In this edition of Law Technology Now, host Ralph Baxter talks with a panel of guests from London-based law firm Bird & Bird about the implications of Brexit for US businesses operating in the United Kingdom. They begin by offering listeners an overview of Brexit basics and discuss what may happen if no deal is made before the UK’s withdrawal. Ralph then drills down on four time-sensitive issues: immigration law and new work requirements for EU nationals, changes in privacy law and GDPR, fundamental changes to trade laws and practices, and export control rules related to software exports. Each panelist offers recommendations for US companies regarding these key issues.
- Roger Bickerstaff is a partner at Bird & Bird and a leading technology lawyer and advisor on tech infrastructure and outsourcing projects.
- Yuichi Sekine is head of Bird & Bird’s business immigration team in the UK and a member of Bird & Bird’s international HR services group.
- Elizabeth Upton is legal director of Bird & Bird’s privacy and data protection practice in the UK.
- Richard Eccles is a partner at Bird & Bird advising on competition law (EU and UK), telecommunications regulation, and trade and customs matters.
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Law Technology Now
US Companies Operating in the UK – Are you ready for Brexit?
Lawrence Nolan: Hello listeners. What you are about to hear is a special episode of Law Technology Now about Brexit. Because there have been development since we recorded the episode, we have a brief update from our host Ralph Baxter, who is currently on the road.
Ralph Baxter: Hey Lawrence and thanks. Since we recorded the attached episode the EU and the UK have agreed to an eleventh hour three month extension of the Brexit deadline. The deadline is now January 31, 2020, but you will hear on the episode discussion of the old deadline, which was October 31.
There has also been some progress on reaching a deal between the EU and the UK on the Brexit transition, but we have no way of knowing whether such a deal ultimately will happen.
In this special episode the Bird & Bird partners provide guidance on the key issues and actions US companies need to consider to comply with Brexit. For the purpose of the episode, we assumed that the Brexit occurs without a deal. Much of the guidance will be applicable deal or no-deal, but that said, if there is a deal, we will update this episode to take into account any changes made by the deal.
I hope you enjoy this episode, I certainly enjoyed recording it. Back to you Lawrence.
Lawrence Nolan: Looking forward to it. Thank you Ralph. And now on to the show.
Ralph Baxter: Welcome to a special episode of Law Technology Now. Today we will be focusing on Brexit and its implications for US companies doing business in the United Kingdom. I am Ralph Baxter and I will be your host for today’s episode. You will be hearing more from me on the Legal Talk Network going forward, because next month I will join Dan Linna as co-host of Law Technology Now.
But today we have a special episode driven by the changes the imminent implementation of Brexit will bring. Before we get started, we want to thank our sponsor, Headnote, helping law firms get paid 70% faster with their compliant e-payments and accounts receivables automation platform. Learn how to get paid quicker and more efficiently at headnote.com.
Alright, let’s get started. Unless something happens, either an eleventh hour deal between the EU and the UK or an extension of the deadline, Brexit will finally become a reality on October 31, and that’s 17 days from the date on which we are recording this episode. Any US business that’s been operating in the UK has been considering what to do about Brexit ever since the referendum passed back in 2016. But now that it seems imminent that Brexit really will happen, we thought it would be good to have an episode where we take a look at what Brexit really means and some specific issues that all US companies operating in the UK should consider.
To address these issues we have assembled a panel from the London-based law firm Bird & Bird, all of whom have particular insight into Brexit and what it will mean for US companies.
Bird & Bird is a UK origin firm founded in 1846 in London, which over the years has grown to be one of the largest law firms in the world, with 1,500 lawyers in 30 offices, located in 20 countries around the globe. It was one of the first law firms to organize around the business sectors of its clients as opposed to the practices of the firm or other internal issues, and its best known for its work in IP and the technology sector.
A year ago Bird & Bird opened a representative office in San Francisco to facilitate serving US-based companies with their issues outside the United States, and I thought that made them an ideal set of guests to have on this episode to talk about Brexit.
Today we are going to start by focusing on the basics of Brexit, what it means in general and then we are going to drill down on four issues that are time-sensitive and particularly important for US companies operating in the UK.
