Considerations for Placing Products on the European Market after 30 March 2019
On 29 March 2017, the United Kingdom (UK) submitted notification of its intention to withdraw from the European Union (EU). As the EU is now far more than merely a supranational economic institution, the actual withdrawal, which will take place automatically on 30 March 2019, 0:00 CET, will have a variety of consequences for economic operators acting in the European market. Many voices in legal literature see Brexit as a mammoth task which will keep several generations of lawyers busy.1 Manufacturers placing their products on the European market will be affected by the elimination of the free movement of goods as one of the fundamental freedoms in the EU.
The following article will provide an analysis of what steps should be taken now in order to be prepared. The article is based on the current status (as of the end of November 2018) of withdrawal negotiations between the EU and the UK with regard to the free movement of goods.
Placing Products on the European Market Under the Free Movement of Goods
European Product Law
According to the current legal framework in Europe, a product once placed legally on a market of an EU Member State may be circulated freely throughout the European Economic Area (EEA, which includes the EU Member States, Norway, Liechtenstein and Iceland). There are European Directives and Regulations for a variety of products. With regard to electronic products, these include the EU Low Voltage Directive (2014/35/EU), the Electromagnetic Compatibility Directive (2014/30/EU), the Radio Equipment Directive (2014/53/EU), the RoHS Directive (2011/65/EU), and the specific legal framework on ecodesign and energy consumption labeling based on Directives 2009/125/EC and 2010/30/EU.
With the exception of Directive 2010/30/EU, each of these legal acts is subject to the same principles of European product compliance law, mainly the common legal framework based on the CE marking as a manufacturer’s declaration of conformity and the presumption of conformity granted if a product complies with the relevant European harmonized standards. The common legal framework defines various economic operators, including the manufacturer that designed and produced the product or had it designed and produced, regardless of whether that manufacturer is based in or outside the EU.
The legal framework also defines the importer of a product, which is any natural or legal person established within the EU that places a product from a third country on the EU market. There is always an importer if a product was produced by a manufacturer not based in the EU. The importer is the person who will be contacted and held responsible for product compliance by the national market surveillance authorities enforcing European product compliance law. A manufacturer may also designate an authorized representative by written mandate. The authorized representative is then fully responsible for product compliance. In such cases, the EU importer has a less important role.
There are very few EU legal acts on product compliance in which an authorized representative is mandatory for a manufacturer based outside the EU. For example, the European Directive on Medical Devices (93/42/EEC), which will be replaced in 2020 by Regulation (EU) 2017/745, requires a sole authorized representative if the manufacturer is not based in the EU.
Another economic operator subject to European product compliance law is the distributor. “Distributor” means any natural or legal person in the supply chain, other than the manufacturer or the importer, who makes the product available on the market. The distributor has its own obligations with regard to the product made available on the market, mainly monitoring obligations.
A core element of European product law is the CE marking. The manufacturer or its authorized representative attach the CE marking to the product and thereby declare it compliant with all applicable legal requirements. A product with a CE marking may freely circulate between the different EU Member States.
The affixing of the CE marking is the last step in a complex procedure of conformity assessment provided for in the legal acts. The applicable conformity assessment procedures are laid down in specific legal acts applicable to a given product. They consist of different modules, some of which require the intervention of a third party known as a Notified Body. Notified Bodies are accredited in accordance with a specific procedure laid down by law. Due to their enhanced scientific knowledge, market surveillance authorities are obliged by law to take particular account of the technical assessment of a Notified Body.
Other Legal Frameworks for Product Circulation in Europe
Brexit will have an influence on the core principles of European product compliance, even if products are placed on the market in European countries other than the UK. In order to present the possible Brexit scenarios in a comprehensible way, the following sections will describe the existing forms of approximation to the free movement of goods with third countries.
EEA Agreement
Norway, Iceland and Liechtenstein are fully subject to the free movement of goods even though they are not EU Member States. They entered into a specific agreement with the EU and its Member States within the European Economic Area (EEA). As a result, all European product legislation also applies to the EEA countries. The objective of the EEA Agreement is to establish a dynamic and homogeneous geographical area throughout Europe in which common rules and equal conditions of competition apply.
Rights conferred and obligations imposed upon the EU Member States, or their public entities, undertakings, or individuals in relation to each other, are also understood to be conferred or imposed in the same way upon the EEA States. This ensures that the EEA States, and their economic operators, are subject to the same rights and obligations as their counterparts in the EU. For instance, the New Approach directives and other EU harmonization legislation are implemented and applied in exactly the same way in the EEA States as in EU Member States. For the purpose of references within the EEA Agreement to the EU or the single market in the
EU/EEA, acts are understood to include the territories of the Contracting Parties. Accordingly, a product is not only placed on the Union market, but on the EEA market as well (i.e., the national markets of the Member States and Iceland, Liechtenstein
and Norway).
