The Brexit Effect on European TMT and the Digital Single...
Transcript of The Brexit Effect on European TMT and the Digital Single...
The Brexit Effect on European TMTand the Digital Single Market
12 July 2016
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Agenda
• Where are we right now on Brexit?
• EU TMT Regulatory and how Brexit would impact this
• Overview of DSM
– Copyright and Portability update and DSM impact
• Other key issues
– Platforms
– Data Protection
• Political and diplomatic story and how this might evolve
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Speakers
Don McGownPartner, London
Winston MaxwellPartner, Paris
Nils RauerPartner, Frankfurt
Falk SchoeningPartner, Brussels
Susan BrightRegional ManagingPartner,UK and Africa
Brexit – generalstage setting
Don McGown
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Where are we now?
• The referendum was advisory (i.e. no legal force)
• No laws have changed; there is no certainty that any laws willchange
• No exit process has started; exit is not inevitable
• Key next steps:
– The UK Government needs to decide a preferredrelationship with the EU in light of the Referendum
– The UK and EU will need to agree and implement changes
• Changes to the EU's internal arrangements are also possible
• The broad nature of any changes is likely to become clearer inlate 2016 with detail emerging over the following years
• Any tangible change is unlikely to take effect before 2019
Leave51.9%
Remain48.1%
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• The possibility of real change has increased
• The probability and shape of any real change (to the UK/EU relationship and, possiblywithin the EU) will become clearer between now and the end of 2016
• Once that probability has become clearer there is still likely to be at least 2 years toprepare
• It is not all threat; there will also be some opportunities
• It would be a mistake for businesses to make fundamental changes at this stage
• The current business priority should be to analyze, prepare and influence
What does this really mean?
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Article 50
• Only formal mechanism for the UK to leave the EU
• Would be triggered by the UK serving notice starting a 2 year process
• Only provides for exit - post-exit relationship and transition need to be agreed
Alternatives
• No mechanism for EU to eject the UK or fundamentally change EU rules applicable to the UK
• No mechanism for the UK to limit the application of EU law to the UK
In reality
• Exit, new relationship and transition are likely to be negotiated
• The UK currently appears unlikely to trigger Article 50 before it has a plan
• Article 50 may never be triggered
Process
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Potential implications – some key issues
Territorial AgreementsChange in application of future (and many existing) agreements, licences etc whichdefined by reference to the territory of rEU
Policy Development Loss, or substantial reduction, of the UK's voice in development of rEU policy
PeopleReduction in ability for people to move between the UK and rEU, potentiallyimpacting individuals currently in place as well as future transfers
Divergent RegulationDivergence of laws, regulation or regulatory enforcement between the UK andrEU; less coordination (e.g. over product recalls)
Barriers Less flexibility to move goods, data and/or services between the UK and rEU
No passportLoss of ability to "passport" regulatory status so approval in either the UK (or rEU)would permit operation in rEU (or the UK)
Changed UK LawsChanges to the UK law and regulation, if not all laws currently based on EU laws,are preserved
International TradeUK exclusion from bilateral EU Free Trade Agreements: actual (e.g. Singapore);potential (e.g. Canada, US, Japan)
Market Impact Turbulence in the capital and foreign exchange markets
Knock-OnIndirect impact via material adverse change provisions and uncertainty overinvestment decisions
Now
Possiblein 2-3years
Possible 3years +
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• The EU has little or no influence over many aspects of the UK's legal and policy framework
• In large areas any change is likely to be relatively limited
• These areas include many aspects of:
– The operation of English and Scots common law and the majority of statutes
– The vast majority of contracts made under English and Scots law
– The process and provisions applicable to M&A and other deal making
– Direct taxation (including transfer pricing)
– The operation of the English and Scots courts
– The vast majority of matters of criminal law
What is less likely to change?
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Full Divorce
(no special relationship betweenUK and EU)
Free Trade
(wide ranging free trade deal)
Pick & Mix
(free trade deal with greateralignment in particular areas)
Associate Membership
(EEA not EU ; special status withsome Single Market access)
Adjusted Membership
(UK still in EU on revised terms –possibly also changes in rEU)
Influence• UK outside policy process • UK outside policy process • UK outside process
• Consulted as "best friend"?
• UK outside process
• Consulted as a "best friend"?
