30 June 2021

Michael Cox considers why some EU distributors are refusing to act in the same capacity as they did pre-Brexit and he provides options and recommendations for addressing this scenario.

We are hearing anecdotal evidence from clients that their EU distributors are, in some cases, refusing to act in the same capacity as they were prior to 1 January 2021.

Why is this?

Distribution arrangements are typically used as a low risk means of expanding business into new markets or territories. A distributor buys a manufacturer’s goods and sells the goods on, as opposed to an agent that may introduce sales that are made directly by the manufacturer in return for a commission. Brexit has not changed the relevant law relating to distribution or agency. However, it has materially changed the importing regime which has added obligations, risk and cost to the distributer.

Following the end of the transition period, the UK is now deemed a ‘third country’ by the EU. As such, EU distributors who import and distribute UK products on the EU single market are deemed the ‘importer of record’, being the person introducing the goods to the EU single market. This carries increased obligations like checking that the products fulfil all EU safety, health and environmental protection. The importer of record must verify that:

• Goods are labelled with the importer of records’ address and the manufacturer’s details;
• The correct conformity assessment procedures have been carried out and that goods have the correct conformity markings;
• The manufacturer has drawn up the correct technical documentation and complied with the labelling requirements;
• They maintain a copy of the declaration of conformity for a period of 10 years after the goods they import have been placed on the market; and
• Goods conform with the relevant essential requirements.

In addition, if the distributor sells goods in its own name, they will also assume the manufacturer’s responsibilities. Manufacturers are responsible for checking that their products meet EU safety, health, and environmental protection requirements. It is the manufacturer’s responsibility to carry out the conformity assessment, set up the technical file, issue the EU declaration of conformity, and affix a “CE” marking to a product. Only then can this product be traded on the EU single market.

These added obligations mean an increase to the distributer’s costs and risk.

What options are available?

The options available will depend on the relationship and the circumstances, but they may include:

1. Renegotiating the arrangement so that the distributer’s added responsibilities and risk are adequately compensated.

2. Appointing a separate “Initial Importer”, who takes on much of the obligations and effectively supplies the goods to your distributor. This will have a cost impact but may preserve the relationship with the distributor.

3. Changing the relationship from distribution to agency. This has its own set of legal complications (including that the Commercial Agents directive may apply, meaning that compensation may be payable to the agent at the end of the relationship).

4. The distributer may simply wish to no longer act in this capacity.

Recommendation

Keep your distributor/agent close. If the relationship is working, it offers key benefits to both parties. Be aware that the distributor may be looking for EU alternatives to your product, to lessen their own burden. It may be best to proactively discuss any additional responsibilities that have been assumed post Brexit. This way, both parties can continue to trade successfully, prior to the distributor looking for EU alternative partners.

Michael Cox, Senior Associate: mxc@bto.co.uk / 0131 222 2939