Brexit and Pharma: What is Next in EU–UK Trade?

By Patricia Van Arnum - DCAT Editorial Director

February 5, 2020

The UK officially withdrew from the European Union (EU) on January 31 and now has until the end of 2020 to negotiate a trade deal with the EU. How may a trade deal unfold, and what is the impact for the pharmaceutical industry?

Inside Brexit: What is next?

After a three-year process to exit the European Union (EU), the UK officially exited the EU on January 31, 2020 and has entered into a 11-month transition period until the end of 2020 to work out its future relationship with the EU. During the transition period, EU law and rules are still applicable across the UK, and the UK government can prepare trade deals with other nations. The General Affairs Council, which is a configuration of the Council of the European Union and brings together the foreign ministers of EU member states, is scheduled to adopt the decision authorizing the opening of negotiations and providing negotiating directives to the European Commission on February 25, 2020. Once this decision is adopted by the Council, the European Union will be ready to begin formal negotiations with the UK. The first formal meeting between the EU and the UK negotiators is likely to take place at the beginning of March 2020, according to information from the European Commission.

Pullout Quote Graphic

Earlier this week (February 3, 2020), UK Prime Minister Boris Johnson laid out the approach the UK will take with respect to the negotiations with the EU.

“The Government wishes to see a future relationship based on friendly cooperation between sovereign equals for the benefit of all our peoples,” said Johnson in the February 3 statement. “There is complete certainty that at the end of 2020 the process of transition to that relationship will be complete and that the UK will have recovered in full its economic and political independence. The Government remains committed in all circumstances to securing all those benefits for the whole of the UK and to strengthening our Union.”

As Johnson put forth in his comments, the question for the rest of 2020 is whether the UK and the EU can agree to a deeper trading relationship on the lines of the free trade agreement the EU has with Canada, or whether the relationship will be based simply on the Withdrawal Agreement deal agreed in October 2019, including the protocol on Ireland/Northern Ireland. “In either event the UK will be leaving the single market and the customs union at the end of this year and stakeholders should prepare for that reality,” he said.

The EU-Canadian trade deal refers to the Comprehensive Economic and Trade Agreement (CETA), a free-trade agreement reached between the EU and Canada. CETA entered into force provisionally in September 2017 following its approval by EU member states through approval by the European Council and by the European Parliament. It will only enter into force fully and definitively, however, when all EU member states have ratified the agreement.

The agreement eliminates tariffs on 98% of products that the EU trades with Canada. CETA removes all tariffs on industrial products traded between the EU and Canada. Most were removed when the agreement came into force provisionally. All will be removed within seven years. It further removes Canadian customs duties on key EU manufacturing exports (chemicals, clothing, textiles, machinery, electrical equipment, medical devices, optical equipment). It provides a framework for the EU and Canada to recognize each other's qualifications in certain regulated professions. It also sets forth measures in environmental protection, labor rights, and intellectual property protection.

Whether the model of the EU-Canadian trade deal can be applied to the EU and the UK is uncertain. The EU-Canadian deal was a multi-year effort to negotiate, and the EU-UK deal has to be agreed to by the end of 2020. The European Commission’s Task Force for Relations with the United Kingdom, which was established in November 2019 and is headed by Michel Barnier, will be the EU central point for the negotiations.

In speaking of what the basis of a future relationship with the UK might be, Barnier said in a February 3, 2020 statement: “We are ready to offer a highly ambitious trade deal as the central pillar of this partnership.” This would include: (1) zero tariffs and zero quotas on all goods entering the EU single market of 450 million people; a free trade agreement in services, with “wide” sectoral coverage, ranging from business services to telecommunications or environmental services; and measure for digital trade, intellectual property and access to the EU’s respective public procurement markets. “We are ready to offer all this, even though we know that there will be strong competition between the UK–our immediate neighbor–and the EU in the future,” he said in his statement.

By now having two separate markets (the EU and the UK), Barnier specified certain key elements from the EU’s view that would need to be in place for a future partnership between the EU and UK. This includes that: (1) rules of origin and customs formalities will apply between the UK and the EU; (2) access to the EU market will be subject to certification and market authorization and supervision activities; (3) there will be no harmonization or mutual recognition of rules; (4) all imports of goods, or services supplied in the EU will need to comply with EU rules; and (5) goods entering the EU will be subject to regulatory checks.

