Digital trade and data Contents

2Government strategy and prominent approaches taken by other states

Opportunities of digital trade

9.Our evidence demonstrates that digital trade and data is the source of a range of opportunities for businesses and consumers. Examining the scale of digital trade across the world, the UN Conference on Trade and Development estimated the value of e-commerce sales to be almost $26 trillion in 2018, up 8% on the previous year.9 The Government has estimated that the digital sector contributed £150.6bn to the UK economy in 2019, employing 4.6% of the national workforce.10 DIT told us that, in 2019, the UK’s “remotely delivered trade with the world was worth £326 billion, equating to one quarter of total trade.”11 The UK also ranks third in the world, after the US and China, both for the number of tech ‘unicorns’12—privately held companies worth more than $1bn—and for tech investment.13

10.DIT has stated that, as a result of the COVID-19 pandemic, “an even greater proportion of trade is now happening online.”14 Research undertaken by Sage supported this, showing that 73% of UK businesses surveyed had adopted new technology since the start of the pandemic.15 The pandemic’s stimulation of digital trade was revealed in our evidence: for example, the Information Commissioner’s Office (ICO) said the “Covid-19 pandemic has driven an acceleration in the uptake of digital services that would otherwise have been expected to take years.”16

11.We also received evidence outlining the role of data and technology in supporting the work of businesses. For example, the Federation of Small Businesses commented on how its members are “harnessing digital technology to reduce costs, grow their business and serve a wider customer base”, highlighting the use of online shops and cloud computing.17 The Global Data Alliance stated that “sectors from automotive and agriculture to advanced manufacturing and chemical products” were all able to benefit from the use of digital technologies, and techUK noted that 75% of the value created by the internet has been captured by companies in traditional industries.18 Digital technologies and the movement of data can also enable UK businesses to access services overseas. The Professional and Business Services Council commented on UK businesses’ increasing use of shared services centres—which provide business services such as tax compliance and human capital. It explained that such shared services centres are often located outside of the UK, allowing access to a higher concentration of skilled labour, available at a lower cost.19

12.Digital trade and the use of data can deliver consumer benefits, including access to a wider range of goods and services, often delivered more quickly and easily as a result of digital technologies and at potentially lower prices.20 The Advertising Association reported that many digitally-enabled services were free-to-use, with “digital goods and services [having] marginal costs which allows for scalability and rapid innovation”.21 We were also told how the facilitation of electronic signatures and paperless trading can be helpful for both consumers and businesses, with the former being able to easily sign binding contracts and the latter being able to benefit from increased efficiency and lower costs when compared to non-digital alternatives.22

13.Digital trade and digital technologies can also have a role in addressing climate change, for example through the transition from physical products to digital ones. Adobe highlighted that its transition from boxed software to digital software—using the cloud—has reduced its products’ environmental impact by more than 95%.23 Data itself can be useful in addressing climate change through assisting sustainable farming or facilitating sustainable modes of transport.24 Digital platforms can also be helpful in reducing the need for business travel, therefore reducing emissions produced by vehicles.25

14.However, we heard that the environmental benefits which come from the use of digital technologies also come with an increased demand for energy, particularly in powering data centres.26 The Royal Society told us that around two-thirds of emissions from digital technologies come from the electricity consumption, with the extraction of raw materials, manufacturing, distribution, end-of-use recycling, and disposal of equipment facilitating the use of digital technologies all contributing to carbon emissions.27 On the other hand, the CBI told us that the relationship between the increased use of digital technologies and data centre energy usage is nuanced, with a twelve-fold increase in internet traffic not leading to a corresponding increase in data centre energy usage.28 Emphasising the importance of meeting any increased demand for energy caused by an increase in the use of digital technology with renewable energy, the Royal Society told us that “the uptake of renewable energy has, so far, effectively helped reduce emissions from digital technology use.”29

Barriers to digital trade

15.Witnesses pointed to a range of barriers to digital trade and data flows. The barrier most frequently cited was data localisation. In its simplest form, data localisation involves legislation requiring electronic commerce platforms to register locally or use data centres located within the implementing country’s border.30 Data localisation mechanisms can pose significant barriers to digital trade by limiting cross-border data flows.31 Emphasising their negative effects, the Federation of Small Businesses described data localisation requirements as constituting a significant cost for small businesses engaged in digital trade.32 techUK criticised governments for adopting such measures, explaining that they fail to keep data secure, and “do not increase commercial privacy or data security.”33 It also stated that such measures impose significant costs on adopting countries’ economies.34 Similarly, the Office of the City Remembrancer told us that such measures rarely increase data security because businesses are prevented from using centralised data centres which have increased security standards.35

