018. I remember one SME in our membership was quoted £50,000 to register two materials, and just did not have that capital inside their business at that time. They had to stop buying the material, stop supplying it and pass the business on to somebody else. One of their customers had to do the registration themselves and pay for all of that. They now buy the material directly from China as it is anyway. They had to pass all the information on. For SMEs it is difficult, because they don’t have the money generally sitting there to hand to be able to pay the amount of money that is needed.
Q39 Chair: What has happened to the SME sector since REACH has come in then? Has it grown, shrunk, stayed the same?
Douglas Leech: In our membership it has stayed the same, because we have not done the full registration yet. We are waiting until 2018 for the over 1 tonne registration to come in. That is when we don’t know exactly how it is going to be because people are going to have to make a stark choice, either register or pull out of the market.
Dr Alexander: Yes. I will add to that. REACH is one of the most advanced systems in the world. Given the nature of the scientific evidence that is needed to underpin the preparation of dossiers and the preparation of the IUCLID database, which is the central database within ECHA, quite a lot of information is required. Some of the costs that Douglas is referring to are testing requirements. There can be quite expensive studies performed to high-quality standards within contact research organisations. There is a great deal of scientific evidence needed to underpin each chemical dossier. The intention of that, of course, is to keep public health at safe levels, and the environmental protection goals at safe levels. REACH is one of the regulations in the world that has a broad coverage of tens of thousands of chemicals, and the information required for each chemical is quite substantive and dependent on tonnage.
Q40 Chair: Which chemical do you think that is no longer on the market or in products in the UK and the EU as a result of REACH, has been the most significant and will have the most significant benefits for human health?
Dr Alexander: At the moment I would say it is still in process. The information gathering stage is still in process. In a previous evidence session I think Apolline Roger made a good point: there are the pillars of REACH, registration, evaluation, authorisation and restriction. We are still in the registration phase, so it is a long game that we are playing in this area. 2018 is the deadline when the information is gathered in, and we are in the process of identifying within Europe what the substances of very high concern now are. I think there are seven substances that are authorised within use and products in the EU at the moment, but that process has not come to bear yet. The evaluation process is still working its way through.
Q41 Caroline Lucas: Can I ask about the costs? I think you said it was £50,000 for two registrations. Just to try to understand, that sounds like a lot of money. Is that basically a person’s time of analysing what is in front of them? I don’t get a sense of why it costs so much. Also, I think in our dossier there seemed to be quite a wide range of different estimates of how much it actually costs.
Douglas Leech: For that specific one what happened was a consortium had put all the data together. In essence, you need a data package to go forward and do a registration. They pulled together whatever data they had, and then got whatever testing needed to be done to do the actual registration. Each of those tests has a cost. They add the costs together, they put some administration charges on, and then that is the cost for the package. Then they will offer what is called a letter of access to other companies, and say, “There are 10 of us in. It has cost £400,000 to put this together. It is £40,000 per company to buy into this dossier to get the information”.
Q42 Caroline Lucas: I am still trying to understand why it costs that much. Is it mostly people’s time to do the assessment?
Douglas Leech: A lot of it is the testing. I am trying to remember off the top of my head, but in the 10 to 100 tonne bracket, if you had to do every single test—
Q43 Caroline Lucas: Sample testing, isn’t it?
Douglas Leech: It is various tests. It is boiling point, flash point, various generate that.
Caroline Lucas: It is generations of mice to see—
Douglas Leech: If you had to do everything, you are looking somewhere in the region of £200,000 to about £250,000 just to get the test data done. Then you have to put together various bits of robust summaries and you have to put the dossier together, so there is some sort of admin inside that as well. As you can imagine, the ones that have been in the 2018 registration, for instance, for the highest tonnage band, the estimate is around about £3 million-worth of testing costs if you had to do everything. There are waivers, and if you have a positive result in one you don’t have to do the next one up. If you have a negative you have to do it to prove that it was not a false negative. There is a lot of cost involved. One of the tests—one of the animal studies, I think—costs £100,000 on its own.
Q44 Peter Heaton-Jones: I am always aware that we are being watched—quite rightly—by people outside this room, and while here we have huge expertise, and members of the Committee who have done untold weeks of research and briefing notes, that might not be the case for everyone, so can I just go back a stage? Registration, Evaluation, Authorisation and Restriction of Chemicals regulation is REACH. In a sentence, what does it do and why should we care? Can I start with Dr Alexander-White, maybe?
Dr Alexander: Yes. There are the four pillars, registration, evaluation, authorisation and restriction. When industry is manufacturing a particular substance they will have to comply with the regulations, and ECHA will set the test data that is needed. They then generate the data to assure safety, at the end of the day.
Peter Heaton-Jones: Could you repeat that, sorry?
Dr Alexander: Industry generates the data according to guidance; technical requirements that are set by ECHA in technical guidance documents. Those requirements are set at tonnage levels as well, so different requirements are set for lower tonnages than higher tonnages. The intention is that data is generated to assure safety of human beings who may be exposed in various scenarios, and to assure environmental protection. You have a range of human-health tests that are performed in laboratories relating to mammalian toxicology. There is a range of ecological tests that cover the environmental species. The intention is, first, to protect citizens’ health and the environment and, as Nishma was saying, provide a level playing field.
You have all of the member states around the table looking at the scientific dossiers together. The intention is to have a consensus and harmony reached across scientists and committees so that the decisions then can be applied across all member states consistently to provide the level playing field.
Q45 Peter Heaton-Jones: This is pretty important stuff. This is keeping mankind safe from nasty chemicals?
Dr Alexander: Indeed.
Q46 Peter Heaton-Jones: Bearing that in mind, what are the dangers of us divorcing ourselves from this regulation as and when we divorce ourselves from the European Union?
Nishma Patel: I think the main concerns are around the UK companies, and the work that has been done by them has been taking place for the last eight to 10 years. We have been involved in complying with the regulations, putting the data together, since its infancy. In our divorce from the EU, to lose that work is going to be a big back step, not just for the protection of human health and the environment but for companies and for worker protection as well. I think that would be the biggest concern. It would also mean that we lose that level playing field, and if we don’t have the EU REACH or a similar system in place, what else is there? Where do we go from here? REACH is seen as one of the most ambitious pieces of regulation. It is not that it does not come with its flaws, but is there anything that is capable of doing the similar things that REACH does?
Q47 Peter Heaton-Jones: Is there an answer to that question?
Nishma Patel: From what we are hearing at the moment, if we could keep to EU REACH and the principles it tries to deliver that would be better. There are ways and means to improve the way EU REACH works in terms of its implementation, but the overarching objectives of it I think are very much supported.
Q48 Peter Heaton-Jones: As I understand it, there are two potential ways in which we remain connected with REACH: either through membership of the Europe Economic Area, the EEA—although that seems to be a less likely scenario—or some sort of bespoke arrangement. Is either of those two feasible? Would either of those two do the job, do you think? I don’t know who wants to take that. Mr Leech?
Douglas Leech: What I can say is that, of the members that we have surveyed, 94% find that trade with the EU is very important to them. We have SME businesses that have five members of staff that are dealing with Italy and Germany, which they never thought of umpteen years ago and now, all of a sudden, they are starting to sell, because they have data, they have the registration, and they have the information.
It is a difficult one. If we went for membership of the EEA—if that is even possible—the only issue would be that we would not be in the driving seat. At the moment we are partly in the driving seat. We have a say; we can say what is wrong and we are able to negotiate and influence. As an EEA country, we would have to comply with the regulations.
Q49 Peter Heaton-Jones: We would have no influence then?
Douglas Leech: We would have no influence. We would not be able to change—I think in REACH we are probably seen as very much an influencing party. Our Health and Safety Executive, Defra and so on, are very well respected in the REACH community because of the pragmatic approach that we often bring to the whole process.
Q50 Peter Heaton-Jones: I don’t know if you can make it as black and white as this; are you saying that being a member but having no influence in some ways is worse than not being a member at all?
Douglas Leech: It is a difficult one. It is often an analogy; if we are there and we are able to suggest that we all should not be turning right, and everybody else says, “But we should be going left”, then we can influence and at least we have a chance to try to make the regulations fairly sensible. I have been to lots of meetings where you have Norwegian colleagues sitting there shaking their heads because they know what is wrong, they know what is right, and they know that if we cannot get some sort of pragmatic approach they are going to be doing something that they don’t particularly like.
