Tag: Brexit

Campaign and the Principles of Advertising

In the current issue of Campaign, the industry magazine for advertising professionals, there is an interview with Nigel Farage, leader of the Brexit Party and MEP.  On the front cover of the magazine is a picture of Farage with a tag line explaining how he ‘used advertising principles to win the Brexit Referendum.

This interview and cover has not gone down well with many in the advertising profession.  One comment on social media states that the cover and article ends Campaign’s status as ‘a serious commentator on the advertising industry’. Other comments state that the editorial team at the magazine should be ashamed of themselves.

So why the anger. Well it begins with the definition of advertising:

“Advertising is paid, non-personal communication from an identified sponsor using mass media to persuade or influence an audience”.

The above definition is now seen as somewhat out of date.  The rise of social media advertising often means that an advert is aimed at persuading an individual to act rather than a group audience. A more contemporary definition is:

“Paid, mediated form of communication from an identified source designed to persuade the receiver to take some action now or in the future”.

The Leave EU Brexit campaign headed by Farage runs into problems with the word “Identified”.

Much of the campaign’s advertising was anonymous. Promotional content would appear in social media feeds with no information as to who it was promoted by.  This allowed messages not directly linked to the European Union to be seeded in the minds of recipients.  Often this related to wider issues such as the effect immigration had on public services.  The anonymous advertising started long before the referendum and was clearly designed to build an atmosphere amongst people not regularly connected to politics which would allow the idea of Brexit to appear realistic.

This anonymous advertising was also used as a data collection tool.  The most egregious example was a competition run during the  Euro 2016 football competition.  This competition appeared in social media feeds and asked entrants to predict every result of the competition. The chances of any entrant winning the monetary prize were astronomical.  The main aim of the competition was to gather personal data in a demographic group potentially malleable to the Brexit message.  NO entrant was told that their data was going to be used for political purposes.

Not only was the failure to identify the advertiser a breach of advertising principles; it was also a breach of political campaigning law.

For many years, it was thought that consumers went through a structured mental process when deciding to buy a product.  This was described by the mnemonic AIDA (Attention, Interest, Desire, Action).  First an advertisement should get the recipient’s attention; it should drive their interest in a product; they should develop a desire for the product; and the advert should then be a call to action for the recipient.

Therefore the content of advertising should have four objectives described by the mnemonic DRIP (Differentiate, Remind, Inform, Persuade). Depending on the recipient’s location on the AIDA journey, one of the DRIP elements would take priority. If a consumer is in the Attention stage of AIDA, differentiating your product from those of competitors may take priority; If the consumer is showing interest, you would aim to inform them of your product’s attributes. If the consumer has developed a desire for your product you give them the call to action to buy it. If they are aware of your product and have previously made a purchase, you want to remind them you exist so that they buy again.

Again, the Brexit campaign, built on lies, exaggeration and misplaced patriotism did not conform with the idea of informing voters.  It was a propaganda exercise designed to misinform and mislead.

In recent years, the idea that emotion plays a part in advertising has developed.  Consumers are not robots. they are emotional beings and you can use advertising to play with their emotions. Some advertising professional consider the role of emotion as more important than factual information processing and a rational message (why do you think the Andrex advertising is built around cute puppies?

The Brexit campaign was clearly successful at this but it was not an exercise in building a positive emotional response.  It was using false patriotism to build a negative emotional response.  It was an exercise in brewing envy, resentment and anger. Few of the social media adverts in the run up to the referendum were about the positive; they were negative messages about how the EU damage the UK.  No mention was ever made of the positive contribution of the EU to the UK economy, infrastructure or environment. Much of the content linked back to a fantasy past; World War 2 and Churchill were common content; it was English exceptionalism on steroids; counterfeit history and dreams of empire.

You could argue that this is where the Brexit campaign succeeded by creating the desired emotional response. Emotion is a powerful tool to change attitudes and the Brexit campaign did this. It successfully created ‘brand memories’; even if those memories were false.

Most advertising professionals complaining about the Campaign article were angry because Farage’s Brexit campaign paid no attention to the ethics of advertising. Despite the comedic trope of advertising executives as rogues, the industry does have a strong ethical code.

Advertising ethics can be defined in the phrase; ‘Legal, decent, honest and truthful’.

