Compliance Brings True Safety, Advices by UK Lawyer

Chinese e-cigarette firms are targeting the UK market amidst international expansion challenges, navigating the regulatory landscape, ensuring product compliance, and preventing underage sales to mitigate risks. In 2022, Tianfeng Securities reported that the number of UK e-cigarette users reached 4.3 million, with a 1.2% YoY increase. It is 6.3% of the UK adult population, significantly higher than the 1.7% of the population a decade ago.

2FIRSTS interviewed British lawyer Jeremy Kleinfeld, a practicing lawyer at DKLM law firm in London, UK, specializing in handling corporate acquisitions, disposals, and mergers. He is also a partner at ZHONGLUN W&D Law Firm.

Underage use issue

When Chinese companies enter the UK market, the first thing they need to face is legal issues.

Jeremy recalled the Brexit event. On June 23, 2016, the UK held a Brexit referendum, with 51.9% of voters voting in favor of leaving the EU. The UK formally "divorced" the EU, but the regulations established by the UK before Brexit were still retained, including the control requirements for tobacco products.

Most of the original EU Tobacco Product Directive (TPD) was adopted by the UK government and incorporated into the UK legal system, which is now the source of the UK's Tobacco and Related Products Regulations (TRPR).

For the e-cigarettes industry, the UK is likely to be the friendliest country. Government departments, health agencies, and medical experts generally regard e-cigarettes as safe alternatives to traditional tobacco.

• In 2015, Public Health England released an independent review report stating that e-cigarettes are 95% safer than conventional tobacco and recommended that the government encourage smokers to use e-cigarettes as a smoking cessation tool; 
• In 2017, the UK began implementing EU e-cigarette regulations, which regulated the nicotine content, ingredients, and packaging of e-cigarettes; 
• In 2017, the UK's Department of Public Health (NHS) released the "England Tobacco Control Plan". The plan states that e-cigarettes are an effective way to help smokers quit; 
• In 2021, after the UK's Brexit, e-cigarette notifications were transferred to the Medicines and Healthcare Products Regulatory Agency's website.

However, the recent issue of underage use of disposable e-cigarettes in the UK has attracted the attention of major medias such as the Financial Times. The UK Vaping Industry Association (UKVIA) urgently updated its "Guidelines for Preventing Sales to Minors," and its chairman, John Dunne, said, "Preventing the sale of e-cigarette products to minors is one of the industry's most fundamental challenges."

Kleinfeld also expressed concern about this issue, "I think the biggest problem is whether disposable e-cigarettes are attracting an increasingly younger audience, as the public is currently worried about."

He believes that although e-cigarettes are much safer than traditional tobacco, they can be addictive, which would affect the decisions behind government policies.

If industry professionals do not voluntarily comply with regulations, such products that exceed the nicotine standard may attract even more detailed supervision.

Kleinfeld said, "Getting minors addicted is something the government wants to crack down on, and the state must introduce regulations to guide them (the e-cigarette industry) to comply with the regulations."

Compliance requirements must be followed

The future overall regulatory measures for e-cigarettes in the UK are not yet clear. Currently, industry participants can only ensure that the products they manufacture and sell meet the UK's compliance standards.

UK law requires disposable e-cigarette products to have a maximum e-liquid capacity of 2ml, with a maximum nicotine concentration of 2%.

When discussing UK legal compliance issues, Kleinfeld said that if industry participants want to safely enter the free market, they should follow the UK government's guidelines, "rather than exploiting loopholes in regulations by misrepresenting e-liquid content."

If manufacturers are allowed to infuse e-liquids and nicotine beyond the UK's standard content, it would ultimately attracting the attention of law enforcement and public opinion. Then the presence of these illegal markets "will bring a bad reputation to Chinese products." This is not targeted at one or two brands in the market but all Chinese e-cigarette products in the UK market.

Kleinfeld added that sellers must ensure that what they sell meets the standards. If not, it is an issue that traces back to the production stage.

No distinction between malicious acquisitions and other acquisitions

When discussing cross-border acquisitions, particularly international corporations' acquisitions of leading companies in niche industries, Kleinfeld said, "I think this market is far from mature, and it's certainly not a short-term issue."

Moreover, UK law has relevant appeal mechanisms. If a company or organization believes that an acquisition may result in a single market monopoly, they can file a complaint with the Competition and Markets Authority (CMA).

The CMA is an independent UK body responsible for investigating and regulating unfair competition in the market, ensuring consumers get fair prices and quality. It reviews and can approves or rejects market mergers and acquisitions that have potential impact. The CMA replaced the earlier "Competition Commission" and "Consumer Commission" and is one of the UK's primary competition regulatory bodies.

Regarding the event of British American Tobacco (BAT) intending to acquire ELFBAR (a disposable e-cigarette brand under iMiracle), Kleinfeld believes that under the existing legal framework, there is nothing to prevent a UK company from investing in a Chinese company. At the same time, he thinks there is no real distinction between malicious acquisitions and other acquisitions.

Kleinfeld believes, "If both companies agree to the acquisition, it would be up to the CMA to determine whether it is in the public interest."

In his view, cross-border acquisitions are not a legal issue; it is about determining whether the acquisition should happen based on maximizing market benefits.

If regulatory rules change, manufacturers need to be proactive in this regard and adjust their products according to market changes. In this process, if companies want to avoid potential market risks, Kleinfeld's advice is to "purchase insurance."

In contracts signed between distributors and manufacturers, "they must include clauses that require coverage from reputable insurance companies to assume any potential liabilities."

He believes that the only way for manufacturers to genuinely move from passively solving problems to actively preventing them is to "ensure that the products being sold are as labeled."

Reference:

[1] 天风证券《新兴产业行业研究周报》

[2] TPD

[3] Financial Times: The Environmental Cost of Single-use Vapes

[4] CMA

[5] E-cigarette and vaping policy regulation and guidance

[6] UKVIA: Preventing Underage Sales Guide
[7] DKLM Law Firm

About the interviewee

Jeremy Kleinfeld

Jeremy obtained his lawyer qualification in 1980.

Partner and the financial partner of DKLM.

Chairman and founding member of the Global Legal Alliance, an international platform for global legal service alliances and legal professionals, aiming to develop into a public platform where global legal service providers can establish connections, exchange ideas, and collaborate with other global legal service providers.

Also read:

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UKVIA Responded to CTSI Concerns on Illicit E-cigarettes

BAT Slams Disposable Vapes After Failing to Acquire Elfbar. A Retaliation?

BAT Confirms Sending Competitor Disposable E-cigarettes for Inspection in the UK