French cosmetics industry on tenterhooks as Brexit deadline approaches
Since the summer of 2018, the French cosmetics industry has been preparing for a no-deal Brexit, and companies are scrambling to set up legal entities in Europe and the United Kingdom to keep business going as usual.
Britain is the fourth largest market worldwide for French perfumes and cosmetics, and it is its second largest European market, after Germany, with sales of over a billion euros each year.
European cosmetics regulations are some of the most rigorous in the world, and it is unlikely that the UK will adopt different ones immediately, which is good news for European countries who want to continue selling in Britain.
The immediate concerns, however, especially for small businesses, have to do with the border.
“We have a lot of SMEs that only do business with Europe, so they do not know what a border procedure is,” Virginie L’Enfer, director of economic, international and environmental affairs for the French cosmetics industry group, the Federation for beauty companies (Febea), told RFI.
“There are companies that currently only do business with the 28 member countries, and tomorrow they will have to deal with customs procedures, transit agents, customs declarations. It’s a whole new organisation to put in place. That will be the first obstacle.”
Even large companies are anticipating border delays. In January the chief executive of French cosmetics giant L’Oreal said the company was already increasing its stocks of ware in the UK, to avoid shortages.
In the medium term, French and other European countries doing business in the UK will no longer be able to do so directly.
“Today, among the 28 member countries, there is one responsible person, or entity, that covers the 28 member states. Tomorrow you will need a responsible entity in the UK,” explains L’Enfer. That entity will have to appear on product labels, which forces a relabeling of all products going to the UK.
This is part of a cosmetics law that will be passed in the UK after whatever Brexit deal is struck, and there is expected to be a grace period of up to two years.
Companies in the UK who do business in Europe are facing the same issues. They, too, will need legal entities to represent them in the European market.
“The big concern right now is for small companies, SMEs, who are going to lose a lot of turnover in Europe. Those companies, if they want to sell in Europe, they need to act now,” Sylvain de Backer, cosmetics director for EcoMundo, which advises cosmetics and chemical companies on regulations and compliance, told RFI.
Foreign companies based in the UK to do business in Europe will have to do the same.
“They will have to be based in Europe to sell in Europe,” says de Backer. “So lot of foreign companies based in the UK will relocate.”
Unilever last year announced it was moving its headquarters to the Netherlands. Though the CEO at the time insisted that Brexit was not a factor in the decision, it is sure that having a foot in Europe will facilitate its doing business in the rest of Europe.
The British industry group, the Cosmetic, Toiletry & Perfumery Association (Ctpa) said the legal transition from European to British regulations “will take years”, and all existing laws and guidelines will remain in place for now.
“Cosmetics sold in the UK must continue to comply fully with the European Cosmetic Products Regulation, including requirements relating to safety, labelling and the ban on animal testing,” it said in a statement on its website after the referendum.
“The [European] philosophy and vision of what should be the regulations to protect consumers has spread worldwide,” says de Backer. “A lot of foreign countries have copied the European regulations. So it’s very unlikely that the UK will decide to lower their expectations and not keep the EU regulations, or at least something extremely similar.”
In the longer term they might start to diverge, though, warns L’Enfer: “For example, they could change the rules for labelling, or require different wording. There could be divergences on the evaluation of ingredients. There are many variables that will appear over time.”
“If they decide to change the regulations and have different requirements for Europe, in that case it will be clearly a nightmare,” says de Backer. “That could impact the consumer, because companies will have to reformulate their products.”
The most likely impact of Brexit on make-up and perfumes is price.
“It’s really about the companies and the way they’re structured, and this may impact not only the supply chain, but the cost of the product,” says de Backer. “We can assume that crossing borders is going to have a higher cost, in terms of time, taxes and the cost of transport. So this is going to maybe have a small impact on the cost of the product. But it’s too early to really know how much.”
L’Enfer also warns of a rise in prices because of mandatory worldwide tariffs on certain products, because without any specific trade deals, trade between the UK and Europe falls under the rules of the World trade organisation.
“There are a certain number of customs taxes that could be applied on certain specific categories of products, like aftershave products, which as a 6.5 per cent tax. So there is a risk of increased prices in the UK,” she says.
But she says in general, the cosmetics trade between France and the UK should not see any significant changes: “The UK and the European member states are working to make sure that trade still exists. It will be more restrictive. But we are working closely with the UK, to make a convergence of the regulations. You will still be able to find your favourite lipstick. It’s just that it will be more complicated, and possibly more expensive.”
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