Ibec - for Irish business
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Priority 2: The EU Single Market and regulation

19 June 2017

The UK has indicated it will leave the EU’s Single Market, as membership is not compatible with the stated objective of ending EU free movement of people provisions. It has, however, expressed a desire to maintain the freest possible “access” to the Single Market for UK businesses. What this can and will mean in the context of a new EU-UK relationship is far from clear.

A UK repeal of the European Communities Act, will convert the “acquis”, the body of existing EU law, into UK law. This means that the same regulations (rules and law) will apply in the UK on the day after Brexit as before. However, the UK Parliament will then be free to decide on any change to that body of law as it applies in the UK.

The UK has indicated that it will withdraw from the jurisdiction of the European Court of Justice (ECJ) and will no longer be bound by decisions of the Court. This presents major questions and challenges about the governance of future EU-UK agreements, how they can be legally enforced and how disputes can be resolved. It also presents the possibility of significant regulatory divergence and the potential for unfair competitive advantage for the UK post-Brexit.

Regulatory divergence is likely to emerge in two ways (i) changes to the application of existing EU laws in the UK following Parliament scrutiny and debate and (ii) future changes to EU law as it evolves over time within the EU institutions that may not be adopted by the UK, which in some instances will happen quite quickly.

Single Market rules and the jurisdiction of the ECJ are central to providing a level playing field and ensuring fair competition between companies operating within the EU. Any new EU-UK arrangements will have to ensure that the coherence and integrity of the Single Market is preserved and ensure UK firms compete with EU firms on fair terms.

The UK has said that no new barriers to living and doing business are to be created within the UK itself and that common standards and a uniform framework for its own domestic market will be maintained. This means that the regulatory environment in the devolved administrations of Northern Ireland, Scotland and Wales cannot be different to the rest of the UK. How this will be delivered in practice, especially in Northern Ireland, given commitments to devolved responsibility and to protecting the Good Friday Agreement and Peace Process, is not at all clear.
Challenge: Regulatory divergence between the EU and the UK

Regulatory divergence could easily become a significant barrier to EU-UK trade post-Brexit. Any such divergence would impact business and investment decisions, and potentially significantly disrupt highly integrated supply chains in often very complex and sophisticated industries. Regulatory divergence would be particularly difficult for SMEs to manage given their limited resources.

Solution To ensure fair competition and reduce barriers to trade, any future EU-UK FTA should ensure maximum regulatory conformity across all relevant areas. A regulatory cooperation framework between the EU and UK to monitor regulatory divergence should be established. This should ensure that any future changes to regulations in both the UK and EU are fully understood by both parties and the impact of such changes is assessed.

Solution In addition to monitoring regulatory divergence and maintaining a regular dialogue between regulators, the enforcement of agreed standards must remain coherent. A mechanism must be agreed on how to examine and resolve any issues that may arise.

Challenge: Absence of governance structures to monitor and enforce post-Brexit EU-UK trade relations

Any new EU-UK FTA would require a comprehensive governance structure and dispute resolution mechanism. In the absence of a robust system, compliance cannot be guaranteed and disputes could either be left unresolved or escalate and further disrupt economic and political relations. Business needs legal certainty and a predictable regulatory environment in which to operate effectively.

Solution In determining the shape and scope of the future trading relationship, it is vital that both parties agree on a compliance framework, governance mechanism and dispute resolution system which is workable and effective, and ensures fairness, consistency and reliability. To avoid unnecessary duplication and provide legal consistency, the ECJ should continue to play as significant a role as possible in the application of EU trade agreements and the governance of cross-border European trade in goods and services.

Challenge: Regulatory divergence could distort competition and facilitate unfair competition

A uniform approach to many areas of regulation across the EU means that companies compete on a level playing field. This shared regulatory framework is also supported by a sophisticated body of EU competition law. A UK outside of the EU could seek to change domestic law to give UK companies extra advantages in the market over EU competitors, through state aid for example.

Solution Any new EU-UK trade agreement must include comprehensive, legally enforceable commitments to ensure fair competition. This should cover areas such as state aid, labour market regulation and environmental regulation, among others.

Challenge: Potential regulatory divergence in financial services within the EU

The Irish Government has raised concerns with EU institutions about potential regulatory arbitrage in financial services. It is important to prioritise a level playing field across EU member states, particularly in the context of the relocation of some financial services activities out of the UK.

Solution EU institutions must ensure all national supervisory authorities apply the same standards.

Challenge: Disruption to public procurement markets

Public procurement markets in both UK and Ireland may experience significant disruption as a result of Brexit. The UK public sector is a growing export market for companies based in Ireland. UK companies, and especially those operating from Northern Ireland, are the top non local bidders for government contracts in the Republic. It is also possible that Brexit may cause problems for public procurement contracts that extend beyond the leaving date.

