Distribution agreements are the framework for commercial relationships between suppliers and distributors. They are very common within the commercial world and it is imperative that they are drafted to cover all eventualities. With Brexit looming, it is a vital time for companies and individuals entering into such agreements to reassess these agreements and consider the potential amendments that might be necessary to protect themselves come 31 December 2020.
Although the implications of Brexit on distribution agreements are currently uncertain and are dependent on negotiations currently taking place, there are a number of predicted changes that are worth considering in advance. Advanced discussions will help to better prepare you or your company for the future and will put you in a better position for negotiating new contracts.
There are a number of key issues to consider, these include:
- Definitions within agreements currently in place – is the UK defined as an EU state or as part of Europe? If so, amendments will be necessary to reflect the changes to the European structure.
- Are there any competition issues that are currently regulated under your agreement? Currently, EU legislation and regulations have been adopted into UK law. However, once the UK leaves the EU, it is likely that this legislation will diverge over time. Competition law is likely to diverge as it will be regulated in the UK by the Secretary of State and the Competition and Markets Authority, rather than EU bodies.
- As a distributor or a supplier, are you responsible for obtaining certification for any products? There is some concern that UK ‘Notified Bodies’ (such as the British Standards Institution) and authorised representatives will no longer be accepted by the EU. This would mean that, any goods imported into the EU would need to be certified by EUbased institutions in order for the goods to be accepted.
- Tariffs on goods leaving the UK to go to EU member states – as a member of the EU, no tariffs are required when goods are exported to other EU member states. However, once the UK is no longer a member of the EU, tariffs will be applicable to exported UK goods. These tariffs are often of low value but will certainly make the goods less competitive. Specific tariffs are implemented by the World Trade Organization.
- Tariffs on goods entering the UK from EU member states – if you import goods from Europe or you are a multinational company, you are likely to face new tariffs when you import goods into the UK. The Government has published expected rates of such tariffs but at this stage, these are subject to change.
Supply chains are going to be imperative moving forward. Ensuring that you are able to get hold of the goods or materials, at a relatively low cost is likely to become more of a challenge given the tariffs coming into force. It might be worth reviewing your supply chain and/or finding alternative options to prevent you from paying excessive import tariffs.
At this moment, we also cannot ignore COVID-19 implications. For example, if you are too heavily reliant on one distributor or supplier and their country of origin goes into lockdown, would you be able to work around this or would you be facing complications that you were not prepared for?
Ultimately, this area remains in flux. Now is the time to consider all of your contracts and relationships to ensure you are adequately prepared.
If you would like any advice or assistance in relation to a distribution agreement to which you are a party or you are soon to be a party, please contact our Commercial Department to arrange a call to discuss your options.