Q51 Peter Heaton-Jones: From the industry’s point of view, is there a favoured option for our future relationship with REACH? Ms Patel.
Nishma Patel: Just coming back to the EEA model, I think at the moment it is quite clear that politically that is not a feasible model because of the fact that we are leaving the single market, and secondly because the UK would have no influence over a UK regulation, in theory, which does not seem to make sense with all of the debate and discussion going on at the moment. What could possibly work—it is a model that we are looking at; we are considering whether we could possibly help on this—is some sort of mutual recognition between a UK-REACH system and the EU REACH.
For example, if we take the first pillar of REACH, the registration, the data requirements to submit a registration dossier would essentially be very similar or identical, even. It would mean one registration would cover you for UK and EU manufacturing and supply, because many of our companies, at least, are not only based in the UK but have counterparts in the EU. Again, it would also maintain that level playing field. What becomes more difficult is when it comes to the latter parts of those REACH elements, which is the authorisation and restriction parts where substances, because of a specific concern or their use, are banned or restricted.
Here what could work, or what may be a possible option, is to look at whether, if the EU decides to ban or restrict a specific substance, the UK may decide to recognise that and do something similar if it is in the national interest. Or it may decide to take its own approach based on what its national priorities are, and vice versa. If the UK does something similar, the EU may be able to consider what the UK has done. That could be a potential mutual-recognition type of model that could work. Obviously, the detail and agreement on that would be on whether the EU and the UK can agree on that sort of mutual recognition.
Q52 Peter Heaton-Jones: How likely is it that we would be able to reach such a mutual agreement?
Douglas Leech: That will very much depend on how much interest particular member states will have within the EU and within the UK to have a mutual agreement. That will be the critical factor in getting that recognition across. If there is enough interest and enough benefit for both parts, then I think it is a likely possibility.
Q53 Caroline Lucas: Following on in terms of imagining different models, a slightly different one from the mutual recognition, I think, is where we simply mirror the decisions of REACH, but we don’t actually participate. That could either be as a temporary measure to bridge the gap until new regulations are developed, or as a longer-term approach. Would you agree that is something slightly different from what you just described, and do you think that is viable? What would be the impacts and the costs of pursuing an unofficial REACH approach, where we do more or less mirror what is happening?
Nishma Patel: In terms of a temporary approach, it is a possibility. One thing that needs to be recognised is REACH is not a static regulation. It is continuously developing; decisions are continuously being made. There are things, for example, going before the European Court of Justice on the REACH regulations that may not have reached a decision by the time we exit. I think temporary measures will definitely be needed to make sure that those decisions and processes apply to the UK to some extent beyond the negotiations and before we leave the EU.
In terms of whether we can mirror REACH in terms of a long-term process, I think it comes back to: if we are leaving the EU and we want to maintain that freedom to make our own decisions of how our environmental legislation is developed and how it goes forward, mirroring the EU and taking all their decision-making contradicts that approach.
Q54 Caroline Lucas: If you still want to have access to the EU market, surely we are going to have to have the same standard. What would something else look like that would still enable you meet their standards?
Dr Alexander: I don’t quite agree that we might not have any influence, because the scientific community work together in European scientific committees and scientists are invited to those committees irrespective of whether they are a member state, in some instances. It is only decision-making bodies—like the RAC, the Risk Assessment Committee that ECHA operates—where there is a vote to be taken or a decision to be made, then the UK would no longer have a part to play in that decision. The scientific community will still be working behind the scenes in various committees, and UK scientists from our current Government and academia already have a very influential role in those committees. It is a bit unclear at the moment as to whether that could continue or not. It would be good if it could continue so that our UK science base can work with European colleagues in the scientific committees. Then we are not on our own.
Q55 Caroline Lucas: You think it could be possible even if we were not part of the EEA? I have heard the thing before about how we all shake our heads and think, “How awful that Norway has to sit there and accept whatever is put in front of it”. But in actual fact I have heard that they are just influencing higher up the process, so they have already been active in those scientific committees, as you say. Although they don’t have a formal vote, they have made sure that what is trickling down is kind of what they wanted.
Dr Alexander: It is kind of like that, yes.
Q56 Caroline Lucas: Do you think that could be possible, if we were not part of the EEA, that there could still be a possibility for British scientists to be in those scientific committees?
Dr Alexander: Certainly the scientific community would want that. I don’t know; there may be a legal question as to whether that can continue. Certainly science is an international endeavour, and we would be out there working on science that is supporting regulatory topics as that international community.
Q57 Caroline Lucas: Would there be any cost implications of this kind of mirroring of REACH? I am sure there would be, but do we have any sense of what those might be?
Nishma Patel: To mirror REACH, I think the biggest cost implication would depend on whether or not we would be using the ECHA, Europe Chemicals Agency, and their services to then implement REACH, or whether it would be a UK Government Department or its counterpart to implement REACH. That would be the biggest cost implication for the UK. Mostly tender resources more than anything else.
Q58 Caroline Lucas: The risks of doing it? I mean risks in terms of environment and public health. If we are not allowed to have that active decision-making by the UK.
Dr Alexander: Risks? The UK would have its own choices to make if we were operating outside of the European legislative framework. There would be the opportunity to take different decisions to maybe what would be decided with the EU. That is up to policymakers. It is not just the science. There are various principles that underpin regulation—which we have put in the written evidence—around things like the precautionary principle, the risk-based principles, and the innovation principles. Those are slightly outside of the scientific remit. They are connected, but it is almost asking the question: how does the UK want to implement the precautionary principle in decision-making? That will dictate whether the standards will increase or decline, and so there are decisions to be made at a UK level.
Q59 Caroline Lucas: Is there a problem that UK law does not have the precautionary principle enshrined in it? There is no environmental protection legislation that says, “We will proceed on the basis of the precautionary principle”, which is why this Committee has said we need a new environmental protection Act, just getting a plug in for our previous work there. The polluter pays principle; these are European principles that don’t exist anywhere in domestic UK/British law. Are we right?
Dr Alexander: Those are things to be considered, those principles. The science is the same. Irrespective of where you operate, the science is the same. It is those basic, underlying principles that need to be considered.
Nishma Patel: Perhaps the other point to add on things, like the precautionary principle, is that up until now, as you rightly say, it is the EU regulations that have those principles enshrined in them, like the precautionary principle and so on. If the UK were to mirror each, or do something similar, I don’t think it would be possible to do that without enshrining some of those principles into the UK regulations. It would not be mirroring if that were not taking place.
Q60 Caroline Lucas: That is a really good point, thank you. My last question is about this deadline, which you have mentioned a couple of times, of 31 May 2018 for that final registration phase of REACH. I am trying to understand how that date affects the two-year ending of when we come out of the EU. Is there a scenario whereby British companies will have paid lots of money to register by May 2018 only to discover—not exactly it was a waste of money—they are suddenly in a very different regime less than a year later?
Douglas Leech: Yes, is the simple answer.
Q61 Caroline Lucas: How significant would that be?
Douglas Leech: Because we are still part of the EU and will still be part of the EU two years after—if we serve Article 50 next month—that will be 2019. To stay in control of the law and stay compliant we will have to do the registrations. There is an article in REACH—which is Article 5—which says, “No data, no market”. It says, “No chemical will be manufactured or sold unless you have a valid registration for it”. Technically our members will be in non-compliance if they do not have that, so they are still working towards it. They are very uncertain at the moment about where we are going. They are sitting and listening to what is going on in Parliament and so on, and they really want to know which direction we are going to head to. Is it all out? Is it partly out? Because then they need to make proposals and so on. From a recent survey of our members, I am aware that at the moment about 20% of our member companies are already investigating moves out of the UK into an EU country.
Caroline Lucas: What percent was that?
Douglas Leech: It is 20%. Ireland seems to be the favourite at the moment, because it speaks English and the laws are fairly similar as they are at the moment. That is the idea because they are going to be spending a significant amount of money. I have heard of another company that is talking about having to spend £40,000 to get their registration for 2018 so they can continue to sell. We are aware of other companies that are talking about more money. It depends on how many people are in the registration and how that registration is divvied up, basically, across the members.
