The EU and UK Trade and Co-Operation Agreement: Implications for Life Sciences Companies
After four years of intensive discussion, on 24 December 2020, the EU and the UK reached an agreement in principle on the EU-UK Trade and Cooperation Agreement (the Agreement), to be implemented from 1 January 2021, the expiry of the Brexit transition period.
The UK left the EU on 31 January 2020, following conclusion of the Withdrawal Agreement on 24 January 2020. The Withdrawal Agreement included an 11-month transition period, which expired on 31 December 2020. During the transition period, the UK agreed to continue to apply EU law and procedure, and the EU treated the UK as if it were a Member State (and not as a third country following the UK's withdrawal), with the exception of participation in the EU institutions and governance structures. The transition period provided time for the UK and EU to negotiate a framework for partnership for the future, which is now crystallised in the Agreement.
The Agreement is lengthy and complex, covering a wide range of issues and industries. Provisions relating to certain areas of particular relevance to life sciences companies are summarised below. However, while the Agreement provides a framework for a trading relationship between the EU and the UK from the end of the transition period, it is clear that discussions will continue for the foreseeable future.
Tariffs and Trade Quotas
Announcements by both EU and the UK have focused on the fact that the Agreement involves zero tariffs or quotas on the movement of goods between the two parties, where such goods originate in either the EU or the UK. Goods will have freedom of transit, and no duties, taxes or charges may be imposed on goods exported by one party to the other, in excess of the tax or charge that would be imposed on the same goods used or consumed locally. (Fees for services, such as examination or sampling for verification purposes, required in the context of import or export, are excluded from this general prohibition.)
The Agreement sets out applicable rules of origin, including that products wholly obtained within one party (e.g., plants grown and harvested, minerals extracted or animals born and raised) or produced in a party exclusively from materials originating in that party, are viewed as originating in that party. Products produced in one party but incorporating non-originating materials may, nevertheless, qualify as originating in the producing party if certain criteria are met or where the quantity or value of the non-originating materials falls within defined tolerance limits. However, a product will not be considered as originating in a party where the production is limited to certain "insufficient" operations; simple packaging or labelling, for example, will not be sufficient to confer origination status. Therefore medicinal products and medical devices imported into the UK from a third country and undergoing repackaging or labelling in the UK will not be viewed as originating in the UK and will not benefit from the free trade arrangements under the Agreement when exported from the UK into the EU.
The Agreement also addresses non-tariff barriers, such as import licensing restrictions, which must be transparent and consistent with the World Trade Organisation (WTO) Agreement on Import Licensing Procedures. Sanitary and phytosanitary (SPS) measures for agriculture and food products will be subject to independent determination by both parties based on risk assessments, in order to achieve protection against disease (including antimicrobial resistance). While the Agreement provides that such measures should not create unjustified barriers to trade, health certification will be required for agriculture and food products as well as sanitary and phytosanitary controls at EU/UK borders, with the associated costs and delay to import/export of such products. As such, the Agreement seeks to minimise barriers to trade in goods while accepting that border checks will become inevitable as a consequence of the UK no longer being part of the single market.
Technical Barriers to Trade
The technical barriers to the trade section of the Agreement addresses regulatory barriers, building on the WTO technical barriers to trade agreement. Each party commits to using relevant international standards as a basis for its technical regulations, except when it can demonstrate that such international standards would be ineffective or inappropriate, and to encourage co-operation between standardising bodies in the other party. It is hoped that the international standards will ensure a certain level of similarity between the rules in each territory in the future. This section of the Agreement is supplemented by a number of sector specific annexes.
A specific annex to the Agreement is dedicated to medicinal products (the "Annex") and covers marketed medicinal products for human or veterinary use, including biological and immunological products, advanced therapy medicinal products, active pharmaceutical ingredients for human or veterinary use and investigational medicinal products. A Working Group on medicinal products is established, under the supervision of the Trade Specialised Committee on Technical Barriers to Trade, to assist in monitoring and reviewing the implementation and ensuring the proper functioning of the sector-specific Annex for medicinal products. This will likely become the forum for exchange of information between the Parties.
