Brexit – the CBI puts forward the case for ‘convergence with EU’s Digital Single Market’

SUMMARY:

A new report released by the CBI, the UK’s business leaders association, explains why close alignment after Brexit is crucial.

The Confederation of British Industry (CBI) is seeking to influence the government’s  negotiations with the EU with a new report released today, which argues the case for close alignment between the UK and the EU’s Digital Single Market post Brexit.

Prime Minister Theresa May recently revealed that whilst she wants more than ‘just an adequacy agreement for data sharing’ after the UK leaves the EU trading bloc, she confirmed that the UK will be leaving the the Digital Single Market.

The CBI’s report is wide ranging and rightly highlights that whilst there are opportunities for UK rules to change post-Brexit, these are vastly outweighed by costs that will be incurred if the UK’s rules change so much that it reduces smooth access to the EU’s market.

We at diginomica/government have been monitoring the situation closely, poring over government white papers, speaking to civil servants and politicians about the potential impact, as well as seeking advice and insight from business leaders about the UK’s future in a post-Brexit world.

What has become clear is that there is a fundamental role that technology and data will play in ensuring that Brexit is a success. This is a theme that has run throughout the negotiation period, since the result of the referendum almost two years ago.

By way of an update on progress, Prime Minister Theresa May made a breakthrough in recent weeks, after the the terms of the ‘transition period’ were agreed with the EU, which will allow the UK to strike new trade deals, but keep the current arrangements with the trading bloc ongoing for a 21 month period to allow both sides some extra time to prepare.

The much debated ‘EU divorce bill’ has been decided, but the future trading relationship with the EU has yet to be agreed. A final deal will be put before parliament later this year, most likely in October.

What’s interesting about the CBI report is that it covers the UK’s key business sectors in detail, highlighting what each requires from Brexit negotiations to ensure future economic success.

Tom Thackray, CBI Innovation Director, said:

This report comes from the heart of British business. It provides unparalleled evidence to inform good decisions that will protect jobs, investment and living standards across the UK.

The experience-based evidence of companies across the country will be essential in the months ahead, as it is critical that negotiators understand the complexity of rules and the effects even small changes can have.

The UK is a world leading digital economy, and the tech and creative sectors are an exciting mix of home-grown entrepreneurial talent and international businesses. The tech economy is creating jobs twice as fast as the rest of the economy and spurring jobs and investment across the UK, so a close relationship between UK and EU rules in the technology and creative sectors will be necessary after Brexit to support truly global industries. British and European consumers and businesses both stand to benefit from getting it right on technology rules.

The CBI report highlights that the UK is number one in the world when it comes to e-commerce, and according to the World Economic Forum, 5th in the world when it comes to the availability of technology. It adds that four out of five of the largest global investments in artificial intelligence businesses were for UK firms. And that the tech economy is creating jobs twice as fast as the rest of the economy and spurring jobs and investment across the UK.

In addition, the EU is an important partner for the UK’s technology businesses with over 40% of exports heading to European destinations. The CBI states that smaller firms in particular benefit from the ability to smoothly access the EU’s 500 million consumers. Furthermore, involvement in the Digital Single Market, which the UK has been instrumental in shaping, the report notes, was expected to boost the UK’s domestic economy by £1.7 billion . The tech sector also relies on access to global talent to thrive, as over 15% of the UK’s tech workforce is foreign born.

Below are the key points that the CBI believes are critical to the future of the technology sector post-Brexit.

“An adequacy agreement and continued equivalence of the rules that support it is critical to securing cross border data flows which underpin modern economic activity”

The CBI report highlights that the UK is a leader in cross-border data flows, with 11.5% of the world’s data flowing through its borders – three quarters of which is between UK and EU countries.

As a result, for tech and digital businesses, the free flow of data is a top priority and fundamental to their everyday operations and ability to grow and innovate. Currently the UK’s membership of the EU allows businesses in the UK to transfer data to and from all countries in the EEA as they are all governed by a single set of data protection rules.

The UK has committed to aligning with the EU’s General Data Protection Regulation (GDPR), which comes in force in May and provides the harmonised conditions under which personal data can be transferred within the EEA and sets clear standards for its transfer outside this area. The CBI states that “equivalence of data protection standards is crucial to securing the free flow of data”.

Continued equivalence of data frameworks will pave the way for the UK to secure an “adequacy decision” from the EU which is “crucial to uninterrupted data flows”. An adequacy agreement also grants access to share data with other countries who have adequacy decisions with the EU, such as the US and Canada.

Data adequacy is granted when the European Commission feels that a territory that is not part of the EU has data protection laws and practices that are aligned to the EU’s high standards.

 Currently ten countries have been granted the status, including Israel and New Zealand. The USA and Canada have only been deemed to be partially adequate, and the data sharing with the USA is governed by the 2016 Privacy Shield agreement.

“Convergence between the UK’s rules and the EU’s Digital Single Market after Brexit will facilitate UK growth, particularly in e-commerce”

The EU’s Digital Single Market sets out a suite of initiatives to enable frictionless e-commerce and growth across Europe. The CBI report notes that “these regulations are the backbone of the digital economy and drive productivity through better access to services, tools and opportunities for businesses across all sectors”.

It adds that not only has the UK been instrumental in developing the Digital Single Market, but close alignment reduces red tape for businesses and makes accessing new markets simpler.

The CBI argues that whilst the UK will be leaving the Digital Single Market, retaining convergence with many of these rules will be “critical” for both businesses and consumers. For example, convergence on the rules around the cross-border portability of online content services will provide benefits for both UK and EU consumers travelling across the EU.

“The UK must take pay close attention to the direction of EU rules for technology companies in the future”

The CBI argues that in order to sustain frictionless data flows, access to content and support for the UK’s digital economy, “it is highly likely that UK businesses will be required to adhere to new Digital Single Market regulations post-Brexit”.

As a result, the CBI believes that throughout negotiations and the transition period, the UK government must continue to shape forthcoming regulations to best reflect the strategic needs of UK businesses and consumers. This includes, for example, the forthcoming ePrivacy regulation which governs how communication services providers and websites use and collect personal data.

Furthermore, the CBI adds, the UK will need to stay abreast of potential changes to intermediary liability as part of EU level platform regulation which, within the eCommerce Directive, underpins the modern framework for the internet and the responsibility of companies that host information. Any changes in this area would have substantial implications for the vast majority of businesses and thus requires serious business engagement and consideration. Other major files include proposed changes to platform regulation for platform to business relations and updated EU copyright rules which will continue to impact on British companies and consumers even after the UK has left the EU.

The outcomes of these proposals, the CBI states, will be essential to UK businesses as they will ultimately shape how companies do business online and “their ability to thrive and compete on the world stage”. It notes that “the UK must engage on these proposals as they continue to develop and ensure that its future digital economy rules provide access to EU markets”.

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