The EEA Agreement is amended on a continuous basis through decisions of the EEA Joint Committee to help ensure continued consistency with relevant Union legislation. To arrive at and maintain the uniform interpretation and application of the Agreement, an EFTA Court and an EFTA Surveillance Authority have been established.
The EEA Agreement ensures close cooperation between the European Commission and the administration of the EEA States. The Commission seeks informal advice from experts of these States in the same way as it seeks advice from experts of the Member States. Close cooperation has also been established between committees assisting the Commission in its work. The EEA Joint Parliamentary Committee and the EEA Consultative Committee conduct regular meetings, while the EEA Council meets biannually.
Bilateral Agreements on Customs Union or Mutual Recognition
There are countries in which the free movement of goods, or parts thereof, is governed by bilateral agreements with the EU.
Turkey and the EU established a Customs Union in 1995 (Decision 1/95 of the EU-Turkey Association Council, 96/142/EC). The Customs Union Decision covers trade between Turkey and the EU in manufactured products and processed agricultural products, and entails alignment of Turkey with all EU product legislation. The Agreement aims to ensure the free movement of manufactured products and processed agricultural products between the EU and Turkey by eliminating import controls on such products at the EU-Turkey border. Articles 5 to 7 of the Decision provide for the elimination of measures having an effect equivalent to customs duties between the EU and Turkey, mirroring Articles 34-36 TFEU. As a consequence, in the sectors for which Turkey has aligned its legislation with that of the EU, a product lawfully manufactured and/or marketed in Turkey should be treated as equivalent to a product lawfully manufactured and/or marketed in the EU and should not be subject to import controls.
The Mutual Recognition Agreement (MRA) concluded with Switzerland is a comprehensive agreement based on the equivalence of the legislation of the EU and Switzerland. It covers the recognition of conformity assessments irrespective of the origin of the products except for specific product categories such as medical products. The case of Switzerland is quite unique. The provisions of the Agreement and the harmonization of Swiss technical regulations with those of the EU ensure free market access for EU products to the Swiss market, and for Swiss products to the EU/EEA market.
There is, however, no customs union between the EU and Switzerland. According to the Agreement, the Swiss Accreditation Service (SAS) is a full member of European cooperation for Accreditation (EA). In the area of standardization, Switzerland is a full member of a variety of European standardization bodies and participates actively in the work of European standardization. Furthermore, the conformity assessment bodies of the EU Member States and of Switzerland are allowed to issue certificates which are deemed equivalent to each other. This is only possible because, firstly, Switzerland has an existing technical infrastructure which is equally developed and deemed equivalent to the EU’s.2 Secondly, Switzerland has chosen to modify its legislation in the sectors covered by the agreement in order to align it with that of the Union. Most notably, it has committed to actively maintaining legislative alignment whenever amendments are introduced by the Union to the applicable EU legal framework.
Principal of Mutual Recognition within the EEA
Industries which are not covered by EU product legislation are still granted free movement of goods within the EU by the principle of mutual recognition. National technical regulations are subject to the provisions of Articles 34 to 36 of the Treaty on the Functioning of the European Union (TFEU), which prohibit quantitative restrictions or measures having equivalent effect. The case law of the European Court of Justice, especially the “Cassis de Dijon” case provides the key elements for mutual recognition. According to this case law, products lawfully manufactured or marketed in one EEA Member State should in principle move freely throughout the EEA where such products have equivalent levels of protection to those imposed by the EEA Member State of destination. Barriers to free movement which result from differences in national legislation may only be accepted if national measures are: 1) necessary to satisfy mandatory requirements (such as health, safety, consumer protection and environmental protection); 2) serve a legitimate purpose which justifies overriding the principle of free movement of goods; and 3) are proportionate with the aims.
Current State of Withdrawal Negotiations: What Will Happen on 30 March 2019?
The newspapers have been full of articles detailing the state of negotiations between EU Chief Negotiator Michel Barnier and the UK government. As of this writing (end of November 2018), the UK cabinet and the EU-27 Member States have agreed to back the current draft withdrawal agreement, but agreement of the British House of Commons would still be required. Furthermore, it appeared that many Members of the British Parliament do not agree with the withdrawal agreement, chiefly because of the United Kingdom would remain part of the Customs Union.