The principal objective of creating the Annex is to facilitate availability of medicines, promote public health and ensure high levels of consumer and environmental protection in respect of medicinal products. This will facilitate availability of medicinal products in the respective markets. The Annex provides for mutual recognition of Good Manufacturing Practice (GMP) inspections and certificates, meaning that manufacturing facilities do not need to undergo duplicate inspections for the two markets. The mutual recognition provisions are subject to suspension upon notice with written justification and each party may, also upon notice, conduct its own inspection of facilities certified as compliant by the other party. Any new measures or changes relating to GMP concerning any relevant laws, regulations and technical guidelines must be notified by the adopting party to the other party at least 60 days in advance of being adopted according to the local procedural requirements. This is to ensure that comments on the proposed changes are taken into account.
The Annex states that the EU and UK will "endeavour to consult one another, as permitted by their respective law, on proposals to introduce significant changes to technical regulations or inspection procedures."
The Agreement preserves the need to adhere to internationally harmonised requirements and standards to guide regulatory review of applications for marketing authorisation. The Agreement provides for the protection of commercially confidential information submitted in support of an application for a marketing authorisation for a medicinal product against disclosure to third parties, "unless steps are taken to ensure that the data are protected against unfair commercial use or except where the disclosure is necessary for an overriding public interest." This is in line with existing obligations under the existing Agreement on Trade-Related Aspect (TRIPS). The requirement for periods of data exclusivity and market protection for results of the pre-clinical tests and clinical trials submitted in support of an application for a marketing authorisation is confirmed, although no commitment is made in relation to the duration of such periods, which are to be determined by each party under its own laws and regulations. These periods of regulatory data protection and market exclusivity, which are currently set out in UK legislation implementing the provisions of EU law, are stated to be without prejudice to additional periods of protection (which would cover, for example, incentives for the development of paediatric and orphan medicinal products or indications) where either party elects to provide for these under its laws and regulations.
The Agreement does not cover all regulatory areas relevant to the supervision of medicinal products, such as pharmacovigilance, which will likely be the subject of further bilateral discussions between the UK and EU.
For life sciences companies, while the Agreement covers GMP inspections and certificates for facilities, it does not include reciprocal arrangements for the recognition of batch testing certification, in order to avoid unnecessary re-testing on importation. In this regard, the UK and the European Commission have taken divergent positions.
- The UK has already developed the list of approved countries, including the EEA, to enable UK importers and wholesalers to continue to recognise QP certification and regulatory standards for active substance manufacture performed in those countries in the same way as before 1 January 2021. The UK will also accept batch testing performed in EEA countries for a period of 2 years after the transition period.
- In contrast, the European Commission had maintained that absent an agreement on a future trading relationship, the UK would be treated as a third country in all respects. The Annex to the Agreement goes some way to avoiding unnecessary repeated site inspections. However, it stops short of a full mutual recognition agreement, which would ordinarily remove the need for re-certification for batch release of products that originate outside the EU in order for such products to be placed on the EU market.
Medical Devices—Conformity Assessment
While medical devices will benefit from the overarching tariff-free and quota free trade on goods, there is no annex to the Agreement specifically addressing medical devices. As such, the position regarding recognition of CE marks and the new UKCA mark is generally unaffected by the Agreement. However, it provides general baseline requirements which will apply to all conformity assessments conducted and approved in both the EU and UK, and these requirements will apply to conformity assessment of medical devices and in vitro diagnostic medical devices.
