Brexit has caused a fair degree of uncertainty in the food and drink sector in respect of the changing legal framework, financial implications and practical consequences that may result from the United Kingdom’s departure from the European Union.
The legal framework in which the food and drink sector operates in the UK is heavily influenced by legislation originating from or implemented by the EU. Supply arrangements, export and agency relationships could be affected by Brexit and dealing with consumers (as opposed to business customers) in European markets may become more problematic due to the influence of the EU on data protection policy and consumer rights.
The manner in which the UK will approach Brexit and the extent to which legislation originating from the EU will be retained or revised is unknown but in any event businesses who export to the EU must continue to abide by both EU and UK laws, potentially placing an additional financial and/or practical burden on smaller businesses.
In addition, the UK will be required to renegotiate its trade agreements with the EU and there are a number of potential models the UK may adopt. The UK could either seek to replicate models adopted by other countries (such as Norway or Turkey), or it may seek to negotiate and adopt a different model, which would influence various aspects of the food and drink sector including commercial arrangements, the cost of trading and the protection of brand assets.
It is vital for UK businesses to ensure they have robust agreements in place to secure their EU trading status and relationships in the uncertain future.
Legislative measures: Contracts drafted in accordance with UK and EU law must cater for new provisions which may be introduced by UK law to replace the EU counterparts. For example, commercial agents are granted numerous protections under EU legislation which will cease to apply when the UK exits the EU (while other legislative measures originating from the EU will have been directly applied into UK law and, if required, may need to be repealed). The UK may enact similar provisions into UK law or may adopt a new approach and it is vital that businesses agree a robust but flexible contractual position in order to counter any legislative uncertainty.
Governing law and jurisdiction: Commercial contracts governing cross-border transactions will usually involve an element of negotiation in respect of the governing law and the courts which will have jurisdiction to hear disputes arising under the contract. Given the uncertainty regarding the legislative framework in the UK (whether the UK will continue to retain and adopt EU laws) and the potential for a second Scottish referendum, it is vital that Scottish businesses ensure their contracts are governed by Scots law, under the jurisdiction of the Scottish courts.
Amendment: It is important also in this changing climate that businesses are able to amend contractual terms which may no longer be practical due to a change in the landscape in which the business is operating. It is beneficial to provide for an easy and pre-agreed mechanism to amend each contract if or when required.
Change control: UK companies which form part of a bigger corporate group may also require to consider if Brexit may trigger a group restructure. If this is a possibility, businesses should ensure the contractual terms upon which they engage do not allow the other party to terminate in the event of a change of control of the relevant business.
UK businesses who wish to continue to do business in the EU will require to ensure their sales channels and supply chains are secure.
Sales channels: UK businesses should seek to formalise any informal arrangements in place regarding sale and supply of its products and/or services. In doing so, the business can contractually agree the terms that will bind the parties in the face of legislative and structural uncertainty. Businesses should consider the duration of the contractual obligations which they intend to enter into and, provided the business can guarantee it will be able to fulfil its obligations, it should seek to enter into longer contractual relationships to secure these sales/trading channels.
Supply chains: Similarly, businesses should seek to formalise the contractual relationship with their supply chain to secure ongoing supply from European counterparts. The duration of such contractual relationships is a balancing exercise as a business would not want to be tied into a contractual relationship when it becomes burdensome to trade with the relevant party, but likewise a business will want to secure supply to ensure it can meet its own obligations to its customers.
Tariffs: The level of tariffs, if imposed, on imports and exports between the UK and EU could potentially have a dramatic effect on the food and drink sector. If tariffs are high for exporting goods to the EU, this will have a direct effect on British producers as their cost margins will be increased.
Currency: Currency fluctuations will also be a relevant factor in the ability for UK companies to continue to trade in the EU. Depending on the nature of the currency fluctuation, it could be either attractive or disadvantageous for businesses to trade with UK companies. In order to counter any risk in this regard, UK businesses should seek to include in any contractual relations an ability to recover any sums incurred due to changes in import/export laws, finance or taxation; and an ability to recover any sums lost due to falling values of the currency under which the contract operates.
Intellectual property: It is likely that the regime for UK national IP rights will not be affected by Brexit but European rights, which currently form part of the UK IP infrastructure, will be subject to change.
Patents: The European Patent Convention (EPC) is not related to membership of the EU and the UK will remain a member of the convention post-Brexit and consequently, the EPC should not be affected by Brexit. A Unified Patent Court (UPC) is expected to come into existence in 2017 with the option to apply for a unitary patent (UP). As the UK will no longer be a member of the EU, the UK will not be included in the scope of the UP and due to the procedure required to ratify the UPC, it is arguable that Brexit could cause a delay in this process.
Trade marks and designs: The European Union Trade Mark (EUTM) regime is governed by European legislation and it is arguable that a new regime would require to be implemented after Brexit to give continuing effect or corresponding effect to existing EUTMs, however, the scope or terms of such regime (if one is implemented at all) is unknown. Until Brexit takes effect, EUTMs will continue to be valid and enforceable in the UK.
Compliance: If a UK business wishes to continue to trade with the EU, they will be subject to a number of regulatory and compliance measures in respect of its operations, quality and standards.
Data protection: As the landscape of EU data protection law is set to change, UK businesses wishing to continue to deal with EU consumers will need to adhere to EU laws, regardless of whether such laws are implemented in the UK.
Food safety: The law on food safety in the UK is governed by UK statute, but much of this originates from the EU. Therefore there will be no immediate change to the law in this area but the current food safety regime provides for the UK Food Standards Agency to share information and knowledge with their EU equivalent. The process was designed in order for EU member states to co-operate on public health and safety across Europe. It is yet to be seen whether the UK’s involvement in this regime will continue on the UK’s departure from the EU.
Labelling: In order to trade with the EU post-Brexit, the food and drinks sector will require to continue to comply with EU requirements in relation to labelling on food and drink products in addition to any UK provisions which may be enacted. If the UK law departs substantially from EU law in this regard, businesses could be required to use different labels when selling in both the UK and to an EU market.
Although the landscape of the food and drinks sector in a post-Brexit UK is unknown, UK businesses can take steps to ensure they are in a strong position to adapt to legislative change in an uncertain trading environment.
• Euan Duncan is a partner at law firm MacRoberts