Good advertising does not lie to it’s audience.  It does not promote forgery and it lies within the limits of public decency. Advertising should respect the truth and it should not set out to deceive the public. False advertising should never be used. The truth should never be altered by the imposition of illusory elements or by withholding relevant facts.

Exaggeration can be used in advertising as long as it sits within the norms and rhetoric or symbolism which are generally accepted.

Advertising should not exhort negative traits such as vanity, greed or envy.  It should not use techniques which manipulate human weaknesses.

It can be strongly argued that Farage’s campaign did all of the above.

In the UK, commercial advertising has to conform to legislation and codes of practice.  It has to comply with laws like the Protection of Consumers from Unfair Trading Regulations, the Business Protection from Misleading Marketing Regulations, the Consumer Rights Act and the Advertising Standards Authority Code of Practice.

Farage’s political propaganda did not.

That said, the Electoral Commission did issue various warnings to the Brexit campaigns during the run up to the referendum; most prominently about the ‘£350 million for the NHS” lie on the Vote Leave campaign bus.

Farage’s most prominent advert during the campaign was the ‘Breaking Point’ poster.  The poster showed Syrian refugees on the Serbian border. It was false ‘advertising as those in the photograph were refugees, not economic migrants. Syria, prior to its civil war, was a developed Arabic nation and many in the image were highly qualified people including doctors, engineers and academics. Serbia is not in the EU.

What was even more disgusting was that the image and message of the poster was almost identical to NAZI propaganda against Jews from the 1930s.

Farage’s Brexit campaign was built on lies.  It was built on jingoism.  It stirred fear of migrants creating the impression they were all scroungers (even though Treasury statistics clearly show that EU migrant contribute more to UK coffers than the take out).

With regard to the legality of the Leave campaigns, Both Leave EU and Vote Leave have received record fines from the Electoral Commission for returning false documentation as regard to campaign spending. The respective responsible person for both campaigns are currently under Police investigation for false accounting.

The ‘money’ behind Farage’s campaign, the insurance businessman Arron Banks, has seen hid company receive significant fines from the Office of the Information Commissioner for misuse of personal data.  Staff at Bank’s insurance firm Go Skippy used personal data provided to comparison websites for political purposes without informing people as to how their data was used.

So Farage’s Brexit campaign was, in digital marketing patois, highly ‘black hat’. The phrase referring to early Hollywood westerns where the hero would were a white Stetson and the villain a black Stetson. it paid little or no attention to the truth and arguably it’s mirroring of Nazi imagery exceeded the boundaries of social decency.

Of course, normal advertising ethic played no part in Leave propaganda as there was little or no regard to customer retention.  Farage only had to sell Brexit once.  Once the campaign was one, cognitive dissonance could run rampant.  He knew that once Britain voted out, the terms of readmittance would make re-joining the EU difficult. For example, EU’s terms on acceptance of the Euro, Shengen, and the loss of the UK’s membership fee rebate.

However, commercial advertising does have to have regard for customer retention and brand loyalty. Once you sell your product to consumers, you want to sell it to them again, and again.  You want to develop word of mouth so that you grow your sales and your market.

If you set out to mislead consumers; if you breach their norms of decency; the aim of customer retention becomes impossible.

 

 

Brexit – A Project Management Perspective

I have tended to shy away from Brexit in this blog and have concentrated on Marketing and Business Strategy.  However, with ten weeks until the UK leaves the EU, I think it is worth looking at the way government has handled Brexit over the last two years.  To do this, I am taking a project management approach.  As anyone who has read some of the articles I have written about Brexit, or indeed anyone who follows my twitter feed, you will understand that I am no fan of the policy.  I see Brexit as a self-inflicted wound on the UK economy.  Indeed, all economic projections on Brexit see it as doing significant harm to the UK economy.  It is estimated that a Brexit deal, as negotiated by Theresa May in the draft withdrawal agreement, will cause a 5% drag effect on the UK.  A no deal Brexit is calculated as causing a 9% drag.  Brexit is the UK economy hobbling itself.  HMS Britain is about to drop a heavy drag anchor which will slow growth and hinder international competitiveness; all for the nebulous concept of ‘sovereignty’.

I say nebulous because those who shouted loudest about parliamentary sovereignty are now the first to shout foul when that parliamentary sovereignty is exhibited.

But this blog entry isn’t about political views or whether there is support for Brexit.  It asks whether the project is being appropriately managed.

