BREXIT - Planning for What's Next

The UK left the EU on 31 January 2020 with a deal, it is business as usual from 1 February 2020 until 31 December 2020.

As a result of the General Election on 12 December 2019, the Conservative Party won with an overall majority and Boris Johnson remains the UK Prime Minister (PM).  In this political context, Boris Johnson has a majority in Government and had his Withdrawal Agreement passed by the Commons and the Lords, meaning the UK left the EU with a deal on 31 January 2020.  Members can view online the Withdrawal Agreement (WA) and the Political Declaration for insight into the future relationship between the UK and the EU.


Expected changes on 31 January 2020

The UK left the EU on 31 January 2020 (Exit day) with a deal.  After this date the UK will officially not be part of the EU anymore.  A transition period (or implementation period, as named in the Withdrawal Agreement) is provided under the WA until 31 December 2020, with the possibility of extension of one or two years if requested by the UK by the end of June 2020.  Please note - during the transition period, while the UK will be officially out of the EU, EU law will still be applicable in the UK.  In practice this means that companies will continue to operate during the transition period itself as they have in the past; however, companies are recommended to use this time to prepare for what is to come. 

Expected changes between being in and out of the EU

The table below summarises some key differences of the current situation where the UK is part of the EU Single market and the scenario where the UK will be out of the EU Single Market post-Brexit and after the Implementation Period (IP).


Future UK legislation, post transition period

The transition period will allow for the UK and the EU to start negotiations for a Free Trade Agreement (FTA), which will determine how the UK and the EU will interact in the future.  In the event that an FTA is not agreed between the UK and the EU, trade would occur under World Trade Organisation (WTO) rules and the UK legislation that would come into force as of 31 December 2020 would not reflect any regulatory cooperation with the EU.

In regard to future UK legislation, the EU Withdrawal Act provides for EU law to be retained in the UK post-Brexit, by transposing it into UK law.  The EU Withdrawal Agreement Bill legislates to allow for changes to be introduced while transposing EU law into UK law to correct deficiencies.  This means that in the short term (at the end of the implementation period) UK law will be constituted of retained EU law, therefore a ‘replica’ of EU law, with some differences in some mechanisms that depend on the outcome of the negotiations.


Negotiations

CTPA is working to input into the negotiations to help the UK Government shape the UK regulatory framework during the IP, should the UK leave the EU on 31 January 2020 with a deal. 

Both the UK and the EU issued their negotiation mandates, highlighting the key discussion points for the UK/EU future relationship.

CTPA has also now issued its position papers with the key negotiation arguments for the future cooperation between the UK and the EU and the proposals for the future UK regulatory frameworks for cosmetics.  The position papers are available here.


Scenarios

There are therefore various possible scenarios that can occur and each of them will have different implications.  Please see the below timeline; more detailed advice follows.  Due to the variability of the future developments and the very short timings, CTPA’s advice is therefore to still continue to prepare for the scenario that has a larger impact.

Scenario 1: the transition period is extended

The UK and the EU will very likely start negotiations for the FTA in March.  The UK PM can request for an extension of the transition period for one or two years by the end of June 2020.  An extension of the transition period would allow the UK and the EU to develop thorough negotiations and produce an exhaustive FTA that covers major relevant topics and sectors.

However, the Withdrawal Agreement Bill (WAB) legislates against the request of an extension of the transition period.  Therefore, this scenario is possible but not likely to happen.  If there is no extension of the transition period, the UK and the EU will only have a short amount of time (approximately 6 months) to negotiate a FTA.

Once the negotiations finish and the FTA is agreed, the future trade relationship and the UK regulatory frameworks will be known. 

Tariffs

Until negotiations start and the FTA is agreed and ratified, it is unknown what tariffs will apply to cosmetics and ingredients.  There is a will from both the UK and the EU to implement 0% tariffs, as is currently the case, it is therefore expected that this will be agreed officially.  It will also be very important to negotiate the right Rules of Origin, which determine where a product originates from and which tariffs subsequently apply to it.

In the meanwhile, the Department for International Trade (DIT) has issued its UK Global Tariffs plan, outlining the tariffs imposed on all imports into the UK from 1 January 2021 onwards and will replace the EU’s Common External Tariff.  More information can be found here.

Customs clearance

As the UK will be out of Customs Union and the Single Market, there won’t be free movement of goods.  Therefore, there will be the requirement for checks at borders and the correct documentation will have to be provided to allow goods to move.  There is the possibility to negotiate for facilitated customs procedures (e.g. Authorised Economic Operator).  Administrative cooperation would also ease the customs clearance process.

Cosmetics Regulation

EU
During and following the Implementation Period, the EU Cosmetic Products Regulation (CPR) will continue to apply to EU27 Member States as is currently the case. UK companies wishing to continue to sell cosmetic products to the EU27 market, will have to comply with the CPR.  UK companies who intend to continue supplying their cosmetic products to the EU market will need to ensure they have the legal RP representation required within the EU27. 

UK

Following the transition period, the future UK cosmetics regulation will depend on the outcome of the negotiations with the EU.  Therefore, it is impossible to say at this stage what this will be, and it will only be known with very short notice.

