In our pre-referendum briefing of 27 May (see here) we explored how Brexit might affect the aviation sector and the UK’s access to the single aviation market. Following the UK’s vote to leave the EU it is important to consider in more detail how the rules that govern the sector might change.
Brexit has the potential to change the landscape for UK businesses. Nothing changes in the short term - EU law will continue to apply in the UK until the date it actually leaves which does not appear to be likely until at least early 2019. In the longer term, the ability and willingness of the UK Government to retain access to the single aviation market post-Brexit and, as far as possible, enable UK businesses to continue to benefit from freedom of establishment and non-discriminatory market access, will be crucial to minimise disruption and change.
In this briefing we explore some of the rules and rights that might be subject to change in the event that the UK is unable or unwilling to agree a deal with the EU that enables it to maintain full access.
Traffic rights / freedoms
Currently the UK benefits from air traffic rights negotiated at EU level. UK owned airlines with EU carrier status are able to operate anywhere within the EU. UK and EU airlines currently benefit from traffic rights - such as “fifth freedom rights” (and variations thereof) and “cabotage” – which enable the operation of cargo and passenger services between any two EU member states, as well as between two points within the same EU member state. These freedoms are available to any airline operating under a licence granted by a competent licensing authority of an EU member state. In order for a business to gain an operating licence, amongst other requirements, its principal place of business must be in an EU member state and EU member states and/or nationals of EU member states must own more than 50% of the airline and hold effective control of the business. Clearly, leaving the EU raises doubts as to whether these rights will continue for UK airlines, and the starting position absent a “new deal” with the EU is that they will not.
If the UK is unable to gain the same air traffic rights on similar or equivalent terms as it currently enjoys, it is possible that UK based airlines could be forced to base themselves elsewhere in order to benefit from such freedoms. Airlines may consider relocating or restructuring their businesses to continue to benefit from the single EU aviation market in the absence of a post-Brexit aviation deal with the EU.
Securing a “new deal” for aviation
In respect of aviation, there are a number of options that the UK government will need to consider as part of its Brexit negotiations. Our briefing of the 27 May explored some of the options that might enable the UK to mitigate the Brexit effect on the aviation sector, namely: a new UK/EU aviation agreement; joining the ECAA as an ‘independent’ signatory; or new aviation agreements with individual (EU and non-EU) countries.
We concluded that there may be only limited scope for the UK Government to divert from the key laws and regulations that govern the sector should it wish to maintain access to the EU aviation market. That said, whilst these options might provide some indication of how the UK could secure a new deal and minimise disruption it is by no means certain that this will be achieved. On July 27, Theresa May announced that she would be looking for a “bespoke” relationship with the EU and not one that is “off-the-shelf”. It is clearly plausible that any “new deal” the UK secures might result in a patchwork of existing laws and regulations applying (including in respect of traffic rights), with others falling away. To help you make sense of what this might mean, we set out below how our experts consider Brexit might affect key rules and regulations that affect your business.
What might happen to those laws deriving from the EU on Brexit?
As set out in the latest version of our briefing on leaving the EU here), to answer this question, some understanding is needed on the different instruments used to implement EU law.
EU Treaties form the constitutional basis of the EU and create the Single Market supported by the four freedoms of movement in goods, people, services and capital. The EU Treaties are implemented into UK law through the European Communities Act 1972 ("ECA"). The ECA provides for the supremacy of EU law in the event of a conflict with UK law and also provides the legislative basis for transposing EU law into UK law.
Some EU laws are implemented by means of a Directive. EU Directives set out general rules to be implemented into national law by each country as they deem appropriate. In the UK, they are implemented via primary legislation such as Acts of Parliament or secondary legislation such as Statutory Instruments in order to have effect. Other laws are implemented by means of a Regulation. EU Regulations are directly implemented into UK law and do not require legislation from UK Parliament. Some, however, have been implemented explicitly into UK law. Lastly, UK courts and regulators are required to follow EU case law.
Which EU laws will continue to apply in the UK when the UK leaves the EU will depend on the model of Brexit that is adopted. For example, if the UK were to join the European Economic Area ("EEA") to take advantage of being in the Single Market then it would continue to be bound by Single Market laws.
If the UK is not required to comply with any EU laws as part of the withdrawal agreement, the EU Treaties will no longer apply to the UK. We expect the ECA to be repealed or amended at the same time so that EU law will no longer be supreme over UK law.
