Opinion: After the Brexit vote uncertainty is the only certainty

By Farina Azam, Partner at Travlaw LLP

The country (and Europe) is still reeling from the news of Brexit. The shock, and political fallout, has dominated news and conversations ever since the referendum result was announced.

But, as the country finally starts digesting the news, the question on everyone’s lips is: ‘So, what now?’ Of course, no one has the answer to that at this stage; everything depends on the result of Britain’s negotiations with the EU.

But we can at least start considering the possibilities and what this might mean for an industry as heavily regulated as travel, much of which of course comes from EU legislation.

So, what now?

The starting point has to be to consider Britain’s options in deciding what kind of relationship it wishes to have with the EU once it’s no longer a member.

Will it go down the Norway route and become part of the EEA (European Economic Area)? This would provide Britain with full access to the single market whilst letting it strike trade deals outside the EU on its own.

However, Britain will have to contribute to the EU budget at the same level it currently does. It would also have to comply with the EU’s ‘four freedoms’: goods, services, labour and capital – labour of course being, people.

Britain would also still have to comply with the EU’s laws and regulations, but crucially would no longer have a say in these laws and regulations – so we wouldn’t be able to get involved in consultations or otherwise voice any concerns we may have.

The ‘Norway Option’ is the one most preferred by economists. It’s the closest Britain will get to the EU without being a member and essentially means not very much will change.

But this then begs the question, what was the point in leaving the EU? And since we’ll no longer be able to get involved in EU law making, we’ll arguably be in a worse position.

The Swiss Model

Another option would be the ‘Swiss Model’ whereby the UK negotiates a multitude of bilateral trade deals with the EU. Britain would have partial access to the free market in return for a reduced EU budget contribution. However, crucially, free movement of people would still be required.

Only partial access to the free market could also mean that banks and financial institutions lose their ‘passporting rights’ allowing them to set up in various member states without complying with each country’s separate rules and regulations – and as such, could result in many banks and financial institutions moving their headquarters out of Britain.

Perhaps Britain will follow Turkey’s example and negotiate tariff-free access to most of the single market but in return imposing tariffs on non-EU trade, the level of which will be set by the EU.

Or, Britain may decide it wants to go it alone, and revert to WTO rules. It will more than likely have to re-apply for WTO membership in its own right, as the current membership is linked to the EU.

It would face tariffs on imports and exports, but wouldn’t have to offer free movement of goods, services, capital or people and would have no obligation to comply with EU laws and regulations – except where it was trading with the EU, as all goods/services it provides to the EU will still have comply with EU standards, regardless of Britain’s relationship with the EU.

There could of course be the ‘British Model’ whereby Britain negotiates its own separate relationship with the EU, taking advantage of its economic and trading power – but the terms of such a model remain to be seen.

So, what does all of this mean for our industry?

The EU provides us with two different types of laws. There are the ‘Directives’, like Package Travel Directive, which are passed down by the EU.

Each member state has to then implement the Directive into its domestic legislation (which is currently the Package Travel, Package Holidays and Package Tours Regulations 1992 but this will be replaced by new legislation in due course).

So, since these Directives are implemented into UK domestic law, they will remain in force even after we’ve left the EU. However, Britain may be able to amend or repeal the domestic legislation, if, for example, it was never very happy about having to implement such a law in the first place.

The second type of legislation provided to us by the EU are the ‘Regulations’ such as EC261/2004 (the flight delay regulation).

These regulations have ‘direct effect’ so member states don’t have to implement them into domestic legislation, they apply to the UK regardless. These Regulations could effectively ‘fall away’ once we’re no longer part of the EU.

The much anticipated new Package Travel Directive (PTD) is due to come into force on the January 1, 2018 and it’s very likely the UK will still be part of the EU at this point.

It’s expected that it will be business as usual with the implementation of the PTD into UK domestic legislation. Especially since Britain was one of the driving forces behind the PTD, with a particular focus on financial protection for consumers.

You only have to look at the 2012 Atol reforms and the creation of Flight-Plus, which was implemented entirely independent of the EU, to see how important an issue this is for Britain.

So it’s unlikely Britain will now abandon the PTD, although it may have the opportunity to amend it, without contravening its treaty obligations, to make it more relevant to Britain, should it wish to do so.

There’s also a new General Data Protection Regulation (GDPR) due to come into force on May 25, 2018 – so again before Britain will likely have left the EU. Since this is a ‘regulation’ it will have direct effect in Britain and there’s no requirement to implement it into domestic legislation.

So, what’s going to happen? Is it going to apply to Britain for the length of time Britain remains a member of the EU and then simply fall away? Could Britain’s businesses really be expected to go the cost of complying with what could only be a temporary regime?

The ICO has already gone on record to say that it would expect Britain to comply with the EU’s standards on data protection – so could this mean Britain implements its own equivalent of the GDRP into domestic legislation? Or it could just keep the current regime under the Data Protection Act 1998?

It’s worth noting that the new GDPR has a very wide territorial scope so businesses which deal with the EU will likely have to comply with the GDPR anyway. So what could actually happen is that UK businesses dealing with the EU actually have two data protection regimes they have to comply with, which could possibly conflict.

Flight delay regulation

What about EC261 – the flight delay regulation? I mentioned EC261 earlier as an example of an EU regulation which has direct effect in the UK.

If this falls away once we’ve left the EU, will the UK seek to replace it with equivalent domestic legislation? Or will British consumers simply lose the right to claim against British airlines for flight delays?

That might have the perverse effect of driving consumers to book with EU carriers like Air France, or even Ryanair, as they’d be better protected (at least on the outbound leg) than if they booked with a British carrier.

There’s a new flight delay regulation in the pipeline anyway so it could be that Britain seeks to implement the new regulation, or implement an amended version of the regulation into domestic legislation, which perhaps reduces the level of compensation payable to consumers or makes it dependent on the price paid by the consumer for the flight – as opposed to the controversial ‘one size fits all’ damages which are payable at the moment.

The EU has always championed competition law and cracking down on practices or mergers/acquisitions which may restrict competition in the single market, and the travel industry has been at the receiving end of this in the past.

Much of this competition law has been implemented into UK domestic law – however Britain could take steps to amend or repeal its domestic legislation if it wishes.

But will this really have an impact on British businesses? Possibly not – as EU legislation is so far wide reaching then even as a non-EU member, if your business activity has the effect of restricting competition in the EU, you will still be subject to EU regulations.

Another area to consider is that of trademark protection. The EU has a very efficient regime for trademark registration across the single market with only one application and one fee payable, offering trademark protection across the entire EU.

Will there now be two regimes, meaning businesses will have to register in both the UK and EU for the same protection? And what if you’re a British company which has recently registered an EU trademark? Will it remain valid once we’re no longer part of the EU?

What about if you have employees overseas, for example under the Posted Workers Directive? Obviously, nothing is going to happen for at least two years whilst Britain negotiates its exit from the EU, however once we’ve withdrawn, what happens to these employees?

Will they lose their right to work within the EU under this Directive? What about free movement when it comes to customers? What’s stopping individual European countries from imposing visas on British citizens seeking to enter their country?

Whilst this would inevitably increase the cost of travelling to these countries for British citizens, it’s unlikely that such a visa fee would be so high so as to curb the British love affair with European holidays.

So, lots of questions and very few answers at the moment. The only certainty is the uncertainty the industry will be dealing with over the coming years.

However, the industry has proven time and again how resilient it is and will no doubt rise to the challenge.

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