Digital Trade
The impact of digitalisation on trade is profound, encompassing reduced costs, streamlined global value chains, technology diffusion, and increased global connectivity. However, this transformation has led to complex trade transactions and policy challenges. Governments are grappling with regulating digital disruption whilst also ensuring inclusive access to digital trade benefits.
Digital trade involves digitally-enabled transactions in goods and services, whether digitally or physically delivered, involving consumers, firms and governments. Data is at its core, serving as both a means of production and a tradable asset. Digitalisation enhances trade scale, scope and speed, enabling firms to reach a wider digital customer base, and particularly for smaller businesses to benefit from digital tools for growth and collaboration. Online platforms have boosted cross-border small package trade, necessitating policy adjustments for parcel management, risk control (counterfeit goods, biosecurity) and tax collection. But technologies blur lines between goods and services, challenging traditional trade policy frameworks.
Technological advancements also promote cross-border services. Information and communication technology services support digital trade infrastructure, while data-driven innovations, like cloud computing, facilitate digitally-enabled services. Digitalisation introduces new trade issues, such as data flow regulations and the impacts of cumbersome border procedures on parcel trade. Policymakers must comprehend these changes to foster innovation and support digital trade in goods and services effectively.
Digital Trading Agreements
As a result of this increasing move to digital trading, and often as part of free trade agreements reached between nations, digital trading agreements are being established around the world. A digital trading agreement is a bilateral or multilateral pact between countries aimed at governing digital commerce. It’s designed to establish rules and regulations for online trade in goods and services, data flows, intellectual property and cybersecurity. Such agreements address issues like e-commerce taxation, consumer protection, and the removal of barriers to digital trade. Essentially, they create a framework for countries to navigate the complexities of the digital economy, promoting cross-border digital transactions while ensuring a fair and secure environment.
The 2001 Free Trade Agreement and Digital Trade
Following the UK’s exit from the European Single Market, a Free Trade Agreement between the UK and the EU was negotiated and came into provisional effect on January 1, 2021 – fully entering into force on 1 May 2021. It is primarily focused on facilitating trade in goods and services by eliminating tariffs and quotas. It also addresses issues like regulatory alignment and cooperation in areas such as fisheries and security. This agreement emerged as a necessity after the UK’s decision to exit, ensuring the continued flow of goods and services between these two significant trading partners. A significant part of the Agreement describes digital trade (Part Two, Heading One, Title III: Digital Trade) and sets the terms under which businesses can provide products and services to each other via digital channels, such as over the internet.
Summary of the Digital Chapter
Data flows The Agreement promotes cross-border data flows to support digital trade. It prohibits data localisation, barring UK/EU entities from mandating data storage in specific locations unless specific conditions apply. It also prohibits one party from demanding access to source code as a business requirement.
Emerging technology and cooperation The digital trade chapter mandates UK-EU cooperation on emerging technology, like AI and quantum computing. It also includes various cooperation requirements and review clauses, enabling updates to adapt to new tech or changes in digital trade practices.
Electronic contracts, signatures and providing services digitally The Agreement treats electronic contracts, signatures and digital services on par with their paper-based counterparts for most services. It also allows digital service provision without prior authorisation, with a few exceptions like certain legal, gambling and broadcasting services.
Customs duties on electronic transmissions Customs duties on electronic transmissions are excluded under the Agreement as they are classified as service provision.
Consumer protection, data protection and online harms The digital trade chapter mandates companies to safeguard e-commerce consumers and allows cooperation for enforcing UK and EU consumer rights. It also addresses unsolicited marketing. It commits to high personal data protection standards without limiting privacy protection or online harm regulation by the UK or EU.
Three particular areas of consideration
VAT rules in relation to digital services
Regarding VAT for digital services, the customer’s location determines the place of supply, eliminating the €10,000 sales threshold in the EU. UK businesses serving EU customers must either establish an EU VAT presence, use VATMOSS, register in multiple customer countries, or use Non-Union VATMOSS. The legality of holding EU client data may pose challenges as the EU assesses UK data protection adequacy. Businesses should maintain GDPR compliance and follow ICO guidance to ensure continued EU-UK data flow at all times.
Telecoms, mobile roaming and net neutrality
The Agreement promotes open access to telecoms markets, allowing UK and EU providers to use each other’s networks without prior authorisation. Roaming charges ceased on January 1, 2021, with individual providers deciding whether to charge customers. The agreement mandates transparent publication of roaming fees and encourages provider cooperation to benefit consumers. Net neutrality obligations ensure an open internet but allow the UK and EU to protect user safety as needed.
Cybersecurity
The UK-EU Free Trade Agreement establishes a cybersecurity framework and UK involvement in expert bodies like ENISA and the NIS Cooperation Group. It encourages voluntary cooperation with CERT-EU. Other pertinent concerns for digital service providers encompass geoblocking, broadcasting, information security, intellectual property, and EU-domain names.
Final considerations
It’s crucial for companies to determine if they qualify as a ‘relevant digital services provider’ (RDSP) in the UK under NIS (The Network and Information System) UK Regulations. A company is an RDSP if it meets the following criteria:
- Employs 50 or more staff, or has an annual turnover exceeding €10 million, or a balance sheet total over €10 million.
- Has its main establishment in the UK or has designated a UK or EU representative.
- Offers services in the EU.
If a UK company qualifies as an RDSP, the NIS Regulations mandate the following:
- Register with the ICO.
- Implement suitable and proportionate security measures to mitigate network and information system risks.
- Report incidents to the ICO if they significantly impact service provision.
This article outlines the processes that are currently being developed and implemented through the Free Trade Agreement between the UK and the EU. It provides companies with guidance on some of the significant issues that this raises. However, it is not intended to be a full exploration of the Agreement. For further guidance and information on providing digital, technology and computer services between the UK and EU, please refer to the UK Government guidance on the digital, technology and computer services sectors from January 2021: https://www.gov.uk/government/collections/the-digital-technology-and-computer-services-sectors-from-january-2021.