Dennis Lock defines the stages of a project in his book, Project Management, the standard text for all business students on that subject.  Perhaps by listing those stages and factors for success and failure given by Lock, we get an idea of how the Brexit project is proceeding and its likely outcome.

The stages of a project listed by Lock are:

  1.  Project Definition
  2. Preparation and Planning
  3. Project Design
  4. Purchasing
  5. Fulfilment
  6. Completion and handover

It is utterly clear that the Brexit project is badly defined.  The referendum question asked one question; whether the UK should remain a member of the EU or Leave the EU.  The result, narrow as it was, was that the UK should leave.  But that answer didn’t provide a single possible outcome.  There was a range of options available and those on the Leave side of the argument didn’t present a single solution.  Britain could leave in a ‘hard Brexit’ or no deal.  Britain could retain close ties with the EU, the EEA model as shown by Norway; or Britain could decide to have a limited relationship: The Swiss model.  It seems that no one in government can decide and cabinet ministers to this day still present different potential outcomes.

Nor was there space left for compromise in the negotiation process, as Mrs May’s ‘red lines’ severely limited the options available.  Clearly Brexit was a poorly defined project.

Lock then describes success and failure factors in project definition:

  1.  Project Scope needs to be clearly stated and understood
  2. Technical requirements are not vague
  3. Estimates of timescale, costs and benefits are not over-optimistic.
  4. Risk Assessments are not incomplete of flawed
  5. The intended project strategy is inappropriate.
  6. Insufficient regard is given to cash flows and the provision of funds required to complete the project
  7. The interests and concerns of stakeholders are not taken into account.
  8. Undue regard is given to the motivation and behaviour of the people who will execute the project
  9. Insufficient regard is given to how those affected by the project will adapt to change
  10. Approval of the project plan is given for political, personal or intuitive reasons without due consideration to the business plan.

Where to start with this list in respect of Brexit!

As stated above, the project scope was vaguely defined.

Technical requirements as a result were vague.  If a soft Brexit was chosen, the technical requirements were completely different to those of a no deal Brexit.

The two year timescale is wholly insufficient to achieve Brexit.  The officials who drafted the Article 50 clause admit this.  But given the short timescale of the article 50 process, it was wholly inappropriate for the government to trigger that clause with absolutely no contingency planning in place.  A better proposal would have to been to do the contingency planning, then trigger Article 50 for the negotiations.  At least with contingency plans in place, the government’s position would be informed and appropriate red lines set.

The government’s Brexit plans completely fail to stand up to any interrogation based on the above list.

With only weeks to go until the Brexit deadline, arguments are still ongoing about factors in the above list.  We should have moved on to the delivery aspects of the Brexit plan by now: project fulfilment.

Lock lists the success and failure factors at the project fulfilment stage:

  1.  Good definition of the project and a sound business case
  2. An appropriate choice of project strategy
  3. Strong support for the project amongst management, in particular those managers responsible for managing the plan
  4. Firm control of changes to the project
  5. Technical competence
  6. Strong quality culture
  7. Appropriate regard for health and safety of all those affected by the plan
  8. Good project communication
  9. Well-motivated staff
  10. Quick and fair resolution of conflict.

Again, where do you start with this list!

The Brexit project has been poorly defined and there is no sound business case for it.  We are actually in a position of a government with a solemn duty to do the best for the country and its people is actively engaged on a mission which does nothing but harm to those interests.

The choice of project strategy, particularly the choice to trigger Article 50 prematurely has been appalling.

Those put in charge of driving May’s Brexit plan have been hard Brexiteers wholly opposed to it.

Fulfilment has been technically incompetent.  We have had ferry contracts awarded to a company with no ships and a port lacking the necessary infrastructure for HGVs.  We have had a trial at an airport designed to hold 5000 HGVs where only 87 HGVs turned up.  It appears we have a government which cannot plan a traffic jam.

Project communication has been appalling.  No deal preparation papers were short, vague and lacking necessary detail.  Risk assessments were incompetently produced and their content was held as secret.  Even when MPs demanded access to them, there was no appetite to share their content.

Staff motivation is clearly absent.  DExEU has the highest staff turnover of any government department.  It is seen by many as the death knell of a civil service career.  Currently the department is advertising for staff who ‘don’t panic’ in the face of pressure.

It is clear that the government, in particular ministers, put in charge of fulfilling the Brexit project simply aren’t up to the task.

