Brexit and the Digital Single Market: what does this mean for your business?

Written on 4 Jul 2016

Following the UK population’s vote to leave the European Union, businesses are now faced with a period of uncertainty until the terms of the UK’s withdrawal are made clear. For those businesses which provide goods or services online, particularly digital content, a key question is how will the European Commission’s Digital Single Market (DSM) initiative apply to the UK now?

A quick reminder of the potential ‘Brexit’ options available

Future trade arrangements will be one of the main subjects of the withdrawal discussions between the UK and the EU. While the UK and EU may come to a bespoke arrangement, existing models developed over time by non-EU countries (such as Norway or Switzerland) could be used as a basis for the UK’s future relationship.

A more detailed overview of these potential options can be found here.

How will EU law apply post-Brexit?

The question of whether EU law would continue to apply to UK businesses and to bind UK courts depends very much on the terms of the UK’s exit and future trade arrangements.

If the UK were to join the EEA or EFTA (with bilateral agreements like Switzerland), the EU would require that the vast majority of EU law continues to apply in the UK in exchange for full access to the internal market. As such, the status quo would essentially continue.

However, if the UK were to exit the EU and not join the EEA or EFTA, it is likely that the UK will no longer be bound by EU law. However, a distinction should be made between EU Directives and Regulations:

(a) Directives are not ‘directly effective’ and are therefore implemented by each Member State into their own national law. Therefore, to date, all EU Directives have been implemented in the UK through primary UK legislation. As national law, such primary legislation would not disappear following Brexit and would continue to apply in the UK, unless specifically repealed; and

(b) Regulations have direct effect and apply to each Member State without the need for implementation into national law. Therefore, following Brexit, EU Regulations would no longer bind the UK, unless the UK chooses to adopt its own national law to mirror the Regulations.

How does this affect the DSM?

The DSM strategy is an initiative of the Commission to bring the EU’s single market into the digital age. The Commission has set out its vision for removing barriers to online cross-border trade. However, generally speaking, the DSM is just a strategy / initiative / vision. In other words, it is not actually law. For more background on the DSM see our dedicated hub here.

In order to achieve the vision, a number of legislative proposals have been put forward to date, and more are expected to follow. It is these legislative proposals that may or may not apply to the UK following withdrawal from the EU.

Geo-blocking Regulation

One of the most important DSM developments was the proposed ban on geo-blocking in the form of the draft Geo-blocking Regulation. This provides that online traders cannot refuse to sell their goods or services (excluding audio-visual and copyright protected content) to customers on the basis of their geographical place of residence, nationality or place of establishment.

If the UK were to join the EEA, the Geo-blocking Regulation would likely be expected to apply. The Commission has indicated that the Regulation has EEA relevance and therefore it will almost certainly be incorporated into the EEA Agreement and be binding on EEA member states.

If the UK were to join EFTA, again, the Geo-blocking Regulation would likely continue to apply. Any bilateral agreement between the UK and the EU for access to the internal market would likely require the UK to uphold the fundamental freedoms. Given that the DSM is aimed at protecting and facilitating digital cross-border trade and the free movement of goods and services, it is difficult to see how any bilateral agreement would not cover the DSM.

However, if the UK does not join the EEA or EFTA, it may be that the DSM and Geo-blocking Regulation would not apply to the UK. As a Regulation with direct effect, the Geo-blocking Regulation will not be implemented in UK law and therefore will fall away upon Brexit. This would mean that the UK could be geo-blocked from the rest of the EU/EEA. However, while the UK may be geo-blocked, post-Brexit businesses would still have to comply with the DSM and Geo-blocking Regulation for their EU business when trading cross-border in the EU/EEA.

Portability Regulation

The draft Portability Regulation is another important development under the DSM. This provides that EU consumers can access online content from their portable devices when away from their Member State of residence and temporarily present in another Member State for leisure, travel, business or study.

If the UK were to join the EEA, as with the Geo-blocking Regulation, the Portability Regulation would almost certainly continue to apply.

If the UK were to join EFTA, again, the Portability Regulation would likely fall within the bilateral agreements negotiated and therefore continue to apply.

However, if the UK does not join the EEA or EFTA, as with the Geo-blocking Regulation, the Portability Regulation would be likely to fall away upon Brexit. As a result, there would be no obligation on content service providers to ensure that UK consumers could access their online content cross-border when temporarily present in the EU – or that EU residents could access their content from the UK. However, as with the Geo-blocking Regulation, content service providers would still be required to comply with the Portability Regulation for EEA residents when travelling cross-border within the EEA.

Does the position change once Article 50 is invoked?

Both Regulations are still in draft and have not yet come into force. However, the Commission has stated that they will continue to press on with the DSM irrespective of Brexit and both Regulations are expected to come into force by the end of this year. Businesses will then have six or twelve months to comply.

Given the timeline for the UK’s withdrawal, these Regulations are expected come into force before the UK has left the EU. As such, even if for a short time, UK businesses will be legally required to comply with the Regulations. However, least for the Geo-blocking Regulation, the Regulation provides for Member State enforcement, and it is not yet clear whether the UK will seek to enforce the Regulation if a complete exit from the EEA/EFTA is on the cards. Depending how the negotiations with Brussels progress, it may therefore be possible to take a risk-based approach in the UK when the Regulations come into force.

Can I forget about the DSM now?

For most businesses, the answer is no. Unless or until it becomes clear that the UK is not going to agree to free movement of goods and services, it would be sensible to assume that the DSM will apply in the UK beyond the two year Brexit negotiation period.

The relevance of the DSM is therefore, at least for now, unchanged. For UK-only businesses which do not trade in the EU, the DSM is not likely to be a key concern in any event. For international businesses which trade in both the UK and the EU, the DSM will continue to apply to their EU/EEA business, even if the UK is no longer caught.

We will continue to monitor the progress of Brexit and the DSM and will report on OC.com.