Brexit: What is it, and what are the legal implications? · 2016-11-14 · • EEA Agreement...

Brexit What is it, and what are the legal implications? July 2016

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Private & Confidential

Agenda

• What are the main Brexit options?

• How might Brexit affect… ‒ Immigration and Employment ‒ Tax ‒ Consumer Rights ‒ Commercial ‒ Data Protection ‒ Regulatory

(Competition, Procurement and Health & Safety) ‒ Corporate and Financial Services

(Financial Regulation, Funds and Payments) ‒ Advertising ‒ Intellectual Property

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What form could Brexit take?

The ‘Norwegian Model’ (EEA)

The ‘Turkish Model’ (EU Customs

Union)

The ‘Canadian Model’

World Trade Organisation

?

The ‘Swiss Model’ (EFTA)

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But first, a naming of parts… The EU, EEA, EFTA, Schengen, Customs Union and Council of Europe…

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What is the European Free Trade Association?

• An inter-governmental organisation set up for the promotion of free trade and economic integration to the benefit of its four Member States

• Established in 1960 (originally 7 countries – including the UK)

• Now comprising only four countries:

‒ Norway

‒ Iceland

‒ Liechtenstein

‒ Switzerland

• As a block: 12th largest trader in goods; 7th largest in services

• 25 Free Trade Agreements (covering 35 countries)

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What is the European Union Economic Area (EEA)?

• EEA Agreement entered into force on 1 January 1994

‒ Extends the Single Market to three of the EFTA countries (Norway, Iceland & Liechtenstein)

‒ Applies EU legislation covering the four freedoms – goods, services, capital and people

‒ Includes EU rules on competition and state aid

• Also covers cooperation in several policy areas, such as R&D, education, social policy, environment, consumer protection and tourism

• EXCLUDES key policies such as Common Agriculture & Fisheries, Customs Union, Common Trade Policy, Economic & Monetary Union, Justice & Home Affairs

• No right to participate in EU political decision-making (but EEA EFTA experts do help shape EU legislation via committees)

• Relevant EU legislation is incorporated into EEA Agreement (via EEA Joint Committee Decision)

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The ‘Swiss Model’

• EFTA membership only (not a signatory to EEA)

• Access to EU single market negotiated through 120+ bilateral agreements

‒ Agreements negotiated sector by sector, with subsidiary agreements governing movement of services

‒ First series of agreements took six years to negotiate

‒ Free movement is a cornerstone

• Where EU laws apply to Switzerland, fresh negotiations are required every time EU policies change (unlike the EEA)

• Swiss business frustrated by lack of certainty over access to the EU

‒ EFTA meant to be stepping-stone to full EEA membership

‒ Uncertainty heightened by 2014 referendum to impose quota on free movement

• EU taking a hard line…

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The ‘Swiss Model’ Switzerland’s relationship with the EU

• Switzerland’s bilateral agreements with the EU do not cover financial services

‒ Swiss financial intermediaries that want access to the single market must establish EU-based subsidiaries

‒ Limited cross-border financial services from Switzerland

‒ On-going tensions around freedom of movement

Some statistics (from 2012)

56% of Switzerland’s exports went to the EU*

EU accounted for 64.7% of Switzerland’s foreign trade

Switzerland accounted for 7.7% of the EU’s foreign trade**

Switzerland pays 40% as much as the UK to be part of the single market in goods (on a per capita basis)

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The ‘Norwegian Model’

• EFTA and EEA membership

• Governed by the EEA Agreement:

‒ Allows for access to the single market

‒ Retains the free movement principles for all ‘four freedoms’

• Certain specific carve-outs:

‒ Agriculture and fisheries not covered by the EEA

• Subject to the supremacy of EU law in the majority of areas through the EFTA Court and EFTA Surveillance Authority

• No right to influence EU policy, new laws or regulations, but must still contribute to the EU budget… ‒ The UK would have to keep all

current EU Regulations ‒ Norway pays around 83% (per

capita basis) of UK’s contribution to the EU…

• Politically unacceptable unless amended? ‒ Uncertainty over ability to

negotiate derogations to ‘free movement’

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The ‘Canadian Model’ – free trade agreement

Comprehensive Economic and Trade Agreement (Ceta)

• A controversial treaty negotiated between the EU and Canada over a six year period