So to start with a general overview, I want to welcome Roger Bickerstaff, one of the leading technology lawyers in the United Kingdom and one of the partners responsible for Bird & Bird’s new San Francisco office.
Welcome to the show Roger.
Roger Bickerstaff: Thank you very much Ralph. And in the first place I will just say a little bit about what Brexit means in practice, as a bit of an overview, and say in the first place Brexit means, it’s always worth making it clear that Brexit means the withdrawal of the United Kingdom from the European Union.
And just to be clear, when we are talking about the United Kingdom here, we are talking about England, Wales, Scotland and Northern Ireland; we are not talking about the Republic of Ireland. The Republic of Ireland will be staying in the EU.
So from a business perspective and a trade perspective what that means is that the UK is leaving the Single European Market in people, in goods and services and it’s also going to be leaving the EU Customs Union, although that’s a little bit debatable at the moment in the current political discussions. There is going to be two completely separate business territories of the UK and the EU.
And then from the legal perspective, what that means is the UK is going to be leaving behind the fundamental jurisdiction of the European Court as being the Supreme Court of the UK. So, some quite radical changes from a UK perspective.
Ralph Baxter: Right. So the fundamental change is literally profound in terms of the context and structure of law for the United Kingdom. So obviously the path has been long and politically complicated since the referendum passed three-and-a-half years ago. So can you bring our audience up to date on where we are in this process and what needs to be done before the UK to leave the EU?
Roger Bickerstaff: I can in very brief terms here Ralph, because as you say, it’s been an incredibly complicated and torturous process, politically very divisive in the country.
And in 2016, as you say, the UK voted quite narrowly; in fact, 52% in favor of leaving to 48% wanting to remain. The process itself was kicked off by something called the Article 50 notice under the Treaty of the European Union, and that notice gave two years notice of the departure from the EU and that notice was given on March the 29th, 2017, about nine months after the referendum itself. And that two year period has now been extended a couple of times and the current leave date is now October the 31st, of 2019, unless there is another extension, as you have said Ralph.
But the default position that we have now is that unless something happens to extend the notice period further, the default position is now to leave the European Union on October the 31st. This is politically a very fast-moving process. This podcast, as you said Ralph, is recorded on October the 14th, so the situation could change by the time people are listening to this podcast.
It’s also worth saying that much of what we are discussing in this podcast relates to the no-deal Brexit situation, what happens if we leave without a deal. If there is a deal, it’s quite likely there will be something called a transition period and that will introduce a period of standstill, and in fact in that case, then a lot of the issues will standstill through to the end of the transition period and that will run through probably through to the end of December 2020.
You can see Ralph, it’s quite a complicated process.
Ralph Baxter: Right. So for our purposes today we are going to talk about Brexit as if there will be no deal and then as you say if there is, then the rules that apply will be the rules that emanate from the deal that is made.
Now, one key issue, fundamental issue about this, if there is a no-deal Brexit, what happens to EU law in terms of its application after Brexit, after November 1 in the UK?
Roger Bickerstaff: Well, that’s a really interesting issue for us as lawyers and in fact, one of the things which has been clarified in the UK Withdrawal Act is that all of EU law which is directly effective currently, as we are members of the EU, will be implemented into UK law as a component of the Withdrawal Act as soon as we leave the EU. So that means that we are not going to have a huge gap in the United Kingdom law; we are going to have all of EU law incorporated into UK law by means of that Act.
Ralph Baxter: All right. So for our audience, this is an important fundamental idea that there won’t be a moment when suddenly the EU principles, the EU rules go out of application, at least in the transition period, if there is no-deal, EU law is incorporated into UK law and then events will proceed as we go through the transition.
All right. Well, thank you very much Roger for that introduction and now we are going to turn to specific issues, as I said earlier. And the first one we are going to talk — and by the way, on each of these issues I am going to ask our panelists to give us an overview of what the issue is and then to share with us two or three specific recommendations for action for US companies on these issues.
We are going to start with a very fundamental issue, people. Most companies who operate in the United Kingdom, whether they are from the United States or otherwise, incorporate EU nationals into their workforce and obviously once the UK is no longer part of the EU, this promises to be more complicated than when the UK was part of the EU and it was all one market.
