We are all hopefully aware that Brexit is going to mean changes to the way we export to the EU, in particular with customs declarations, added red tape, Vat changes and so on. But what effect will it have on our relationship with agents and distributors? The obligations, rules and regulations surrounding each will be changing and so you need to review if your current or proposed arrangements are still the best option for your business.
In this article, we will look in more detail at the changes and the implications so you can make an informed choice moving forward.
What is the difference between a distributor and agent?
Often the terms are used to mean the same thing, when in fact there are significant differences. A distributor buys and sells your product in the market, whereas an agent helps you to sell in return for a commission.
A distributor is a company situated in your target country and a specialist in your market sector. They should already have good contacts and existing customers for complementary products. Often, they will stock your product in the country and ship out to customers, making the transaction quick and simple for them. The distributor handles the sales paperwork and agrees the payment terms. The distributor is your customer, sometimes on an exclusive basis.
An agent is similar in that they will be based in your target country and a specialist in your market sector. They should already have good contacts and may represent complementary products. That’s where the similarity ends however. They will open doors to introduce your company and products but the actual sale will be down to you. You handle the marketing, the customer orders from you directly, you agree the payment terms, arrange delivery and support the customer. The agent receives their commission.
We talk in more detail about choosing distributors and agents in our 7-Steps to Export Success e-Book and there is a specific article in our Expert Exporter Resource Hub
What are the implications of Brexit?
In general terms, the UK will no longer be part of the EU Customs Union or Single Market, it become just like any other country trading with the bloc. Customs Declarations will therefore be required, irrespective of whether a Free Trade Agreement (FTA) is agreed or not. The UK also loses access to the EUs FTAs with other countries such as Canada, Japan and more. This all has implications for Rules of Origin and Duties/VAT for starters.
You can find a more detailed discussion of Rules of Origin in our special article below:
Rules of Origin – the greatest Brexit challenge you’ve never heard about
For more details on the impact of Free Trade Agreements click below:
Is an FTA with the EU make or break for the UK economy?
A Distributor will become the Importer
With the changes in legal standing of the UK vs the EU, so changes the legal position of a distributor post-Brexit. The EU will class them as the importer of record and the legal entity presenting the product onto the Single Market. As such this brings additional responsibilities on the distributor. They automatically become what is known as the ‘Responsible Person’ for your product.
The Distributor now becomes responsible for the legal compliance of your product to EU laws and regulations. For example, they must ensure you have done everything correctly in terms of CE marking. This will mean you having to hand-over your products technical file to every distributor. If you have one in every country, that will be 27 to start with! Think of the headaches, not to mention the potential confidentiality and intellectual property issues.
In addition, as the responsible entity in the eyes of EU law, the contact details of the distributor will need to appear on the labelling/packaging of your product. Again, this could mean 27 different labels!
One way around this complexity is to appoint your own Responsible Person or Authorised Representative in the EU to handle your compliance matters. They need to be a legal entity or resident of the EU. Your distributor(s) will also have to legally mandate them to act on their behalf.
Another alternative is to appoint an Initial Importer, who takes on this responsibility and also effectively supplies your distributors, though this can be just a paperwork transaction. If you supply medical devices, under the new MDR regulations the Initial Importer also has additional responsibilities such as recording product complaints.
There are specialist companies offering these services which Go Exporting for example can help you find and appoint. For further details Contact Us here.
An Agent is not the importer
In contrast, an agent does not become the Importer as they are not handling the sales transaction, you are. In effect therefore each customer becomes the importer and takes on the responsibility for ensuring product compliance for example. Will they accept the task? Again, you may decide it is better to appoint your own Responsible Person/Authorised Representative and consider an Initial Importer.
It is important to review your distribution agreement and the terms you have in place. Do they still apply? It may be necessary to amend them based on new Incoterms to make it clear who is responsible for duty and customs arrangements for example.
Ex works terms puts most responsibility on your distributor, but will they want the added complications? Will it spoil the relationship and make them look to EU suppliers instead? You may decide to deliver DDP (Delivered Duty Paid) to take this burden from them but make sure you know the implications and costs, for example can you reclaim the Vat? In many EU countries you will need a Fiscal Representative to have a local Vat number post-Brexit.
Consider delivery times, pricing and stock levels too. Border delays may have an effect, so take this into account to ensure your relationship remains smooth.
Review your Agents contract also. Current EU regulation gives them enhanced rights such as minimum notice periods and the right to compensation or indemnity on increased goodwill. If you end the arrangement this could become very costly. Agents agreements need careful drafting by a suitably qualified legal expert for this very reason. The EU Withdrawal Act commits the UK to retain these agent’s rights, although this may change in the final Brexit deal.
Changes in Practice
Keep your distributor/agent close. Be aware they may look for EU alternatives. It is estimated that 60% have already looked! Did you receive that expected order?
We have seen a hesitance towards entering or renewing agreements with UK suppliers. The key reasons cited are fear of red tape such as customs arrangements, increased currency volatility, uncertainty over the future landscape for standards and approvals, potential delays at port and possible cashflow implications.
A great product or service and perfect execution of orders throughout will help overcome this, however. But don’t be complacent. Discuss with your partners, understand their fears and plan how to overcome them. Make it a priority.
What steps should you take?
The clock is ticking. Everything changes at 11pm on 31st December 2020. Do not delay therefore.
Create a Brexit Planning Checklist – you can download a template here
Discuss and plan your Importer/Responsible Person arrangements
Assess Vat requirements and changes
Review contracts and agreements
Assess market competitiveness
Factor in potential delays at port
Prepare for red tape e.g. customs declarations
Consider Rules of Origin and how they will affect your product/supply chain
KEEP YOUR DISTRIBUTOR/AGENT CLOSE
About Go Exporting:
Go Exporting is a specialist export consultancy that launches businesses just like yours into new international markets. As such we have made it our mission to keep exporters informed about the challenges Brexit will bring and provide support services to help them along the journey.
Whether you have a single question or are looking for a full Brexit audit, we offer cost-effective, flexible support.
For further details call +44 (0)800 689 1423; email email@example.com