Solution An agreement on existing public procurement contracts must form part of any Brexit transitional arrangements. Access to each other’s public procurement markets must also be part of any EU-UK FTA.

Challenge: Disruption to the EU Digital Single Market

The UK’s withdrawal may impact the shape and pace of the development of the Digital Single Market (DSM), potentially undermining its attractiveness and adding complexity for companies with pan-European operations.
The UK currently complies with the EU legislative framework on data protection and is committed to the implementation of the EU General Data Protection Regulations (GDPR) in May 2018. EU data protection rules also place restrictions on the movement of personal data outside of the EEA e.g. customer or personnel data. However, Brexit means that EU rules will no longer directly apply to the UK and questions remain over governance of these issues in the UK into the future.
Consequently, there may be restrictions on the transfer of data between Ireland and the UK and a need for a European Commission ‘adequacy decision’ to enable EU-UK data transfers. This may have operational implications for Irish businesses reliant on the free flow of customer or personnel data across borders. It may also place a significant new barrier to the cross border sharing of public service provision on this island such as in health and education.

Solution Any future FTA between the EU and the UK must contain a comprehensive chapter covering digital trade and data flows between the EU and the UK and facilitate the closest possible post-Brexit cooperation. Access to each other’s public procurement markets must also be part of any EU-UK FTA.

Challenge: Protecting intellectual property (IP) rights post-Brexit

Businesses need to know that their inventions, products, brands and trademarks can be protected and enforced in the markets in which they operate. However, Brexit will potentially remove the UK from the EU’s IP legal and regulatory framework, which is key to promoting and facilitating innovation. As such it risks undermining the current pan-European unitary patent system and creates legal uncertainty for companies as to how IP is governed into the future. Progress in this area has been a long time coming. It is vital that this work is not undermined by Brexit.

Solution To ensure legal certainty, the UK should recommit to the European Unitary Patent and the Unified Patent Court project.

Solution As part of any new EU-UK FTA, the UK should introduce a mechanism (i.e. minimal administrative burden and cost) to allow current holders of EU trademarks and registered community designs to continue to receive adequate protections in the UK post-Brexit. Such an agreement should also provide legal certainty around copyright and database rights into the future.

Challenge: Disruption to the EU’s single aviation market

Brexit has the potential to disrupt aviation growth in both the UK and the remaining EU-27. A withdrawal by the UK from the EU Single Aviation Market would impact traffic rights to/from the UK unless a replacement agreement is put in place between the EU and the UK. Air passenger transport is not covered in FTAs but in separate agreements.
While there are some bilateral international agreements between the UK and the individual EU member states that pre-exist the EU single aviation market, these are generally very restrictive. New arrangements would therefore be required in order to retain existing traffic rights. Without these, UK carriers would be subject to restrictions in operating existing routes between the UK and the EU, within the EU, and between the UK and a number of third countries such as the US, through the Open Skies Agreement. As with trade deals, the UK would be required to conclude bilateral access agreements with the EU and third countries and would no longer achieve automatic coverage by being part of a larger bloc.

The EU single aviation market is a critical enabler of economic growth. European airports have been developing as global gateway hubs. Hampering feeder traffic to/from the UK to transatlantic and other trans-continental destinations could undermine future destination growth and infrastructure investment made to date or in planning.

Ireland is particularly exposed to any disruption to the EU-UK aviation market. As an island nation and close neighbour, Ireland is heavily reliant on UK-Ireland passenger traffic for tourism, business travel and connecting to destinations further afield. More than 12.7 million air passengers were carried between Ireland and the UK in 2016. The Dublin to London route carried more than 4.7 million air passengers in 2016, making it the busiest international air route in Europe.

Solution Facilitating connectivity post-Brexit must be a priority. The post-Brexit aviation regulatory regime must mirror the current liberalised open market access arrangements in order to minimise the disruption on travel and trade. A seamless transition to any new arrangements is vital. Aviation planning requires significant lead-times in terms of airport infrastructure development (both landside and airside) and resource allocations (e.g. aircraft planning). A seamless transition must occur that also supports continued EU-UK cooperation on aviation security and safety standards post-Brexit and limits the potential for future regulatory divergence.

Challenge: Disruption to the EU’s cross-border investment fund market

Ireland is one of two primary cross-border investment fund hubs in Europe, with €2.1 trillion of assets domiciled in Ireland, whilst the portfolio management of 37% of all assets in the EU is carried out in the UK. Considering the global nature of the asset management sector, it is important that firms and clients in the EU27 continue to have access to UK fund management and other services, as well as investment funds and products. The absence of such arrangements has the potential to disrupt existing patterns of savings and investment, reduce choice, eliminate existing scale benefits and potentially trigger tax liabilities from forced consolidations.

Solution There must be long term mutual recognition and mutual market access in financial services between the UK and the EU27.