Monday January 01, 2018
UK Reviews Brexit 'No Deal' & Product SafetyBy Fergal Duggan, Cooley LLP
On 7 December, the House of Lords' European Union Committee published a report entitled Brexit: deal or no deal. The report (bit.ly/2BNQBDA) considered the potential consequences of the failure of the UK and the EU to reach agreement on withdrawal or future relations post-Brexit (the so-called 'no deal' scenario), alongside the aims and feasibility of implementing a transition period immediately post-Brexit, to allow a deal to be reached later. Both 'end-states' are likely to have a significant impact on trade between the UK and EU, and impact the development, advertising, sale and transport of products, alongside product safety regulation more specifically. The report uses a series of case studies to demonstrate the likely effect of a 'no deal' on the following sectors: financial services; agri-food; freight, transportation and ports; aviation; higher education and research; impact on Ireland and Northern Ireland; and citizens' rights.
The committee finds that the impact of the UK leaving the EU without a deal is likely to be far reaching and "deeply damaging." In relation to the trade of products, the report concentrates on the likelihood of tariffs and non-tariff barriers being imposed. However, the product safety challenges of a 'no deal' scenario are broader than this. This article will also consider some of these further challenges, including the breakdown of relationships and communications between market surveillance authorities and the failure of the UK to access and benefit from RAPEX.
If the UK leaves without a trade deal or transitional arrangement, it likely would immediately default to WTO rules. It would face tariffs on 90% of EU goods exports (by value), at an estimated cost of £4.5 billion-£6 billion. This would lead to large increases in costs across a wide range of products, with food and drink, clothes, footwear, chemicals, automotive, FMCG and toys likely to be hit badly.
More importantly from a product safety perspective, non-tariff barriers (pre-existing product safety regulations, lack of harmonization, delays and customs checks) will cause problems which are significant and complex. The report states, "[T]he short-term impact on trade in goods would be grave" and "The UK's ports would be overwhelmed by the requirement for customs and other checks" leading to long delays. This is likely to be most disruptive for cross-border supply chains, especially those involving the sale of perishable goods, and for the sale of products across the UK's only EU-land border, between Ireland and Northern Ireland.
The process of leaving the EU is made more complex when one questions how the UK will react to future changes to EU legislation. As things currently stand, the European Union Withdrawal Bill freezes EU law into UK law on 29 March 2019, the date on which the UK will leave the EU. Changes made to EU legislation after this date will not be automatically incorporated into UK law. Although the UK's position on continued regulatory alignment with the EU is not yet clear, assuming the government favours limited divergence initially to ease trading concerns, the UK will have to regularly update its laws to ensure that this alignment is maintained or risk slowly drifting apart. Not only will this be unlikely to satisfy those who wish for a 'hard Brexit,' it would increase costs and uncertainty for manufacturers, importers and distributors alike, especially where the UK and EU's legal systems are gradually diverging.
A 'no deal' scenario would also bring UK-EU cooperation on matters vital to the national interest, including the trade of safe products, to a "sudden halt." This would include the sharing of information with EU market surveillance authorities and access to RAPEX, the EU's Rapid Alert System for dangerous non-food products.
A further report (bit.ly/2C4zEsL) by the committee published on 19 December, entitled Brexit: will consumers be protected? highlighted the importance of "cross-border mechanisms and infrastructure that facilitate and encourage cooperation between the various national bodies responsible for protecting consumers." This report focused on the importance of both the range of EU legislation (especially the Consumer Protection Cooperation Regulation) and the agencies, networks and infrastructure (including RAPEX and the European product standardization bodies) which combine to police consumer protection in the Single Market. As a result of the benefits of this system, the committee called on the government to make every effort to provide a "clear approach as to how it will secure the UK's post-Brexit access to the EU's reciprocal cross-border mechanisms" and a "clear plan aimed at alleviating the pressures on national regulators, and addressing how they will continue to interact in the interests of consumers with other national regulators."
It is the opinion of the committee that, due to the uncertainty of achieving a comprehensive agreement before 29 March 2019, "the overriding UK and EU interest is now to secure an orderly and legally certain transition." This proposed transition would comprise of a 'standstill period' during which negotiations can continue, followed by an implementation or adaptation phase. Although it would not fully alleviate concerns, it would somewhat ease the time pressure faced by both the UK and EU and lessen the potential negative effects likely be caused by a 'cliff-edge Brexit.'
The committee states that EU and UK consumer law are "interwoven in a complex and interconnected fashion," and that "citizens' legal protections are strengthened by a harmonised system of consumer protection." A transitional system is the committee's recommendation for maintaining this harmonised system and allowing the UK to leave the EU in an orderly fashion. However, despite this and recent progress in Brexit negotiations, the government maintains that "no deal is better than a bad deal" and the Brexit 'end state' remains unclear. As a result, this topic will remain contentious at least until the UK leaves the EU on 29 March 2019, although the consequences of the decision are likely to be felt by manufacturers, importers, distributors and consumers for significantly longer.
Dispatch from the EU is a monthly feature provided exclusively for PSL subscribers by Cooley LLP, www.cooley.com. For further information about the above, contact Rod Freeman at email@example.com.