The EU and the Legal Sector

www.lawsociety.org.uk

THE EU AND THE

LEGAL SECTOR

OCTOBER 2015

THE LAW SOCIETY OF ENGLAND AND WALES

2 The Law Society of England and Wales

The EU and the Legal Sector

FOREWORD

The Prime Minister has promised an in/out referendum within the next two years – with some reports suggesting a vote as early as June 2016 – to decide whether the UK should remain part of the European Union (EU).

If the UK’s relationship with the rest of the EU were to change as the result of significant renegotiations, or the UK choosing to give up its membership, the effects would be felt throughout the legal profession.

Changes in the UK’s relationship with the EU would have implications for the legal sector’s contributions to the UK economy.

The UK has three distinct legal jurisdictions: England and Wales, Northern Ireland, and Scotland.

The Law Society of England and Wales represents, supports and promotes 160,000 member solicitors. Lawyers working in different geographical areas of the UK and in different branches of the legal profession have their own membership organisations, many of whom will also form a view on this important issue.

This report by the Law Society will form the basis of future engagement with our members. It sets out the issues we expect to see raised in the run-up to, and following on from, the referendum.

The report project team conducted a series of qualitative interviews with individuals from law firms around England and Wales. Interviewees were asked questions about how the EU currently affects their firm, their clients and their employment practices, and what they thought about the various alternative models, should there be a change in the UK’s relationship with the EU.

We also sought their professional assessment of the main models for future working should there be a change in Britain’s relationship with the EU.

In most cases this report refers to UK statistics, as this is how the majority of data is recorded. The exception to this is where the report refers to the Law Society’s membership.

In terms of our membership, at the time of writing, there are 130,382 Practising Certificate holders in England and Wales (and 160,394 members on the Solicitors’ Roll). There are 9,542 law firms in England and Wales, ranging from sole practitioners to large international firms: 90,300 of our members work in private practice. Approximately one fifth of our members work in-house. The City includes about 550 firms, and employs around 25,800 members. Some 6,000 of our members work in foreign-owned firms, or abroad.

We are indebted to those firms who kindly agreed to be interviewed, and to members of Law Society committees and others who gave generously of their time in contributing to this report.

3www.lawsociety.org.uk

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pact on areas of lawAppendices

CONTENTS

EXECUTIVE SUMMARY 4

Introduction to the report 8

THE UK LEGAL SECTOR AND THE EU 10

The EU and its institutions 10

The internal market 11

The legal sector and financial services 14

THE BUSINESS IMPACT OF BREXIT 17 ON THE UK LEGAL SECTOR

Impact on City firms 20

Impact on other firms 21

Impact on Wales 22

Views on alternatives to the EU 23

Choice of law and England and Wales 24 as a jurisdiction of choice

THE EU’S IMPACT ON AREAS OF LAW 26 AND ASSOCIATED RIGHTS

Overview 26

Anti-money laundering 28

Civil justice 29

Company law 32

Competition and state aid law 34

Consumer law 38

Criminal justice and policing 40

Employment law 48

Environmental law 51

Equality law 53

Family law 54

Financial services 56

Human and fundamental rights 59

Immigration law 60

Intellectual property law 63

Tax law 67

APPENDIX 1: 69 THE EUROPEAN UNION

EU institutions and law-making 69

Balance of Competences Review 71

Subsidiarity and proportionality 71

Impact assessments 72

APPENDIX 2: 73 THE INTERNAL MARKET, TRADE AND INVESTMENT

Free movement of goods 74

Free movement of services 74

Freedom of establishment 75

Free movement of persons 76

Free movement of capital 77

Trade and investment 78

APPENDIX 3: 81 LAWYERS’ PRACTISING AND ESTABLISHMENT RIGHTS IN EUROPE

APPENDIX 4: 83 RENEGOTIATION, WITHDRAWAL AND ALTERNATIVES TO THE EU

Does reform require renegotiation? 83

The withdrawal process 85

Alternatives to EU membership 86

ADDITIONAL INFORMATION 90

Who we spoke to 90

Categories of work undertaken by solicitors 91 in England and Wales (January 2015)

Abbreviations 93

Other UK legal representative bodies 93

Further reading 94



EXECUTIVE SUMMARY

The Prime Minister has promised an in/out referendum within the next two years to decide whether the United Kingdom should remain in the European Union.

This report assesses the possible effects of a UK withdrawal from the EU on the legal profession and on the practice of law. The UK legal sector makes an important contribution to the domestic economy worth £23bn annually.1

The report project team conducted a series of qualitative interviews with individuals from law firms around England and Wales. Interviewees were asked questions about how the EU currently affects their firm, their clients and their employment practices, and what they thought about the various alternative models, should there be a change in the UK’s relationship with the EU.

This is the start of our discussion with the legal sector and those interested in its future. This report encourages our members to reflect on their own position in a changing landscape and to join the debate – to ensure we take every opportunity to shape the future through vocal and valuable contribution.

Even in the short term, the position is unpredictable. The UK has been a member state for more than 40 years. A renegotiated relationship would see a time of unprecedented and unpredictable change both for the UK and to the structure of the EU itself. The term ‘Brexit’ has been coined to refer to the possible withdrawal of Britain from the European Union.

There is speculation about a Brexit bonanza for lawyers in unravelling the legal complexities of any changed relationship with the EU – but the longer term effects are unclear. Uncertainty will, itself, have a business impact, as clients and business decision-makers seek to mitigate their risks. That impact is likely to be felt much sooner than the referendum.

The Law Society of England and Wales is contributing to the national debate on the UK’s relationship with the EU for two reasons:

• the EU is founded on the rule of law. The EU’s authority is based on legal agreements – the Treaties – and EU law affects UK legislation and legal practice, the court system and the rights of individual citizens and businesses, and

• the EU forms the world’s biggest single market. Access to that market is as important for our members – legal services providers – as it is for any other part of the UK service economy. The European legal services market had total revenues of $184.5bn in 2013.

The Law Society has also previously published proposals for the next steps in developing the EU in EU Priorities 2014-2019.

This report is designed to start a discussion with our members about the potential impacts of remaining in a renegotiated EU or withdrawal.

The research underpinning this document was conducted with assistance from our specialist committees and some of the firms whose members we represent.2

Our initial discussions on the impact of the referendum show that:

• for all parts of the sector there will be uncertainty. The short and longer term implications and possible benefits or otherwise cannot be predicted. Members should begin work now to anticipate what those effects might be.

• the effect on the legal sector ultimately depends on the impact on clients.

• the effects of an EU exit on the financial services sector are likely to be far-reaching. This will affect those individuals and firms working with that client group.

• some areas of the UK would be seriously affected if there are changes to EU economic support for agriculture, business start-up or regeneration in their region. Wales is likely to be hard hit in this scenario with consequent effects for legal practitioners in the area unless the UK government were to replace the economic support by a grant or other means.

• changes to the UK’s relationship with the EU could result in little, if any, influence in the legislative decision-making process, while the UK remains bound by the content of the EU legal framework.

• under alternative relationships with the EU, such as that held by Norway, continued access to the internal market would require the UK to remain subscribed to the relevant EU legal framework, without a right to influence change in that framework.

1 2014 figures. Source: ONS GVA by industry estimates released 30 June 2015.2 Further details on qualitative research methods are on page 90 of this report.


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Impact on areas of law and rights

We have found a significant variation in the likely effects on different areas of law dependent on the different scenarios of renegotiation or exit. It follows that clients and the individuals and firms servicing those clients’ legal needs will be affected differently too.

Some areas of EU law would still have an effect on the UK, post-Brexit. UK companies doing business in the EU would still be bound by aspects of EU law, including competition rules regarding mergers and EU product standards for example, for electrical goods and pharmaceuticals. The UK also has to meet wider international obligations, regardless of EU membership, for example on human rights and in environmental law, although these might be different in degree.

The UK courts might still choose to follow the rulings of the Court of Justice of the European Union (CJEU) regarding the interpretation of EU law even if not obliged to do so, to prevent contradictory rulings resulting in legal uncertainty.

The impact on business

Legal services do not exist in a vacuum. They exist to serve the needs of clients, and clients’ needs vary widely, from individuals needing advice on employment or family law to IT start-ups wishing to protect their intellectual property rights, from councils seeking to follow procurement laws to major international corporations wishing to set up or expand their business in the UK or across the wider EU.

The impact of Brexit on law firms and the legal sector would therefore depend largely upon their client base, the wider economy and market forces.

Some firms have a client base directly affected by the EU – the financial services sector, for example. The business impact on other firms is likely to vary, and in many cases would be less important than general economic conditions such as interest rates, the strength of the property market and economic growth.

In Wales and some regions, there is a clear link between EU membership and the health of the local economy, as a result of EU grants and project funding. Were the UK’s relationship with the EU to change, any subsequent changes in funding would have a direct effect in those areas.

England and Wales as a global legal services centre

The EU is of particular importance to firms who work with the financial services sector.

The City of London‘s position as a world financial centre could be significantly adversely affected by the UK’s disengagement from the EU. This would, in turn, pose significant risks to the City’s current position as a global centre for conducting legal business. Larger law firms might adapt to changing circumstances by moving their centre of operations away from the UK.

England and Wales as a jurisdiction of choice

The consequences of Brexit for England and Wales as a jurisdiction of choice – that is, a centre for resolving commercial disputes as distinct from conducting business transactions – are less clear, or at least, less immediate. There are strong ‘pull’ factors towards London that are independent of EU membership. The greater risks might lie in competition from rival international jurisdictions and the pressure for local law to be applied in others: in Russia, for example.

Alternatives to the EU

If the referendum were to result in Brexit, there would be a period of negotiation in which to settle the terms of that withdrawal and to formulate a new relationship with other EU member states. As in any other relationship breakdown, much would depend upon whether the split was amicable. There would also be further negotiations regarding relationships with third parties.

The natural starting point of a discussion on what the future might look like is to examine existing relationships between the EU and other non-member states:

• EEA/EFTA3 membership (e.g. Norway)

• EFTA membership with additional cooperation on the basis of bilateral agreements (Switzerland)

• Customs Union (Turkey)

• WTO4 membership augmented by a Free Trade Agreement, or

• WTO membership only.

3 European Economic Area/European Free Trade Association.4 World Trade Organisation.



Should the UK decide to leave the EU, perhaps the two most likely options in terms of trade would be:

• attempting to join EFTA and participate in the internal market through the EEA agreement,5 or

• a more distant relationship, with certain rights emanating from membership of the WTO and the possibility of negotiating a Free Trade Agreement (FTA) to remove or reduce some of the barriers to trade which would re-emerge following the UK’s decision to withdraw. Under a WTO regime, the UK would lose its access to the internal market, would no longer be bound by, or benefit from, the right of free movement of people, and would not have to contribute to the EU budget. Further agreements might need to be considered for co-operation in areas including justice or policing or in cases where the UK would be interested in participating in a specific EU programme.

A detailed description of these relationships is in Appendix 4 but in summary the following points are clear:

• the greater the access that non-member states have to the internal market, the more they must comply with the EU’s market rules; these are familiar and this would mitigate some of the changes discussed above.

• new arrangements would need to be made for co-operation in areas such as criminal justice.

• no state outside the EU has any real voice in the EU legislative process; for the UK, that would mean giving up representation in the European Parliament and on the European Council, and its right to veto where unanimity is required.

• EEA membership would require acceptance of the four fundamental freedoms;6 even the Swiss model includes the free movement of persons.

• EEA membership would require the UK to make a contribution to the EU budget.

• the UK would not automatically fit in to any of the different relationships except the WTO-only scenario; EEA or EFTA membership would depend on negotiation with the existing members.

• the UK could not rely on the strength of the EU’s voice in wider trade or regulatory negotiations.

• there would be no guarantee that there would be a seamless move to any alternative form of relationship.

• many aspects which are perceived by some as disadvantages of EU membership, for example immigration and red tape, could not be avoided without losing access to the benefits of the internal market.

Under the EEA/EFTA option, the UK would retain access to the internal market and all the fundamental freedoms, including that of the free movement of people, would continue to apply. The UK would also be bound to contribute to the EU budget, albeit at a reduced rate, in return for market access and would take on new funding obligations in relation to EFTA. It would, however, lose all influence as part of the EU legislative process.

5 The UK is a signatory to the EEA agreement, but it is unclear how a decision to leave the EU would affect this. 6 Under the 1957 Treaty of Rome, goods, services, capital and people are supposed to be able to move freely across the Union’s internal borders.


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Alternative relationships – a summary

Renegotiationwithin the EU

Yes

Participation in the internal market

Application of internal market freedoms

Subject to the CJEU’s jurisdiction

A say in EU legislation

Contribution to the EU budget

EEA/EFTA(‘Norway’)

Yes Yes Yes Yes

Yes No, but EFTA Court follows the CJEU

No, but follows the EFTA Court

No Yes, reducedYes but not in relation to CAP* and CFP*

EFTA + bilateral agreements(‘Switzerland’)

Yes No Yes, reducedYes, subject to the terms of those agreements and very limited participation in relation to financial services

NoCustoms Union(Turkey)

No NoNoLimited

NoWTO only No NoNoNo

NoWTO plus FTA No NoNoNo

*CAP – Common Agricultural Policy CFP – Common Fisheries Policy



The question of whether the UK should remain in the EU is to be the subject of a referendum within the next 18 months. Membership of the EU has had a profound effect, whether for good or ill, on the nation, particularly in respect of our economy and our law. It is crucial that decisions on the question are made on as informed a basis as possible.

This report provides:

• an initial analysis of the value of the EU to the legal sector in England and Wales. It is a legal and economic, not a political, analysis.

• discussion of the legal process for withdrawal and the main alternatives to the EU.

• analysis of how the application of the law and the rights of businesses and citizens might be affected by a UK exit from the EU.

Scope of the report

This report is not a commentary on national sovereignty versus EU integration; the effects – positive or negative – of EU rules on immigration between member states, or the implications of Brexit for the UK as a political union. Similarly, other sectors of the economy will have their own specific views on how renegotiation or Brexit might affect them. This report aims to start a discussion with our members about the potential impacts of remaining in a renegotiated EU or of an EU exit.

Introduction

The report has been informed by Law Society specialist committees and by interviews with a range of firms, but it does not claim to represent the individual views or opinions of our diverse membership. We will be surveying our membership over the coming months about the impact on their firms and their clients of remaining in or leaving the EU, rather than how they would vote in a referendum or the wider political aspects of the national debate.

This report will provide a platform for this membership engagement.

Qualitative research

The project team conducted a series of qualitative interviews with individuals from law firms around England and Wales. Interviewees were asked questions about how the EU currently affected their firm, their clients and their employment practices, and what they thought about the various models should there be a change in the UK’s relationship with the EU.

Where quotes are given in the report, firms are described as:

• City firms

• London firms (non-City firms operating in the capital)

• specialist firms

• regional firms

• firms in Wales

• foreign firms.

Although general counsel are a very important part of the business legal sector, there were naturally constraints on what general counsel interviewees could say to us without straying into areas of commercial sensitivity, as they are in the unique position of acting for a single client. Consequently, the report does not cite general counsel interviewees, although those interviews contributed to our understanding in compiling this report.


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City firms

These firms are usually headquartered in London, but have offices around the world, especially in the EU. They work very closely with European and other international clients, and tend to have international staff.

They are among the largest law firms in the world in terms of turnover, and tend to focus on financial services or commercial law.

Specialist firms

The project team spoke to firms specialising in two specific areas of law: intellectual property law and family law.

Regional firms

Some regional law firms work in areas with strong economic ties to the EU, such as agriculture, which has important implications for their client population.

In terms of areas of law, all interviewees recognised the relevance of EU legislation to their practice to a greater or lesser extent, but not all foresaw a direct business impact as a result of a change in the UK’s relationship with the EU.

Firms in Wales

Participants in our roundtable in Cardiff were specifically concerned about the possible impact of Brexit on the Welsh economy and potential loss of access to ‘start-up’ and other EU structural funds, as well as the Common Agricultural Policy CAP.

Farm subsidies and infrastructure investment, by their nature, are regional expenditures, so naturally any reduction in EU-related spending would be concentrated in those areas.

Foreign firms

There are various kinds of foreign law firms operating in London, serving different clients, and with different business structures, but often with exposure to the financial services sector.

Economic modelling

We commissioned Oxford Economics to apply their UK macroeconomic model, and a specially commissioned extension which covers the legal services sector in more detail, to generate baseline forecasts for the legal services sector and alternative forecasts that estimate the impact of EU disengagement on the sector over the period to 2030. Estimates are achieved by looking at the effects of disengagement on UK labour supply, restrictions on trade, fiscal effects, and foreign direct investment, and how these macroeconomic factors affect the legal services sector.

This modelling has the potential to provide the Law Society with an independent assessment of the macroeconomic effect over a medium-term period of EU disengagement, and particularly the specific effects on the UK legal services sector.

The report UK Legal Services Sector and the EU: an analysis by Oxford Economics was published in September 2015.



THE UK LEGAL SECTOR AND THE EU

The EU comprises 28 member states. The UK has been a member state since 1973.

At the heart of the EU is the internal market, also known as the single market. The internal market is defined in Article 26(2) of the Treaty on the Functioning of the European Union (TFEU):

‘... (2) The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties’

These are known as the fundamental freedoms of the internal market.

The EU has seven main institutions, five of which are relevant to law-making:

• European Council

• European Commission

• Council of European Union

• European Parliament

• The Court of Justice of the European Union.

Member states are responsible for transposing EU law into national law, to guarantee their citizens and businesses the rights granted to them under EU law.

The Court of Justice of the European Union (CJEU) interprets EU legislation so that it can be applied uniformly across the member states. The CJEU also settles legal disputes between member state governments and EU institutions, including infringement proceedings.

The EU and its institutions

More detail about the EU as a law-maker can be found at Appendix 1. As set out in that section, there are some concerns about the way in which these institutions operate, particularly in relation to fulfilling legal procedural requirements and practical efficiency:

• the legislative process can be complex, time-consuming and not wholly transparent.

• there are concerns that there are opportunities for the institutions to ignore concepts such as proportionality and subsidiarity because of the political or ideological appeal of particular policies.

• there is a lack of expertise at the CJEU in some critical areas of EU law, notably intellectual property and financial matters.

• there are substantial delays in obtaining judgments from the CJEU which can create delays in dealing with cases at national level.

Some of these problems are inherent in any system of government (for example, the Law Society occasionally voices concerns that initiatives from the UK government are not proportionate to the issue to be resolved); others could be addressed by improved mechanisms.


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The EU is both a market in which law firms can themselves operate and in which their personal or corporate clients may wish to locate or provide goods or services. The EU is also a source of law that affects many aspects of business activity, as well as granting personal and consumer rights.

The freedoms of movement of goods, persons, services and capital are at the heart of the EU. Those regarding services and persons are of considerable importance directly to the legal profession in assisting lawyers’ ability to offer services throughout the internal market. Freedom of goods and capital are important issues for many of their clients trading within the EU.

The increasingly globalised nature of business, the affordability of air travel, and the possibility of providing services online mean that smaller firms are able to export their legal services more easily, whereas once this would have been the sole province of the larger international firms.

Goods and services are becoming increasingly intertwined – for example, the purchase of many goods, such as IT products, is often combined with continuing customer support through service agreements. An internal market for services goes hand-in-hand with facilitating the free movement of people. If a business has the right to establish a branch or business for provision of those services, it is logical that the people delivering that service are also able to reside in that location, on a temporary or permanent basis as needed.

For example

A UK manufacturing company’s CEO meets a French investor at a conference who decides to provide investment in that company. Using the new investment, the company expands its operations by setting up a second factory, this time in France. They identify a suitable site and set up the factory under the freedom of establishment. One of the senior staff from the UK is seconded to France to manage operations until the factory is properly established. Two engineers from the UK are recruited permanently, along with two engineers from Germany and Poland.

The free movement of people rules ensure that from conference attendance to scouting trips, secondment, and permanent moves, there are no visa requirements to fulfil. Under the free movement of capital, the money to acquire the new factory, pay salaries and buy supplies can move freely. There are no limitations on the investment, and profits can be divided as the company sees fit. Under the free movement of goods there are no tariffs on the supplies needed by the factory (which themselves come from various parts of Europe) when they cross borders.

The internal market

The fundamental freedoms and surrounding legislation are not intended to replace national legal systems in their entirety. Neither, in the case of free movement of lawyers, does the system allow lawyers to advise clients without demonstrating the requisite knowledge. Rather, the system attempts to remove boundaries that would prevent economic operators from moving freely across the EU in the way they believe will best allow them to carry out their business.

Subject to certain regulatory requirements, England and Wales law firms are able to establish offices in other parts of the EU. In 2014, England and Wales law firms operated a total of 219 offices in EU countries and a further 245 non-EU offices globally (of 15,600 offices in total).7

On an individual basis some England and Wales qualified lawyers have taken advantage of the internal market to move to other member states, either within their firms or to make the most of other opportunities. In 2014, a total of 1,349 Practising Certificate (PC) holders reported their main practising office to be in an EU country outside of the UK (1 per cent of all PC holders).8

The UK is the largest market for legal services in Europe with 20.3 per cent of the total European market9 and accounts for around 7 per cent of the global market for legal services.

7 Source: Law Society Group management information. See Appendix 3 for further discussion of lawyers’ practising and establishment rights.8 A further 4,692 PC holders reported a non-EU main practising address. 9 Datamonitor (2011).



OF THE LARGEST FIVE LAW FIRMS IN THE WORLD, BASED ON HEADCOUNT, HAVE THEIR MAIN BASE OF OPERATIONS IN THE UK

FOREIGN LAW FIRMS HAVE OFFICES IN THE UK

OF THE LARGEST TEN LAW FIRMS IN THE WORLD, BASED ON GROSS FEE REVENUE, HAVE THEIR MAIN BASE OF OPERATIONS IN THE UK

PEOPLE ARE EMPLOYED IN UK LEGAL SERVICES – GENERATING 1.6% OF UK GDP AND A NET EXPORT SURPLUS OF £3.1BN IN 2013 10

THE EUROPEAN LEGAL SERVICES MARKET HAD TOTAL REVENUES OF $184.5BN IN 2013, REPRESENTING AN ANNUAL GROWTH RATE OF 3.2% BETWEEN 2009 AND 2013

MARKET EMPLOYMENT INCREASED AT AN ANNUAL RATE OF 2.4% BETWEEN 2009 AND 2013 TO REACH A TOTAL OF 1.1 MILLION LEGAL PROFESSIONALS 11

HALF ARE FROM THE US

£3.1BNEXPORT SURPLUS


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The impact of the EU on lawyers goes far beyond practice and establishment rights and the ability to provide cross border services. The economic aspect of accessing the internal market and all that this means for business clients in terms of trade, regulation and expanding or moving their operations is hugely important.

The EU is not merely a market. It is also underpinned by the rule of law and has its own specific justice measures. These apply both in the context of criminal justice and to wide-ranging civil justice measures, for example in resolving contract disputes. In a world where people are increasingly mobile, and relationships become increasingly international, family law cases will often have an EU dimension. The EU has its own specific competition law regime and procurement rules. Furthermore specific laws, for example in the sphere of consumer protection, employment and environmental law, may be implemented by the UK but have their current origins in EU legislation. Solicitors from sole practitioners through niche and high street firms to the largest international City operators advise their clients on all of these issues and more and will therefore be affected by any future change.

10 UK Legal Services 2015, CityUK Report, 2015 (http://www.thecityuk.com/research/our-work/reports-list/legal-services-2015/).11 Datamonitor (2014).12 Some may also have greater familiarity with the EU’s structural funds, the European Regional Development Fund (ERDF) and the European Social Fund (ESF) which

are of relevance to particular regions, for example parts of Wales.

‘[EU procurement procedures are] important to my firm because I advise on a number of major ICT projects. My colleagues and I advised X Council on the largest superfast broadband scheme in the EU, with £132m of subsidy, mostly from EU, so we had to follow an EU procurement procedure.’ Regional firm interviewee

Some aspects of the EU have a particular resonance for firms, depending on their location or focus of practice, for example in relation to the Common Agricultural Policy (CAP), common fisheries policy (CFP), or EU regional development grants.12

‘We are an agricultural practice and the CAP is massive to people, but there’s much more than that. Employment law mainly comes from Brussels and the commercial and tech teams are always looking at competition law issues from the EU.’ Regional firm interviewee

The increasingly globalised nature of business, the affordability of air travel, and the possibility of providing services online mean that smaller firms are able to export their legal services more easily, whereas once this would have been the sole province of the larger international firms.



The financial services sector is of particular importance to the UK economy, generating more than 10 per cent of the UK’s total Gross Domestic Product. In 2013, financial services generated a trade surplus of £58.5bn – more than all other net exporting industries combined. The next highest surplus in services was generated by other professional services, of which the legal services sector contributes £3.1bn.13 The UK had an overall trade in goods and services deficit of over £72.4bn in 2013.14

The strength of the financial services industry has allowed London in particular to establish itself as the financial services capital, cementing its position as a global financial centre and business hub.15 In 2013, 34 per cent of the UK‘s trade surplus on financial services was derived from trade with other EU member states, compared to 30 per cent derived from trade with the US.

The legal sector and financial services

Top 50 UK City law firms deals by industry

The financial sector is a key purchaser of legal services in the UK, determining the shape of the supporting legal sector, especially in the area around the City. Between 2009 and 2014, financial services accounted for 44 per cent of the total value of transactional work deals amongst the Top 50 City law firms.

Finance & Banking 33%

Fund/Investment Management 11%

Technology, Media & Telecoms 9%

Energy & Utilities 10%

Real Estate & Construction 5%

Manufacturing 3%

Other 29%

Total 100%

of which financial services: 44%

Finance & Banking 33%

Fund/Investment Management 11%

Technology, Media & Telecoms 9%

Energy & Utilities 10%

Real Estate & Construction 32%

Manufacturing 32%

Other 32%

Total 100%

of which financial services: 44%

Exports Imports Net Exports Imports Net Exports Imports Net %

EU 4019 165 3854 19350 3290 16060 23369 3455 19914 34

USA 8315 151 8164 12077 2576 9501 20392 2727 17665 30.2

Global total 21784 1422 20362 46725 8598 38127 68509 10020 58489 100

Insurance and pensions Financial Total financial services

Source: ONS Pink Book 2014

13 UK Legal Services 2015, TheCityUK Report, 2015 (http://www.thecityuk.com/research/our-work/reports-list/legal-services-2015/).14 House of Commons Library Economic Indicators Research paper14/58 4 November 2014 (www.parliament.uk/briefing-papers/rp14-58.pdf).15 The business publication Forbes ranked London first in its list of The World’s Most Influential Cities 2014. London is itself the ninth largest economy in the EU.

It accounts for 21.2% of the UK’s GDP which compares with Paris (9.6% of France’s economy) and Berlin (4% of Germany’s) according to The Mayor of London’s The Europe Report: a Win-Win Situation, August 2014 (pages 28-29) (https://www.london.gov.uk/sites/default/files/europe_report_2014_08.pdf).


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Passporting

One of the key features of the EU internal market is the financial services passport which allows financial institutions established in one member state to establish, or provide in other member states throughout the EU, services and financial products which are regulated at an EU level without the need to apply for further full authorisation in each other state for which the passport is sought.

If the UK were to leave the EU, the risk is that UK-based banks and other financial institutions would lose their passport and be required to locate within the EU for regulatory reasons to maintain their market access. Otherwise, UK-based institutions’ access to the EU markets would depend upon UK regulation being deemed ‘equivalent’ by the EU.

The financial services sector is particularly vulnerable to Brexit. This has important consequences for law firms who have clients in the financial services sector and this is why the sector is highlighted in pages 17 to 24. A more detailed analysis of the impact of EU membership on the financial services sector is given in the section on the EU’s impact on areas of law (pages 26-68).

Percentage of foreign bank branch assets to local assets

‘Our firm works across all sectors but a large amount of our work is done in relation to financial services. The UK’s membership of the EU has been of tremendous help to financial services, and in many respects has allowed the UK to become Europe’s financial centre, especially for its capital markets.’ City firm interviewee

The UK is by far the largest centre for foreign branches of banks in the EU (see chart below): as a centre of wholesale markets, many banks from elsewhere in the EU make London their centre of European operations.

Perc

enta

ge

30

25

20

15

10

5

0

UK

Belgium

Luxembourg

Ireland

Italy

Cyprus

Greece

Portugal

Hungary

Sweden

Denmark

Netherlands

Spain

Germany

FrancePoland



£ m

illio

n

200,000

EU Rest of the world

400,000

600,000

800,000

1,000,000

02004 2005 2006 2007 2008 2009 2010 2011 2012 2013

USA Asia

Financial services are of particular importance to London but remain a major sector in other parts of the country too. The Office of National Statistics (ONS) reports that in 2012 financial and insurance services generated gross value added of £60.5bn in London but also £7.9bn in the north west; £6.8bn in the south west; £5.6bn in Yorkshire and Humber and in the West Midlands; and £2.2bn in Wales.17

16 Office of National Statistics data.17 ONS data as quoted in House of Commons Standard Note Financial Services: Contribution to the UK Economy SN/EP/06193 26 February 2015.