So to discuss this issue we have Yuichi Sekine, who is Bird & Bird’s Head of Business Immigration.
Welcome you Yuichi.
Yuichi Sekine: Thanks Ralph. So from an immigration perspective, there will be a transition period, as Roger mentioned, until the end of December 2020. So this means US employers in the UK can continue to recruit EU national employees as they can do now without having to obtain a valid work permit. But from January 2021, skilled migrants from all countries, including EU countries, will require a valid work permit in order to work in the UK.
Ralph Baxter: So now will these rules for the work permit continue indefinitely into the future? How will companies continue to build their workforce to include EU nationals in the UK?
Yuichi Sekine: Yes, that’s a very good question. For existing EU nationals and their family members who are already in the UK, there is a scheme called the EU Settlement Scheme. It’s designed to be a very simple scheme, which is online and it’s free and it allows EU nationals to register their status under UK law so they can continue to live and work in the UK after Brexit.
At the moment there have been about 1.5 million EU nationals who have been approved through this EU Settlement Scheme. So it’s a very good news because we have an estimated number of about 3.4 million EU nationals in the UK. So we are into the halfway mark, so to say, and there is still time to register under the EU Settlement Scheme, the deadline being December of 2020, provided you are resident in the UK as of 31st of October under a no-deal scenario.
Ralph Baxter: So that’s a very important point to avoid disruption of the existing workforce.
Now, what about EU-based employees who need to come over to the UK for meetings and conferences and other things, what are the restrictions that will apply to them after Brexit?
Yuichi Sekine: The good news is that the government has proposed that there will be no fundamental changes to EU nationals who will be coming to the UK post-Brexit for business meetings or to attend seminars or conferences. So what this means in practice is that they can continue to use the eGates, which is the automatic gates that you can use to enter the UK. So that rule will not change in the foreseeable future until new regulations come into place, but nothing has been introduced or publicized at this stage.
Ralph Baxter: All right. Now, would you share with our audience two or three practical suggestions for things that US companies need to do to comply with the Brexit implementation?
Yuichi Sekine: Absolutely. And the first thing is to remain vigilant to upcoming changes in immigration law, because these changes can take place at any time and often employers need to be flexible in order to adjust their recruitment plans because nothing is set in stone. So we are playing sort of like a game where the target keeps moving, but our advice remains to clients to remain vigilant and be prepared.
Ralph Baxter: Well, that seems like a very good idea, the target will keep moving. Anything else you want to share with US companies on this broadcast?
Yuichi Sekine: What I can say in the course of the last 10 years the pendulum has shifted from imposing many restrictions on skilled migrants. Now everything is about liberalizing or making it easier for employees to employ skilled migrants, whether they are from the EU or not. The whole set of changes being proposed is now going towards a better sort of an immigration landscape for employers.
And one of the recent example is the revision to the Shortage Occupation List. And what this means is that employers who needed to advertise a particular role for 28 days before being able to recruit a migrant will no longer have to do this, for example, for certain roles, such as in the IT sector, software engineers, you no longer have to advertise those roles, which saves a lot of time and effort for the employers.
And we can see this proposal — not proposal, but the rules being changed for EU nationals as well from January 2021. So the employers can continue to recruit whether they are nationals or non-EU Nationals, they can have easier immigration rules to work with. So we anticipate that the immigration rules will follow that trend in the near future.
Ralph Baxter: But as you say, you need to be vigilant and flexible as these rules evolve post-Brexit.
Well, thank you very much Yuichi for sharing all of that with our audience. Before we go on to the next subject, we are going to take a quick break to hear a message from our sponsor.
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Ralph Baxter: Welcome back to Law Technology Now. We are continuing our discussion with Bird & Bird about Brexit and its implications for US companies operating in the UK.
The next issue we are going to address is privacy. Privacy obviously is an issue of increasing concern around the world, and to help us understand what the changes Brexit will mean is the Legal Director in Bird & Bird’s privacy and data protection practice in London, Liz Upton.
Welcome to the show Liz.
Elizabeth Upton: Thanks Ralph.
Ralph Baxter: So Roger’s introduction shared with us that EU law was going to be incorporated into UK law upon the implementation of Brexit. So how will Brexit affect the privacy landscape, privacy law landscape in the UK?