Lock explains that in project management there is a direct relationship between cost, time and performance.

It is estimated that Brexit is already costing the UK government around £600 million per week.

The performance and quality of project delivery has been appallingly poor.

Most critical is the time objective.  A project not started in time can hardly be expected to finish on time.  To paraphrase Napoleon, “There is one kind of robber whom the law does not strike at and who steals that which is precious; time”.

It is utterly clear that the Brexit project has been managed horrendously and that it has run out of time.  In such circumstances the best option is probably to abandon the project entirely.

 

Protected Food Names: The Next BREXIT Battle

Last week, Marcus Fysh, the hard Brexit-supporting Conservative backbench MP sent out a tweet evoking a post-EU Britain where we could enjoy American feta cheese and Chinese businessmen could quaff English champagne.

I found this tweet maddening as it highlighted some Brexiteers utter ignorance of current food protections and that by breaching them, British exports could be seriously endangered.

Let’s start with the American Feta.  What Mr Fysh does not seem to realise is that American ‘feta’ is a completely different product to the genuine Greek cheese.  Greek Feta is usually made from goat’s milk (and occasionally sheep’s milk).  The American version is made from cow’s milk.

American cheese, although there are some exceptions to prove the rule, is generally regarded as terrible.

Then there is the use of the term Champagne.  This has already been the subject of a long and bitterly fought trade dispute between America and France.  In fact a solution was only negotiated once the EU became involved and used its scale to exert influence on the US government.

Champagne has a PDO, a protected designation of origin.  This means that the use of the name champagne can only be applied to sparkling wines from that region of France.   The EU has negotiated with other administrations around the world to ensure that other wines do not use the term.

In America, some wine makers continued to use the term champagne to describe their wines.  In 2006 the EU and the US governments agreed that all new wine production would stop using the term champagne.  Wine that had already been produced could continue to use the name until stocks were exhausted.

As with most international agreements, there is a legal loophole.  This relates to the treaty of Versailles signed at the conclusion of World War One.  The treaty contained a clause to deal with a dispute on the naming of wines in France and Germany.  The US government was a signatory to the treaty but the US senate did not ratify the wine clause.

What this means is that US wine producers who have been in continuous production since the 19th century can continue to use the term Champagne as long as they use the statement ‘California Champagne’.

In the 1920s, America went into the prohibition era.  The sale and consumption of alcohol was all but banned (some individuals could get a certificate from their Doctor stating that they could consume alcohol, on prescription, for health reasons!).

What this meant was that the vast majority of wineries were shut down by the US government.  A handful, who were producing for export only, survived.

Even after prohibition, the US wine industry struggled.  It went into a steep decline and only recovered in the 1970s.

There are a handful of Californian wine producers (I can only find four) that can continue to use the term ‘California Champagne.  As most US wineries only date from the 1970s, they cannot use the term.

It is also worth mentioning that ‘California Champagne’ is a different wine from that produced in France. French champagne is a wine made from Chardonnay or Pinot Noir grapes.  ‘California Champagne’ tends to be made from Zinfandel grapes.

Of course, the term ‘California Champagne’ can only be used within the United states.  One winery bottles its export product under the term ‘California Sparkling Wine’.

Mr Fysh also fails to recognise the disparity between the size of the French wine industry and that of the UK.  UK wine production is a growing niche sector.  French wine production dwarves the UK industry.  Fysh is expecting an industry which employs around 1200 people to compete with one which employs twenty times that number.  It is like saying Morgan cars are a direct competitor of Ford.

There are effectively three layers of protection for speciality regional foods within the EU.

Products such as whisky are protected by a specific EU directive (the Spirit Drinks Directive).  Whisky is defined as; “grain alcohol matured in oak barrels for a minimum of three years”.  Scotch is given additional protection in that the maturation process must take place in Scotland.

Then there are PGOs.  These are protections where the location of the food production is protected.  For example, Scotch Beef and Welsh Lamb must be reared and produced in Scotland and Wales respectively.  Often it is the place of production alone that offers the protection.

Finally, there are PDOs.  These are protected designations of origin where there is a specific recipe, production method or list of ingredients which is representative of a particular geographic area.  Foods with PDOs include Parma Ham, Parmesan cheese, Melton Mowbray Pork Pies, Stilton Cheese, Rutland Bitter, Arbroath Smokies, Cornish Dairy Ice Cream and the Cornish Pasty.