16.Data protection legislation was also described as a potential barrier to digital trade. For example, the Advertising Association described the “unilateral nature” of adequacy decisions under the EU’s GDPR as creating “some legal uncertainty as this can in theory be withdrawn at short notice.”36 These laws can also become a barrier where they are inconsistent between jurisdictions. The Federation of Small Businesses described the collection of data protection regimes around the world as a “complex international patchwork”, with each set of legislation containing differing exemptions.37

17.Stakeholders identified insufficient mechanisms to protect intellectual property (IP) rights as another potential barrier to digital trade. For instance, some regulations, such as those in China, set disclosure of source code as a pre-requisite for market access.38 techUK described such regulations as “worrying”, and the Law Society of Scotland highlighted concerns that UK businesses’ disclosed source code and other “commercially sensitive information” could be shared “to benefit domestic industries” competing with UK businesses.39 The Motion Picture Association described how digital piracy negatively affects distribution channels for digital products, such as films and music.40 It also explained that inadequate IP protection could create unfair competition and limit opportunities for legitimate producers and distributors to evolve their products and services.41

18.Another potential barrier to digital trade is related to infrastructure and connectivity capability, which consists of the quality of infrastructure itself, how accessible that infrastructure is, and how affordable it is.42 DIT noted that difficulty in accessing “high-quality infrastructure and connectivity [is] a significant barrier to digitally-enabled services.”43

19.Censorship and other restrictions placed on the internet were also identified as barriers to digital trade. The Advertising Association explained that “online censorship or website blocking can also be a problem, and these[ … ] can hurt businesses that rely on advertising to sell their goods and services.”44 techUK argued that protectionist policies adopted by various countries “will end in a balkanisation of isolated country specific webs”, which “can reduce technology diffusion, affect global value chains and weaken growth.”45

20.Barriers which are not necessarily unique to digital trade—for example, “logistical challenges such as pricing, traceability, customs duties, taxes and returns”—were cited as relevant by the Federation of Small Businesses.46 Similarly, regulatory differences, paperwork and formalities, and financial licences are also barriers to digital trade.47

Government strategy

21.The Government’s “goal is for the United Kingdom to be a global leader in digital trade with a network of international agreements that drive productivity, jobs and growth across the country.” It has outlined a “five pillar” approach to digital trade that:

shape the United Kingdom’s trade negotiations and wider multilateral engagement. These are: open digital markets, digital trade facilitation, data flows, consumer and business safeguards, and global rules and standards.48

22.For its ongoing negotiations with Australia, New Zealand and the US, the Government has published identical negotiating objectives for digital trade and data:

23.In addition to its five pillars and six negotiating objectives, the Government has also published a National Data Strategy (NDS) outlining its approach and highlighting four separate pillars and five missions. One of the missions is to champion the international flow of data, which the NDS defines as:

The flow of information across borders fuels global business operations, supply chains and trade, powering growth across the world. It also plays a wider societal role. The transfer of personal data ensures people’s salaries are paid, and helps them connect with loved ones from afar. And, as the coronavirus pandemic has demonstrated, sharing health data can aid vital scientific research into diseases while uniting countries in their response to global health emergencies. Having left the European Union, the UK will champion the benefits that data can deliver. We will promote domestic best practice and work with international partners to ensure data is not inappropriately constrained by national borders and fragmented regulatory regimes so that it can be used to its full potential.50

The response to the consultation on the NDS is expected shortly.51

24.The Government has, on multiple occasions, emphasised digital trade and data in its FTA negotiations. We commend the Government’s ambition to address the barriers outlined by businesses and we agree that digital trade presents a range of opportunities which the Government should pursue.

Prominent approaches taken by other states

25.The UK is developing its strategy for digital trade in the context of differing approaches taken by large economies around the world. Broadly these follow one of three general approaches.

26.The first, typified by the EU, is characterised by the protection of citizens’ data as a fundamental right.52 Dr Emily Jones, Beatriz Kira, and Danilo B. Garrido Alves described the EU’s approach to digital trade in its FTAs:

The EU has not made broad positive commitments that it will permit data to flow across borders out of concern that this would compromise its ability to implement the GDPR. Instead, it has agreed to prohibit the use of specific types of measures (including data localisation) and insisted on an extensive exception for privacy, which completely carves out privacy measures from the scope of the agreement.53

27.The US follows a different approach, which has been described as seeking positive commitments that other governments will allow data flows with the US, and aiming “to impose limits on the measures that governments can use to regulate data flows, including on the grounds of privacy.”54 While the US’s FTAs do allow for exceptions to the free flow of data to protect privacy, a notable difference between its stance and that of the EU is that, in the US, data protection is protected as a right at the constitutional level only in relation to action by the state and not by the private sector. In the EU, both state and private breaches can give rise to a rights violation.55

