Memorandum submitted by the National Association
of Health Stores (NAHS)
1. EXECUTIVE
SUMMARY
1.1 The NAHS submission is primarily aimed
at answering point two of the call for evidence for the Select
Committee's inquiry, which asked for views on the role of the
Ministry of Justice in managing the United Kingdom's relationship
with the Crown Dependencies including inter-departmental liaison
and coordination.
1.2 Our members have been experiencing problems
with unfair and illegal competition from the health food industry
based in the Channel Islands. Due the fact that the Channel Islands
are not part of the EU, and have not implemented the relevant
European legislation which regulates food supplements and the
health claims that can be made about food, such companies are
able to sell products containing ingredients that would be illegal
if placed directly on the UK market. In addition, some Channel
Islands operators make claims about these products which would
also be illegal if the products were placed directly on the UK
market. They can also benefit from Low Value Consignment Relief
(LVCR), meaning that their products can be sold more cheaply.
1.3 The fact that companies based in the
Channel Islands are able to sell a wider range of products than
UK companies, make exaggerated claims about their products, and
under-cut the prices of UK companies, means that law-abiding and
responsible UK companies are severely disadvantaged. This situation
also has the potential to put consumers at risk.
1.4 As it is the role of the Ministry of
Justice to manage the UK's relationship with the Crown Dependencies,
we would like to see them coordinate effective action to support
UK businesses and protect UK consumers. In particular, we would
like them to ensure the implementation of the Nutrition and Health
Claims Regulation, the Food Supplements Directive and the Medicines
Directive in both Jersey and Guernsey.
2. INTRODUCTION
2.1 The NAHS (National Association of Health
Stores) is a non-profit organisation founded in 1931 which
represents independent health stores in the UK. We have 160 of
the most progressive independent retailers as members.
The independent retail sector is the most important
channel in the UK for the sale of the very specialist nutritional
and herbal supplement market in the UK. Being UK based we are
fully compliant with all medicines and food law and perceive an
injustice when other competitors are not.
2.2 We are responding to this inquiry into
the Ministry of Justice in relation to the Crown Dependencies,
due to a specific problem influenced by that particular relationship.
The Ministry of Justice has a role to play in dealing with this
problem of unfair and illegal competition from the Channel Islands.
Therefore, this submission primarily addresses point two of the
call for evidence, which asks specifically about the role of
the Ministry of Justice in managing the United Kingdom's relationship
with the Crown Dependencies including inter-departmental liaison
and coordination.
3. THE PROBLEM
3.1 The UK specialist health food industry
is being undermined by illegal and unfair competition from businesses
based in the Channel Islands. Personal imports of specialist supplements,
currently worth over £70 million per annum, are seriously
undermining the profitability of responsible UK suppliers and
retailers, at times jeopardising consumer safety, and diverting
substantial revenues from the Treasury.
3.2 This is possible because the Channel
Islands' (CI) unusual status of crown dependencies means that
they are not fully in the UK, nor are they in the EU. Therefore,
they are not subject to either the UK or EU regulatory regimes
covering medicinal claims, product quality and safety. These include
the Food Supplements Directive (FSD), Nutrition and Health Claims
Regulation (NHCR) and the Medicines Directive. In recent years,
a number of operators have located in CI jurisdictions to take
advantage of the more relaxed regulatory situation whilst targeting
the UK market. The Ministry of Justice and the Channel Islands
have now agreed that the relevant legislation should be implemented,
but to date this has not happened.
3.3 Virtually all CI operators make medicinal
claims for (unlicensed) food supplements and herbal products and
some make wildly exaggerated claims for 'miracle cures' for serious
conditions. In the UK, such claims are banned by the Advertising
Standards Agency (ASA) code. While it is possible to obtain ASA
adjudications against such advertising, in practice they pose
little threat to companies based in the Channel Islands. Some
CI operators offer substances ostensibly as food supplements that
are classified as medicinal in the UK. One potential effect is
that those who are ill risk deciding not to seek appropriate medical
advice. Furthermore, CI operators escape the need for compliance
with UK food safety (or pharmaceutical) legislation.
3.3 There is already debate about the inequities
of LVCR for Channel Island companies to avoid paying VAT on deliveries
valued less than £18. This is sometimes compounded by operators
splitting parcels for orders in excess of £18. Also, technically,
most if not all CI businesses operate in contravention of the
'contract for purchase' requirements for purchases from an off-shore
vendor. The rapid growth and predicted future growth of trade
from the CI in relevant sectors will exacerbate the loss of VAT
revenue to the Treasury (official estimates predict a rise in
lost revenue resulting from LVCR across all product categories
to £200m pa). The fact that unscrupulous operators making
illegal and exaggerated health claims from the CI also enjoy the
LVCR benefit gives them a double advantage over responsible EU
and UK businesses.
