Description of sector
The UK chemicals sector is highly diverse, including the manufacture of commodity/bulk chemicals, speciality chemicals, polymers (plastics) and consumer chemicals (e.g. personal care and cleaning products). It is principally comprised of approximately 2,500 Small and Medium Enterprises (SMEs) and microbusinesses (employing less than 250 people); these make up 97 per cent of the sector (see employment table below) with a handful of large multinational companies comprising the other three per cent.1
Geographical clustering is important as companies can be located close to both suppliers of their feedstocks and end-users of their outputs, as well as the largenumber of support services (engineering, R&D, electricity, effluent treatment) required. Chemical production is concentrated in four main clusters – Hull, Teesside, a Runcorn and Grangemouth. There are varying levels of business integration between the four main clusters but they all are connected by pipeline for a key input (feedstock), ethylene, which is one of the main building blocks of the industry.
The current EU regulatory regime
The chemicals industry in the UK is regulated through a framework that is largely based on EU legislation. The European Chemicals Agency (ECHA) implements the EU’s chemicals legislation. One of the main pieces of EU chemicals legislation is REACH 1907/2006/EC – Registration, Evaluation, Authorisation and Restriction of Chemicals. This primarily affects manufacturers and importers of chemicals and other substances with a focus on identifying risk.
Applying appropriate risk management measures is a duty on manufacturers, importers and users of the chemicals to ensure their safe management. REACH requires companies to register their chemicals with ECHA before placing it on the market and also provides for additional regulatory controls on the most dangerous chemicals. Those producing and exporting chemicals from outside the EU must comply with REACH either by procuring the services of an Only Representative who take on their legal duties under REACH or by ensuring that the EU based importer they are supplying fulfil the REACH requirements.
The ECHA also facilitates the following EU chemicals regulation:
a. The EU Classification, Labelling and Packaging (CLP) Regulation 2008 requires the identification and labelling of the hazardous properties of chemicals as well as appropriate packaging to ensure a high level of protection to human health and the environment. CLP and REACH work together and alongside the regulations implementing a wide-range of United Nations multilateral agreements (MEAs), restricting the use of the most hazardous chemicals from the market.
b. The EU Biocidal Products Regulation 528/2012 (BPR), which establishes the procedures for an EU-level assessment of active substances before they can be approved and authorised for use in biocidal products on the market.
c. The Export and Import of Hazardous Chemicals EU Regulation No 649/2012 (commonly referred to as the ‘Prior Informed Consent’ Regulation or PIC) requires information exchange between the countries of exporters and importers so that the hazardous properties of the chemical are known to trading parties. A subset of these chemicals is subject to the “prior informed consent” procedure established by the UN Rotterdam Convention and a smaller subset is banned under the UN Stockholm Convention. PIC is marked as EEA relevant by the EU but is considered by the EEA EFTA States not to be relevant for incorporation into the EEA Agreement. Besides covering the 44 substances currently listed in the Rotterdam Convention, the Regulation also applies various trade controls on some 350 other hazardous substances.
Separately, there are EU regulations concerning the placing of plant protection products (pesticides) on the market and setting rules for maximum residue levels in food and feed (Regulation 1107/2009; Regulation 396/2005) as well as a framework for the sustainable use of pesticides (Directive 2009/128/EC). A final strand of EU chemicals legislation comes from Directives made under the worker protection parts of the EU Treaty (the Occupational Safety and Health acquis). There are Directives dealing with chemical agents (which include indicative exposure limits to protect workers involved in chemical production), carcinogens and mutagens, asbestos and biological agents.
The Health and Safety Executive (HSE) is the Competent Authority (CA) for the safety of chemicals, pesticides and biocides. HSE’s regulatory focus is on human health and the environment but it draws on Environment Agency’s (EA) expertise in environmental science in relation to REACH. The Environment Agency is the CA for the implementation of UN multilateral environment agreements (MEAs). HSE is the CA for the PIC Regulation which implements the Rotterdam Convention MEA.
Wider EU legislation applicable to the sector
Free movement of goods
Articles 28-37 of the Treaty on the Functioning of the European Union (TFEU) set out the Treaty provisions on the free movement of goods, including the establishment of the Customs Union. The rules on the free movement of goods mean that goods from one EU Member State can be freely exported to, and imported from, another. This has been achieved by establishing the Customs Union, preventing Member States imposing customs duties and customs formalities on goods imported from other Member States. In addition, these rules prevent Member States imposing restrictions on the quantity of imports and exports of a particular item (e.g. quotas or an import or export ban).