• Yet to be implemented, despite negotiations concluding in August 2014

• Dogged by political shenanigans (NB requires ratification by each EU Member State)

Pros Cons

No contribution to the EU budget required

Will eliminate most tariffs on goods

No access to the single market or the other ‘freedoms’

A lengthy process

Exporters will have to prove that their goods are entirely ‘made in Canada’

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The ‘Turkish Model’

• Member of the EU Customs Union ‒ Tariff-free access (without quotas) to the EU

single market for goods. Agricultural goods (except those which are processed) are excluded

‒ Does not apply to services* or public procurement

‒ No free movement of people

‒ Common external tariff for the products covered above

• Has bilateral trade concession which apply to agricultural products

• Signed free trade agreements with EFTA, Croatia and several other states**

• Member of Euro-Mediterranean partnership – able to conclude free trade agreements with all other Mediterranean partners

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Will the UK ‘go it alone’ as a member of the World Trade Organisation?

• The UK would have more sovereignty (and therefore control its own trade policy)…

• …but less favourable trading terms with the EU, with the prospect of a bigger fall in GDP

• The UK would not have to allow free movement of persons and would not need to contribute to the EU budget. EU law would not apply in the UK

• UK exports to the EU would face tariffs (which they currently don’t)

• Exporters would still need to meet EU product standards

• The WTO offers little protection to exporters on an individual basis, as there is limited ability to enforce its rules

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Practicalities of Brexit…

• Will ratification of Brexit referendum result be required in Parliament?

• Notice must be given to the EU under Article 50 Treaty on European Union

• Withdrawal will take effect from earlier of:

‒ Entry into force of a withdrawal agreement within EC

‒ Two years from date Art 50 is invoked

• EC may refuse to negotiate new terms until UK has left the EU…

• European Communities Act 1972 would need to be repealed

‒ Would effectively repeal all directly and indirectly applicable EU legislation

‒ ‘Saving legislation’ needed to preserve status quo pending new agreement

• Unless we remain in EEA, UK will become a ‘third country’ for EU law purposes:

‒ Equivalence decision(s) required to continue doing business in EU

‒ May be time-consuming; does not cover all legislation

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What are the legal implications of Brexit for businesses?

Tax

Regulatory (Competition, Procurement and Health & Safety)

Commercial

Immigration and Employment

Intellectual Property Advertising Corporate and Financial Services (Financial Regulation, Funds and Payments)

Consumer Rights

Data Protection

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Immigration and Employment Immigration key messages

• EU nationals in the UK secure settlement – five years by time of Brexit

• Full freedom of movement unlikely

• Sponsor Licence Applications

• Spiking of applications – delays likely

• Transitional arrangements – Tier 3

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Immigration and Employment EU nationals

• Permanent Residence / Settlement Permit Applications

• Need to hold or prove settlement status for 12 months

• Naturalisation application

• Passport

• Entitlement can be passed down

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Immigration and Employment Sponsor licence application

• Online registration

‒ https://www.points.homeoffice.gov.uk/gui-sponsor-jsf/Register/SponsorRegister.faces

‒ Online submission

‒ Paper application

‒ Approval – 2 working days*

‒ Licence valid 4 years

‒ No quota

* Pedantic process, high levels of refusals, possible 6 month prohibition from re-applying

https://www.points.homeoffice.gov.uk/gui-sponsor-jsf/Register/SponsorRegister.faces

https://www.points.homeoffice.gov.uk/gui-sponsor-jsf/Register/SponsorRegister.faces

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Immigration and Employment Employment law implications

• Sudden change unlikely

• Piecemeal reform of employment laws

• The Continental view

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Tax


Commercial



Consumer Rights

Data Protection

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Tax

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Tax The implications

Indirect taxes Direct taxes Social security contributions for internationally mobile employees

What could the re-negotiated package look like? Similar to models of Norway or Switzerland – retain access to single market?