”…[T]he more we will have common standards, the higher-quality access the EU will be able to offer to its market,” said Barnier in his statement. “But this will be up to the UK to decide: Will it continue to adhere to Europe's societal and regulatory model in the future, or will it seek to diverge? The UK's answer to this question will be fundamental for the level of ambition of our future relationship.”

The respective approaches to negotiations were laid out by the UK (see Table I at the end of article) and the EU (see Table II at end of article).

Implications for pharma

What the negotiations between the UK and EU will bear for the pharmaceutical industry has yet to be seen. Throughout the Brexit process, the pharmaceutical industry has supported a deal between the UK and the EU and the inclusion of measures to ensure the supply of medicines as well as further investment in the life-sciences sector.

In response to the UK and EU outlining their respective positions of a future partnership, the Association of the British Pharmaceutical Industry (ABPI), which represents innovator, research-based pharmaceutical companies in the UK, again emphasized the importance of making the pharmaceutical industry a part of a final agreement.

“We share the Government’s [UK Government] ambition of making the UK a leading global hub for life sciences and an internationally competitive trading partner with the EU and the world,” said Richard Torbett, Chief Executive of the ABPI, in a February 3, 2020 statement. “We are optimistic that both sides will be pragmatic about the need to work together on some essential aspects of medicines regulation and be open to exploring continued cooperation and collaboration in the interests of public health, patient safety and driving progress in medical science,” he said. “The UK and the EU have agreed as much in the Political Declaration, and as negotiations get underway it is paramount that they continue to put patients first.”

He pointed to two supportive statements by the UK and EU in this regard and which the ABPI also supports. He noted a Written Ministerial Statement by the UK Prime Minister that said that annexes to any agreement could include provisions facilitating trade in specific sectors, such as pharmaceuticals, as well as mutual recognition agreements focusing on conformity assessment. He also noted that in its recommendations to the European Council, the European Commission said that it will seek to establish as close as possible a future relationship with the UK, in line with the Political Declaration, which commits both sides to work toward cooperation on health security and explore participation by the UK in the European Medicines Agency (EMA).

With the UK in the transition period as it negotiates with the EU, the EMA, in a January 31, 2020 statement, laid out the near-term implications for pharmaceutical regulation. During the transition period, EU pharmaceutical law as laid out in the “Acquis Communautaire” will continue to be applicable to the UK, meaning that pharmaceutical companies can continue to carry out activities in the UK until the end of the year.

Companies have until December 31, 2020 to make the necessary changes to ensure that their authorized medicines comply with EU law and can remain on the EU market. Marketing authorization holders/applicants can still be established in the UK and Qualified Persons for Pharmacovigilance (QPPVs) and pharmacovigilance system master files (PSMFs), as well as quality control testing sites, can still be based in the UK until the end of 2020.

The EMA says it will provide updated Brexit-related guidance for companies shortly.

The EMA specified that the withdrawal agreement foresees that following its departure from the EU on January 31, 2020, the UK will no longer participate in EU institutions and their decision-making. The EMA says that this means that as of February 1, 2020, no one who represents the UK, or is appointed or nominated by the UK, can participate in meetings of the EMA’s scientific committees, working parties or the agency’s Management Board.

For more information on the DCAT Week Keynote Address by the Rt. Hon. Theresa May MP, please visit www.dcatweek.org

Table I: Elements of a Free Trade Agreement Proposed by the UK Government in its Negotiations with the European Union