Each party will be required to accept in its territory a supplier's declaration of conformity as proof of compliance with its technical regulations in those product areas where it does so on the date of entry into force of the Agreement (e.g., as is the current position in relation to medical devices categorised in class I under Directive 93/42/EEC on medical devices and the UK Medical Devices Regulations 2002). However, either party may subsequently introduce requirements for mandatory third-party assessment or certification in such product areas, where this can be justified, including in the context of the risks posed by non-conformity. Any proposed introduction of mandatory third-party assessment or certification by one party must be notified to the other party and their comments taken into account in developing the associated procedures. The EU has already notified the introduction of mandatory third-party assessment of certain medical devices categorised as class I under Directive 93/42/EEC, which will be re-categorised to a higher class under Regulation (EU) 2017/745 on medical devices, when this becomes applicable on 26 May 2021. However any similar re-categorisation of medical devices in the UK would require the procedure under the Agreement to be followed - the UK will not implement either Regulation (EU) 2017/745 on medical devices or Regulation (EU) 2017/746 on in vitro diagnostics and so such re-categorisation will not currently take place under UK law.
In cases where conformity assessment by a third party (i.e., a notified body) is required, the Agreement provides that bodies performing such assessment should be accredited in accordance with international standards. Conformity assessment bodies should be permitted to sub-contract testing and inspection functions, including to sub-contractors located in the territory of the other party. Conformity assessment bodies should be independent of manufacturers, importers and economic operators in general (as they are under the current legislation) and there should be no conflicts of interest between accreditation bodies and conformity assessment bodies.
The Agreement recognises the importance of market surveillance separate from conformity assessment and provides for EU/UK co-operation and sharing of information relating to safety and compliance, including with respect to risk assessment, product recalls, emerging issues of significant health and safety relevance, scientific technical and regulatory matters and enforcement. The sharing of information relating to the safety of medical devices and in vitro diagnostic medical devices between EU and UK may therefore be expected to continue.
Business Trips and Secondments
Business visitors will be permitted entrance to the EU for up to 90 days in a 180-day period for the purposes of certain activities, with similar arrangements applicable in the UK. Business travel will also be allowed for investment purposes.
Intra-corporate transfer arrangements involving transfers from the UK to the EU are permitted for up to three years (managers and specialists) or up to one year (trainees). Similar arrangements may be permitted for up to five years in the UK. In addition, contractual service suppliers and independent professionals with appropriate qualifications may also work in the EU and UK for up to 12 months, subject to certain policies applicable in specific countries.
A Trade Specialised Committee on Intellectual Property is established by the Agreement tasked with maintaining contact with all matters relating to the implementation and functioning of the IP chapter to the Agreement, to the extent that the parties do not do so directly.
While the Agreement seeks to expand upon the rights and obligations of each party under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement and other international treaties relating to intellectual property, it does not alter the arrangements under the Withdrawal Agreement, but defines current levels of IP protection applicable in the EU as a baseline for both parties. There is, however, a notable omission in the list of international treaties referenced in the Agreement; the European Patent Convention. Consequently, there is no affirmation from the UK in the Agreement of its intention to continue to comply with this international agreement.
The ability of the parties to determine whether and under what conditions exhaustion of intellectual property rights applies is explicitly preserved. The UK government plans to publish a formal consultation in early 2021 on what the permanent exhaustion regime should be. For the current position see our BioSlice Blog.
For all categories of intellectual property covered by the Agreement (including copyright and related rights, trade marks, design rights, patents, and trade secrets), each party is required to accord to nationals of the other party no less favourable treatment than that afforded to its own nationals. There is a general requirement for each party to provide for measures, procedures and remedies necessary to ensure the enforcement of intellectual property rights. The Agreement does, however, specifically allow the parties leeway to provide for longer terms of protection for copyright works and some related rights.
Whilst supplementary protection certificates (SPCs) are not expressly mentioned in Agreement, as noted above, the Agreement confirms the obligation for both parties to provide an extended period of exclusivity for medicinal products and plant protection products which have been subject to an administrative authorisation procedure, before being placed on the relevant market. However, no commitment is made with respect to the terms and conditions for such protection, including the length for such protection. Instead, these matters are left to be determined by the parties in accordance with their laws and regulations. The Agreement therefore, provides for the possibility of significant divergence between the UK and the EU as to the scope of protection for SPCs.