The EU Withdrawal Act provides for EU law to be retained in the UK post-Brexit, by transposing it into UK law.  The EU Withdrawal Agreement Bill legislates to allow for changes to be introduced while transposing EU law into UK law to correct deficiencies.  This means that in the short-term (at the end of the implementation period) UK law will be constituted of retained EU law, therefore a ‘replica’ of EU law, with some differences in some mechanisms that depend on the outcome of the negotiations.  In the longer term (e.g. five years post-Brexit), the UK can make further changes to the UK law to make it more UK-focussed.

Under the current political climate and some provisions under the WA, it is CTPA’s understanding that there will not be mutual recognition of legal entities like the RP, or access to EU databases like the Cosmetic Product Notification Portal (CPNP).  However, the negotiations still leave space for regulatory cooperation between two separate regulatory frameworks.

This means in practice that the requirements for a UK-based RP, the UK RP address on pack, notification under a UK database, etc., will most likely be introduced into UK legislation for cosmetics.  Furthermore, current distributors bringing products from the EU27 into the UK will become importers under the future UK Cosmetics Regulation and they will be automatically considered the RP.  Companies need to ensure that distributors will have a mandate in place with the new UK RP, to ensure the responsibility for the products is under the appointed legal entity.  Members will be aware that the ‘No deal’ Brexit UK Cosmetics Statutory Instrument (SI) was adopted in March 2019; CTPA understands this is likely to form the basis of any future UK cosmetics legislation.

More importantly, companies selling in both the UK and the EU27 markets will have to comply with both regulatory frameworks.

Under this scenario, CTPA advises companies to prepare for the most impactful scenario. 

CTPA will keep companies informed on the development of negotiations and the likely scenarios and consequences that will apply.

REACH

EU REACH will continue to apply to EU27 Member States as is currently the case. UK companies wishing to continue to sell cosmetic products and chemicals to the EU27 market, will have to comply with EU REACH. 

As for the UK landscape, the same rationale for the UK cosmetics regulation will apply.  There will be a UK regulatory framework for chemicals based on EU retained law, however its practicalities and duplication requirements very much depend on the outcome of the negotiations.  Therefore, it is unclear how UK REACH will be affected by the negotiations.  Companies will be aware that the ‘No deal’ Brexit UK REACH SI was adopted in March 2019; CTPA understands this is likely to form the basis of any future UK chemicals legislation.

It is therefore even more difficult to predict the situation for chemicals.  For this reason, CTPA advises companies to prepare for the most impactful scenario.

Goods on the market

Article 41 of the EU Withdrawal Agreement states that goods placed on the EU27 or UK markets before the end of the implementation period may be further made available and circulate between the two markets until they reach the end consumer.  Proof of when the goods were placed on the market will be required.  For the definition of 'placing on the market' and 'making available on the market', please consult the Blue Guide.

Transport

Post-Brexit the UK will not be an EU Member State anymore and it will stop benefitting from the current transport access.  Therefore, transport provisions will depend on the negotiations and the outcome of the FTA.

Immigration Scheme

On 19 February 2020 the UK Government published a policy statement on the new UK immigration system.  More information can be accessed here.

Scenario 2: the transition period is not extended and an FTA is agreed

If there is no extension of the transition period, the UK and the EU are more likely going to negotiate a ‘bare-bones’ FTA that will likely only cover trade and not have sectorial details.  This FTA will not include topics like financial services, aviation, transport, road haulage, immigration, research and development; these will be covered separately from the FTA in unilateral temporary permissions.  This scenario is currently viewed as the most likely to happen.

The same considerations explained in Scenario 1 will apply to this scenario too.  The only difference being that the transition period is not extended, therefore the deadline for companies to prepare would be 31 December 2020.  CTPA will be pressing for the FTA to include a phase-in period to allow companies and competent authorities to prepare to comply with the changes.

Under this scenario, CTPA advises members to prepare for the most impactful scenario.  More importantly, in the event that the transition period is not extended, companies will only have around two months to prepare between the end of the negotiations and the entry into force of the terms of the FTA on 1 January 2021.  It is therefore vital to use the time of the transition period to prepare for business continuity and to avoid severe disruption. 

Scenario 3: the transition period is not extended and an FTA is not agreed

If there is no extension of the transition period, it is possible but less likely to happen that the UK and the EU cannot agree even on a ‘bare-bones’ FTA and therefore future trade will continue under WTO terms as of 31 December 2020.  This also means in practice that the UK legislation that would come into force as of 31 December 2020 will still be EU retained law, however it will not include input from the negotiations. 

Under this scenario, the Withdrawal Agreement between the UK and the EU will be in place, but without an FTA to set the terms of future trading, goods placed on the EU and UK markets before the end of the transition period (31 December 2020) can lawfully circulate in either market until they reach the end consumer, as stated under Article 41 of the Withdrawal Agreement.  The transition period for this third scenario is the one commencing on 1 February 2020 (the so-called implementation period), therefore companies would have 11 months to prepare.  CTPA continues to advise to prepare and set-up RPs in both the UK and the EU and to change the labels to reflect the two addresses.  These will be needed in any scenario, because there will be the need of an EU-based RP and a UK-based RP as explained in Scenario 1.  Companies are therefore urged to take action now.