Technical Barriers to Trade in the event of No Deal: Importers (2/4)

I am responding to a chapter by Sam Lowe on non-tariff barriers to trade in a report on the implications of trading on WTO terms in the event of a No Deal Brexit. I am confining myself to those technical regulations which come under the WTO Technical Barriers to Trade Agreement, rather than those covered by the WTO Agreement on Sanitary and Phytosanitary Measures. I began in Part 1 by addressing the question, raised in the chapter’s heading, as to whether regulatory divergence would give rise to technical barriers to trade. I argued that if the UK regulations diverged from the EU after Brexit, this could create challenges for manufacturers, wherever based, to overcome in producing goods that satisfied the new regulations. These differences in regulations could be considered to be barriers, or hurdles, to the UK market, but hardly to the EU-27 market.

Access to the EU market

For entrance to the EU internal market, there would be no change to the required conformity assessment procedures after a No Deal Brexit. Exactly the same tests would be required as before, and where EU regulations require certification by a third party ‘Notified Body’, these certification requirements would also remain the same (Blue Guide,  p. 21):

Products manufactured in the EU and products from non-EU countries are treated alike. 

It would be surprising if it were not so. The EU could hardly demand higher safety performance levels for imported products than Community products. It could not be, for example, that it would require 30kN breaking strength for imported textile lanyards for safety harnesses but only 22kN for Community products!

Does this mean, then, that there would be no extra regulatory barriers in the event of No Deal and WTO trading? The answer is that there would indeed be extra barriers, of three types, all of which Lowe identifies:

i) An EU ‘importer’ would be required, who would have a responsibility to carry out checks that the manufacturer had carried out the necessary conformity procedures.

ii) UK ‘Notified Bodies’ will lose their notified status, and the certificates they have issued will lose their validity.

iii) UK exports to EU-27 would be subject to regulatory checks at the border.

In this post, I examine the requirement for an ‘importer’. Lowe writes:

A word of clarification is necessary on the requirement that importers ‘check’ that the imported goods comply with the product safety legislation. Does this mean that they have to carry out their own testing of the products? The legislation certainly requires the importer to ensure that the manufacturer has carried out the requisite conformity assessment procedures, produced the required documentation, and affixed the CE mark to the product. Taking Regulation (EU) 2016/425 on Personal Protective Equipment (PPE) as an example (Article 10.2, 1st sub-para):

Also, as one would expect, the importer is under an obligation to take action if they have any reason to believe that the product is non-compliant (10.2, 2nd sub-para):

But does it go beyond that? Article 10 begins with a rather stark obligation upon the importer not to place non-compliant goods on the market:

But is the importer expected to carry out physical testing themselves to confirm compliance? The Blue Guide clarifies that the importer’s obligations do not ‘imply the need for importers to systematically resort to additional control procedures or (third- party) testing’:

The footnote contains the further clarification that it is ‘generally considered good practice‘ for importers to bring the manufacturer’s attention to their (the manufacturer’s) obligations and ensure that either they, the importer, has access to the technical file, or that the manufacturer has signed an undertaking to provide the technical documentation to the market surveillance authorities upon request:

These obligations do not appear particularly onerous to an experienced importer, as Lowe seems to recognise with his comment that they will be ‘less of an issue’ to companies with ‘lots of import experience’. Larger UK manufacturers may have at least one office in the EU-27 which is currently involved in distribution of their products. If so, then it would presumably be able to take on the role of importer, with minimal extra cost. If a different company plays the role of importer then it will be presumably require some compensation for assuming a measure of liability for the compliance of the products. But the risk for the importer appears to be low, if its obligations extend only to those outlined in the Blue Guide clarification, with the result that the cost may likewise be modest.

Polydron toys

Lowe suggests that the obligations on importers might dissuade EU-27 toy shops from buying from a UK supplier after Brexit, citing a July 2018 article in the Financial Times, which reported on steps taken by Polydron (UK) Ltd to prepare for Brexit. The company, which manufactures educational toys in India and China, were distributing them to customers worldwide from their warehouse in Cirencester. The company has 105 customers in the EU-27, no doubt including toy shops and presumably schools and so on. If these customers were to continue buying directly from the UK, then each would have to become an importer and the toy shops would then assume an importer’s liability for the safety of the toys they were selling.

Not only this but the product would have to carry the name and address of the importer (Toy Safety Directive 2009/48/EC, Article 6(3):

Previously, as Richard Hardstaff, Polydron’s Managing Director, told the Financial Times: ‘It is our phone number on the goods, and if there is a problem it is us who gets called up’. Polydron could hardly rely on dozens of different toy shops and other importers to provide appropriate answers to users of their product. Perhaps the importer could simply refer the person who contacted them on to Polydron in the UK, but that in itself would amount to a decline in the quality of service, quite apart from communication difficulties that might arise.

To avoid the potential problems, Polydron was at the time of the FT article hiring staff and opening a branch in Germany to act as the EU importer, handling 30% of the company’s operations. Three months later, in November 2018, Polydron announced the opening of a warehouse in that country. It seems probable that the Cirencester warehouse will continue to distribute the product to the rest of the world.

Richard Hardstaff, Polydron’s Managing Director, told the Financial Times that they would not have opened this new branch if it were not for Brexit. This does not mean, however, that the cost may not be mitigated to some degree by benefits accruing from establishing a presence in Germany, particularly in marketing their product there.

The most important point though, from the point of view of analysing and assessing the effects of a No Deal Brexit, is that the main cost has already been borne by the company. The German operation is established, and would continue more or less without hindrance or disturbance (depending perhaps on whether it is currently receiving the goods directly from the factories or from the UK) in the event of No Deal. There could be an ongoing cost from having been forced to split the warehouse operation in two, but it hardly seems likely that it would be reintegrated even if, for sake of argument, the UK were to cancel Brexit and stay in the EU. It does not seem obvious then that a No Deal Brexit would add any further costs to the company.

Is there a cliff-edge?

Assuming that the German branch is importing directly from the factories in China and India, then it is already functioning as an importer, so that Brexit would have little if any direct impact on its operation. But what happens in the case of a UK manufacturer producing for the EU-27 market? The transfers of goods from the UK are not ‘exports’ under EU law, but rather ‘despatches’ and so there is no currently no importer involved in the process. What happens in the event of No Deal? Would there, for example, be a hiatus while the importer assumes their new role? Do UK manufacturers have to have an importer ready on standby to begin operation as soon as the Treaties fall away?

The question is addressed in the European Commission’s Brexit Preparedness notice for Industrial Products:

The Commission explain that an economic operator who had previously played the role of a distributor in receiving goods from the UK and making them available on the market, would become an importer when the UK became a third country. They are not required to do anything to assume this new role. It is not, for example, that they have to be registered specifically as an importer.

Their extra obligations, however, will be upon them immediately. In particular, the goods will have to carry their name, registered trade name or mark, and address, as described above. Also, they will have to be assured that the manufacturer has carried out the necessary conformity assessment procedures, also as described above.

There is nothing to prevent these obligations being fulfilled or prepared in advance as a contingency against a No Deal Brexit. The name and details of the distributor could be affixed to the product or packaging in advance, there being no requirement to specify that they are an importer. Likewise the manufacturer could provide a distributor with the technical documentation in advance, or sign a contract which would oblige them to provide it on request from the authorities, in the event of No Deal and the distributor becoming an importer. None of this seems particularly difficult or challenging. And if it had not been done in advance, it would not take too long to remedy the situation. Or so it seems to me.

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