Elizabeth Upton: And yes, you are correct, Roger’s explanation was correct. In practice, if you have UK companies, they are going to continue to be subject to the same data protection rules. So the provisions of the main European Data Protection Laws, the GDPR will be incorporated directly into UK law and it’s going to sit alongside the existing UK Data Protection Act 2018 and will become known as the UK GDPR.
However, that’s not the end of the story. The EU version of the GDPR, the regulation is going to continue as well to apply directly to UK organizations, to the extent that any of their processing activities are caught by the very wide extraterritorial provisions that are set out in GDPR. So if they are offering goods and services to individuals in the EU or they are monitoring individuals in the EU, they will also be caught by the EU GDPR, alongside the UK GDPR.
And the other point to note, there is another set of rules, known as the ePrivacy rules and these are the rules that apply to marketing, cookies and certain electronic communications and again these will carry on after Brexit as well.
Ralph Baxter: So I am following what these issues as you described them, so what does it mean — what steps do the companies need to take to legitimately transfer personal data between EU and UK?
Elizabeth Upton: Well, I think it’s worth saying that in practice the rules are going to stay the same, but there is still this data transfer issue, as you have mentioned, and the reason for that is because whilst GDPR itself allows EU member states to transfer data freely amongst themselves, what it does do is it places restrictions on data transfers out of the EU to those countries which are not recognized as offering adequate protection for such data.
Now, adequacy is the term that’s given to those countries that have data protection measures that are deemed to be essentially equivalent to EU standards, and once the UK leaves the EU, it’s obviously no longer part of the member state, it’s going to be considered to be one of these third countries for data transfer purposes. And it’s only at that point, once it has left, that any kind of assessment of its adequacy status can start to be considered.
Now, whilst the European Commission has granted adequacy to a limited number of countries so far, I think Japan being the latest one, it’s by no means guaranteed that the UK would achieve this adequacy status, notwithstanding the fact that it’s implementing GDPR into its own laws.
And in fact, the Commission has made it very clear that it’s not prioritizing, nor is it fast tracking the UK’s adequacy status. So it’s not going to happen before the end of October, nor is this going to happen at anytime soon.
So what this means is that if you have got EU organizations that are transferring to the UK, you are going to need to put other safeguards in place. And typically what that means is that you are going to need to put in place something called Standard Contractual Clauses and these are clauses that have been approved by the Commission, and there are different sets, depending on whether you are transferring to a UK organization that’s acting as a controller or as a processor of that data.
It’s a bit simpler if you have got data transfers going from the UK back to Europe, because the UK government has stated that these will not be restricted and data can continue to flow freely that way.
Ralph Baxter: Okay. So as Yuichi said about the first issue, this is one that employers are going to need to be — companies are going to need to be vigilant about.
So one other question, what about transfer of personal data from the UK to the US, is that going to be affected by Brexit?
Elizabeth Upton: Yes. So data transfers from the UK to countries outside of the EU, like the US, will also need to have safeguards in place. Now, you may already have those in place, because whilst the UK was part of the EU, you would still need restrictions in place for those transfers to the US. What the UK government has confirmed is that there will be transitional provisions in place which will recognize those countries which were considered to be adequate from a European perspective, they will continue to recognize Standard Contractual Clauses that have already been put in place under the European regime, which cover the UK entity and also Binding Corporate Rules.
One thing that organizations may need to think about if they are Privacy Shield certified, which again is another safeguard that currently allows transfers from the UK or from Europe to the US, is that those organizations with those certifications will need to make some slight tweaks to their public commitments to recognize the fact that they will be accepting data from the UK. And there are some frequently asked questions on the Privacy Shield website covering that point and telling people what they need to do there.
Ralph Baxter: All right. Well, you have been very specific and clear about what companies need to do. Do you have any other additional practical suggestions for our audience?
Elizabeth Upton: No, I think it was probably just recapping some of the things I was saying really. I mean I think what’s really important is to understand what data is flowing within your business, particularly from the EU to the UK and probably also from the UK to the US. You probably should have done some of that anyway as part of your general GDPR Compliance Project, but I think it’s worth going back and revisiting that, particularly the EU to the UK point of view.
