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September 2018

At the moment, there is no-one who knows quite what the status of the relationship between the United Kingdom and the European Union will be on the day after Brexit, 30 March 2019; if they do know, they are not saying. The British Prime Minister herself seems to have been taken by surprise when her 'Chequers deal' was ambushed by the EU 27 at Salzburg on 20 September. There is speculation about a rival, 'Canada+' free-trade agreement proposal, but there is currently no indication from Government that this will be adopted. With Theresa May still insisting on Chequers, many political commentators now think that the choice is between two outcomes: a deal on a version of Chequers; or, a 'no-deal' arrangement on World Trade Organisation terms. If there is agreement in any form – at this stage this could only be the briefest of outlines of a future relationship – this will also bring with it a transition period according to the terms of the 'Withdrawal Agreement'.

This is one of three articles which examine what we know from UK Government and EU Commission documents about each of these outcomes and what they mean for the life sciences sector, in particular the authorisation of medicines and medical devices:

• Brexit and the life sciences sector: Guidelines for a 'no deal' Brexit
• What is the relevance of the transition (implementation) period?

The Chequers deal and the White Paper

In the referendum on 23 June 2016 – the largest ever democratic exercise in the United Kingdom – the British people voted to leave the European Union.

And that is what we will do – leaving the Single Market and the Customs Union, ending free movement and the jurisdiction of the European Court of Justice in this country, leaving the Common Agricultural Policy and the Common Fisheries Policy, and ending the days of sending vast sums of money to the EU every year. We will take back control of our money, laws, and borders, and begin a new exciting chapter in our nation's history.

It now falls to us to write that chapter.

It is with these words that the British Prime Minister, Theresa May, begins the increasingly controversial UK Government White Paper 'The Future Relationship Between the United Kingdom and the European Union'. Published on 12 July, and following on from publication of the 'draft Withdrawal Agreement' earlier this year, the White Paper sets out the UK's negotiating position for its long-term relationship with Europe after Brexit, on 29 March 2019, and the transition period that would follow, if agreed. The White Paper is the result of discussions held by the Cabinet at the Prime Minister's official country residence in Buckinghamshire on 6 July 2018 and, although it is only a negotiating position, is often referred to as the 'Chequers deal'.

What does the White Paper seek to achieve?

The two negotiated outcomes that have been on offer from the EU for its future relationship with the UK have not been acceptable to the Government:

• The first, is a standard free trade agreement for Great Britain – with Northern Ireland staying in the customs union and parts of the single market. This is deemed to effectively break up the UK and is therefore politically unacceptable;
• The second, is membership of the customs union plus an extended version of the European Economic Area (EEA). This would mean free movement, large annual payments and alignment with EU rules across the whole of the UK economy. This, the Government says, does not 'take back control' and would be inconsistent with the referendum result.

The White Paper, based on Chequers, seeks a third way. What it proposes falls into broadly two areas, both of which have implications for medicines trade as well as other goods:

• the first concerns a customs arrangement – the 'facilitated customs arrangement' (FCA) – which is intended to enable the movement of goods across UK-EU borders without customs checks;
• the second is the sharing of a 'common rulebook' for goods, which would allow the continuation of the current system of regulation and mutual recognition of life sciences products. Together, these two aspects are necessary to allow a free trade area for goods in which there is frictionless trade; in particular, avoiding a hard border between Northern Ireland and the Republic of Ireland.

The two key proposals work as follows:

What is the facilitated customs arrangement?

In the White Paper, the UK Government proposes a free trade area for goods that largely avoids the need for customs and regulatory checks and declarations. Central to this arrangement would be the use of the FCA. The FCA is a customs arrangement in which the UK applies the customs checks of the EU at the UK border, on the EU's behalf – specifically including customs declarations, routine requirements for rules of origin, and entry and exit summary declarations. This would mean that goods entering the UK had already undergone EU customs procedures by the time they reach the EU border, if that is where they are going, preventing the need for a second check.

The Paper concedes that there are details of this approach that would still need to be decided. For example, the trusted trader scheme needs to be agreed, as does the mechanism for remitting tariff revenue to the EU. An efficient approach to making repayments to businesses also needs to be agreed, where relevant, particularly to protect smaller businesses importing intermediate products into the UK from paying a higher tariff unnecessarily. Here, the UK proposes that repayments are made as soon as possible in the supply chain, for example at the point where the good is 'substantially transformed' into a UK product, rather than at the point of final consumption.