Source of Foreign Direct Investment in the UK16


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pact on areas of lawAppendices67

100£1£22.6bn

FOR EVERY

EVER

Y

JOBS IN THE LEGALSERVICES SECTOR

OF OUTPUT OF THE UK LEGAL SERVICES SECTOR

ARE SUPPORTED IN OTHER AREASOF THE ECONOMY

£2.39UNDERPINS

OF OUTPUT IN THE UK ECONOMY AS A WHOLE

THE UK LEGAL SECTOR MAKES AN IMPORTANT CONTRIBUTION TO THE DOMESTIC ECONOMY WORTH

18 http://www.thecityuk.com/research/our-work/reports-list/legal-services-2015/19 ‘Economic value of the legal services sector’, Law Society, 2015.

THE BUSINESS IMPACT OF BREXIT ON THE UK LEGAL SECTOR

The UK legal sector makes an important contribution to the domestic economy worth £22.6bn.18 Legal services have both a multiplying and an enabling effect on business growth and stability. For every 100 jobs in the legal services sector, 67 are supported in other areas of the economy. Every £1 of output of the UK legal services sector underpins £2.39 of output in the UK economy as a whole (based on 2010 data).19 Any adverse impact on the legal sector therefore has wider implications.

Legal services do not exist in a vacuum. They exist to serve the needs of clients, and clients’ needs vary widely: from individuals needing advice on employment or family law, to IT start-ups wishing to protect their intellectual property rights; councils seeking to follow procurement laws, major international corporations wishing to set-up in the UK. The prospects for the legal sector are linked to the wider UK economy and market forces.

The impact of Brexit on the UK legal sector could be felt in a number of ways depending upon firms’ level of exposure to the EU. First and foremost, those firms whose clients would be directly affected by Brexit would themselves feel an impact. Firms which have already exercised their right of establishment in EU countries or which offer cross-border services and advice on cross-border legal issues are also very likely to be affected, as would those firms which recruit legal or support staff from the EU. Firms which currently operate only in the UK but which are contemplating taking advantage of the right of establishment in the future might lose that option.

Some firms may find that one or more areas of law in which they practise are significantly affected, and that they will need to adjust and advise clients accordingly, but without having any impact on their business model. For others, none of these factors may be present or might be only peripherally important.



Impact on financial services clients

In terms of client impact, Brexit is widely considered to pose a clear and present risk to the financial services sector; it follows that the part of the legal sector that depends upon financial services is also at risk.

The EU internal market for financial services relies on mutual recognition through a ‘single passport’, which enables financial services providers in one member state to operate in another without requiring them to go through full authorisation procedures in each further member state. If the UK were to leave the EU, the risk is that UK-based banks and other financial institutions would lose their passport and be required to locate within the EU for regulatory reasons to maintain their market access. Otherwise, UK-based institutions’ access to the EU markets would depend upon UK regulation being deemed ‘equivalent’ by the EU.

As the UK has such a large EU trading surplus in financial services, the UK’s former EU partners might not see any advantage in granting such recognition of equality. The EU would no doubt want to preserve the benefits of membership for those countries remaining in the union, and every concession made to the UK would undermine those benefits. If political relationships were to deteriorate during the Brexit negotiations, EU regulatory requirements for off-shore jurisdictions might become more stringent.

The think tank Open Europe summarised what it calls the ‘bottom line’ for the financial services sector:

‘Financial services are the most exposed sector and where a deal will be hardest to negotiate. Britain may be forced to choose between ‘third country’ status with restricted EU market access, or somehow remaining a member of the single market (like Norway), i.e. EU rules but with no formal votes.’

‘If the financial services industry is badly affected by Brexit there could be a knock-on effect on linked sectors, such as legal, accounting and consultancy services.’

‘Given the mobility of the sector, there is a higher risk of businesses relocating – particularly foreign firms using London as an entry point to the single market.’20

Our interviews with firms who work with the financial services sector echoed that assessment.

‘The biggest impact would be on the perception that London’s ability as a key global financial centre to lead transactions across the EU will be compromised… It will come down to people saying ‘I can set up in Frankfurt or London, I’ll go to Frankfurt’. Will we be the principal destination for overseas FDI for other countries into the EU? I doubt it.’ City firm interviewee

‘We follow financial services. If they stay, we stay. If they move, we move. If we don’t have passporting, it’s detrimental. A lot of our clients do cross-border lending. They lend to Germany with their London branch. If that was restricted, because of additional regulatory processes, they would do that business somewhere else, just for ease of doing the business. If they are all back in Germany, then there is no point in us being here. Our business is people driven, if people aren’t here anymore, neither would we.’ City firm interviewee

20 Open Europe: What if…? The consequences, challenges and opportunities facing Britain outside the UK, March 2015 (http://openeurope.org.uk/intelligence/britain-and-the-eu/what-if-there-were-a-brexit/).

http://openeurope.org.uk/intelligence/britain-and-the-eu/what-if-there-were-a-brexit/

http://openeurope.org.uk/intelligence/britain-and-the-eu/what-if-there-were-a-brexit/


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The Mayor of London has also acknowledged the risk:

‘There is a big fear in the City…about what would happen if the UK left the EU. Hence the City is not keen to embrace such a risk. On the face of it, the case for the City to remain in the EU may appear compelling.’

while offering an upbeat assessment of how the City might respond:

‘Despite all this, history shows us that the City has retained its competitiveness by evolving to suit the circumstances of the time, embracing change and being open to trade. Outside the EU, it is possible that despite all the uncertainty the City retains its international competitiveness, overcoming the initial phase of uncertainty.’21

In its comprehensive assessment of eight different UK-EU scenarios conducted for TheCityUK, Clifford Chance reached a rather different conclusion:

‘...the creation of the integrated EU framework for financial services has had a marked and highly positive effect for those UK-based services businesses with an EU-wide or global reach, and an equally positive effect for their clients. It is easy to take this common legal framework and set of legal freedoms for granted… To abandon this for some untried, unknown and unpredictable alternative would carry very significant risks.’

‘It is clear from the scenarios examined in this paper that from a legal perspective the interests of UK financial services are most effectively safeguarded through continued membership, and reform, of the EU.’22

In an October 2013 study by TheCityUK of the views of 101 financial and related professional services leaders on the EU, 84 per cent said that staying in the EU was the best option for the competitiveness of the UK as a financial centre; 37 per cent said that Brexit would be fairly or very likely to lead to some relocation.23

The Financial Times (US banks plan ahead for UK exit from EU)24 has reported that Wall Street banks were drawing up preliminary plans to move some London-based activities, to address concerns that the UK is drifting apart from the EU. The article cites Bank of America, Citigroup and Morgan Stanley, while saying that banking executives were reluctant to speak publicly about the issue. A partner at law firm Shearman and Sterling is quoted in the article:

‘London could essentially end up as an offshore financial centre. That would mean that there was a need for a big onshore financial centre in Europe and the obvious candidates would be Frankfurt or Dublin.’

The Association of Foreign Banks has stated that:

‘If Britain withdraws from Europe, then foreign banks may reassess their reasons for maintaining their business in Britain and may decide to continue their business elsewhere.’

Following the 2015 UK general election, Deutsche Bank was the first to say publicly that it is considering its options. 25

21 The Europe Report: a Win-Win Situation August 2014 page 21. 22 A legal assessment of the UK’s relationship with the EU: a Legal Perspective pages 59-60 (available at http://www.cliffordchance.com/briefings/2014/04/a_legal_

assessmentoftheuksrelationshipwit.html).23 The City Speaks: A milestone study of the views of financial and related professional services leaders on the EU TheCItyUK October 2013 (available at http://www.

thecityuk.com/research/our-work/reports-list/the-city-speaks-a-milestone-study-of-the-views-of-financial-and-related-professional-services-leaders-on-the-eu/).24 FT 17 August 2014.25 See http://www.bbc.co.uk/news/business-32789709

http://www.cliffordchance.com/briefings/2014/04/a_legal_assessmentoftheuksrelationshipwit.html


http://www.thecityuk.com/research/our-work/reports-list/the-city-speaks-a-milestone-study-of-the-views-of-financial-and-related-professional-services-leaders-on-the-eu/




The following quote is typical of the views of City firm interviewees on the business impact on them of the UK leaving the EU:

‘Negative, negative. Incredibly negative. In the short term for me it would be a boost because of the chaos that would ensue, we’d have a lot of work, but on the medium/long term, as a market, the fact we’re members of the EU has a significant impact on what we do: trade, financial services, competition, our position would be very negatively impacted, and that’s not even taking into account the businesses that would withdraw from the UK market as a result of the change in relationship.’ City firm interviewee

From another perspective, a European law firm operating in London told us:

‘We work for private equity firms, but also [major US and UK banks]. For those firms London is the central hub of EU work, if that would decrease, then people would move. The reason we are here is proximity to our clients.’ Foreign firm interviewee

There is a distinction to be made between the impact on the legal sector and the impact on individual law firms. The scenarios set out above describe circumstances in which England and Wales (notably the City of London) could see its standing as a global legal centre damaged as client business is drawn away to other centres. However, the international firms concerned would adapt to new circumstances. They might do so by moving offices or headquarters to the EU, by focusing on different markets, or by restructuring their organisations. They would effectively follow their clients, and to that extent in the long-term might well maintain the same relationships, but with a much-reduced base in England and Wales. This could have implications for the legal sector’s contribution to the UK economy, and at a personal level, on England and Wales qualified lawyers who are working in those firms.

Impact on City firms

‘If we vote ourselves out of the EU, that’s not the immediate death of the office, as we rely on London being an international centre, and English law’s dominance. I don’t think the end of the UK in the EU would be the end of that. London would continue to dominate.’ London firm interviewee

‘We would not have a battleship sized law firm if the City was not here. We’d have more of an aircraft carrier – to launch legal teams all around the world from here.’ City firm interviewee

‘We would lose jobs, quite clearly, because some people work in supporting the big deals, so if the deals fall through, so do the jobs.’ City firm interviewee

Some interviewees were concerned that the impact on jobs would diminish the attractiveness of London and of the legal profession.

‘This is a slow drain, it won’t happen overnight, London will become less attractive, we’ll attract less talent, certainly from overseas. If we’re trying to attract the best and brightest from university, we offer the opportunity to work internationally, on big sexy mega deals, we’re competing against the banking industry, the accounting/consulting one, and we would lose out to them. We might see a decrease in attractiveness of the legal profession as a whole.’ London firm interviewee


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Many small and medium firms in England and Wales specialise in specific areas of law, where clients may not be significantly affected by EU law or by changes in the UK’s relationship with the EU: conveyancing for example.

Firms specialising in other areas, such as immigration law, might benefit directly from Brexit, as it could greatly increase work in relation to visa applications of EU nationals.

Whatever their differences in size, area of practice or business model, all the regional firms that we interviewed recognised that they were affected by EU legislation, either directly or indirectly. For some, the EU is an integral part of their business model, and their client-base has a significant or growing EU dimension:

‘We are a full service commercial law firm providing legal advice to clients across the private and public sectors so the UK’s membership of the EU cuts across a large swathe of the areas of law in which we operate.’ Regional firm interviewee

‘The vast majority of our revenue is UK based. However, particularly in our business practice, we have transactions and litigation all across Europe at the moment. I think it would be fair to say Europe is our biggest trading partner.’ Regional firm interviewee

Impact on other firms

For others, their clients’ relationship with the EU was rather more personal than commercial.

‘We’ve got a dedicated French law team: we deal with French law issues from London, with two dual-qualified avocats and a notaire. They deal with English people buying houses in France, moving overseas, getting divorced or writing their wills – and some want to come back to the UK again. We also work with the French in London when their family notaire can’t understand the English system and needs help.’ Family law firm interviewee



At a roundtable discussion in Cardiff, we were told that although many small and medium firms in Wales were not directly affected by the UK’s relationship with the EU, Wales’ economy had benefited from EU funding. Firms were concerned that the loss of such funding – unless made good by a UK government – would damage the Welsh economy, and therefore have a detrimental knock-on effect on law firms.

Wales receives more in EU funding than it contributes, and receives higher CAP and structural spending support per capita than England, as illustrated in the tables below.

Farm subsidies and infrastructure investment by their nature are regional expenditures, so naturally any reduction in EU-related spending would be concentrated in those areas.

Whatever their relationship with the EU, few Wales-based interviewees identified positive benefits for them or their clients in leaving the EU. There was, however, a suggestion that withdrawal from the EU might have benefits in terms of reduction of regulation in procurement and state aid, which could benefit public sector clients (or private sector clients doing public work).

Impact on Wales

Gross payments (m)

Less UK rebate (m)

£16,907

-£3,844

UK

Less public sector receipts (m) -£5,078

Net contribution (m) £7,985

Net contribution per capita £117

£14,582

-£2,436

England

-£3,217

£8,930

£154

£567

-£310

Northern Ireland

-£409

-£151

-£84

£1,417

-£592

Scotland

-£781

£44

£8

£340

-£507

Wales

-£670

-£838

-£273

CAP total spending (m)

CAP spending per capita

Structural funds total spending (m)

Structural funds spending per capita

£2,184

£31

England

£735

£13

£317

£145

£54

£30

£614

£96

£95

£18

£353

£96

£255

£83

Northern Ireland Scotland Wales

Source: Centre for European Reform’s ‘The Economic Consequences of Leaving the EU’.

London

Paris

Frankfurt


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In terms of the alternatives to the EU, interviewees were very clear about the largely political implications of maintaining access to the internal market following the Norway/Swiss models.

‘Surely the whole point of the EEA agreement is that we still get all the legislation, but we don’t have any say in it?’ City firm interviewee

‘Norway: they put the money in, still get free movement, still get 70 per cent of EU legislation… we would keep a lot of the law, so it would be manageable, we would be part of the free trade area, we’d still have competition law, procurement laws, and we’d still have employment laws… the only benefit is we don’t pay that much in contributions. But that’s about it.’ Regional firm interviewee

‘The Swiss model started as a single free trade agreement, it’s now 172 bilateral agreements. There’s no effective and efficient dispute resolution with 15 joint committees that handle disputes, and they take a very long time to sort – the system is clogged, the European Council has basically said it’s not fit for purpose, they want the Swiss model to become the Norwegian one.’ City firm interviewee

Views on alternatives to the EU

The WTO model of disengagement presents greater uncertainty, although some firms working in specific areas of practice were clear about the impact on them:

‘We couldn’t advise the Europeans, we couldn’t advise the US, no one would instruct us anymore. We could only instruct on UK problems, that’s it. We wouldn’t be a gateway to Europe anymore. We’d be a purely UK entity, for UK problems. But that’s quite rare in patents and trademarks.’ IT/IP firm interviewee



While we can assume the effects of Brexit on the UK’s reputation as a centre for transacting international business, there is greater uncertainty over the consequences for the use of English law as the governing law in commercial contracts and the popularity of England and Wales as a centre for resolving international disputes.

Parties to international commercial transactions are generally free to choose which law they wish to govern their contracts, and to designate a particular forum to determine conflicts that might arise. Although the two often coincide, they are in fact separate considerations so a contract may be governed by English law but designate Switzerland, for example, as the forum for arbitration if any disputes arise under the contract. English law has a good reputation as the law of choice for many commercial contracts and the UK courts’ jurisdiction enjoys international recognition as a world-class centre for dispute resolution.

English law is perceived to be certain and clear. It is this reputation that explains why English law is chosen by many businesses as the governing law in their international transactions (which otherwise may have little or nothing to do with England). Given the pervasiveness of EU law in many areas of English commercial law (in particular banking law) any withdrawal from the EU would give rise to a great deal of uncertainty as to what actually constitutes ‘English law’. Any exit from the EU would inevitably lead to uncertainty as to the status of provisions based on or derived from EU regulations and rules and which currently form part of English law.

‘In litigation, non-UK clients are choosing to sue other non-UK clients through the English courts. Telecoms and banking, healthcare, utilities… things are settled here.’ London firm interviewee

London’s reputation as the leading global centre for the provision of international legal services is underlined by the fact that more than 80 per cent of claims issued in the Commercial Court involve at least one party from outside England and Wales.

Choice of law and England and Wales as a jurisdiction of choice

The success of England and Wales as the jurisdiction of choice for the resolution of international disputes, whether through the court system or arbitration, has been linked to the success of London as a global financial hub, but it is clear that it is also attributable to other factors such as:

• quality and commercial acumen of judges

• legal certainty

• impartiality

• English as the language of global business

• the influence of common law on legal systems throughout the world, and

• the reputation and availability of legal advisers, particularly in London which is home to the major courts.

However, the market for choice of court is an increasingly competitive one. The English commercial court is currently taking commendable steps to increase its drawing power in the international disputes arena. The recent consultation document on the initiative to create a specific Financial List, with docketed judges specifically trained in financial markets, confirmed that ‘the Courts of England and Wales are committed to continuing to meet the needs of the international financial community’.26

As the UK is party to the EU regime on jurisdiction and enforcement, set out in the Brussels I Regulation, any agreement to litigate disputes before the English court currently has the protection of EU law. This means, subject to limited exceptions, that such agreements have to be respected in the courts of other member states. This is an enormous benefit to commercial parties. Furthermore, the fact that English judgments can be simply and effectively enforced across the EU reduces costs and allows speedy and effective redress for businesses across the EU. This reinforces the reputation of England and Wales as jurisdiction of choice in an EU context. With that in mind, a UK withdrawal could have a detrimental effect on the jurisdiction and the use of English law around the world.

On a procedural level, it is likely that the service within the EU of English claims or court documents would be more difficult and less certain if the UK decided to withdraw. There might also be increased uncertainty regarding the ability to obtain cross-border interim relief in support of English proceedings in other member states.

26 The Rolls Building Financial List Initiative Consultation Document (available at http://www.chba.org.uk/for-members/library/consultations/financial-list-initiative-consultation-document).




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The 2010 International Arbitration Survey by Queen Mary University of London gathered views from 136 companies.27 English law was the most common choice of governing law for the substance of arbitrations in 2010, chosen by 40 per cent of respondents, followed by 17 per cent choosing New York state law. London was the most preferred seat of arbitration favoured by 30 per cent, followed by Geneva (9 per cent). The most important factor in making that choice was the ‘formal legal infrastructure’ in the jurisdiction (cited by 62 per cent of respondents), which included the national arbitration law and also the track record in enforcing agreements to arbitrate and awards and neutrality and impartiality. This was followed by the law governing the substance of the dispute (46 per cent) and convenience (45 per cent) including, among other factors, location, language and culture and the efficiency of court proceedings.28

It might be argued that Brexit could lead to English law being more attractive as the UK would no longer be required to incorporate those aspects of EU law which can prove problematic. For example, the UK would not be obliged to consider proposals such as that for a Common European Sales Law put forward by the previous Commission.

On the other hand, it is equally possible that if London becomes less popular as a financial centre, businesses might look to other major jurisdictions for their legal services, particularly where these coincide with other financial hubs. This move might, in turn, lead to a decline in the use of English law and England and Wales as the jurisdiction specified in international contracts. This will not be an immediate event, but it is a possible outcome in the longer term.

27 In discussing arbitrations it is important to note the difference between the governing law from the point of view of the substantive law being arbitrated and the governing law of the arbitration which refers to rules for the way that arbitration is conducted in a given jurisdiction.

28 2010 International Arbitration Survey: Choices in International Arbitration (available at http://www.arbitration.qmul.ac.uk/docs/123290.pdf).

Overview



THE EU’S IMPACT ON AREAS OF LAW AND ASSOCIATED RIGHTS

Many commentators have sought to assess the impact of the EU on UK law and law-making in terms of percentages.

‘Viviane Reding, one of the EU Commissioners, was over in the week…and she’s saying also that 70 per cent of our laws come from Brussels.’ Janice Atkinson MEP. BBC Question Time, February 13, 2014. (See also: https://fullfact.org/europe/eu_make_uk_laws_70_per_cent-29589)

‘50 per cent of all our economic laws come from Europe.’ Bill Cash MP (Conservative). House of Commons, 24 October, 2011.

‘EU legislation… accounts for around half of all new regulation.’ Chuka Umunna MP. Labour Party press release, 25 October, 2011.

A House of Commons library analysis from 201129 said that according to the EU’s EUR-Lex database, UK data suggested that over the 12-year period from 1997 to 2009 6.8 per cent of primary legislation (statutes) and 14.1 per cent of secondary legislation (statutory instruments) had a role in implementing EU obligations, although the degree varied from passing references to explicit implementation.30 Sectoral studies suggested that agriculture forms the highest area of EU influence and defence the lowest.

As the House of Commons paper says, there is in fact no accurate, rational or useful way of calculating the percentage of national laws based on or influenced by the EU. In any case, such figures do not give any indication on the material impact of how any particular EU laws affect the daily lives of citizens. It states, ‘the working time directive is arguably of far greater significance to the working population of the member states than, for example, the Commission Regulation on the classification of padded waistcoats in the Combined Nomenclature’.

Overview

Renegotiation, as set out by the Prime Minister in his Bloomberg speech and later in an interview with The Telegraph, might not affect many areas of law, but Brexit would very likely require a comprehensive review of legislation. Such a review might categorise:

• law that the UK supports on public policy grounds and which it wishes, and would be able, to retain

• law which the UK supports but which might require new agreements with EU countries if the outcomes are to be maintained

• law which might be required to comply with UK international obligations, and

• law which the UK regards as inappropriate or burdensome and which could be repealed without damage.

In practice, these categories are nuanced and interwoven and it might prove difficult to disentangle them.

European law has been incorporated into UK law in a number of ways, from secondary legislation (for example, TUPE) to primary legislation (the Equalities Act 2010). Should the UK government, following Brexit, simply repeal the European Communities Act without savings,31 those regulations passed under it would in likelihood disappear. Primary legislation, however, would still remain until repealed by an Act of Parliament. An option would be to repeal or amend particular laws over time, following reviews and consultations. This may be a long-term process.

It has been suggested that UK autonomy in legal matters could be recovered if the UK were to leave, primarily in terms of:

• autonomy of the UK courts in the field of EU law, as CJEU rulings would no longer be binding on the UK courts, and

• autonomy of Parliament as there would be no more direct effect/supremacy of EU Treaty provisions and Regulations and no more implementation of directives by secondary legislation.

Some commentators have raised questions about the extent to which autonomy could be recovered.

29 House of Commons Library How much legislation comes from Europe? Research paper 10/62 13 October 2010 (updated 2011) (available at http://researchbriefings.files.parliament.uk/documents/RP10-62/RP10-62.pdf).

30 Eur-Lex Statistics on numbers of legislative acts (available at http://eur-lex.europa.eu/statistics/2009/legislative-acts-statistics.html).31 A repeal without savings effectively eliminates the repealed statute (and subordinate legislation made under it) completely. However, where there are saving

provisions, they may, for example, preserve the effect of certain statutory provisions for limited purposes, or for a limited time period.


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Autonomy of the UK courts

The UK courts could choose to follow CJEU rulings as to the interpretation of EU law even if they were no longer formally bound by them. There would be implications for the certainty of law if the UK courts were to take a different view from the CJEU and if the UK were participating in the EEA in the same way as Norway, then it would be subject to the jurisdiction of the EFTA Court. Furthermore, in the case of competition law, for example, the UK could effectively still be bound by decisions of the EU Commission, for example on UK company mergers with an EU entity, even if the UK were to have left the EEA entirely.

If the UK courts were uncertain as to the correct interpretation of EU law, there would no longer be a mechanism available to them for seeking a preliminary ruling from the CJEU (see Appendix 1).

Autonomy of Parliament

If the UK were to cease to be a member of the EU, it seems inevitable that there would be a domestic review of legislation to enact or re-enact legislation in order to avoid lacunae where an issue had previously been governed by EU law and to repeal any legislation which was no longer regarded as necessary or desirable. There could, however, still be practical limitations on the extent to which that autonomy would be regained in some fields.

There are questions about what would happen to regulatory regimes that have been adopted by the UK in order to implement EU law, such as competition law and telecommunications law, and whether the UK could credibly seek to develop a distinct system of medicines or pharmaceuticals regulation if UK companies were still looking to export to the EU market.

What would Brexit mean?

A summary of the impact of Brexit in selected areas of law is set out below. We have used EEA/EFTA membership (ie the Norway arrangement) as the first comparator, as the EEA/EFTA countries maintain a high level of integration, particularly in relation to the internal market. ‘The Norway arrangement’ is often cited as a possible alternative to membership if the UK were to withdraw.

While ‘the Swiss model’ is also referred to frequently, comments from both the EU and Switzerland suggest that the model is proving increasingly problematic for both parties, not least because it does not allow for modernisation and legislative developments in the same way as the EEA agreement. Commentary suggests that it is unlikely that this arrangement would be replicated, even if it were seen to be desirable.

The other main comparison we have drawn is access on the basis of WTO membership only. This is at the far end of the spectrum and as in the case of the EEA/EFTA countries, it is a fixed point of comparison as many countries do interact with the EU on this basis. It is important to note that the WTO relates only to trade, and the current agreements relate primarily to trade in goods, as progress in relation to services has been significantly slower. It might of course be possible for the UK to negotiate a free trade agreement with the EU to supplement the rights accrued through WTO membership but it is impossible to predict what form this would take. In each case – under the EEA/EFTA or WTO models – the UK would have no further say on EU law-making in that area.

In many cases these areas overlap. The civil justice provisions are particularly noteworthy in their creation of a unique legal system that facilitates the enforcement of rights on a pan-European basis and may be relevant in terms of eg protecting intellectual property, enforcing performance in a contract for services or dealing with cross-border family law disputes.

General principles of EU law

Many specific pieces of legislation rest on, or are informed by, more general principles of EU law. Two of the most important in relation to lawmaking are the principles of proportionality and respect for subsidiarity in areas where the EU and member states have shared competence.

The EU goes beyond the creation of the internal market. Under the Lisbon Treaty32 the member states agreed to strengthen the European area of freedom, security and justice – in practical terms increasing the EU’s power to take action in the areas of border control, asylum and immigration; judicial co-operation in both civil and criminal matters; and police co-operation. It also clarified the role of the EU in relation to economic, environmental and social policy. The social policy dimension has been seen as one of the more controversial aspects of EU action, although it is important to note that it is an area of shared competence and it has been recognised that social policy is better implemented at member state level.33

32 For further information on the Lisbon Treaty see http://europa.eu/legislation_summaries/institutional_affairs/treaties/lisbon_treaty/ai0033_en.htm33 See Commission webpage on the Treaty of Lisbon (http://europa.eu/legislation_summaries/institutional_affairs/treaties/lisbon_treaty/ai0023_en.htm).



The Financial Action Task Force (FATF) is an international organisation responsible for setting global rules to combat money laundering. Along with the European Commission, the majority of EU member states (including the UK) are members of the FATF, so are bound by those rules regardless of their status within the EU. It is the FATF – rather than any EU body – which periodically inspects countries for compliance with its rules.

The FATF’s 2012 recommendations were incorporated into legislation by the EU through the Fourth Money Laundering Directive (4MLD),34 which was signed into law in June 2015. In line with the two previous directives, it requires that lawyers, among others, report suspicious transactions to their national Financial Intelligence Unit. Regulation is activity-based, focusing primarily on transactional work. It does not apply in the context of litigation.

The Law Society’s Money Laundering Task Force played a large role in successful lobbying against a requirement for publicly accessible registers of beneficial ownership for all trusts during 4MLD negotiations. This has prevented a law coming into force which would have imposed a disproportionate burden upon solicitors, and would have created an unfair invasion of privacy on many trusts where there is an extremely low risk of money laundering. It was the UK which had originally suggested a register of beneficial ownership in a letter to the EU in 2013.35

Anti-money laundering

The AML Directives set minimum standards, and because member states are free to go beyond the requirements of EU money laundering directives, there are minor differences in implementation between them. The UK chose to do this in several areas during its implementation of the Third EU Money Laundering Directive. For example, under UK legislation an ‘all crimes approach’ to AML regulation is adopted, meaning there is no de minimis level of predicate offences below which offences need not be reported. For example, if a commercial property is sold in the UK and it is found a saving was made for the seller through not ordering a £200 asbestos report as is required by law, that £200 saving would be considered the proceeds of crime and would require a suspicious activity report to be filed with the National Crime Agency. In the EU and the overwhelming majority of other countries implementing FATF’s recommendations, this minor breach would fall below a de minimis level and not trigger a reporting obligation.