To use a name with a protected designation of origin, it must follow the declared production process AND it must be produced within the declared geographic area.  For example, a Melton Mowbray Pork Pie must have its crust moulded around a wooden dolly, not rolled out with a rolling-pin; the pie must be produced within the specified area around the town of Melton Mowbray.

There are around 80 UK foods which are given EU-wide name protection. Until recently, there were campaigns to add further UK foods to the PDO/PGO list.  For example, in Scotland, campaigns were started to get both Dundee Cake and the Forfar Bridie PDO protection.

Geographic protections guarantee product consistency and quality.  They create a marketable branding identity.  They can add a price premium.  They can help to protect jobs and artisan production.

Most geographic protections have arisen from campaigns by producer groups, consumers and local people.  Many such groups have fought for years the ensure protected status.

And then along comes Brexit.

With six months to go until the UK leaves the EU, there is little solid information as to what will happen to protected name status after Brexit.  The UK government has stated that it intends to create a separate system of food protections.  The EU has put protected food descriptions near the top of their demands as part of the exit settlement.  The EU has stated that it will not revoke existing UK food name protections within the bloc after Brexit. However, if the UK does not reciprocate, that position could change.

However, six months to go leave insufficient time for protected food producers to plan for life outside the EU.

Clearly, the UK government can regulate as to what happens within the UK market.  It is questionable whether it will have the negotiating heft to demand that similar protections exist outside UK borders.

Food name protections are a factor in the UK negotiations at the WTO.  And the sharks are circling.

In New England, where Cornish fishermen and tin miners emigrated in the 18th and 19th centuries, pasties are a common food.  Producers in that part of the United States want to apply the description Cornish to their products.

American distillers have already stated that they want to reduce the prescribed maturation period for whisky from three years to two.  They want to mature whisky in metal tanks, not oak barrels.

Asian whisky producers want to describe their products as ‘Scotch’.

So what happens if Mt Fysh gets his wish? What happens if the UK accepts American Feta and sells sparkling wine to Asia with the description Champagne?

The likely impact on UK exports to the EU would be disastrous.  EU states would simply refuse to allow UK production into their markets.  Bear in mind that the vast majority of UK food exports go to Europe.  UK foods containing ingredients such as ‘American Feta’ would not be allowed into our biggest export market.

Then there is the impact on UK producers.  If American distillers flood our market with 2-year-old gut rot;  if Chinese distillers start producing ‘Scotch’ for their domestic customers; the impact on the Scottish distillery industry will be disastrous.

With his crass, and frankly insulting, tweet, Marcus Fysh is putting at risk premium food exports and thousands of UK jobs.

Brexit and Regulation

Over recent months, this blog has focused on marketing strategy.  However, there is more to Philmus Consulting than strategic marketing planning.  This consultancy also offers guidance on regulatory due diligence in relation to food standards and consumer protection law.

So this week I want to address the thorny issue of Brexit and its effect on the regulatory environment within which UK businesses operate.

Of course, this subject isn’t wholly divorced from marketing planning.  Analysis of the political and legislative environment is a prominent part of the market analysis process.  Government and regulators are often key stakeholders in the policies and procedures of businesses.

You may be aware that I wrote to Michael Gove shortly after his appointment as Secretary of State for the Environment, Food and Rural Affairs. My letter tried to get some information as to DEFRA’s preparedness for Brexit.  I chose to highlight two areas of food regulation, Organic Certification and Products of Designated Origin.

I chose these two topics as they brought the issue of regulatory diversion into sharp relief.  Also in my mind was Gove’s comments at the referendum that we’d “had enough of experts”.  I did wonder if Theresa May was getting some revenge in early ass DEFRA is a department filled with experts and where attention to regulatory detail is often required.

I did get a reply from Mr Gove’s office but it was less than satisfactory.  I got a holding letter which stated that no detail could be given until the conclusion of the exit negotiations and that only after the Article 50 process was concluded, could such planning take place.

Last week, the UK government released its first tranche of contingency plans in the event of ‘no deal’.  One of these documents concerned the certification of organic food.  That contingency paper confirmed my worst fears of the UK government’s lack of preparedness for Brexit and the regulatory chaos that will be thrust upon UK businesses as a result of Brexit.