The Government does not, however, propose that the EU applies UK customs processes to goods entering the UK via the EU. Furthermore, as regards goods traded between the UK and the EU, the Government proposes zero tariffs on all goods, with no quotas.

The problem with this proposal, as we explain below, is that the EU27 have so-far ruled it out.

What is the common rulebook?

To complete the free trade area for goods, the White Paper proposes a common rulebook for goods. This, according to the Paper, would provide the certainty necessary to reassure the UK and the EU that goods in circulation in their respective markets meet the necessary regulatory requirements; removing the need to undertake regulatory checks at the border, and removing the need for manufacturers to run separate production lines for each market. This would require the UK to make an upfront choice to commit by treaty to ongoing harmonization with the relevant EU rules.

As regards the life sciences sector, the White Paper acknowledges that the UK is 'home to strong manufacturing sectors', within which it expressly includes pharmaceuticals. But what does it say that is of specific relevance to this sector, such as the measures proposed for authorisation, monitoring and involvement in the European Medicines Agency (EMA)? The answer is that the Paper proposes participation by the UK in the EMA. This would require the UK to contribute to the EMA's costs and accept its rules under the common rulebook, although it would be an active participant in designing those rules. In other words, it is envisaged that Medicines and Healthcare Products Regulatory Agency (MHRA) would continue to contribute expertise to the EMA.

An important aspect of the common rulebook is also that it would allow manufacturers to undergo only one series of tests in either market, in order to place products on both markets. In particular, the UK's proposal would cover all of the compliance activity necessary for products to be sold in the UK and EU markets, including:

• testing products to see if they conform to requirements, including conformity assessments;
• accreditation of conformity assessment bodies;
• manufacturing and quality assurance processes, such as Good Manufacturing Practice;
• the role of nominated individuals, such as the 'responsible person';
• bespoke provisions for human (and animal) medicines, including the release of individual batches by a qualified person based in the UK or EU, and the role of the qualified person for pharmacovigilance, responsible for ongoing safety monitoring of potential side effects.

In addition to the above, the UK Government specifically proposes that all the current routes to market for human (and animal) medicines remain available¹, with UK regulators still able to conduct technical work, including acting as a 'leading authority' for the assessment of medicines, and participating in other activities like ongoing safety monitoring and the incoming clinical trials framework.

The common rulebook would be enforced in the UK by UK courts and in the EU by EU courts. However, in order to ensure that it is applied consistently in both, it is proposed that the UK courts will be committed to 'pay due regard' to EU case law in areas that the rulebook covers. There would also be 'robust' domestic market surveillance and cooperation between the UK and the EU to ensure the rules are upheld in both markets.

Again, however, the EU has ruled out the Common Rulebook proposal.

How has the White Paper been received by the EU?

The early response to the Chequers deal, as set out in the White Paper, was a 'non' from Michel Barnier, the EU's chief negotiator. Specifically, the EU rejects the FCA, which it regards as open to fraud and an unacceptable delegation of its customs controls. The common rulebook proposal has also been dismissed as essentially 'cherry-picking' free trade – one of the EU's four freedoms – without accepting freedom of movement. It is also seen to allow the UK a competitive advantage, because it does not control the UK's ability to compete with the EU on the services that accompany many goods. Although the White Paper stretched Theresa May to her political limits (the Chequers deal cost her two Cabinet ministers and is deeply unpopular in her party) the UK responded with one of the most concerted British diplomatic pushes within Europe in many years. This was intended to appeal directly to elected heads of government who, the Government hoped, would be more flexible and avoid what is seen as European Commission legalism.

With hopes that there could be a softening of the EU's stance, the Prime Minister was seemingly wrong-footed at an informal Council meeting in Salzburg with the response from the Council President, Donald Tusk, that Chequers 'will not work'.

Despite this, the Prime Minister is sticking to the position that a customs border down the Irish Sea is unacceptable and that the only solution remains Chequers and the White Paper. It is now, seemingly, a question of who will blink first – a much altered version of Chequers being agreed – or no deal.

If you have any questions on this article or would like to propose a subject to be addressed by Synapse please contact us.

1 This aligns with the requirement of the Trade Bill passed by MPs in Parliament n 17 July 2018 that "(1) It shall be the objective of an appropriate authority to take all necessary steps to implement an international trade agreement, which enables the UK to fully participate after exit day in the European medicines regulatory network partnership between the European Union, European Economic Area and the European Medicines Agency".

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