Written evidence submission from Professional and Business Services Council (DTD0013)

PROFESSIONAL AND BUSINESS SERVICES COUNCIL RESPONSE TO THE HOUSE OF COMMONS INTERNATIONAL TRADE COMMITTEE INQUIRY REGARDING DATA AND DIGITAL TRADE

 

 

Professional and Business Services Council

 

  1.                          The Professional and Business Services Council (PBSC) is a partnership between the professional & business services sector and Government. It is industry-led and co-chaired by the private sector and the Department of Business, Energy and Industrial Strategy; it brings together sectors including law, accountancy, consultancy, actuarial, architecture, surveying and advertising services, amongst others.

 

  1.                          The views contained herein are those of the business side of the PBSC only.

 

  1.                          The PBSC has identified several priority areas and works in partnership with Government to inform thinking on the future direction of the sector and its contribution to the UK economy. One of priorities identified is pursuing greater market access for international trade in professional services.

 

General remarks

  1.                          The PBSC welcomes the opportunity to consider the issues surrounding data and digital trade. The below outlines issues around digital trade: although we highlight the impact of data protection and privacy regulation as a potential barrier to trade, this should not be read as a challenge to the right of countries to protect the rights of their citizens.

 

  1.                          While in an advisory capacity many of our members advise on goods trade, our comments are focused on facilitating digital trade in professional services.

 

  1.                          Digital trade is a complex and constantly evolving area, however certain themes present themselves as clear priorities for effective and sustainable trade relationships. The PBSC has identified the following priorities for digital trade:

 

  1. Prohibition of data localisation requirements, other than where necessary to protect the rights of individuals (in relation to protection of personal data and privacy and in their capacity as consumers) or national security
  2. Removal of existing data localisation requirements which act as a disguised barrier to open competition
  3. Including provisions to facilitate the free flow of data
  4. Facilitating and promoting regulatory cooperation to ensure mutually satisfactory privacy, data protection and cybersecurity standards (thereby reducing the regulatory compliance burdens on businesses while ensuring individuals’ rights are respected and protected) and timely confirmation of adequacy/equivalence decisions on a mutual basis where possible
  5. Application of proportionate net neutrality rules
  6. Recognition of intellectual property rights
  7. Advocating for general consistency of approach with trade partners and in the UK’s representations to multilateral fora
  8. Being mindful during negotiations as to how new digital trade commitments could interact with the EU’s data adequacy decision for the UK and how firms might successfully navigate multiple data regimes
  9. We also welcome the introduction on specific mechanisms to facilitate digital commerce, such as those around digital conclusion of contracts including provisions regarding e-signatures and e-authentication. Similarly rules around disclosure of source code and cryptology can be helpful in balancing the interest of government/regulators in regulating markets on the one hand and the intellectual property interests of private businesses on the other.

 

What are the main barriers faced by UK businesses engaging in digital trade?

  1.                          Legal barriers specific to digital trade including data localisation obligations and regulatory requirements around cross-border data transfers are perhaps the most obvious barriers to engaging in digital trade. One of the most common justifications cited for these rules is in securing data subjects’ right to protection of personal data and privacy. Although this is recognised under the GATS rules as a legitimate objective, the relevant measures need not include data localisation and should not be more trade restrictive than necessary.

 

  1.                          In some instances, data localisation laws – for example China’s Cybersecurity Law, which requires providers to store certain types of data locally – present an absolute obstacle. Trade barriers exist, even where rules do not render a particular action impossible. The EU’s General Data Protection Regulation (GDPR) is a key example of legislation, which although it does not result in complete restriction on flows of data, imposes strict conditions on cross-border transfers, which require businesses to take particular actions if they wish to move personal data across borders. This is the kind of regulatory compliance obligation which businesses need to take into account in considering international opportunities. For some businesses, such requirements may make it too difficult to provide cost-effective services on a cross-border basis.

 

  1.                          Furthermore, the very fact that the global landscape consists of numerous national (or regional) regimes can act as a barrier, particularly for smaller businesses.

 

  1.                      Regulations relating to privacy and data protection, cybersecurity, and consumer protection may present barriers to trade but it is also important to note that if rules are proportionate and properly enforced, they can support consumer confidence and therefore provide a positive boost to cross-border business.

 

  1.                      Depending on the nature of the domestic regime and the perspective of an individual business, net neutrality provisions are sometimes also seen as a barrier to trade because they impose limits on the way in which service offerings can be structured. However, again, where these are constructed properly, net neutrality can play a helpful role in facilitating open competition and will therefore be viewed as an advantage, particularly by potential new market entrants.

 

  1.                      The imposition of customs on electronic transmissions would also present a barrier – and potentially a very severe barrier for many industries– to digital trade. This contingency has thus far been avoided by the continuing extension of the WTO moratorium on customs duties on electronic transmissions (see further below). More recent trade agreements have also addressed this issue.

 

  1.                      In addition, many of the barriers that apply to non-digital trade – such as the need to comply with domestic regulation and the complexities of international regimes – will continue to present challenges, again perhaps particularly in the context of SMEs with more limited resources.

 

  1.                      Lastly, in any survey of barriers, it is worth bearing in mind that even if a country’s digital trade regime is entirely non-discriminatory, there may also be practical issues which also pose significant barriers to trade – for example around interoperability of digital infrastructure and the ability of both businesses and consumers to capitalise on digital trade opportunities because of problems with accessibility and affordability or lack of digital skills and training opportunities.


 

What opportunities does digital trade present for UK businesses?

  1.                      Digital trade enhances opportunities for UK businesses to reach clients and customers all over the world. In doing so, they are often supported by domestic professional advisers, compounding the potential positive impacts on the UK economy.

