Brexit transition period drawing to a close

While the UK left the EU on the 31 January 2020, it did so under the auspices of the Withdrawal Agreement which covered issues such as citizens’ rights, the Irish border and the financial settlement the UK will pay the EU. The current 11-month transition period up until December 31 2020was intended to work out the ‘future relationship’ on trade, security, immigration, fishing, aviation etc. In this transition period, the UK continues to follow EU rules and trade continues between the UK and EU as before. The deadline for extending the transition period has been passed and if there is no trade deal by 31 Dec 2020, the UK will no longer be part of the EU’s two main trading arrangements: the single market and the customs union.

This will mean that the UK will no longer share the same rules on product and service standards. Goods, services and money will no longer be moved freely between the UK and the EU. It will also remove the agreement between the EU and the UK not to charge tariffs on each other’s goods. The corollary here is that without a trade deal:

• Tariffs may be applied by the EU or UK on each other’s goods
• Border checks may be applied on each other’s freight
• Market Access on services such as banking, financial services etc. may be limited
• World Trade Organisation (WTO) trading rules would apply

Countries who operate under WTO rules have a list of tariffs (taxes on imports of goods) and quotas (limits on the number of goods) that they apply to other countries. Currently, the average EU tariff on third countries is relatively low, averaging as low as 2.8% for non-agricultural and up to 35% for dairy products.  In practice, developed countries keep medicines tariff free under the WTO Pharmaceutical Tariff Elimination Agreement, therefore the application of tariffs would be more relevant to API and excipients which are currently charged at approximately 4-6% across the EU.

The UK has already released details of the tariffs it will charge from January 2021 to countries with which it does not have a trade deal (which at the moment will include the EU). UK tariffs will be charged on most types of imported vehicles and on most agricultural products to protect these vulnerable sectors of the UK economy. Interestingly, the UK government removed many low % tariffs that it has been charging as part of the EU. The UK government has proposed 0% tariffs on finished dose pharmaceutical forms and 6% tariffs on APIs and excipients under the new UK Global Tariff list.

Perhaps more important than a trade deal are the ‘non-tariff barriers’ which include things such as product standards, safety regulations and checks on food and animals. The rules governing these are more complicated and even more critical than any of the tariffs that may be imposed. In this area of the negotiations, the UK and the EU will need to find ways to work with (or without!) each other’s regulations. In the absence of a trade deal, it is difficult to see how this would happen in the near future. This is why the Pharmaceutical and MedTech industries in both the UK and the EU have been working diligently to prepare for the worst case ‘no-deal’ scenario and the potential divergence of standards and regulations in this highly regulated industry. Such a possible, and now probable, divergence of standards and regulations across the healthcare sector contains all the complications that have been widely publicised by PharmaLex and others.

There are still many organisations who have chosen to adopt a ‘wait-and-see’ approach to Brexit. The pharmaceutical industry was recently informed by the HPRA in Ireland that a number of pharmaceutical products are still ‘non-compliant’ with regard to: the relocation of Marketing Authorisation Holders, the relocation of sites of batch release, and the testing of medicinal products in the EU. It would appear that the waiting is nearly over and despite recent brinkmanship we are now moving into the final phase where the pharmaceutical regulatory paths of the UK and EU may become slightly clearer.

If you are unsure of your responsibilities with regard to Brexit or you require assurance that your organisation is suitably prepared for the changes that will occur on December 31 2020, please do not hesitate to contact us on +353 1 846 4742 or contact@pharmalex.com