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Effects of “No Deal” Brexit for Medical Device Sector

Regulatory Updates | Medical Devices

EMERGO SUMMARY OF KEY POINTS:

  • A “no deal” or “Cliff Edge” Brexit is a realistic scenario, becoming more realistic every day.
  • The UK government issued documents about preparing for this Cliff Edge scenario.
  • This scenario can affect companies all over the world, as they may depend on certificates issued by UK-based Notified Bodies or use a UK-based Authorized Representative (AR).
  • Companies using a UK-based AR and UK-based companies exporting to the EU will need an EU-based AR.
  • It is likely an AR is also required for non-UK companies placing devices on the UK market.
  • Non-European manufacturers using a UK-based AR should consider switching now.

Cliff Edge Brexit

The UK will leave the European Union on March 29, 2019 – Brexit day. On that day the EU will lose an important Member State, and the UK will no longer have direct access to the 27 remaining Member States. Therefore both the EU and the UK want to work out a good relationship for the period after Brexit. An agreement has been reached for a transitional period between March 29, 2019 and December 31, 2020. The UK will keep many arrangements with the EU the same, but will lose its authority to vote on new EU rules. That transitional period can only become effective if there is an agreement, but so far negotiations have not led to a result. A European summit is planned on October 18th and then the  proposed agreement should be presented. Maybe it is possible to stretch the negotiation period until the first week of November. But if no deal is reached, it is expected the negotiations will stop and the UK will head for a “no deal” Brexit, also called the “Cliff Edge” Brexit.

 

Heading into the “no deal” situation

This Cliff Edge Brexit is becoming a realistic option for two main reasons.

First,  the British government has a very thin majority in Parliament, a complicating factor, while the Conservative Party does not have a shared view on future relations with the EU. The Conservatives even had to get support from the Northern Ireland Democratic Unionist Party (DUP) to ensure a majority.

Current indications are that for each possible scenario for a future relation with the EU, not all Members of Parliament making up this small majority will vote in favor. For example, in the Good Friday Agreements of April 10th 1998 the UK, Northern Ireland and the Irish Republic agreed to a peaceful future after decades of violence. The agreement included an open border between the Irish Republic and Northern Ireland (Ulster), which was helped by the fact both countries were part of the EU. However, the European style free movement of goods, capital, services and labor is not the same with countries outside the European Union. A European outer border between the Irish Republic and Ulster will therefore go against the Good Friday Agreements, which would be unacceptable for all parties involved. The easiest way out of this would be to create a harder border between Northern Ireland and England, Scotland and Wales. But this would not be supported by the DUP faction in Parliament.

Other issues will also split that thin majority. For each scenario for the future relation between the UK and the EU there will probably be a blocking minority. Therefore, even if negotiators struck a deal, it is likely there could be no majority vote in the British Parliament supporting it. The government may fall over this, leading to new elections. By the time there a new government formed, there would be no time left for negotiating any deal. Then there will only be two options left: Forget about Brexit in total, or accept a no-deal, Cliff Edge Brexit.

The second reason is that the EU negotiators posit that it is not possible for a country to have full and free access to the Single Market for goods without also respecting the free movement of capital, services and people. That scenario would not work as the real value of goods must always be considered within a wider context, most of which is made up of people, capital and all sorts of services. These four European freedoms also come at a price, and UK government negotiators have indicated they do not want to pay their share. This is something the “Leave” campaign has made perfectly clear. The European negotiators have stated repeatedly that they cannot accept this “cherry picking.”

At the Salzburg meeting of September 20, 2018 the European Commission made clear that the proposal by the UK was not acceptable. Prime Minister Theresa May has now asked the EU to come up with a proposal, while repeating an earlier statement: “no deal is better than a bad deal.” She indicated she will not accept the UK to be split up (a soft border between Ulster and the Irish Republic, an EU border between Ulster and the rest of the UK). She also wants the EU to come up with a proposal that would respect the outcome of the Brexit referendum. This position of the UK means they officially are no longer working on their own proposal and are waiting for the EU. This also means that the UK government will now prepare for a Cliff Edge Brexit. This may be no more than a negotiation position for getting the UK proposal back on the table, and maybe the European Union can pull a rabbit out of a hat. But these are not outcomes one should count upon.

Preparing for a no-deal Brexit

On August 23rd the British government published the first 25 documents about how to prepare for this challenging scenario. These documents were updated on September 14; their scope in terms of no-deal Brexit consequences has expanded to include businesses and citizens in the European Economic Area (EEA), as well.

Of course it was stressed that this was just a precaution and there was no reason for panic. These documents are a matter of preparation for the worst, as is done in most other European countries.

One of these documents is about medicines, medical devices and clinical trials. Medicines get the most attention in this document because market access for medicines requires more input from Competent Authorities. For medical devices, the CE Mark forms the cornerstone for market access, and there are well-functioning arrangements for non-EU manufacturers to enter the Single Market. The document also explains that at least for the near future the requirements of the current Directives and the future Regulations will be applicable in the UK as well.

However, this document also explains that a no-deal Brexit would mean the UK Medicines & Healthcare products Regulatory Agency (MHRA) cannot supervise UK-based Notified Bodies. This implies that their certificates will become void immediately after Brexit takes effect, having a serious impact on the availability of medical devices in the EU as well as the UK. This might be used as a tool for putting pressure on the negotiations. However, it is also a possibility that EU Member States agree on a temporary arrangement where supervision is organized by the European Commission and individual Member States allow the distribution of devices covered by this specific type of certificates for a limited period of time, ensuring a secure transfer of these certificates.

For UK-based manufacturers willing to enter the EU market, it is obvious they need to engage with an EU-based Authorized Representative (AR). The same goes for non-EU manufacturers working with a UK-based AR. The document does not mention anything about the need for a UK-based AR for non-UK manufacturers. But we may presume that both non-European and European manufacturers based outside the UK will need a UK-based AR. There are two arguments supporting this:

  • This requirement is part of the current Directives as well as the Regulations.
  • We can deduct from parts of the document regarding clinical trials that non-EU sponsors must engage with EU-based Legal Representatives; the document explicitly mentions that for clinical trials in the UK, a UK-based Legal Representative would be required. Likewise it would be obvious that the same would apply for the AR.

It is important to understand that even in most scenarios describing potential future relations an AR will be required on both sides of the Channel. Only in the case of a very soft Brexit, or no Brexit (both currently unlikely) will manufacturers not have to engage an EU REP, or UK REP.

Consider switching your AR now

Non-European manufacturers require a European AR in any case, and those firms using a UK-based AR need to have one in place after Brexit no matter how hard or soft Brexit goes. It can be expected that reputed AR services will be in high demand, both for EU- and UK-based ARs, once the highly likely outcome for such a switch becomes a hard reality. Manufacturers should also be aware that such switch takes more than just buying a new service. Switching ARs impacts their labelling and other documents, as well as quality systems, agreements with importers and distributors, registrations in Member States, Certificates of Free Sales, etc. As part of a strategy to limit the Brexit risk, non-European manufacturers should therefore consider switching ARs as soon as possible, so they can avoid as much as possible the major congestion anticipated in case of a Cliff Edge Brexit.

The negotiating process about Brexit is not over yet  and may still lead to a deal enabling good contacts between the EU and UK; we should all stay calm and let the negotiators carry on. In the meantime it is recommended to prepare for the worst.

 

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