There remain differences between the approach adopted by the EU and that of other countries, such as Canada, the USA and Australia. In terms of lawyers reporting on their clients, for example, the Federation of Law Societies of Canada successfully challenged legislation, which would have required lawyers to report their clients’ suspicious financial activities to the government. Similar legal challenges to courts in Europe were unsuccessful.

The UK government considers combating money laundering to be a justice and home affairs issue. It therefore takes the view that the UK has a choice as to whether or not it participates in the system whenever new Directives are negotiated.36

If the UK were to the leave the EU, it would still be a member of FATF and would still have to comply with its requirements. The fact that the UK has often chosen to set a higher standard for itself than that which it is obliged to under EU law in implementing FATF requirements suggests that money laundering requirements would be unlikely to differ significantly if the UK were to leave the EU.

34 Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2015.141.01.0073.01.ENG).

35 https://www.gov.uk/government/publications/pm-letter-on-beneficial-ownership.36 See http://register.consilium.europa.eu/doc/srv?l=EN&f=ST%205748%202015%20ADD%202


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Civil justice refers to the way that cross-border legal disputes in the areas of civil and commercial law can be resolved through the judicial system. Examples of such disputes involve monetary claims between private parties or companies.

At the EU level, this entails knowing, for example, which member state’s jurisdiction is responsible for determining cases, or which member state’s law applies. It also includes the mutual recognition of judgments from one member state to another, and judicial co-operation between courts in different member states on issues such as the service of claim forms and other legal documents.

Legislative basis

Article 81 TFEU states that:

1. The Union shall develop judicial co-operation in civil matters having cross-border implications, based on the principle of mutual recognition of judgments and of decisions in extrajudicial cases. Such co-operation may include the adoption of measures for the approximation of the laws and regulations of the member states.

2. For the purposes of paragraph 1, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall adopt measures, particularly when necessary for the proper functioning of the internal market, aimed at ensuring:

(a) The mutual recognition and enforcement between member states of judgments and of decisions in extrajudicial cases

(b) The cross-border service of judicial and extrajudicial documents

(c) The compatibility of the rules applicable in the member states concerning conflict of laws and of jurisdiction

(d) Co-operation in the taking of evidence

(e) Effective access to justice

Civil justice

(f) The elimination of obstacles to the proper functioning of civil proceedings, if necessary by promoting the compatibility of the rules on civil procedure applicable in the member states

(g) The development of alternative methods of dispute settlement

(h) Support for the training of the judiciary and judicial staff.

Main civil justice instruments to which the UK has opted in

Brussels I Regulation37 and Recent Amendments

The Brussels I framework aims to regulate the mutual recognition and enforcement of civil and commercial judgments across member states, by setting out the rules that govern cross-border jurisdiction disputes.

The general rule, to which there are exceptions, is that the court where a defendant is domiciled shall have jurisdiction. The Lugano Convention applies the rules in Brussels to the EEA/EFTA states.

Other Regulations

Other Regulations set out specific EU measures and mechanisms aimed at facilitating justice.

• The European Enforcement Order38 enables ‘uncontested claims’ to be recognised for enforcement in all member states.

• The European Order for Payment Procedure39 establishes a simplified procedure to enable a creditor to obtain an enforceable order against a defendant for a specified sum of money.

• The European Small Claims Procedure40 ensures that judgments for small claims are enforceable throughout the EU.

• The Insolvency Regulation41 aims to improve the efficiency of insolvency proceedings.

37 Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32012R1215).

38 Regulation (EC) No 805/2004 of the European Parliament and of the Council of 21 April 2004 creating a European Enforcement Order for uncontested claims (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32004R0805).

39 Regulation (EC) No 1896/2006 of the European Parliament and of the Council of 12 December 2006 creating a European order for payment procedure (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32006R1896).

40 Regulation (EC) No 861/2007 of the European Parliament and of the Council of 11 July 2007 establishing a European Small Claims Procedure (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32007R0861).

41 Council regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings (http://eur-lex.europa.eu/legal-content/en/ALL/?uri=CELEX:32000R1346).



Rome I and II

The purpose of Rome I42 is to allow contracting parties to a civil or commercial matter to choose the law that should apply to their contract. Rome II43 fulfils a similar purpose but for non-contractual cases such as negligence claims or other actions based in tort law (company law disputes or disputes based in trust law).

Regulation on service of documents

The Regulation on service of documents44 aims to facilitate the service of claim forms and other legal documents, in judicial proceedings, that involved parties in more than one member state.

Regulation on taking of evidence

The Regulation on taking of evidence45 aims to improve co-operation between courts in the taking of evidence in civil and commercial matters. It establishes a regime of mutual recognition of the evidence obtained, subject to a few exceptions.

Legal Aid Directive

The Directive on legal aid46 aims to create common minimum standards for the granting of legal aid in cross-border disputes as part of the EU framework for improving access to justice.

Effects on UK law

The growth in EU membership, the internal market, and the impact of globalisation have led to an increase in cross-border relationships. These can be commercial (client/business, or business/business), civil, or family. The aim of civil justice co-operation at an EU level is to resolve these disputes efficiently and rapidly.

These sorts of disputes are not new, and were previously settled through inter-governmental co-operation, usually via bilateral or multilateral conventions. Nonetheless, the EU framework provides consistency, certainty and efficacy. Uniformity is preferable to a patchwork of multilateral agreements, not only because of the certainty that uniformity brings, but also because negotiating individual agreements with countries around the world is a time-consuming process.

In the case of commercial disputes with a cross-border element where there are no stipulations with regard to jurisdiction, Brussels I ensures that English jurisdictional clauses that are used, for example, in many international finance, shipping and corporate contracts, are respected by other member states. This contributes to making England and Wales the jurisdiction of choice for many international disputes. It also facilitates the enforcement of judgments from other member states, thereby bringing further certainty and efficiency to the system.

Overall, EU judicial co-operation measures are seen as being beneficial to the UK’s role as a leading centre for international dispute resolution, especially because of the enforcement of judgments provisions. This adds certainty and predictability to the UK legal system, which adds to its attractiveness as a destination for international dispute resolution.

The UK has decided not to opt-in to Directives on succession rights or to Rome III, which provides rules on which country’s law should apply in divorce proceedings.

42 Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) (http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32008R0593).

43 Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II) (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32007R0864).

44 Council regulation (EC) No 1348/2000 of 29 May 2000 on the service in the member states of judicial and extrajudicial documents in civil or commercial matters (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32000R1348).

45 Council Regulation (EC) No 1206/2001 of 28 May 2001 on cooperation between the courts of the member states in the taking of evidence in civil or commercial matters (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32001R1206).

46 Council Directive 2002/8/EC of 27 January 2003 to improve access to justice in cross-border disputes by establishing minimum common rules relating to legal aid for such disputes (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32003L0008).


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Renegotiation

It is unlikely that renegotiation would affect any of the civil justice co-operation measures.

EEA/EFTA

Most civil justice co-operation measures also apply to EEA/EFTA states through the Lugano Convention, so the position of UK law would not change significantly.

The UK has been an active participant in the negotiations that have created those EU judicial and civil justice co-operation mechanisms, especially with regards to safeguarding its place as a leading destination of choice for international dispute resolution. Should the UK leave the EU and become an EEA/EFTA state, it would lose this influence.

WTO

Should the UK leave the EU and remain as a WTO member only, it would not be part of the EU’s civil justice co-operation mechanisms, and would revert to negotiated bilateral and multilateral agreements with other countries.

There would undoubtedly be a period of uncertainty for businesses and citizens alike, as the UK seeks to negotiate these arrangements with its international partners. This could lead to a patchwork of agreements, rendering the picture more confusing.

Nonetheless, the UK could regain some flexibility in negotiating these agreements. While it is likely that EU members would want agreements similar to existing EU frameworks, other countries around the world might be willing to accept different terms. This could, in some areas, enable the UK to have terms that are more in line with its specific interests, but it is highly doubtful that this would compensate for the uncertainty that the process and subsequent patchwork of agreements would generate.



The purpose of EU rules in this area is to:

• enable businesses to be set up anywhere in the EU

• provide protection for shareholders and other parties with a particular interest in companies

• make business more efficient and competitive

• encourage businesses based in different EU countries to co-operate with each other.

The harmonisation of rules enables companies to expand internationally, without having to comply with an additional set of regulatory requirements each time they set up in a new country. EU company law is therefore a cornerstone of the internal market.

EU company law usually derives from secondary legislation. Directives in this area have focused on a wide range of areas including capital requirements, shareholders’ rights, accounting, audit, takeovers, mergers and divisions, and market regulation.

Main EU company law instruments

While the establishment of companies remains primarily a matter for domestic law, EU company law has created three distinct legal entities which facilitate a closer business relationship across member states:

• the European Company (societas europae, for public limited companies)

• European co-operative societies (a corporate form for non profit-making organisations)

• European Economic Interest Grouping (EEIG), which allows companies from more than one member state to do business together.

Company law

The legal provisions for these new entities can be found in the Regulation on the Statute for a European Company,47

Council Directive 2003/72/EC (establishing European co-operative societies), and the Regulation on the European Economic Interest Grouping (EEIG).48

The Regulation on the application of international accounting standards49 requires EU-listed companies to produce group accounts in accordance with International Accounting Standards, thereby facilitating the functioning of global capital markets.

Other EU company law instruments

Secondary legislation also contributes to the development of EU Company Law. Directives cover the disclosure of company documents, the validity of obligations entered into by a company, and nullity, the formation of public limited liability companies and their capital arrangements, foreign branches and single member companies.

Case law has been important in preventing states from requiring companies to reincorporate or to prevent firms from moving to a new home state.50

Effect on UK company law

The UK corporate law system has been at the forefront of innovation, especially when compared to some of its European partners. As a result, some EU reforms have been modelled after the English model (for example the Market Abuse Directive51).

There does not appear to be an appetite for certain European structures: there are only 77 European Companies (societas europae) in the UK, although they have existed since 2001. In other instances, member states are reluctant to move away from established domestic regimes, for example, in the failure to create a European private company status.

47 Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE) (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32001R2157).

48 Council Regulation (EEC) No 2137/85 of 25 July 1985 on the European Economic Interest Grouping (EEIG) (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31985R2137:en:HTML).

49 Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32002R1606).

50 Centros, Case C-212/97, [1999], and Inspire Art, Case C-167/01, [2003] and The Queen v H.M. Treasury and Commissioners of Inland Revenue, ex parte Daily Mail and General Trust, Case C-81/87, [1988].

51 The Market Abuse Directive has recently been amended by MAD II - Directive 2014/57/EU of the European Parliament and of the Council of 16 April 2014 on criminal sanctions for market abuse (market abuse directive) (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32014L0057).


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Renegotiation

It is unlikely that company law would be affected by any renegotiation. This is an area of EU law that is largely left to the individual member state to regulate. EU company law serves only to harmonise certain parts of the internal market.

EEA/EFTA

EU company law is an integral part of the internal market, and part of the EEA Agreement. It is covered by Article 77 of the EEA Agreement and Annex XXII of the EEA Agreement. Should the UK leave the EU and become an EEA/EFTA state, it would still be bound by the rules of EU company law.

WTO

Were the UK to leave the EU and join a WTO regime only, companies would only have to abide by international standards of accounting and reporting. They would not have to follow EU company law. Nonetheless, UK companies looking to conduct trade in the EU, or to establish offices there, would have to comply with all the relevant EU Directives covering disclosure requirements.



The combined competition and state aid regimes form a central part of the rules that ensure the smooth functioning of the internal market as contained in the TFEU.

The competition regime is recognised as one of the major successes of the EU, ensuring open competition within the EU allowing businesses to grow and expand beyond their national markets and helping consumers to benefit from greater choice and lower prices. The state aid regime is directed at member states to monitor and control the granting of financial assistance and subsidies in order to prevent distortions of competition.

Competition policy

EU competition (antitrust) policy is developed from two central rules set out in the TFEU:

• Article 101 TFEU52 prohibits agreements between two or more independent market operators which restrict competition (e.g cartels). This provision covers both horizontal agreements (between actual or potential competitors operating at the same level of the supply chain) and vertical agreements (between firms operating at different levels, for example agreement between a manufacturer and its distributor). Only limited exceptions are provided for in the general prohibition.

• Article 102 TFEU53 prohibits firms holding a dominant position in a given market from abusing that position, for example by charging unfair prices, by limiting production, or by refusing to innovate to the prejudice of consumers.

The European Commission is empowered by the TFEU to apply these rules and has a number of investigative powers to that end, for example inspection at business and non-business premises, written requests for information, etc. The European Commission may also impose fines on undertakings which violate the EU antitrust rules.

National Competition Authorities (NCAs) are empowered to apply Articles 101 and 102 of the Treaty fully, to ensure that competition is not distorted or restricted. National courts may also apply these provisions to protect the individual rights conferred on citizens by the TFEU.

Competition and state aid law

All 28 EU member states have developed their domestic competition laws to reflect those of the EU. This helps to ensure a broadly consistent approach to all competition cases, be they national or cross-border.

Mergers

The EU developed a separate set of rules in the late 1980s to govern mergers. These rules ensure that the expansion of one company does not result in it attaining such a dominant position that it stifles market competition. These rules apply to all mergers no matter where in the world the merging companies have their registered office, headquarters, activities or production facilities. This is so because even mergers between companies based outside the EU may affect markets in the EU if the companies do business in the EU. The Commission may also examine mergers which are referred to it from the NCAs of member states. The Commission may also refer a case to a member state NCA. Proposed mergers may be prohibited, for example, if the merging parties are major competitors or if the merger would otherwise significantly weaken effective competition in the market, in particular by creating or strengthening a dominant player.

The effect of a merger on competition is the only criterion against which mergers are judged at EU level. This has greatly reduced the ability of individual member states to take protectionist action to block mergers or to favour ‘national champions’.

In certain limited circumstances, member states are allowed to intervene to protect their national interests: ‘public security, plurality of the media and prudential rules’ are all regarded as ‘legitimate interests’ in this context.54 However, the level of intervention should continue to be very narrow to avoid a situation where member states are able to protect their national champions. The existing three categories of exemption are generally considered to work well and practitioners point to a number of cases where the UK has made sensible and effective use of Article 21 of the EU Merger Control Regulation.55

52 http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:12008E10153 http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:12008E10254 Attempts by member states to widen the scope of intervention to energy cases (so-called ‘security of energy supply’ cases) have been prevented by the Commission

and Court of Justice of the EU to date.55 See for example the NewsCorp/BSkyB and HBOS cases and various defence mergers.


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Although the rules and underlying principles are very similar, the Commission does not dictate national law on merger control. The UK merger regime has therefore been able to offer flexibility to minimise the burden imposed on businesses, for example, there is no mandatory filing obligation. UK businesses are accustomed to operating in compliance with both the national and EU-wide competition rules and the more competitive commercial environment which this has created. Practitioners comment that the ability to deal with such competition has meant UK businesses are better prepared to operate on a competitive basis when they are looking to expand globally.

State aid

The TFEU contains a broad prohibition on the granting of state aid:

‘Save as otherwise provided in the Treaties, any aid granted by a member state or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between member states, be incompatible with the internal market.’ (Article 107(1) TFEU)

Aid measures can only be implemented after approval by the Commission; the Commission has powers to recover incompatible state aid.

Application in the UK

Individuals and companies are able to bring actions for damages in UK courts on the basis of infringement decisions by the Commission. This allows parties to recover losses where they have been unfairly disadvantaged. This has contributed to the reputation of London as a centre of excellence for EU competition law based litigation.

While the rules governing the competition regime are set at EU level, enforcement takes place at a national level. This is an excellent example of the application of the principle of subsidiarity in practice. However, in some member states enforcement is not as strict as it might be.

Renegotiation

It is unlikely that competition law and state aid would be affected by any renegotiation.

Consequences of leaving the EU

If the UK were to leave the EU it would cease to participate fully in both the competition and state aid regimes. The EU competition rules form the basis of our own national competition law rules but it would obviously be open to the UK to change those rules. To the extent that UK businesses would continue to operate in the internal market they would remain subject to the EU rules.

The substantive anti-trust rules themselves would be unlikely to change significantly in the short term as the current UK domestic and EU wide systems are so similar. UK anti-trust rules apply where there is an effect on trade within the UK, as opposed to an effect on trade between member states (the corresponding criterion under EU law) but otherwise the main provisions are very similar.

EEA/EFTA

The EEA/EFTA states apply the same substantive competition and state aid rules as they are an essential part of the internal market. However, as in other aspects of the internal market, it is the EU that decides what those rules are. Switzerland, for example, participates in the EU competition regime under its bilateral agreements. Consequently if the UK were to adopt either of these approaches and the EU were to make changes to the current EU competition regulations, then the UK could be disadvantaged by the fact that it would no longer have the right to participate in the legislative process. If the UK managed to secure EFTA membership and therefore remain within the EEA, the EFTA Surveillance Authority would have jurisdiction in place of the European Commission, because similar EEA competition rules apply (in both the anti-trust and merger control spheres) in relation to countries which are member states of the EEA but not the EU.

Similarly, if the UK were to continue to be a member of the EEA after leaving the EU, the position with regard to state aid would not change significantly, because equivalent state aid rules apply in relation to the non-EU member states of the EEA, under the EEA Agreement, and are applied by the EFTA Surveillance Authority. The UK’s ability to challenge the actions of member states may be constrained.

As in all other areas, the UK would no longer play a part in influencing the content of EU Regulations, after leaving the EU. EFTA countries have much less scope for influencing the content of EU law measures that are adopted by the EEA.



WTO only

If the UK were to leave the EU without joining the EEA, it is possible that there would be a need for new anti-trust block exemption regulations for certain categories of agreements to be prepared and adopted under UK law (to replace the current reliance on EU block exemptions in our national competition law rules). The EU block exemption regulations incorporate criteria relating to the removal or avoidance of territorial restrictions as between EU member states. These rules might not be appropriate under UK competition law if the UK had left the EU and new UK regulations would also be required in this respect .

If the UK were to leave the EU, EU competition law would continue to apply to UK-based businesses if there were an appreciable effect on trade in EU from the agreement or practice in question. At present, the EU and UK authorities would not normally investigate the same matter, but it is possible that they would do so if the UK were separated from the EU, because the two authorities would then have parallel jurisdiction to enforce the respective competition rules. Being subject to enforcement under two sets of rules could pose a significant burden on business, although this might have less of an impact on the largest companies which will always have to cater for a number of systems if they are merging or acquiring a business on a global or multijurisdictional basis. This would be subject to any co-operation agreement that might be entered into between the Commission and the Competition and Markets Authority, but in any event the level of co-operation could be expected to be much less than it is now.

Merger control

Competition law applies on the basis of the place a business is actually operating: its domicile or place of incorporation does not matter. A large number of mergers involving UK businesses would therefore still be caught by the EU Merger Control Regulation if and when the turnover thresholds were fulfilled by a transaction.

At present if there is an acquisition of a business that acts mainly within the UK it will still be caught by the EU merger regulation if the parties’ turnovers meet the applicable thresholds. Some of these mergers would no longer be caught by the EU rules if the UK was no longer part of the EU or EEA. However, if the parties meet the global turnover threshold and individually meet the EU turnover threshold (and where applicable the relevant national thresholds), then the EU merger control rules would continue to apply.

It is possible that in certain cases, a merger involving parties having sufficiently high turnovers to qualify currently for notification to and investigation by the European Commission under the EU Merger Control Regulation, would not so qualify following UK withdrawal from the EU, if the target’s turnover were to be predominantly in the UK. This is because the merger might then not meet the EU Merger Control Regulation criterion of two parties each having a turnover in the EU of €250 million or €100 million (depending on which set of thresholds is applicable to the specific transaction under the EU Merger Control Regulation). Such transactions would then be subject to investigation only by the Competition and Markets Authority (CMA) under the UK rules, and where relevant, by other national competition authorities under national merger control rules.

There is also a question as to whether the co-operation between the Commission and the CMA would continue to be as integrated as it is at present. Competition authorities of non-member states may operate parallel investigations on a more arms-length basis.

Overall the CMA would have a greater caseload but its powers as such would not change.


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Antitrust

Similarly, antitrust law would remain effective provided there was an effect on trade between the continuing member states. Many agreements in which UK businesses were participating would continue to be subject to EU competition law. If the UK were not in the EU or the EEA, the European Commission and the CMA could, where appropriate, both exercise jurisdiction in parallel on the same anti-trust matter.

Change to UK law initially would be limited as UK competition law mirrors EU law in the anti-trust area (except that UK competition law applies where there is an effect on trade within the UK rather than between member states), but it may be necessary to amend the Competition Act to remove the CMA’s jurisdiction to apply Articles 101 and 102 TFEU.

Although currently UK anti-trust law mirrors EU anti-trust law, if the UK were to leave the EU, there might be a gradual divergence between the two systems on points of detail over time.

State aid

In relation to state aid, if the UK were to leave both the EU and the EEA, it would be free to provide grants and state funding to undertakings without being subject to the constraints of the EU state aid rules that apply at present. The state aid rules are a supra-national body of law without an equivalent at UK national level.

Leaving the EU could provide an advantage to UK businesses as potential state aid would not need to be notified and cleared and there would be no need to pay back state funds received in breach of the EU rules. However, insofar as the EU state aid rules impose a financial discipline on a member state’s public bodies, which indirectly provides some protection for competitors of state-funded entities, such advantages would be lost. An alternative set of rules or principles might be needed to regulate the provision of state funding to private enterprise or businesses.



EU consumer law aims to facilitate the development of the internal market. This is done by empowering and protecting consumers across the EU, so they are aware of their rights and are able to make informed decisions when purchasing goods and services. It also aims to increase consumer protection, by facilitating co-operation between member states.

The Charter of Fundamental Rights, and the European treaties since the Single European Act, guarantee a high level of consumer protection in the EU. It is also a general objective defined in Article 12 TFEU.

Main EU consumer law instruments

Under Article 4(2) TFEU, consumer policy is a shared competence: once EU legislation has been passed, member states may not act in a manner contrary to it, but in the absence of EU legislation, member states are free to act.

Prior to the last ten years, the EU adopted a broad range of consumer protection legislation, including regulatory instruments focusing on contractual rights (covering areas such as unfair contract terms and information specific to cancellation rights and remedies) or prohibiting certain unfair commercial practices.

During the last ten years, however, the EU has renewed its focus on consumer protection intended to facilitate the enforcement of consumer rights. This includes the Injunctions Directive56 (allowing independent public bodies to exercise injunctions if consumers have suffered collective harm) and the Regulation on Consumer Protection Co-operation,57 which coordinates enforcement action between member states. The recent Consumer Rights Directive58 is intended to simplify consumer rights when buying or selling goods and services.

Consumer law

In the future

In May 2012, the Commission unveiled its Consumer Agenda for 2014-2020,59 which aims to take a holistic approach to consumer protection and consumer rights in the internal market. The agenda has four broad aims:

• improving consumer safety so that consumers are protected from serious risks and threats that they cannot tackle as individuals.

• enhancing knowledge so that consumers can make choices, based on clear, accurate and consistent information.

• improving implementation, stepping up enforcement and securing redress access so that consumers have fast and efficient ways of resolving disputes with traders.

• aligning rights and key policies to economic and societal change so that consumers can access digital products and services easily, legally and affordably from anywhere in the EU.

Effect on UK consumer law

Because consumer law falls under the shared competences, member states are free to implement their own policies. Successive UK governments have legislated extensively on such matters, for example through the Consumer Credit Act 1974, the Unfair Contract Terms Act 1977, the Sale of Goods Act 1979, or the Food Safety Act 1990.

EU legislation has introduced further rights and protections in discrete areas, such as the new consumer protections introduced by the Consumer Rights Directive. EU action in this field has been critical as new technologies have facilitated and accelerated the pace of buying and selling goods over the internet, regardless of the country of origin.

56 Directive 98/27/EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers’ interests (http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:31998L0027).

57 Regulation (EC) No 2006/2004 of the European Parliament and of the Council of 27 October 2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws (the Regulation on consumer protection cooperation) (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32004R2006).

58 Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32011L0083).

59 A European Consumer Agenda – Boosting confidence and growth (http://ec.europa.eu/consumers/archive/strategy/docs/consumer_agenda_2012_en.pdf).


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60 For example, the Unfair Commercial Practices Directive (UCPD) 2005/29 or the Consumer Rights Directive.61 See for example: http://ec.europa.eu/food/safety/international_affairs/trade/docs/im_cond_meat_en.pdf

Historically, the EU has legislated on consumer matters with a philosophy of ‘minimum harmonisation’, that is to say the EU would set the minimum requirements for consumer protection, with member states able to afford supplementary rights or protections through domestic legislation. Recently, however, the EU has taken the view that ‘maximum harmonisation’ would benefit the internal market by increasing legal certainty and common standards.

The UK has traditionally argued against ‘maximum harmonisation’, as this limits the ability of member states to offer additional protection to consumers. It spoke out against EU consumer policies that were inflexible and questioned whether ‘maximum harmonisation’ policies held back national innovation in regulation. Recent EU legislation on consumer rights has tended to take a ‘maximum harmonisation’ approach, with important exceptions when such harmonisation would hurt consumers in certain countries (because they already had a higher level of protection).60

Renegotiation

The consensus from the Balance of Competences Review in the field of Competition and Consumer Policy was that UK consumers had benefited from EU consumer law. Technological developments have dramatically increased consumers’ capacity to purchase goods from other jurisdictions, leading to a need for cross-border agreements and enforcement mechanisms. The EU is a suitable level to achieve those aims.

It is unlikely that renegotiation would reduce the scope of EU consumer law.

EEA/EFTA

Consumer protection is covered by Annex XIX to the EEA Agreement, while the EU’s agenda for 2016-2020 on consumer rights was incorporated into the EEA Agreement on 14 November 2014. Should the UK leave the EU and become an EEA/EFTA state, it would still be bound by EU consumer law.

WTO

Theoretically, if the UK were to leave the EU, it could repeal all the EU consumer legislation that has passed into domestic legislation over the years. This would be a huge task, and it is more likely that any changes would be piecemeal.

In order to continue to export goods into the EU, the UK would have to negotiate with the EU to ensure equivalence of standards (‘equivalence agreements’) for the sales of goods to EU consumers. It would have to follow formal steps for approval of imports into the EU, especially with regards to highly regulated goods such as meat.61



The UK is considered by many to be one of the leading states in shaping early EU criminal justice policy. This has focused on co-operation mechanisms which recognise the differences between national criminal justice systems (so-called ‘mutual recognition’) rather than on the harmonisation or ‘approximation’ of national laws pursued in other areas of EU law.

In accordance with this approach, EU criminal justice and policing initiatives have, to date, resulted in practical tools to improve security and fight crime on a pan-European basis without impinging on national laws.

As cross-border criminality continues to increase, and as perpetrators of crime both within and outside the EU make use of increased mobility, the ability of member states to co-operate effectively in this area becomes increasingly important.

The UK’s unique position in EU criminal justice and policing matters

The UK and Ireland have negotiated special arrangements for their participation in EU criminal justice and policing matters.

Protocol 21 to the TFEU provides that the UK and Ireland do not take part in the adoption of any EU measures proposed by the Council relating to the area of freedom, security and justice governed by Title V of Part 3 TFEU. Unless they specifically choose to participate (‘opt in’) they will not be bound by such measures or by any decision of the CJEU interpreting their provisions. The UK can opt in within three months of a proposal being presented, in which case it will have a vote in the negotiations. Alternatively, the UK can seek to opt in at any time following the adoption of a measure subject to the Commission’s agreement. A parallel arrangement, Protocol 19, applies to the participation of the UK and Ireland in the Schengen acquis.62

Criminal justice and policing

These arrangements provide a considerable degree of comfort that the UK will be able to control the extent to which it participates in EU criminal justice and policing measures, both at present and in the future. In addition, the European Union Act 2011 ensures that any further transfer of competence from the UK to the EU would require a referendum and an Act of Parliament.

These special arrangements have created some problems of their own – the manner in which the UK has exercised its opt in to date has been the subject of critical Parliamentary scrutiny and remains a topic of some debate.63 Concerns have been raised that any UK decision not to opt in to a proposed measure at the outset jeopardises the UK’s ability to influence the content of the measure in question, and the UK’s leadership in criminal justice and policing matters more generally. More recently, concerns have arisen in connection with the government’s failure to identify, in a timely manner, measures to which Protocol 21 applies and its interpretation of the scope of Protocol 21 has been contested.64

In addition to Protocol 21, Protocol 36 to the TFEU provided the UK with the possibility to opt out, en bloc, of all Justice and Home Affairs (JHA) measures adopted prior to the entry into force of the Treaty. The UK chose to exercise this ‘opt-out’, with the effect that it was no longer bound by any such measures after 1 December 2014. However, in parallel with this decision the UK successfully applied to re-join a number of the same measures with effect from the same date.

