Documents considered by the Committee on 25 April 2017 Contents

12Digital Single Market: Building a European Data Economy

Committee’s assessment

Politically important

Committee’s decision

Not cleared from scrutiny; further information requested

Document details

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions

Legal base

N/A

Department

Culture, Media and Sport

Document Number

(38456), 5349/17 + ADD 1, COM(17) 9

Summary and Committee’s conclusions

12.1Data, often described as the “currency of the internet”, is a valuable resource that is of growing economic importance in the digital economy. Although an EU-level regulatory framework exists for personal data, no such framework exists for non-personal data. This creates legal uncertainty which may cause a number of problems. If these concerns are addressed at Member State level, this may fragment the Single Market and inhibit the growth of the EU’s data economy.

12.2As part of its Digital Single Market Strategy, the European Commission adopted on 10 January 2017 a Communication called “Building a European Data Economy”. The Communication concludes that a policy framework is needed that enables data to be used throughout the value chain for scientific, societal and industrial purposes, and outlines a number of distinct issues and possible solutions to them. Its adoption coincides with the launch of a wide-ranging stakeholder dialogue including a public consultation that will run until 26 April 2017.22

12.3The Communication explains that the Commission:

12.4In the Government’s Explanatory Memorandum, the Minister of State for Digital and Culture (Matt Hancock) stated that the Government would support action to restrict data localisation measures because doing so will reduce barriers to trade and the growth of businesses; however, he also suggested that the Commission should only intervene where there is clear evidence that data markets are not functioning, and outlines a list of principles that should guide any further action.

12.5Given the importance of UK-EU data flows post-Brexit, the Committee considered that the document was of sufficient importance to retain it under scrutiny, and sought further information on a number of points, including concerns expressed by TechUK that measures could introduce data localisation requirements for businesses operating in third countries, thereby requiring UK-based businesses to relocate part of their operations to the EU. The Minister now responds to the Committee’s questions.

12.6We thank the Minister for his thorough response to our report. Regarding the proposal itself, we note his comments that:

12.7Regarding the Brexit-related implications of the file, the Minister states that:

12.8We retain this file under scrutiny and await further updates from the Government, including a copy of its response to the Commission’s consultation.

Full details of the documents

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Building a European Data Economy: (38456), 5349/17 + ADD 1, COM(17) 9.

Background

12.9The Commission’s Communication identifies four thematic areas of concern.

12.10The first area of concern is that some Member States have introduced ‘data localisation’ measures which require data to be stored on servers physically located in that Member State. The Communication explains that such measures are ineffective, clarifies that a “principle of free movement of data within the EU” (derived from the treaties and secondary law) applies to non-personal data in the Single Market, and urges Member States to take this into account when considering introducing restrictions. No regulatory action is proposed at this time, but the Commission states that it will launch infringement proceedings to address unjustified data location requirements and may bring forward further initiatives in this area in due course.

12.11The Communication also elaborates a number of other less precisely defined concerns that relate to the competitive dynamics of the data economy. There are concerns that, in the absence of legal frameworks that clarify non-personal data ownership rights and data sharing requirements, dominant manufacturers and service providers may become ‘de facto’ owners of machine-generated data within supply chains, which could inhibit growth, competition and create lock-in effects. The Commission proposes to consult on a wide range of possible solutions to these concerns.

12.12Further competition-related concerns are raised in relation to the lack of data portability in the data economy. Data portability, underpinned by interoperability and common standards, can facilitate switching between online platforms, promote the concurrent use of multiple platforms (“multi-homing”) and encourage data exchange across platforms, which has the potential to enhance innovation. A lack of data portability can lead to lock-in effects and inhibit competition. Feedback is sought in relation to a range of possible interventions.

12.13The Commission also intends to consult on the adequacy of current rules on liability in the context of emerging digital technologies such as the internet of things (IoT) and autonomous connected systems (such as self-driving cars), which could lead to difficulty establishing liability when faults occur. It seeks views on possible solutions.

12.14The Committee’s report of 8 March 2017 concluded that the Communication was politically important because it provided a strong indication of the Commission’s wide-ranging thinking in relation to future regulation of the data economy, and considered that the development of the EU acquis in relation to the data economy was likely to have significant implications for UK businesses post-exit. The Committee therefore sought further information on a number of points.

12.15In relation to the proposal itself, the Committee asked the Minister:

12.16The Committee also sought responses to the following Brexit-related questions:

In relation to EU-third country data flows, the Communication states that “the Commission will seek to use EU trade agreements to set rules for e-commerce and cross-border data flows and tackle new forms of digital protectionism in full compliance with and without prejudice to the EU’s data protection rules”. This suggests that it will seek to ensure that the UK complies with EU rules with regards to the digital economy. Does the Minister have a preliminary view as to whether the Government will seek a close approximation of UK domestic law with the EU acquis in the longer term, in order to maximise market scale and minimise barriers to trade, or whether it believes that a more laissez-faire regulatory approach could offer the UK a competitive advantage, notwithstanding the increased barriers to trade that would arise through regulatory divergence?

12.17The Committee requested responses to the above questions by 6 April 2017. It also drew the Minister’s Explanatory Memorandum and our conclusions to the attention of the Exiting the European Union Committee and the Culture, Media and Sport Committee.

The Minister’s letter of 18 April 2017

12.18In response to the Committee’s question as to whether the Government intends to submit a response to the Commission’s consultation, the Minister states that:

“The Government intends to submit a response to the European Commission’s consultation on “Building the European Data Economy” by the deadline of 26 April. A copy of the response will be sent to both European Scrutiny Committees. My officials have also encouraged external stakeholders to respond to the consultation, to assist the Commission in its evidence-gathering.”