28.The third approach—albeit less common than that of the EU and the US—is that taken by China. Outlining the Chinese approach, Professor David Collins, Professional of International Economic law at City, University of London explained that “free flow of data really only began to appear in the last five years or so” in China’s trade agreements covering digital trade.56 Domestic data protection laws give Chinese citizens stronger protections against privacy infringements by private actors than those by the state.57

29.While these approaches have some fundamental differences, they appear to converge around the adoption of data privacy regulations. For example, California’s Consumer Privacy Act 2018 gives consumers more control over personal data.58 Similarly, Professor Elaine Fahey, Jean Monnet Chair of Law and Transatlantic Relations at City, University of London, described how China has “taken the GDPR”, referencing the EU regulation’s influence on China’s prospective Personal Information Protection Law.59

Approach taken in CEPA

30.The UK and Japan signed CEPA in October 2020. This was the first new FTA that the UK signed after leaving the EU. At the time we noted that:

The main area in which CEPA differs from JEEPA [the FTA between the EU and Japan] is its provisions relating to digital trade and data. We heard that these provisions are ambitious and compare with provisions put forward in the US’s digital trade agreement with Japan. We also heard that the provisions are significant in terms of precedent-setting for future agreements.60

31.Businesses and their representatives told us CEPA was a positive development in the UK’s approach to digital trade. For example, various stakeholders, such as Adobe, described CEPA as indicating a “positive direction of travel”, with the Federation of Small Businesses encouraging the Government to “maintain this approach”.61 Businesses were particularly welcoming of the provisions banning unjustified data localisation and mandatory disclosure of source code, with the British Software Alliance describing such provisions as “robust and forward-looking”.62 However, Nick Ashton-Hart, representing the International Chamber of Commerce UK, described CEPA as “in some ways [ … ] less ambitious than the UK-EU agreement”.63 In particular, he highlighted the absence of a “provision for computer and related services”, such as Article DIGIT.17 in the UK-EU Trade and Cooperation Agreement (TCA) which defines a range of services as computer and related services for trade and investment purposes.64

32.CEPA was also seen as marking a shift in the UK’s approach, following EU withdrawal. The UK Trade Policy Observatory told us that CEPA “clearly shows the UK’s emerging departure from the EU’s approach to digital governance.”65 CEPA was also described as the “strongest sign that the government’s approach is shifting” and “the first time we have seen the UK depart from the EU’s approach” in this area.66 Disapproving of the UK’s perceived change in direction, Which?, the consumer advocacy group, described CEPA as signalling “a concerning shift in the UK’s approach to digital trade negotiations.”67

33.Some witnesses questioned the wisdom of drawing conclusions on the basis of a single agreement. The Professional and Business Services Council noted that “it is difficult to ascertain a country’s ‘approach’ from any single agreement”, but that:

[when] taken in conjunction with the UK-EU TCA, and the published negotiating objective for FTA negotiations with the US, New Zealand and Australia, however, it can be seen that pursuing more advanced digital provisions are definitely a priority for the government.68

34.DIT described CEPA as “one of the world’s most ambitious FTAs with respect to digital trade and data”, which would “create new opportunities for British tech and digitally-savvy firms to export to Japan, whilst also attracting greater investment into the United Kingdom from Japan’s leading digital industry”.69

Proposed accession to CPTPP

35.In February 2021, the Government announced its intention to begin formal accession proceedings to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This is in addition to its ongoing negotiations with Australia and New Zealand—both CPTPP signatories—and its agreement with Japan, another CPTPP signatory. It is also notable that the UK is due to start negotiations with another CPTPP signatory, Singapore, for a Digital Economy Agreement in Spring 2021, which will seek to build upon the existing FTA with the country.70

36.As with the feedback received regarding CEPA, businesses and their representatives were overwhelmingly supportive of the Government’s intention to accede. For example, the Law Society of England and Wales described potential accession as a “positive development”, while IBM stated that accession would bring “wide-ranging benefits.”71 The Advertising Association encouraged preserving CPTPP’s existing provisions on data localisation and the mandatory disclosure of source code when the UK seeks accession.72 Highlighting the strategic benefit of accession, the CBI described CPTPP as including “countries at the forefront of the digital agenda”, noting that New Zealand and Singapore—alongside Chile—have also agreed to the Digital Economy Partnership Agreement (DEPA), a digital-only trade agreement.73