Like all member states, the UK also benefits from the ‘emergency brake’ procedure introduced by the Lisbon Treaty to obstruct any proposals (other than police co-operation) which are considered to affect fundamental aspects of a member state’s national criminal justice system, by referring them to the European Council (Articles 82(3) and 83(3) TFEU).

62 Agreements on the gradual abolition of checks at common borders signed by some member states of the European Union in Schengen on 14 June 1985 and on 19 June 1990 and related agreements and rules adopted on the basis of these agreements, as integrated into the EU framework by the Treaty of Amsterdam in 1997. The extent of the UK’s and Ireland’s participation in the criminal justice and policing cooperation elements of Schengen is governed by Council Decision 2000/365/EC.

63 See, for example, the recent publication of the House of Lords European Union Committee on The UK’s opt-in Protocol: implications of the government’s approach, 9th Report of Session 2014-15, 24 March 2015 (http://www.publications.parliament.uk/pa/ld201415/ldselect/ldeucom/136/136.pdf).

64 In particular by the House of Lords European Union Committee (Ibid.); expressing alarm at the government’s application of Protocol 21 to measures which have only ancillary or secondary criminal justice and policing content.


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Background

EU action in this area to date can be seen to fall into three main categories:

(1) Judicial and law enforcement co-operation

(2) Criminal procedure

(3) Substantive criminal law

The extent to which the TFEU envisages that each of these three areas may be further developed by future initiatives is discussed below.65

Judicial and policing co-operation

When applying to re-join many of the measures dealing with judicial and policing co-operation adopted pre-Lisbon, the UK government expressly confirmed that these arrangements were ‘vital’ and in the UK’s national interest.66 A number of Parliamentary enquiries conducted in connection with this decision revealed a general consensus on the part of the various stakeholders consulted that many of the co-operation instruments and the bodies they establish play a key role in UK law enforcement.67

Mutual legal assistance (MLA)

Judicial and law enforcement co-operation traditionally takes place by way of MLA co-operation, consisting of bilateral and multilateral agreements to provide a range of assistance in support of criminal investigations and prosecutions.

The 2000 Convention on Mutual Assistance in Criminal Matters between the member states of the European Union68 and its Protocol is the main mechanism by which mutual legal assistance takes place within the EU today. Further examples of MLA arrangements governed by EU instruments include co-operation between customs authorities,69 policing co-operation through joint investigation teams (JITs)70 and exchanges of policing and law enforcement information.71

Although the UK is not a full Schengen member it has chosen to participate in certain aspects of the Schengen acquis72 – judicial and police co-operation in criminal matters, the fight against drugs and the Schengen Information System (SIS) which enables member states to access and exchange ‘real time’ alerts on missing and wanted persons and property (including European Arrest Warrants).73 The UK has recently (on 13 April 2015) connected to the ‘second generation’ regime, SIS II.74

65 The provisions governing judicial cooperation in criminal matters are set out in Chapter 4 of Title V on the Area of Freedom, Security and Justice, in Part 3 of the TFEU. The provisions on police cooperation are set out in Chapter 5 of the same Title V.

66 HM Government, Command Paper 8671: Decision pursuant to Article 10 of Protocol 36 to the Treaty on the Functioning of the European Union. 67 See the initial report of the joint enquiry conducted by the House of Lords EU Sub-Committee on Home Affairs, Health and Education and the Sub-Committee

on Justice, Institutions and Consumer Protection – European Union Committee, EU police and criminal justice measures: The UK’s 2014 opt-out decision, 13th Report of Session 2012-13, 23 April 2013 (http://www.parliament.uk/documents/The-UKs-2014-Opt-Out-Decision1.pdf)) and subsequent report of the House of Lords European Union Committee – 5th Report of Session 2013-14, Follow-up report on EU police and criminal justice measures: The UK’s 2014 opt-out decision, 31 October 2013 (http://www.parliament.uk/documents/Follow-up-report.pdf). See also the report of the separate enquiry conducted by the House of Commons Home Affairs Committee (Pre-Lisbon Treaty EU police and criminal justice measures: the UK’s opt-in decision, 9th Report of Session 2013-14, 29 October 2013) and the reports produced by the House of Commons European Scrutiny Committee (The 2014 block opt-out: engaging with Parliament, 37th Report of Session 2012-13, 20 March 2013 and The UK’s block-opt out of pre-Lisbon criminal law and policing measures, 21st Report of Session 2013-14, 30 October 2013).

68 Council Act of 29 May 2000 establishing in accordance with Article 34 of the Treaty on European Union the Convention on Mutual Assistance in Criminal Matters between the member states of the European Union (2000/C 197/01) (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32000F0712(02)).

69 Council Act of 18 December 1997 drawing up, on the basis of Article K.3 of the Treaty on European Union, the Convention on mutual assistance and cooperation between customs administrations, OJ C 24, 23 January 1998, p1 (which the UK has re-joined) (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.1998.024.01.0001.01.ENG).

70 Council Framework Decision 2002/465/JHA of 13 June 2002 on joint investigation teams (OJ L 162, 20 June 2002, p1 (which the UK has re-joined) (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2002.162.01.0001.01.ENG).

71 See, eg. Council Framework Decision 2006/960/JHA of 18 December 2006 on simplifying the exchange of information and intelligence between law enforcement authorities of the member states of the European Union (OJ L 386, 29 December 2006, p89 (which the UK has re-joined)).(http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32006F0960).

72 See Council Decision 2000/365/EC of 29 May 2000 concerning the request of the United Kingdom of Great Britain and Northern Ireland to take part in some of the provisions of the Schengen acquis and Council Decision 2004/926/EC of 22 December 2004 on the putting into effect of parts of the Schengen acquis by the UK of Great Britain and Northern Ireland. (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2000.131.01.0043.01.ENG).

73 See Council Decision 2007/533/JHA of 12 June 2007 on the establishment, operation and use of the second generation Schengen Information System (SIS II) and Commission Decision 2007/171/EC of 16 March 2007 laying down the network requirements for the Schengen Information System. (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2007.205.01.0063.01.ENG).

74 See, eg., Home Office, Second generation Schengen Information System: general information, 13 April 2015 (available at https://www.gov.uk/government/publications/second-generation-schengen-information-system-sisii).

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.1998.024.01.0001.01.ENG

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.1998.024.01.0001.01.ENG

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2002.162.01.0001.01.ENG


http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32006F0960

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32006F0960



https://www.gov.uk/government/publications/second-generation-schengen-information-system-sisii

https://www.gov.uk/government/publications/second-generation-schengen-information-system-sisii



The benefit of MLA arrangements being on an EU footing is the opportunity this enables for a greater co-operation than could otherwise be achieved between signatories to an international agreement. As all 28 member states are signatories to the European Convention on Human Rights (ECHR) and subject to the same restrictions and obligations under EU law, arrangements agreed between member states can dispense with some of the reservations traditionally imposed under MLA agreements. Where a member state has not fully or incorrectly implemented an MLA agreement, the Commission or a member state may institute infringement proceedings before the CJEU.75

A related benefit is the EU’s ability to conclude MLA agreements with third countries, such as Japan, the United States, Iceland and Norway. In this way the EU has enabled co-operation between member states and third countries which might otherwise not have entered into MLA agreements with each and every member state on a bilateral basis, or at least not on the same terms.

Mutual recognition

The EU has also developed a unique form of MLA, which seeks to facilitate criminal justice and policing co-operation by way of ‘mutual recognition’ of national judgments and judicial decisions. According to this principle, a member state will treat such judgments and decisions in the same way it would have treated judgments and decisions made by its own national authorities – even if the adoption of such judgments and decisions, and the nature of the authority responsible for taking them, would have been very different in the member state in question. This includes surrender procedures between member states, mutual recognition of financial penalties and confiscation orders; taking account of convictions in member states in the course of new criminal proceedings and many more.

Under the Lisbon Treaty mutual recognition continues to be the cornerstone of EU co-operation in criminal matters. Article 82(1) TFEU sets the following objectives for judicial co-operation in criminal matters:

(1) prevention and settlement of conflicts of jurisdiction between member states

(2) support for the training of the judiciary and judicial staff

(3) facilitation of co-operation between judicial or equivalent authorities in relation to criminal proceedings and the enforcement of decisions.

Article 87(2) TFEU similarly sets objectives for co-operation between police, customs and other specialised law enforcement services:

(1) the collection, storage, processing, analysis and exchange of relevant information

(2) support for the training of staff, and co-operation on the exchange of staff, on equipment and on research into crime-detection

(3) common investigative techniques in relation to the detection of serious forms of organised crime.

EU agencies and bodies

A number of EU agencies and bodies have been created to date in order to facilitate the application in practice of the various co-operation instruments in this field, and to further criminal justice and policing co-operation more generally. In addition to the examples of specific criminal justice and policing agencies and bodies identified below, related agencies and bodies include the European Agency for the Management of Operational Co-operation at the External Borders of the member states of the European Union (Frontex); the European Agency for the Operational Management of Large-Scale IT Systems in the Area of Freedom, Security and Justice; the European Monitoring Centre for Drugs and Drug Addiction, and the European Union Agency for Fundamental Rights.

75 Infringement proceedings are typically based on failures by a member state to notify implementation measures taken, but could also involve inappropriate transposition or a line of incompatible national judgments. See Miettinen, ‘Criminal Law and Policy in the European Union’ (Routledge, Abingdon: 2013), at p.70.


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Eurojust

The European Union’s Judicial Co-operation Unit (Eurojust) was set up in the early 2000s as a body of experienced judges or prosecutors from each member state, whose purpose is to support and strengthen co-ordination and co-operation between national authorities in relation to serious crime affecting two or more member states.76

Examples of the operational support provided by Eurojust include its role in setting up meetings between judicial and police authorities and co-ordination centres to support joint law enforcement action such as synchronised arrests, searches and seizures. Eurojust also supports Joint Investigation Teams (JITs) set up by member states, including by contributing to their funding. Where conflicts of jurisdiction arise between member states, Eurojust has the power to issue recommendations, applying special guidelines developed for this purpose. The number of cases dealt with by Eurojust is increasing year on year.77

The Lisbon Treaty envisages that Eurojust will be strengthened and eventually evolve to form a European Public Prosecutor’s Office (EPPO) (Article 86 TFEU). The UK has not opted in to proposals to this effect, which have been presented by the Commission. The EPPO would have the power to step into the shoes of a national prosecutor and bring proceedings in national courts in respect of offences against the Union’s financial interests (and potentially also other offences considered to be serious and having a cross-border dimension). It is clear that the prospect of the UK ever participating in any EPPO is remote – in accordance with the European Union Act 2011, it would require a referendum and an Act of Parliament.

However, even in the absence of any UK participation, UK citizens may still be exposed to EPPO prosecutions in any participating member state.

Europol

The European Police Office’s (Europol) primary focus is intelligence analysis, to support the operations of national law enforcement agencies in the member states. Europol also participates in JITs and liaises with national authorities in connection with investigations, and may request member states to initiate, conduct or co-ordinate investigations.

The Lisbon Treaty provides for the gradual expansion of Europol’s remit and powers (Article 88 TFEU), and measures to this effect have been proposed by the Commission (to which the UK has not opted in).

CEPOL

The European Police College (CEPOL) was established in 2000 to support and promote criminal justice and policing co-operation by providing training to senior law enforcement officials on the practical aspects of EU law enforcement co-operation.78

CEPOL was relocated to Hungary in 2014, and the UK has not opted in to the current proposals to develop CEPOL’s activities further.

EJN

The European Judicial Network in criminal matters (EJN) consists of national contact points and national correspondents to facilitate judicial co-operation. Initially established in 1998,79 the EJN has developed into an extended group of prosecutors, investigating judges and other persons who deal with all aspects of international co-operation.

OLAF

The European Anti-Fraud Office (OLAF) was established in 1999.80 It is a part of the Commission but has the power to independently conduct investigations into any European institution or body funded by the EU budget as well as external investigations at national level into alleged fraud on the EU budget. It also provides assistance to national investigations in this area.

76 Council Decision 2002/187/JHA of 28 February 2002 setting up Eurojust with a view to reinforcing the fight against serious crime; Council Decision 2003/659/JHA of 18 June 2003 amending Council Decision 2002/187/JHA setting up Eurojust with a view to reinforcing the fight against serious crime; and Council Decision 2009/426/JHA of 16 December 2008 on the strengthening of Eurojust and amending Decision 2002/187/JHA setting up Eurojust with a view to reinforcing the fight against serious crime (all of which the UK has re-joined). (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32002D0187:en:HTML).

77 See the Eurojust Annual Report 2013. Between 2009 and 2013, the number of bilateral cases increased from 1,094 to 1,265 and the number of multilateral cases increased from 278 to 311. Some 102 JITs were supported by Eurojust in 2013 alone; 34 of which received Eurojust funding. (Report available at http://eurojust.europa.eu/press/News/News/Pages/2014/2014-04-04_Eurojust-AR2013.aspx).

78 Council Decisions 2000/566/JHA, 2004/566/JHA, 2004/567/JHA and 2005/681/JHA.79 Joint Action 98/428 JHA of 29 June 1998. See now Council Decision 2008/976/JHA of 16 December 2008 on the European Judicial Network (which the UK has re-

joined). (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2008.348.01.0130.01.ENG).80 Commission Decision 1999/352/EC of 28 April 1999 establishing the European Anti-fraud Office (OLAF) (http://eur-lex.europa.eu/legal-content/EN/

ALL/?uri=CELEX:31999D0352).

http://eurojust.europa.eu/press/News/News/Pages/2014/2014-04-04_Eurojust-AR2013.aspx

http://eurojust.europa.eu/press/News/News/Pages/2014/2014-04-04_Eurojust-AR2013.aspx

http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:31999D0352

http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:31999D0352



Criminal procedure

While the EU institutions and the member states have steered away from the kind of harmonisation which underpins other areas of EU law, tentative steps have nonetheless been taken towards ‘approximating’ certain aspects of criminal procedure.

This can be seen as a necessary by-product of mutual recognition instruments: strengthened procedural protections provide comfort to all member states when asked to recognise judgments and judicial decisions made by authorities in another member state. Minimum standards provide an assurance that all member states adhere to the same basic standards of procedural justice, even where substantial differences exist between criminal justice systems. Criminal procedure measures can therefore be seen to be essential to the continued success of existing and future mutual recognition instruments.

This is the rationale between the so-called ‘Roadmap’ instruments proposed in the Stockholm Programme (setting out the plan for the EU’s activities in criminal justice and policing for the period 2010-2014), which seek to strengthen the procedural safeguards available to suspects and accused persons, witnesses and victims in criminal proceedings:

(1) Directive 2010/46/EU on the right to interpretation and translation in the framework of criminal proceedings (to which the UK opted in)

(2) Directive 2012/13/EU on the right to information in criminal proceedings (to which the UK opted in)

(3) Directive 2012/29/EU on establishing minimum standards on the rights, support and protection of victims of crime (to which the UK opted in)

(4) Directive 2013/48/EU on the right of access to a lawyer in criminal proceedings and in European arrest warrant proceedings, and on the right to have a third party informed upon deprivation of liberty and to communicate with third persons and with consular authorities while deprived of liberty (to which the UK has not opted in)

(5) Proposed Directive on strengthening certain aspects of the presumption of innocence (to which the UK has not opted in)

(6) Proposed Directive on Provisional Legal Aid for Suspects or Accused persons deprived of liberty and legal aid in European Arrest Warrant proceedings (to which the UK has not opted in)

(7) Proposed Directive on procedural safeguards for children suspected or accused in criminal proceedings (to which the UK has not opted in).

Article 82(2) TFEU provides for the adoption of instruments establishing minimum rules in three key areas:

(1) the mutual admissibility of evidence between member states

(2) the rights of individuals in criminal procedure

(3) the rights of victims of crime.

Beyond these specific topics, minimum rules may also be adopted in any other area which has been identified by the Council with the consent of the European Parliament.

Substantive criminal law

The prospect of the EU adopting substantive criminal law is controversial, given that the exercise of criminal jurisdiction is traditionally regarded as a key aspect of national sovereignty. EU action in this area has historically been very limited, and whilst the EU’s criminal law competence has been clarified by the Lisbon Treaty it is likely to be exercised sparingly.81

81 For an early exposition of the Commission’s suggested approach in this area, see: Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Towards an EU Criminal Policy: Ensuring the effective implementation of EU policies through criminal law, COM(2011) 573 final, 20 September 2011(http://ec.europa.eu/justice/criminal/files/act_en.pdf). The Commission suggests that criminal law should always remain a measure of last resort, and should respect fundamental legal principles including, in particular: (1) the general subsidiarity requirement for EU legislation (the EU can only legislate if the goal cannot be reached more effectively by national, regional or local measures and the scale or effects of the proposed measure can be better achieved at EU level); and (2) fundamental rights as guaranteed in the EU Charter of Fundamental Rights as well as in the ECHR.


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Euro crimes

The Lisbon Treaty envisages that the EU will in the future define the scope of, and the penalties applicable to, a limited number of particularly serious crimes with a cross-border dimension (Article 83(1) TFEU), popularly referred to as ‘Euro crimes’:

(1) Terrorism

(2) Trafficking in human beings and sexual exploitation of women and children

(3) Illicit drug trafficking

(4) Illicit arms trafficking

(5) Money laundering

(6) Corruption

(7) Counterfeiting of means of payment

(8) Computer crime

(9) Organised crime.

This list of offences may in the future be expanded by the Council, with the consent of the European Parliament.

Enforcement of EU policy

The Lisbon Treaty also provides for more general approximation of criminal laws and regulations, where this is considered essential to ensure the effective implementation of a Union policy in an area which has been subject to harmonisation measures (Article 83(2) TFEU): ie in order to strengthen the enforcement of another area of EU law where there is an identified ‘enforcement deficit’. To date the EU has adopted only a very limited number of such instruments – including Directive 2008/99/EC on the protection of the environment through criminal law, and Directive 2014/57/EU on criminal sanctions for market abuse (to which the UK has not opted in).

Jurisdiction of the Court of Justice of the European Union (CJEU)

It remains to be seen whether the CJEU will seek to promote integration in the area of criminal justice and policing, in the same way as it has sought to do so in other areas of EU competence. Prior to the adoption of the Lisbon Treaty, the jurisdiction of the CJEU in criminal justice and policing matters was optional; the UK was one of a number of member states which had not submitted to its jurisdiction. As of 1 December 2014, the CJEU has competence to rule on any criminal justice and policing measures adopted following the entry into force of the Lisbon Treaty and in addition on all pre-Lisbon measures which the UK has re-joined.

The CJEU cannot review the validity or proportionality of operations carried out by the police or other law enforcement services of a member state, or the exercise by member states of their responsibilities for the maintenance of law and order and the safeguarding of internal security.82

As a result, the frequency of CJEU rulings on the proper interpretation and application of measures relating to criminal justice and policing is likely to increase. With all member states subject to CJEU jurisdiction in this area there is now also a greater prospect of infringement proceedings being brought against a member state for not fulfilling its obligations under EU law.

CJEU judgments in this area have not, to date, proved problematic for the UK. Only a relatively small number of cases have been referred for preliminary rulings, and the resulting clarification of the law has not been considered unhelpful. Cases decided to date suggest that the CJEU is respectful of the criminal justice systems of the member states.83

82 Article 276 TFEU.83 Magatte Gueye (C-483/09); Valentín Salmerón Sánchez (C-1/10); X (C-507/10);

and Maurizio Giovanardi and Others (C-79/11).



Consequences of the UK leaving the EU

The potential implications for criminal justice and policing of the UK leaving the EU have, to a limited extent, already been rehearsed in connection with the UK’s exercise of its opt out from pre-Lisbon criminal justice and policing measures in accordance with Protocol 36 to the TFEU.

For example, concerns identified by the House of Lords European Union Committee included that withdrawal from these measures would result in the UK having to rely on less effective means of co-operation and that it would lose influence over existing and future EU policies and agencies. The Committee found that, while it would be theoretically possible for the UK to continue co-operating with other member states through alternative arrangements, these raised legal complications and would result in more cumbersome, expensive and less effective procedures – thereby weakening the hand of UK authorities. As the negotiation of new arrangements would be a time-consuming and uncertain process, the Committee concluded that the most effective way for the UK to co-operate with member states was to remain engaged in the existing EU measures.84 These arguments would be largely the same in the context of a UK exit from the EU, but with considerable added complexity.

Extent of current third country participation in EU criminal justice and policing

There is already a degree of third country participation in EU criminal justice and policing measures, notably by Norway and Iceland as well as by Liechtenstein and Switzerland. For example, third country association with the Schengen acquis is provided for connection with the EEA Agreement for Iceland, Norway and Liechtenstein85 and in connection with the Agreement on the free movement of persons with Switzerland.86

Third country participation in other aspects of EU criminal justice and policing similarly takes place by way of bilateral agreements, including with the USA.

Operational and strategic agreements have also been entered into by certain EU agencies and bodies with third countries on a bilateral basis; notably Eurojust and Europol.

In addition, the EU is itself a signatory to the UN Palermo Convention on transnational organised crime, and several of its protocols. The UK, as a signatory to the same instruments, could therefore continue to engage in judicial co-operation in criminal matters with the EU and other member states who are signatories within the framework of these agreements and any other multilateral conventions to which member states are signatories.

It would be possible for the UK, to seek to replicate existing co-operation arrangements and other aspects of the EU criminal justice and policing measures currently in force by way of bilateral and multilateral agreements with the EU, in accordance with the provisions in Articles 82(1) and 218(6) TFEU. However, such ‘replacement’ mechanisms would not confer the same benefits as EU measures. Notably:

• the terms would be subject to negotiation, and there would be no guarantee that all aspects of the existing measures would be replicated in the same terms. The UK might find itself without any voting rights in the negotiation of new EU rules, and only a limited ability to suggest areas and topics for further EU action in the area. In such circumstances there would be a risk that the UK might be politically unable to refuse any future amendments to the rules of such parallel or association agreements, short of abandoning the agreement entirely. This is the conclusion reached by one commentator who suggests, based on the experiences of Denmark and Norway, that a third country which wishes to participate in certain aspects of EU criminal justice and policing co-operation may find it difficult, and not always possible, to secure bilateral agreements.87

As a result, ‘…the difference between full EU membership and associated membership is not as decisive as one might otherwise think (…) Europeanisation may be just as strong for a non-EU member as a regular member.’88

84 EU police and criminal justice measures: The UK’s 2014 opt-out decision, 13th Report of Session 2012-13, 23 April 2013 (http://www.parliament.uk/documents/The-UKs-2014-Opt-Out-Decision1.pdf).

85 See Council Decision 1999/439/EC of 17 May 1999 on the conclusion of the Agreement with the Republic of Iceland and the Kingdom of Norway concerning the association of those two States with the implementation, application and development of the Schengen acquis (http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:31999D0439), and Council Decision 2011/842/EU of 13 December 2011 on the full application of the provisions of the Schengen acquis in the Principality of Liechtenstein (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32011D0842).

86 See the Agreement between the European Union, the European Community and the Swiss Confederation on the Swiss Confederation’s association with the implementation, application and development of the Schengen acquis, 27 February 2008, and Council Decision 2008/903/EC of 27 November 2008 on the full application of the provisions of the Schengen acquis in the Swiss Confederation (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32008D0903).

87 Adler-Nissen, Through the EU’s front and back doors: the selective Danish and Norwegian approaches in the Area of Freedom, Security and Justice, in Howard Grøn, Nedergaard and Wivel (eds.), ‘The Nordic Countries and the European Union: Still the other European community?’ (Routledge, Abingdon: 2015), at p.200 (‘Adopting a selective approach to the EU in AFSJ has a price, and that price is influence’).

88 Ibid., at p.201.

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• the conditions imposed on the UK in connection with such agreements could potentially result in less protection for the UK than that currently available under Protocols 19 and 21 to the TFEU (discussed above). For example, the Schengen Agreement between the EU, Iceland and Norway requires the third countries to apply the Schengen acquis in its entirety.89

• unless the UK negotiates a third country agreement with the EU, which includes provisions to this effect, the CJEU would not have jurisdiction to consider the interpretation and application of the arrangements, and the UK could not take enforcement action (by way of infringement proceedings). The support provided by EU bodies and agencies would not be available.

• any delay in negotiating replacement bilateral treaties could raise concerns about gaps for dealing with terrorism and organised crime.

A more general disadvantage would be the loss of the UK’s influence over the future development of EU measures in this area.

Despite the UK’s non-participation in drawing up future EU agreements, UK nationals and residents and legal entities incorporated in the UK would still be affected by them to the extent that they are caught up in, or otherwise affected by, criminal investigations and prosecutions in other member states.

Even in the absence of any formal participation by the UK in EU criminal justice and policing measures, national laws in the UK might nevertheless be influenced by EU law in this area. For example, the Danish and Norwegian governments have effectively kept their legislation consistent with EU legislation in many aspects of security and justice, notwithstanding their respective decisions to remain formally outside. A specific example cited is a decision by Norway to strengthen certain aspects of its penal law on the basis that it would send the ‘wrong signals’ if Norway were seen to be less strict than member states about terrorism and organised crime.90

89 Norway and Iceland are obliged to comply with the Council’s decisions and measures in the areas covered by the agreement, and if they refuse to do so the agreement can be terminated. The agreement also requires, as a precondition, the third country to agree to the free movement of persons between the third country and the EU.

90 Ibid., at p.196.



Prior to the Treaty of Amsterdam, legislation regulating employment law was adopted using legal bases on health and safety at work and completing the internal market. This was the case for example for the first labour law directives adopted in the 1970s on collective redundancies, transfers of undertakings and insolvency.

As a result of the incorporation of the Social Chapter into TEU by the Treaty of Amsterdam, the primary legal base for adopting employment legislation became a social policy legal base.

The Lisbon Treaty saw the incorporation of the Charter of Fundamental Rights into the primary law of the EU. The Charter’s provisions cover human dignity, basic freedoms, equality, solidarity, citizens’ rights and justice. A number of these provisions are of direct relevance to labour law and working conditions.

EU Employment law can be divided into three broad categories: employment and labour laws (parental leave, agency workers), health and safety at work, and non-discrimination and equality. Provisions have been made for the possibility of enacting legislation based on ‘social protection’, but this power has not been used to date.

In the UK, there have been controversies around EU legislation in the field of employment law, both in terms of EU competence and outcomes. Some argue that social and employment legislation should not be within the competence of the EU. Others argue that there is a clear and direct link between the internal market and social and employment legislation; by setting minimum requirements, the EU ensures that businesses in the internal market compete within the same basic framework.

Employment law

Main EU employment law instruments

The Working Time Directive91 – The Working Time Directive is one of the most controversial pieces of EU social and employment legislation. It contains restrictions on night work, requirements for regular rest breaks and the right to four weeks’ paid annual leave. It also introduced the requirement for a maximum working week of 48 hours, although this can be opted out of following agreement between employers and employees. The UK has an opt-out for various elements of the Directive, but there are concerns that these opt-out provisions could be threatened in future reforms from the EU.

The Temporary Agency Workers Directive92 – The Temporary Agency Workers Directive (TAWD) was implemented in the UK by the Agency Workers Regulations (AWR), and gives agency workers the same basic working and employment conditions as directly recruited workers after a specific period of time (12 weeks). The UK also has some opt-outs under this Regulation.

Acquired Rights Directive

The UK’s TUPE (Transfer of Undertaking (Protection of Employment)) regulations 2006 give effect to the Acquired Rights Directive.93 The TUPE provisions cover employees’ rights when their employer changes as a result of a sale or take-over, ensuring that employees keep the same terms and conditions of employment.

Other EU employment law legislation

EU Directives and Regulations also provide minimum standards and rights in relation to other aspects of employment, which similarly are given effect through domestic legislation, for example, the Part Time Employees (Prevention of less Favourable Treatment) Regulations 2000 or the Fixed Term Employees (Prevention of Less Favourable Treatment) Regulations 2002.

91 Directive 2003/88/EC of the European Parliament and of the Council of 4 November 2003 concerning certain aspects of the organisation of working time (http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32003L0088).

92 Directive 2008/104/EC of the European Parliament and of the Council of 19 November 2008 on temporary agency work (http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32008L0104).

93 Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the member states relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32001L0023).

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Other EU instruments include: the Pregnant Workers’ Directive;94 the Parental Leave Directive;95 Health and Safety of Atypical Workers Directive; the Health and Safety Framework Directive;96 the Directive on minimum safety and health requirements;97 the Directive on collective redundancies;98 and the Directive on informing and consulting employees.99

Effect on UK employment law

The impact of EU social and employment legislation on the UK is both controversial and complex. Questions arise on the matter of competence, proportionality, and culture.