The UK government is slowly drip feeding industry with these contingency documents and have taken 18 months to do so.  The EU produced their equivalent documents six months ago.

The organic products contingency paper was written for a no deal scenario.  However, my reading of the law is that the effect of the UK becoming a ‘third country’ will be the same on the organic sector whatever the result of the article 50 process.  The impact of EU exit and the UK government’s utter failure to plan, could destroy the UK organic food sector completely.

Currently, the UK, as an EU member, implements the EU Organic Products Directive.  What this means in practice is that the UK complies with the EU-wide definition of organic food.  A food producer wanting to describe their food as organic, must meet strict criteria as to the use of organic production processes.  There are strict limits on the use of inorganic fertilisers and pesticides.  If a producer wants to be classed as an organic producer, they must be certified as meeting organic standards and they must keep detailed records in relation to their organic status.

Getting organic status is expensive and can be extremely time-consuming.  Achieving organic certification can cost thousands.  I know one farm which spent nearly a decade working to ensure their land met organic standards.

There are nine organic certification bodies in the UK.  three of these bodies are based in the Republic of Ireland.  Each has been licensed by the EU to issue organic certificates to UK food producers.

Once a UK producer has achieved organic status, they can mark their food labels with the EU green leaf passport.  This symbol allows the food to travel throughout the single market with no further certification checks.

I wrote to Mr Gove as it was clear to me that leaving the EU would mean the collapse of this certification process.

The government’s contingency document confirms my fears but it also contains one crucial detail which may mean that organic production in the UK becomes financially unviable.

The document states that, “in the event of no deal”, all UK organic certificates will lapse.  UK organic certification bodies will no longer be authorised to issue organic status certificates to UK food producers.  The UK will have to set up a new system of organic certification.

Certification bodies will have to be licensed by the UK government.  This could be a lengthy process as the UK government will have to set up the certification system and carry out effective audits of the certification bodies to ensure that they comply with new UK-only organic standards.  Only after these bodies have been licensed by the UK government can new organic certificates be issued to food producers.  Existing organic food producers will have to reapply for organic status and pay certification fees.

The effect is immediate disruption to the supply of UK organic produce.

But it gets worse.  The contingency document states that the UK will continue to accept organic food produced under the EU system with no further checks.

So whilst UK production of organic food is disrupted, EU producers have full, unfettered access to the UK market.

So what if you want to export organic food to the rest of Europe.  Well, the contingency document is clear on that.  It must be noted that organic food is a value-added export product.

It is clear that once the UK becomes a third country UK organic food will not be able to use the green leaf passport. UK food described as organic will be subject to additional inspections at EU state borders and, if it uses the green leaf logo unofficially, will likely not be allowed access to the single market.

UK organic producers will have to be certified by an EU-based certification body which is licensed to operate within the UK.  Currently, no such body exists.

As the UK will be a ‘third country’, even if the producer is certified by an EU-licensed certification body, the food will need to be clearly marked as being of ‘non-EU origin’.

So UK exporters of organic foods will face expensive dual certification and this could be increasingly expensive if EU and UK organic standards diverge.  UK organic exports will likely face additional controls and barriers at EU borders.

Whilst UK producers flounder in the regulatory molasses of Brexit; with increased bureaucracy and additional costs; EU organic producers will have free unfettered access to the UK market; a distinct competitive advantage.

Such a competitive imbalance, and the likely reduction in margins due to the cost of additional UK bureaucracy, could easily make organic production in the UK unviable.

In this article, I have concentrated on one issue in one market sector; but this is just one example amongst thousands.  Similar issues occur across the UK economy, from toys, to pesticides, to motor vehicles, to financial services, cosmetics, metrology; to name but a few.

There is now six months until Brexit day.  Even if the UK government comes up with new systems of certification and regulation, it is highly unlikely that such systems will be in place for March next year.

Much of the media attention regarding Brexit has been focussed on custom’s tariffs.  But regulatory issues are a far more problematic concern.  Deal or no deal, the UK government’s failure to recognise the problems of regulatory divergence, and their appalling lack of preparation are going to be a costly and disruptive issue for UK business.

A prominent component in the arguments from Brexit was freeing the UK from EU bureaucracy.  Of what I have read of the UK government’s contingency plans, the solution to the loss of EU red tape is…..even more UK red tape.

