Regulatory / Doing Business Issues
This article sets out certain general considerations in relation to UK regulation and doing business rules. Post Brexit traders will no longer have the benefit of the considerable EU freedoms and rights to provide services from an Irish base into the UK underpinned by the EU law. However, UK has not historically imposed regulation or restrictive doing business rules on most foreign service providers, so that the absence of the EU rights would not appear to pose an immediate threat to the ability to do business in the UK in many if not most cases.
The existing legal protections, which override UK law and guarantee a right to provide services into the UK will no longer exist. This is not to say that the UK is likely to put restrictions in place. Of course, without the EU protection this is theoretically possible and might, for example, occur, it there was a trade war or a radical government.
In most service sectors, the ability to do business in the UK is assisted greatly by the common travel area which gives certain personal rights to travel work, effectively to do business and grant immediate settled status to Irish nationals.
EU UK Trade Agreements
In contrast to the case of goods, free trade agreements for services are usually limited, even where they exist. A trade agreement might or might not make provision for the freedom to provide services in some sectors. Usually, the right is limited and falls way short of the kind of rights that exist under EU Treaties. It may be limited to some sectors. The rights may be subject to conditions, even where it is provided for.
Further, even if a trade agreement provides for freedom to provide services, the normal arrangement is that breach of this right does not give a private trader any direct right against the foreign government. Instead what the trader can do is complain to its government (in this case the EU) which might ultimately, often only after many years if there is found to be a breach, retaliate by putting in place an equal restriction on the other side e.g. for incoming UK service providers. There is usually a procedure for reference of these types of disputes between states to dispute and arbitration bodies which can take a long time to achieve an outcome.
Unless the agreement between the EU and UK creates something like the EU with a single overall court conferring private rights on traders to challenge other governments, the likelihood is that traders would have no effective come back or remedy if the UK government or some other government or trade body, was to place restrictions on providing digital services.
It seems unlikely that the UK and EU will enter a trade agreement with a single overall court to which traders can make private claims of this nature against the other government. The UK has made a big play of not being under the EU Court of Justice or subject to its jurisdiction to override British rules and laws.
Therefore, it is likely that any trade dispute mechanism will be at the state to state level. This means that traders will not have the assurance in perpetuity as traders would have if the UK was in the EU that the UK must allow traders to provide digital services to UK customers from Ireland without restriction.
It is not just that the UK government is prohibited from placing rules and restrictions on the provision of services prior to Brexit, but that the UK government and any regulatory or agency cannot have rules or practices, no matter how subtle and hidden which have the effect of being hidden barriers to the freedom to provide services.
Therefore, while the UK is in the EU the EU rights can be asserted against some governmental or other bodies which put in place rules and restrictions (however they are labelled) which have the actual effect of restricting traders in the provision of services to UK customers. This is a very powerful tool and its significance cannot be overstated.
Businesses may have to deal with some new changes in regulation and compliance issues for UK trading after Brexit. The existing EU derived business rules that apply in the UK are to be re-enacted as they now are, immediately after Brexit. However, there could be changes later which would cause them to diverge from the EU rules in the medium to longer-term.
There is a likelihood, perhaps after some time, of a an EU UK agreement under which the UK gives some level of assurance that it will not diverge from EU rules. These rules are unlikely to be directly enforceable by individuals and will be nowhere near as significant as the EU rules. However, they may give significant comfort and lead to a situation where the EU and UK rules are very highly aligned indefinitely.
Most services “doing business” requirements are not very restrictive at present. Most businesses do not require any licence or registration to do business, nor does this seem likely to change. General regulation applies, and there will be some changes, but the changes are likely to be much less onerous than for businesses which deal in goods. There are common EU rules in some important areas such as intellectual property, data protection.
The greater risk, in the absence of some specific agreement between the EU and UK, is whether the EU or EU states might take measures to make more it difficult for UK businesses to provide services into the EU. If this happened it might be expected that the UK may place similar restrictions on EU businesses doing business into the UK.
Common Travel Area Will Help
The main post-Brexit barrier in many services sectors will be immigration controls. The Common Travel Area provides for the free movement of persons. It is not totally defined but is as understood to include the right to come to work in the other country (the UK or Ireland) and have immediate settled status and civil rights including access to social services. It implicitly covers coming to work and providing services, to an undefined extent.
Ireland and the UK on a bilateral basis have always been very open to each other. There are some sectors where Ireland and the UK will recognise each other’s rules such as certain qualifications because of a common curriculum, language and some cases a common regulatory organisation spanning the EU and UK.
It is, therefore, likely regardless of whether other EU states put in place barriers that Ireland as part of the Common Travel Area may have a deeper alignment with the UK over and above anything that might be entered with the EU under UK EU agreement.
It should be borne in mind that the benefit of the arrangement is limited to Irish and UK citizens and will not cover any long-term residents who have not taken out Irish citizenship. It does seem virtually certain even in an acrimonious hard Brexit, that Irish citizens will continue to be entitled to work in the UK unconditionally.
The Repeal (and Restatement) Act
The “Repeal” Act will re-enact existing EU law in the UK, including those elements of the law that are not reflected in freestanding UK legislation on Brexit day. The directly applicable EU regulations will continue to have effect.
If there is a conflict between pre-Brexit laws and post-Brexit laws between two pre-Brexit laws, one of which has an EU basis, and one of which is not, the EU basis (which would have carried the principle of EU supremacy) will take precedence (necessary to maintain consistency).
Brexit will mean that courts may no longer refer to the Court of Justice for rulings on points of EU law. Previously where matters had concerned the UK, UK advocates participated. Intrinsically references, etc., from the UK will cease to exist so that the remaining case law might become somewhat different than it might otherwise have been.