VAT – likely to remain in some form as high revenue generator Customs duties – if do nothing, likely to apply on entry into and out of UK, however if negotiate to join European Free Trade Association or similar, likely be dropped

Multi-national groups – Parent-subsidiary Directive, Mergers Directive and Interest and royalties directive – potential impact on withholding taxes, cross-border mergers Tax treaties – likely to remain BEPS and other international tax policy – UK been key player and early adopter, unlikely to see change in approach

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Tax The implications

Practical considerations • Use two year period to look at how, and extent,

that UK group companies are used as a gateway to EU, plan over this period as trade agreements and tax plans become clearer

• Consider implication of currency fluctuations during the transitional period to avoid unexpected tax charges

• HMRC have serious lack of resource to implement any changes and do the day job

The positives • UK may not be part of the EU tax

anti-avoidance package ‒ Allow UK to continue to have say over how

implement BEPS recommendations such as interest deduction rules due in 2017

‒ UK does not want a common corporate tax base. The UK’s move away from this may allow the UK to be seen as attractive to investors

• No state aid rules outside of the EU? – more scope for UK to attract inward investment through tax-advantaged schemes such as EIS, VCT, EMI and R&D tax credit schemes

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Tax


Commercial



Consumer Rights

Data Protection

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Consumer Rights

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Consumer law in the UK Current relationship with EU law

Directive Minimum or maximum harmonisation Implementing UK legislation

Consumer Rights Act 2015 N/A N/A

Consumer Rights Directive No 2011/83 Mainly maximum* • Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 ("CCRs")

• Payment Surcharges Regulations • Consumer Rights Act 2015 ("CRA")

Unfair Contract Terms Directive No 93/13/EEC Minimum** Part 2 of the CRA

Unfair Commercial Practices Directive No 2005/29/EC Maximum (although it does permit more restrictive rules for financial services and immovable property)

Consumer Protection from Unfair Trading Regulations 2008

E-Commerce Directive No 2000/31/EC Minimum (with regard to the provisions of most relevance to consumer contracts : pre-contract information requirements and online contracting rules

Electronic Commerce (EC Directive) Regulations 2002

Services Directive No 2006/123/EC Minimum (insofar as they impact consumer contracts)

Provision of Services Regulations 2009

Sales and Guarantees Directive No 1999/44/EC Minimum CRA

Directive on Consumer ADR 2009/22/EC Regulation on Consumer ODR 524/2013

Minimum Consumer ADR Regulations + Consumer ODR Regulations

EC Directive 85/374/EEC – the product liability directive Minimum Consumer Protection Act 1987

* Maximum harmonisation directive means that member states cannot reduce, or exceed, the level of consumer protection set out in the directive ** Minimum harmonisation directive means that member states cannot reduce the level of consumer protection set out in the directive.

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Consumer law across the EU Is consumer law currently harmonised across the EU?

Contract law rules Goods Digital content

1. Pre-contractual information Fully harmonised EU rules Fully harmonised rules

2. Right to withdraw Fully harmonised EU rules Fully harmonised rules

3. Conformity Minimum harmonisation EU rules No EU rules

4. Remedies Minimum harmonisation EU rules No EU rules

5. Delivery Fully Harmonised rules No EU rules

6. Damages No EU rules No EU rules

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Consumer law DSM proposed reform of consumer law across the EU

Directive/Proposal

[DRAFT] Directive on certain aspects concerning contracts for the supply of digital content (2015/0287)

[DRAFT] Directive on certain aspects concerning contracts for the online and other distance sales of goods (2015/0288)

[DRAFT] Regulation on ensuring the cross-border portability of online content services (2015/0284)

[DRAFT] Proposal on addressing geo-blocking and other forms of discrimination (2016/0152)

[DRAFT] Regulation on cross-border parcel delivery services (2016/0149)

[DRAFT] Directive amending Directive 2010/13/EU on AVMS (COM(2016) 287/4)

[DRAFT] Regulation on cooperation between national authorities responsible for the enforcement of consumer protection laws (2016/0148)

“Consumers are set to benefit from a wider range of rights and offers, while businesses will more easily sell to other EU countries. This will boost confidence to shop and sell across borders.”

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Consumer law Key issues

• Current regime – will current UK law remain as enacted?

• Interpretation – currently, UK courts interpret UK law implementing EU law in the light of the wording and purpose of the implemented EU directive. What will happen in case of Brexit? Will judges keep the same approach or will they disregard the purpose of EU law and only focus on UK?

• EEA implementation? Geoblocking, Digital Content, AVMS, Sale of goods all of “EEA relevance”.

• Future regime – party line is that nothing has changed – loss of influence for the UK in policy development – less of a voice for our UK representatives? More protectionist approach taken by France and Germany?