Because of these and other uncertainties about the timely conclusion of a withdrawal agreement, companies clearly need to further develop their contingency plans for a hard Brexit, under each of the following three possible scenarios:
Scenario 1: No Deal
On 30 March 2019, 0:00 CET, the UK will automatically withdraw from the EU and all primary and secondary EU law will cease to apply unless a ratified withdrawal agreement establishes another date. This legal consequence is ordered by Art. 50(3) Treaty on the European Union (TEU) which reads as follows:
“The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.”
According to the opinion of the European Commission, the UK will, from that moment on, neither be a member of the European Economic Area (EEA) nor the EFTA nor any other European trade agreement. There are, however, some legal experts who argue that the UK would remain a member of the EEA even after its withdrawal from the EU because the EEA is an international treaty with the EU itself and with the individual EU Member States as parties. Therefore, if there is no withdrawal agreement established by 30 March 2019, some parties might choose to initiate legal filings that would require a clarifying judgment by the European Court of Justice.
Scenario 2: Current Draft Withdrawal Agreement is Signed
If the current draft withdrawal agreement is signed before 30 March 2019, there will be no change in law for another 21 months. According to Art. 126 of the draft withdrawal agreement, there will be a transition period from 30 March 2019 until 31 December 2020. According to Art. 127 of the draft withdrawal agreement, EU law would remain applicable to and in the UK during the transition period. Accordingly, even though the UK would no longer be a Member State within the EU after 30 March 2019, product compliance law and legal requirements with regard to the free movement of goods would still be applicable between the UK and the EU.
With regard to the cross-border distribution of products, Art. 41 of the draft withdrawal agreement provides that all products already placed on the market in the UK or in an EU-27 Member State on the day the transition period expires may continue to circulate freely throughout the EU-28 area. The withdrawal agreement contains no provisions on the trade relationship between the UK and the EU-27 after the end of the transition period. Moreover, this will be subject to negotiations during the transition period. Only the Protocol on Ireland/Northern Ireland, which forms part of the withdrawal agreement, contains in its Art. 8 provisions on technical regulations, assessments, registrations, certificates, approvals and authorizations. The provision states that EU product compliance law shall be applicable to goods imported to Northern Ireland from the EU. This provision would be in force until a long-term agreement on Ireland/Northern Ireland is reached.
Furthermore, there is a draft political notice which is meant to be an annex to the withdrawal agreement. However, the wording of this note is so general that economic operators cannot know whether the future trade relationship will be closer to the EEA agreement with Liechtenstein, Norway and Iceland or significantly less close – such as the bilateral agreement with Switzerland. The UK originally intended to agree on a bilateral agreement with recognition of conformity assessment procedures, notified bodies and omission of any custom controls at the border. However, the UK did not want to be obliged to implement all European product law, but to have a choice on a case-to-case basis.
In a former statement, the UK government pointed out that the establishment by the UK and the EU of a free trade area for goods is the core element of a proposal for the UK-EU economic partnership.3 A white paper prepared by the UK government provides insight into their ideas: the UK has proposed the establishment of a free trade area for goods. According to this proposal, the UK and the EU would maintain a common rule book for goods, with the UK making an upfront choice to commit by treaty to ongoing harmonization with EU rules on goods, covering only those necessary to provide for frictionless trade at the border.4 At the same time, the UK proposal sets out deep participation of the UK in EU agencies that facilitate goods being placed on the EU market. It acknowledges, however, that the UK would not have any voting rights on the European standardization bodies.5 The UK proposal also suggests that only one procedure of conformity assessment in either market, UK or EU-27, should be necessary in order to place products on both markets.6
However, the EU Chief Negotiator and the European Commission have stated quite clearly that they do not agree with this approach as proposed since it would be too biased in favor of the UK.
Scenario 3: Extension of Negotiation Period
According to Art. 50(3) TFEU, the UK and the European Council may unanimously decide to extend the period in which all EU law still applies to the UK. While such a possibility was discussed as recently as November, it is no longer mentioned in the course of current developments. At the moment, forecasted scenarios are limited to “deal” or “hard Brexit.”
Potential Ramifications for U.S. Manufacturers
Against this background, U.S. manufacturers should remain mindful of three potential legal effects, which are detailed in the following sections.
UK as Country of Entry to the European Market
One of the major legal repercussions will affect products from third countries which have already entered the European market through the UK. As the UK will be a third country from 30 March 2019, 0:00 CET, products entering UK Customs can no longer be legally placed on the European single market. As a consequence, the economic operator importing the products to the UK will no longer be the EU importer. Products that are transported from the UK to Ireland or other European countries will only be imported in the EU by this first transaction.