The EU has imposed certain requirements on UK businesses through its social and employment legislation. These requirements can either be viewed as imposing an additional layer of requirements (‘red tape’), or as guaranteeing health and safety for employees in the workplace, depending on one’s point of view. Similarly, questions of culture often arise. The UK tends to focus on the individual relationship between employee and employer in the agreement of terms and conditions, while other EU countries have a culture of ‘collective agreement’ between representatives of employers and employees.

It is also unclear whether social and employment legislation from the EU has created costs for UK businesses through restrictive legislation, or reduced the costs of doing business by harmonising the internal market. There are no reliable figures detailing the cost and benefits of EU legislation to UK businesses.

This is partly because the UK had high standards of health and safety legislation prior to EU legislation, and partly because it is impossible to know what legislation the UK would have adopted had it not been in the EU. For example, the UK government extended the annual leave allowance in 2007 and 2009, independently of EU action.

Without clear evidence indicating an increased cost to businesses, or clear benefits due to harmonisation and the internal market, it is difficult to make a judgement on the effectiveness of the EU’s employment and social legislation that is not, at heart, political.

Scenarios

Should the UK leave the EU, what would happen to the EU-derived employment law on issues such as discrimination rights, holiday entitlement, duties to agency workers, data protection obligations, work councils and parental leave?

The only certainty is that reaching consensus would create a short-term work stream for solicitors as employers and employees try to understand the implications of this new legislative framework.

94 Council Directive 92/85/EEC of 19 October 1992 on the introduction of measures to encourage improvements in the safety and health at work of pregnant workers and workers who have recently given birth or are breastfeeding (tenth individual Directive within the meaning of Article 16 (1) of Directive 89/391/EEC) (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:31992L0085).

95 Council Directive 2010/18/EU of 8 March 2010 implementing the revised Framework Agreement on parental leave concluded by BUSINESSEUROPE, UEAPME, CEEP and ETUC and repealing Directive 96/34/E (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32010L0018).

96 Council Directive 89/391/EEC of 12 June 1989 on the introduction of measures to encourage improvements in the safety and health of workers at work (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:31989L0391).

97 Council Directive 89/654/EEC of 30 November 1989 concerning the minimum safety and health requirements for the workplace (first individual directive within the meaning of Article 16 (1) of Directive 89/391/EEC) (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:31989L0654).

98 Council Directive 98/59/EC of 20 July 1998 on the approximation of the laws of the member states relating to collective redundancies (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:31998L0059).

99 Directive 2002/14/EC of the European Parliament and of the Council of 11 March 2002 establishing a general framework for informing and consulting employees in the European Community – Joint declaration of the European Parliament, the Council and the Commission on employee representation (http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32002L0014).

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Renegotiation

Recent government reviews such as the Balance of Competences review and the TUPE consultation have concluded that EU legislation in this field is broadly beneficial for businesses and employees.

Reducing red tape was one area mentioned by the Prime Minister in the Bloomberg speech as being ripe for renegotiation. Some of this renegotiation could include consolidating existing opt-outs, especially in regard to the WTD. Other renegotiation could include further opting out from certain directives.

Nonetheless, this is a careful balancing act: ‘red tape’ is, for the most part, the flipside of a single harmonised market. Historically, governments of all parties have supported the rights of the Commission and Court to enforce fair rules, because an efficient, harmonised single market is in the best interest of UK businesses.

Nonetheless, this could be an area where the UK could potentially secure some additional opt-outs in specific areas without it requiring treaty change, as long as such opt-outs were not perceived as impinging upon the proper functioning of the internal market.

EEA/EFTA

In practice, the EEA/EFTA states are obliged to accept the majority of EU regulations without being able to influence the EU decision-making process. They are bound by most EU social and employment policy. The EEA agreement incorporates the Equal Treatment Directive, the Collective Redundancies Directive, the Part-time Workers Directive, the Posted Workers Directive, the Parental Leave Directive, the European Works Councils Directive, the ARD, the Working Time Directive and the Agency Workers Directive, among others.

The influence of the CJEU would still be felt because the EFTA Court, which interprets the EEA rules, is obliged to follow CJEU case law.

Under this model, the UK would have no say in negotiations on EU employment legislation, and might even have fewer opt-outs.

WTO

Theoretically, the UK would be free to repeal as many EU legislative acts as it would wish. However, to trade with the EU, the UK would need to reach an agreement with the EU. Such an agreement would require a degree of legal convergence as it is unlikely that the EU would allow the UK to enter a trade deal if it benefited from a competitive advantage due to ‘social dumping’.


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Environmental law often addresses issues which, by their very nature, transcend political borders and are therefore often most effectively dealt with by co-operation with a specific group of affected countries or at the highest international level. Many environmental commitments are sought under multi-national agreements, such as the Kyoto Protocol.

The EU member states work together via the EU institutions to ensure that international obligations are interpreted and implemented consistently throughout the EU. Implementation of the Kyoto Protocol by the EU has allowed the member states to share the reductions targets over a wider geographical area, balancing them to take account of the strengths of individual countries.

Within the EU itself, environmental problems may arise in a particular region or geographical location. Many are therefore better dealt with at a European or regional level (for example pollution in the North Sea or Mediterranean) rather than a national level. Similarly, a problem may be generated in one country but the effects will be felt on the other side of the border – for example pollution of a river in one member state which then flows into a neighbouring territory. Wherever there is a cross-border problem, the EU works to provide a cross-border solution.

A further justification for EU action in this sphere lies in ensuring the smooth functioning of the internal market. A consistent EU approach to environmental standards avoids a situation whereby operators could gain a competitive advantage by basing themselves in a jurisdiction with less stringent environmental requirements. Accordingly, environmental issues were a key consideration in the creation of an Energy Union within the internal market.

Environmental law

Policy considerations come into play when assessing whether EU environmental laws achieve the correct balance between protecting the environment on the one hand and regulating businesses without imposing unnecessary burdens.

Current legislation

The EU has legislation in place to prevent environmental harm and combat pollution, to safeguard the natural world and to protect the health of EU citizens. Examples include:

• the Environmental Impact Assessment (EIA) Directive100

• the Directive on industrial emissions101

• the Directive on the conservation of natural habitats and of wild fauna and flora,102 which provides for protected nature sites and a system of species protection.

One of the EU’s major projects to tackle climate change has been the introduction of the Emissions Trading Scheme (ETS), put in place in 2003 to tackle the high quantity of greenhouse gases being generated across the EU. The ETS now comes under the 2030 Framework for Climate Change and Energy policies agreed by the EU Council in October 2014 when it endorsed a proposal to set a binding EU target of at least 40 per cent less greenhouse gas emissions by 2030, compared to 1990. The Commission Roadmap for the Energy Union103 indicates that the Commission plans to adopt a legislative proposal to revise the ETS for 2021 - 2030 at some point in 2015.

The Strategic Environmental Assessment Directive104 and Environmental Impact Assessment (EIA) Directive make provision for carrying out risk assessments on the basis of scientific evidence. These evaluations are then used to formulate policy and inform decisions to achieve the minimisation of environmental harm. REACH105 and the CLP Regulation106 are based on assessment of risk and scientific evidence.

100 Environmental Impact Assessment – Directive 85/337/EEC on the Assessment of Effects of Certain Public and Private Projects on the Environment Directive [1985] OJ L175/40. The EIA has recently been revised and must be transposed by member states by 16 May 2017: http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2014:124:FULL&from=EN.

101 Directive 2009/31/EC of the European Parliament and of the Council of 23 April 2009 on the geological storage of carbon dioxide and amending Council Directive 85/337/EEC, European Parliament and Council Directives 2000/60/EC, 2001/80/EC, 2004/35/EC, 2006/12/EC, 2008/1/EC and Regulation (EC) No 1013/2006 (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32009L0031).

102 Council Directive 92/43/EEC of 21 May 1992 on the conservation of natural habitats and of wild fauna and flora (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:31992L0043).

103 COM(2015)80 final, Annex I.104 Strategic Environmental Assessment Directive – Directive 2001/42/EC on the assessment of the effects of certain plans and programmes on the environment OJ L

197/30.105 Registration, Evaluation, Authorisation and Restriction of Chemical Substances – Regulation 1907/2006 concerning the Registration, Evaluation, Authorisation and

Restriction of Chemicals [2006] OJL 396/1.106 Classification, Labelling and Packaging Regulation – Regulation 1272/2008 on classification, labelling and packaging of substances and mixtures [2008] OJ L 353/1.

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Some of the existing directives could be reviewed or revised to provide further clarification or bring them up to date, for example the directives concerning the conservation of wild birds and conservation of habitats.107

The EU offers an effective enforcement mechanism as it has the practical ability to impose effective sanctions for non-compliance. This applies not only to EU specific measures but also where the EU has taken on the responsibility for implementation of international obligations.108

If the UK were to leave the EU

In so far as environmental legislation is linked to the functioning of the internal market, the UK would be bound to comply with the EU rules as a condition of market access. Most EU environmental laws come under this heading and are applied across the EEA.

In part, current EU legislation on environmental law implements the terms of international agreements. The UK would therefore continue to be bound by those obligations, regardless of whether or not it remains a member of the EU.

107 Directive 79/409/EEC on the Conservation of Wild Birds [1979] OJ L103/1; Directive 92/43/EEC on the Conservation of Natural Habitats and of wild flora and fauna Directive [1992] OJ L206/7.

108 For example in February 2005, the UK ratified the pan-European UNECE Convention on access to environmental information, public participation in decision-making and access to justice in environmental matters (the Aarhus Convention 1998). Since then, the UK has repeatedly been found in non-compliance with the Convention in relation to the question of prohibitive costs in environmental legal proceedings; something contrary to the Convention.


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Article 19 TFEU provides the treaty basis for legislation to ‘take appropriate action to combat discrimination based on sex, racial or ethnic origin, religion or belief, disability, age or sexual orientation’.

Equality between men and women underpins a number of EU initiatives. Ensuring equal pay on the basis of the underlying economic rationale has long featured in EU initiatives109 and action has also been taken, for example in relation to parental leave. The rationale was originally economic but over the last four decades equality has developed into a more fundamental concept, embracing the social dimension. The most recent directive is the 2006 Directive on equal treatment in matters of employment and occupation.110 At Treaty level the principle of equal pay is enshrined in Article 157 TFEU111 and is directly applicable in its own right although it is supplemented by directives.

EU action on gender equality usually applies in the sphere of employment but there is also a specific protection aimed at ensuring equal treatment between men and women in relation to access to and supply of goods and services.112

Equality law

The EU has also taken action to combat other types of discrimination, for example the Equal Treatment Directive of November 2000113 extends the general framework for equal treatment as regards to access to employment or occupation to other grounds, such as religion or belief, disability, race, age or sexual orientation. Furthermore, the Directive on race equality114 ‘puts into effect in the member states the principle of equal treatment’.115 This prohibits discrimination on the grounds of race or ethnic origin and applies in specific contexts including employment, social protection, education and access to and supply of goods and services which are available to the public. It is important to note that this is separate from measures which might be challenged as discriminating against citizens of other member states under the free movement rules.

109 It dates back to the Treaty of Rome.110 Directive 2006/54/EC of the European Parliament and of the Council of 5 July 2006 on the implementation of the principle of equal opportunities and equal

treatment of men and women in matters of employment and occupation (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32006L0054).111 Full text of Article available at https://europadatenbank.iaaeu.de/user/view_legalact.php?id=16.112 Council Directive 2004/113/EC of 13 December 2004 implementing the principle of equal treatment between men and women in the access to and supply of goods

and services (http://eur-lex.europa.eu/legal-content/en/ALL/?uri=CELEX:32004L0113).113 Council Directive 2000/78/EC of 27 November 2000 establishing a general framework for equal treatment in employment and occupation (http://eur-lex.europa.eu/

LexUriServ/LexUriServ.do?uri=CELEX:32000L0078:en:HTML).114 Council Directive 2000/43/EC of 29 June 2000 implementing the principle of equal treatment between persons irrespective of racial or ethnic origin (http://eur-lex.

europa.eu/legal-content/en/TXT/?uri=CELEX:32000L0043).115 See Article 1.

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Although national family law remains the sole competence of member states, the EU has adopted a number of measures concerning civil judicial co-operation in cross-border family cases.

These measures include rules on jurisdiction, recognition and enforcement of judgments in matrimonial matters and matters of parental responsibility; the reciprocal enforcement of maintenance decisions; and measures to support the return, under the 1980 Hague Child Abduction Convention, of a child who has been abducted from their country of habitual residence.

As more relationships are formed where one or both parties are from other EU states, the potential for lawyers to be required to advise, and the courts to rule, on family law cases with an EU dimension has inevitably increased.116

Main EU family law instruments

Brussels IIa

The most significant piece of EU legislation in family law is Regulation 2201/2003 (known as ‘Brussels IIa’) which established rules for determining jurisdiction over ‘matrimonial proceedings’, principally divorce. It also provides for mutual recognition and enforcement of judgments relating to parental responsibility.

Brussels IIa and the Hague Conventions

Brussels IIa also provides rules on the return of children abducted to, or wrongfully retained in, other member states. These rules supplement the 1980 Hague Child Abduction Convention (to which EU member states are also parties) which provides a mechanism for the return of children wrongfully removed or wrongfully retained away from their country of habitual residence, usually by one parent.

Brussels IIa also contains similar, but not identical, provisions to the 1996 Hague Child Protection Convention, which deals with a wide range of child protection measures from recognition and enforcement of orders concerning parental responsibility and contact, to public measures of protection or care between contracting states.

Family law

Maintenance Regulation

Regulation 4/2009 (known as the ‘Maintenance Regulation’) provides rules for determining which country’s court has jurisdiction in maintenance disputes, for determining which law will be applied, and for the recognition and enforcement of maintenance decisions from other member states.

Other EU family law instruments

Mutual recognition of protection measures

Someone who is at risk of domestic violence or harassment may apply for an order in one member state and have its terms recognised and, if necessary, enforced in any other participating member state.

Legal Aid Directive

This Directive seeks to improve access to justice by establishing common minimum standards for the grant of legal aid in cross-border disputes.

Effect on UK Family Law

Cross-border disputes in family matters are not new. Historically, the UK has addressed these issues through bilateral and multilateral conventions such as the Hague Convention. The EU measures adopted by the UK are generally regarded as providing greater certainty on dispute outcomes.

The current provisions of Brussels IIa present some problems in so far as they make provision for the court where proceedings are first issued to be the court of jurisdiction, arguably encouraging a race to court in the search for a perceived favourable jurisdiction.

Nonetheless, because of the extent to which EU law has permeated English family law, every divorce petition is founded on the jurisdictional requirements of the Brussels II Revised Regulation. Similarly, virtually every application for financial remedies is founded on the jurisdictional requirements of the Maintenance Regulation. The provisions of Brussels IIa are relevant to many aspects of both private and public children law.

116 In 2013 Poland was the most common country of birth for non-UK born mothers and the second most common country of birth for non-UK born fathers. ONS Births in England and Wales by Parents’ Country of Birth, 2013.


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EFTA/EEA

EEA members are part of the Lugano Convention, which mirrors the Brussels IIa regulation. Should the UK leave the EU and join the EEA, it would in all likelihood decide to join the Lugano convention, and therefore be under a regime similar to Brussels IIa. The EEA countries have no say on the specific provisions of Brussels IIa.

WTO

The UK would remain a party to the Hague Conventions, but it might be difficult to achieve the same level of co-operation on jurisdiction and enforcement which exists at EU level. Bilateral agreements with non-Hague countries are therefore seen as less effective in cases affecting children.

Children orders under Brussels IIa include private law matters such as residence, contact, guardianship and parental responsibility, as well as public law care proceedings and international foster care. Brussels IIa addresses which court should have jurisdiction in relation to these matters, with a general priority given to the child’s place of habitual residence. There are also provisions for a case to be transferred to a different forum if that is in the child’s best interests. These provisions would be lost should the UK leave the EU.

The UK could potentially create a series of bi-lateral agreements with other countries, which would mirror the existing provisions in current EU legislation. That would be time consuming and circumstantial, but it could be achieved, although probably not without disruption at a time when the Family Court is under significant pressure.



A significant portion of EU legislation is directed toward the creation of a single market for financial services with regulation directed towards consumer protection and ensuring financial stability. A large volume of EU legislation deals with the provision of financial services and aspects of financial institutions. It covers a host of institutions, products and activities from banks, insurers and pension funds to securities, investment products, payment systems and capital requirements with further legislation surrounding the individuals who provide those services, such as fund managers.

Some of the main features of the current framework are explored below.

ESAs and the Single Rulebook

The European Supervisory Authorities (ESAs) were created by the Lisbon Treaty and came into being in January 2011. There are three Authorities:

• the European Banking Authority (EBA)

• the European Securities and Markets Authority (ESMA)

• the European Insurance and Occupation Pensions Authority (EIOPA).

The ESAs are responsible for the creation and maintenance of a ‘Single Rulebook’ intended to facilitate the free movement of financial services throughout the internal market by reducing the complexity which resulted from different regulatory systems.

The ESAs are still very new and have not yet fully developed supervisory capacity in their relevant spheres. A common supervisory system can be helpful in assessing the relative strengths of cross-border banks and other financial institutions. While it may therefore be sensible to agree broad policy lines and organise co-ordination at an EU level, regulation will often be best enforced by the member states themselves.

Financial services

Banking Union

A significant amount of legislation was pushed through in the wake of the 2008 financial crisis which was geared towards creating a more stable financial sector through increasing prudential requirements, improving investor protection and introducing new rules for the management of failing banks. One of the most important measures was the introduction of a single rulebook.

As problems persisted it was decided that a Single Supervisory Mechanism (SSM) and Single Resolution Mechanism (SRM) should be drawn up for failing banks within the eurozone. Although the Banking Union was conceived for, and applies to, the eurozone, non-eurozone countries can also join.

The SSM operates on the basis of a double majority voting system. This means that the vote is divided into eurozone and non-eurozone countries. Each group must approve a proposal if it is to move forward. This is intended to avoid a situation in which eurozone countries would be able to force through a policy to the detriment of those who have retained their national currencies.

Passporting

One of the key features of the internal market is the financial services passport. This allows financial institutions legally established in one member state to establish or set up branches in other member states. It also means institutions can provide services or offer financial products regulated at an EU level throughout the EU without requiring going through separate full authorisation procedures in each member state where they wish to do business. The introduction of the passport was a major step towards creating a single market for financial services and facilitating cross-border business.

Passporting is an efficient way of making sure that entities which are regulated in accordance with harmonised standards are able to expand across borders as they need only comply with a single set of rules – for example the conduct of business rules and organisation requirements contained in MiFID117 and in CRD IV.118 In these cases, the host regulator defers to the home regulator in the event that regulatory issues arise. The passport may attach to a particular role or function eg the role of ‘manager’

117 Markets in Financial Instruments Directive – Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32004L0039) as amended by MiFID II, the second Markets in Financial Instruments Directive – Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU Text with EEA relevance (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2014.173.01.0349.01.ENG).

118 The Fourth Capital Requirements Directive – Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC Text with EEA relevance (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32013L0036).


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119 Alternative Investment Fund Managers Directive – Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 Text with EEA relevance (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32011L0061).

120 Undertakings for Collective Investment in Transferable Securities.121 The most recent directive (commonly referred to as UCITS V) is Directive 2014/91/EU of the European Parliament and of the Council of 23 July 2014 amending

Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards depositary functions, remuneration policies and sanctions Text with EEA relevance (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32014L0091).

as recognised in the AIFMD.119 Finally the passport may attach to the product itself, as in the case of UCITS120 funds which are governed by the UCITS directives.121 This passporting ability is underpinned by harmonisation of basic minimum standards to protect consumers and avoid regulatory or supervisory arbitrage which would distort the market.

Implementation of international standards

Some legislative initiatives carried out by the EU emanate from other international organisations and groupings such as the Financial Stability Board (FSB) and G20. Such agreements are intended to standardise regulatory systems at a global level. The Basel III capital requirements which resulted in CRD IV are a good example of this. The UK would be bound to implement these changes as part of its international obligation in any case but action at an EU level can help to further consistency within the internal market. It has also been suggested that acting in concert with the other member states may mean international counterparts are less likely to question the UK’s approach to implementation. Any EU action will draw together knowledge and practices from multiple jurisdictions, each with their own regulators and industry experts. The collaborative approach is therefore likely to be persuasive.

The wider world

The UK may benefit from membership of the EU at any time in international negotiations where the combined negotiating power of the EU would be much stronger than the UK’s alone – for example, when the EU member states are negotiating international regulatory agreements. The combined power of the EU is likely to prove more effective in influencing the negotiations than any single state operating alone, although there can be concerns that the interests of particular member states might not be taken adequately into account. Remaining in a regulatory context, the UK can draw on its extensive regulatory experience to ensure that standards agreed at the international level offer the correct level of regulation.

Looking to the future

Financial services are increasingly global in nature, so harmonisation requires action at a global level. The EU is a key actor in the international organisations that develop and implement these rules and regulations.

At an EU level, the focus of action has shifted from an effort to harmonise and open financial markets, pre-financial crisis, to one that prioritises financial stability and the safety and soundness of banks and consumer protection following the financial crisis.

The eurozone

This is further complicated by the existence of the eurozone. The creation of a banking union will necessitate a ‘variable geometry’ approach that works for both eurozone and non-Euro members. While no-one can know what the impact of the banking union will be, it is likely to pose a number of challenges to the UK’s interest in maintaining a central influence in an internationally competitive financial market.

There has been some debate about the potential for eurozone member states to ‘club together’ as a result of the increasing political and economic integration stemming from a shared currency. The experience of the SSM (see page 56) indicates that it is possible to ensure that appropriate safeguards are put in place to avoid a negative impact on non-eurozone countries.

A further example of the UK successfully preventing an unfavourable legislative provision can be seen from the proposed prohibition on regulated clearing houses for euro-denominated financial products being located outside the eurozone. This was suggested by the European Central Bank and had initial support from the Commission. However, the UK government opposed the idea, challenging its legality in the CJEU. The proposal was not included in the final legislation.

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32014L0091

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32014L0091



EEA/EFTA

As part of a EEA/EFTA State, UK businesses would have access to the internal market for financial services but would be bound by all the EU legislation in this field. They would therefore continue to benefit from passporting rights and the free movement of capital. However, the UK would not have a say in setting those rules and would therefore be less able to influence EU legislation in a direction which followed action already taken by the UK.

WTO

If access were on the basis of WTO membership only, then these rights could be taken away. Although steps are currently being taken to improve access for third countries in at least some areas of financial services, concerns have also been raised that this might change if the UK were to leave as the UK has been one of the key advocates of unilaterally opening the EU market in this way.

The UK has, however, only very rarely been overridden in the Council in relation to financial services legislation.122 This would suggest that the vast bulk of EU measures in this area are therefore acceptable to the UK. Indeed, a number of EU legislative initiatives closely correlate to systems which were already in place in the UK before EU action was taken. Recent examples of this include MiFID and the Market Abuse Directive (MAD),123 aspects of which follow existing UK legislation124 and also the Rescue and Recovery Directive which replicates elements of the Banking Act 2009.

The existence of a single market for financial services as a whole appears to be of benefit to UK businesses and the UK economy. Although specific pieces of legislation might benefit from reform, and inconsistencies are identified from time to time, broadly speaking the legislation works well. The internal market rules facilitate competition, including in relation to financial services. This enables the UK to derive significant benefits from its strong position in this area.

122 The only incidence of which the Society is aware is the recent proposal to limit bankers’ bonuses.123 The Market Abuse Directive has recently been amended by MAD II – Directive 2014/57/EU of the European Parliament and of the Council of 16 April 2014 on

criminal sanctions for market abuse (market abuse directive) (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32014L0057).124 See A legal assessment of the UK’s relationship with the EU: a financial services perspective pages 59-60 (available at http://www.cliffordchance.com/

briefings/2014/04/a_legal_assessmentoftheuksrelationshipwit.html).




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125 The EU is committed to accession as a matter of law, but in December 2014 the CJEU delivered a ruling which appears to have stalled the accession process, at least for the time being.

126 See http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:12012P/TXT127 See House of Commons Library Standard Note SN/IA/6577 Is adherence to the European Convention on Human Rights a condition of European Membership?

25 March 2014 for further discussion of the differences of opinion between experts .

The EU and the European Convention on Human Rights (ECHR)

The EU is not a party to the Convention125 and it has no role in the administration of the European Court of Human Rights (ECtHR). The EU’s institutions are not directly bound by judgments of the ECtHR, but the CJEU applies the Convention and Strasbourg case law as general principles of EU law.

Human and fundamental rights

As ECHR standards are general principles of EU law, they come within the jurisdiction of the CJEU, not the ECtHR. The rights secured by the Convention are also among the rights guaranteed by the Charter of Fundamental Rights of the European Union.126

The Charter sets out the full range of civil, political, economic and social rights of European citizens and all persons resident in the EU. The rights are based on the fundamental rights and freedoms recognised by the Convention, and other international conventions to which the EU or its member states are party. The European Union Agency for Fundamental Rights based in Vienna provides EU institutions and member states with advice on compliance with the Charter.

Consequences of the UK leaving the EU

The Convention predates the EU and the UK’s international treaty obligations arising under the Convention would still apply should the UK leave the EU. Leaving the EU would have no direct bearing on the UK’s Convention obligations, on the application of the Human Rights Act or on the UK courts’ relationship with the ECtHR.

Withdrawal from the Convention and EU membership

The government contemplated a UK withdrawal from the Convention in 2013.

This raised the question of whether withdrawal from the Convention (and by implication the Council of Europe) would be compatible with continued membership of the EU, regardless of the outcome of a referendum.

The debate on whether the UK could in fact withdraw from the Convention and remain an EU member state is hotly debated.127 On the one hand, there is an argument that putting in place rights consistent with respecting fundamental rights as guaranteed by the Convention (for example, in a UK Bill of Rights) would be sufficient to meet any Treaty obligations; the contrary view is that it is a Treaty requirement to ratify the Convention, though not necessarily to incorporate it in domestic law.

If the UK were to leave the Convention, but remain in the EU, it would still be bound by Convention and Charter rights in so far as the application of EU law were concerned, and would be subject to the jurisdiction of the CJEU.

Article 49 TEU states:

‘‘Any European State which respects the values referred to in Article 2 and is committed to promoting them may apply to become a member of the Union.’

The EU Treaties do not make any direct link between EU membership and ratification of the European Convention, but the Commission has made its position clear (for example, in relation to Bulgaria’s accession application) that applicant states must first have ratified the Convention. The position of existing member states is less clear.

Article 6(3) TEU states:

‘Fundamental rights, as guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms and as they result from the constitutional traditions common to the member states, shall constitute general principles of the Union’s law.’



128 European Parliament and Council Directive 2004/38/EC of 29 April 2004 on the right of citizens of the Union and their family members to move and reside freely within the territory of the member states amending Regulation (EEC) No 1612/68 and repealing Directives 64/221/EEC, 68/360/EEC, 72/194/EEC, 73/148/EEC, 75/34/EEC, 75/35/EEC, 90/364/EEC, 90/365/EEC and 93/96/EEC.

The free movement of people is one of the four pillars of the European Union, a key principle in the establishment of a common single market.

Although bound by the free movement of persons, the UK has opted out of most EU legislative instruments on immigration, most prominently the Schengen Accords which create a common European area and framework for visas and border control.

The UK has opted in to certain European measures on asylum and non-EU migration, mostly designed to enhance practical co-operation.

Main EU instruments

Free movement of persons

The EU has adopted a Directive on the right of EU citizens to move and reside freely within the member states.128 This is designed, among other things, to encourage EU citizens to exercise their right to move and reside freely within member states. This Directive addresses:

• the conditions in which EU citizens and their families exercise their right to move and reside freely within the member states

• the right of permanent residence

• restrictions on those rights on grounds of public policy, public security or public health.

Right to move and right of residence for up to three months

All EU citizens have the right to enter another member state by virtue of having an identity card or valid passport. Under no circumstances can an entry or exit visa be required. Where the citizens concerned do not have travel documents, the host member state must afford them every reasonable means to obtain the requisite documents. Family members who do not have the nationality of a member state enjoy the same rights as the citizen who they have accompanied.

Immigration law

Right of residence for more than three months

The right of residence for more than three months remains subject to certain conditions. Applicants must:

• either be engaged in economic activity (on an employed or self-employed basis), or

• have sufficient resources and sickness insurance to ensure that they do not become a burden on the social services of the host member state during their stay, or

• be following vocational training as a student and have sufficient resources and sickness insurance to ensure that they do not become a burden on the social services of the host member state during their stay, or

• be a family member of an EU citizen who falls into one of the above categories.

