Following the infamous row over chlorinated chicken, Trade Secretary Liam Fox accused the British media of “obsessing over the detail of the very end stage of one sector of a potential free trade agreement”. Yet obsessive level of detail at every stage and for every sector is exactly what we need, especially from the Government, if we are to successfully forge new trade agreements.
New free trade arrangements with some of the world’s fastest growing economies offer us huge post-Brexit opportunities, but the devil really is in the detail. This is particularly true for our fast-growth digital sector that does not adhere to a traditional trade model of goods vs. services, but generates significant economic trade value.
The fast-growth digital sector represents 24 per cent of total UK exports and underpins the new era of digital globalisation, which has upended the entire concept of trade in recent years with the increase of cross-border data flows around the world.
At a time when global goods grew by only 1.3 per cent in 2016 – the first time since 2001 that trade grew more slowly than GDP – global cross-border data flows now account for $2.8 trillion of the $7.8 trillion total global flows of goods, services, finance, people and data.
The UK is a world-leader here, accounting for more than 11 per cent of global cross-border data flows in 2015. By comparison, we accounted for 3.9 per cent of global GDP and less than one per cent of global population – and analysis shows that data will benefit the UK economy by up to £241 billion between 2015 and 2020.
In short, we must put the ability to transfer data unhindered at the heart of these new free trade agreements. Liam Fox must view data flow as the bedrock from which to build upwards – but his job won’t be straightforward.
First, three-quarters of the UK’s cross border data flows are currently to EU countries. UK and EU negotiators must ensure the unhindered flow of data with them after we exit the EU. Any disruption would severely hamper economic growth, industry and national security – both in the UK and in the EU member states in question.
Once we leave the EU, the UK will be classified as a ‘third country’ and need to go through a formal process to obtain an ‘adequacy decision’ from the European Commission. This will confirm the UK’s domestic data protection rules are an equivalent standard of protection to that available within the EU.
On the face of it this shouldn’t be too complex. It is in the interests of both parties to do a deal – and the British Government has taken steps to align its data protection rules with the EU, by opting-in to the EU General Data Protection Regime (GDPR) and bringing in a new Data Protection Bill.
This sets out how the UK will handle the derogations under the GDPR, implement the EU directive on data processing for law enforcement (often overlooked) and states an ambition to have a framework for data processing for national security purposes. But this process has many potential pitfalls and complexities.
One potential stumbling block is talk of potential trade agreements with the US – which must include data transfers. If these negotiations progress in advance of resolving adequacy with the European Commission, it won’t land well in Brussels.
The challenge will be creating a deal that does not act as an impediment to building a close new partnership with the EU, between nations that have very different views on data protection. The EU and the US approach data protection from two vastly different philosophies and the GDPR includes specific controls on the transfer of personal data to non-EEA countries who are not officially recognised as providing an adequate level of protection. This includes the United States.
Where the EU data protection regime puts individual data protection at its heart – a move mirrored by the UK in the upcoming Data Protection Bill – the Trump administration has moved to dismantle Obama’s 2015 net neutrality regulations, which required internet providers to obtain customer permission before sharing their browsing history.
Trump’s chairman of the Federal Communications Commission, Ajit Pai has called the rules “heavy handed” and argues that the rules limit innovation, especially for smaller providers and “market forces are better than government rules”.
The EU will pay close attention to our ‘Privacy Shield’ equivalent with the US, and be concerned that onward data-flows are not up to their standards, thus limiting room for manoeuvre and our negotiation powers.
This is not to say the EU is an aspiration for the UK. The EU has struggled to keep up with the digital revolution and failed to strike its own agreement across the membership bloc on what form a Digital Single Market should take.
In truth, the bloc mentality of the EU has been holding back global digital trade advancements for its member states. Indeed, European negotiators failed to persuade the Japanese to accept their guarantees on freer flows of data, leaving this critical element abandoned for now.
This is not the route we want to go down as we forge our new way in the world. But maintaining open-data flows between the EU – UK – US, is a critical area of negotiations where the Government faces a diplomatic challenge to avoid a situation where the UK has to choose between the US or the EU.
New trade deals offer our digital economy exciting opportunities to accelerate its already incomparable growth rate. It is clearly an area where the UK can emerge as a global leader.
But the diplomatic and regulatory challenges ahead may make chlorinated chicken seem like a paltry footnote if the Government doesn’t urgently make data trade a priority of new trade deals.
If not, small overlooked details may quickly escalate and dramatically impact one of the UK’s most successful and innovative sectors.