Brexit: under the radar

13/07/2019

In 1998, the EU and the US signed a broad Mutual Recognition Agreement, which included a Pharmaceutical Annex providing for anticipated and limited reliance on each other's Good Manufacturing Practices (GMP) inspections.

The year 2017 marked the entry into operation of the agreement, which entailed the EU and the US recognising inspections of manufacturing sites for human medicines conducted in their respective territories.

This agreement strengthened the reliance of the two blocs on each other's inspection expertise and resources. Initially it applied between the US Food and Drug Administration (FDA) and those EU Member States that the FDA had assessed.

This had been gradually extended to all EU countries and now the regulatory authorities in all 28 EU Member States have been recognised by the FDA. Meanwhile, the EU made the same determination about the FDA in June 2017.

This is according to a European Commission press release which now celebrates the unique milestone, with the FDA having completed the very last of the capability assessments of the 28 EU competent authorities, bringing Slovakia, the last outstanding EU Member State, into the fold.

This, says the press release, brings to fruition five years of close transatlantic cooperation, in a process that started nearly 20 years ago, indicative of the sort of timescale on which these agreements operate. Since May 2014, we are told, teams from the European Commission, EU national competent authorities, the European Medicines Agency (EMA) and the FDA have been auditing and assessing the respective supervisory systems.

As a result, the batch testing waiver will also start to apply. This means that the statutory "qualified persons" in EU pharmaceutical companies will be relieved of their tasks of carrying out quality control on products imported from the US, when carried out already in the United States.

This, of course, lies outside the framework of WTO Agreements and is one of dozens of detailed sectoral agreements which help facilitate trade between the US and the EU Member States – without which transatlantic trade would be a fraction of its current level.

The importance of the Agreement cannot be over-estimated. Together, Europe and the United States account for more than 80 percent of global sales of new medicines. The full implementation frees up resources in industry and in public authorities on both sides of the Atlantic, and substantially reduces the costs and complications of trading in pharmaceutical products.

Fortunately for the UK, it is included in the current deal and, on 14 February 2019, the UK and the United States signed a continuity deal which would keep the agreement in force, in respect of the UK, after it had left the EU. Ironically, the deal was signed by now ex-ambassador Sir Kim Darroch.

As reported at the time, this was further evidence that the EU Member States and the US do not operate under WTO rules, with the agreement facilitating around £7.7 billion of UK exports to the US annually - nearly 18 percent of total UK goods exports to the US.

This is despite quarter-wits such as James Delingpole and many others averring that "the vast majority of the UK's trade with countries outside the EU is done on WTO terms", compounding his own stupidity by telling us that "it would be illegal for the EU to impose punitive tariff barriers on the UK, much as it might like to" – "punitive" in this case meaning MFN tariffs.

However, it doesn't stop there. The pharmaceutical industry is a strategic sector in which EU-US regulatory cooperation is much more advanced than in most other sectors. And it is to be extended further. The MRA implementation work is now to continue with a view to expanding the operational scope to veterinary medicines, human vaccines and plasma-derived medicinal products.

Obviously, there are procedural and resource limitations which will dictate the speed with which the extensions will take effect. And while, in the UK-US Agreement there are update provisions, there is no specific (or any) guarantee that the UK will be on top of the list when it comes to arranging the pre-cursor assessments.

But even if the UK is eventually to benefit from enhanced regulatory cooperation in the pharmaceutical field, the EU has already stolen a march on the UK with a joint statement in June 2018 between Commission President Juncker and US President Donald Trump on entering a new phase of trade relations.

Some see this as a sort of slow-motion TTIP, where the parties have already started negotiations, against a pledge to work towards zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods.

Even with its continuity agreement with the US, therefore, the UK is going to be playing catch-up with the EU, which is already streets ahead in its negotiation strategy. And it cannot help that the UK will be starting afresh with a new ambassador leading our efforts by what is said to be a demoralised workforce, with overstretched departments working "at cross purposes".

It says something though that, even as of yesterday with the vacuous Johnson still prattling about tariffs, the European Commission itself says that, given the low average tariffs (under three percent), the key to unlocking the potential for US trade "lies in the tackling of non-tariff barriers (NTBs)".

Here, of course, the EU and the US have developed and continue to develop opportunities for regulatory cooperation – the key to reducing NTBs. The parties are engaged in a continuous dialogue through the Transatlantic Economic Council (TEC), which was set up in 2007 as part of a framework agreement – a formal trade cooperation treaty.

Nothing like this will exist between the UK and the US after Brexit, so before the detailed international work of regulatory cooperation can begin, the UK will have to negotiate something similar, setting up the appropriate bodies with the necessary staff and resources. This cannot happen overnight, and it then takes time to develop smooth working relations.

Already, the EU and the US, under the aegis of the TEC, have set up three subordinate forums: the Transatlantic Legislators' Dialogue; the Transatlantic Consumer Dialogue; and the Transatlantic Business Dialogue. They also facilitate formal consultations with civil society on both sides of the Atlantic.

Pundits tend to underestimate the importance (and value) of such arrangements, yet institutions such as the TEC are the main mechanisms by which continued, if unspectacular progress is assured.

And these days, with the EU-Mercosur agreement already attracting protests, it seems as if the days of the "big ticket" free trade deals could be drawing to a close.

Rather, we expect to see progress though technical, under-the-radar deals such as the now fully implemented pharmaceutical MRA. In a process known as unbundling, the parties negotiate separate, sectoral deals which, when finally linked, have the economic effects of a full-blown trade deal, without the histrionics and the build-up of opposition.

Through the three years of the Brexit debate, however, such aspects have scarcely been discussed, with the trade wonks largely obsessing about conventional deals – oblivious to the fact that the world is moving on.

In this context, the EU – in a thoroughly unspectacular way – is streets ahead of the UK. If anything the gap is set to widen after Brexit, with inexperienced British officials – and clueless consultants and advisers – stuck way down on the learning curve, barely understanding what is going on.

And, with the Oaf as the head of the UK government, things can only get worse.