The UK Government’s recent White Paper acknowledges that, post-Brexit, the UK will be out of the Digital Single Market (DSM) but sets out ambitions for a relationship with the EU allowing unrestricted EU-UK data flows, liberalised communications and close cooperation. On the other hand, it clearly states the importance of “domestic regulatory flexibility” and removing barriers in the digital economy. This article looks at the inherent frictions in the digital policy and how these may impact businesses who deal in consumer goods and services.

Digital Single Market

The DSM will harmonise the rules currently regulating the provision of goods and services through online channels, with a view to generating more data, at faster speeds and offered at a lower cost. It includes regulation on geo-blocking, data portability, VAT for cross border e-commerce, copyright directive reforms, the free flow of data initiative, e-privacy regulation, consumer protection reforms (REFIT), telecommunication reforms and the audio visual and media services directive (AVMSD).

White Paper

One of the more controversial aspects of the Government’s proposal is to distinguish physical goods from services, including digital services. The UK wishes to keep the regulation of physical goods very much aligned with Europe whilst allowing regulation of services to diverge. If we consider the example of operators of e-commerce sites; they would be subject to the “common rulebook” when selling their products however, with regard to the digital aspects of their offering, different UK rules may apply.

Putting to one side the objections of the EU, this kind of arrangement could bring with it complexities for business. The advent of the internet of things, smart devices the distinction between a physical good and a digital service is becoming blurred, the rise of servitisation is also worth taking note of, companies are increasingly wrapping services around their goods and these services account for a growing percentage of profit. What this means is that most consumer goods companies would have to take both sets of rules into account in their business. In practice many will opt to comply with the strictest regime where there is uncertainty thus making it difficult to realise any real benefits from a more flexible regime.

The UK Government’s July 2018 White Paper envisages a future EU-UK digital relationship covering:

1. Digital trade and e-commerce

  • Ensuring cross-border data flows
  • Protecting free, open and secure internet
  • Recognising equivalent forms of electronic ID & authentication

2. Telecommunications and digital infrastructure

  • Joint commitments to open and liberalised electronic communications
  • Avoiding unjustified localisation of data
  • Continuing to share cyber threat information

3. Digital technology

  • Exploring new models for regulatory cooperation for emerging technology such as the European AI Alliance in which the UK intends to participate

4. Broadcasting

  • The “country of origin” principle under which a company based in one Member State can be licenced by a national regulator and broadcast into any other Member State, will no longer apply
  • The UK will remain a party to the European Convention on Transfrontier Television despite leaving the EU, audio-visual works originating from the EU will continue to benefit from the European Works system

The first two proposals are of the most relevance to the consumer goods sector.

1. Digital trade and e-commerce

Ensuring cross-border data flows and open and liberalised electronic communications will depend on a parity between the UK and EU in data regulation and enforcement. There is an obvious friction here with the UK’s desire for domestic regulatory flexibility.

Before the UK becomes a third country it is vital that businesses can confidently make personal data transfers between the UK and EU without fear of being in breach of the GDPR. An adequacy decision as foreseen under Article 45 of the GDPR would provide this.

The adoption of an adequacy decision involves:

  • a proposal from the European Commission
  • an opinion of the of the European Data Protection Board
  • an approval from representatives of EU countries
  • the adoption of the decision by the European Commissioners

In the absence of such decision businesses who transfer data to Europe should consider other safeguards such as binding corporate rules.

The recognition of equivalent forms of identification was addressed in the eIDAS1 regulation which came into force in 2016 thus part of the acquis which will become UK law upon Brexit. The adoption of esignatures is widespread in the sector and is particularly useful for companies frequently contracting with overseas third parties. Continued alignment in this field has benefits for both EU and UK business so should have bilateral support.

2. Telecommunications and digital infrastructure

The UK has been a leading advocate of the DSM’s Free Flow of Data initiative which will ensure the free flow of non-personal data across the EU, remove unnecessary data localisation laws for the storage and processing of data, such as those that apply in Germany for telecommunications metadata, and facilitate easier transfer of data between cloud service providers and their customers. Standardised Codes of Conduct for cloud providers are seen as a key element in making this possible. It remains to be seen whether these Codes of Conduct would act as a barrier to transfers to non-EU service providers who have not adopted them. For these reasons and the trend toward concentration of services into the cloud, companies need to closely examine the terms and conditions that they are agreeing with their cloud service providers.

The DSM also contains telecommunications reforms and defines investment schemes for funding and rolling out of 5G by 2025, projected costs for the EU are set at €500 billion. The UK will have to fund its own 5G roll out without EU assistance. Studies2 forecast that by 2020 around two thirds of online retail, worth around £43bn annually, in the UK would be conducted via mobile, with four in five transactions involving a smartphone at some point in the purchase journey. It is vital that UK businesses are not at a disadvantage as compared with their European counterparts in this arena. UK corporates and individuals would stand to gain if the Government were able to secure some of the benefits of the DSM such as access to online services across the EU, access to content and reduced mobile roaming. Again, the likelihood of this being accepted by the EU will be influenced by the degree of regulatory independence the UK insists upon.

Relationship with the US

Increasing investment and trade with the US is a clear motivation behind the UK’s digital proposal. Recent actions such as the ~$5Billion fine levied on Google for breach of EU competition laws, the proposed EU Digital Tax, the uncertainty surrounding the Privacy Shield following the European Parliaments criticism of the US for its lack of action; have fuelled a perception that the EU is not a welcoming environment for US Big Tech. It will be interesting to see what steps the UK will take to differentiate itself from Europe which do not jeopardise the benefits it hopes to preserve from being part of the European market.

A strong digital strategy is becoming a centrepiece of growth plans in the consumer goods sector. At this stage there is still a considerable amount of uncertainty on the topic which could endure well past the Brexit date. Will the EU see the UK’s digital wish list as cherry picking or will the commercial benefits of digital integration hold greater weight? Until a clearer picture of the post-Brexit digital landscape emerges the prudent approach would be to assume the continued application of EU regulation particularly with respect to personal data whilst preparing to lose some of the benefits of the DSM.