This legal framework also prevents non-tariff barriers that may restrict the free movement of goods across the EU market in less direct ways. For example, it prevents Member States applying product standards and regulations that make it harder in practice for goods coming from one Member State to be sold withinanother. The Treaty provisions on the free movement of goods also introduce the ‘mutual recognition’ principle (when goods which are not covered by EU product standards and regulations have been lawfully manufactured and marketed in one Member State, another Member State cannot then require it to comply with additional rules). Finally, goods imported from other Member States must be treated in the same way as goods produced nationally.
Free movement of services
Articles 49, 56 and 57 TFEU set out the Treaty provisions on the free movement of services. This is split into 2 areas: freedom of establishment and free movement of services. Generally, the principle of freedom of establishment provides that companies and self-employed individuals may conduct business in another Member State on a permanent basis. The freedom to provide services covers the situation where a service, provided for remuneration, is provided on a temporary basis.
Also important to the free movement of services is the Recognition of Professional Qualifications Directive (2005/36/EC). This requires Member States to recognise the professional qualifications of nationals from other Member States, which makes it easier for professionals to move to another Member State and practise their profession there on a temporary or established basis. It provides for a system of automatic recognition of qualifications on the basis of agreed minimum training standards in a number of specific professions. Automatic recognition is also extended to certain industrial, craft and commercial professions on the basis of professional experience.
A “general system” of recognition applies to professionals not covered by automatic recognition and allows for compensatory measures to be taken to address where there may be differences between national requirements for professional training.
Safety ad Health at Work, 1989
The European Framework Directive on Safety and Health at Work (Directive 89/391/EC) guarantees minimum safety and health requirements throughout Europe while Member States are allowed to maintain or establish more stringent measures. Otherspecific EU measures include
Directive 2009/104/EC – use of work equipment;
Directive 99/92/EC – risks from explosive atmospheres;
Directive 92/58/EEC – safetyand/or health signs;
Directive 89/656/EEC – use of personal protective equipment;
Directive 89/654/EEC – workplace requirements; Directive 98/24/EC – chemical
Directive 2004/37/EC – carcinogens or mutagens at work.
Seveso III Directive
The production, storage and use of dangerous substances with particular hazards and at quantities above specific thresholds are controlled by Directive 2012/18/EU (the EU “Seveso” III Directive), implemented in the UK by the Control of Major Accident Hazards Regulations 2015 (COMAH). The Directive builds on a regulatory system that has been in place across the EU for thirty years and ensures that there are common EU safety standards for high hazard sectors such as the chemicals industry.
EU Waste Directive, 2008
The EU Waste Directive lays down basic waste management principles: it requires that waste be managed without endangering human health and harming the environment, and in particular without risk to water, air, soil, plants or animals, without causing a nuisance through noise or odours, and without adversely affecting the countryside or places of special interest.
Industrial Emissions Directive (IED), 2010
All chemical production installations are subject to the Industrial Emissions Directive (IED), regardless of size. The IED commits EU Member States to control and reduce the impact of industrial emissions on the environment.
A review of “Best Available Technique (BAT) Reference” (BREF) documents applicable to the chemicals sector is currently underway, including the proposed introduction of a new BREF on Waste Gas Treatment in the Chemicals Sector (WGC) to deal with air pollutants common to the chemical industry.
EU Emissions Trading System (EU ETS) Directive 2003
Phase IV is currently under negotiation. EU ETS establishes a scheme for greenhouse gas emission trading within the Community. This Directive has been amended a number of times and tertiary legislation has been adopted to further implement the provisions in the Directive. The ETS is the main policy lever implemented to meet the EU’s 2020 target and will contribute about 50% of the emissions reductions needed to meet the UK’s Carbon Budgets between 2013 and
EU Circular Economy Package
The Circular Economy Package is currently under negotiation. It seeks to effect a transition to an economy where the value of products, materials and resources is maintained in the economy for as long as possible and the generation of waste is minimised. It consists of an Action Plan and the Waste Package. The Action Plan lays out a suite of proposals on circularity and resource efficiency which will each be taken forward on an individual basis (e.g. the revision of the Fertilisers Regulation mentioned below). The Waste Package is a series of legislative proposals to amend a number of directives, including the Waste Directive mentioned above. Negotiations began in early 2016 and are likely to continue well into 2018.
