Are businesses ready for the upcoming divergence in UK / European trade regulation?
Two years on from Britain’s departure from the EU and the rules and regulations governing the way we trade in the UK and internationally may be about to change.
As part of its Brexit deal, the British government agreed to a temporary moratorium on any significant divergence from European legislation to allow UK businesses time to adjust. During 2022, and into 2023, we can expect to see where divergence may occur.
There are a number of industry and government consultations ongoing and due to report in 2022, many of which will have big implications for British retailers and consumer industries. From food standards, allergen warning standards and digital commerce rules, all the way to legally substantiating environmental claims and the arrival of a plastic tax, businesses are facing a tricky transition this year.
To help filter out the noise, we have identified some key milestones and emerging risks to watch out for.
1. FOOD STANDARDS AND ALLERGEN WARNINGS
Food and farming contributes £120 billion to the UK economy annually and supports 4.3 million jobs right across the nation, according to figures published in December by the Food and Drink Federation. One of its success stories is exports, with UK agri-food and drink sales overseas reaching nearly £24 billion in 2019.
The pandemic has curbed exports since but so too have more onerous border control rules, along with global supply chain issues and a shortage of lorry drivers. Between January and the end of September last year exports fell £2.7 billion, a drop the FDF blamed mainly on a 24 per cent fall in exports to EU member states. This said, exports to non EU countries rose last year, with UK sales to China, Japan and Singapore among those with the strongest rise in demand.
The UK Government will not wish to rock this boat in choppy seas, especially in the context of economic recovery as the UK looks to be an early emerger from the pandemic. It is therefore unlikely to deviate from regulation aligned with European laws in the short-term at least.
However, food regulation is one area where in time the UK may wish to be more bespoke. The so-called ‘Natasha’s Law’ requiring pre-packed for direct sale foods to provide a full list of ingredients and clear allergen labelling came into force on 1 October 2021. The two-year lead-in enabled food businesses directly affected to engineer the necessary changes to comply and by the due date many were already meeting the new requirements.
In December the Food Standards Agency opened a consultation to gather views from businesses and consumers on the use of precautionary allergen labelling (“PAL”), often written as “may contain” or “not suitable for” on food packaging. A decision on the acceptable wording is due later this year and, if it diverges from European wording significantly, could prove a headache for food retailers supplying pre-packaged food to the EU. Current intelligence suggests that the UK is trying to lead a “keep it simple” approach.
2. ALIGNING ECOMMERCE REGULATION WITH PHYSICAL RETAILER RULES
Amid growing concern among international governments over the domination of global digital markets by a few large incumbents, a number of countries are reviewing competition rules for digital firms. The US is consulting on its own policy changes and last year the European Commission confirmed new rules for digital contracts which took effect from 1 January. These aim to create “clearer rights for consumers when accessing digital content and digital services” by strengthening retailer disclosure standards and providing cooling off periods for certain services.
Meanwhile in the UK the Competition and Markets Authority established its Digital Markets Unit late last year and is consulting on rules to improve digital competition, including a proposal to introduce a code of conduct that the larger digital firms must comply with. Similar reviews are being considered in Germany, Australia, Japan and South Korea.
Given the lack of geographical boundaries in ecommerce, aligning international legislation will be key if it is to function effectively.
3. PLASTIC TAX
From 1 April 2022 a new tax will apply to plastic packaging manufactured in or imported into the UK which does not contain at least 30 per cent recycled plastic. This will be applied at a rate of £200 per metric tonne of plastic packaging.
This follows the EU’s existing plastic levy which is taxed at a uniform call rate of €0.80 per kilogram (equivalent to €800 per tonne) and applies to the weight of plastic packaging waste that is not recycled.
For British manufacturers caught by both rules and British retailers importing plastic-packaged goods from outside the UK, the different approaches will require significant and painstaking attention to detail in order to adhere to each set of regulations in tandem.
4. GREEN CLAIMS
In December last year the Advertising Standards Authority (ASA) published new guidance for firms claiming certain environmental and social credentials which may mislead consumers. The wording in this guidance has raised concerns in the industry, in particular over how companies can be expected to “consider how knowledgeable the audience of marketing communications are likely to be, and should not assume a high level of understanding, particularly if ads are untargeted”.
The implications of this (and the guidance as a whole) are wide-ranging, particularly if a similar approach is taken where companies are reporting to stakeholders as well as customers. For example, it’s not clear whether green or socially responsible claims should adhere to the guidance only in ad campaigns or also on products, in all company literature and even for a firm’s supply chain. The last in particular is extremely challenging to calibrate accurately, leaving firms open to potentially unlimited claims.
The ASA guidance followed on from the Competition and Markets Authority guidance on ‘Making Environmental claims on good and services’ which was published in September 2021, which set out a number of principles which green claims must adhere to. We are of the view that further clarity will be needed to provide accurate definitions of environmental claims, based on data and factual evidence.
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This article was also published in The Retailer, our quarterly online magazine providing thought-leading insights from BRC experts and Associate Members.