Donald Trump-driven trade wars and the UK’s slow-motion exit from the European Union have combined to push international trade policy to an inflection point. Currently eclipsed by easier, politically sensational UK-US trade headlines, a landmark opportunity exists to shape a fresh approach to the high-value digital trade transatlantic relationship that fuses EU-styled commitments on privacy with US-styled trade barrier reduction to boost businesses of all sizes.
Since 2017, The White House has sought to upend trade norms through a forthright ‘America First’ strategy which places national security and the interests of home-grown US companies at its heart, whilst eschewing multilateralism for direct, bilateral free trade agreements (FTAs). Meanwhile, across the Atlantic the UK continues on a rocky path toward an independent trade policy as it moves outside the European Union’s sphere of trade influence post-Brexit.
Politicised disagreements over US chlorinated chicken entering the UK market, and whether the UK National Health Service will be on the table in US-UK trade negotiations, have unsurprisingly dominated discussions in the UK to date. This is to the detriment of other much more economically lucrative, fast growing and future-facing sectors.
A recent McKinsey & Company report found that global cross border data flows expanded by a multiple of 45 since 2005, with total data flows valued at $2.8 trillion by 2014. This growth rate dwarfs the rise in financial flows or international trade over the same period. This includes streaming movies on Netflix or buying products online via Amazon, to broader flows of pictures, video and social media content across international borders. The UK is the US’s largest trading partner of digitally enabled services, constituting 23% of US exports and 29% of US imports of digitally-deliverable and e-commerce services from the EU.
Be it the rising challenge of how to regulate AI, or the way fintech innovation will revolutionise global payments, the supply chain of digital goods and services sits at the nexus of future economic relations between the UK, EU and US. However, the markedly differing approaches to digital regulation from the EU and US presents a major fault line for the UK to traverse.
On one policy pole, the US has been an explicit exponent of breaking down barriers to digital trade, exemplified by the digital openness clauses within the 11 country Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) signed in March 2018. This matches up with the US digital landscape majoring on maximum freedom of digital movement to boost commercial activity.
At the Brussels pole, this free, open US approach to the internet jars against the direction of regulatory travel agreed by EU member states geared toward tightly policing digital flows through powerful legislation, defined by Brussels’ data privacy and localization law, the General Data Protection Regulation (GDPR). Whilst still committed to an open internet, the EU is rightly unapologetic about its staunch commitment to safeguarding data privacy through tough measures that control where data about EU citizens is stored and which actors have access to such highly sensitive information.
At the end of the Brexit transitional period (currently set to end in December 2020), the UK will not be under the regulatory sphere of the EU’s GDPR, but has put on notice its intention to seek EU designated ‘data adequacy’. This certification indicates a third-party state meets EU GDPR data standards (and passes checks on the onward transfer of personal data to another third state and national security laws), allowing EU data to flow freely there. This would exclude the UK from the EU’s data protection governance framework whilst avoiding costly data-flow disruption.
Donald Trump’s decision to impose a raft of tariffs on flagship French goods following Paris’ decision to place a Digital Tax on 30 US tech companies including Facebook, Amazon and Google underscores the intensity of the battle between the US and EU on how to manage the sector.
In the same hand as satisfying Brussels’ privacy standards and, with a view to creating a landing spot for a US agreement on digital trade, the UK Government advocates for the greatest possible freedom of data movement with a view to allowing for a significant expansion in UK-US digital trade.
Pending any major change to Brexit strategy, the EU and UK are potentially shifting into Brexit ‘phase two’ by the end of January. This new phase, focusing on the negotiation of a comprehensive EU-UK FTA ahead of an exceptionally tight end of 2020 deadline, will undoubtedly include digital ‘chapters’ or provisions. This will set in regulatory stone how close the UK plans to stick to the EU’s privacy-based approach to digital trade, and as a result setting parameters on future US-UK digital alignment.
The challenge ahead centers on how to chart the harmonization of digital trade standards, incorporating adherence to base EU standards whilst building in suitable regulatory flexibility to avoid scuppering a future US-UK deal on digital that emphasizes liberalized trade relations.
All stakeholders must be well-prepared to lead and input into this complex and multifaceted policymaking process in 2020 to help bridge the current chasm between US and EU standards. By elevating digital trade up the agenda now, a measured balance can be charted which fuses support for small and medium-sized digital businesses to increase transatlantic activity, and a doubling-down on vital data privacy protections.
John Young is a Senior Account Director at BCW London and is currently on secondment in Washington, D.C.