EU citizens acquire the right of permanent residence in the host member state after a five-year period of uninterrupted legal residence, provided that an expulsion decision has not been enforced against them.

Union citizens or members of their family may be expelled from the host member state on grounds of public policy, public security or public health. Under no circumstances may an expulsion decision be taken on economic grounds. Measures affecting freedom of movement and residence must comply with the proportionality principle and be based exclusively on the personal conduct of the individual concerned. Such conduct must represent a sufficiently serious and present threat which affects the fundamental interests of the state.

Perhaps surprisingly given UK domestic politics, the Home Office’s balance of competences review found that ‘the effects [of the free movement of persons] are viewed as largely positive, providing a wide range of skilled labour and opportunities for UK workers, and their employers, in other member states’.


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Asylum and non-EU migration

While the EU’s programme of work on asylum and non-EU migration has increased recently, the balance of competence on asylum and non-EU migration issues remains predominantly with the UK, especially for border and visas policy since the UK is not part of the Schengen accords. With regards to asylum policy, the picture is slightly more complex as the UK is part of the first round Common European Asylum System (CEAS) measures but is not opting into all of the recast CEAS measures.

The UK also has a somewhat privileged position in this area, as it is not automatically bound by EU legislation falling within these areas unless it exercises its right to opt-in to the measure. The UK therefore participates in some areas of EU asylum and immigration work and not others.

Asylum

The UK is currently part of the ‘Dublin System’, a set of rules designed to coordinate asylum policies within the EU, ensuring that member states do not abdicate their responsibility with regards to asylum, to prevent ‘asylum-shopping’, and creating a database to ensure that applications are correctly assessed.

The Home Office’s balance of competences report found that ‘the Regulations were generally applied in a satisfactory manner, and provide a workable system for determining responsibility for the examination of asylum applications’.

Non-EU migration

Arrangements for the admission of non-EEA workers, students, and family members are governed by UK domestic law and immigration rules. The UK has only opted-in to around one third of EU measures on non-EU migration, focusing almost exclusively on practical co-operation initiatives.

The UK participates in a number of EU Readmission Agreements (EURAs) with third countries, allowing member states to act as a bloc able to wield greater leverage against third countries than when acting individually. The UK also participates in funds to ensure that the EU’s migration policies run smoothly (the European Refugee Fund, the European Return Fund and the European Fund for the Integration of Third Country Nationals).

Practical co-operation initiatives are generally non-legal initiatives enabling EU member states to share information, data and expertise. These initiatives are guided by a series of Council Conclusions, the most important of which include the Migratory Pressures Roadmap, and the European Migration Network (EMN). The balance of competences review found that the UK government’s approach is based on the belief that co-operation remains the best route to fill any capability gaps across the asylum and immigration agenda.

Effects on UK immigration law

Although the UK can legislate on specific aspects of intra-EU migration (for example, claiming welfare benefits and pensions, sending benefits abroad), it cannot generally withdraw from the principle of free movement, although since the UK has opted out of the Schengen Accords, it retains some control over border and visas policy.

In asylum and non EU migration, the UK has opted-out of most European instruments, so these areas are still principally covered by UK rules and legislation. The UK has opted in to some practical co-operation initiatives.

Renegotiation

The free movement of persons was flagged during the Prime Minister’s Bloomberg speech as an area which the UK government wishes to renegotiate.

The free movement of persons provisions are legally founded in the Treaty and in related secondary legislation. Treaty provisions set out the basic right of EU citizens to move and reside freely, whilst secondary legislation sets out specific provisions, for example, the Citizens’ Directive or the Regulation on social security co-ordination.

In terms of ‘controlled immigration’, achieving treaty change on such a fundamental pillar of the EU may be unachievable, as it would require ratification from all member states, including those whose citizens benefit from coming to the UK. In some cases, such a treaty change would require national referenda on the issue.

Secondary legislation could be changed much more easily than the Treaties: it would need only a qualified majority vote in the Council and agreement in the European Parliament to change the legislation.



There are limits to what secondary legislative changes could accomplish. The underlying rule of the free movement of people, set out directly in the Treaties, would take priority over conflicting national law and conflicting EU secondary legislation. That means that UK or EU secondary legislative changes could be declared invalid if they restricted free movement rights too severely, or amounted to discrimination between EU citizens.

EEA/EFTA

EEA/EFTA members are subject to the free movement of persons, so should the UK become an EEA/ EFTA state, it would still have to follow the free movement of persons principle.

The EEA/EFTA treaty allows safeguard measures to be taken unilaterally, if there are ‘serious economic, societal or environmental difficulties of a sectoral or a regional nature’ which are ‘liable to persist’. Those measures must be proportionate to the difficulties in question. It entitles other member states to adopt ‘proportional rebalancing measures’, so any impact is likely to be temporary and could invite counter-measures. The clause has never been invoked.

With regard to asylum and non-EU migration, the legal position would not change significantly should the UK become an EEA/EFTA state.

WTO

Were the UK to withdraw from the EU and not become an EEA/EFTA state, the right of freedom of movement would fall away and the UK would regain complete control over its immigration law and policy.

This could have significant effects on individuals and businesses concerned: both for those who were intending to exercise their right to move to other EU states and for those who already have. The status of the latter would depend on (i) any transitional measures put in place here and in other EU states, and (ii) whether persons had already acquired rights, for example if they had acquired permanent residence under the Citizens Directive.129

The UK would be free to impose its own domestic immigration law on citizens of other EU states (assuming that the UK regulations which give effect to the relevant Directive are revoked), and vice versa.

Measures might have to be put in place for UK citizens currently residing in other EU countries to ensure they would fulfil new visa requirements.

129 Directive 2004/38/EC of the European Parliament and of the Council of 29 April 2004 on the right of citizens of the Union and their family members to move and reside freely within the territory of the member states amending Regulation (EEC) No 1612/68 and repealing Directives 64/221/EEC, 68/360/EEC, 72/194/EEC, 73/148/EEC, 75/34/EEC, 75/35/EEC, 90/364/EEC, 90/365/EEC and 93/96/EEC (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32004L0038).


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130 http://www.uspto.gov/131 David Keeling, Intellectual Property Rights in EU Law Volume 1, 2003 at p 22.132 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the

information society (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32001L0029:EN:HTML).133 For example, the rules on parody vary enormously.

Intellectual property law is increasingly important in the online/digital environment with the ever-growing trade in intangible goods. It is also easier to share material than ever before and countries’ borders are increasingly irrelevant to provision of goods and services – both of which are underpinned by intellectual property rights.

The majority of recent IP legislation comes from the EU and has done for a number of years. Unpicking it would be likely to prove arduous.

EU-wide regimes are in place for most of the major areas of IP such as copyright, designs, patents and trademarks. While some of these are EU-specific, others stem from international agreements or have wider (or in the case of the Unified Patent and Unified Patent Court, narrower) application. The main aspects of the EU systems and what these provide are explored below.

In practical terms, if a company is registering a product then it will normally wish to do so across a whole market. For example, if registering in the USA it will apply to the United States Patent and Trademark Office130 which covers the whole country. Similarly, the EU, although not a simple single political entity like the USA, represents a single market for business purposes. Companies therefore often wish to be able to access a single system of protection for their intellectual property. The need to register patents or trademarks under multiple systems increases the cost of doing business.

Conversely the ability to obtain rights which must be respected throughout the internal market benefits businesses seeking intellectual property protection. From application to enforcement, it is simpler to administer

Intellectual property law

rights under a single system. This can help to reduce business costs which in turn can provide savings for consumers. However, there are those who argue that current mechanisms, such as territorial licensing to distribute items protected by copyright, are actually a vital protection for cultural diversity within the internal market and should not be interfered with.

‘Community Trade Marks and Community Design rights make both our business expansion and anti-counterfeiting programs relatively straight forward in the EU.’ In-house counsel for an IT firm.

However, the system is not perfect. Compliance with those rules, and in particular the enforcement of intellectual property rights, is not always seen as being uniform throughout the internal market. Some commentators have noted the potential for conflict between IP rights and free movement of goods131 – the lack of any harmonised protection against unlawful disclosure of trade secrets has been put forward as a key barrier to cross-border collaboration within the EU internal market. Additionally, the fragmented implementation of 2001 Directive on Copyright132 has meant that it is very difficult to distribute creations within the internal market.133

There are a number of areas where IP interacts with product regulation – for example in the development of pharmaceutical drugs. These product regulations are an essential part of facilitating the free movement of goods throughout the internal market while also ensuring the safety of patients.



Patents

European patent law derives from the European Patent Convention (EPC).134 Although this is not an EU instrument, all EU member states are signatories along with the EEA countries, Switzerland, Turkey and others. In reality the EU has assumed a certain level of power in relation to patents and EU law has also added a number of supplementary instruments and protections to those outlined in the EPC.

• The Unitary Patent and Unitary Patent Court: 26 member states reached agreement on the creation of a unitary patent in 2012. This will allow patent holders to register a single patent which will apply across all member states bar Spain and Italy (which opted not to participate). This is a significant change from the old system in that it removes the need for registration of the patent in all member states. Furthermore the scope of the patent will be identical across all participating states. The unitary court will offer a ‘lower cost alternative to obtaining and maintaining a bundle of rights’ and will also be simpler to enforce than a series of patents in different member states.135

The UK was successful in its bid for the Central Division for Life Sciences due to the prominence of pharmaceutical companies in the UK.

• Supplementary protection certificates: a type of patent term extension for medical and plant products but run through EU not EPC. SPCs136 were created as it was recognised that pharmaceutical, veterinary medicines and agrichemicals are subject to extensive regulatory requirements. The need to carry out trials and testing to carry out regulatory compliance can significantly delay the ability to market a product. Although SPCs have a relatively specific market sector application, they are seen by the rights holders as a useful extension to existing rights, as they recognise the lengthy timescales involved in research and regulatory approval.

• EU Directive on Biotechnological Inventions:137 partial EU harmonisation through a directive defining what is patentable in relation to micro-organisms and biotechnology with a medical or agricultural application.

• The EU has also passed a number of laws on compulsory licensing to developing countries in order to facilitate cheap access to medicines. The EU legislation focuses on making medicines or licences available to allow organisations in the country to distribute and manufacture the relevant products more cheaply by removing burdens in the intellectual property sphere.

• National research and experimental exceptions to patent infringement are driven by the EU. The recent Directive set out some exceptions to the general intellectual property rules to allow for certain types of research, for example by setting out the conditions in which a company is allowed to carry out clinical trials on a competing drug which would otherwise have been held to infringe the patent of the original product. This is intended to foster advancement in the field of pharmaceuticals.

It is possible to apply for an international patent138 through the WTO but the patents obtained will not necessarily be applied or enforceable in an identical way in all WTO member states. The WTO also lacks an effective dispute resolution system to deal with private actions in the same way that these can be processed at the EU level.

134 Leaving aside wider international treaties eg Patent Cooperation Treaty.135 https://www.gov.uk/the-unitary-patent-and-unified-patent-court.136 Regulation (EC) No 469/2009 of the European Parliament and of the Council of 6 May 2009 concerning the supplementary protection certificate for medicinal

products (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2009.152.01.0001.01.ENG).137 Directive 98/44/EC of the European Parliament and of the Council of 6 July 1998 on the legal protection of biotechnological inventions (http://eur-lex.europa.eu/

LexUriServ/LexUriServ.do?uri=CELEX:31998L0044:EN:HTML).138 Patent protection is up to a maximum term of 20 years with extension by SPC possible in particular circumstances.

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31998L0044:EN:HTML

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Copyright and database rights

The core treaties governing copyright law are wider than EU and in some cases much older, for example the Berne Convention on Copyright,139 the Universal Copyright Convention, TRIPS,140 and the WIPO141 copyright treaty. However, EU law now dominates many aspects of copyright law in Europe, including:

• computer programs

• databases (including EU database right for organised databases)

• term directive

• performance rights

• satellite broadcasts

• resale rights for works of art

• distribution and rental rights

• collection societies

• exceptions to copyright

• moral rights.

The Berne Convention on Copyright set a minimum standard for copyright protection and operates in conjunction with the WTO rules meaning that in practice most countries must give protection which is at least as good as those offered by the Berne Convention. Today all EU countries give a minimum of 70 years’ protection following the author’s death.142

Protection against counterfeiting and piracy is also being discussed as part of any future copyright proposals, and a number of the Shadow Rapporteurs on the Legal Affairs Committee of the European Parliament have made it clear that protections against these should be contained in any new legislative proposal on copyright.

Designs

EU law covers two sets of design rights:

(a) Registered designs

(b) Unregistered design right (similar to copyright)

These run in parallel to equivalent UK laws for both of these categories.

Designs can be registered at national and community level. Unregistered design rights also exist but unregistered community design rights and UK unregistered design rights are geared to protecting different classes of designs. Design rights interact with copyright in so far as it also protects certain designs.

The Designs Directive143 harmonised design law and introduced a new national definition for design.

Trade marks

National registered trade mark laws in the EU were harmonised by the Trade Mark Directive in 1988.144 More recently, the Community Trade Mark Regulation145 has established a separate Community Trade Mark (CTM). In contrast to a national trade mark which only affords protection in a single member state, the CTM registration has effect in all member states.146 Again this provides cost efficiencies associated with a single registration and offers rights holders the simplicity of a single system.

One of the key issues for the internal market is the balancing of repackaging in the context of trade mark ownership against the right of the free movement of goods.

Plant variety rights

The EU regulations protect varieties of plants to recognise the investment that was made to create them by growers who have selectively bred a new variety.

139 Originally signed in 1886 with the most recent version signed in Paris in 1971. The Convention is administered by the WIPO in Geneva.140 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).141 World Intellectual Property Organization.142 The English law on copyright is set out in the Copyright Designs and Patents Act 1988 (CDPA).143 Directive 98/71/EC of the European Parliament and of the Council of 13 October 1998 on the legal protection of designs (http://eur-lex.europa.eu/legal-content/EN/

TXT/?uri=CELEX:31998L0071).144 The national registered trade mark laws in the EU were harmonised by the Trade Mark Directive (89/104/EEC of 21 December 1988).145 Council Regulation (EC) No 207/2009 of 26 February 2009 on the Community trade mark (http://eur-lex.europa.eu/LexUriServ/LexUriServ.

do?uri=OJ:L:2009:078:0001:0042:en:PDF).146 There is also an international Trade Mark registration in the 1989 Madrid Protocol.



http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:078:0001:0042:en:PDF

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:078:0001:0042:en:PDF



Geographical indications

The EU regulations afford protection to goods (usually agricultural produce) from a particular geographical area. In the UK this applies to products such as Melton Mowbray pork pies, Stilton Blue cheese, Cornish clotted cream and Anglesey Sea Salt/Halen Môn.

Trade secrets

An EU initiative on trade secrets is currently making its way through the EU institutions. This proposal will not itself create a new IP right, but rather it aims to provide companies with protection against the unlawful disclosure or acquisition of a trade secret. There are significant concerns that providing such a protection may reduce innovations becoming publicly available. There is much work to be done in respect of this, but it appears that a majority of industry groups are very supportive of this legislation.

Exhaustion of rights

The doctrine of exhaustion of rights emanates from the interplay between intellectual property rights and the free movement of goods as an essential part of the internal market. The rules on exhaustion mean that intellectual property rights can be used to control or suppress the first sale or distribution of goods on the market but, thereafter, it may be traded freely.147

Renegotiation

It is unlikely that renegotiation would have any bearing on intellectual property law.

EEA/EFTA

Under the EEA agreement, Norway, Liechtenstein and Iceland agree to implement parallel rules to those that apply in EU countries in relation to the internal market. They therefore operate similar intellectual property systems.

It is almost inconceivable that the Central Division for Life Science of the UPC would remain in the UK if the UK were to leave the EU. Germany is already a dominant player in the patent ‘market’ and might be likely to take over as the natural point of entry to Europe.

WTO

If the UK were to fall back on its status as a WTO member, the EU protections would not automatically disappear.

The task of unravelling the existing intellectual property law system if the UK were to leave the EU would be very complex. The interplay of national, EU-wide, other European and wider international rules characterises the current protection framework. Where EU legislation implemented agreements by which the UK would still be bound then new legislation might be needed to achieve the same outcomes. Certain protections would continue to operate as they do at present, eg the Berne Convention would continue to apply to all member countries in relation to copyright.

It would also be possible for non-EU/EEA citizens or businesses based in countries that do not participate in the internal market to apply for and/or benefit from EU intellectual property protections. Although purely UK patents are available, most international businesses use European and international systems to afford the greatest protection possible. It is likely that UK businesses would continue to seek EU wide protections, for example the European Trademark and the unitary patent when it becomes available.

Outside the EU, the UK would have no say on the scope or duration of protection or the processes for registering and defending rights.

147 Questions remain as to how the doctrine applies in the case of online goods.


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148 Council Directive 2003/123/EC of 22 December 2003 amending Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different member states (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32003L0123:en:HTML).

149 Council Directive 2009/133/EC of 19 October 2009 on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different member states and to the transfer of the registered office of an SE or SCE between member states (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32009L0133).

150 Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different member states (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32003L0049).

151 Council Directive 2014/48/EU of 24 March 2014 amending Directive 2003/48/EC on taxation of savings income in the form of interest payments (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:JOL_2014_111_R_0013).

Competence on taxation at the EU level is primarily concerned with the operation of the internal market. Unlike most internal market measures, which use qualified majority voting, the harmonisation of taxation is decided by unanimity.

While a degree of harmonisation has been agreed on elements of indirect taxation, in particular VAT, there has been very limited harmonisation of direct taxation.

Main EU tax law instruments

There are two types of EU taxation instruments: direct and indirect. EU tax law instruments have to strike a balance between the establishment of the free market and the competence of member states in the field of taxation.

Direct EU taxation legislative instruments:

• the Parent-Subsidiary Directive148 seeks to abolish tax impediments to cross-border payments of dividends within groups of companies when the parent company and subsidiary or subsidiaries are resident in different member states.

• the fiscal Merger Directive149 prevents unfavourable treatment of cross-border mergers, divisions, transfer of assets and exchanges of shares in comparison to domestic mergers by introducing a common system of taxation.

• the Interest and Royalties Directive150 creates a common system of taxation applicable to interest and royalty payments between associated companies from different member states.

• the Savings Interest Directive151 attempts to avoid distortions to the movement of capital and allows effective taxation of interest payments received by individuals in member states other than the member state of residence.

Tax law

• the Administrative Co-operation and Mutual Assistance Directive, which requires member states to exchange any information in the field of direct taxation that may enable the correct assessment of taxes.

• the Arbitration Convention: the Arbitration Convention should be mentioned here for a comprehensive picture of achievements in influencing national direct taxation. Its aim is to allow national tax authorities to scrutinise cross-border transactions to ensure that they receive their fair share of the tax base.

The EU, at its current level of integration, has thus had a limited impact on direct taxation through ‘hard law’.

EU soft laws

The EU also has a series of soft laws. They can serve different purposes, for example as preparatory and informative functions, to spur public debate and consultation or to pave the way for future legislation. Examples of preparatory and informative measures include White Papers and action programmes.

Soft laws can be interpretative and provide guidance on the understanding and application of existing measures, without aiming to set new rules. They can also act as steering instruments, adopted when there is no desire, agreement or need to legislate, or the competence to do so is lacking, but some degree of regulation is essential. These steering instruments provide for rules of conduct that aim at establishing closer co-operation between member states. Generally, codes of conduct, recommendations as well as resolutions of the Council, declarations and conclusions fall within the scope of this group of soft law measures. An example is the Code of Conduct for Business Taxation.

Case law

The CJEU has exerted considerable influence on direct tax systems. The CJEU has constrained member states’ power to regulate taxes by ruling that, even in the field of exclusive competence, EU legal principles must be respected.



http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:JOL_2014_111_R_0013

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:JOL_2014_111_R_0013



This has enabled the court to take leadership in targeting tax areas in need of clarification and reform by seeking to ensure that, in the interpretation and application of the Treaty, the law is observed.

Indirect taxation

The EU has had an element of competence on indirect taxation since 1957, before the UK joined the European Economic Community (EEC). VAT is an important part of indirect taxation at the EU level. Member states have discretion over important areas, including VAT rates (within a defined framework) and how they control and collect VAT from their registered taxpayers. However, the introduction of the VAT system also limited member states’ ability to introduce additional turnover taxes.

On excise, full harmonisation of the excise duty rates throughout the EU was not considered necessary for the proper functioning of the internal market. Instead, a series of minimum rates were agreed by member states. Above these minimum rates member states retain competence to set excise duty rates at the levels they consider appropriate according to their national circumstances.

Member states are able to maintain or introduce the following indirect taxes, provided that those taxes, duties or charges do not, in trade between member states, give rise to formalities connected with crossing of frontiers:

• taxes on insurance contracts

• tax on betting and gambling

• excise duties

• stamp duties, and

• more generally, any taxes, duties or charges that could not be characterised as turnover taxes.

Effect on UK tax law

Voting for taxation measures at the EU level is done through unanimity voting, which means every member state has a veto over a tax proposal.

Respondents to the recent Balance of Competences review were generally supportive of existing tax measures. Some were concerned about some of the proposed actions on taxation which they did not see as necessary for, or aiding, the functioning of the internal market. The most common measure cited as being unnecessary for the functioning of the internal market and disadvantageous to the UK was the proposed financial transactions tax.

Having a well functioning tax and regulatory framework at EU level, such as a common system of import duties and a common destination based system of VAT, is necessary to achieve fair access to the market for UK firms, and is one of the key influencing factors for a business in determining where to invest.

The Law Society places great weight on the UK tax regime being stable and predictable, and tax law (whether statutory or case law) being accessible. The Law Society supports the principles for corporate tax reform put forward by HMRC in 2010:

• stability

• aligned with modern business practice

• avoiding complexity

• maintaining a level playing field.

Changes to the UK taxation regime in the context of a new relationship with the EU should be assessed according to those principles.

Renegotiation

There is little that renegotiation could affect in terms of taxation, except, possibly, securing formal assurances about specific taxation developments, such as the financial transactions tax. Such assurances could be gained without the necessity for renegotiation.

EEA/EFTA

If the UK were to become an EEA/EFTA state it would have to abide by most of the existing EU direct and indirect tax law regulations, as they serve to harmonise the market.

WTO

It seems inconceivable that under any other model the UK could enjoy access to the internal market without abiding by EU tax law requirements.


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The European Union (EU) has its origins in the European Coal and Steel Community, created in the aftermath of the second world war by France, Germany, Italy, Luxembourg, Belgium and the Netherlands to promote peace through economic and political integration. In 1957 the same countries agreed to co-operation in further sectors, signing the Treaty of Rome to create the European Economic Community (EEC). Gradually other countries joined: the UK, Ireland and Denmark in 1973; Greece in 1981; and Portugal and Spain in 1986.

In 1992 the ‘European Union’ officially replaced the European Community. In 1995 Austria, Finland and Sweden joined the EU. The major phase in the EU’s enlargement came in 2004 when the Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia joined, with Bulgaria and Romania following in 2007. In 2013, Croatia became the twenty-eighth member state.

The EU is based on the rule of law and the EU’s powers derive legitimacy from its founding treaties. The most important treaties – those which detail how the EU works, the areas in which it can act, and the powers its institutions have been given to achieve those aims – are the Treaty on the Functioning of the European Union (TFEU) and the Treaty on European Union (TEU) (together ‘the Treaties’).

APPENDIX 1:

EU institutions and law-making

EU regulations must be applied in their entirety. EU directives set out goals that the EU is seeking to achieve, but it is up to individual member states to decide how to implement EU law into national law, thus guaranteeing their citizens and businesses the rights granted to them under EU law.

The EU has seven main institutions, five of which are relevant to law-making.152

European Council153 A summit of heads of government, the President of the European Council and the President of the European Commission, which meets four times a year. The European Council sets the EU’s priorities, but has no legislative powers.154

Council of the European Union Made up of national ministers of EU member states, the attendees change depending on which subject is under discussion. The Council shares the final say with the European Parliament on laws proposed by the European Commission.

European Parliament Has 751 members (MEPs), directly elected by EU citizens every five years. Representation is roughly proportional to each country’s population. MEPs are aligned by political affiliation, rather than nationality. The Parliament’s role includes participating in the legislative process and ultimately approving laws together with the Council of the European Union.

European Commission Made up of 28 Commissioners, one from each member state. The member states agree who will be Commission President and the decision is then approved by the Parliament. Each Commissioner is responsible for a specific policy portfolio. The Commission’s primary function is to propose legislation but it also fulfils other roles, including ensuring that member states satisfy their obligations under EU law.

The Court of Justice of the European Union (CJEU) The CJEU is one of the official institutions of the EU. Article 19 TEU states that the court’s mission is ‘to ensure that in the interpretation and application of the Treaties the law is observed’.

152 The two other institutions are the European Court of Auditors and the European Central Bank, which are not discussed further in this report.153 Not to be confused with the Council of Europe, which is not an EU body.154 Beyond the ability to adopt binding decisions in the area of Common Foreign and Security Policy under TEU.

THE EUROPEAN UNION



155 For further information on the Law Society’s position regarding the CJEU see the Law Society’s two position papers on Criminal Justice Reform and General Court Justice Reform.

156 See the Annual Report of the Court of Justice of the European Union at http://curia.europa.eu/jcms/upload/docs/application/pdf/2015-03/en_ra14.pdf

The CJEU’s role is:

• to interpret EU legislation so that it can be applied uniformly across the member states, and

• to settle legal disputes between member state governments and EU institutions (eg infringement proceedings) or between the EU institutions themselves.

Through the use of preliminary references the court can provide clarification to national courts on the correct interpretation and implementation of EU law: a national judge frames a question in general terms to seek guidance on how a particular provision or provisions of EU law should be interpreted. The reference is then considered by the chamber and the answering judgment is returned to the national judge to rule on the particular case.

Requests to the CJEU for preliminary rulings not only lead to greater clarity through a single source of interpretation but can also reduce delays in subsequent cases which address the same point.

While the court works well in many respects, there are a number of practical problems and areas for reform.155

Expertise

There is no coordinated appointments process. Instead each member state nominates a judge from its own jurisdiction.

The Law Society has commented previously that specialist knowledge which might offer improved access to justice is sometimes missing in the EU courts and inhibits their ability to resolve very technical issues, particularly in the field of commercial, financial and intellectual property law. The Judicial Appointments Committee set up in accordance with Article 255 TFEU may go some way to mitigating this and could eventually lead to a stronger judicial panel. Changes to the appointments process to ensure greater coordination between member states could also help.

Timescales

It takes a long time for cases to proceed through the European courts. Figures from the CJEU annual report for 2014 show that timescales are improving across the board but the average duration of a reference for a preliminary ruling was still 15 months; 20 months for direct actions; and 14.5 months for appeals from General Court rulings. In the General Court the average duration of cases also fell from the 2013 figures to 23.4 months.156

References to the CJEU will frequently be made by the highest courts in a member state after several years of litigation before that state’s own courts. Further delays before the EU courts can have serious consequences for litigants who may have been seeking to resolve their disputes for years. These delays may also have an adverse impact more widely than for the parties as other businesses and individuals may be awaiting a ruling before proceeding with a transaction or exercising certain rights.

‘We’d like to see renegotiation of the way CJEU operates. If you tell a US client that something going to the CJEU will take three years, they’re not very happy. It does the European legal market no favours.’ IP firm interviewee

Co-operation

Improving dialogue between the EU courts and national courts and domestic stakeholders could prove beneficial in enhancing the clarity of judgments and ensuring that the court is able to produce judgments which are both pragmatic in their outcome and more easily applicable to analogous circumstances: at the moment, judgments are often addressed to narrow facts.

Intervention

There are benefits in professional bodies being able to intervene in court proceedings, but the eligibility requirements for doing so are prohibitively stringent.


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157 See https://www.gov.uk/review-of-the-balance-of-competences. 158 See Article 5 TEU read in conjunction with Protocol 2.159 Article 5 TEU.160 This is, in itself, an example of subsidiarity.

In July 2012 the government launched a Review of the Balance of Competences to investigate the extent to which the EU is involved in policy and law-making across a broad range of areas.

In launching the review, the then Foreign Secretary William Hague said:

‘We are committed to playing a leading role in the European Union in order to advance our national interest. The single market is one of the greatest forces for prosperity the continent has ever known and that is why we will continue to push an ambitious programme of deepening the single market while seeking to reduce unnecessary burdens in EU legislation.’

The outcome was a series of 32 reports published by the government in 2014.157

Most of the reports concluded that the balance between national and EU competence was ‘about right’.