• UK involved in policydevelopment
Trade
• No guarantee of access tosingle market
• Tariff and non-tariff barrierspossible
• Commitment no barriers inmost areas
• No regulatory alignment -."passporting" not preserved
• Commitment to no barriers inmost areas;
• Regulatory alignment topreserve "passporting" insome areas
• Access to single market
• Regulatory alignment topreserve "passporting" insome areas
• Access to single market;
• Regulatory alignment topreserve "passporting" in mostareas (with some enhancedcarve outs)
UK Laws• No particular alignment of UK
and EU laws• No express alignment
between UK and EU laws• Alignment of laws in specified
areas• UK follow EU laws in many
current areas• UK follow EU laws in many
current areas
People
• Qualitative controls - nofavorable UK/rEU terms
• Qualitative controls possiblywith favorable UK/rEU terms
• Free movement to work withsome enhanced specific"brakes" or qualitativecontrols
• Free movement to work withsome enhanced specific"brakes"
• Free movement possibly withsome enhanced specific"brakes"
Financial• No UK contribution to EU
budget• No UK contribution to EU
budget• Possible reduced UK
contribution to EU budget• Significant UK contribution to
EU budget• Significant UK contribution to
EU budget
Legal• EU law no role in UK • EU law no role in UK • EU law no role in UK • EU law no general role in UK
• Areas of dual competency?
• EU law applicable in UK
Future EU/UK relationship – some possible models
TMT implications:the big picture
Winston Maxwell
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• Many global internet companies rely on the "country of origin/passport" principle
– Data protection
– E-Commerce
– Audio-visual Media Services (AVMS) Directive
– Electronic communications directives, roaming, net neutrality regulation
– Consumer rights directive
• Many clients have chosen Ireland, Luxembourg or the Netherlands as their home base
• Post Brexit, the UK would have an objective interest in remaining aligned with EUTMT policy
– UK will remain party to key Council of Europe conventions
– Possible opt out of Murphy
• Withdrawal of the UK will weaken the influence of "light regulation" advocates withinthe EU
General impact on internet and media companies
The Digital SingleMarket in Europe –
What does Brexit meanfor the Commission'sstrategy?
Nils Rauer
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The Single Market
The History
• The aim of coming together…"involves the elimination of all obstacles to intra-Community trade in order to merge thenational markets into a Single Market bringing about conditions as close as possible tothose of a genuine internal market."
(CJEU, 5th May 1982, Case 15/81 – Schul)
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The Single Market
Today's Goal
• Article 26 Treaty on the Functioning of the European Union(TFEU)(1) The Union shall adopt measures with the aim of establishing or ensuring thefunctioning of the internal market, in accordance with the relevant provisions of theTreaties
(2) The internal market shall comprise an area without internal frontiers in which thefree movement of goods, persons, services and capital is ensured in accordance with theprovisions of the Treaties
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The Single Market
The Tools
• Five Freedoms
– Free Movement of Goods, Article 28 TFEU
– Free Movement of Workers, Article 45 TFEU
– Free Movement of Establishment, Article 49 TFEU
– Free Movement of Services, Article 56 TFEU
– Free Movement of Capital, Article 63 TFEU
• Anti-Trust Provisions
– Article 101 ff. TFEU
• Harmonisation
– Article 114 TFEU – regulations, directives, etc.
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The Single Market
The Enforcement
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But, what is the fishwe want to catch?
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The Single Market Principle
Customs Duties onimports and exportsNational
Standards
Non-tariffTrade Barriers Visa Obligations
Discrimination ofForeigners andForeign Products
…unless bilateral or multilateral Treaties are negotiated and ratified!
Market
Free Trade Zone
Toll Union
Single Market
The Single Market Principle
The
DSM
Stra
tegy
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DSM at first glance
Digital Single Market Strategy
• Strategy announced by the European Commission
• Communication of 6 May 2015 (20 pages),COM(2015) 192 final
• Commission Staff Working Documentof 6 May 2015 (109 pages)
“By creating a connected Digital SingleMarket, we can generate up to EUR 250billion of additional growth in Europe inthe course of the mandate of the nextCommission...”
Jean-Claude Juncker
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DSM at first glance
Digital Single Market Strategy
3 pillars,
16 initiatives &
an ambitious roadmap
3 pillars,
16 initiatives &
an ambitious roadmap
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DSM at first glance
PILLAR 1Better access for consumers andbusinesses to digital goods and servicesacross Europe
PILLAR 2Maximising the growth potential of thedigital economy
PILLAR 3Creating the right conditions and a levelplaying field for digital networks andinnovative services to flourish
1. Cross-border e-commerce 9. Overhaul of EU telecoms rules 14. 'European free flow of datainitiative'
2. Enforce consumer rules 10. Review the audio-visual mediaframework
15. Priorities for standards andinteroperability
3. Parcel delivery 11. Role of online platforms 16. Citizens' skills
4. End unjustified geo-blocking 12. Handling of personal data
5. Competition inquiry into thee-commerce sector
13. Partnership with thecybersecurity industry
6. Better access to content - amodern, more European copyrightlaw
7. Review of the Satellite and CableDirective
8. Different VAT regimes
The Digital Single Market (DSM) strategy
SomeExamples
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Some examples
Portability of Online Content
• Draft Regulation published on 9 December 2015
• "The provider of an online content service shall enable a subscriber who istemporarily present in a Member State to access and use the online contentservice."