37.Other stakeholders were more critical of accession to CPTPP. Which? suggested that there could be “detrimental implications” for UK consumers relating to “certain digital trade provisions of CPTPP”, citing the agreement’s implications for data protection (see Chapter 3). Some stakeholders also expressed concerns about the effect of joining CPTPP on data adequacy with the EU, although the Professional and Business Services Council ultimately judged retaining adequacy with the EU as a CPTPP member as “eminently achievable” in the light of Canada, Japan, and New Zealand doing so.74 Focusing on IP protection, the Motion Picture Association expressed reservations about accession to CPTPP on the basis that accession “may result in the embrace of IP standards significantly lower than those present in UK law”, citing the current suspension of measures in CPTPP which require signatories to have in place digital security technology to protect IP.75

38.It is notable that the UKTPO considered that there may be “no room for the UK to negotiate CPTPP rules including digital and data provisions”, drawing on precedent relating to CPTPP’s existing signatories and comments made by Japan’s trade minister.76 Both the Professional and Business Services Council and the Law Society of Scotland also highlighted the potential inability of the Government to reopen CPTPP provisions, with the former stating that there is “likely to be minimal, if any, room for seeking concessions from existing participants on entry.”77

Calls for a digital trade and data strategy

39.We heard suggestions that the Government would benefit from adopting a digital trade strategy beyond its FTA-specific negotiating objectives, its “five pillars”, and the National Data Strategy. Nick Ashton-Hart of the ICC UK called for:

a macro-strategy on digital trade, which is granular enough that everyone understands what it is and that is developed in a participatory way, especially regarding non-FTAs in terms of regulatory co-operation and regulatory objectives in order to facilitate interoperability with other regulatory regimes.78

40.Drawing comparisons between “larger economies” which have a “clear data strategy”—such as China and the EU—and other economies which instead “operate on a default combination of domestic legislation and obligations undertaken in trade agreements”, Professor David Collins claimed that it was “vital that the UK has a clear data strategy”.79 For this strategy, Professor Collins emphasised the importance of considering how UK policies and regulations interact with “the frameworks of trading partners, such as the EU”, as well as “other regional and international norms, notably the Comprehensive Progressive Trans Pacific Partnership (CPTPP).”80 In their suggestion that the UK ought to develop a digital trade strategy, Dr Emily Jones, Beatriz Kira, and Danilo B. Garrido Alves described a strategy which would “guide [the UK’s] trade negotiations and wider trade policy, setting out its policy objectives and how it intends to achieve them.”81 Professor Collins, and Dr Jones, Beatriz Kira, and Danilo B. Garrido Alves described how such a strategy can increase predictability and ease of compliance for businesses and citizens.82 Professor Christopher Kuner, Co-Director of the Brussels Privacy Hub, described the development of an integrated trade and privacy policy as an opportunity for the UK to show leadership, and something that could be “quite innovative” and “quite powerful”.83

41.When asked whether the Government has developed a digital trade strategy, the Minister of State for Trade Policy told us:

I am not aware of a specific strategy document but what we are clear on is what our pillars are, our objectives, and we are also clear on our means. The means are three things: free trade agreements, like the one we did with Japan, digital economy agreements, like the one we are seeking to negotiate with Singapore, and thirdly, through the World Trade Organisation, particularly things like the joint initiative on e-commerce—and fourthly, I should add, through the G7 trade track. Those are our means of how we go forward on making sure that our digital trade policy takes effect as far as we can in all our global doings.84

42.The UK has an opportunity to create a clear, innovative position on digital and data governance. We heard evidence calling for a cross-FTA strategy for digital trade and data in addition to the FTA-specific negotiating objectives which are currently available. We note that the Government has “five pillars”, which are best classified as a set of principles, and do not constitute a cross-FTA digital trade strategy.

43.This is a pivotal moment for the Government to craft a clear approach to digital trade and data which will guide the development of its independent trade policy. We recommend that the Government produces and publishes a digital trade and data strategy, clarifying the UK’s approach to digital trade and positioning it in relation to prominent approaches taken by other states. We recommend it detail the Government’s long-term approach and policy objectives in relation to digital trade and data. The strategy should also include how domestic policies will interact with the United Kingdom’s FTA, multilateral, and plurilateral commitments in securing the Government’s long-term economic and non-economic digital trade objectives.

