Brexit and Trade – Implications for the Life Sciences Sector

By Eric Johnsson, BIA Policy and Public Affairs Executive

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Hardly talked about before the EU referendum, trade has become an increasingly hot topic ever since. With EU leaders expected to formally decide that the Brexit negotiations will move to discuss the UK-EU future trading relationship (“Phase II”) at the end of the week, this month is no different. Meanwhile, the UK government is getting ready to transition from the EU’s common commercial policy to its own independent trade policy through the Trade Bill, which is currently progressing through Parliament.

In light of this, here we take a closer look at the Trade Bill and what the much-talked about World Trade Organisation (WTO) rules really mean for the life sciences.

BIA’s work

Trade is one of the BIA’s four priority areas in our Brexit work, alongside access to talent, regulation, and research collaboration & finance.  We have been working with the ABPI, government, and our continental colleagues at EuropaBio to ensure that the life sciences continue to provide patients across the UK and the EU with vital medicines.

The message is getting through – Junior health minister Steve Brine recently said in Parliament that “medicines are different from other consumer products” and that the government recognises the frictionless supply of medicines “could be the difference between life and death”. The progress made in the Brexit negotiations is vital, but the negotiations are yet to provide the certainty patients and businesses desperately need.

The Trade Bill

The purpose of the Trade Bill is to ensure that the necessary tools are in place for the UK to establish an independent trade policy. Perhaps most importantly, the Bill will seek to transition current EU free trade agreements (FTAs). This has been a key ask from industry to ensure continuity, but it is no small feat for the government to achieve.

EU FTAs are enabled in UK law through the European Communities Act 1972, which will be repealed by the EU (Withdrawal) Bill. This will leave a legislative vacuum which the Trade Bill will look to fill on the trade side of things.

However, it is not merely up to the UK to transition the FTAs – the counterpart to each agreement will need to agree the transition. This is far from a guarantee, as the counterparts may see opportunities to get a better deal, may have other priorities, or may want to await the outcome of the Brexit negotiations. If there is no transition, trade between UK and the FTA counterparts falls back on WTO rules.

WTO rules for the life sciences

If an agreement on trade is not reached in the Brexit negotiations, UK-EU trade will also occur on WTO rules. Ministers, MPs, and commentators alike have debated the impact of WTO rules – but what do WTO rules really mean for the life sciences?

Firstly, it is important to note that:

  • The UK is and will remain an independent WTO member
  • UK goods going into the EU will be subject to tariffs according to the EU’s schedule of concessions

For the life sciences, this means EU tariff rates will be 0% for most finished pharma products, active pharmaceutical ingredients (APIs) and intermediates, and biologic products.

The generally zero percent tariff is in line with the global reduction of tariffs on many medicines, which was initiated during the WTO Uruguay Round trade talks in the early 1990s when the WTO Pharmaceutical Tariff Elimination Agreement was concluded. Several major economies are signed up to the agreement, such as the US, Canada, and the EU. The UK is only a party to the agreement via the EU and should ratify it before leaving the EU.

The Agreement is also sometimes referred to as “zero-for-zero” as its parties agree to unilaterally eliminate tariffs on medicines listed in the agreement. This list has been updated four times with new medicines and covers more than 10,000 products – but it has not been updated since 2010. This means products, components, and intermediates produced since 2010 may have tariff charges levied. As with most international trade talks, updating the list could prove difficult.

Custom controls

But tariffs are not everything. WTO rules also mean that medicines crossing the UK-EU border will be subject to customs controls. These controls risk causing significant delays, which could have important implications for the NHS supply of certain medicines, especially for products with short shelf life, such as cell and gene therapies. 

Many life science companies have integrated supply chains throughout the UK and Europe, meaning medicines may cross the UK-EU border many times before they are finished. Delays at the border would not only slow down the supply of finished medicines, but also their production. This would affect patients’ access to medicines in both the UK and the EU.

Conclusion

Trade on WTO rules means significant public health risks as finished medicines could be delayed and the production of new medicines disrupted. It is therefore vital that these public health risks are recognised by Brexit negotiators so that trade on WTO rules can be avoided, frictionless trade maintained, and an early agreement on a transition period reached to avoid a cliff-edge.

The BIA is organising a Trade seminar on Monday 5 Feb 2018, where the issues outlined here will be discussed in more detail. You can also catch up on the Brexit latest in our monthly webinar

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