In the reports of most relevance to the legal services sector:

The Civil Judicial Co-operation report concerned cross-border legal issues in the areas of civil, commercial and family law. The UK has an opt-in option in these areas, so the balance of competences can be decided by the UK government on a case-by-case basis.

The Fundamental Rights report showed ‘a divergence of views on where the balance of competence should lie between the EU and the UK on the protection of human rights’. There was little consensus on what constitutes the national interest in this context beyond the principle that member states should act consistently with human rights.

The Police and Criminal Justice report took into account the UK’s opt-in arrangement in this area, which most respondents to the review saw as positive. There was ‘no appetite for standardising criminal law’. Emerging challenges included international crime such as terrorism, organised gangs and cybercrime, for which practical co-operation among EU partners and third countries was needed.

The principles of subsidiarity and proportionality are essential characteristics of EU lawmaking.158 While they are often referred to together, they are distinct principles which fulfil different functions.

Subsidiarity

The subsidiarity principle means that the EU should only take action in a given area where the objectives ‘cannot be sufficiently achieved by the member states, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level.’159

This means that before legislation is put forward at EU level, a decision must be taken as to whether a matter should be handled at EU or national level. However, action can be taken at a regional level – be it at town or county level, sub-federal level (eg in the German Länder), in the UK through the devolved administrations, or across a geographical area encompassing parts of various member states.

The Treaties govern the areas in which the EU may take action and which areas are the preserve of member states. Where the EU has exclusive competence, the principle of subsidiarity does not apply. However, where competence is shared between the EU and member states, the principle of subsidiarity must be observed.

The yellow card system

The current system for challenging a proposal on the basis that it fails to comply with the subsidiarity principle is complicated. Scrutiny is carried out by national parliaments (as opposed to governments).160 If a national parliament considers that a proposal does not comply with the principle then it will send a reasoned opinion on non-compliance to the Commission. Each member state is granted two ‘votes’, in recognition of the fact that many member states, like the UK, operate a bicameral system. This means that the House of Commons and the House of Lords have one vote each: importantly they scrutinise legislation separately and act independently according to their own conclusions.

Balance of Competences Review Subsidiarity and proportionality



If opinions are sent representing (or exceeding) a third of votes (the ‘yellow card’), then the Commission must look at its proposal again. It may decide to withdraw or amend the proposal but, if it does not, it is required to return a reasoned opinion explaining why it considers that the proposal does comply with the principle.

If opinions are sent representing or exceeding a simple majority of votes, this triggers a slightly different procedure. This is sometimes referred to as the ‘orange card’ – not quite red as it does not automatically mean the proposal will fall. Instead, the Commission must give a reasoned opinion explaining why, in its view, the proposal meets the subsidiarity test. All opinions are submitted to the European Parliament and Council to consider the respective arguments. If either institution decides that the proposal is incompatible with the principle then it will be struck down.

As subsidiarity is a fundamental principle of EU law it may, at least theoretically,161 form the basis of a challenge by judicial review.

Proportionality

The principle of proportionality governs the ‘how’ rather than the ‘who’ and applies to actions taken at EU level and also by member states in so far as they relate to EU law.

‘Under the principle of proportionality, the content and form of Union action shall not exceed what is necessary to achieve the objectives of the Treaties.’162

A number of successful challenges have been brought in the CJEU resulting in legislation being struck down as it failed to comply with the proportionality test.

At the most basic level, proportionality means that a measure must be suitable and necessary to achieve its objective and should not be unnecessarily burdensome or restrictive. It may be necessary to consider a number of different interests and the need to achieve the objective will need to be balanced against the effect it might have on a specific group or individual.

That said, the ‘proportionality test’ appears, in fact to be a series of tests, developed through case law over the last four decades.163 Different criteria seem to apply in different scenarios which can be confusing. Further clarification, or some codification of the tests, might be beneficial in ensuring that the principle of proportionality is properly applied in all cases.

Impact assessmentsAccurate and objective research is an important precursor to any legislative decision. Impact assessments examining the economic, social and environmental consequences are carried out for each initiative that the Commission puts forward. These are a potentially valuable tool for making effective laws that are fit for purpose. It is imperative that the assessments carried out are rigorous and objective and that the right questions are asked at the outset if they are to fulfil this potential, including during the earlier stage of conducting research and consulting in order to formulate legislative proposals. This has not always been the case and there has been a concern that some assessments merely reinforce a course of action that has already been decided upon.

161 Although challenges have been brought on the basis of subsidiarity, the Law Society is not aware of any cases where the challenge has been successful. 162 Article 5(4) TEU.163 For further information see the Joint Response of the Law Society of England and Wales and the Law Society of Scotland to the Balance of Competences Review

consultation on Subsidiarity and Proportionality https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/388345/Subsidiarity_and_Proportionality_-_Evidence.zip

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/388345/Subsidiarity_and_Proportionality_-_Evidence.zip

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/388345/Subsidiarity_and_Proportionality_-_Evidence.zip


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164 This is explored further in the Law Society of England and Wales response to the consultation on Free Movement of People available here http://www.lawsociety.org.uk/policy-campaigns/consultation-responses/documents/balance-of-competences-review-free-movement-of-persons/

165 Case 26/62 van Gend en Loos [1963] ECR 1 – Court of Justice.

At the heart of the EU is the internal market, also referred to as the single market.

APPENDIX 2:

These four freedoms – of goods, persons, services and capital – are the foundation stones of an internal market that has evolved over more than four decades. Their objective is to abolish barriers between member states, such as tariffs on the trade of goods or national legislation that discriminates against service providers.

The EU framework is designed to ensure that member states cannot maintain or introduce provisions which would directly or indirectly favour their own domestic businesses and create barriers to trade. A body of EU legislation has grown up around the freedoms which targets differences in national legislation that would present any such obstacles to businesses wishing to trade cross-border.

The four freedoms reinforce one another: for example the free movement of services goes hand in hand with the free movement of people164 and free movement of financial services would be impossible without the free movement of capital. In fact commerce generally runs on money and without the ability to move funds throughout the EU, provision of goods and services would grind to a halt. Goods and services themselves are becoming increasingly integrated and with the growth of the digital economy the distinction between the two is no longer as clear as it once was.

Direct enforceability

An important feature of the legal framework underpinning the internal market is the doctrine of direct effect. This means that the Treaty provisions which are clear, unambiguous and do not need any further implementing measures can be directly invoked in the national courts by individuals.165 This is unique to the EU as by and large international treaties do not grant directly enforceable rights to citizens of the signatory countries. The direct effect of Articles 34-46, Article 49, Article 56 and Article 63 TFEU has been important to those wishing to work or provide cross-border goods and services in another member state who have encountered discrimination or protectionism by that member state.

State aid and competition

The internal market is not solely about granting market access at its most basic level but also about ensuring fair and open competition for businesses throughout the internal market.

EU competition rules have bolstered market access and played a considerable part in ensuring that when tariffs and quotas were abolished between EU member states, de facto barriers were not recreated by private agreements or cartels between national undertakings to steer clear of each other’s home markets. Similarly, the state aid rules have helped to prevent member states from unfairly favouring national champions in their home markets. The rules on state aid and competition apply also to provision of services.

The internal market is defined in Article 26(2) TFEU:

‘... The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties’

THE INTERNAL MARKET, TRADE AND INVESTMENT

http://www.lawsociety.org.uk/policy-campaigns/consultation-responses/documents/balance-of-competences-review-free-movement-of-persons/

http://www.lawsociety.org.uk/policy-campaigns/consultation-responses/documents/balance-of-competences-review-free-movement-of-persons/



The free movement of goods is protected under Articles 28 – 37 TFEU. These provisions aim to create an open market and competition through the abolition of tariffs, quotas or other trade barriers between member states. The intention is to provide businesses in every member state with equality of access to the internal market.

There are also additional policies which aim to prevent anti-competitive practices in the market. Without having EU level rules in these areas either the member states or powerful private companies could try to distort the market by for example giving favourable conditions for domestic or their own products or businesses. These measures or practices in turn could discourage cross-border trade in goods. Examples of these rules are common product and safety standards.

Beyond the EU’s borders, the EU’s success in the abolition of trade barriers between member states has been imitated to some extent by other international frameworks, for example in the General Agreement on Tariffs and Trade (GATT) rules and the World Trade Organisation (WTO), where the EU is an influential member. However, the extent of the abolition of trade restrictions within the EU has proven unachievable in more complex multilateral international trade agreements. Moreover EU rules can be enforced directly by individuals and businesses under the ‘direct effect’ provisions, which is not the case with GATT or WTO agreements.

Tariffs, quotas and measures with equivalent effect

The removal of tariffs was a significant step in building the free movement of goods. They have been completely removed between the member states and the Treaties do not allow any exceptions.

Abolition of customs tariffs reduces the costs associated with business and in turn means lower prices, and the likelihood of greater choice, for consumers. Reinstatement would clearly have an effect on UK businesses.

Product standardisation

The EU can adopt standardisation measures to harmonise product specifications and quality, and in some cases production methods. The aim is to make sure that goods that met these standards can circulate freely within the internal market.

Common standards can provide costs savings for businesses as a product which meets the EU specifications can be sold across the EU without the requirement for local modifications. Uniformity leads to greater legal certainty as businesses need comply with only one set of rules. Some standards are delegated to independent bodies, such as the CE marking system. This allows standards to be developed more quickly than would be possible through EU legislative processes.

Consumer protection

The Consumer Rights Directive166 sets a single set of rules for consumer protection to all EU citizens. The standard may assist businesses by widening their customer base, as lack of confidence and trust of consumers has been identified as one of the key obstacles to progress in e-commerce within the internal market.

Looking ahead

The internal market rules must be able to cope with technological developments which could not have been envisaged when the single market was first conceived.167

Free movement of services

The free movement of services is protected under Article 56 TFEU. This grants the right to move to another member state to provide services on a temporary basis. Although less common, it also applies to those who wish to move to other member states to receive services.

The ability to provide services in the practical sense is given further effect through the freedom of establishment set out in Article 49 and is also underpinned by the free movement of persons. Since the Treaty was drawn up, the growth of online communications means that some services may be delivered without the need to establish a physical presence in, or send people to, another member state.

The free movement of legal services is discussed separately as it is subject to its own regime, reflecting the unique nature of providing services within a multi-jurisdictional market (see Appendix 3). This section looks at the freedom to provide services at a more general level, although many of the points made also apply in the case of legal services.

166 Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council Text with EEA relevance (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2011.304.01.0064.01.ENG).

167 See eg http://ec.europa.eu/enterprise/policies/single-market-goods/files/goods/docs/art34-36/new_guide_en.pdf at p8.

Free movement of goods


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Removing barriers to services is less about tariffs and more about recognising equivalent qualifications and the right of service providers. There is a limited ‘country of origin’ principle which dictates that a services provider established and regulated in one member state can provide those services throughout the EU but will remain subject to a single regulatory regime – that of its (or in the case of an individual, his or her) home state. This is usually underpinned by harmonisation of regulatory standards to ensure that quality is maintained consistently.

Regulatory standards

Harmonisation of regulatory standards for certain industries and consumer protection remain key considerations. Regulatory harmonisation is particularly apparent in relation to financial services. As with harmonisation for goods, it is arguably easier for businesses providing services throughout the EU if they only need to comply with a single system of rules and regulations. This reduces the need for state-specific advice such as legal advice and other ancillary expenses which arise through compliance with multiple systems. The harmonisation of rules is reinforced by the Commission’s ability to bring enforcement actions for non-compliance.

Looking ahead

Although many of the mechanisms in place to facilitate the provision of services work well, it is generally recognised that more work needs to be done to complete the single market for services in order to exploit its full potential.

One reason for this is that significant provisions in the Services Directive are left open to interpretation, which has led to different levels of implementation in each member state. Better implementation and enforcement of services legislation across the border could benefit UK businesses: some documentation and compliance requirements at a national or local level may constitute market access requirements which contravene the right of free movement of services.

Freedom of establishment is often discussed in conjunction with the free movement of services although it can equally be relevant to sale of goods or the free movement of workers. The right of establishment relates to carrying out an economic activity on a more long-term basis than is protected by the free movement of services.

Freedom of establishment

Article 49 (ex Article 43 TEC)

Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a member state in the territory of another member state shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any member state established in the territory of any member state.

Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 54, under the conditions laid down for its own nationals by the law of the country where such establishment is effected, subject to the provisions of the Chapter relating to capital.168

168 Consolidated version of the Treaty on the Functioning of the European Union (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:12012E/TXT).



Free movement of people is a defining feature of EU citizenship. It is a fundamental principle enshrined in Article 45 TFEU and developed by EU secondary legislation and the case law of the CJEU. Subject to certain limitations, it enables EU citizens to look for a job in another EU country, work there without needing a work permit, reside there for that purpose, stay there even after employment has finished, and enjoy equal treatment with nationals in access to employment, working conditions and all other social and tax advantages.

The free movement of people lies at the very heart of the discussion about the UK’s membership of the EU. For some, the right to free movement is a great advantage for UK businesses seeking skilled workers who they can employ without bureaucratic formality and for UK citizens seeking to better themselves by working in other member states; for others, the scale of EU migration to the UK is the single biggest reason for contemplating Brexit. The fact that Article 45 is entrenched in the EU Treaty is significant when it comes to a consideration of what a UK government might realistically be able to achieve through renegotiation.

Although the free movement of people also applies to the non-EU members of the EEA, that right is not treaty based.

Looking ahead

While the free movement of peoples was originally created as a means of enabling workers to move around to fill gaps in the European labour market, the 2004 directive relating to the free movement of persons169 and the case law that has subsequently developed have created a system that allows workers, students, jobseekers and families to move relatively easily between EU countries, subject to certain conditions.

This was uncontroversial when the EU was a smaller group of states with reasonable levels of economic parity and stability, but its enlargement into southern and eastern Europe and the impact of the financial crisis in Europe have increased public concerns – not just within the UK – about the benefits of free movement.

It is these concerns that, in part, explain why the UK is keen on renegotiating certain aspects of the free movement of persons. While it may be unlikely that renegotiation could lead to major treaty changes,170 secondary legislation could be amended to tighten rules around benefit-claiming for EU migrants.

169 European Parliament and Council Directive 2004/38/EC of 29 April 2004 is about the right of EU citizens and their family members to move and reside freely within the territory of the EU and EEA member states.

170 Since these would require 28 member states to ratify such changes, including in some cases holding a referendum.

Free movement of persons

Article 45

Freedom of movement for workers shall be secured within the Union.

Such freedom of movement shall entail the abolition of any discrimination based on nationality between workers of the member states as regards employment, remuneration and other conditions of work and employment.

It shall entail the right, subject to limitations justified on grounds of public policy, public security or public health:

(a) to accept offers of employment actually made;

(b) to move freely within the territory of member states for this purpose;

(c) to stay in a member state for the purpose of employment in accordance with the provisions governing the employment of nationals of that State laid down by law, regulation or administrative action;

(d) to remain in the territory of a member state after having been employed in that state, subject to conditions which shall be embodied in implementing regulations to be drawn up by the Commission.

The provisions of this article shall not apply to employment in the public service.


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Articles 56 to 60 guarantee the fundamental freedom of the European Union in relation to free movement of capital. Article 56 provides succinctly:

‘all restrictions on the movement of capital between member states shall be prohibited’.

Free movement of capital enables integrated, open, competitive and efficient European financial markets and services. It is essential that capital can be moved freely between member states for the internal market to function, and it is particularly important for supporting financial markets and services.

For citizens it means having the ability to open bank accounts, buy shares in companies, invest where the best return is, and purchase real estate in other EU countries. For companies it principally means being able to invest in and own other European companies and take an active part in their management. It also allows them to receive investment from companies or institutions in other countries.

Importantly, and in contrast with the other freedoms, the free movement of capital is not restricted to intra-EU transactions, but applies also to capital movements to and from third countries.

Implementation and enforcement

It is vital to the proper functioning of the internal market that EU rules are properly implemented and enforced.

Although the possibility for direct applicability and enforceability of the fundamental freedoms provides protection in its own right, further specific rules govern the internal market at the more detailed level in the same way that more detailed rules govern domestic markets. These rules can be tailored to the needs of a particular sector or industry. Often agreement on general principles will be agreed at EU level but the practical implementation will be left to the member states. Giving some flexibility to the member states has a number of advantages, including the fact that it allows member states to take account of existing national systems to minimise disruption and maximise coherence and consistency.

However, too much flexibility can also lead to practical difficulties from an internal market perspective. The inevitable difference in approach may lead to discrepancies, not deliberately so as to favour the domestic market over that in other member states but as a natural consequence of these different starting points. These variations are not inherently a disadvantage but can become so if the obligations imposed under national law deviate too far from those set out in the underlying directive or treaty obligation.

Free movement of capital



Around half of the UK’s trade in goods is with the rest of the EU, making it the UK’s largest trading partner, but the EU is also important in terms of trade with third parties, and particularly in attracting foreign direct investment (FDI).171

Foreign companies have invested around £100bn into the UK financial services sector since 2007 – more than in any other sector. European investors are the largest holders of FDI stock in the UK at 58 per cent.

In 2013, 34 per cent of the UK‘s trade surplus on financial services was derived from trade with other EU member states, compared to 30 per cent derived from trade with the US (see page 14).

171 See https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/279322/bis_14_591_balance_of_competences_review_Trade_and_investment_government_response_to_the_call_for_evidence.pdf

Trade and investment

£ m

illio

n

-40,000

-60,000

-80,000

Trade in goods Sum = Trade in goods and services

-20,000

0

20,000

40,000

200420032002200120001999 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Trade in services

Net trade in goods and services between the UK and the rest of the EU

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/279322/bis_14_591_balance_of_competences_review_Trade_and_investment_government_response_to_the_call_for_evidence.pdf

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/279322/bis_14_591_balance_of_competences_review_Trade_and_investment_government_response_to_the_call_for_evidence.pdf


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UK net trade in professional services

Source ONS March 2015

58%EUROPEAN INVESTORS ARE THE LARGEST HOLDERS OF FDI STOCK IN THE UK AT

IN 2011, 38% OF UK‘S TRADE SURPLUS ON FINANCIAL SERVICES WAS DERIVED FROM TRADE WITH OTHER EU MEMBER STATES, COMPARED TO 25% DERIVED FROM TRADE WITH THE US

FOREIGN COMPANIES HAVE INVESTED AROUND

INTO THE UK FINANCIAL SERVICES SECTOR SINCE 2007

38% V 25%£100bn

£ m

illio

n

2,000

Rest of the EU Rest of the world

4,000

6,000

8,000

10,000

1,000

3,000

5,000

7,000

9,000

02009 2010 2011 2012 2013



Trade

Under the Treaty of Lisbon the member states agreed to create a common commercial policy and the power to negotiate international trade deals was transferred to the EU. While it is still early days, this could deliver advantages such as simplification and uniformity although it might also be argued that this reduces the possibility for competition between member states in this sphere. It may also increase complexity and uncertainty as BIT negotiations or investor protection provisions within FTAs will need to account for a more diverse range of interests. There may also be differences of view between the Commission, member states and Council as to the scope of the EU’s competence.

One way in which individual member states may benefit from membership of the EU on the world stage is in international negotiations where the combined negotiating power of the EU is likely to be much stronger than a member state would be alone. Where the UK is successful in influencing negotiations to correspond to domestic priorities it can therefore capitalise on this increased power to accrue greater global influence in key areas such as law, financial services, pharmaceutical and engineering. The possibility of accessing a market as large as the EU also makes it an attractive trading partner and may be a factor in the decision by other countries to enter into negotiations in the first place.

This can be seen in trade deals such as the Transatlantic Trade and Investment Partnership (TTIP) currently being negotiated by the EU with the USA. While acting together may give the member states greater clout, it can also mean that the priorities of individual countries are diluted. If the UK were in charge of its own trade negotiations, it would have complete autonomy to determine its negotiating priorities. Some commentators also raise concerns that there is no clear democratic line-of-sight between the UK electorate and the EU’s negotiations.

Investment

One of the main benefits of participating in the internal market is the opportunity to attract investment, both from other member states and from countries outside the EU. US investment in the EU is three times greater than US investment in the whole of Asia. The law firms that advise clients on major extra-EU investment deals have told the Law Society that they are in no doubt that much of that international investment into the UK has come about as a result of EU membership and participation in the internal market.

Investment can also come from and be facilitated by the EU itself – as an example, the EU’s Horizon 2020 framework is designed to encourage research and innovation by providing funding and facilitating public private partnerships.


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There are four key directives which aim to facilitate the free movement of lawyers and legal services within the EU:

• the 1977 Lawyers’ Services Directive

• the 1998 Lawyers’ Establishment Directive

• the 2006 Framework Services Directive (although it is not specific to legal services, it contains provisions which have a direct effect on the legal services industry), and

• the 2013 Professional Qualifications Directive.

Temporary provision of services

The foundation of the regime under which lawyers could exercise their freedom to provide services was laid in a Council Directive in 1977.172 The right amounted to temporary service delivery, colloquially known as ‘fly in, fly out’.

Article 4 of the 1977 Directive distinguishes between the advice and representation of the client ‘out of court’ (Article 4.4) and in legal proceedings (Article 4.1 and 4.2). This distinction determines which professional rules are applicable to the visiting lawyer.

Visiting lawyers providing advice or representing the client in legal proceedings or before public authorities are regulated by the host bar rules. The Council of Bars and Law Societies of Europe (CCBE) stated that ‘in case of a conflict between home and host State professional rules the host member state’s professional rules prevail.’173 Visiting lawyers who provide advice or representation ‘out of court’ are, generally speaking, bound by the professional rules of their home bar.

Visiting lawyers may give advice on host state law (if competent). However, member states reserve the right to prepare ‘formal documents for obtaining title to administer estates of deceased persons, and the drafting of formal documents creating or transferring interests in land’ (Article 1). In England and Wales, restricted practice areas include exercise of rights of audience in courts, conduct of litigation, reserved instrument activities, probate and notarial activities, and administration of oaths.

Establishment

Article 49 TFEU and the 1998 Directive174 allow lawyers to establish, ie to set up an office or offices, in another member state on a permanent basis using their home title. Obligations are imposed as follows:

• requirement to register with host state bar

• certificate of attesting their registration with the home bar

• professional indemnity insurance (PII) to be held in line with home state rules ‘insofar as such insurance or guarantee is equivalent in terms of the conditions and extent of cover’ if he or she can prove it. Otherwise, the host member state may require a lawyer to take out the PII or to become a member of a professional guarantee fund, and

• lawyers must comply with their home and host bar rules. In cases where there is a conflict of rules, the host state’s rules prevail.175

Establishment also offers an admission route into the host state profession: after three years of regular and effective practice of host state law, a lawyer may be admitted to the host state profession. It is important to note that this admission is not mandatory and a lawyer can practice under his/her home title for as long as he/she wishes. Also, during the first three years it is possible to qualify by sitting an equivalence examination.176

Both bars have disciplinary powers if the lawyer does not comply with the professional rules (Article 7).

Under this system, lawyers may work in home or host state firms or even international firms as long as they comply with the conditions set out above. They may advise on both home and host state law, although legal proceedings will be managed in conjunction with a local lawyer and there may be restrictions on certain practice areas.

172 Council Directive 77/249/EEC of 22 March 1977 to facilitate the effective exercise by lawyers of freedom to provide services (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.1977.078.01.0017.01.ENG).

173 CCBE position on the evaluation of the Lawyers’ Directives, 12/09/2014 (http://www.ccbe.eu/fileadmin/user_upload/NTCdocument/EN_12092014_EN_CCBE_1_1412929215.pdf).

174 Directive 98/5/EC of the European Parliament and of the Council of 16 February 1998 to facilitate practice of the profession of lawyer on a permanent basis in a member state other than that in which the qualification was obtained (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:31998L0005).

175 However, as stated by the CCBE in their position on the evaluation of the Lawyers’ Directives, it must be borne in mind that the provisions of Article 6 of the Establishment Directive may be interpreted differently depending on its linguistic version.

176 See also information on the Recognition and the Professional Qualifications Directive.

APPENDIX 3:

LAWYERS’ PRACTISING AND ESTABLISHMENT RIGHTS IN EUROPE



http://www.ccbe.eu/fileadmin/user_upload/NTCdocument/EN_12092014_EN_CCBE_1_1412929215.pdf

http://www.ccbe.eu/fileadmin/user_upload/NTCdocument/EN_12092014_EN_CCBE_1_1412929215.pdf



The EU case law draws a line between lawyers who are employed in-house and those working in law firms or who are sole practitioners. Furthermore, in Akzo Nobel the CJEU ruled that legal professional privilege does not extend to legal advice given by in-house lawyers in the context of EU anti-trust investigations.177

Regarding business structures, firms may operate through the same entities or practice vehicles as host state lawyers. However, Article 11.5 imposes restrictions on non-lawyer participation (shareholding, management, etc.) if it is not allowed under the host state’s regulations. This is a key issue for England and Wales due to the licensing of alternative business structures (ABS) following the Legal Services Act 2007 including the possibility for ABS to establish abroad.

Recognition and the Professional Qualifications Directive

The Professional Qualifications Directive178 sets out conditions for recognition of qualifications and access to a regulated profession by different member states. The applicant must provide formal proof of their qualifications in their home state that allow them to access the regulated profession. The host member state has to compare the qualifications of the applicant with those required by its legislation. In case there is a difference, the applicant may be asked to take an aptitude test or undergo the adaptation period.179 The aptitude test should only be required to the extent that objective differences in substantive law and procedure exist between the jurisdiction from which the lawyer is coming and the one in which he or she wishes to practise.

The 2013 Directive introduced several new elements, the most important of which is recognition of traineeships completed abroad.180

The Framework Services Directive Regime

The aim of the Framework Services Directive181 was to liberalise services provision within the internal market. Under the Directive, restrictive requirements must be reviewed, liberalised or justified. The regime is general and while it deals mostly with how member states and regulators govern service providers, it also includes direct obligations to service providers. Some of these provisions apply to the legal profession, including details of:

• compulsory PII which must include the contact details of the insurance provider and the territorial coverage of the policy

• how to access the detailed professional rules applicable to a lawyer, and

• complaint resolution procedures, including the role of the Legal Ombudsman and where further information can be obtained.182

The Lawyers’ Directive is generally regarded as working well, although there are some areas in which modernisation is needed. Considering that the Lawyers’ Directives date back to 1977 and 1998 respectively,183 it is unsurprising that the legal framework does not cater for all the challenges of twenty-first century legal practice. Examples of this are the lack of provision for legal firms operating as ABS and technology-related developments, such as data protection.

177 Case C-550/07P Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd vs Commission.178 Directive 2005/36/EC of the European Parliament and of the Council of 7 September 2005 on the recognition of professional qualifications (http://eur-lex.europa.eu/

legal-content/EN/TXT/?uri=uriserv:OJ.L_.2005.255.01.0022.01.ENG).179 These are set out in Article 14 and called ‘compensation measures’. These apply when the duration of training of which the applicant provides evidence is at least

one year shorter than that required by the host member state, the training covers substantially different matters than that required in the host member state and the regulated profession in the host member state comprises one or more regulated professional activities which do not exist in the corresponding profession in the applicant’s home member state.

180 The provisions on professional traineeships were inserted into the Directive following the ECJ case law in these areas. In case of lawyers, it was the judgment in the Morgenbesser case (C-313/01 Christine Morgenbesser v Consiglio dell’Ordine degli avvocati di Genova) which extended the rights of mobility to those still in training and not yet fully qualified lawyers.

181 Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market.182 See the Law Society’s practice note on Provision of Services Regulation 2009 (http://www.lawsociety.org.uk/support-services/advice/practice-notes/provision-of-

services-regulations-2009/).183 The Lawyers’ Services Directive of 1977 and the Lawyers’ Establishment Directive of 1998. These are supplemented by a further general directive: the Mutual

Recognition of Diplomas Directive of 1989.



http://www.lawsociety.org.uk/support-services/advice/practice-notes/provision-of-services-regulations-2009/

http://www.lawsociety.org.uk/support-services/advice/practice-notes/provision-of-services-regulations-2009/


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In committing to an in/out referendum, Prime Minister David Cameron said that the UK government believed that EU membership was in the national interest, but that the UK should seek to renegotiate its relationship with the EU. The basis of this renegotiation was set out in his Bloomberg speech of 23 January 2013 as:

• powers flowing away from Brussels, not always to it

• national parliaments able to work together to block unwanted European legislation

• businesses to be liberated from red tape

• UK police forces and justice systems to be able to protect British citizens, unencumbered by unnecessary interference from the European institutions, including the European Court of Human Rights184

• free movement to take up work, not free benefits. Support for the continued enlargement of the EU to new members but with mechanisms in place to prevent large scale migration

• an opt-out for the UK from the concept of ‘ever closer union’ that is enshrined in the EU treaty.

