A digital Brexit round-up – The state of play as negotiations in deadlock

SUMMARY:

The Prime Minister is struggling to progress negotiations with Brussels, as the UK potentially heads for a ‘no deal’ Brexit. Here’s what we know so far.

The British government is potentially heading for a ‘no deal’ Brexit, as the Prime Minister struggles to satisfy the EU’s requirements on citizens rights, a payment settlement and the Northern Ireland border. Brussels has said that it won’t consider trade talks until it has a clear commitment on those issues.

This has been the state of play for months now, with industry and ministers becoming increasingly concerned that the UK should be preparing for a ‘no deal’ – or a cliff edge – scenario. Whilst there is still time ahead of the March 2019 exit from the EU, UK banks, for example, have said if things don’t progress soon, they will start implementing contingency plans to move assets to other European countries.

It’s hard to say what will happen at this point, but we at diginomica have been covering the digital implications of Brexit for months now and we thought it might be useful to collate some of the key issues in one place as a resource for those concerned about the situation as it currently stands.

Risk and opportunity for new systems

One of the most critical aspects of Brexit, as it relates to the future operation of government departments, is the untangling of years’ worth of processes, legislation and systems away from the EU. We have heard the Government Digital Service (GDS) say that Brexit could represent a “huge opportunity” for Whitehall, allowing the British government to build on its digital foundations and create new agile and innovative systems – a clean slate that’s separate from decade old systems.

However, we have also heard from the Department for Environment, Food and Rural Affairs (Defra) that a March 2019 deadline, without a transition deal in place, will insert risk into any of the new systems in place – especially considering many of the department’s systems are currently hosted in the EU.

Defra’s chief digital and information officer, John Seglias, recently said:

We are working on what we know to be true. And what we know to be true right now is that the date affects us from March 2019. That is what is known and that is what we have to work against. Now, if there was a transitional period, then you would need to know how long that was – because a year versus three years makes a big difference. That doesn’t change what we have to do, it changes the scope of what we do and over what period we do it. It takes away risk, for example.

Because if you’re trying to work very quickly to deliver stuff from March 2019, you insert risk into your processes and into what it is you’re delivering. The other thing we would be able to do is if we had more time is to look at the scope of the products we are developing and say let’s do it properly, 100% functionality that we need.

Whereas if you only have 18 months, or whatever it is left, you have to be very choosey with the scope. It’s not black and white, so you may decide to build everything for one system, and little bit for another system. Right now we are working against we know, which is March 2019, as you would expect.

Online immigration system

The British government has been laying out its plans for how it intends to manage its transition away from the European Union in a series of Brexit related papers. However, a recently leaked document also provided some insights into how the government and employers may use a new digital portal to check the status of EU nationals wanting to live and work in the UK.

The government has frequently said that when the UK leaves the EU, free movement of people will eventually end and it will become more selective about who can come and go, based on the UK’s economic and social needs.

However, the document outlined plans for a future immigration system, that it hopes will be “digital, flexible and frictionless” for individuals and employers. The ambitious plans stated that the new digital system will be supported by “improved data sharing capabilities between government departments, notably between the Home Office, HM Revenue and Customs and the Department for Work and Pensions, to link together tax, benefit and immigration records in a fully automated and digital way”.

The document added:

A secure digital portal will enable employers and public service providers quickly to check the immigration status of an individual and take action if necessary.”

We will be seeking the views of employers and other stakeholders on the details of these arrangements, with the aim of making them as straightforward to use as possible, but effective in identifying the immigration status of individuals.

Data deal

One of the top concerns amongst the business community is the UK securing a data sharing deal with the EU after exit. The British government has been warned that it faces a ‘cliff edge’ on data exchange with the EU after March 2019, when it officially withdraws from the European Union. Whilst the UK has committed to complying with the EU’s upcoming General Data Protection Regulation (GDPR), this is no guarantee that it will gain adequacy status upon exit.

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.

The government has issued its own paper on plans for a data sharing agreement with the EU, stating that because it already complies with EU data protection laws, being part of the EU currently, it is started from an “unprecedented position” and that “the future deep and special partnership between the UK and the EU could productively build on the existing adequacy model”.

The government’s Brexit data policy paper outlines how the UK is a significant player in global data flows. It estimates that around 43 per cent of all large EU digital companies are started in the UK, and that 75 per cent of the UK’s cross-border data flows are with EU countries.

It adds that the UK accounted for 11.5 per cent of global cross-border data flows in 2015, compared with 3.9 per cent of global GDP and 0.9 per cent of global population. As a result, the paper states, “any disruption in cross-border data flows would therefore be economically costly to both the UK and the EU”.

For a full outline of the UK’s data proposals, see here.

Customs system

It has been confirmed by senior ministers that when the UK leaves the EU, it will also be leaving the customs union. This has caused concern amongst the business community, which has been asking for clarity, as it will inevitably increase friction and costs for those trading goods or services with the EU.

The UK government recently began to shed some light on it’s proposals for a customs arrangement with the European Union post-Brexit, with the release of a paper that lays out it’s two preferred systems. It said that both proposed systems will require new, sophisticated technology to streamline trade post-Brexit.

The first proposal is for a highly streamlined customs arrangement between the UK and the EU, with customs arrangements that are “as frictionless as possible”.

However, the alternative proposal is for a “new customs partnership” with the EU, which aims to align the two trading partners’ custom borders in a way that removes the need for a UK-EU customs border. It argues that one potential approach would be for the UK to mirror the EU’s requirements for imports from the rest of the world where the final destination is the EU.

Both have pros and cons and implementation will not be easy. Read the full story here.

Services

It’s important to frame these digital Brexit discussions within the context of the UK’s economy versus the EU’s, as well as consider how the EU is pushing for greater liberalisation and harmonisation of services activity across member states (which the UK would be excluded from if it were to leave).

We sell more in services to the EU than we do in goods, but the EU sells more in goods to us than they do services. FTA’s usually are limited in their scope when it comes to services. So there’s a good chance the EU will want to focus on goods, and services (of which digital makes up a big chunk) will be sidelined.

Whilst the UK has a deficit on trade in goods with the EU27 (£89 billion in 2015), it has a surplus on trade in services (£28 billion in 2015).

So basically, our priority is services, which is good for digital, but the EU’s priority will be goods – which is usually the topic of discussion under most FTAs.

Typically services are covered by WTO rules, which are light on tariffs, so that’s not a problem. However, those rules don’t take into consideration the regulations that will impact the trade in services across the EU, so Britain needs to build that into any FTA it signs.

For example, regulations to consider include:

  • right of establishment (meaning that individuals or companies from one member state must be legally free to deliver services in another member state either temporarily or permanently, while continuing to be regulated by the authorities of their home country); and
  • mutual recognition of professional qualifications (the licensing of professionals by regulatory bodies is subject to the principle of mutual recognition throughout the Single Market).

If we don’t secure an FTA that has a strong services focus, then digital will inevitably suffer. Let’s hope the government doesn’t lose sight of that.

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