Retaining influence over EU rules and regulations
149.techUK reminded us that there was “a huge body of European law that underpins the day-to-day operations of the technology sector”, the purpose of which was to “harmonise the single market and reduce non-tariff barriers for trade within the EU”.204 Skyscanner also told us that a “harmonised Single Market framework” had had “a significant positive impact”, by “increasing operating efficiencies and reducing unnecessary costs.”
150.UK Cloud agreed: “Whilst the charge of over-regulation is frequently levelled at the EU, a single set of compliance costs is preferable to multiple regulatory compliance costs.”205
151.While witnesses were generally supportive of the Commission’s proposals to alter the shape of the Single Market for digital and telecommunications services under the Commission’s Digital Single Market Strategy (launched in May 2015) and the Connectivity Package (launched in September 2016), some were concerned that, post-Brexit, the Strategy could be used to introduce non-tariff barriers to UK businesses providing services in the EU.
152.The Digital Single Market Strategy includes 16 legislative and non-legislative initiatives to create a Single Market in digital services by harmonising, among other things, copyright, consumer protection and VAT laws (largely for digital goods and services).206 The Connectivity Package seeks to reform competition and consumer protection rules for telecommunications businesses.207
153.While Digital Catapult felt the market liberalisation proposed in the Digital Single Market Strategy “would offer a disproportionate benefit to the UK”, Antony Walker was concerned that it could do the opposite: “As that body of legislation is developed and approved at a European level, opportunities could be taken to make that market less accessible to UK firms once the UK exits the European Union.”208 He concluded: “We need to be very careful that the DSM cannot be used against the interests of UK-based companies in the future.”209 Commenting on the Connectivity Package, Broadband Stakeholder Group said the Commission’s proposals included measures to boost “investment in connectivity” and tackle “regulatory fragmentation across the EU”, but added that it was “unclear how these changes in regulations might affect the UK telecoms sector and its ability to provide services across the EU post Brexit”.210
154.Mr Hancock said that, “since the referendum, [the UK’s] impact on current EU debates is as significant as it ever was—read into that what you will”. The Government was “using the fact that we are members until we leave to contribute to and win those arguments” with other Member States. Asked whether the Government had considered ways to maintain this influence after Brexit, he said it was “far too early to say”, and that the answer depended on the wider question of “once we are in control of our own laws, how would we react to any given new European law?” The UK would be “free to choose either to move towards it, align with another part of the world or come up with our own solution”. He also noted that the UK had experience of working with regulators in other trading nations, such as the US, but that it was “too early to go into the details of what that structure would look like”211 for the UK and EU post-Brexit.
Trading under WTO rules
155.techUK described the move to trading in digital services under WTO rules as “a regulatory cliff edge”.212 Mr Walker said that it was “a highly unattractive option from the perspective of the full breadth of techUK members”.213 Jo Twist, CEO of UKIE, told us: “The WTO does not provide the free movement of labour, and it does not provide for the free movement of personal data between the UK and the EU”.214
156.As an internet business, Skyscanner did “not envisage a move from the EU regime to WTO (GATS) terms as likely to have a significant detrimental impact of itself”, but was concerned that enforcement of the GATS schedules could be “extremely difficult, often political”. They noted that GATS terms “have been heavily criticised due to the apparent lack of transparency in relation to settling disputes or negotiating new trade relations”. They therefore argued that trading on WTO terms would be “a much less attractive option than a free trade agreement”.215
157.UK Cloud were concerned that trading under WTO rules would affect future innovation in digital businesses: “Like most regulation, WTO terms pre-date digital and cloud.” While most WTO schedules were “not unreasonable (and in some aspects not dissimilar to the terms of being a member of the EU)”, it would be “a daunting prospect for many small businesses in the UK to get to grips with the terms as they apply to them”. They also noted that the “pace of regulatory change in the WTO is even slower than Brussels—hardly surprising given the scale and diversity of its members—which would exacerbate the usual scenario where technology outpaces regulation by an order of magnitude”.216
Conclusions
158.Digital services are a growing and successful part of the UK economy. The UK leads the EU in the provision of digital services, and the EU is a critical export market. The rapid growth in digital services in the UK has been fuelled by input from non-UK migrants, in particular EU nationals, moving to the UK to fill high-skilled jobs. The likelihood of future growth and innovation in the sector means that digital services should play an important part in the forthcoming negotiations. The Government should aim to maintain the UK’s strengths in this area in a future UK-EU FTA.
159.Preserving the free flow of data across borders is seen by industry as critical to the future of UK digital services. An ‘adequacy decision’ by the European Commission, recognising that the UK had adequate data protection standards (as well as reciprocal arrangements), would be needed to preserve this flow of data. We note concerns that certain provisions of the Investigatory Powers Act 2016, relating to the collection and storage of personal data by security services, could stand in the way of the Commission granting such a decision. We also note the Court of Justice of the European Union’s (CJEU) decision to deem the EU-US Safe
Harbour agreement invalid.
160.A key benefit for UK consumers provided by the EU is the forthcoming abolition of roaming charges. This will be put at risk by Brexit, unless specific provisions are included in a UK-EU FTA extending the cap on wholesale roaming charges to UK Mobile Network Operators (MNOs). We note that there are no such provisions in existing FTAs, and that the number of UK citizens travelling to other EU Member States may dis-incentivise EU-based MNOs to extend the cap to UK MNOs. Post-Brexit, the Government and regulators should also take steps to prevent UK MNOs increasing retail charges for roaming services for UK consumers.
161.The Government should seek mechanisms whereby it can continue to formally influence and engage with the Commission and the EU27 in the development of the Digital Single Market (DSM) after Brexit. The DSM is currently under review, and there is a risk that the EU may introduce provisions that could increase the non-tariff barriers faced by UK firms. This highlights the general need for any UK-EU FTA to include provisions on transposing relevant future changes in EU law into UK law, and for the UK to ensure that changes in domestic law do not jeopardise regulatory equivalence.
162.In the absence of a UK-EU FTA, we heard grave concerns from the digital services sector about trading under WTO rules, relating in particular to the state-led nature of the dispute resolution mechanism and the challenges fast-moving technology poses to a global membership organisation. Businesses would face huge difficulties in adapting to trade with the EU and the rest of the world under WTO rules.
163.We also note that, if the trading environment for UK-based digital businesses were to deteriorate significantly following Brexit, digital platforms and start-ups might choose to relocate or redirect parts of their activities to other EU countries.