GAMES4EU SUMMARY OF THE GOVERNMENT’S BREXIT DEAL:

THE QUICK VERSION:

The Brexit state of play:

 

On 15th January 2019, Parliament voted against the UK government’s Brexit ‘deal’: the binding withdrawal agreement detailing the terms on which the UK would leave the EU and the non-binding ‘political declaration’ about the future UK/EU relationship. It was rejected by a huge majority of 230, including 118 Conservative MPs.

THE GOOD:

  • The UK would avoid a no deal crash-out because the withdrawal agreement, would give the UK a transition period to at least 2020 and probably 2022 on a similar basis to now, during which to negotiate the future relationship with the EU.

  • The political declaration recognises key topics to the interactive entertainment, creative and tech industries like data are a core issue. On data, the EU says it would start its ‘data adequacy’ process for the UK start ‘soon’ after Brexit in March 2019.

  • The UK-EU goods export relationship is highly valued for the future negotiation.

THE BAD:
 

  • The UK would be cut out of but still subject to EU decision-making, making us a ‘rule taker’ just as landmark changes are rolled out like the EU’s Digital Single Market.

  • The ‘political declaration’ is a set of suggestions of things to think about for the future UK/EU relationship. It is full of jargon and waffle, sometimes for paragraphs on end, but with very little practical detail. It isn’t legally binding, meaning there is nothing stopping the EU or a future UK Prime Minister tearing it up or reinterpreting it.

  • Even taking the political declaration at face value: (i) the UK government values ending freedom of movement above everything else; (ii) UK service exports face being sacrificed in order to preserve part of the UK goods exports; and (iii) there are many areas not addressed at all in the political declaration.

OUR VIEW:


There still isn’t a ‘deal’ nor an end point of Brexit that exists - this is actually the true start. The government’s proposed deal did not provide a Brexit landing ground - it didn’t even offer a map. The issues important to interactive entertainment or the creative and technology industries remain unsolved - like with access to EU data, being in the common VAT area, avoiding customs charges and retaining the benefit of EU regulatory protections. The UK still faces another cliff edge in 2020 or 2022 - businesses and consumers cannot live another 2-4 years in limbo. Still, no one has articulated any actual benefits to Brexit that our industries need or asked for.

THE LONGER VERSION:


What’s happening with Brexit?

 

The government put together its Brexit ‘deal’ (consisting of a withdrawal agreement and a political declaration with the EU) which failed to secure a majority vote in Parliament on 15th January 2019 (having been delayed previously in December 2018). We are now awaiting Theresa May's Plan-B to be presented on the 21st January in the House of Commons.

 

What is the CURRENT withdrawal agreement and what does it say?

 

It is a draft legally binding  agreement between the UK and EU detailing the terms on which the UK will leave the EU. It leaves the future relationship to the political declaration. As a quick summary, the 585 page withdrawal agreement contains:

 

  • Citizens’ rights providing reciprocal protection for the rights of EU citizens in the UK and UK nationals in the EU.

  • An ‘implementation period’ for the negotiation of a future relationship and also providing some ancillary mechanisms (e.g. for civil court cases still ongoing at the end of the implementation period).

  • A financial settlement regarding the UK’s rights and obligations as a departing Member State.

  • Governance arrangements over the withdrawal agreement (e.g dispute resolution).

  • Irish border arrangements intended to prevent a hard border on the island of Ireland in the event that the future UK/EU relationship discussions fail or require a backstop arrangement.

  • Other matters including regarding Gibraltar and other areas.

 

What is the ‘political declaration’ and what does it say?

 

It is a non-legally binding statement for how the UK and EU could negotiate their future relationship and the areas that could include. Over its 26 pages it covers the areas relevant to the creative and technology industries including data, goods and movement of persons. A summary follows.
 

(i) Data protection

 

  • What’s happening? The UK will leave the EU’s common data area after Brexit. This would end the UK’s current frictionless access to UK-EU data exchanges that powers all areas of business and public life (subject to compliance with data protection laws on both sides). It would also by operation of law end the role of the UK data regulator, ICO, in running EU data issues involving UK businesses.

  • What’s proposed instead? The UK and EU would try to reach the next best alternative for UK-EU data access, which is that the EU gives the UK an  ‘adequacy decision’ to the UK. This is a long and complex process (mostly recent taking over 18 months in the EU-Japan trade partnership negotiations). The EU says it will start it “as soon as possible after the United Kingdom's withdrawal, endeavouring to adopt decisions by the end of 2020, if the applicable conditions are met” (para 9). There is nothing about ICO’s future role (1). The UK is leaving itself room to diverge from EU data protection rules (2) (but in practice that will be hard to reconcile with a close EU data relationship).