Q62 Caroline Lucas: Can I try to understand, though, if those companies still want to be able to export into the EU, are they still going to have to have done that bit of organisation? No matter—
Douglas Leech: Yes. The registration to sell into the EU, you have to have a substance registered. Unless it is exempt, you will have to have a substance registered.
Q63 Caroline Lucas: How many companies would be affected? I am trying to understand if there is a group of companies that are not exporting to the EU and, therefore, would not need to do that piece of registration. Presumably not.
Douglas Leech: It is difficult because, while one of Nishma’s manufacturers may only manufacture in the UK and may only sell into the UK, and they may sell to one of our members, our members may sell to somebody else who only manufactures in the UK, but then their market is Europe. We may be selling a product to somebody who is making paint. They then paint a fridge that is going into Europe, and there has to be a registration for the chemicals going in. There is that sort of process. Somebody may manufacture something: Unilever or Procter & Gamble and so on, may manufacture a chemical. We may sell it to a plant in the UK. They are ultimately then going to sell it around the world and will have to comply with whatever legislation.
Nishma Patel: To add to that, the supply chain in terms of chemical manufacturing—and if you take maybe two or three steps down that line—is very complex. Sometimes it is very local and there is local dependency. One manufacturer may support two or three local companies in that region, and if that one collapses then so does that entire cluster. Sometimes you have the situation that Doug illustrated, where, even within one company, a chemical is moving from the UK to the EU, possibly somewhere outside the EU, and back to the UK, and that is just that formulation or still a chemical-mixture type of product, not even an article yet. It goes through several countries and at some point, more likely than not, it will come across EU REACH. There is going to be very low probability that there will be a certain chemical or substance that will get away from EU REACH, essentially.
The survey we did—like the CBA survey—showed that 90% of our members have already registered, so the 2010 and the 2013 deadlines. In terms of cost, two-thirds of those have paid in excess of £1 million to date. Looking at the 2013 registration, every single one of our companies that responded to that survey have said that they intend to register for 2018. That is primarily because it is quite clear there is a good possibility that we will not be out of EU REACH by 2018, and that supply needs to continue.
Q64 Chair: Can I come back to you, Mr Leech? How many members do you have?
Douglas Leech: At the moment we have 126.
Q65 Chair: So 20% of that is about 30-odd companies?
Douglas Leech: Yes.
Q66 Chair: Okay. Can I ask you, Ms Patel, what about your members? Are any of them thinking of relocating to mitigate the risk?
Nishma Patel: It is a consideration being taken by some of our members, but nothing confirmed. It is a consideration. Not just on regulation, but also on tariffs and other areas that may impact them in terms of Brexit.
Q67 Chair: How many members do you have?
Nishma Patel: 120.
Chair: That is helpful. Thank you very much.
Q68 Dr Matthew Offord: I want to build particularly on what Ms Patel said about REACH, and my understanding is that you are quite keen to keep it in its entirety. But are there any specific aspects of REACH that you feel the United Kingdom should retain, and are there any aspects as well that we can remove?
Nishma Patel: In terms of doing things differently to the way EU REACH works at the moment, the big focus is whether further down the line implementation can be different. There are certain aspects of REACH. For example, at the last evidence session the articles issue was mentioned. There are certain member states that believe that every single component of an article, and the chemicals within every single substance of very high concern, should be recorded all the way down the supply chain. There are other member states that believe it should be the article in its entirety because in some cases you are not exposed to every single one of those components. For example, in a car you may not be exposed to all the intricacies within it, under the bonnet, or within the engine, for example, but the substances still need to be notified. At the moment, the commission and the EU have taken a very strict approach to that, to look at every single component. For some of the bigger articles, it is quite a big piece of work and quite onerous. Going forward, it could be something the UK could potentially do differently.
Another area that could be looked at differently is the strictly-controlled condition. The way manufacturing works and the way the control measures are put in are quite stringent at the moment in terms of there should be zero exposure, and if you have that case then you have a reduced-registration requirement. Going forward, the UK could take a different approach to look at: what are the hazards of this chemical? Is entire containment required, or is there sufficient work being done to make sure that the exposure is minimal to the environment and to human health? But you would still benefit from that reduced-registration requirement. There are ways around to reduce the burden that REACH does bring but, in terms of the overarching principles of the legislation, I think it remains as it is.
Douglas Leech: We have always commended the regulation, as such, and the principles of the regulations. It has always been the implementation that has been the problem. There have been a number of cases where the UK’s had to push for risk management options instead of just a blanket: let’s ban the chemical. It is: if we ban the chemical we have a problem, but can we work it in a different way? I know the UK has championed the RMOA process, where we can go through and say, “Is there a better way of doing this? Can we put more health legislation in? Can we put in more environmental legislation? Can we do it this way rather than just ban the chemical?” Because we may still need that chemical and it may be vital to the manufacturing in the whole of the world.
Dr Alexander: The other thing to understand is the scientific process is not black and white. When you have committees discussing the body of evidence of science in front of you, different scientists and different bodies can come to different decisions about the nature of the evidence. The UK has quite often been a pragmatic voice, bringing scientific knowledge into the discussions around some of the concepts around risk assessment and the ability to look at exposure of the substances as well as just the hazard. Going forward, the UK has been strongly advocating risk-based principles in the scientific evaluation of dossiers when it comes to that point, and then managing chemicals proportionately. There are changes down those lines of thinking that could come in the future.
Q69 Dr Matthew Offord: Building on that, how long do you think it would take to build a regulatory framework for the United Kingdom?
Dr Alexander: It is unclear at the moment. We cannot find the data in evidence in hard form that gives you a sense of how big the current resource is in the country of the key areas, say, in analytical chemistry, in exposure assessment, and in toxicological sciences. Key disciplines are needed within Government and academia, and it is difficult to find that data at the moment. It would be really useful to do some kind of skills audit or some kind of capability assessment to see just what skills the UK has to be able to make evaluations.
Q70 Dr Matthew Offord: What implications do you see for the Government in introducing this regulatory framework? What pressures are going to be put upon them?
Dr Alexander: It is coming back then to harmonisation or divergence in evaluations, and then I think the trade implications become key.
Nishma Patel: Yes. In terms of the Government, I think the biggest implication would be resources.
Dr Matthew Offord: It often is.
Nishma Patel: When you look at the expertise that the UK brings to EU REACH and the various committees that are there, it is to a high standard. We see that in most of the decision-making process in the committees that REACH encompasses. Whether the UK has the resource to have similar committees and similar decision-making processes is going to be the bigger issue.
Q71 Dr Matthew Offord: My final question is: are there any other chemical regulations that can be streamlined into a single UK system? Or at the moment do you believe that regulations are too diverse? Mr Leech?
Douglas Leech: It is a difficult one, because our members have all grown. The safety datasheet part of REACH is part of GHS but was adopted by REACH, and so you now have the CLP acronyms, the classification system, and the safety datasheet system, which is where the hazard is communicated to people. They are from the same UN regime but, because REACH was coming into Europe earlier than CLP was coming into Europe, it was adopted into the safety datasheets. That has caused a lot of problems with people where you have two separate regulations: one saying, “Do this” and this one is then feeding the other one. They do tie in. REACH gathers the data. It then passes it into CLP, which then does the labels and tells the consumer and the general public and businesses what the hazards are of that chemical. Maybe they could be merged together, as such. I don’t know, but they have to be kept, because we have to trade with the EU and the rest of the world, and GHS/CLP is now a worldwide system.
Q72 Caroline Lucas: On the issue of enforcement, quite a lot of the work we have been doing so far has been looking at what happens when you lose access to the European Court of Justice as a result of leaving the EU. Does that feature in this at all? If there is a breach of the REACH legislation, if companies are in breach of it—forgive my ignorance—is there something already internal within REACH that sorts that out? Currently would that be something that could ultimately find its way in principle to the ECJ, and if the ECJ is not there we would need to have something else?
Douglas Leech: The enforcement is with the member states. The European Commission does not have an enforcement role in REACH. In ECHA, the chemical agency, they have an enforcement forum that discusses how to make things a level playing field but, ultimately, the enforcement is at the member state. I don’t have the data of the Health and Safety Executive to hand, but I was telling our members last week at a training seminar we were doing that there have been a number of enforcement notices issued against companies that have not complied with REACH.