Element

Key Measures

National Treatment and Market Access for Goods

  • There should be no tariffs, fees, charges or quantitative restrictions between the UK and the EU.
  • There should be a protocol setting out appropriate and modern rules of origin to facilitate trade between the parties to the greatest extent possible.
Trade Remedies
  • The agreement should enable the UK to protect its industry from harm caused by unexpected surges in imports of goods or by unfair trading practices.
  • The agreement should make appropriate commitments to transparency, due process, and proportionate use of trade remedies.
Technical Barriers to Trade
  • There should be provisions to address regulatory barriers to trade in goods by providing for cooperation on technical regulation, standards, conformity-assessment procedures, and market surveillance by building on the World Trade Organization’s Technical Barriers to Trade Agreement.
  • Annexes to the agreement could include provisions facilitating trade in specific sectors, such as organic products, motor vehicles, chemicals and pharmaceuticals, as well as mutual recognition agreements focusing on conformity assessment, with full coverage of the relevant sectors.
Sanitary and Phytosanitary Measures
  • The UK will maintain its own autonomous sanitary and phytosanitary regime to protect human, animal and plant life and health and the environment.
  • In certain areas, it may be possible to agree on equivalence provisions to reduce practical barriers to trade at the border.
Customs and Trade Facilitation
  • Facilitative customs arrangements, covering all trade in goods, should be put in place to smooth trade between the UK and the EU to ensure that both customs authorities are able to protect their regulatory, security and financial interests.
Cross-Border Trade in Services and Investment
  • The Free Trade Agreement (FTA) should include measures to minimize barriers to the cross-border supply of services and investment on the basis of each side’s commitments in existing FTAs.
  • In areas of key interest, such as professional and business services, there may be scope to go beyond these commitments.
  • There should be measures to support digital trade.
Temporary Entry for Business Purposes
  • As is normal in a Free Trade Agreement, the agreement should include significant reciprocal commitments on the temporary entry and stay of individuals, so that both EU and UK nationals can undertake short-term business trips to supply services.
Regulatory Framework
  • There should be measures that reduce unnecessary barriers to trade in services by streamlining practical processes and providing for appropriate regulatory cooperation.
Mutual Recognition of Professional Qualifications
  • The agreement should provide a pathway for the mutual recognition of UK and EU qualifications, so that qualification requirements do not become an unnecessary barrier to trade.
Financial Services
  • The agreement should require both sides to provide a predictable, transparent, and business-friendly environment for financial services firms to ensure financial stability and to provide certainty for both business and regulatory authorities, and with obligations on market access and fair competition.
Road Transport
  • There should be reciprocal commitments to allow EU and UK road transport operators to provide services to, from and through each other's territories, with associated rights, underpinned by relevant international agreements and commitments, and ensuring the necessary cooperation on monitoring and enforcement.
Competition Policy, Subsidies, Environment and Climate, Labor, Tax
  • The UK Government will not agree to measures in these areas (competition policy, subsidies, environment and climate, labor, and tax) that go beyond those typically included in a comprehensive free trade agreement.

Source: UK Parliament, Comments Made by UK Prime Minister Boris Johnson, February 3, 2020.

 

Table II: The European Commission's Recommendations to the European Council on Certain Economic Elements for Goods in a Proposed Future Relationship with the UK

Element

Key Measures

Free trade area

  • The envisaged partnership should aim at establishing a free trade area ensuring no tariffs, fees, charges or quantitative restrictions across all sectors provided that a level playing field is ensured.
  • All customs duties or taxes should be prohibited and no new ones should be introduced.
  • The envisaged partnership should also prohibit any ban or restriction on trade between the parties, including quantitative restrictions or authorization requirements, which are not justified by specific rules and exceptions.
  • The envisaged partnership should contain enhanced disciplines on import and export licensing, import and export monopolies, repaired goods, transshipment remanufactured and origin marking.
Customs cooperation and trade facilitation
  • Within the EU Customs Code, the envisaged partnership should optimize customs procedures, supervision and controls and facilitate legitimate trade by making use of available facilitative arrangements and technologies.
  • The envisaged partnership should build on and go beyond the World Trade Organization’s Trade Facilitation Agreement and include a comprehensive set of customs-related provisions covering transparency, efficiency and non-discriminatory nature of customs procedures and practices.
  • The envisaged partnership should also provide for administrative cooperation and mutual assistance in customs and value added tax (VAT) matters.
  • The envisaged partnership should include arrangements on facilitation of inspections and formalities with respect to the carriage of goods and on customs-security measures.
Regulatory
  • Disciplines on technical barriers to trade and sanitary and phytosanitary measures should build on and go beyond the respective World Trade Organization agreements.
  • The envisaged partnership should establish a framework for voluntary regulatory cooperation in areas of EU interest, including exchange of information and sharing of best practices.
  • The envisaged partnership should include cross-cutting disciplines on good regulatory practices and transparency for the development and implementation of efficient, cost-effective regulations for goods, including early public consultations on significant new regulations or significant reviews of existing measures.

Source: European Commission, February 3, 2020.