There is one notable IP right that is missing from consideration in the Agreement and that is the sui generis database right. The Withdrawal Agreement guarantees the subsistence of database rights existing in the UK or the EEA prior to 1 January 2021. From 1 January 2021, UK citizens, residents and businesses that do not have a registered office, central administration or principal place of business in the EEA are not eligible to receive or hold database rights in the EEA. A new equivalent right has been created in the UK so that UK citizens, residents and businesses are eligible for database rights in the UK for databases created on or after 1 January 2021.
The aim of the Agreement is stated to guarantee each party's suppliers access to increased opportunities to participate in public procurement procedures and to enhance the transparency of public procurement procedures. The rules set out in the Agreement are based on the WTO Government Procurement Agreement (GPA), but including the use of electronic mechanisms in procurement, electronic publication of notices, environmental, social and labour considerations.
The implications of these provisions for life sciences companies are currently limited, and by requiring electronic mechanisms, they seek to ensure EU entities are not disadvantaged in any procurement in the UK and similarly, UK entities are not disadvantaged in the EU. However, whilst there is no immediate impact in the short term, it is likely that the UK government will undertake a review of the current model, which could ultimately lead to different procedures and substantive rules in the UK.
Competition and Sustainable Development
The Agreement requires both parties to address effectively anti-competitive business practices by economic operators, irrespective of nationality or ownership, including: agreements, decisions and concerted practices intended to prevent, restrict or distort competition; abuse of a dominant position; and mergers or acquisitions which may have a significant anticompetitive effect. Given that the laws are already in place and aligned means that there is little practical effect of these provisions, at least in the short to medium term.
In addition, each party shall take appropriate enforcement measures in relation to competition law in its territory, and is required to maintain an independent authority for such enforcement. Again, as the institutions are already in place both in the EU and in the UK, there will be little practical difference in the short term. The enforcement priorities may differ over time but the UK has in the past been very active particularly in the life sciences sector and we do not anticipate that this will change soon.
The European Commission and the competition authorities of the Member States and the UK competition authorities will co-operate in relation to developments in competition policy and enforcement activities and exchange information where permitted by applicable laws.
Each party will operate its own system of subsidy control, but is required to ensure that subsidies are not granted where they could have a material effect on trade or investment between the parties. Certain types of subsidies are expressly prohibited. The Agreement requires both sides to be transparent about the subsidies they grant and to establish or maintain an independent body with an appropriate role in their respective subsidy systems. Domestic courts shall be competent to review subsidy decisions and to impose sanctions where appropriate. This is likely to bring about significant change in that the control of subsidies in the UK will now revert from the European Commission to a UK institution. In the past the UK Competition and Markets Authority was earmarked for this role but this is subject to further government consultation and change.
The Agreement provides for co-operation between the EU and the UK in the context of serious cross-border threats to health, such as the current COVID-19. The UK may request ad hoc access to the EU's Early Warning and Response System (EWRS) in respect of the particular threat to facilitate the exchange of relevant information between competent authorities, to assess public health risks and to coordinate the measures that could be required to protect public health. In addition, the EU may invite the UK to participate in a committee for the purposes of supporting the exchange of information and of coordination in relation to the serious cross-border threat to health.
In addition, the Agreement provides for co-operation between the European Centre for Disease Prevention and Control and the equivalent body in the UK on technical and scientific matters of mutual interest to the parties.
The Agreement provides that transfer of personal data from the EU (and Iceland, Liechtenstein and Norway, if they accept this provision) will not be viewed as transfer to a third country for a period of up to six months or until adequacy decisions are adopted by the European Commission in relation to the UK, whichever is earlier (Specified Period). During this period therefore, transfers of personal data between UK and EU may continue in the same way as before 31 December 2020.
