October 2017 Edition

ChemRegs Newsletter – October 2017

More musings on Brexit – Trading post-Brexit via WTO rules

As the talks about exiting the European Union continue, more businesses are starting to prepare for a scenario where no deal/trade agreements will be made and the UK will then have to trade with the rest of the world, including the EU, using the standard multilateral World Trade Organisation agreements (the WTO option).

This subject is both controversial and polemic and is incessantly in the media, as a lack of a trade agreement is seen to be a punitive action.

The main argument against the WTO option seems to centre around the subject of any tariffs that may be placed on UK goods and services if the WTO rules are used.

As a member of the EU, the UK can trade freely in the EU without EU businesses having to pay additional taxes to import UK goods. UK consumers and companies can also import goods in from the EU without any additional taxes.  The EU also has agreements allowing free trade with other countries including Norway, Switzerland, South Africa and South Korea.

Once it has left the EU, the UK will then need to strike new deals in order to have free trade with those countries or the remaining EU 27 members.

Tariffs are just a tax imposed by a country on some imported goods and services. The Corn Laws were an example of tariffs and restrictions put on imported grain in Great Britain between 1815 and 1846. They were designed to keep grain prices high to favour domestic producers, mostly wealthy landowners.

The Corn Laws imposed steep taxes, making grain too expensive to import from abroad, even when food supplies were low. This had unintended consequences for most of society, as it made people poorer and therefore unable to purchase other manufactured goods. It therefore lowered production and caused a greater demand for poor law relief.

High tariffs made another appearance after the Wall Street crash in the last century, when protectionism (countries trying to protect domestic industries) slapped tariffs on competitor countries.

However, the last 30 years or so has seen a steady decline in the levels of tariffs imposed by countries due to free trade being seen to deliver economic benefits.

At present, the World Trade Organisation (WTO) is the main organisation that regulates international trade and sets tariffs. The WTO, formally the General Agreement on Tariffs and Trade (GATT), commenced in 1948 as one of the post-war institutions dedicated to international economic co-operation, including the World Bank and the International Monetary Fund. It is the largest international economic organisation in the world.

The WTO deals with regulation of trade between participating countries by providing a framework for negotiating trade agreements and a dispute resolution process.

The UK is a member of the WTO in its own right, having co-founded GATT, the WTO’s predecessor, along with another 22 countries in 1948. It does not have to reapply to join the WTO once it leaves the EU.

At present, the UK operates in the WTO under the EU’s set of ‘schedules’ – a list of commitments that sets the terms of the EU’s tariffs, its quotas and its limits on subsidies. Post-Brexit, the UK will need to agree its own set of schedules with the WTO.

Under the WTO rules, tariffs (taxes) will be applied by the receiving nations on any imported goods. For example, in the absence of an EU trade agreement and using WTO rules, the UK is expected to export cars to the EU 27, and the tariff (taxes) applied to these cars by the EU 27 will be in the region of £1.3 billion.

However, the UK will also import cars from the EU 27 and the treasury will receive £3.9 billion for the tariff (taxes) applied to cars imported into the UK, which includes £1.8 billion in tariffs applied to German cars alone.

Similarly, French exporters could face £1.4 billion in tariffs being applied on their products compared to UK exporters facing £0.7 billion applied on their products. A similar pattern exists for all the UK’s major EU trading partners.

So far, the UK seems to be in a more favourable position if it applies WTO tariffs.

However, this has to be weighed up against the future chance that foreign investors and manufacturers will not want to base themselves in the UK, for example a foreign car manufacturer may not want to set up a car factory in the UK, because of taxes that would be applied to any cars exported from the UK into the EU.

WTO rules operate using the ‘most favoured nation’ (MFN) principle. This means that countries cannot normally discriminate between their trading partners. For example, if a country chose to lower a tariff on goods for a particular trading partner, it would have to do the same for all other WTO members.

In addition, under WTO rules, a country must also treat imported and locally-produced goods, services and intellectual property equally. For example, a country could not impose a tax on an imported product after it had entered the market if it did not do the same for a locally-produced product.

