The automotive sector is subject to a variety of EU regulations covering a range of issues including technical standards, safety, vehicle categorisation and environmental protection.
In this article we consider some of the ways in which regulatory requirements relating to the UK automotive sector may be affected by Brexit.
The automotive sector is subject to a complex web of regulations covering a range of issues including technical standards, safety, vehicle registration, environmental protection and vehicle categorisation. The majority of these regulations stem from EU law, some of which directly applies in the UK and some of which has been incorporated into the UK's domestic legal framework.
On 29 March 2019 the UK will leave the European Union. However, it is currently envisaged that there will be a transitional period from 29 March 2019 to 31 December 2020 during which the UK will continue to apply EU laws and goods may flow from the UK to the EU27, and vice versa, in the same way that they do now.
Following 31 December 2020 the position is more uncertain and will depend on the final trade deal to be negotiated between the UK and the EU. The current proposal put forward by the UK government would see the UK maintain ongoing harmonisation with EU rules for goods.
In this article we consider, at a high level, some of the ways in which regulatory requirements relating to the UK automotive sector may be affected by Brexit.
The current position
At present, UK automotive manufacturing is subject to a number of different areas of regulation, with rules made at both national and international levels.
Technical safety requirements
The United Nations Economic Commission for Europe (UNECE) sets a number of technical standards at international level in relation to for vehicles, systems, parts and equipment, primarily with respect to safety and environmental issues.
UNECE safety regulations are adopted by the EU and apply through EU law.
The EU sets limits for exhaust emissions of nitrogen oxides, total hydrocarbons, non-methane hydrocarbons, carbon monoxide and particulate matter from new vehicles sold in the EU.
There are no harmonised international standards for a limit on car or van CO2 emissions. However, EU law seeks to reduce in CO2 emissions from new cars and vans sold into the EU's single market by setting fleet averaged targets for manufacturers accompanied by significant fines for non-compliance.
The REACH Regulation regulates the import into, and use within, the EU of substances which could have an impact on human health or the environment. It places a range of obligations on automotive manufacturers at various points in the supply chain, including those that produce or import parts such as engines or bumpers, and those that import mixtures and substances such as engine oil or elemental magnesium into the EU. Such obligations include the need to register relevant substances with the European Chemicals Agency (ECHA) and the provision of information up and down the supply chain.
In order to be sold in the EU, vehicles must be approved through the Whole Vehicle Type-Approval System. Under this system an approval body, authorised by the EU, can test compliance of vehicles with relevant UNECE and EU environmental, safety and security standards. Once approval is granted by one approval body it is accepted throughout the EU without the need to undergo further testing by other national approval bodies.
In the UK, the authorised approval body is the Vehicle Certification Agency (VCA). The VCA has powers to withdraw or suspend type approvals where vehicles are found not to conform to the approved type or deny approval where standards are not met. The type approval authority can also suspend type approvals where a vehicle is found to be a serious risk to road safety, or seriously harm the environment or public health.
Whole vehicle type approval brings together all the individual system and component approvals for a vehicle into a single legal document enabling a manufacturer to demonstrate that it complies with all the relevant technical requirements. The manufacturer can then produce subsequent vehicles in conformity with the original approval, and issue a certificate of conformity for each vehicle.
Where automobile parts are manufactured or sold separately, generally, they must be tested for compliance with the vehicle to which they will be fitted. However, certain component parts can be tested for compliance in isolation (for example, seatbelts).
Regulatory compliance when selling into the EU following Brexit
The transitional period
The final details concerning the transitional period from 29 March 2019 until 31 December 2020 have yet to be agreed. However, the intention is that market access will continue on current terms. This means that businesses will be able to continue to undertake compliance activity in the UK or overseas, which is overseen by UK-based authorities, such as the VCA in case of type approval. It also follows that VCA issued approvals will continue to be valid in the EU until the end of 2020.
However, there is a question over whether any type approvals issued by the VCA during the transition period would be valid in the EU27.
UK based manufacturers seeking to sell into the EU's single market will have to comply with EU regulations, unless a future trade deal allows for a degree of divergence. This becomes problematic where EU law requires certain actions to be taken in an EU member state as the performance of such actions in the UK may no longer count.
For example, subject to the terms of any future trade deal, following the transitional period the VCA will cease to be able to issue type approvals which are valid throughout the EU. In addition, the VCA will no longer undertake market surveillance in line with EU requirements around type approval. In April 2018, the European Commission published a proposed roadmap which would require manufacturers with a type approval from the VCA to seek a new approval from an authority in one of the EU27. However, the manufacturer would be able to re-use test reports where testing requirements had not changed. The EU27 approval authority would then conduct all necessary conformity checks going forward.
We note that the EU currently accepts approvals by authorities in Switzerland, Canada and the US. It is hoped that a similar arrangement can be agreed with the UK although, as discussed, the European Commission is considering putting in place provision on the basis that this may not be the case.
With respect to other areas of regulation, again everything will depend on whether the UK is able to secure a future trade deal with the EU in which the EU recognises the UK's regulatory regimes as being equivalent to its own. Securing such recognition is the aim of the UK's current negotiating position as set out in the Government's July White Paper.
Such an arrangement would see the UK maintain existing EU regulatory rules, and keep those rules up-to-date as EU law develops in the future. Such an arrangement would mean that manufacturers could continue to rely on regulatory approvals granted in the UK when selling into the EU and (hopefully), maintain EU product registrations such as the registration of chemical substances with the ECHA.
However, it remains to be seen whether the UK will secure a deal of this nature.
Should no deal be secured then, depending on the regime in question, for the purposes of ongoing compliance with EU regulation -
- EU product registrations may fall away unless transferred or re-registered to an entity in the EU27,
- companies may also need to appoint a representative in the EU27 to take any actions that need to be conducted in the EU, and
- testing may need to be carried out in an EU27 country.
Regulatory compliance when selling in the UK following Brexit
The UK belongs to the UNECE 1958 Agreement as an individual member (since 1963), and will continue to be a member in its own right after Brexit. On this basis, there are unlikely to be any big changes to UK rules which ultimately flow from the UNECE regime, even where no trade deal with the EU is secured.
As discussed above, the UK's current negotiating position is to secure regulatory alignment with the EU. This means that it is likely to want to preserve the substance of current regulation. However, some of the details and processes may change to the extent the EU accepts that the outcome of any different regulatory system is the same as that in the EU.
It is hoped that this means that it is likely that manufacturers will not be faced with two conflicting sets of regulatory requirements that would mean different processes (and the costs that would bring) when selling in the UK and in the EU.
However, where no future trade deal is reached with the EU which allows for acceptance in one jurisdiction of approvals and regulatory actions taken in the other, then companies may be faced with the administrative burden of complying with two sets of requirements to sell in both the UK and the EU.
Companies should keep informed as to the state of play in the ongoing negotiations between the UK and the EU27, particularly in relation to the detail of the transitional period and whether there will be agreement on regulatory alignment in any trade deal coming into effect in 2021.
In the meantime, companies should take steps to identify the regulatory approvals that they currently hold under EU law and map any regulatory actions or steps that must be taken in the EU which they currently undertake in the UK. Having done so, companies can then plan how they may move such activities to the EU27, if it becomes necessary, in order to secure compliance with EU law.