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Some examples
Banning of Unjustified Geo-blocking
• Draft Regulation leaked in early May 2016
• "Within the Digital Single Market, discrimination based on place of residence orestablishment, or nationality has no room. Websites need to adhere to this principle."
• Geo-blocking as a tool of safeguarding the borderlines of territorial licenses remainslegally possible.
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Some examples
Harmonizing of Copyright
• Enhance opportunities for researchers to use text and data mining
• Homogeneous copyright exceptions for education and support for disabled access toworks
• Legislation on neighboring rights of publishers and other players (creation of a fairermarketplace)
• Legislation on the role of intermediaries such as news aggregation services andsearch engines
The Digital Single Market (DSM) strategySome other keyissues
Falk Schoening andWinston Maxwell
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• Non-transparency of search results and of pricing policies on platforms (search engines,social media, app stores, etc.)
• How platforms use the information they acquire
• Relationships between platforms and suppliers
• Promotion of platforms’ own services to the disadvantage of competitors
• Ways to tackle illegal content on the internet
Digital platforms - what are the key topics?
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The Commission's current online platforms strategy
"…targeted, principles-basedapproach…Comparable digitalservices should follow the same orsimilar rules and, where possible,the Commission should reduce thescope and extent of existingregulation."
European Commission Press Release,25 May 2016
"Commission updates EUaudiovisual rules and presents
targeted approach to onlineplatforms"
Clearregulatoryframework
Lessburdensome
regulation
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• Platform regulation
– Avoiding cumbersome regulation
– View platforms as an "opportunity, not a threat"
– Avoiding fragmented regulation which undermines theoverall Digital Single Market objectives
• Focus on innovation
– To support the introduction of new platforms
– Promoting the EU as a promising businessenvironment for tech firms
The UK's stance to date on online platforms
“We can best support the developmentof European platforms in Europe byproviding the right conditions forgrowth. This can be achieved byworking to complete the Digital SingleMarket, updating existing regulation tomake it fit for a digital age, lighteningthe burden of regulation for small,innovative businesses...”
Joint Letter from the United Kingdom,the Czech Republic, Poland, Luxembourg,Finland, Sweden, Denmark, Estonia,Latvia, Lithuania and Bulgaria
4 April 2016
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Scenarios for platform regulation
Option 1: Keep calm andcarry on with platform
regulation
• Commission to continue with itscurrent proposals
• UK keeps engaged in platformpolicy approach which may bemirrored in Free Trade Agreement(FTA)
• Nordics / Eastern Europeansupport
• Slight delay on time-line
Option 2: Regulate it
• Diminished UK say in DSMdiscussions
• Stronger French/German influence• Potential tensions between
Commission and Member States
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• EU Regulation would not apply (or only for limited time)
• UK remains party to the Council of Europe data protection convention (Convention 108)
• After Brexit, data transfers would require adequacy determination or EEA-type agreement
• If not updated, UK's Data Protection Act may not meet "adequacy" test under new EURegulation
• To remain aligned, the UK would need to adopt laws to implement
– Network and Information Security (NIS) Directive
– Government data protection directive
– Future revised e-Privacy Directive
Brexit and data protection
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• Until the UK exits the EU, no legal changes apply (even if Article 50 is invoked)
• However, the political situation likely differs:
– Empty chair crisis?
– "The special one"?
– Business as usual?
• Post-Brexit
– Associate Membership / EEA: DSM would apply largely in the UK
– Free Trade Agreement (potentially with exempted areas): DSM likely to apply in the UK unless strongregulatory burden
– Full divorce: DSM does not apply
Brexit: The political implications for the DSM strategy
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Analyse
• Detailed review of the application of EU rules to your business
• Which ones really matter and impact of potential models
• Identify:
– Priority areas for the UK/EU process
– Actions your business might take once the likely model is clearer
– Any areas of new opportunity (e.g. to influence UK rules)
Plan
• Prepare action plans for the scenarios of most significant change
• Maximize optionality in decisions over the next few months
Influence
• Engage with the process in London, Brussels and Member States
• Focus policymakers on business priorities taking account ofpolitical realities
What can businesses do now?
Immediate impacts
Business and Markets
Reassure people?
Specific deal terms?
Defer actions untilgreater clarity?
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• Please see our dedicated DSM hub for latest information, updatesand news dsmwatch.com
• Learn more about our Brexit expertize and how we can helphoganlovells.com/brexit
• Email us [email protected]
• Join in the conversation @HLBrexit
#Brexiteffect
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