Q73 Caroline Lucas: From the UK?
Douglas Leech: In the UK, yes.
Q74 Caroline Lucas: Can I ask one other quick question? Earlier you were talking about the extent to which REACH is a hazard-based approach. Are you saying that if the UK were to go down more of a risk-based approach—I appreciate these are just broad things—if you have REACH, which is predominantly based on a hazard-based approach, and we are going on a risk-based approach, would that still be compatible? Could you envisage moments where those two approaches would lead you to very different conclusions about whether or not, for example, a substance should be restricted?
Dr Alexander: Yes. There is one example I can give on that, which is around carcinogens, mutagens and reproductive toxicants, CMRs. If you have gathered all the data for your substance, and it goes through the right committee, a classification is given at the end of the evaluation process. REACH is connected to many other pieces of regulation as well, and directives. At that point of classification, the EU maybe classify it as a cat 1(b) carcinogen, for example. Say it is a borderline substance and it could be either cat 1(b) or cat 2, then a category 1(b) substance does not often allow for risk assessment. If it is classified as a cat 2 substance then it allows for risk assessment within the current EU law.
If the UK did something different, for example, differences could emerge there. Currently there are pathways down to risk assessment through the EU approach, based on that categorisation and classification step under CLP. Generally speaking, what a risk-based approach means is that we take account of the exposure of the receptor to the substance, and not just the suite of toxicological hazards.
Nishma Patel: Yes. My earlier comment was very much around: REACH has both the hazard and risk elements, and by no means am I saying that we stray from those hazard-based elements. For example, if you don’t have your basic hazard information and intrinsic information on chemicals, then essentially you have no market. We don’t stray from any of that. It is when it comes down to—as was referred to—the exposure in use, can that be managed in a different way? Then what EU REACH is doing at the moment: for example, strictly-controlled conditions is one example where it is purely hazard and exposure in use is not considered to any great degree. That could be an area that could be looked at further.
Q75 John Mc Nally: I would like to expand on Matthew’s question earlier on. There are several directions that we could diverge from REACH. How likely do you think it is that the UK adopts an approach that weakens the environmental and public health protections provided by the chemical regulations?
Nishma Patel: I think the biggest area where we could weaken our environmental legislation is if we lose that information data that has already been gathered by REACH. If we move away from that registration requirement, those registration dossiers, and that data pack that has already been developed by companies—whether it is by themselves or within these joints SEFs, substance exchange forums—there is a possibility that we then weaken our environmental legislation. Because essentially the rest of the regulation, compliance and the way chemicals are used and managed follows that, so that essentially becomes the basis of good environmental protection and human health.
Douglas Leech: REACH was mentioned as a data-gathering exercise. It gathers the data. It then puts it into the other regulatory frameworks—for instance, classification and labelling—and that is what then communicates down. If you lose REACH, you then lose the ability to be able to determine, "Is it a core synergy? Is it reprotoxic?" that sort of thing. If you don’t follow a REACH-like system and follow the same things, the same data package and so on, you could end up weakening the rest further down and having a problem.
Q76 John Mc Nally: Do you want to add to that?
Dr Alexander: Yes. There always needs to be a balance between the need for innovation and the protection of health and environment. Generally speaking, within the UK committees that I sit on, people are cognisant of that. When discussing data around the toxicological outcome that you have, you are mindful of the fact that you are not making decisions to erode public safety. I think the standards will still be kept quite high in the UK. The committees and their discussions are quite high and very evidence-based, with a good package of data in front of them, so I think there will be a continuing high standard in the UK through the committee structures.
More resource is needed, if it were put in place where there were more committees for the scientific discussion of the information around certain substances of very high concern.
Q77 John Mc Nally: Are there opportunities then for the UK to adopt more environmentally friendly legislation, or to generate equivalent gains for the environment and human health at the cost of industry, maybe small and medium-sized enterprises? I also want to bring you on to the devolved nations, particularly Scotland. We have indicated a desire to remain aligned with the EU in some matters. For example, in my own constituency in Falkirk—which was touched on earlier by Peter—I have a number of small and medium enterprises that make soaps and things like this. They export to Italy and France. They also export to China. What kind of impact is it going to have on these small and medium-sized enterprises? They don’t have huge resources.
Nishma Patel: Looking at the small and medium-sized enterprises and at what the devolved nations could do, we could end up in a situation where you have a company—like you said, like the soap manufacturer—dealing with EU REACH, dealing with whatever is put together in England, and then dealing with something that is put together by Scotland, for example. That is three different compliance measures that they would have to deal with if they are exporting to all three different parts of the area. As I said, REACH is quite ambitious. It does bring a lot of complexities and burdens to a company by itself. To have to deal with three of those or similar, I could very easily see SMEs saying, "We are losing one or two of these markets", rather than having to comply with three sets of regulations.
Douglas Leech: For businesses, especially the SMEs, we deal with one piece of legislation at the moment, which is REACH, which is enacted in the UK in the same way wherever you are in the UK. If we then decide to go to a UK version we will still have to comply with Europe. For a lot of our members, Europe is not that far away from us. Ireland is just across the water, and a lot of our members have Irish subsidiaries or Irish companies that they deal with. That would make that more of a burden, more of an issue and, as I said earlier, would potentially drive some of the people to move across to there because of the fact that it would be easier to trade with it.
We have to be careful that we don’t end up separating too far, because it will cause difficulty to industry. The chemical industry underpins a lot of other industries. You have the pharmaceutical industry and electronics and so on, but we supply chemicals into that market as well. We manufacture the chemicals that go in. It helps them. If we cannot comply with Europe, then they have to comply with Europe somehow to be able to sell the material in, and it may start to cause them additional cost and burden.
Dr Alexander: There are various pieces of environmental regulation at the moment where SEPA may do something different to the Environment Agency of England and Wales and Northern Ireland, and in the foods area as well we are seeing that.
There are benefits of having a consistency in the evaluation of the evidence, but then there is the opportunity for devolved nations to go back to these principles, again, around precaution and risk in terms of trade. However, the evaluation of the evidence could well be shared across all nations and then different decisions.
John Mc Nally: The question I am asking is whether the benefits of a different regulatory system in the UK outweigh the costs of administering and complying with it. That looks to me like the way we are going to end up going.
Q78 Chair: What about aligning with the US, the Canadian or the South Korean systems? What about the issue of smaller companies potentially getting a competitive advantage in getting derogations from some chemical legislation? Is that something that any of your members are eyeing up eagerly, Mr Leech?
Douglas Leech: No.
Chair: We will knock that line on the head then.
Douglas Leech: No. We had a meeting with Defra and BIS recently, and we ended up on that subject because we had one of our members there. He hardly ever deals with America, primarily because the insurance requirements that you need to get your goods into America are very, very high. They are so high that they cannot do it, so they deliver it to a port and then it is up to the manufacturer or the customer to then take it in.
Primarily, as I said, 94% of our members see Europe because it is closer. The costs of shipping goods across to America are fairly high for the chemical sector, and they have the chemical sector over there. They are doing their own, and in some cases they have cheaper raw materials than we do and less environmental restrictions than we may have, so we cannot compete in costs against them on numerous occasions anyway. No, I think aligning with TSCA would just cause us more grief and more problems. We have been in Europe for 40 years. We have been in REACH since 2007, and starting to comply and put dossiers together since 2010. We are fairly entwined with that sort of regime, so trying to cut that out may cause a lot more problems.
Q79 Chair: Did the Government tell you which way they were thinking of going?
Douglas Leech: No.
Chair: We will see if we can do better when they come before us.
Douglas Leech: It was just a question of, "What do you think?" and we went, "No".
Chair: That is interesting. Thank you.
Q80 Kerry McCarthy: Obviously you have already been talking about the uncertainty that this is causing your members and people in the industry. In terms of what certainty you need, are you able to encapsulate for us: what could the Government do to make your life a lot easier and less stressful and more certain as we approach Brexit? What are the key asks?
