Brexit trade and data deals hinge on crucial meeting today

SUMMARY:

UK Prime Minister Theresa May is set to meet European Commission President Jean-Claude Juncker for lunch to discuss moving discussions forward.

The UK Prime Minister Theresa May is set to meet with European Commission President Jean-Claude Juncker for lunch later today in an attempt to progress Brexit negotiations past the deadlock that they’ve been stuck in for over a year now.

It has been reported that key deals have been reached on the financial settlement ‘divorce’ bill and the rights of European citizens living in the UK – with reported progress also being made on the Irish border. The EU has said that all three points must be resolved before it is willing to move on to discuss a future trading relationship with the UK.

The lunch is a crucial one for the Prime Minister, who will need to walk away with a convincing message that trade talks will progress, or face further criticism from her party and the public over her ability to successfully transition the UK away from the EU.

The trade talks are critically important in providing certainty and clarity to the technology industry and those relying on digital business – given that data sharing and the future of trading services (largely online) will likely be central to the discussions.

Today’s lunch comes after the EU gave Downing Street 10 days to make some progress on the three sticking points mentioned above. And whilst the Prime Minister has made concessions on the divorce settlement and EU citizens’ rights, the Irish border has proven to be the most challenging hurdle to overcome.

The government has said that it wants a “frictionless” system to be put in place, meaning essentially no hard border at all – the viability of this has been brought into question by numerous experts and the EU.

However, according to Ireland’s public broadcaster, RTE, the UK will concede that there will be no “regulatory divergence” on the island of Ireland on the single market and customs union. What this means for Brexit – and whether this is legally feasible – remains to be seen.

Why is this relevant for digital?

This is an important crossroads for digital business. Whilst much of the wider media attention has been placed on a broad trade deal, there are two key facets of this that will be central to a successful digital future for Britain.

Firstly, as we have noted previously, the UK should focus heavily on the services side of any trade deal with the EU – this is particularly important within the context of the EU pushing for greater liberalisation and harmonisation of services activity across member states (which the UK would be excluded from if it were to leave).

Focusing on services is obviously central to digital trade. And this is particularly important to the British economy, given that we sell more in services to the EU than we do in goods.

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).

However, traditionally, trade deals focus on the trade of goods, rather than services. We’ve covered the importance of ensuring a services focus for the UK, and it is a topic that has been raised by MPs – but for the UK to secure a good deal for digital Britain, it will need to progress the services element of any deal in the coming months.

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).

Equally, 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.

And even though the UK has committed to complying with GDPR – there are still stumbling blocks in this area too. For example, this weekend the government has also had to propose changes to its Investigatory Powers Act (often dubbed ‘Snoopers Charter’), after accepting some parts of it are “inconsistent with EU law”.

The Act governs the collection and use of communications data by law enforcement agencies. The government has now had to make key concessions to what it had planned, in order to keep in line with EU regulation – highlighting how closely tied to the EU will remain, even post-Brexit, if we want to continue to trade adn share data with the bloc.

The government is hoping that the EU will grant it data adequacy status post March 2019. 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’s own Brexit data policy paper outlines how the UK is a significant player in global data flows. It estimates that around 43%  of all large EU digital companies are started in the UK, and that 75% of the UK’s cross-border data flows are with EU countries.

It adds that the UK accounted for 11.5% of global cross-border data flows in 2015, compared with 3.9% of global GDP and 0.9% 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”.

My take

Hopefully it’s clear why this lunch today between May and Juncker is critical. Whilst the issues of a financial settlement, EU citizens’ rights and the Irish border are important – there is so much detail to iron out between the two parties to support a vibrant digital UK economy in the future…and we are running out of time.

If the Prime Minister walks away from this lunch today without having secured a progression onto trade talks – of which services and data should be key – our chances of a successful Brexit for digital by March 2019 continue to dwindle.

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