And then you will need to either put in place some new Standard Contractual Clauses or you will need to update your existing intra-group data transfer agreements. And to do that you will need to really understand what type of data is being transferred, who is it about, what are the purposes of the processing to make sure you can fill out all the relevant kind of appendices to those Standard Contractual Clauses.
You may also need to update some of the language in your privacy policies or privacy notices online, where you talk about what data is being transferred outside of Europe. You will need to make sure that you have mentioned the UK there as a third country.
And I think the last point was really just the Privacy Shield certification point, if that applies to your organization, do go online to the Privacy Shield website and check what amendments you need to make to your statements to make sure you can carry on accepting data from the UK going forward.
Ralph Baxter: Well, thank you Liz, those were very valuable and practical suggestions for our audience, especially those who have operations in the United Kingdom.
And now we are going to turn to what is among the most fundamental implications of Brexit, trade. Once Brexit occurs, the UK and the EU will lose the benefit of trading within one market and will experience the burdens and complications of doing business across national borders. That’s going to be a very fundamental change from the experience that UK businesses and others based in the UK have had during the EU.
So to discuss this issue, these changes, we have Richard Eccles, who is Co-Leader of Bird & Bird’s Brexit Team and a partner who specializes in competition and trade law.
So thank you for joining us Richard.
Richard Eccles: Thank you Ralph.
Ralph Baxter: So let’s start with an overview of the implications of Brexit for exports and imports between the UK and the EU.
Richard Eccles: Okay. Well, Ralph, as you intimated, the UK will, on Brexit, it will become a third country in relation to the EU, at least that’s from a hard Brexit. It will be outside the EU Single Market and outside the EU Customs Union. Businesses exporting to and importing from the EU will have to operate in the same way as if they were dealing with any other country outside the EU, but in the WTO.
We assume that the UK will continue as a WTO member in its own right and on the same tariff terms as have applied while it’s been a member through the EU, at least provisionally, for the time being.
But all of this will be quite a shock for companies that until now have traded only with businesses in the EU and not elsewhere, which will be the position for quite a number of companies, trading companies. They will have to deal with export declarations and import declarations and prove the origin, the nature and the value of goods imported and exported between the UK and the EU, which they haven’t had to do whilst the UK has been in the EU and in the Single Market and in the Customs Union.
Tariffs will apply at least on imports to the EU based on the EU’s WTO tariff schedule and in principle also on imports to the UK from the EU, because the UK will be leaving the common Customs Union.
And as a result of this there will be a risk of a double tariff charge if an international company uses the UK as a distribution hub for supplies to Europe, with tariffs arising on entry to the UK and onward supply into the EU. Companies may need to revise their supply chains to deal with this.
Also, there is a VAT aspect. The UK will be outside the EU VAT System and what this will mean is that UK exporters may need to register for VAT in each EU member state to which they export instead of being able to rely on their home state VAT registration in the UK as at present. And principal traders importing into the UK will have to account VAT on importation rather than on subsequent sale, whereas they have been able to defer it whilst the UK has been in the EU System.
So there is quite a lot for trading companies to think about.
Ralph Baxter: Right, there is a lot to think about, and of course it’s a transition that’s important, because you have been in this situation created by the EU, you were all one market and now you have got to unravel and avoid, as you say, implications such as a double tariff prospect that comes from moving from one system to another and we only can scratch the surface here in this podcast.
So what is the UK government doing, what do you expect them to do to make things easier or more workable for traders after Brexit?
Richard Eccles: Well, that’s a good question. One quite big thing the government is doing is that it has introduced what’s called a Temporary Tariff Regime, whereby tariffs on all imports into the UK from the WTO, not just the EU, will be reduced to zero for approximately 88% of products for a 12-month period. But more generally, the government has adopted various initiatives with the aim of keeping traffic flowing through ports.
The government has introduced what’s called a Transitional Simplified Procedure, whereby traders can register to obtain more streamlined customs processing, avoiding having to make a full customs declaration in advance and enabling duty payments to be deferred using a duty deferral account by monthly direct debit payments, making life easier.