Nishma Patel: There is a lot of detail in what is needed. If we are talking key asks, there are three key points to be made. One is making sure we have the right transitional arrangements in place. There is a lot of decision-making among companies internally—with their counterparts, with their competitors for REACH—to decide what their best actions are going forward. It is not just about: we are exiting and six months later we will have a transitional period, and that is it. It needs to be appropriate and it must reflect how much work is needed to make sure that UK companies can still access and import to the European market, and vice versa.
The other key ask would be that all the existing compliance work that UK companies have done, all the investment they have made at the moment, doesn’t simply vanish overnight, and that remains valid and recognised through the EU and in the UK.
The final ask would be to essentially scope out what mutual recognition would mean. A lot of companies, especially with the REACH 2018 deadline, are hoping that there is a mutual recognition system in place, so that all the work that has been done—particularly for SMEs who will be impacted by the 2018 deadline—can continue to manufacture and access the EU market.
In a nutshell that would be the three short-term, immediate, critical asks for industry.
Dr Alexander: Irrespective of whatever legal or regulatory framework is in place, there would be two asks. One is to keep the standard of the science high in key disciplines that underpin regulation within our academic sectors and in Government, in those areas of analytical chemistry, exposure sciences, toxicological sciences and the growing areas of chemical biology.
The second ask would be to keep the doors open, so that UK scientists can also still talk with EU scientists around the table when we are evaluating substances. We may not have a vote in a legal context, but if those doors can be kept open we will still have an influence.
Douglas Leech: A lot of industry would like to be kept apprised as soon as physically possible so we know which direction things are going and are able to help and point in directions. For instance, I know it is nothing to do with it, but the potential of leaving the customs code in Europe is already causing waves across our members. It is only a rumour or a suggestion, so I think a lot of it is to give information early. Let us know what is going on.
Q81 Chair: What do you mean by leaving the customs code? Do you mean the Customs Union?
Douglas Leech: The Customs Union, yes. For our members to get goods in and out of Europe, it is less paperwork and less burden. There is a lot of burden to get stuff into Switzerland, even though it is an EFTA and has a slightly different trading agreement. It is still hard work to get your goods across, and there is a lot more paperwork, bureaucracy, time and effort to get your goods across. If we come out of that union as well as coming out of the European Union, we have a problem because it makes our goods uneconomic to get across. We are not just talking tariffs. We are about talking paperwork and burden and various other bits of getting things in and out.
Q82 Kerry McCarthy: Basically, the regulatory problem is one thing, but you are saying your members are as concerned by the tariffs and the non-tariff barriers to trade and you cannot really separate the two?
Douglas Leech: That is on a trading issue, yes.
Q83 Kerry McCarthy: The whole thing makes the situation more uncertain. When you met with Defra and BIS recently, I think you implied that you were not being given much of a steer from them as to what their thinking was. You said just now that you want answers as soon as possible. Do you think they are in a position to come up with that? How far do you think their thinking has advanced?
Douglas Leech: At the moment, I am not sure how far they are in advance and how far they are talking on that. It was a preliminary scoping meeting that we had to let them know the areas that we had problems with. We took one of our members around, and that is when we talked about America and dealing with America. That is when we talked about what we would like in the European angle, which is what we have talked about. It was raised by your member who mentioned the fact that if we leave the Customs Union, it makes it a lot more difficult to get goods across borders.
Q84 Kerry McCarthy: You have already talked about how the industry might respond to this uncertainty, looking towards Ireland. Do you think there is a realistic prospect that that will happen, and, if so, what sort of timeframe? When do you think people would start to move? Also, just as an aside, is recruitment an issue as well? Is staffing in the sectors an issue as part of Brexit? Do you have a lot of EU staff?
Nishma Patel: For each company it will be different. For one company, it may be that recruiting, going forward, specialist staff scientists and contractors may be an important issue. For others, it may just be the labour work that may be an issue. Each company will have its own challenges in terms of recruitment.
Is there a possibility of a company or companies moving outside of the UK because of regulation? For the majority, they will be taking a broad approach. It will not just be the regulatory part, because that is quite closely linked with the trade and access to the market, but some of the tariff and non-tariff issues that were mentioned earlier as well. I doubt it would be an overnight situation. Companies are looking into it, but if it is an unfavourable outcome in terms of our exit, I would say that, within three to five years, companies would be looking at where would be the best place to be located in terms of manufacturing to continue and access markets.
Douglas Leech: It is different from our sector. In our sector, we tend not to have the infrastructure that a lot of the manufacturers have. We have a lot of big companies that only have a UK office with one or two people in it. They import the chemicals. It goes into a warehouse and then it goes off to wherever the manufacturer is. I know that at least three or four people that I have just talked to are already looking at the feasibility and already costing it out. We have people who are already looking at maybe transferring their REACH registration, so at least the organisation can continue to sell the chemical whether we have a REACH-like or not. They can still sell it into Europe, and if we have a REACH-like, then they can still sell it into the UK. There are people looking to see how, in essence, they can protect themselves and how they can continue trading.
Chair: Thank you very much indeed. That has been a very interesting panel. We have learnt quite a few new facts today. Thank you very much.
Examination of Witnesses
Susanne Baker and Mike Murray.
Q85 Chair: I am delighted to welcome to our second panel, Susanne Baker, Head of Programme, Environment and Compliance at techUK, and Mike Murray, Head of Quality and Environmental Standards at the Association of the British Pharmaceutical Industry. You both sat in on our previous session.
We want very much to focus on the wider industrial consequences that are impacted by REACH and particularly downstream users. Can you begin by setting out what REACH means for your members who are outside the immediate pure chemicals sector? What does it mean for consumers? What does it mean for those industries?
Mike Murray: Thank you very much for the opportunity to talk today. I work for ABPI, and we represent the innovative, research-based pharmaceutical industry in the UK. We have large companies, small companies and medium-sized companies in our membership. We supply 80% of the NHS medicines, and also our members research and develop the majority of the current medicines pipeline in the world.
We are both users and producers of chemicals, mostly users in the context in which we are speaking today. Obviously, whatever happens to chemicals through the REACH regulation has an impact on our supply chains in terms of our manufacturing capabilities. We are also REACH registrants, in that some of our companies also export or move compounds between companies in the UK and in Europe, so we are also registrants in that sense.
Where we do have particular concern is where anything that affects our supply chains could have a significant impact on our product manufacturing activity. Within the pharmaceutical industry, when we register a product, our manufacturing processes are very closely scrutinised in the registration process. That goes down to the level of identifying manufacturers and suppliers of chemicals, and the quality of those chemicals that we may use in our manufacturing processes. Anything that affects the supply chain, or which may affect the availability of a particular manufacturer or a particular chemical, could cause problems with our registration process that we have for medicines as well, so we may have to go back and revalidate all our data and all our registration information that we have given to get an authorisation for manufacturing and, indeed, for marketing. From that perspective, supply chain is very important to us, and REACH has a big impact on our suppliers.
As I said, we are registrants as well ourselves, so anything that affects the legislation, in terms of registration requirements, evaluation requirements and so on, will affect us as well.
Q86 Chair: Is Eli Lilly one of your members?
Mike Murray: Indeed, yes.
Q87 Chair: They have been very critical of the REACH process, saying it is not fit for purpose for the life science sector. I am putting you at odds with one of your members, but do you have any comments on that?
Mike Murray: The submission put in by Eli Lilly highlighted one particular compound that we have had particular problems with, in terms of the proposal to have it as an authorised substance under the REACH regulation. I may come to that later on when we talk about risk management, but that is a very good example of where REACH does not always come up with the best option for industries and specialist uses like ourselves, where we have critical uses for that compound in life-saving medicines.
Q88 Chair: Has your industry been in to talk to Defra, as the chemical industries have? Have you been in to have a chat with them about what the future holds?
Mike Murray: Not in terms of Brexit. No, not at this stage, but we have been in contact with them about other aspects of REACH in the development of the regulation and, also, in its application in relation to compounds that affect our activities.
Q89 Chair: Thank you. Ms Baker.
Susanne Baker: I work for techUK. If you are not familiar with techUK, we are the trade association for companies in the digital economy. Our membership spans members from chip manufacturers to consumer electronics manufacturers, through to satellite and telecom operators, all the way through to digital platforms. I also chair a group called the REACH Cross-Sector Group, which is a manufacturing and engineering-focused group of downstream users that meet three times a year to exchange information on developments within REACH and to highlight issues that we are facing to Government on occasions.