This interim arrangement is however conditional upon data protection legislation in effect in the UK on 31 December 2020 continuing to apply during the Specified Period (unless changes are made in order to align with the EU) and that no new regulations relating to data protection are made without the agreement of the EU through the Partnership Council. Any new instrument relied upon by the UK to transfer personal data to a third country during the Specified Period, should, if possible, be notified to the EU, who may request that it is discussed by the Partnership Council.
For the time being, we are not expecting a radical departure from existing employment rules and regulations. Indeed, the Agreement states that both the UK and EU will strive to increase employment and social protections. Further, well before the ink was dry on the Agreement, the UK government had already enshrined into UK law, EU-derived domestic legislation, (much of it employment-related, such as the Working Time Regulations and TUPE), that was implemented before 31 December 2020. Those laws therefore remain in force and would still fall to be construed in accordance with EU law, albeit the Court of Appeal and Supreme Court have some new found freedoms to depart from decisions of the Court of Justice of the European Union where "it seems right to do so."
That said, in theory at least, the government does have flexibility to change employment law, since the Agreement only prevents the UK from weakening employment rights, standards of health and safety and other fair working conditions, in a way that affects trade and investment. Most employment law reforms under discussion in HR and legal circles would not be fundamental enough to reach that level. However, the government won the last election on the back of support from former Labour voters, who are unlikely to be enthusiastic about any whittling away of employment rights. Therefore political pressures are likely to make any major changes in employment law unlikely.
Participation of the UK in EU Programmes
The Agreement envisages the continued participation of the UK in a number of EU programmes for the period 2021-2027 (subject to a financial contribution by the UK). These programmes include Horizon Europe, with the result that UK scientists will remain eligible for certain European research funding, although the European Innovation Council, which focuses on emerging technologies and startups, will be excluded. The final text of protocol 1 "Programmes and activities in which the United Kingdom participates," was not finalised during negotiation of the Agreement.
Position in Northern Ireland
The Agreement will not change the terms of the UK Withdrawal Agreement, which remains in place, protecting amongst other things peace and stability on the island of Ireland. The Withdrawal Agreement—and the Protocol on Ireland and Northern Ireland, in particular—will be implemented on 1 January 2021. Under the Northern Ireland Protocol, Northern Ireland will continue to follow the EU rules after 1 January 2021. As such, the MHRA needs to operate outside the EU regulatory framework in respect of Great Britain, but continue to regulate medicines in Northern Ireland largely on the basis of EU law. This causes a number of complications in relation to management of the supply and movement of medicinal products around the UK.
The European Commission published a notice on the application of the EU pharmaceutical legislative framework (acquis) in markets historically dependent on medicines supply through Great Britain. This acknowledges that Northern Ireland, among other territories, is dependent on medicines supplied through Great Britain, and that companies may need more time to put in place appropriate authorisations and testing facilities in Northern Ireland, given that Northern Ireland continues to follow the EU regime. The Commission is therefore allowing certain flexibilities to be in place through 2021 to ensure there are no medicine shortages in these territories.
Approval and Implementation
The Agreement has been approved by all 27 EU Member States with the result that the Council of Ministers may adopt a decision, authorising signature of the Agreement and its provisional application from 1 January 2021. The Agreement will be provisional until 28 February 2021, pending consideration and consent by the European Parliament, however this date may be amended with the mutual consent of the EU and UK. Once agreed by the European Parliament, the EU Council of Ministers must then adopt the decision on the conclusion of the Agreement before this can be finalised.
The UK Parliament has approved the Agreement.
The operation of the Agreement will be supervised by a Partnership Council, comprised of representatives from the EU and UK, supported by a number of committees, each assisted by relevant working groups and providing opportunities for technical discussion, where necessary, to ensure appropriate implementation. The Agreement may be terminated by the EU or the UK on 12 months' notice. In addition, certain areas of co-operation are subject to specific termination provisions, with the result that these provisions can be terminated without affecting the Agreement as a whole.
© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.