12.19The Minister responds to the Committee’s question as to whether the Government has sought input from the Digital Catapult Centre about how to ensure that growth opportunities for UK businesses are maximised post-exit as follows:

“The Digital Catapult participated in a workshop hosted by the Department for Culture, Media and Sport in February, and we have consulted with the Catapult subsequently on the Commission’s thinking in more detail. The Catapult wishes us to stress that, not only does it intend to respond to Commission’s consultation, but it has actively engaged with the Commission for some time on this and similar issues. For example, it attended a Commission-hosted workshop on the free flow of data in May 2016.

“My Department has engaged with a range of stakeholders, representing both service providers and end-users, who have provided valuable perspectives on the issues raised in the communication.”

12.20The Minister addresses the relationship between the Commission’s ‘Data Economy’ Communication overlap and the Government’s Digital Economy Bill as follows:

“The Digital Economy Bill puts in place the foundations for the UK’s digital future, and will allow the UK to consolidate its status as a global leader in digital infrastructure and services. It includes wide-ranging provisions which will help the economy to grow and protect citizens’ interests.

“The Digital Economy Bill and the Commission’s Communication both deal with data sharing. The Bill will enable Government to deliver better public services by making it easier for public bodies to share data in the public interest. This is consistent with the Commission’s assertion that data should be accessible to those parties who have a legitimate interest in its use, including public authorities.”

12.21The Committee asked to what extent the Communication’s clarification of the “principle of the free movement of data within the EU” would be sufficient to prevent Member States from continuing to introduce data localisation requirements, given that some secondary legislation, notably the Services Directive, allows Member States to introduce regulations which restrict the freedoms of establishment and the freedom to provide services. The Minister states that:

“On initial assessment of the Commission’s clarification of the principle of the free movement of data, we believe the current regulatory landscape is patchy and lacks clarity. For example, the Commission cites four legislative instruments which apply in this area, none of which explicitly references data localisation. As the Committee has pointed out, there are also a number of sectors which are exempt from the terms of the Services Directive.

“The Commission sees the Communication as a starting point for wide-ranging discussions with Member States and other stakeholders and the Government is fully engaged in these discussions.

“The Government will continue to encourage the Commission to work towards a legislative solution which not only restricts current localisation but also prevents its proliferation.”

12.22Asked how reliant the UK economy is on cross-border flows of non-personal data between the UK and EU Member States, and which sectors are most reliant, the Minister responds:

“Cross-border data flows are an important aspect of the modern, global economy, being crucial not only to the sharing of information, but also to the trade of products and services.

“The UK exchanges large amounts of data—both personal and non-personal—with other EU Member States. This exchange is of mutual importance. Due to the complex functionality of the internet, however, it is not possible to accurately measure the quantities of data exchanged.”

12.23The Minister responds to the Committee’s remarks regarding techUK’s concerns that EU action on data localisation could, while liberalising the flow of data within the EU, simultaneously introduce EU-level data localisation requirements for service providers from third countries (including a post-exit UK) in order to require digital businesses to relocate part of their operations to the EU:

“The Communication, which sits under the umbrella of the Digital Single Market strategy, neither completely dispels nor confirms these concerns on geographic applicability. The view of the Commission and Member States on this issue should become clearer as they discuss the evidence gathered in the public consultation.

“The EU recently reiterated support for the free flow of data across global borders subject to the appropriate safeguards, as this is how data markets operate. Accordingly, any measures to facilitate data sharing should not unnecessarily restrict data flows to within the EU. It is in the best interests of both the UK and the EU to ensure that any action the Commission proposes allows for data storage and transfers to and from third countries, and reflects the new safeguards for the transfer of personal data, set out in the General Data Protection Regulations (GDPR).”

12.24The Committee asked whether the Government was concerned that the Commission may have delayed bringing forward concrete measures in order to limit the UK’s opportunity to influence them, and may introduce a package that is damaging to the UK when it is too late to shape them. The Minister responds:

“Whilst we continue to be a member of the EU, we will press the Commission to come forward with concrete measures. In addition, there are many other Member States and stakeholders which share our views on data storage and data flows, and we will work closely with them to influence the Commission.”

12.25Asked whether the Government has a preliminary view as to whether it will seek a close approximation of UK domestic law with the EU acquis in the longer term, the Minister responds:

“As we leave the EU, we will seek to maintain unhindered data transfers between EU Member States and the UK. From a data protection standpoint, the first step in maintaining the stability of cross-border data transfers in the short-term, and as confirmed in the digital strategy, will be the implementation of the General Data Protection Regulation in the UK by May 2018. This will ensure a shared standard of protection for business and consumers and their data across Europe and beyond.”

Previous Committee Reports

Thirty-fourth Report HC 71-xxxii (2016–17), chapter 4 (8 March 2017).


22 European Commission, Public consultation on Building the European data economy (10 January 2017)

https://ec.europa.eu/digital-single-market/en/news/public-consultation-building-european-data-economy.

23 Catapult centres are organisations set up by Innovate UK (previously the Technology Strategy Board) in the United Kingdom to promote research and development through business-led collaboration between scientists, engineers and market opportunities. The Digital Catapult promotes digital innovation.

24 Antony Walker, deputy CEO, techUK, Oral evidence to the House of Lords EU Internal Market Sub-Committee (20 October 2016) http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/eu-internal-market-subcommittee/brexit-future-trade-between-the-uk-and-the-eu-in-services/oral/42066.pdf.




27 April 2017