ODR, ADR and Regulatory Divergence

Online and Alternative Dispute Resolution

As a member of the Federation of Small Businesses Philmus Consulting meet numerous online retailers. Much of the talk amongst these firms currently involves the General Data Protection Regulations. However EU directives relating to Online and Alternative Dispute Resolution are often ignored. It is anticipated that EU rules on ODR and ADR will continue in the UK if a Brexit transition agreement is initiated in 2019.

Many of the small businesses I meet operate solely on the internet. They have no retail premises and are often based in their proprietors home. Many of these businesses are unaware of their legal responsibilities in relation to dispute resolution.

In 2016, the EU created an Online Dispute Resolution portal. This links consumers with an appropriate dispute resolution provider. The portal operates across the EU and applies to both domestic and cross-border electronic contracts for the sale of goods and services. The EU has an ever-growing list of approved alternative dispute resolution providers.

The aim of online and alternative dispute resolution is to make it simpler and cheaper for consumers to achieve restorative justice without the need for costly civil court proceedings.

The EU ODR portal allows documentation and information to be shared electronically. Consumers and traders can agree on a suitable independent arbiter to resolve disputes.

In some industries, such as financial services, legislation prescribes an official arbiter. Membership of certain trade associations requires acceptance of their arbitration service. Consumers can choose to accept the arbitration role of the trade association or agree with the trader to use a separate independent arbiter. If a consumer and trader cannot agree on an independent arbiter within 30 days, the complaint cannot be proceeded with and more formal resolution processes, such as the small claims court must be used.

Depending on the industry, alternative dispute resolution can result in a range of judgements, from formal advice through to legally binding decisions. ADR providers have to be registered with an appropriate certification body such as the Financial conduct authority.

If you are an internet trader please ensure that your systems are ODR and ADR compliant and that your website contains the above, legally required links and information.

Failure to comply with ODR and ADR protocols is a criminal offence enforceable under the Enterprise Act 2003.

The following questions and answers will help you decide on what action you need to take in relation to ODR and ADR compliance:

  •  Do you sell goods and services through a website?   If the answer is no, you do not need to put details of ODR on your website.  If you do, go to the next question.
  • Are you operating in a sector where an approved ADR scheme is
    mandatory under legislation?   If the answer is yes, you need to:
  • You need to inform consumers of the existence of the EU ODR platform and their opportunity to use it. You are required by law to provide:
    A link to the ODR platform on your website
    Emails to consumers must include a link to the ODR platform as first point of contact for dispute resolution
    Information on the ODR platform including terms and conditions relating to online contracts
    This information is in addition to giving details of your approved ADR provider.  If the answer is no, go to the next question.
  • Are you required by your trade association to participate in an approved ADR scheme?  If your answer is no, you need to provide a link to the EU ODR platform on your website. You also need to provide an email address on your website so that customers have a first point of contact for dispute resolution.  If the answer is yes, you are required to:  Place a link to the ODR platform on your website;
    Emails to consumers must include a link to the ODR platform as first point of contact for dispute resolution; You must include information on the ODR platform including terms and conditions relating to online contracts.

Regulatory Divergence

In recent months there has been significant attention paid to regulatory change by marketing industry commentators.

Much of this has focused on GDPR (The General Data Protection Regulations). However the prospect of Brexit could mean regulatory change which makes the changes to consumer protection law look like the proverbial drop in the ocean.

UK firms currently benefit from our EU membership. They can sell goods and services across the block without tariff and non-tariff barriers such as regulatory divergence.
The UK government is proposing a new trade agreement with the EU but it is highly likely that Theresa may’s red lines, in particular her opposition to the European Court of Justice precedent applying in the UK may make such an agreement impossible.
Some hard-line Brexit supports are keen to see mass deregulation within the UK which will put us at odds with our biggest trading partner. All trustworthy forecasts show that the potential increase in trade from non-EU countries will not match the trade we will lose with the EU. Rather than having one set of regulations to follow, UK firms may have to apply multiple sets of divergent regulations to their production. This is potentially a lengthy, complicated and expensive process.

Most commentators agree that it is in the interest of British Industry to have as little regulatory framework divergence as possible. This is unlikely as EU agencies which coordinate regulatory enforcement and conformity will have to be replicated within the UK. There is real concern about a reduction in economies of scale which will make it harder for UK firms to compete.