But for this companies will need to register for what’s called an EORI number, that’s an Economic Operators Registration and Identification Number. But having one of these numbers will also enable other custom simplification procedures to be used. For example, storing goods in authorized customs warehousing; for example, where goods are to be exported onwards. And also temporary storage under custom supervision, both of which avoid the double tariff charge that we have mentioned by ensuring the duties are only actually payable when the products are put into free circulation.
Another thing that companies can take advantage of is the Common Transit Convention Procedure by obtaining authorized consignor and consignee, authorized consignee status. This enables customs procedures to be started and ended more smoothly at the trader’s premises or at an approved customs facility.
Traders will need a guarantee or need to provide a guarantee for this, comprehensive guarantee for all consignment or an individual guarantee for a single movement. And there are others I could talk about, but those I think are the main ones to give you a flavor of what the government is doing to try and ensure that as far as possible the goods keep flowing through the ports.
Ralph Baxter: Right, and that’s very helpful and as you say there is much more detail here, many more issues, but that’s a good window into what the government is expected to do to facilitate the transition.
So let’s talk about tariffs just a bit more. To what extent will tariffs vary once the UK is no longer a member of the EU and in particular what’s the impact on the technology industry?
Richard Eccles: Well, the UK will be outside the EU Common Customs Union from Brexit, so imports and exports between the UK and the EU 27 as we say, that means the continuing 27 EU member states will no longer be tariff free as they have been whilst the UK has been in the EU. But they will be subject to tariffs at the applicable WTO rates, at least we assume it will be the WTO rates that apply. This will make obviously UK originating products more expensive in the EU 27.
I think that imports from the EU 27 to the UK, well, I have already mentioned the government’s Temporary Tariff Regime which will result in zero import tariffs from the WTO countries, including EU countries for 12 months, but there will be a government consultation on tariff arrangements after that. But in the meantime, this will avoid new tariff costs for most EU imports and will indeed reduce tariffs for imports from other WTO countries. But on the other hand, there will be the risk of making domestic products in the UK less price competitive against the EU competition.
You asked about the impact on technology companies, the tech industry, well, we advise tech companies regarding their supply chains in preparing for Brexit, for example, in relation to telecommunications equipment and other high-tech equipment to be installed in customer’s premises, for example. So everything that I have said about streamlined procedures at customs and about tariffs will apply to this type of equipment, these types of products.
Where it is a difference for technology companies is, for example, where software is concerned, and if software is licensed internationally, this would not involve the supply of goods unless the software is put into physical form, like put on a disc or something.
Where it is merely licensed, that’s an intellectual property transaction, not a good supply transaction, so there will be no tariffs. And where software is provided as a service, again, without physical supply, then again, there will be no tariff barriers, but depending on the circumstances companies might need to check for any non-tariff barriers at the national level.
Ralph Baxter: That’s very helpful Richard. So just to sum up this part, do you have a recommendation or two for US companies doing business in the UK when it comes to these trade questions?
Richard Eccles: Yeah, there are a few things that I think I can say with reference to international suppliers, including US companies. I mean first, they should review their supply chains across Europe so as to avoid the double tariff risk of products entering the UK for re-export to the EU 27. And if products are imported into the UK for re-export to the EU 27 or converted to a finished product in the UK for onward export to the EU, proof of origin as well as of the nature and value of the goods will be needed on entry into the EU after Brexit.
So a US company may need to check if they can provide these declarations, that it might not have had to do, at least not for EU purposes, if it’s been doing EU exports through the UK up until now for example.
Companies should possibly plan stock levels for the UK and for the EU 27 separately and the companies should plan for the fact that EU technical standards bodies will not be able to certify products for the EU after Brexit and persons established in the UK to hold regulatory responsibility will no longer fulfill EU product localization criteria and vice versa; someone doing that in the EU 27 wouldn’t fulfill the UK criteria post-Brexit and so on.
So businesses need to ensure the appropriate products are channeled with the relevant controls into the UK or the EU and that such regulatory requirements are fulfilled in the UK or the EU separately respectively.
Finally, I would say companies may want to build stocks of products in the UK to avoid problems of administrative delays at ports. Many companies have already done this, especially before the originally planned Brexit date of the 29th March of 2019, but as of today there may still be time to implement these stock changes for the currently expected Brexit date.