• Overall – is it attractive to be an outlier? Time/expense/differences would make UK less attractive to do business with.

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Tax


Commercial



Consumer Rights

Data Protection

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Commercial

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Commercial contracts Some issues to consider

• Overall premise: UK case law will seemingly remain applicable for contract interpretation

• For contracts due to expire pre-Brexit: seemingly less impact (as yet)

• For longer term contracts that span Brexit: ‒ Check contracts for references to EU

Regulations – may no longer be applicable; ‒ Un-anticipated costs in compliance with new

UK legal requirements – who picks up costs of changes in service provision as a result of a changed legal/regulatory regime?

‒ Underlying costings/prices may be impacted if for example free movement of labour/goods is rowed back from

• Potential requests for a ‘Brexit/Hardship’ clause? Akin to France and other jurisdictions, where if a contract becomes uneconomic parties have a right to re-negotiate?

• Live issues we’ve come across since the Referendum: ‒ Request for compliance with GDPR from 25

May 2018 onwards regardless ‒ Request for price increases/currency

valuation clauses

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Tax


Commercial



Consumer Rights

Data Protection

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Data Protection

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Data Protection Key messages

• Pre-Brexit – Highly likely that the GDPR will still apply in the UK from 25 May 2018;

• Brexit will not affect UK/EEA personal data flows in either direction until at least late 2018;

• Post-Brexit – Likely that any future UK data protection laws would closely align with the GDPR to ensure the “adequacy” status = free flow of data between the UK and EU

ICO says: • International consistency around data

protection laws and rights is crucial both to businesses and organisations and to consumers and citizens;

• Having clear laws with safeguards in place is more important than ever given the growing digital economy;

• Reform of the UK law remains necessary; • Cross border co-operation will continue.

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Data Protection Key recommendations

• Continue business as usual ‒ At least in the short term Brexit will not raise any barriers to personal data flows between the UK

and other EU member states.

• Continue with GDPR compliance projects as planned ‒ The GDPR is likely to apply in the UK pre-Brexit and will heavily influence the reform of UK data

protection laws post-Brexit.

• Approach data protection policies and procedures across the EU consistently especially if your business is global ‒ Global businesses will still need to satisfy the higher thresholds of the GDPR where it operates, or

sells into, or process personal data about people in the EU.

• Look out for new ICO guidance

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Tax


Commercial



Consumer Rights

Data Protection

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Regulatory Competition law

Behavioural competition rules Merger control State aid

UK would continue to mirror EU regime so no

real change

Still within one stop shop under EUMR

– no change

UK would be required to adopt EU regime so no

real change

UK rules may start to diverge from EU rules –

ensure compliance

One stop shop under EUMR falls away – UK and EU filings required

Rules fall away – more scope to grant aid to

UK companies

If EEA or

EFTA

If not EEA or EFTA

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Regulatory Competition law

EU court jurisprudence

Competition investigations and

dawn raids

Private enforcement

Not explicitly binding on UK courts but likely to

be persuasive

More parallel investigations – but

privilege for EEA (not EFTA) lawyers at EC

May not be able to rely on EC decisions for follow on claims?

Not binding on UK courts – could be

persuasive, unless UK law moves away

More parallel investigations – no

privilege for non-EEA lawyers at EC

May not be able to rely on EC decisions for follow on claims?

If EEA or

EFTA

If not EEA or EFTA

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Regulatory Public procurement – how might Brexit change things?

• Public policy will demand a transparent framework for public procurement

• Any modern trade agreement includes provisions on opening up and regulation of government procurement markets (e.g. CETA) and limitations on the freedom to use public funds to underpin UK industry alone

• The UK could join WTO without joining its Government Procurement Agreement (GPA) – but very unlikely ‒ The EU Directives are, in practice,

expressing the GPA requirements

• GPA rules require something very like the EU Directives, with appropriate remedies

• EU is on the path to legislating to provide for means of closing its own markets to countries that do not provide reciprocal access

• If so, the UK will have to put in place something comparable to the GPA rules just to continue to trade with the EU

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Regulatory Public procurement – other Brexit fall out?

• Likely to be consultation on change to the regulated procurement regime

‒ Opportunities to influence (e.g. Procurement Lawyers Association)

• Short term delay to projects (e.g. HS2; third runway at Heathrow; R&D projects)

• More austerity if UK falls into recession

• Potential increase in litigation if number of projects decreases?