In terms of ‘powers flowing away from Brussels, not always to it’, a UK referendum is already guaranteed under the European Union Act 2011 before further Treaty change can result in the movement of significant policy areas from the UK to the EU.

RENEGOTIATION, WITHDRAWAL AND ALTERNATIVES TO THE EU

Does reform require renegotiation?EU Treaty change can be a lengthy process and would need the unanimous agreement of all 28 EU member states. The last Treaty negotiation took eight years. Both the European Parliament and national parliaments – each with their own domestic politics – would have their say on any future negotiation. So the prospects for any reforms that do not require a Treaty change are clearly significantly better than for those that do.

The following table provides a guide to the extent to which individual reforms require Treaty change. It seems clear that while some issues are simply a matter of political will and lobbying, a number of the points listed by the Prime Minister would need Treaty amendments.

The option of an inter-governmental agreement as was used to set up the Eurozone’s bailout fund, the European Stability Mechanism, has been suggested as a mechanism for reaching agreement with the UK, but that agreement did not affect underlying Treaty rights and could not be used to by-pass the EU and national parliaments.

184 It is important to note that the European Court of Human Rights is not an EU institution.

APPENDIX 4:



Powers flowing away from the EU, not always to it.

Current Treaty provisions are limited. Requirement for Treaty change depends on subject areas and EU powers in those areas. Repatriating EU competence over social and employment law would require Treaty change, but reforming energy policy, modernising the CAP or reforming fisheries policy could be negotiated within the existing Treaties.

National parliaments able to work together to block unwanted EU legislation; ‘green card’ procedure allowing parliaments to encourage Commission to introduce legislation, repeal or revise existing measures; ‘red card’ procedure by which national parliaments working together could block Commission proposals.

Currently several national parliaments together can ask the Commission to rethink a proposal, but there is no obligation to amend/withdraw (‘yellow card’ procedure). The proposed red and green card procedures would require Treaty/Protocol amendment. The new European Commission that took office on 1 November 2014 included a new First Vice-President role with particular responsibility for considering respect for subsidiarity and proportionality before any new legislative proposals are tabled.

Businesses liberated from red tape and benefiting from strength of EU internal market to open up greater free trade with North America and Asia.

Political will needed to amend EU legislation rather than Treaty change. Free trade agreements with other countries could be negotiated under current Treaty provisions.

UK police forces and justice systems able to protect British citizens without ‘unnecessary interference’ from EU.

UK has extensive opt-outs from police and justice measures. A complete opt-out from all such provisions would require Treaty change.

Free movement to take up work, but not free benefits: Freedom of movement not an ‘unqualified right’ for residence purposes only.

Free movement is a fundamental EU principle guaranteed in several Treaty Articles. These would need to be amended, as would the 2004 Free Movement Directive.

Support for continued EU enlargement but with mechanisms to prevent vast migrations across Europe.

Accession treaties for new member states could apply longer transitional rules on free movement of workers.

Dealing with concept of ‘ever closer union’, which ‘is not right for Britain’.

Treaty change needed to remove concept from Preamble. A new political declaration could recall that Treaties oblige EU to respect member states’ history, national identities, political and constitutional structures. Treaty change to amend EU competences and amend/add to protocols setting out UK opt-outs.

Protection for non-Euro states from possible domination by Eurozone states and caucusing.

Likely to require Treaty change.

Proposed reform Treaty amendment?

185 This table is adapted from the House of Commons Library Standard Note Reforming the EU: UK Plans, Proposals and Prospects SN/IA/138, p22 16 March 2015 (http://www.parliament.uk/briefing-papers/SN07138.pdf).

The following table presents an external assessment of the extent to which reforms might be achievable without Treaty change.185


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Should renegotiation be judged unsuccessful in a referendum vote, the subsequent withdrawal process would be complex and highly politicised. No-one could say with certainty how long it would take.

Under Article 50 the departing State cannot be prevented from leaving subject to the two year notice period which is triggered by a member state giving formal notice of its intention to cease membership.

Article 50 envisages a process of notification to withdraw then negotiation, rather than the other way round. Article 50(2) envisages agreement on the exit arrangements but this does not guarantee that agreement will be reached or that acceptable terms will be offered to the exiting state.

Under Article 50(3) exit happens after two years even if there is no agreement, unless the Council unanimously agrees otherwise. There must be a risk that the UK will have to exit without an agreement being reached or on unacceptable terms. At the same time, the UK would have to be negotiating the terms of new agreements with third parties, whether collective bodies such as the EFTA or other countries on a bilateral basis.

The exit process would take years, but the impact will be felt much sooner. The referendum has already been announced but the environment will continue to evolve as each of the stages set out below is reached:

• renegotiation of terms of membership

• the referendum itself.

If the referendum result favours Brexit then further trigger points will follow:

• notice to withdraw

• negotiation of terms of withdrawal

• negotiation of new terms with third parties (alongside but possibly dependent on the terms of withdrawal)

• withdrawal from EU and entry into new terms (the treaty envisages a two year withdrawal process).

Each stage brings with it its own uncertainties. Particularly for commercial law firms the crucial question will be how corporate clients decide to respond to that uncertainty. They might defer making some decisions, for example on capital expenditure or investment projects until they are clear about the longer term; or they may make decisions in an attempt to head off uncertainty, for example by relocating to a country that is committed to EU membership. Whatever their circumstances, all businesses – and individuals – will want clarity and certainty about their contractual and other legal rights from day one of Brexit.

The withdrawal process

Article 50 of the Treaty on European Union

1. Any member state may decide to withdraw from the Union in accordance with its own constitutional requirements.

2. A member state which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.

3. The treaties shall cease to apply to the state in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the member state concerned, unanimously decides to extend this period.

4. For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing member state shall not participate in the discussions of the European Council or Council or in decisions concerning it.



EFTA

The European Free Trade Association (EFTA) has four member countries: Norway, Iceland, Liechtenstein and Switzerland.

The EFTA countries regularly combine to negotiate trade agreements, allowing them to benefit from the greater weight of their combined negotiating power. The reciprocal market access to a larger market is similarly more attractive to potential FTA counterparts. Currently EFTA has 25 free trade agreements covering 35 countries.

Norway, Iceland and Liechtenstein also have access to the EU internal market through the European Economic Area (EEA) agreement. Switzerland’s position is different (see below).

The EFTA states’ market access is conditional upon compliance with the relevant EU rules and regulations. These rules are agreed by the 28 member states and the EFTA states are not able to vote on the legislation, even though in practical terms they will be bound by it.

Each EFTA country contributes directly to the EU budget.186 A report by the Centre for European Reform187 states that:

‘If the UK were to withdraw to the EEA and pay into the EU budget on the same basis as Norway, it would reduce its contribution by 9 per cent. If it were successful in negotiating agreements like Switzerland’s, its contribution would fall by 55 per cent.’

The difference between the Norway and Switzerland figures reflects their different levels of market access.188

Membership of EFTA is not an automatic right. The UK was formerly a member of the association but it left four decades ago to join the EU. Joining EFTA would be a negotiation in its own right, and the four existing EFTA countries would have their own interests to safeguard in any negotiations. Their enthusiasm for UK membership could not be taken for granted.

EEA

The European Economic Area was created in 1994 and forms an internal market of the EU member states and the three EEA/EFTA States. The EEA Agreement does not extend to EU policies such as justice and home affairs or foreign and security policy nor does it encompass fisheries or agriculture. It grants access to the EU market in exchange for reciprocal access to the EFTA states for EU products, businesses and people, but the power balance lies very much in favour of the EU.

The EEA countries are bound by the majority of EU legislation. They are obliged to bring EU directives and regulations into their own legal frameworks and to disapply national law where a conflict arises.189

EU legislation is enforceable through the Commission working together with the EFTA Surveillance Authority, specifically tasked with monitoring compliance by the EEA/EFTA States.190 If an EFTA state fails to comply with its obligations, a case could be brought against it. Just as the EFTA Surveillance Authority works together with and follows the Commission, the EFTA Court is bound to follow the rulings of the CJEU. The requirement to permit free movement of persons means that this model would not address public concerns about immigration from the EU.

As a member of the EU the UK is a signatory to the EEA agreement. It is unclear how a decision to leave the EU would affect this. If negotiation to remain a member were required, it would be heavily influenced by the state of political relationships with soon-to-be former EU partners.

EEA/EFTA (‘Norway’)

Norway, as the largest of the EFTA-EEA states, is sometimes cited as a model which the UK could emulate if it were to disengage from the EU.

Norway does not participate in the Common Fisheries Policy (CFP) or Common Agriculture Policy (CAP). Fishing and forestry (which falls within the CAP) are essential components of the Norwegian economy, which has a very strong focus on primary resources. Such resources offer a natural economic competitive advantage as they cannot be moved from place to place in the same way as services or manufacturing.

Alternatives to EU membership

186 See www.efta.int for more information on the EEA/EFTA contributions to the EU’s operational expenditure and the administrative costs of the European Commission.187 http://www.cer.org.uk/sites/default/files/smc_final_report_june2014.pdf188 Norway is the 10th highest contributor to the EU budget in per capita terms.189 See Article 7 of the EEA agreement.190 For further information, see http://www.eftasurv.int/about-the-authority/the-authority-at-a-glance-/

http://www.eftasurv.int/about-the-authority/the-authority-at-a-glance-/


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The freedom to opt out of the CAP and the CFP is fundamental to Norway’s position against joining the EU: protecting its fishing grounds is a ‘red line’ in domestic politics. In those areas where it does participate in the internal market, Norway is bound to implement the applicable EU legislation. Although it has observer status within the Council, this does not translate into a vote. It therefore holds no formal law-making powers, despite the fact that it is governed by EU laws to such a large extent. Norway has had to implement about 75 per cent of EU law.

Norway is bound to respect market agreements between the EU and third parties but it does participate in the formation of those agreements – so, for example, it is not involved in the current EU trade negotiations on the TTIP with the USA or the FTA discussions with Japan.

EFTA + bilateral agreements (‘Switzerland’)

Switzerland is the fourth EFTA state, but is not part of the EEA. It has its own unique set of arrangements for EU market access which operate in a different way from the other EFTA countries. The EU/Swiss relationship is governed by a whole series of bilateral treaties dating back as far as 1956. These operate in conjunction with a number of multilateral international treaties to which both the EU and Switzerland are party.

A 1972 bilateral agreement saw the creation of a free trade zone for industrial products which has since been extended to include trade in agricultural products. A 1989 agreement opened up parts of the insurance markets. Seven bilateral agreements were concluded in 1999 including agreement on the free movement of persons: Switzerland cannot limit immigrants from the EU. Switzerland does not participate in social and employment policy and is not bound by EU law in this area. Further agreements in 2004 centred on co-operation, both economically and more generally.

Switzerland is able to determine its own commercial policy and customs tariffs. As a member of EFTA it participates in all of EFTA’s free trade agreements but is also able to conclude its own individual negotiations with third countries. Practically speaking, the majority of agreements are concluded in conjunction with its EFTA partners.

Unlike Norway, Switzerland is not automatically bound to implement EU internal market legislation, but in practice it must have regard to most such EU legislation to ensure reciprocal market access.191 Swiss companies have to comply with EU standards if they want to sell their products in the EU.

While Switzerland has considerable access to the internal market in terms of goods it has a far lower level of integration in relation to services. So, for example, Switzerland sets its own financial services regulation but its access to the single market in relation to financial services is correspondingly very limited.192 There are obvious implications for the UK financial services sector under a similar model. Moreover, there is no arbitration or adjudication mechanism available to resolve disputes.

In practical terms it is almost inconceivable that the ’Swiss model’ would be an option for the UK. The EU Council has indicated that it has no wish to repeat the experience of the past fifty years or so by recreating individually negotiated arrangements that it regards as unwieldy and complex and which cannot properly accommodate the ever-changing legislative environment.

Customs Union – Turkey

Turkey is the only major economy which operates a customs union with the EU.193 Turkey has a long-standing relationship with the EU which can be traced back to 1959 when it applied for associate membership of the EEC and an initial association agreement between the two, known as the Ankara Agreement, was signed in 1964.194 Since 1999 Turkey has been a candidate for EU membership: it is therefore a country ‘on the way in’ rather than ‘on the way out’, although progress has been stalled by the obvious political difficulties regarding Cyprus, and EU criticism of Turkey’s record on human rights and the rule of law.

A Turkey-EU customs union was established in 1995 covering trade in manufactured products. Preferential trade agreements are also in place governing trade in steel and agricultural products.

The customs union does not merely remove customs tariffs for goods traded between Turkey and the EU. Under the agreement Turkey is obliged to align itself with the Common Customs Tariff in relation to third countries: as with the EEA/EFTA states, Turkey is obliged to follow the rules set by the EU with no seat at the negotiating table.195

191 See CER http://www.cer.org.uk/sites/default/files/smc_final_report_june2014.pdf at p 31.192 It is therefore outwith the scope of the EFTA Surveillance Authority and European Commission in relation to judicial enforcement actions.193 See also Andorra and San Marino.194 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:JOC_1973_113_R_0001_01&from=EN195 Turkey has an FTA with the EFTA in its own right.



Turkey has also adopted other EU rules, for example in relation to intellectual property law and the EU’s regulations relating to commercial policy, thus extending the concept of a level playing field to business with Turkey beyond what might be agreed under a simple FTA.

Work is going ahead on a Roadmap towards a visa-free regime with Turkey. A Readmission Agreement – one of the Roadmap requirements – was ratified by the Turkish Parliament at the end of June 2014. The Roadmap is intended to establish mechanisms to prevent irregular migration; judicial and police co-operation are also specifically mentioned.

While Turkey’s level of access to the internal market is significantly reduced in relation to goods in comparison with that enjoyed by member states, it is even more restricted in the case of services which are not included in the Turkish agreement. Services access is therefore limited to unilateral market opening measures and WTO commitments. Similarly public procurement is not covered by the existing agreement.

A customs union arrangement following the Turkish template in this way could have serious ramifications for the UK given the extent to which professional services and financial services make up UK exports to the EU.

Although generally viewed as advantageous, the EU-Turkey Customs Union, as with most international agreements, has its problems. One of the major problems from the Turkish point of view is that Turkey must allow access to third country products on the same basis as the EU, but it is at the discretion of those third parties to decide whether they wish to give Turkish producers reciprocal access.

The World Trade Organisation

The UK was a member of the WTO’s predecessor, the GATT, and has been a member of the WTO since its creation in 1995. The EU is also a member in its own right and coordinates the position of the EU member states. The way in which the UK operates within the WTO would therefore be altered if it were to leave the EU.

The WTO relates solely to trade, and it operates on the basis of the Most Favoured Nation (MFN) =principle: if a benefit is offered to one trading partner, it must be offered to all other WTO members. The exception is where there is a preferential arrangement such as a free trade agreement or customs union like the EU. WTO members have access to each others’ markets on this basis. Many of them trade with the EU but the rules are different from those for EU member states. They are not obliged to contribute to the EU budget in return for market access nor are they eligible to receive EU funding.

WTO membership relates solely to trade and does not encompass activities such as co-operation in policing and civil or criminal justice, so these would need to be considered separately. WTO countries do not participate in the CFP and CAP or in social and employment policy.

As a member of the WTO outside the EU the UK would not have unfettered access to the internal market in the way it does now. Equally, it would not be bound by or benefit from the four fundamental freedoms – of movement of capital, persons, services and goods.

The UK would therefore be able to set its own policy in relation to immigration from the EU; equally, UK citizens would no longer have an automatic right to work in other EU countries. From a business perspective, visa restrictions and requirements might be imposed for citizens wishing to work in EU member states or companies wishing to recruit workers from the EU to work in the UK.

The UK would also be free to set its own policy in relation to financial services for domestic purposes. It would no longer participate in setting EU regulatory standards and would cease to benefit from automatic establishment and ‘passporting’ rights.


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The EU and individual member states would be free to impose more stringent requirements in relation to market access. Membership of the WTO would not provide a mechanism to challenge legislation or resolve regulatory disputes.

One of the consequences of leaving the EU and accessing the internal market on the basis of WTO membership is that the UK would be free to set its own trade policy – as would the EU.

Under the EU, it is not just that quotas on imports and exports are prohibited; hidden barriers to trade – such as those in relation to electronic goods – are removed through harmonisation legislation which does not and could not happen under WTO rules.

Within the EU, Article 34 (the prohibition on quantitative restrictions on imports and measures of equivalent effect) is directly enforceable by private parties so that a measure can be challenged more swiftly than it could through diplomatic negotiations between WTO signatories. The EU Commission can take enforcement action against member states in breach; there is no WTO equivalent. If the UK were to leave the EU it would have sole discretion over its trade policy and trade negotiations within the WTO. As with other withdrawal scenarios the UK would be excluded from EU negotiations, for example those with the USA and Japan. It would fall to the UK to renegotiate all its international agreements within the secession period if it did not wish to resort to the fall-back position reliant solely on WTO commitments and unilateral market opening decisions.

WTO plus FTA

The UK could also opt to try and negotiate an FTA with the EU itself. The form this would take would depend very much on the UK and EU’s respective trading priorities. It is therefore difficult to predict what the agreement would look like and much would depend on the attitudes of the remaining member states. It could range from an in-depth arrangement with aspects akin to, eg the levels of integration with Switzerland or, at the other end of the spectrum, could focus on simple removal of tariff barriers to facilitate trade in goods. It is impossible to predict the level of services integration which would be achievable, either in terms of financial services which, as noted above, are a particular large contributor to the UK economy, or in relation to other services, including legal services, and what that might mean for the international status of the UK’s legal sector.



Qualitative research

The project team conducted a series of qualitative interviews with individuals from law firms around England & Wales. Interviewees were asked questions about how the EU currently impacted upon their firm, their clients and their employment practices, and what they thought about the various models should there be a change in the UK’s relationship with the EU.

Where quotes are given in the report, firms are described as:

• city firms

• London firms (non-City firms operating in the capital)

• specialist firms

• regional firms

• firms in Wales

• foreign firms

Although general counsel are a very important part of the business legal sector, there were naturally constraints on what GC interviewees could say to us without straying into areas of commercial sensitivity, as they are in the unique position of acting for a single client. Consequently, the report does not cite GC interviewees, although those interviews contributed to our understanding in compiling this report.

Who we spoke to

City firms

These firms are usually headquartered in London, but have offices around the world, especially in the EU. They work very closely with European and other international clients, and tend to have international staff.

They are amongst the largest law firms in the world in terms of turnover, and tend to focus on financial services or commercial law.

Specialist firms

The project team spoke to firms specialising in two specific areas of law: intellectual property law and family law.

Regional firms

Some regional law firms work in areas that had strong economic ties with the EU, such as agriculture, which had important implications for their client population.

In terms of areas of law, all interviewees recognised the relevance of EU legislation to their practice to a greater or lesser extent, but not all foresaw a direct business impact as a result of a change in the UK’s relationship with the EU.

Firms in Wales

Participants in our roundtable in Cardiff were specifically concerned about the possible impact of Brexit on the Welsh economy and potential loss of access to ‘start-up’ and other EU structural funds, as well as the CAP.

Farm subsidies and infrastructure investment by their nature are regional expenditures, so naturally any reduction in EU-related spending would be concentrated in those areas.

Foreign firms

There are various kinds of foreign law firms operating in London, serving different clients, and with different business structures, but often with exposure to the financial services sector.

ADDITIONAL INFORMATION


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The Law Society conducts research on the solicitors’ profession in England and Wales. The categories of work data reflects the number of practice certificate (PC) holders working in private practice, government or the employed sector, undertaking specific categories or ‘areas of law’ and not the amount of time spent on different types of casework.

The most frequently undertaken area of law in January 2015 was Business Affairs, 25,965 solicitors reported practising in this area. On average PC holders worked in three work categories.

Categories of work undertaken by solicitors in England and Wales (January 2015)

This data is based on a quarterly extract from the SRA database. SRA data is collected from solicitors as part of the practising certificate renewal exercise. If solicitors do not notify the SRA during the year, when their work categories change, this will not be reflected in the data. Work categories with less than 100 practising solicitors are not reported. Of the 129,922 PC holders registered in January 2015, 92.4 per cent provided information on categories of work. This information reflects post-PC renewal (2014-15) data.

15,001+ (5 areas)

Business Affairs; Commercial Property; Litigation – Commercial; Litigation – General; Residential Conveyancing

10,001-15,000 (9 areas)

Advocacy; Corporate Finance; Crime – General, Motor, Juvenile; Employment; Family; Landlord and Tenant – Residential; Mergers and Acquisitions; Personal Injury; Wills and Probate

5,001-10,000 (8 areas)

Administrative and Public Law; Banking Law; Children Law; Computer and IT Law; Financial and Investment Services; Insurance; Intellectual Property; Trusts

1,001-5,000 (32 areas)

Agricultural Law; Chancery; Charity Law; Civil Liberties / Human Rights; Common Law; Construction / Civil; Consumer Problems; Debt and Money Advice; Engineering; Education; Energy and Natural Resources; Environment Law; European Community Law; Fraud; Immigration – Asylum; Immigration and Nationality; Immigration – Other; Insolvency and Bankruptcy; International Law (Non-EC); Liquor Licensing / Gambling; Maritime / Shipping / Admiralty; Media / Entertainment Law; Mediation – Civil / Commercial; Mediation – Family; Medical Negligence; Mental Health; Neighbour Disputes; Planning Law; Professional Negligence; Transport – Road and Rail; Welfare Benefits; Taxation

Fewer than 1,000 (5 areas)

Aviation; Libel and Defamation; Military Law; Pension Law; Travel and Tourism

No. of solicitors practising in the area (Oct 2014)

Work categories



Administrative and Public Law 6,121 5.1

Advocacy 10,329 8.6

Agricultural Law 1,207 1.0

Aviation 922 0.8

Banking Law 9,312 7.8

Business Affairs 25,965 21.6

Chancery 1,111 0.9

Charity Law 2,160 1.8

Children Law 7,319 6.1

Civil Liberties / Human Rights 2,416 2.0

Commercial Property 20,855 17.4

Common Law 3,163 2.6

Computer and IT Law 5,527 4.6

Construction / Civil Engineering 3,938 3.3

Consumer Problems 2,469 2.1

Conveyancing Residential 16,314 13.6

Corporate Finance 12,689 10.6

Crime – General, Motor, Juvenile 11,500 9.6

Debt and Money Advice 2,867 2.4

Education 1,376 1.1

Employment 13,571 11.3

Energy and Natural Resources 3,731 3.1

Environment Law 2,443 2.0

European Community Law 3,416 2.8

Family 13,176 11.0

Financial and Investment Services 7,206 6.0

Fraud 4,305 3.6

Immigration – Asylum 1,080 0.9

Immigration – Other 1,291 1.1

Immigration and Nationality 4,115 3.4

Insolvency and Bankruptcy 4,616 3.8

Insurance 5,572 4.6

Intellectual Property 8,873 7.4

International Law (Non-EC) 2,649 2.2

Landlord and Tenant – Residential 11,242 9.4

Libel and Defamation 959 0.8

Liquor Licensing / Gambling 2,468 2.1

Litigation – Commercial 19,601 16.3

Litigation – General 24,488 20.4

Maritime / Shipping / Admiralty 2,010 1.7

Media / Entertainment Law 3,540 2.9

Mediation – Civil / Commercial 2,766 2.3

Mediation – Family 1,029 0.9

Work categories undertaken by PC holders registering practice areas

All count Percentage of PC holders (n=129,094)

Continued


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Medical Negligence 3,547 3.0

Mental Health 1,775 1.5

Mergers and Acquisitions 11,239 9.4

Military Law 361 0.3

Neighbour Disputes 1,892 1.6

Pension Law 910 0.8

Personal Injury 12,756 10.6

Planning Law 2,768 2.3

Professional Negligence 4,806 4.0

Taxation 4,822 4.0

Transport – Road and Rail 1,480 1.2

Travel and Tourism 456 0.4

Trusts 7,092 5.9

Welfare Benefits 1,139 0.9

Wills and Probate 13,581 11.3

Work categories undertaken by PC holders registering practice areas

All count Percentage of PC holders (n=129,094)

CAP – Common Agricultural Policy

CFP – Common Fisheries Policy

CJEU – Court of Justice of the European Union

EEA – European Economic Area

EEA/EFTA State – countries that are members of both EEA and EFTA, ie Iceland, Liechenstein and Norway

EFTA – European Free Trade Association

EU – European Union

FDI – Foreign Direct Investment

FTA – Free Trade Agreement

GATS – General Agreement on Trade in Services

GATT – General Agreement on Trade and Tariffs

TEU – Treaty on European Union

TFEU – Treaty on the Functioning of the European Union

TTIP – Transatlantic Trade and Investment Partnership

WTO – World Trade Organisation

The Bar Council www.barcouncil.org.uk

CILEx www.cilex.org.uk

The Faculty of Advocates www.advocates.org.uk

The Law Society of Northern Ireland www.lawsoc-ni.org

The Law Society of Scotland www.lawscot.org.uk

Abbreviations Other UK legal representative bodies



House of Commons Library and other UK Parliamentary reports

Leaving the EU Research Paper 13/42 1 July 2013

Financial Services: Contribution to the UK Economy Standard Note SN/EP/06193, 26 February 2015

Reforming the EU: UK Plans, Proposals and Prospects Standard Note SN/IA/138, 16 March 2015

House of Lords European Union Committee – Fourteenth Report: The Transatlantic Trade and Investment Partnership

House of Commons Library Economic Indicators Research paper 14/58 4 November 2014

House of Commons Library How much legislation comes from Europe? Research paper 10/62 13 October 2010

House of Lords European Union Committee on The UK’s opt-in Protocol: implications of the Government’s approach, 9th Report of Session 2014-15, 24 March 2015

House of Lords European Union Committee on The post-crisis EU financial regulatory framework: do the pieces fit? 5th Report of Session 2014-2015, 2 February 2015

House of Commons Library Standard Note SN/IA/6577 Is adherence to the European Convention on Human Rights a condition of European Membership? 25 March 2014

House of Commons Library Standard Note Reforming the EU: UK Plans, Proposals and Prospects SN/IA/138, March 2015

Law Society reports

EU Priorities 2014-2019

Balance of Competences Review Consultation Responses

TheCityUK reports

A Legal Assessment of the UK’s Relationship with the EU: a Financial Services Perspective, April 2014 (with Clifford Chance)

Financing Europe’s Investment and Economic Growth City of London, TheCityUK, IRSG and Paris Europlace – Report produced by Llewellyn Consulting, June 2014

Analysing the Case for EU Membership – How Does the Economic Evidence Stack Up? April 2014

The City Speaks: A milestone study of the views of financial and related professional services leaders on the EU, October 2013

UK Legal Services 2015 Legal Excellence, Internationally Renowned, February 2015

Britain’s place in Europe: developing policies for a reformed and competitive EU, June 2014

EU Reform – A View from the City, November 2014

Key facts about EU financial and related professional services, August 2013

UK and the EU: a mutually beneficial relationship, June 2013

Further reading


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Other reports and information

CBI: Our Global Future 2014

International Arbitration Survey: Choices in International Arbitration 2010

Mayor of London The Europe Report: a Win-Win Situation, August 2014

Centre for European Reform The Economic Consequences of Leaving the EU, June 2014

Eurojust Annual Report, 2013

City of London and London Economics The Importance of Wholesale Financial Services to the EU Economy 2014

Open Europe Kick-starting growth: How to reignite the EU’s services sector, April 2013

European Services Forum International Services Trade & Investment, Summer 2012

EEF Manufacturing: Our Future In Europe, October 2013

David Keeling, Intellectual Property Rights in EU Law Volume 1

Regent’s University London The UK & Europe: Costs, Benefits, Options (The Regent’s Report 2013)

Open Europe: What if…? The consequences, challenges and opportunities facing Britain outside the UK, March 2015

Adler-Nissen, Through the EU’s front and back doors: the selective Danish and Norwegian approaches in the Area of Freedom, Security and Justice, in Howard Grøn, Nedergaard and Wivel

The Nordic Countries and the European Union: Still the other European community? Routledge, Abingdon: 2015

Open Europe: How EU renegotiation will happen and how to pursue it, February 2015

Business for Britain Change or Go, July 2015

For an understanding of the different ways in which contributions to the EU budget can be measured and the impact of the UK’s rebate, see:

http://www.telegraph.co.uk/finance/financialcrisis/ 11221427/EU-budget-what-you-need-to-know.html

http://news.bbc.co.uk/1/hi/world/europe/8036097.stm

http://www.telegraph.co.uk/finance/financialcrisis/11221427/EU-budget-what-you-need-to-know.html

http://www.telegraph.co.uk/finance/financialcrisis/11221427/EU-budget-what-you-need-to-know.html


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