Ralph Baxter: Well, thank you very much Richard, that was very helpful and it does demonstrate just how central these trade issues are to Brexit and to the challenge that transition will impose on people doing business in the United Kingdom. Thank you so much.
And now we are going to finally bring back Roger Bickerstaff to talk about changes in the Export Control Regime, with a particular focus on software exports.
So welcome back Roger and let’s start with this issue. Why is this an important separate question under Brexit?
Roger Bickerstaff: Well, this is a particularly important issue for tech companies that are doing business in Europe. So US tech companies that are either licensing software or getting involved in things like SaaS services, cloud services on a Pan-European basis, then they need to be thinking about the consequences of the export control in relation to software on a post-Brexit scenario.
And the situation we have got at the moment is that at the moment all of the EU is a single territory for export control purposes, and under the Export Control Rules there is controls relating to equipment goods, which could have a potential military purpose. I think there is similar legislation in the States.
And the way that that’s been implemented in the states and in Europe, and in Europe it’s under something called the Dual-Use Regulation is that encryption protocols, and these days not particularly sophisticated encryption protocols, are covered by those Export Control Regulations. And as I say, after Brexit there is going to be two separate territories, the UK and the rest of the EU, the 27 EU countries, and so people are going to need to think about the control of exports between the UK and the EU and the EU and the UK. That said, it’s going to become a much more complicated territory post-Brexit.
Ralph Baxter: Right, much more complicated, a subject that already is fundamentally complicated and very sensitive for all the obvious reasons becomes more complicated now that the UK and the EU will be separate jurisdictions. So what do US companies doing business in the UK need to do as a practical matter in light of these impending changes?
Roger Bickerstaff: Well, the good news is that although the underlying law is really quite complicated here, in practice what US companies need to do is actually quite straightforward, because both the EU and the UK governments have said that they will authorize the export of controlled items to each other through general authorizations, general licenses, which will be freely available to all exporters. But of course in order to take advantage of those general licenses, exporters do need to register with the relevant authorities in each jurisdiction in the UK and the EU in order to obtain the benefit of the general licenses.
Ralph Baxter: All right, so anything else Roger that you suggest that US technology companies doing business in the UK be considering doing now?
Roger Bickerstaff: Well, in this area what they need to be doing is to be looking at their software, as I say, it’s not just software which is exported on a hard copy basis, it covers electronic downloads, it covers the provision of cloud services on a cross-border basis, and they need to check out whether that software includes encryption protocols, which are covered by the export controls.
Once they have done that, they need to be mindful that actually the European rules are a little bit stricter than their European equivalent, in that in Europe we don’t have quite the same exclusions for consumer software that you have in the States. And if they are covered then those US companies will need to register with the UK authorities for exports from the UK to the EU and they don’t need to notify the relevant authorities in the EU country for exports from the EU to the UK.
Once they are registered, of course it does bring in administrative overheads and they will be audited by the relevant authorities, so they need to prepare for those audit inspection. The last thing they want is for the authorities to turn up to do the audit and find they haven’t got the relevant paperwork ready and available to give to them and those audits are usually carried out within three months of initial registration.
Ralph Baxter: Well, thank you so much Roger and that’s all the time we have for today’s episode. I want to say one further thing about Brexit. Obviously the changes Brexit brings are truly profound for the United Kingdom, for the European Union and for the world, and all of us will be paying careful attention as the way all of this works evolves in the years ahead.
For today, thanks to the Bird & Bird team for talking us through such a range of issues about the transition. We only were able today to scratch the surface, but I think we provided the audience with a good outline of the issues to be concerned about and how US businesses operating in the UK can deal with this transition.
We will come back to the team from Bird & Bird from time to time for updates on Brexit. If there are particular issues that were raised in today’s episode you would like to know more about, you can feel free to contact any of the panelists directly. You can find their contact information on the Bird & Bird website or reach out to me and I will facilitate that connection.
So thank you to the Bird & Bird team and thank all of you for listening.
If you liked what you heard, please rate and review us in Apple Podcasts, Google Podcast, Spotify, or your favorite podcasting app.
I am Ralph Baxter, and until next time, thank you for listening.
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