The impact of Brexit is likely to be felt by the retail sector both for UK businesses and also European businesses trading with or from the UK.
Until the UK formally leaves the EU, which is anticipated to be in March 2019, the UK remains an EU member state and will need to comply with all of its EU commitments. After Brexit, it is unclear what relationship the UK will have with the 27 remaining member states. The impact of the UK’s withdrawal from the EU is difficult to predict until there is better clarity on that post-Brexit relationship. The Government has sought to take steps to outline what this relationship may look like in its White Paper which was published on 2 February 2017. This document outlined 12 "principles" which include those around migration control and "taking control of our own laws". Many of these issues have the potential to have a direct and significant impact on the retail sector, although the how and when is as yet unknown.
However, for now the UK must continue to follow EU law. The extent to which the UK might depart from established EU consumer laws post-Brexit will ultimately be driven by that new relationship, together with the relationship the UK has with non-EU countries. Over time, it is predicted that there will be some divergence between the consumer protection laws between the UK and the EU.
Whose law applies anyway?
Consumer protection in the UK is a heavily regulated area. Retailers are required to comply with a mixture of EU and UK laws. For the most part, EU laws are implemented in the UK either by a statue or a statutory instrument (under the European Communities Act 1972). Therefore, these “EU” laws are now part of UK national law and it is very unlikely that this type of law will be repealed on the day the UK leaves the EU. To a much lesser extent, some EU law is issued as a regulation, which does not need to be formally implemented in individual member states, but instead applies automatically. Clearly, once the UK has left the EU, these EU regulations will no longer directly apply to the UK.
Some EU laws are implemented via decisions issued by the European Court of Justice (ECJ). Whilst part of the EU, the UK courts are bound by these decisions. After Brexit, however (as always, depending on the deal agreed between the UK and the EU), the ECJ decisions may still be considered to be persuasive and are unlikely to be entirely ignored by the courts.
Divergence or ongoing harmonisation – how to build a business plan?
Areas where retailers may find that EU and UK laws start to diverge in relation to consumers are:
- E-commerce – The European Commission has published a draft directive for online and distance sales of goods to consumers. The proposed remedies in the draft directive are different from the remedies in the UK’s Consumer Rights Act 2015. If the directive is not finalised before the UK leaves the EU then e-commerce retailers (who provide goods to EU member states) may have to provide for differing sets of rights and remedies for UK and EU consumers.
- Dispute resolution – The Online Dispute Resolution Regulation was implemented into UK law under the Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015. As part of this legislation, e-commerce retails must include a link to the EU dispute resolution platform to enable UK consumers to file complaints. Following the UK’s departure from the EU, it is unclear whether UK retailers will still be required to provide such a link to UK consumers or whether UK consumers will have access to this EU platform.
- The digital single market – as part of the Consumer Rights Act 2015, the UK has already implemented its own new rights and remedies for UK consumers when buying defective digital content (such as downloads, apps, ebooks etc.). There is no comparable EU legislation in force, although the European Commission has published a draft Digital Content Directive. There are similarities between this directive and the Consumer Rights Act 2015, however, there are key differences too. Once the EU Directive comes into force in the EU after the UK leaves the EU, there is a risk that retailers will have to comply with one set of rules for UK consumers and another for EU consumers.
Other areas of Impact
The commercial arrangements retailers have in place are likely to be impacted by Brexit.
- Supply chains – as part of the EU single market, UK retailers have access to “free-trade” arrangements which may well come to an end once the UK leaves the EU. If the UK is no longer in the single market then duties and tariffs could apply, which may need to be passed on to consumers. In order to mitigate the risk of this, some suppliers are including terms into their contracts which give rights to terminate and/or amend clauses to deal with Brexit.
- Currency fluctuations – the markets have seen a degree of volatility around Brexit. In particular, the British pound has weakened against the US dollar and the Euro, bringing a benefit to UK exporters, but a disadvantage to importers (although, of course, most retailers will typically hedge their currency exposure between 9 to 18 months). UK retailers pricing in Euros can benefit from the currency fluctuation, either by using those funds to invest or to bank in order to hedge against future currency exchange fluctuations.
- Employment – within the retail sector there is a general reliance on non-UK workers. There is uncertainty as to what the status will be of both UK nationals living and working in other EU countries and of the nationals of other EU member states living and working in the UK. Until this issue is resolved, businesses and their HR teams should audit their workforce to asses those who may be at risk from changes to free movement into and out of the UK.
Summary
Until we have clarity on what the UK’s relationship with the EU looks like after Brexit, many retailers are taking a “wait and see” approach. As we have seen, although it is impossible to predict how retailers will be impacted, it is likely that Brexit will make cross-border ecommerce more complex. Retailers should, however, start to prepare now in order to assess their contractual, technological and business arrangements to explore opportunities and mitigate the risks. It may be the case that the Government decides to adopt any future EU directives as part of UK consumer law, or amend national UK law to harmonise with new directives. Additionally, there may be pressure from the retail sector to ensure continued harmonisation of aspects of consumer law in order to make it easier for UK based retailers to sell their goods and/or services across the EU.
Article published: 13th April 2017