International rules and standards
There is also a series of international rules and standards that are relevant to the chemicals sector, such as those listed below.UN Globally Harmonised Systems (GHS) of classification and labelling of chemicals The UN Globally Harmonised System (GHS) of Classification and Labelling of Chemicals is an internationally agreed-upon system adopted across the EU by the Classification, Labelling and Packaging (CLP) Regulation.
There are also common areas of concern that are shared between GHS and the “UN Recommendations on the Transport of Dangerous Goods – Model Regulations” (TDG), such as hazard communication, labelling and packaging. GHS and TDG also share common texts such as the UN Manual of Tests and Criteria.
OECD guidelines for the testing of chemicals
These OECD guidelines are a tool for assessing the potential effects of chemicals on human health and the environment. These are usually adopted by the EU into the REACH Test Methods Regulation with no or little amendment.
The Stockholm Convention is a multilateral environmental agreement to which the UK is a Party in its own right. Effective from May 2004, it aims to eliminate or restrict the production and use of persistent organic pollutants (POPs). It is implemented by the EU regulation on POPs.
The Rotterdam Convention is a multilateral environmental agreement that promotes shared responsibilities in relation to importation of hazardous chemicals. The Parties to the agreement, of which the UK is one in its own right, can decide whether to allow or ban the importation of chemicals listed in the convention, and exporting countries are obliged to make sure that producers within their jurisdiction comply. The Prior Informed Consent Regulation (EU) 649/2012 implements the Rotterdam Convention in the EU.
The Basel Convention is a multilateral environmental agreement that aims to reduce the movements of hazardous waste – which includes discarded chemicals – between nations, and specifically to prevent transfer of hazardous waste from developed to less developed countries. This is implemented in the EU by Regulation (EC) No 1013/2006.
The Minamata Convention is a multilateral agreement that is designed to protect human health and the environment from anthropogenic emissions of mercury. This is implemented in the EU by Regulation 2017/852, coming into force on 1 January 2018, with additional UK implementing regulations being put in place to enable the UK to ratify the Convention in its own right in early 2018.
The Chemical Weapons Convention
The Chemical Weapons Act 1996 fulfils the UK’s obligations under the Chemical Weapons Convention. It requires sites manufacturing, using, or consuming those
chemicals covered by the Convention to record their usage, imports, exports etc. Sites exceeding set amounts are subject to international verification procedures carried out by the Organisation for the Prohibition of Chemical Weapons.
Existing frameworks for how trade is facilitated between countries in this sector
48. The arrangements described in this section are examples of existing arrangements between countries. They should not be taken to represent the options being considered by the Government for the future economic relationship between the UK and the EU. The Government has been clear that it is seeking pragmatic and innovative solutions to issues related to the future deep and special partnership that we want with the EU.
There are a number of existing arrangements which govern the way in which non-EUMember States trade in chemicals with the EU. Around the world, other countries have also created arrangements for trading specific categories of manufactured goods.
Manufacturers from outside of the EU wishing to export manufactured goods to the EU need to meet the requirements set out in EU legislation. Companies in third countries wishing to export to the EU must seek an EU based importer or Only Representative to register the chemical with the European Chemicals Agency
(ECHA). These manufacturers would also need to comply with legislative requirements in their home country, and any other countries, where they intend to
The EU has established bilateral agreements with other countries to facilitate the development of trade in different aspects of chemicals and ensure a high level of protection of public health and environment. The EU has concluded a Mutual Recognition Agreement with Switzerland for biocidal products. The agreement enables the Swiss Competent Authority to grant the union authorisation procedure for biocidal products, which enables biocidal products to be placed on the EU market and vice versa. It also enables an applicant to appoint the Swiss Competent Authority to evaluate its application.
The EU-South Korea FTA contained an annex on chemicals which outlined the parties’ shared objectives in the context of chemicals including to foster mutually beneficial development in trade and ensuring a high level of protection of public health and the environment. The agreement also established a forum to meet at least once every two years to support cooperation and the delivery of the shared objectives.