Therefore, in principle, WTO rules should prevent the EU from imposing unfair, punitive tariffs on UK exports. However, the WTO rules only give a limited protection against discrimination, as there are a number of exceptions to the MFN principle.

Article 24 of the GATT exempts free trade areas and customs unions from the MFN rules and allows regional trade agreements (RTAs) and preferential trade arrangements (PTAs). A group of nations can set up a regional free trade agreement and discriminate in favour of goods traded within that group. For example, the EU allows the free movement of goods and services between members while imposing a common external tariff. Similarly, the North American Free Trade Agreement (NAFTA) eliminated most tariffs on goods traded between the United States, Canada and Mexico.

The EU’s RTA extends far beyond tariffs and free trade, it also covers regulatory conformity,  which is known as a non-tariff barrier (NTB) or a technical barrier to trade (TBT). This means that in order to trade within the EU, goods must comply with EU rules and regulations i.e. must conform to the regulations. Examples include the CLP Regulation for chemical classification, the REACH Regulation and the Biocidal Products Regulation.

Further, exporters not only have to ensure their goods conform, they must provide evidence of their conformity. This requires putting the goods through a recognised system of what is known as “conformity assessment”.

The common regulations are monitored by the relevant national authorities e.g. the HSE in the UK and there is a mutual recognition of standards. In practice this means that goods can be loaded and sent from Manchester and be driven all the way to Greece with hardly any document or border checks.

If we leave the EU without a trade agreement, then even if we comply with exactly the same standards, these may no longer be recognised and any testing houses and regulatory agencies may not be recognised. The consignment will have no valid paperwork, and, without it, be subject to border checks, visual inspection and physical testing. This may lead to further costs and delays in shipments.

The UK will need to have a trade agreement known as a Mutual Recognition Agreement (MRA) on conformity assessment. This agreement is outside the remit of the WTO but addresses the problem of border checks, as the EU will then recognise the paperwork on product testing and conformity certification. China has a MRA on Economic Operators, signed in May 2014. Likewise, the USA has one on conformity assessment, agreed in 1999.

Until the UK gets a MRA, then account must be taken of any goods that require conformity to EU regulations and standards, and the time taken to achieve these must be factored in to lead times.

In summary, a careful eye needs to be kept on any goods and services that UK companies import and export to the EU, as reliance on WTO rules and tariffs applying post-Brexit is not the whole picture. Exactly how the EU will recognise conformity assessment on UK goods and what delays this may mean to shipments that rely on a ‘just in time’ regime, needs to be planned and accounted for.

Other News

Public consultation launched on new occupational exposure limits for benzene and acrylonitrile

The European Commission has asked the European Chemicals Agency (ECHA) to consider possible new occupational exposure limits (OELs) for benzene and acrylonitrile.

ECHA’s Risk Assessment Committee (RAC) has now launched a public consultation on the proposals and the deadline for comments for benzene is the 7th November and for acrylonitrile is the 10th November.

The assessment documents and comments form can be found at https://echa.europa.eu/echas-executive-director-requests-to-the-committees .

The current UK 8 hour TWA Workplace Exposure Limits (WELs) are 1 ppm/3.25 mg/m3 for benzene and 2 ppm/4.4 mg/m3 for acrylonitrile. The new proposals seek to reduce these significantly. In addition, the possibility of introducing Short-Term Exposure Limits and/or Biological Limit Values/Biological Guidance Values is proposed.

The HSE would like to receive comments on any likely impact on to companies and industry and are asking companies to forward to HSE a paper or electronic copy of any comments that they have submitted to ECHA.

The final RAC opinion will be published on ECHA’s website by 26 March 2018.

Poison Centres

Italy’s poison centres have announced that they will require businesses to pay an annual fee for notifying their mixtures. This is the start of a trend in national poison centres introducing charges for notifications.

At the moment, most poison centres in the EU do not charge a fee to receive these notifications. However, these poison centres just do not have the capacity to accept the volume of notifications anticipated once the requirement for notification kicks in. This unfortunately means that more and more poison centres will introduce charges in order to cover operating costs, with ultimate effects on industry.

For more information on anything in this Newsletter, please contact us at info@chemregs.co.uk

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