The impact of REACH on our membership, on downstream users, is in a number of ways. For those importing products or semi-finished products into the country, they will still be required to disclose substances of very high concern within their products that fall under the Article 3 obligations to notify their supply chain about the presence of those substances in products, but it is those manufacturing in the UK or within Europe that it has the most profound impact on. We have members who are subject to authorisation, who have already submitted applications for authorisation or are in the process of applying for authorisation to use substances of very high concern in particular uses.
Those companies will also have to abide by risk management measures, which are outlined in safety data sheets, for those substances that have already been registered under REACH, and for some members—and this is probably more within the REACH cross-sector group—there are acute supply chain risks, particularly coming up to registration in 2018, where we don’t know for sure which substances are going to be registered and which formulations will be still on the market. We know that some companies are very concerned that importers of certain very important formulations are weighing up whether it is cost-effective to register those substances in the EU because the cost of registration is so high compared with the actual market value, even though the downstream user value in continuing to access and use that substance is very, very high.
Finally, the other way that REACH impacts our members is around restrictions. Regardless of whether you are importing or manufacturing within Europe, you still have to abide by restrictions wherever you are based if you are importing product into the EU. The feedback from members on a more informal basis is that they really appreciated greater insights into the chemicals, the data around chemicals and the risks associated with chemicals. They rate very highly the safeguarding of workers that REACH provides, and they certainly don’t want to see any diminishing of worker safety and environmental protections as we move into Brexit.
Q90 Chair: What do you think REACH means for the downstream consumers of your products, and how do you think the supply chain in REACH has developed and evolved as a result of REACH?
Susanne Baker: It is interesting because I don’t think the public are very familiar with REACH. Certainly one of the requirements of REACH that is quite a burden—which we touched on earlier—is Article 33, on the disclosure of substances of very high concern in products. Very few companies have been formally requested. In fact, for some companies, even very large, well-known companies, there has only been a request from the media, specialist technical media, or from themselves to check that the process works, so that is not being used as well as it might.
Some of the concerns that our members have around the recent ECJ ruling on Article 33 is that, if you do list every single substance in a complex article, what is the benefit to the consumer? How do you package and present that information in a way that is going to be meaningful and helps people further down the chain—whether it is the user or in fact recyclers and waste management industries at the end-of-life—use that information in a way that supports the objectives of REACH? Maybe the benefits, thus far, have been from the chemical manufacturer to the article manufacturers, and manufacturers using it within processes, to have a better understanding about the risks associated with particular chemicals. That will only increase as we finalise 2018 registration.
Mike Murray: In terms of our consumers, REACH would not make much of an impact on them, in the sense of them understanding what the implications of REACH were, because all of our information requirements and so on are covered by separate legislation and medicines legislation. All the consumer-facing legislation is under that regime.
The only impact they would notice would be if for some reason the supply chain were adversely affected, which would somehow impact on manufacturing capability and end up in supply shortages or something like that. It would be an indirect awareness of why REACH had an impact in that sense.
Q91 Chair: Ms Baker, you talked about acute supply chain risk. Can you just flesh that out? Give us an example of what that could look like.
Susanne Baker: We know in 2010, in the first registration period, a large UK manufacturer only discovered, literally, at the deadline of registration, that one of its suppliers was not intending to register one of its important formulations that it needed to continue manufacturing. This company had particularly deep pockets and was able to buy out the company, and managed to negotiate a position where it could delay registration until 2013, in the next registration period, and keep manufacturing going.
The problem with 2018 is that there is no fall-back registration period; this is it. Because the volumes of chemicals are much lower, it follows that the market value of those substances will be lower as well. We have already heard about the costs of registering one substance. Some companies may have formulations that have a mixture of several difference substances and so the costs build up. For many complex article manufacturers relying on these formulations, if it were to disappear from the market, they would only know the day of the registration deadline because very few suppliers are going to tell their customers that they are going to stop supplying that substance at a particular date because they want to keep their business running for as long as possible.
Chair: Thank you. That is very clear.
Peter Heaton-Jones: I want to concentrate on the pharmaceutical industry, Mr Murray, not only because it is important globally, but also in North Devon we have a thriving pharmaceutical sector. I have two very big companies—Actavis in Barnstaple and Perrigo in Braunton to name just two—but there are many, many others, accounting for probably employment of more than 1,000 people in my constituency alone. We punch above our weight, and I am proud to put that on the record, Chairman.
Chair: As do you, Peter.
Q92 Peter Heaton-Jones: That is very kind. I am tempted to leave it there, but we shan’t. The issue for me is: what effect will our decoupling from REACH have on those pharmaceutical businesses in my constituency and across the UK? Will it have a detrimental effect, first, on the bottom line—if I can put it like that—but more importantly, for our purposes today, on the environmental impact of the work that they do?
Mike Murray: I don’t think it would have any impact on the environmental standards that they maintain in those manufacturing facilities, because they are obviously already coping with chemicals legislation and environmental legislation that covers their activities.
In terms of bottom line, certainly, for formulation, where you are manufacturing the finished medicinal product, REACH does not apply—or certain elements of REACH don’t apply—to the ingredients that go into the pharmaceutical product itself. In that sense, any change to REACH would not affect that particular aspect of it. If they use any chemicals prior to the formulation process, then they may be impacted by REACH up to that point, but for final substances that go into the final product, they are outside of the scope of several elements of the REACH regulation.
Q93 Peter Heaton-Jones: If we decouple to some extent from REACH—which we will have to, in some form—what will the everyday impact be on people who work for these companies or those who are doing the R&D?
Mike Murray: At this point it is very difficult to say without any firm detail as to exactly what the form of that decoupling will be. When we get a better idea, we could probably give you a much more informed assessment of what the impacts may be.
Q94 Peter Heaton-Jones: Which brings us back to the discussion we were having in the first session about what our relationship looks like in the future with REACH. Until we know that, we don’t know what the impacts are.
Mike Murray: Exactly, yes. Until we know that, it is difficult. Certainly our member companies are doing a lot of scenario planning at the moment for various options, to see what the potential impacts may be. As that process continues, more and more questions are being thrown up. We will be monitoring and looking at those questions as the process evolves as we go forward.
Q95 Peter Heaton-Jones: If that work is being done, which of course we would expect it to be, what are the risks that are being assessed? We don’t know what the outcome will be. We don’t know what our future relationship will be, but what are the risks that have to be assessed?
Mike Murray: As users of chemicals going forward, as I mentioned at the beginning, our major concern is maintaining our supply chain into the UK. Whatever process we end up with—I think it has been mentioned in the previous session—we will need a significant transition period of some sort to get from where we are now to where we might want to be in the future. Our main concern in the short term is to maintain supply chain, to make sure that we can continue business as usual, and then we will be into the new process, the new system. In the short term, it is maintaining the supply chain from the REACH perspective, certainly, and also, for where we do register compounds in Europe, to make sure—again, as has been said by our chemical colleagues—that those registrations we have made already will still be valid going forward, and also to make sure that anything we do will be valid in Europe going forward, if possible.
Q96 Peter Heaton-Jones: A couple of answers ago, you said that there would be negligible impact on the environment, whatever our future relationship is. That raises a question mark, doesn’t it? If that is the case, then how much beneficial effect is REACH having? If we can decouple without there being much of an impact on the environment, why are we in it in the first place?
Mike Murray: REACH is just one part of a raft of—
Peter Heaton-Jones: So that alone will not affect it?
Mike Murray: REACH has had an impact, as I think was said before. It has had a beneficial impact on environmental and health and safety standards. It is also coupled with other environmental legislation and health and safety legislation—the Chemical Agents Directive, the General Workers’ Safety Directives—which have been implemented for many years now and have resulted in higher levels of worker safety and environmental control. As we said in our written response, while we don’t necessarily need to change the standards in the UK, the way we approach achieving those standards may be different. That is open to discussion and negotiation going forward.
Q97 Peter Heaton-Jones: We spoke earlier on—I think, Ms Baker, you were saying in a discussion with the Chair—about the extent to which the public is aware of REACH and the impact that it has. Do you think, Mr Murray, that there is something more to be done by the pharmaceutical industry to promote the good bits of REACH and the importance of your members being part of it and why that is good for us all?