As a consequence, an economic operator established in the EU-27 that was considered as an EU distributor prior to the withdrawal date will become an importer for the purposes of Union product legislation applicable to the products they place on the EU market and will have to comply with the specific obligations relevant to an importer, which are different from those of a distributor.
Consequences for the Choice of Authorized Representatives
An economic operator based in the UK will no longer be accepted as an authorized representative by the European Commission, since an authorized representative must be based in the EU. If the manufacturer does not take any steps with regard to its authorized representative, the following two scenarios are likely.
Voluntary Authorized Representative
If the applicable product legislation gives a choice to the manufacturer whether or not to appoint an authorized representative, the product may still be legally placed on the EU market. However, as there is no longer an authorized representative, the first distributor in an EU Member State will be viewed as an EU importer and will be required to assume new and enhanced responsibilities. Accordingly, the manufacturer and the distributor should be prepared to address these potential new responsibilities. As an alternative, the manufacturer could find an authorized representative in another EU Member State outside of the UK.
Mandatory Authorized Representative
If, however, the applicable product legislation contains an obligation for the manufacturer based outside the EU to involve an authorized representative (such as the legislation on medical devices), the product can no longer be legally placed on the European market by an authorized representative based in the UK. Instead, manufacturers will have to designate an EU-based authorized representative in order to remain compliant with EU legal requirements and to continue to legally place products on the EU market.
Consequences for the Choice of Notified Bodies
In some product areas, EU legislation requires the intervention of a Notified Body in the conformity assessment procedure. EU product compliance law requires Notified Bodies to be established in an EU Member State and be designated by a national accreditation body for performing the conformity assessment tasks set out in the relevant EU legal act. Therefore, as of the date of withdrawal from the EU, Notified Bodies based in the UK will lose their EU Notified Body status and will be removed from the Commission’s information system (NANDO database).
The UK has suggested that all manufactured goods authorizations, approvals, certifications and any agency activity undertaken under EU law that are completed prior to the end of the implementation period continue to be recognized as valid in both the EU and the UK. Furthermore, any such processes underway as the UK and the EU transition during the implementation period should be completed under existing rules, with the outcomes respected in full.7 The European Commission makes quite clear in its notice that it will not follow the suggested approach.
If there is no agreement reached on these and other transitional provisions, U.S. manufacturers will need to take timely action. Every product placed on the European market that has to be assessed by a Notified Body in the course of its conformity assessment procedure will require a certificate issued by a recognized EU Notified Body at the time that product is placed on the EU-27 market. In brief, this means that products assessed by a UK Notified Body cannot be placed on the market after 30 March 2019. This holds true even in cases in which the Notified Body was fully authorized under EU law to conduct such an assessment at the time the assessment was performed.
As there is not yet an agreement on transitional rules, economic operators are advised by the European Commission to take the necessary steps to ensure that where the applicable conformity assessment procedures require the intervention of a Notified Body they have certificates issued by an EU-27 Notified Body to demonstrate compliance for their products placed on the market as of the withdrawal date. The European Commission suggests that economic operators either apply for a new certificate from an EU-27 Notified Body or arrange for a transfer of the existing certificate to a new Notified Body in another EU Member State.8
Summary and Steps to Take
Since representatives in both the UK and the EU have expressed an interest in finding a solution that will help to ensure a smooth transition, some think it unlikely that there will be major legal changes to placing products on the European market after 30 March 2019. However, if there is no agreement in place by 30 March 2019, U.S. manufacturers will have to be prepared for legal changes with regard to three main aspects:
- UK as an import country to the EU
- Choice of Notified Bodies
- Choice of authorized representative
And even if a transition period is agreed upon between the parties, the applicability of EU product law to the UK will ultimately end at some point. Accordingly, manufacturers should take steps now to embrace the approaches discussed in this article.
References
- Examples: Herrmann, EuZW 2017, 961 [967].
- European Commission, Commission Notice – The ‘Blue Guide’ on the implementation of EU products rules 2016, OJ C272/121.
- Statement from HM government, Chequers, 6 July 2018, p. 1.
- United Kingdom, HM Government, The Future Relationship between the United Kingdom and the European Union, p. 15.
- United Kingdom, HM Government, The Future Relationship between the United Kingdom and the European Union, p. 20.
- United Kingdom, HM Government, The Future Relationship between the United Kingdom and the European Union, p. 20.
- United Kingdom, HM Government, The Future Relationship between the United Kingdom and the European Union, p. 22.
- European Commission, Notice to stakeholders – Withdrawal of the United Kingdom and EU Rules in the field of industrial products, 22 January 2018, p. 4.