If the UK regulatory framework does diverge from that of the EU, British businesses will find it harder to sell into the EU as existing standards require compliance throughout the supply chain. They may also find that they face double or treble the regulatory burden than at present. This could be incredibly costly and seriously harm the competitiveness of the UK.

 

Don’t worry it may never happen

As an ex-pat Scot, I regularly visit the pages of The Scotsman newspaper.  the Scotsman is a broadsheet based in Edinburgh and it covers all the big national stories as well as those affecting Scotland.

Over the weekend, I chanced upon two stories in the paper.  the first was an opinion piece on the future of Scottish agriculture outside of the EU.  It highlighted some of the UK government’s recent press releases relating to the trade in agricultural produce once the UK has left the EU.

In recent weeks, press releases have highlighted the prospect of selling pigs trotters to the Philippines and deer antlers to China (they are used in Chinese traditional medicine).  The article equated these press releases to applying lipstick to a pig.  Firstly, the trade deals mention were in the low millions of pounds not the billions needed to replace the drop in trade likely after we leave the EU.  Secondly, UK agricultural and food suppliers already carried out a lot of this form of trade from within the EU.

As a trading standards professional, I regularly had to inspect two large poultry processing factories.  Both of these factories exported chicken heads and feet to China.  In total these factories processed around 2 million chickens a year.  The value of their existing chicken by-products was larger than some of the trade benefits quoted in the UK government press releases.

The second article I spotted was a survey of UK and EU CEO’s by Thompson Reuters.  This survey stated that 69% of CEO’s had yet to include the potential effects of Brexit in their corporate strategic plans.  The survey also stated that 21% of those surveyed had paused or stopped investing in the UK as a result of Brexit.  The International Trade minister Liam Fox was given a score of three out of ten for his performance so far.

The spin applied to the survey in the article was that company CEO’s were not worried about Brexit.  I would suggest that many have yet to become worried; that they are in denial at the potential chaos of the UK’s exit from the EU.  I suspect many company directors still believe that Brexit isn’t going to happen.

The problem is that there is not a lot of time left before the Brexit deadline for CEO’s to plan and get their act together for a political and economic whirlwind.

To illustrate the lack of thought that is being applied to the process of Brexit, I refer you to two of the position papers recently published by David Davis, the cabinet minister for exiting the European Union.

The first of these relates to the land border between Northern Ireland and the Republic of Ireland.  The second is the position paper relating to the continuity of the availability of goods for the UK and the EU.  Both of these documents are the thinnest of gruel.  They consistently lack the appropriate detail to give business an idea of how life outside the EU will look.

The paper on the Irish border is particularly awful.  It talks of the border remaining identical to now.  Goods will be able to cross the border freely, as will people.  But such an assertion stands directly against the facts of the Republic being inside the EU and the UK outside.

The proposals in relation to customs are particularly baffling.  Two options are given.  The first is the ‘have your cake and eat it Brexit’.

The paper argues that the UK could leave the current European Customs Union and set up an identical but different UK/EU customs union.  This would allow the movement of goods to go on unhindered.  At the same time, the UK would be able to go out and make new free trade agreements with other states.

There is no way that the EU will agree to such a situation.  It would allow third-party nations which have agreed a free trade agreement to siphon goods through the UK into the EU avoiding existing tariffs and customs controls.

The second option is that a class of ‘trusted traders’ either side of the border are exempted from customs and tariff law.  In particular, the UK government wants to exempt small firms from such measures.

This is a bonkers suggestion.  You cannot have one law for some and a different law for others.

In summary the UK government proposals for the Irish land border are a recipe for smuggling, people trafficking, tariff evasion and carousel fraud.  The position paper resembles a first year undergraduate politics essay.

The paper on the continuity of the availability of goods is equally terrible.

It only talks about goods up to the point that the UK exits the EU.  It states that goods placed on the market prior to the UK exit should be treated as they are currently and not under the new arrangement between the EU and UK.

What this means is that goods made or ordered at five to midnight o March 31st 2019 will be EU goods and treated as such.  Nothing is said about the status of goods made or ordered six minutes later on the first of April.

The paucity of detail in these position papers should have businesses of all sizes extremely worried about the potential effects of Brexit.  They clearly show that the UK government has no strong policy on Brexit and little idea how life will look outside the EU.

Beware, get contingency business plans and strategies ready now because it looks like the UK out of the EU will be a particularly unstable place to do business.