Brexit: what does pharma need to focus on to avoid a bad deal?
By Paul McGrade, Senior Counsel, Lexington Communications
We are on course for a smooth, orderly and vague Brexit, with most of the detail of the future EU-UK relationship left for the trade talks after the UK leaves. The 22-23 March European Council agreement on to a ‘standstill’ transition period was welcomed by pharma trade bodies; unless talks collapse, firms now know that the UK will effectively remain in the Single Market and Customs Union until the end of 2020. We are on course for a smooth, orderly and vague Brexit, with most of the detail of the future EU-UK relationship left for the trade talks after the UK leaves. The 22-23 March European Council agreement on to a ‘standstill’ transition period was welcomed by pharma trade bodies; unless talks collapse, firms now know that the UK will effectively remain in the Single Market and Customs Union until the end of 2020. But, while a deal this year on the framework of future UK-EU trade remains probable, pharma is unlikely to see much certainty on the terms. Theresa May’s Mansion House call for comprehensive mutual recognition in pharma has been rejected by the EU, which has offered only a very basic deal for tariff-free trade in goods. Unless UK red lines, or the EU27 position shifts, the pharma industry will face customs controls – disrupting supply chains, the end of EU market access for medicines produced or approved in the UK, and fundamental uncertainty about regulation, testing, and the recognition of qualifications.
The cliff edge has moved to January 2021 – and got sharper
That uncertainty becomes day-to-day reality from 1 January 2021. For the pharma sector, the transition period is not long enough; in effect, the regulatory ‘cliff edge’ has moved to 31 December 2020 – and got sharper. Privately, UK and EU officials accept that new systems – for example on customs – will not be ready at that point. Nor will an agreement on the future trading relationship. However, extending the transition period would almost certainly require a new EU-UK treaty ratified by each Member State individually (including some regional parliaments), as well as the European Parliament. Even harder are the politics, at least for the UK, which must have a general election by 2022. Some EU27 Member States also apparently believe that businesses must be forced to make choices about supply chains etc before December 2020. The industry vision of a fully aligned, single regulator future is broadly shared by the UK government, and would be acceptable to the EU27. But it risks being held hostage by the wider politics – in both camps – of how decision-making is aligned, supervised and policed, as well as the politics of immigration.
So what does pharma need to do now?
Pharma needs to continue to lobby for the detailed, constructive solutions the trade bodies have set out, emphasising its constructive solutions to both the UK and the EU27. But, privately at least, the industry and individual companies also need to spell out to UK and EU decision-makers what the impact of such disruption will be on patients and consumers. There is some flexibility on timing. Much of what pharma has set out in its detailed proposals won’t be negotiated until after the UK has left the EU in March 2019. The UK government is seeking a loose framework agreement as a basis for the future trading relationship; to keep balancing the politics in the Conservative Party and in Parliament, it actively wants to avoid detail this year. In the short-term, therefore, the industry should focus on engagement on three things:
- Pushing for a shift in UK and EU positions on customs controls – without a comprehensive customs agreement, supply chains will be disrupted and patients’ access to medicines endangered;
- Ensuring that the possibility of a more ambitious deal eventually is not closed off in the framework agreement this year – which means the EU leaving open the option of a closely aligned, high market access deal if the UK can meet their concerns about the integrity of the Single Market; and
- Securing commitment to a longer transition period, until essential new systems are put in place.
Internally, however, companies need to start or accelerate their practical business planning for a final deal which may well fall short of what the industry needs.
Paul McGrade is provides senior counsel across a range of Lexington’s clients. Prior to joining Lexington, Paul worked at the Foreign Office, having most recently been in Sierra Leone where he was Deputy High Commissioner. He trained as a barrister and spent 18 years in a number of diplomatic roles, including three years seconded to DG Employment and Social Affairs at the EU Commission in Brussels, three years at the Cabinet Office as a policy advisor on the EU Treaty negotiation, a year leading the FCO Bill team taking the Lisbon Treaty legislation through Parliament, Deputy Ambassador to Portugal during the Eurozone bailout, and Eurozone crisis Single Market lead at the FCO.