3.4 The freedom to make health claims that
are illegal in the UK with impunity (it is self-evident in this
sector that claims sell products) and the price advantage generated
by the LVCR has led to CI operators capturing a substantial share
of the UK food supplements market (audited value £362m in
2005) from a very low base 10 years ago. There are no significant
barriers to further growth and without effective intervention
it is inevitable that the CI share of market will continue to
increase, with responsible EU and UK operators unable to compete
on either cost or claims on a level playing field. Responsible
operators have also had a raft of recent EU Directives and Regulations
imposing further restrictions on the sector and the gap between
what a CI operator will say in making health claims and what an
EU operator can say will grow.
4. REGULATION
AND LEGISLATION
4.1 The Medicines and Healthcare products
Regulatory Agency (MHRA) and Trading Standards Officers have power
to take steps against UK operators contravening the rules on 'promotional
health claims' but they have no jurisdiction in the Channel Islands.
They do where appropriate forward complaints to the relevant foreign
regulating body. Informally they comment that where a complaint
is forwarded to a member state, the practice complained of normally
ceases but that this is not the case with the Channel Islands
in the majority of complaints.
4.2 We do not wish to suggest that the CI
authorities are anything other than well-meaning and we do recognise
that enforcement is always going to be a problem within such a
small jurisdiction which, in some ways, has the responsibilities
of a nation state. Nevertheless, the end result is an ever-increasing
flow of inappropriately marketed and sometimes illegal items being
sold to vulnerable UK consumers, who find the Channel Islands
address reassuringly British.
4.3 Jersey and Guernsey legislate separately.
The Guernsey Medicines Law, which implements the Medicines Directive,
received Royal Assent in December 2008, and should come into force
in October 2009. The MHRA have stated that the Medicines Law is
not fully consistent with the Medicines Directive; but it is hoped
that some of the loopholes can be closed with secondary legislation.
4.4 Guernsey has not implemented either
the NHCR or the FSD. However, it was recently confirmed that work
has begun on investigating the implementation of the FSD and NHCR,
but a clear timetable for implementation has still not been provided.
4.5 Jersey already has a medicines law already
in place which makes it illegal to make medicinal claims on unauthorised
products or distribute unauthorised medicines, but it is difficult
to enforce in practice and only targets Jersey based suppliers
and advertisers.
4.6 Initially, Jersey had pledged to implement
both the FSD and the NHCR on the back of a review of their Food
Hygiene Law, with drafting due to begin in 2010. However, this
target has since been delayed and the implementation work has
not yet been included in their work programmes.
4.7 Guernsey and Jersey also have the power
to adopt UK law as their own. It will be necessary for them to
take this step, or to model their new legislation very closely
upon it, if they wish to avoid the accusation that they are actively
encouraging unscrupulous operators in their jurisdiction to exploit
potentially vulnerable UK consumers.
5. THE SOLUTION
5.1 It is essential that the Ministry of
Justice, as the point of liaison between the UK and the Channel
Islands, continues to put pressure on both Jersey and Guernsey
to implement the necessary legislation, including the FSD, the
NHCR and the Medicines Directive as soon as possible, as well
as to offer help with the implementation where needed.
5.2 Once this legislation does come into
force, attention will shift to enforcement. Both Jersey and Guernsey
are likely to require the assistance of several UK agencies to
achieve effective enforcement, including the MHRA, the FSA and
Trading Standards. The Ministry of Justice needs to actively coordinate
this assistance, to ensure that the legislation is adhered to,
and UK retailers and consumers are protected.
5.3 Until the legislation has been implemented,
the Ministry of Justice also needs to support efforts to deal
with the problem through other channels, including through Royal
Mail (who deliver the majority of the catalogues advertising products
of concern) and supporting cooperation between Trading Standards
officers based in the UK and the Channel Islands.
5.4 It is important that the Ministry of
Justice is fully behind any efforts to tackle this problem. As
well as undermining responsible UK businesses, it misleads UK
consumers and is a potential threat to their health and wellbeing.
The Ministry needs to effectively manage the relationship between
the UK and the Channel Islands, and as well as facilitating cooperation
between other UK departments and agencies to ensure that the health
food businesses based in the Channel Islands cause as little damage
as possible in the short term, while working towards the long
term solution to the problem: implementation and effective enforcement
of the FSD, the NHCR and the Medicines Law in both Jersey and
Guernsey. Only this long term solution ensures that any competition
coming from the Channel Islands is fair and legal, and it ensures
a long awaited level playing field for UK businesses.
October 2009
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