  • Is it good enough? No. Lack of certainty about how UK business can access EU data will force many businesses to create back-up plans which will be difficult and expensive. There is no guarantee an adequacy decision will be obtained at all, exacerbating the uncertainty. UK business has to assume that it will be subject to EU data regulators, not ICO, in the future. A failure for the UK to obtain an adequacy decision and overall to maintain similar arrangements to what we have currently would result in very significant difficulties raising costs and delays, further encourage businesses to set up an EU base and in the worst case threatening business viability.

 

(ii) UK involvement in EU programmes

 

  • What’s happening? After Brexit, the UK loses automatic membership of EU programmes including public funding of creative and technology industries businesses, research and development programmes and grants and programmes for science, innovation cultural and youth exchanges. This includes for example the Creative Europe grants to interactive entertainment businesses and Horizon 2020 programme for tech startups. This funding can range from Euro 50,000 - 100,000 at the low end up into the millions of Euros for larger projects.

  • What’s proposed instead? The UK and EU would plan to work to “establish general principles, terms and conditions for the United Kingdom’s participation in Union programmes” subject to “a fair and appropriate financial contribution, provisions allowing for sound financial management by both Parties, fair treatment of participants, and management and consultation appropriate to the nature of the cooperation between the Parties” (para 11).

  • Is it good enough? We don’t know. The UK government seems to want to retain membership of these programmes, which the EU seems to welcome but in a very non-committal way at present.

 

(iii) Goods (Part II)

 

  • What’s happening? After Brexit, the UK departs membership of the EU’s common goods area and would become subject to customs and tariffs, regulation, checks and controls and other matters.

  • What’s proposed instead? The objective is a “trading relationship on goods that is as close as possible…a free trade area, combining deep regulatory and customs cooperation, underpinned by provisions ensuring a level playing field for open and fair competition” (part II(A)). This would include “no tariffs, fees, charges or quantitative restrictions across all sectors”, “ambitious  customs arrangements” and UK compliance with relevant EU regulations. The EU’s comment in this area is that there could be a “spectrum of different outcomes” depending on how far the UK actually aligns with EU rules (3).

  • Is it good enough? We don’t know. The political declaration sets out the UK’s government high level objective of close alignment but it is devoid of any practical detail and full of EU provisos and reminders that membership of the EU’s customs union depends on following the rules fully. There is nothing binding to ensure that UK businesses could avoid the imposition of significant issues including: customs declarations, security declarations and paperwork; paying import or export charges; loss of the rules of origin rules; having to design new systems and hire new specialists; facing goods inspections at the border; and apply new VAT rules. These would create significant up-front and long-term additional red tape and cost.

 

(iv) Services (Part II(V))

  • What’s happening? After Brexit, the UK departs membership of the EU’s single market and common regulatory area, meaning UK service exports to the EU could become subject to a range of direct and indirect barriers and requirements.

  • What’s proposed instead? There are provisions in the political declaration for different services including “Digital”. There are a few, comparatively long paragraphs about working together but the practical detail seems to be the UK and EU working to “establish provisions to facilitate electronic commerce, address unjustified barriers to trade by electronic means, and ensure an open, secure and trustworthy online environment for businesses and consumers” and provide “for fair and equal access to public telecommunication networks and services to each other's services suppliers and address anticompetitive practices” (para 40). The political declaration also has (again, comparatively long but thinly detailed) wording about the UK’s and EU’s “current high levels of [intellectual property] protection”(4).

  • Is it good enough? No. A very large part of the creative and technology industries are services exports to the EU, reflecting the fact that for the UK as a whole services are by far the biggest part of its trade with the EU. But the UK government is intentionally not looking to maintain a close relationship on services in the political declaration - the wording and the detail is very different to goods, where the UK government wants a EU relationship that is “as close as possible”. There is no detail at all about areas which are critically important to creative and tech businesses and consumers including the country of origin rules, platform liability, competition protection, net neutrality, how e-commerce arrangements will change post-Brexit, consumer law rights and obligations and above all the UK’s position as the EU continues to roll out its ongoing Digital Single Market strategy which is reshaping how all creative and tech businesses across the UK and EU will operate in the future.
     