In terms of cooperation agreements with regulatory agencies in third countries, the European Chemicals Agency has cooperation agreements (Memorandum of Understanding or Statement of Intent) with regulatory agencies in Australia, Canada, Japan and the USA. The agreements support sharing information, best practice and scientific knowledge.To reduce the burden on companies testing chemicals numerous times to provide data to different the regulators, the OECD adopted the Mutual Acceptance of Data (MAD) to avoid duplicative testing of chemicals to meet regulatory requirements.
MAD requires that test data generated in any member country in accordance with OECD Test Guidelines and Principles of Good Laboratory Practice (GLP) shall be accepted in other member countries for assessment purposes and other uses relating to the protection of human health and the environment. The EU has adopted the OECD GLP principles and the revised OECD Guides for Compliance Monitoring Procedures for GLP as annexes to two EU GLP Directives. The EU has subsequently concluded Mutual Recognition Agreements for GLP with Israel, Japan, and Switzerland.
Common principles for GLP also facilitate the exchange of information and prevents the emergence of non-tariff barriers to trade, while contributing to the protection of human health and the environment.Trade in manufactured goods can be facilitated through the use of international standards, which are voluntary agreements on best practice for a given process or product. The United Nations has developed a ‘Globally Harmonised System’ (GHS) on classification and labelling of chemicals, which is a voluntary system for classifying and communicating the hazardous properties of industrial and consumer chemicals.
The UN GHS aims to ensure that information on the hazardous properties of chemicals is available throughout the world in order to enhance the protection of human health and the environment during the handling, transport and use of chemicals. GHS also provides the basis for harmonising regulations on chemicals at national, regional and worldwide level, which can facilitate trade.
There are many customs facilitation arrangements in international agreements.These include the EU’s agreements with a number of third countries, such as Canada, Korea, and Switzerland. These agreements differ in the depth and scope of customs facilitation offered. Examples of customs facilitations include: simplifying customs procedures, advance electronic submission and processing of information before physical arrival of goods, and mutual recognition of inspections and documents certifying compliance with the other parties’ rules.
In the absence of a preferential trade agreement, goods imported into the EU from non-EU countries must pay a tariff. Tariffs are custom duties levied on imported goods. Under WTO Most Favoured Nation (MFN), a country’s tariff schedule must be consistent for all countries it trades with, except those where a preferential trade agreement exists. EU MFN tariff rates vary depending on the good. The EU’s simple average of MFN applied duties is 4.5 per cent for chemicals. The EU has agreements with a range of trading partners that amend the tariff rates applied to goods.
There are a number of EU free trade agreements with 3rd countries that the UK chemicals sector currently benefits from:
a. Switzerland – FTA (2.8 per cent of chemical exports in 2014, 1.4 per cent of chemical imports in 2014) – value to the sector from key exports in fine chemicals for pharmaceutical production & Perfumes/cosmetics;
b. South Korea – FTA (1.4 per cent of chemical exports, 0.8 per cent of chemical imports) – value to the sector from key exports in radioactive materials; and key imports of PTA for PET production;
c. Singapore – FTA negotiated but not adopted (1 per cent of chemical exports, 0.4 per cent of chemical imports) – value to the sector from key exports in fine chemicals for pharmaceutical production;
d. Canada – FTA negotiated but not adopted (0.9 per cent of chemical exports, 1.6 per cent of chemical imports) – value for some specialty organicchemicals; and
e. Norway – FTA (0.8 per cent of chemical exports, 1.4 per cent of chemical imports) – value to the sector from key exports in perfumes/cosmetics, andfrom key imports of Vinyl chloride.
Rules Of Origin
The EU includes rules of origin in all of its FTAs, which are restrictions on the originating content of products that exporters must comply with to gain tariff preferences. These rules typically reflect both the supply chains of both the EU and its FTA partner. Many of the EU’s rules of origin arrangements are based on the Regional Convention on Pan-Euro-Mediterranean Preferential Rules of Origin, which includes provisions that allow producers to treat content from some third countries asif it comes from their own country. Several arrangements aim to reduce the administrative requirements associated with origin certification, including the EU’s Registered Exporter (REX) system, which lets businesses register for selfcertification of origin using an online system, avoiding paper certificates.