What will happen to existing EU law, whether:
1. EU Regulations;1
2. EU Directives implemented by secondary legislation (for example, Statutory Instruments) under the ECA; or
3. Separate Acts of Parliament implementing EU law?
Categories (1) and (2) will no longer have effect in the UK unless the UK Parliament introduces UK legislation or amends the ECA to the contrary.
Category (3) will remain in place until the UK Parliament decides which should remain, be repealed or amended.
Judgments of the Court of Justice of the EU ("CJEU") form part of UK case law and will continue to apply until the UK Parliament or UK courts decide otherwise.
The review process of deciding which EU laws should continue to be applicable in the UK will take many years. As time goes on there could be an increasing divergence between EU and UK law. UK businesses that wish to continue exporting to the EU may find that they have to comply with two sets of laws. It may make practical sense to separate businesses exporting to the EU and selling into the UK domestic market into different legal entities.
Brexit: How this will impact on UK employment law
In light of the significant influence of migration to the outcome of the EU referendum, before considering potential employment law implications, of even greater concern for employers is the likely impact of Brexit upon the free movement of workers. Depending on the terms of the UK's future relationship with the EU on exit, citizens of other Member States may no longer enjoy an automatic right to travel to and work in the UK (and vice versa). It would seem that free movement of people would be a significant bargaining issue for the EU if the UK is to continue enjoying the benefits of free trade in goods and services.
Brexit: How this will impact on UK competition law
Competition law comprises three main areas: anti-trust law, merger control and State aid. The two key anti-trust provisions are the prohibitions on (i) agreements which distort or restrict competition; and (ii) the abuse of dominant positions.
The anti-trust laws will remain basically the same except that they will apply purely in a UK context and the UK Competition and Markets Authority (“CMA”) will no longer have the power to enforce EU competition law in the UK. The UK merger regime will remain unaffected except that the CMA will have jurisdiction to investigate more mergers because the EU Merger Regulation “one stop shop" for pan European mergers will no longer apply in the UK.
Brexit - How this will impact on UK environment law
Now begins the period of review to understand exactly which Environmental laws are derived from the EU, where the regulatory gaps will lie, and what should be repealed in whole or in part or changed. The UK has the opportunity to reappraise and possibly reduce environmental regulation. There may be scope for some simplification, but radical changes are unlikely, given the increasing globalisation of environmental standards. In practice, meeting those standards will, in any event, be a pre-condition for sales into the EU and wider markets.
Brexit: How this will impact on EU-wide litigation
The UK’s exit from the EU creates uncertainty for those involved in existing cross-border litigation or with EU-wide litigation pending. A definitive answer is unlikely to be given until the model of exit has been negotiated.
For parties engaged in existing litigation or contemplating pending litigation, securing a judgment or settlement prior to the end of the negotiation period will be increasingly important. Parties may wish to take advantage of the current High Court pilot schemes for shorter and flexible trials, which are designed to expedite judgment. Alternatively parties may look at ADR as a means to bring forward the conclusion of existing disputes.
Brexit: How this will impact on UK Tax
VAT is an EU tax, implemented mainly by Member States following an EU Directive. The immediate effect of Brexit would not remove VAT as, although an EU tax, it is implemented in the UK mainly by UK legislation. Although, the UK would no longer be tied to the requirements of EU Directives and could abolish VAT altogether, this is not considered to be very likely, given the government’s need for tax revenue.
The UK Government may generally wish to vary the items chargeable to VAT and applicable rates, however, these would unlikely be major changes, due to the VAT contribution to Exchequer revenues. Brexit will, however, cause confusion amongst the business community and wider public, disrupting a well-established pan-European tax
The effect of “Brexit” on UK public procurement legislation and the application of EU State aid rules in the UK
The UK’s exit from the European Union might lead to changes to domestic procurement legislation and whether, post-Brexit, restrictions on government subsidies might continue to apply.
The extent to which existing UK procurement legislation, which implements EU procurement directives, might need to be amended substantively, post-Brexit, will depend primarily on the type of relationship which the UK negotiates with the EU and the extent to which the UK would continue to have access to the “single market”.
In respect of State aid, the Government will have to make a decision quickly as to whether or not it will implement a UK system on state support. The Government’s approach to state support of airport infrastructure, regional airport development, and start-up airlines will be particularly interesting.