BREXIT: the opportunity to revise contracts of sale of goods
At the time of writing, there is still no trade agreement between the European Union and the United Kingdom, which will become a third country as of January 1, 2021.
From January 1, 2021, trade with the United Kingdom will therefore be treated as imports or exports, which will entail additional obligations for companies (customs declarations, sanitary and phytosanitary controls, reorganization of logistics, documentation), not to mention customs duties in the event of a "no deal".
To control the costs associated with these obligations, companies will have to revise their commercial contracts if they want to remain competitive and preserve their trade margins.
Particular attention will have to be paid to the choice of INCOTERM, the clauses governing transport and/or logistics, contractual liability, the duty to advise, the adaptation of products to the new normative and certification framework, and the applicable jurisdiction.
The importance of the choice of the Incoterm
The Incoterms (International Commercial Terms, or International Conditions of Sale) define the reciprocal obligations of the seller and the buyer within the framework of an international purchase / sale contract. They are the authority for determining how costs and risks are allocated between the parties.
It should be emphasized that a poorly negotiated Incoterm results in an additional financial and administrative burden on the company, which will have to pay for transportation costs, assume the burden and responsibility for customs formalities and applicable taxes.
With regard to BREXIT, regardless of the Incoterm used and in the absence of a last minute agreement, customs duties will burden a significant part of European imports on British soil.
For example, fresh fruit will bear an ad-valorem duty of between 4 and 8% depending on the season of the year. This duty can reach 10 or even 20% on plastic products and automotive products. To this should be added the fees of customs officials, indirect structural costs and administrative costs.
The question arises as to whether these costs should be borne by the importing customer or at least shared. The priority solution is the selection of the INCOTERM adapted to the contractual relationship envisaged.
As a priority, the French company will propose sales at departure (FCA, CPT, CIP) in order to avoid bearing the risks of delay, loss and damage to the transported goods. The economic impact will be low for the seller who already practices "carriage paid" and will be limited to the cost of export customs clearance and documentary bundles. The seller's main obligation will be to ship. This crucial detail will be reminded in the main commercial contract. The exporter will specify, notably in CPT and CIP, the location of the premises, the transfer of risks and the sharing of costs.
On the other hand, if the British customer requires a "return to destination", the seller will bear significant economic but above all contractual risks. He will be subject to a presumed obligation of result since he will agree to carry out a "sale on arrival". The impact on the cost structure will be significant. The seller will have to renegotiate the sale price. He will also have to seek to limit his contractual liability and make it conditional.
Clauses governing transport and/or logistics
They are, in the current contracts, laconic or even absent. With BREXIT, they are becoming indispensable. The objective is to integrate, in the commercial contract, specific concepts derived from and linked to the contract of carriage or freight forwarding commission.
One of the essential points is the involvement of the consignee in the expression of reservations on the consignment note. The procedure for "receipt" of the contract of sale will be based on the formal mechanisms provided for, at best, in the standard French transport contracts or, by default, in the Geneva Convention known as the CMR.
The other essential point is the fate to be reserved for the impediments to transport and delivery. The limitations and exonerations of the transport operator's liability will apply, as of right, to the commercial contract. It is a matter of agreeing, in advance, on the conventional treatment of "leaving for account", "suffering of the goods" and "hindrance to transport".
Companies will need to expand the definition to include events beyond the reasonable control of the exporter. In addition, it seems wise to reject contractual penalties and to limit compensation to direct and foreseeable damage, or even simply material damage.
The duty of information and advice
With the exception of the DDP sales scheme, the seller will not assume responsibility or costs for the release for consumption on import. In view of the uncertainties and imprecisions that will persist on the British side until July 1, 2021, it seems wise to link the customer to a spontaneous obligation of information and advice in documentary, declarative and regulatory terms.
Adapting products to the new standards and certification framework
On January 1, 2021, the conformity marking applicable in the United Kingdom will be the UKCA marking: it covers most products that currently require CE marking.
The majority of the technical requirements, assessment procedures and applicable standards are similar to the current requirements applicable in the European Union.
CE marking will still be possible until 1 January 2022 in most cases.
Applicable law and jurisdiction in the event of disputes should be chosen carefully and companies should avoid as far as possible having their contracts subject to UK law.
The stakes are high with regard to these international contracts since, after the United Kingdom leaves the European Union, the decisions that will be rendered by the courts of the United Kingdom will have to benefit from a procedure of recognition (exequatur) so that they can produce effects on the territory of the Member States of the Union.
In conclusion, it is imperative for companies dealing with the United Kingdom to review their commercial contracts. For others, BREXIT is an opportunity to check whether their contracts are secure, it being pointed out that this article deals only with the main points of attention and that the reality is much more complex.