9 United Nations Conference on Trade and Development, UNCTAD Estimates of Global E-Commerce 2018, p 1

10 Department for International Trade (DTD0025)

11 Department for International Trade (DTD0025)

14 Department for International Trade (DTD0025)

16 Information Commissioner’s Office (DTD0029), IBM Corporation (DTD0012), The Institute of Export and International Trade (DTD0017)

17 Federation of Small Businesses (DTD0005)

18 Global Data Alliance (DTD0007), techUK (DTD0015)

19 Professional and Business Services Council (DTD0013)

20 Which? (DTD0001), Department for International Trade (DTD0025)

21 Advertising Association (DTD0004)

22 Which? (DTD0001), Adobe (DTD0003), BSA | The Software Alliance (DTD0006), IBM Corporation (DTD0012), techUK (DTD0015), Office of the City Remembrancer, City of London Corporation (DTD0026)

23 Adobe (DTD0003)

24 IBM Corporation (DTD0012), The Royal Society (DTD0014)

25 Professional and Business Services Council (DTD0013)

26 Adobe (DTD0003), Advertising Association (DTD0004)

27 The Royal Society (DTD0014)

28 CBI (DTD0022)

29 The Royal Society (DTD0014)

30 Advertising Association (DTD0004)

31 Q37, Adobe (DTD0003), Advertising Association (DTD0004), Federation of Small Businesses (DTD0005), BSA | The Software Alliance (DTD0006), The Law Society of England and Wales (DTD0009), Professional and Business Services Council (DTD0013), techUK (DTD0015), Law Society of Scotland (DTD0016), The Institute of Export and International Trade (DTD0017), Coalition of Services Industries (DTD0018), TheCityUK (DTD0020), CBI (DTD0022), Office of the City Remembrancer, City of London Corporation (DTD0026)

32 Federation of Small Businesses (DTD0005)

33 techUK (DTD0015)

34 techUK (DTD0015)

35 Office of the City Remembrancer, City of London Corporation (DTD0026)

36 Advertising Association (DTD0004)

37 Federation of Small Businesses (DTD0005)

38 The Institute of Export and International Trade (DTD0017)

39 techUK (DTD0015), Law Society of Scotland (DTD0016)

40 Motion Picture Association (MPA) (DTD0030)

41 Motion Picture Association (MPA) (DTD0030)

42 The Law Society of England and Wales (DTD0009)

43 Department for International Trade (DTD0025)

44 Advertising Association (DTD0004)

45 techUK (DTD0015)

46 Federation of Small Businesses (DTD0005)

48 Department for International Trade (DTD0025), Q116

49 Department for International Trade, UK-Australia Free Trade Agreement: The UK’s Strategic Approach, 17 July 2020; Department for International Trade, UK-New Zealand Free Trade Agreement: The UK’s Strategic Approach, 17 July 2020; Department for International Trade, UK-US Free Trade Agreement¸ 2 March 2020

50 Department for Digital, Culture, Media & Sport, National Data Strategy, 9 December 2020

53 Dr Emily Jones, Beatriz Kira and Danilo B. Garrido Alves (DTD0021)

54 Dr Emily Jones, Beatriz Kira and Danilo B. Garrido Alves (DTD0021)

58 UKTPO - University of Sussex (DTD0027)

60 House of Commons International Trade Committee, Second Report of Session 2019–21, UK-Japan Comprehensive Economic Partnership Agreement, HC 914, para 35

61 Adobe (DTD0003), Federation of Small Businesses (DTD0005)

62 BSA | The Software Alliance (DTD0006)

65 UKTPO - University of Sussex (DTD0027)

66 Dr Emily Jones, Beatriz Kira and Danilo B. Garrido Alves (DTD0021), Q12

67 Which? (DTD0001)

68 Professional and Business Services Council (DTD0013), for a similar statement see Law Society of Scotland (DTD0016)

69 Department for International Trade (DTD0025)

70 Department for International Trade, Joint statement by the UK and Singapore, 10 December 2020

71 The Law Society of England and Wales (DTD0009), IBM Corporation (DTD0012)

72 Advertising Association (DTD0004)

73 CBI (DTD0022)

74 Professional and Business Services Council (DTD0013), Dr Emily Jones, Beatriz Kira and Danilo B. Garrido Alves (DTD0021), Law Society of Scotland (DTD0016)

75 Motion Picture Association (MPA) (DTD0030)

76 UKTPO - University of Sussex (DTD0027)

77 Professional and Business Services Council (DTD0013), Law Society of Scotland (DTD0016)

79 Professor David Collins (Professor of International Economic Law at City, University of London) (DTD0002)

80 Professor David Collins (Professor of International Economic Law at City, University of London) (DTD0002)

81 Dr Emily Jones, Beatriz Kira and Danilo B. Garrido Alves (DTD0021)

82 Professor David Collins (Professor of International Economic Law at City, University of London) (DTD0002), Dr Emily Jones, Beatriz Kira and Danilo B. Garrido Alves (DTD0021)

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