On 29 March 2017, the UK Government served formal notice under Article 50 of The Treaty on European Union to terminate the UK's membership of the EU (following the June 2016 UK referendum on EU membership). Based on Article 50, the EU Treaties shall cease to apply to the UK and the UK exit will take effect in March 2019 (subject to the unlikely possibility of the withdrawal agreement being concluded sooner and unless all Member States agree to extend the period). Negotiation of a new trade agreement with the EU could take several years beyond 2019 although the Prime Minister has declared the objective of achieving such an agreement within the two-year period.
This briefing note advises readers on the immediate considerations and anticipates how a Brexit will impact on the technology and communications industries.
This article is part of our Brexit series and technology and communications businesses will be affected by all of the implications identified throughout this series and, in particular, our note on the Telecommunications Regulation in the UK implications of Brexit.
How could increased trade barriers and restrictions on freedom of movement impact the technology & communications industries?
The costs of providing technology services would be increased by custom tariffs or Visa requirements on staff coming to the UK to work on technology projects, if such tariffs or Visa requirements were introduced. This would inevitably impact the pricing of such services, as well as potentially the time required to deliver services or projects. For further information see our note on the commercial contract implications of a Brexit.
Technology and communications businesses see the European Digital Single Market as a significant opportunity for the UK. The drive behind the single digital market was to promote common data protection laws, provide better access to products and services at reduced costs across the market, and generally increase adoption and acceptance of digital services. However, a Brexit would present a real risk that UK companies could be shut out of the European Digital Single Market and consumers and technology companies would not get access to the potential benefits of this project. For further information see our note on the English Intellectual Property law implications of a Brexit.
From a regulatory perspective, EU laws have largely been incorporated into UK law and so would not quickly fall away, but there could be a gradual repeal of Regulations seen to be burdensome. For example:
- there may be some relaxation of competition law rules to allow the inclusion of more territorial restrictions than are currently permitted by the EU competition rules; and
- the UK may decide not to implement laws akin to the new European General Data Protection Regulation (GDPR) after a Brexit but most technology businesses have people or customers in the EU and would likely still have to comply with the GDPR. It would also mean that the UK would no longer automatically be considered to be a safe destination for data centres hosting personal data or for support teams accessing personal data, so customers may insist that such activities are re-located from the UK. For further information see our note on the data protection implications of a Brexit.
Implications for overseas technology & communications businesses
Overseas technology and communications businesses often establish operations in the UK as a stepping stone to trading with other EU countries. The vote for a Brexit may affect decisions to establish in the UK and could lead to a relocation of the headquarters of non-EU technology and communications businesses to other member states.
A fall in the value of Sterling would be good news for overseas businesses importing from the UK, but not for overseas businesses exporting to the UK. For overseas businesses considering an investment in the UK, the fall in the value of Sterling may offer significant opportunities to acquire UK firms cheaply. Apple's acquisition of British music analytics start-up Semetric in January 2015 for a reputed $50m, would have been nearly 10% cheaper in dollar terms if done today.
For further information see our note on the English corporate law and transaction implications of a Brexit.
Absence from discussions on EU policies and projects
The EU funds and runs a wide variety of projects looking at science, technology, engineering and mathematics (STEM) with 74.8 billion euros budgeted from 2014 to 2020. Between 2007 and 2013, the UK paid 5.4 billion euros into the EU research budget but got 8.8 billion euros back in grants that fund public research by British labs. However, it is not just funding that concerns researchers. The UK participates in EU projects and initiatives that enable cross-border collaboration and if this stops the UK will have less opportunity to influence future policy direction (and eventual regulation) and the EU projects would have to proceed without the valuable contribution and insight of UK companies (who are often early adopters of new technology). There is the possibility of the UK agreeing an association agreement in respect of such research but, if this could be agreed, it would involve contributing more funds to the EU research fund and might involve accepting free movement of people (as the EU is currently insisting as a condition for agreeing a research association agreement with Switzerland).
This article is part of our Brexit series