EU Rights to Trade
An important aspect of membership of the European Union is that all member states are bound by the terms of the EU Treaty freedoms to trade. The EU treaties have very important rights which allow a business established in one EU state to sell goods, provide services, invest or establish itself in another EU state. These are the so-called four freedoms and are also bound up with the freedom of movement of workers and persons setting up businesses.
There are two critical aspects of these freedoms that are very relevant to digital services business in the context of Brexit. First is the fact that the Treaty freedoms can be enforced directly by any private business against any government, governmental, trade or another body in another EU state.
The second is that the rules in the Treaty take precedence over and automatically overrule practices, trade rules, governmental rules and even laws in other EU states which in any way inhibit the exercise of the above basic rights. These rights in the present context include the right to provide services such as digital services/information society services to a customer in another EU state, here the UK.
The uniqueness and significance of these rights cannot be overstated. They guarantee and enable traders at present to provide digital services to UK-based customers. Furthermore, the rights are both rights to provide the services and the recipient’s rights to receive the services.
While the UK is a member of the EU traders can have the assurance that even if the UK government passed a law either directly or indirectly inhibiting traders in providing the services, that law would be invalid. Traders would be entitled to go into a court in the UK and the court would be obliged to give expression to the right to provide the services and overrule and disapply even a UK national law to the contrary. This gives traders or any other business providing digital services with the confidence that governments cannot interfere with rights to provide the services.
UK’s Approach and Proposals
Traditionally the United Kingdom has been very liberal in not placing restrictions on the international provision of services. It does not tend to place restrictions on third-party providers even at present. However, the point is that outside the EU the UK could place either express restrictions or more hidden subtle restrictions.
It seems that explicit restrictions on third parties providing services to UK businesses are unlikely other than perhaps in circumstances of a trade war or a very extreme government which was protective of trade and pandering to the interests of domestic providers.
Less obviously and perhaps more insidious is the fact that it is possible to place hidden and subtle and not so subtle barriers to service providers by for example requiring that such and such a provider must have a number of UK shareholders, have some establishment within the state, have UK directors, or comply with some conditions which are easy for UK providers to comply with not so easy for out-of-state providers.
Outside of the EU, there is some possibility that there could be, over time, be conditions and restrictions which make it more difficult for traders to provide the business from outside the UK than at present. Businesses would not have the same protections if, through pressures on the UK) government or governmental bodies, there were subtle hidden barriers or limits to the ability to trade successfully in the UK.
It may or may not be the case depending on the terms of any restriction, that having a UK company would circumvent the risk. It may be provided by future laws that a UK company must be controlled by UK nationals in some strategic sectors, or perhaps more generally. There may or may not be more liberal rules for Irish nationals in such circumstances, on account of the principles of the Common Travel Area,
Future Trading Declaration
There is a future trading declaration which accompanies the proposed Withdrawal Agreement. It sets out the broad parameters of the future relationship. This is not binding but is a statement of the broad intentions of the parties.
The declaration states that the EU and UK intend to enter a deep, comprehensive and balanced trade agreement. This is to cover both goods and services and go well beyond the standard provisions in free-trade agreements and services covering almost all sectors including most methods of supply (including from the other state). It is to provide for a prohibition on discrimination against traders from the other state so that anti-discrimination principles will apply in respect of trading in the UK. The arrangement is to cover all or most business services.
There is an ambition that domestic regulation is to be transparent efficient and compatible (with the above principles. This to avoid unnecessary regulatory requirements. There is to be voluntary regulatory cooperation.
The future trading declaration says that the EU and UK will preserve regulatory autonomy i.e. remain free to set own rules) but should include provisions in the agreement to promote regulatory approaches which are transparent, efficient, compatible to the extent possible and which avoid unnecessary regulatory requirements.
The EU and the UK should agree on disciplines on domestic regulation including horizontal provisions such as licensing procedures and specific regulatory provisions in certain areas. There should be a framework for voluntary regulatory cooperation in areas of mutual interest including the exchange of information. Arrangements may be developed on recognition of professional qualifications.
The future relationship declaration contemplates that there may be equivalent rules which might not be automatically recognised. It is hard to assess exactly what shape this may take in the final agreement. It is very far short of the present position.
No Deal Assurance on Copyright and IP
The EU no-deal publication on intellectual property indicated that broad recognition of intellectual property would continue to apply even in the event of a hard Brexit. There are existing international conventions on the basis of which copyright is recognised internationally in almost all countries and this should in principle cover copyright in computer software in the event of a no-deal Brexit. The EU and UK are a party to the main international treaties on copyright and related rights.
The UK has confirmed that is continued membership of the main international treaties on copyright will ensure the scope of protection of copyright in the UK will remain largely unchanged.
EU law contains a number of extensions of copyright law including a database right. Technically EU States may not recognise the database right for UK nationals and theoretically, the UK may reciprocate by not recognising the UK database right for non-UK nationals. We are not certain if anything traders do would involve a database so we’re not exploring the position further here, which is a low-risk probability in any event.
The EU has published a no-deal notice in relation to copyright. It makes the same point as the UK note in relation to various stand-alone EU copyright type rights which have evolved since the earlier international conventions to which both the EU and UK will remain bound. The principal right which may conceivably be relevant to traders is that of the database right.
The EU has published no-deal planning arrangements on data protection. The EU has indicated that there would be no automatic recognition of UK data protection standards. This is dealt with in a separate note.
After Brexit in the absence of a new agreement, a particular risk in a no-deal scenario is that the present very integrated systems for recognition of court orders throughout the EU will no longer apply to the EU. Older conventions and rules would but they are more onerous.