• Move from remedies for breach of statutory duty to grounds based on administrative law breaches (Judicial Review)

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Regulatory Health and Safety key regulation

UK’s stance on H&S and core legislation (Health and Safety at Work etc. Act 1974) pre-dates the EU

We see limited scope for fundamental change to existing regime

Overly prescriptive

regulation driven by the EU could

be reviewed

Preserve the qualification of proportionality/ reasonableness within the legal duties on H&S

No ECHR could result in greater

delays and impact on those facing criminal

H&S proceedings

Restriction on free movement of people could result in labour

shortages

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Tax


Commercial



Consumer Rights

Data Protection

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Corporate and Financial Services (Financial Regulation, Funds and Payments)

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Corporate and Financial Services Corporate law implications

Business as usual

Private M&A

Public companies

Significant change in future unlikely

EU laws

incorporated into domestic law

continue to apply

Freeze on new EU

derived laws?

Short term dip in deal activity, but not

long term trend

Opportunities for private equity and foreign buyers?

Revisit terms of long-term

arrangements such as joint ventures

EU law derived from UK principles

EU law historically gold plated by UK

regulators

Unlikely to be any material change to UK regulatory framework for public companies

or public M&A

Risk allocation

between sellers and buyers during UK-

EU exit negotiations

Pressure to

deregulate to retain London’s position?

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Corporate and Financial Services Financial Regulation, Funds, Payments

EU laws incorporated

into domestic law continue to apply

Continue implementation plans

for forthcoming legislation

Short term jitters but no need to take immediate

action

Passporting rights?

UK joins EEA or UK

acquires ‘third country’ status?

Use of extended passport under

MiFID II?

Inward investment into UK unlikely to be

restricted

UK’s global influence?

Payments Funds Financial Regulation

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Tax


Commercial



Consumer Rights

Data Protection

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Advertising

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Advertising Regulation – European influence

UK Advertising Codes

Rules with little or no European context

“We see no reason why these principles should not persist in the event of a vote to leave the EU. Many of the rules in the Codes have been implemented by us to address obvious needs and have little or no European context in any case.”

CAP

Rules with regard to EU-originating legislation

Implemented in domestic law

In p\\lace until repealed

EU Directives EU Regulations

Apply without implementing

legislation

Must comply while we are in the EU

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Advertising Looking forward: what could happen

• European influence: e-cigarettes, nutrition claims, health claims, medical claims, comparative advertising

• Opportunity to change the Codes will provide:

‒ Flexibility (free from EU influence/red tape)

‒ Creativity

‒ Greater collaboration with industry

• International ad campaigns – how will the UK be treated?

CAP says: “Unlikely to cause immediate substantive harm to the advertising self- and co-regulatory systems or require marketers to change their approach to compliance with the Codes in the short-term.”

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Tax


Commercial



Consumer Rights

Data Protection

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Intellectual Property

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Intellectual Property Registering rights

Patents No change

Copyright No change

Trade marks, registered designs

Substantial change

Trade secrets No change

EPO is not part of the EU, we remain members

EU harmonisation to date fairly limited, national law (copyright arises automatically) continues to apply as before

Future EUTMs and RCDs (and UCDs) will not cover the UK, separate national filing/ maintenance required What about scope of existing rights, once UK leaves? One for the negotiators

Trade Secrets Directive not yet implemented And anyway broadly in line with existing English law as to subsistence of rights

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Intellectual Property Enforcing rights

Patents No change for Patents

Court, IPEC

Copyright No change, national courts

still govern

TMs, RCDs, UCDs Substantial change

Trade secrets No change

BUT unlikely that UK will participate in the Unified Patent Court Necessary to enforce Unitary Patents, non-opted-out EPs abroad

Future CJEU decisions will not be binding Reference to CJEU no longer an option

English courts will no longer have pan-European jurisdiction, necessary to enforce abroad National rights still enforced in national courts

May still be worth persuading UK government to implement the Directive’s definition of infringing goods to enable enforcement in UK against goods made abroad

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Brexit: What is it, and what are the legal implications? · 2016-11-14 · • EEA Agreement...

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Transcript of Brexit: What is it, and what are the legal implications? · 2016-11-14 · • EEA Agreement...