(v) Mobility and access to talent (Part II (X))

  • What’s happening? After Brexit, the UK will depart the EU’s free movement of people system, which by default would restrict the ability of UK citizens to visit the EU and vice versa without visas and other new immigration/emigration and other systems.

  • What’s proposed instead? The UK and EU propose to work on “mobility arrangements”. There are piecemeal details including “visa-free travel for short-term visits” and “conditions for entry and stay for purposes such as research, study, training and youth exchanges” (para 53).

  • Is it good enough? No. The freedom to travel, visit, work and study freely across the EU is critical in business and cultural terms for creative and technology businesses. There is no detail about what arrangements would replace it beyond stating the obvious (i.e. having something else instead and having short term visas).

 

(vi) Areas the political declaration does not address at all:

  • Facilitating civil law matters (in particular the ability of UK businesses to take legal action in EU member states if necessary and for UK consumers to sue in their home courts not foreign courts).

  • The impact of Brexit on consumers and how it can be mitigated- for example UK citizens’ current right to return unwanted goods purchased in the EU usually for free within 14 days, or to enjoy free mobile roaming in the EU.

  • VAT, tax or tax cooperation in future. This is critical for any business selling into the EU but is particularly difficult for creative and tech businesses selling to EU consumers, since there is no clarity about the future of UK use of the VAT-MOSS system in the future.

 

Other comments:

 

The withdrawal agreement that was voted against was highly dense (at 585 pages) but fundamentally dealt with relatively basic departure issues, not the practical matters for ongoing business and consumer life we really need to know. By contrast the political declaration is much shorter, but full of waffle and jargon, sometimes for paragraphs at a time. Sometimes it sets high level objectives, sometimes just bare hypotheticals and general considerations, but almost never anything more detailed (5). This makes it really difficult to know what it actually means or could be used in practice (which was precisely the UK government’s intention, to give it the greatest room for manoeuvre in the future) - but this also means it robs business and consumers of any certainty. We must now wait longer to see what May's plan-B might be.

 

We have seen the various commentary in the media from government and from Leave supporters that Brexit will bring benefits to British business and consumers. Nearly three years from the referendum we have not seen any credible analysis of what these benefits would actually be for the creative and technology industries (in fact the government’s own analysis pointed to any form of Brexit hurting the UK economy. In reality, the creative and technology industries are already global in their thinking and have always and still trade strongly with countries like the US and increasingly with China. To give a simple example, mobile platforms like iOS and ecommerce platforms like eBay and Steam are open globally by default. No evidence has been put forward to our knowledge that our markets are restricted by trade barriers. In reality, the real issues are often non-tariff barriers (e.g. difficulties establishing in some countries, IP law differences, censorship rules) - but this is much harder to resolve and, once again, no actual plans have been put forward for how Brexit will remotely help break them down compared to what we already have now.

This is not acceptable and it is not what our industries or consumers need. We are calling on MPs to make all arrangements for a People’s Vote on the final Brexit outcome with an option for the UK to remain in the EU.

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Footnotes:

(1) All that the document says is in para 10: “in this context, the Parties should also make arrangements for appropriate cooperation between regulators.”

(2) Para 9: “The future relationship will not affect the Parties' autonomy over their respective personal data protection rules”.

(3) Para 28: “The Parties envisage that the extent of the United Kingdom’s commitments on customs and regulatory cooperation, including with regard to alignment of rules, would be taken into account in the application of related checks and controls, considering this as a factor in reducing risk. This, combined with the use of all available facilitative arrangements as described above, can lead to a spectrum of different outcomes for administrative processes as well as checks and controls, and the Parties note in this context their wish to be as ambitious as possible, while respecting the integrity of their respective markets and legal orders.”

(4) Also that “the Parties should establish a mechanism for cooperation and exchange of information on intellectual property issues of mutual interest, such as respective approaches and processes regarding trademarks, designs and patents” (para 39).

(5) Three examples should suffice. Para 17: the UK and EU partnership should “facilitate trade and investment between the Parties to the extent possible, while respecting the integrity of the Union's Single Market and the Customs Union as well as the United Kingdom's internal market, and recognising the development of an independent trade policy by the United Kingdom beyond this economic partnership.” Para 28: “The Parties envisage that the extent of the United Kingdom’s commitments on customs and regulatory cooperation, including with regard to alignment of rules, would be taken into account in the application of related checks and controls, considering this as a factor in reducing risk.“ Para 79: “The Parties should consider the precise nature of commitments in relevant areas, having regard to the scope and depth of the future relationship.”

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