Mike Murray: I am not quite sure I understand your question.
Q98 Peter Heaton-Jones: Does it matter that the public don’t know that we are part of REACH, is my question?
Mike Murray: Whether or not we are part of REACH does not affect the impact of our products or the beneficial effects of our products on the patients. In that sense, it probably does not make any difference to the patient whether or not we are subject to REACH. It makes a big difference from a business perspective but, in terms of the ultimate consumer—as I said at the beginning—it probably does not make a lot of impact on them whether or not we are a member of REACH, in that sense.
Peter Heaton-Jones: Interesting. Thank you.
Q99 Scott Mann: My questions are for Susanne. It is about the opportunities or risks around the tech sector and around REACH. From the south-west, we have a growing tech sector. There are a lot of agricultural food-based businesses that are using tech to develop. First of all, what are the most significant risks for workers, public health and the environment, as far as the tech sector is concerned?
Susanne Baker: The most significant risks? Going back to the point that we mentioned, in terms of the users of tech and appropriate management at the end of life, it is important that we understand the health and environmental risks associated with the substances that we are using in products. For the manufacturers and importers of tech, certainly for our sector, we are very EU-exposed, so 66% of our members sell products or services into Europe. They are still going to have to comply with European legislation as a result. We talked about the divergence of regulation and the risks around that, and certainly we would see regulatory divergence as creating non-tariff barriers to trade. We would be concerned about the impact that would have on our competitiveness and, indeed, our attractiveness as a location to continue to do business.
Q100 Scott Mann: A lead on from that: how would that impact on the end consumer?
Susanne Baker: It would depend on the nature of the final agreement, but certainly, in terms of availability of jobs, there could be an impact on that. In terms of the end user of the products, I would say that there is a risk that they would be less informed about potential chemical substance risks associated with products. For electronics and tech products, we have been ahead of the game for a while because we were subjected to restriction of hazardous substances regulation, the sister directive to the WEE directive, the waste, electrical and electronic equipment directive. It is very well documented that a lot of the risks with tech products are at the end of life, making sure that people who manage those products are aware of the substances in there, so they can take the appropriate risk management measures when they are dealing with them. It has been well documented that e-waste is a very fast-growing waste stream indeed. At the moment, a lot of the risks are at the end of life stage and less in the consumer use stage.
Q101 Scott Mann: Do you see a potential risk of changes of location of manufacturer? Do consumers value the protections offered with the products inside the EU, and do they like the legislation from REACH, and would they like to see that supplemented into a bridge REACH?
Susanne Baker: Certainly, the position from our members very much mirrors what we have heard from other bodies giving evidence today. We would like to see some transitional measures to retain REACH. We think that we should continue to mirror REACH and that regulatory divergence would create an enormous headache for those businesses that are involved in manufacture because of the added cost, complexity and administrative burden that they would face as a result.
I am not sure I am best placed to answer whether consumers would value that, but I would disagree; I think there is a benefit to consumers. We are starting to see restrictions coming through the pipeline that will benefit consumers, even if they don’t realise it. It is unseen, but it will have an impact because they are going to be exposed to less substances of very high concern, where that has been deemed to be a risk and where exposure is considered to be high. Whether they are aware of that or not, presumably that has to be a good thing.
Q102 Scott Mann: Are there any particular provisions of chemical regulation that raise concerns or are particularly beneficial to downstream users of the chemicals in the technology industry, such as data-sharing or across your supply chains?
Susanne Baker: It is fair to say that downstream users in the past have been quite critical of REACH. It is not perfect by any means, and the implementation has created difficulties for a whole range of businesses. I am talking more with my REACH cross-sector hat on. We hear and have evidence of companies struggling to bring formulations to market because they don’t know what the costs of registration would be. Small businesses are struggling with the complexities of authorisation. They cannot spread their costs in a way that a larger company can. To some extent, we have had some success in convincing the commission to look at simplifying applications for authorisation. This is something they are doing quite seriously, as well as they can do within the legal constraints that they are operating to.
We have also been quite critical of the lack of risk management assessment, particularly in the early days of REACH. I think that is now being addressed with the risk management options appraisal approach, which is now being adopted by member states. It is not in the regulation, but member states have agreed to take this approach where, instead of assuming that everything should be authorised and banned or potentially restricted, we look at the whole basket of regulatory tools that we have available to us and think, “What is the best way to control that risk? What is the most sensible and cost-effective way of doing that?” We have seen some positive developments.
The things that we still hear concern about are from manufacturers looking to invest in Europe and not being certain whether certain chemicals that their processes depend on will be available in the longer term. For big capital investments, that can be an issue. Certainly, for importers of complex articles, the disclosure of substances of a very high concern is an issue too because, frankly, some suppliers in China are not willing to divulge exactly what substances are in their components. They have no legal obligation to, and sometimes companies in Europe don’t have the market share to force these companies to make that disclosure. Without doubt, there are difficulties and problems that companies have to work around.
I think the point was made earlier that this has been in place for 10 years now. Companies have based their investment decisions on REACH. They have upskilled their staff to deal with it, and access to the single market still remains the fundamentally most important thing to them.
We surveyed members across the REACH cross-sector group immediately after the referendum asking what they thought we should do about REACH. We were surprised that so many companies—the vast majority—wanted to stick with REACH. Asked why, it was because they wanted access to the single market. The European market was still the number one destination for their goods. Compliance with REACH they thought would give them not only a better chance of securing a good FTA but would also minimise registry barriers to trade.
Q103 Scott Mann: Just a final question. Let’s say in a hypothetical world we have mirrored REACH in this country. In the first evidence session, we heard about some of the smaller firms that have problems with some of the regulatory problems with access to REACH and understanding how those processes work. Would you like to see an organisation or a body in Government taking control of that and giving some of the start-ups, which you speak for, information and access to some of those services?
Susanne Baker: There has to be a balance between cost and benefit here. I do think it is the role of bodies, like techUK, to support companies in understanding regulations and helping them through the regulatory minefield when they first come to markets. I am not sure whether that is necessarily a job for Government. I think Government will already be very stretched in delivering any regulatory and enforcement requirements with a UK-mirrored REACH, let alone that sort of SME support that, in an ideal world, would be lovely but I think financially it would be unfeasible. I think trade associations and business networks should be trying to support those types of companies.
Q104 Scott Mann: Third party, private sector, the Federation of Small Businesses, that kind of thing?
Susanne Baker: Yes.
Chair: We are going to ask some questions about automotive now. We are imposing on you a bit. Do feel free to have a glass of water because Gavin is the Luton MP.
Q105 Mr Gavin Shuker: It will not be that intense. Yes, Mary is absolutely right. Obviously in Luton I represent the Vauxhall Fan Club there. One of the things that I have garnered, from my seven years as a Member of Parliament, is just how complex many supply chains are across Europe. Would you be able to say, for sectors such as automotive, where you are expecting parts to move backwards and forwards and substances, what the particular concern is right now as we go into this period of uncertainty?
Susanne Baker: The feedback we have been hearing from sectors, like the aerospace and automotive sector, is the point about supply chain continuity. The CIA made the point earlier that chemicals move across borders and it is unlikely that, as they are going through their life journey, they will not come across REACH. I think the same is very much true for complex article manufacturers and even more so. There are going to be thousands and thousands of substances being used in a car, its components, in the various different elements, and ensuring that you would have continued access to those substances, continued access to those components, is going to be fundamental to the health of those industries.
One of the issues potentially with a UK-mirrored REACH, if we do have our own registration requirements and we don’t buy in to the data that is already stored within ECHA, is the cost of doing so, and whether that would mean that we would not have access to certain chemicals and formulations, because the cost would be so prohibitive and our markets so comparatively small that many companies decide not to place their products on the market within the UK, so we need to continue to make sure that supply chains operate. I know a lot of colleagues in the REACH cross-sector group have been talking to Daihatsu to illustrate how products move across borders within the EU so they can understand better the complexities there.
Q106 Mr Gavin Shuker: From your knowledge of automotive, is there more of a concern about the kind of chemicals that might be regulated that are used in manufacture or is there more about what is going to the end user?
Susanne Baker: I think this is true of all complex article manufacturers. There are a lot of common issues and often in the supply chain you have such a varied supply chain you don’t have visibility of the chemicals that are being used by that supplier, whether they are actually in the product. In theory, through Article 33, we should know what is in a product, but it does not tell you what has been used in the manufacturing process so you may have less visibility about the risks there. There has been a range of different approaches taken by companies. Either they are quite hands on in trying to understand what the risks are within the supply chain and work with companies to overcome particular hurdles or support the registration of substances that are particularly important to the functioning of their supply chain, or they present maybe a blacklist of substances that suppliers are not allowed to use and let the supply chain get on with it.
I know in automotive and aerospace they have tools, which enable the flow of information up and down the supply chain about the presence and use of substances. That predates REACH, certainly on the automotive side because of End of Life Vehicles Directive.
Q107 Mr Gavin Shuker: Suppose there is the possibility we have this wrong, we are slightly too gloomy in our questioning and there are real potential advantages to divergence for the UK in terms of manufacturing, particularly around automotive, the area we are talking about right now. From your knowledge of most of the organisations you are working with, do you think any of them would view that there might be an upside from diverging away from REACH?
Susanne Baker: Yes, there is a small minority of companies that do see benefits of divergence and it relates to the use of authorisations, particularly manufacturing processes. It would not affect trade, arguably, but it might allow a more pragmatic approach in how you manage the risks of certain substances in manufacturing processes.
Q108 Mr Gavin Shuker: To summarise that in a way that I might understand.
Susanne Baker: Sorry.
Mr Gavin Shuker: I am just trying to get to the evidence here. You would say the thing that unites those organisations, which perhaps can seem more of an upside, is that they feel there might be an overregulation of the process of manufacture, when probably what they feel should matter more is the end product as delivered?
Susanne Baker: Yes. I think that is right. I have an example that might help to illustrate this. One of the substances that are going to be subject to authorisation is chromium trioxide, which is used to plate various components in the aerospace and automotive sector. A lot of the plating activity is conducted by SMEs within the UK. It is basically a big tank and the components get dipped into the substance. Once it sets there is a chemical reaction, which means you cannot detect chromium trioxide in the final product. So, even though chromium trioxide is now going to be subject to authorisation, it is not in the finished product. That means you can quite easily move that manufacturing process out of Europe to laxer environmental and health standards, to the detriment of industry, but the final manufacturers can still use that product.
We have seen examples where we have heard of companies that have basically relocated that activity to Mexico or to Russia. We have heard of plants being set up in Switzerland as well—which is interesting, because they are meant to mirror REACH but, anyhow, this might be one exception—to avoid being caught. The data that ECHA’s committees have required; there has been very detailed monitoring data from individual sites to show exposure to workers, which is fair enough but very difficult for a small company to finance on top of the costs of applying for authorisation and the costs are quite substantial. I think the first application was made by Rolls-Royce and they have cited that it cost around €1 million to put together that authorisation application.
Over time we have managed to see the cost come down as we have learnt what good practice looks like, but we are still talking around €500,000—maybe a bit less now—per application, per use, per site. To apply for authorisation is not a light decision. Where possible companies will substitute out those substances that are of a very high concern, rather than apply for authorisation, and we know that companies will do that.
Certainly there are some downsides. The cost of authorisation is a big risk, particularly when you are relying on SMEs in your supply chain.
Q109 Dr Matthew Offord: My final question. In the previous session—and I recognise that you were both in the audience—we heard about the uncertainty for the chemicals sector. What uncertainties are you aware of particularly in regard to the Chemicals Regulation, post Brexit?
Mike Murray: As I said earlier, our uncertainties at the moment are supply chain in the short term. In the longer term it is knowing the nature of whatever regulatory system we are going to have in the UK, however closely it may or may not be aligned to the REACH regulation and to European legislation. Until we know a little bit more detail about that it is difficult to comment too closely on the uncertainties.
Susanne Baker: We submitted a list of questions to Defra, immediately after the referendum, highlighting some of the questions we were hearing from members. It was around the authorisations. Certain substances are subject to sunset dates after which they cannot be used unless authorisation has been approved by ECHA and the European Commission. We want to know whether after 2018 they will still apply. Strontium chromate, for example, its sunset date is in January 2019. What is the status of that, should we be applying for authorisation or not? Will restrictions still apply post-2018?
Recently there was a restriction on PFOA. That was approved. It has been delayed. I can’t remember the exact delay but there is a transitional period to allow companies to adapt. Will that still continue to apply in the UK? What happens to companies that have already obtained an authorisation? Will they be rolled over into a UK REACH? Will they have any validity? Will the conditions that are associated with those authorisations—such as exposure monitoring and the risk management measures and operational controls that companies have had to put in place—still apply? Will we still need to invest in those? What will happen to registration post-2018?
Q110 Chair: Did you get any answers to those?
Susanne Baker: We were asked, what would you—
Chair: We would like that list of questions and the answers.
Dr Matthew Offord: Yes, indeed.
Susanne Baker: No, they said, “What would you like?” I think basically at that stage the Government was very much in listening mode and, as we understand it, the REACH team have recently resourced up to look at the post-REACH framework and are considering a lot of different options against different trading models.
Q111 Chair: Have they told you what those options are yet?
Susanne Baker: No, not yet, but certainly the UK Chemical Stakeholder Forum, which is a forum that Defra runs, is a pretty good way of finding out what Government is doing on REACH and things. The invite initially was to come and have a talk to them on a one-to-one basis about what our concerns were and our preferences around trade agreements. All members of the forum—and that included NGOs, the Royal Society of Chemistry and others—were invited to do that. The position seems to have changed after the Prime Minister’s statement that the policy development will happen behind closed doors, and we will not be told until more clarity is given over our future trading arrangements.
Q112 Chair: That could be in a year’s time. You obviously want it as soon as possible. When is the last possible date that your industries can logistically deal with a potentially very different regime?
Mike Murray: It is very difficult to say. It would depend on what the nature of any transition period may be. One thing we did want clarity about is the status of REACH registrations, which our companies have already made and REACH registrations that our suppliers have made. We would need to know that as soon as possible, but to put a timescale on that is very difficult without knowing a bit more detail.
Q113 Dr Matthew Offord: Just so that we can get it on the record, because you have anticipated my second question: what are the consequences of not having that certainty as soon as possible?
Mike Murray: It could have impacts on investment in manufacturing and so on. I think that was alluded to by our colleagues in the Chemical Industries Association. Investment looks for certainty and the more the uncertainty the more potential impact there may be on manufacturing investment.
Q114 Dr Matthew Offord: The final question is: this uncertainty, particularly, this is likely to continue throughout the process of us leaving the European Union, so what actions are you going to take to counteract some of these? I don’t believe you are going to sit back and say, “Well, we are just going to have to wait and we are going to lose this investment”.
Mike Murray: No. Certainly, the life sciences industry is very active in trying to encourage investment in the UK. There are a lot of other areas where we have a lot of very positive things to say about manufacturing investment, and the Government recognises the value of the life sciences industry. I think they recognise that we do need a certain amount of resolution of these issues as soon as possible to try to build on that, because it is very much part of the national strategy for the industrial strategy going forward. The sooner we have that clarity the more we can move forward on the aspirations the Government has in terms of the life sciences industry.
Q115 Dr Matthew Offord: As a body, are you lobbying Government on this? I know Ms Baker has already mentioned submitting a list of questions to Defra.
Mike Murray: In terms of the manufacturing activity and the life sciences strategy, that work is already going on and those discussions are already going on.
Q116 Chair: Just a last question from me, if I can abuse my position as Chair, techUK said in its written evidence that you don’t support the creation of a UK Chemical Agency: “We believe reasonably significant additional resources will be needed to create one”. How much money would be required to—
Susanne Baker: We haven’t tried to put a figure on it but I think the contribution from the UK to ECHA, I heard recently, was around £50 million a year. I will double-check that and let you know if it is different.[1] One of the benefits of ECHA is that we have been able to share the costs and the expertise, so we are very concerned that we are already facing very expensive authorisation applications. We know that companies are already concerned about accessing important formulations and substances that they need in their manufacturing processes, even within the EU market. Those issues will only become more exasperated if we have to deal with a UK-only regime.
Chair: Thank you very much indeed. I close the meeting. Thank you both for your attendance.