 

  1.                      Maximising those opportunities relies on businesses being aware of the market prospects open to them and understanding the risks and regulatory challenges of doing business overseas. However, although digital trade offers UK businesses greater scope to compete in foreign markets, without the asset-intensive requirement of setting up a physical presence, it equally presents the opportunity for overseas companies to compete for UK business, therefore driving competition in the UK market. To the extent that UK businesses are themselves consumers of digital goods and services, a competitive UK market is likely to be an advantage.

 

  1.                      Furthermore, digital trade can create opportunities for collaboration with overseas businesses – both here and overseas – which may be beneficial to UK businesses.

 

  1.                      There is an increasing use of shared services centres, for example for tax compliance (or audit) work, central IT or human capital services. These are often located in the CEE (for example, Poland) to take advantage of concentration of skills, availability of labour, and lower costs. Shared services centres, which provide services throughout all or part of a network, may be outsourced to third party suppliers or may be staffed by the network itself. They typically operate under a service level agreement, increasing the quality and professionalism of services provided; facilitating knowledge transfer; and offering strategic and cost flexibility. These arrangements are important both for the professional and business services sector as well as for our clients. 

 

 

How does the regulation of digital trade impact consumers?

  1.                      New business models, innovative offerings and the ability to access goods and services from across the globe all suggest ways in which digital trade can offer consumers greater choice. However, as noted above, digital trade must be regulated in order to provide a certain level of protection to consumers, both in terms of regulating power dynamics and protecting individual’s personal data and privacy rights. This is a relevant consideration at both a domestic and international level.

 

  1.                      Much of “regulation” in any given area is geared towards protecting consumers. In this regard, there is little which specifically distinguishes international digital trade or domestic eCommerce from other areas in terms of impact, in principle. However, it is worth noting that in practice, changing markets create new risks to consumers and the swift-moving nature of digital markets pose ever-greater challenges to the regulators in terms of keeping up. Furthermore, it can be argued that digital trade has altered the nature of distance selling, with new implications for market conduct rules, both nationally and internationally.

 

  1.                      The theory behind competition law is the creation of effective markets: often viewed as beneficial to businesses in opening the way for new market participants and ensuring dominant players cannot unfairly exploit their position, it should also benefit consumers in providing greater choice and ensuring more competitive pricing.

 

What approach(es) should the UK take to negotiating digital and data provisions – including those concerning the free flow of data, protection for personal data, net neutrality, data localisation, and intellectual property– in its future trade agreements?

Free trade agreements

  1.                 There is a global trend towards incorporating more detailed provisions around data flows, data protection and digital trade in free trade agreements These are aimed at facilitating digital commerce and harnessing benefits for businesses and consumers in the respective countries.

 

  1.                 We are aware that government is taking a comparative approach in considering how best to frame and pursue its digital trade objectives in trade negotiations. This is helpful in ensuring that the UK can pursue modern trade agreements to tackle current and future challenges pertaining to digital trade and to capitalise on digital trading opportunities.

 

  1.                 However, we consider there is space for the UK to be even more ambitious and to consider innovative provisions in developing its own individual approach to digital trade, if it wishes to truly establish itself as a global leader in this sphere of digital trade.

 

WTO

  1.                 Conversations are also ongoing at WTO[1] level, most notably through the Joint Statement Initiative (JSI) on eCommerce.

 

  1.                 The General Agreement on Trade in Services (GATS) applies to all trade in services, regardless of the means of provision, in line with the principle of technological neutrality. However, the GATS was negotiated three decades ago and since then the landscape for provision of professional services has changed almost beyond recognition, with digital provision one of the most important driving factors in this evolutionary process. The WTO framework has come under significant criticism from many quarters: although generally applicable to eCommerce, it fails adequately to cater for more specific issues thrown up by digital trade and its application to particular digital trading scenarios is unclear.

 

  1.                 In particular the GATS structures assume a physical model of services provision. However, this is increasingly not the case, in particular in the provision of professional services where the advice function hinges on intellectual inputs. Physical proximity is no longer an essential, or often even relevant, consideration and accordingly a number of WTO rules are no longer fit-for-purpose.

 

  1.                 As the WTO framework tends to be drawn on in all other trade agreements, it is worth bearing these issues in mind in considering how best to shape future trade policy. Reform of the WTO rules will have an important role to play in achieving the UK’s digital trade agenda.

 

Overall priorities

  1.                 Wherever possible on a bilateral, plurilateral or multilateral basis, the UK should seek to achieve:

 

  1. Prohibition of data localisation requirements, other than where necessary to protect the rights of individuals (in relation to protection of personal data and privacy and in their capacity as consumers) or national security
  2. Removal of existing data localisation requirements which act as a disguised barrier to open competition
  3. Including provisions to facilitate the free flow of data
  4. Facilitating and promoting regulatory cooperation to ensure mutually satisfactory privacy, data protection and cybersecurity standards (thereby reducing the regulatory compliance burdens on businesses while ensuring individuals’ rights are respected and protected) and timely confirmation of adequacy/equivalence decisions on a mutual basis where possible
  5. Application of proportionate net neutrality rules
  6. Recognition of intellectual property rights
  7. Advocating for general consistency of approach with trade partners and in the UK’s representations to multilateral fora
  8. Being mindful during negotiations as to how new digital trade commitments could interact with the EU’s data adequacy decision for the UK and how firms might successfully navigate multiple data regimes

 

What does the UK-Japan Agreement indicate about the UK’s approach to digital trade and data provisions in future trade negotiations?

  1.                 We note that the UK-Japan Comprehensive Economic Partnership Agreement (CEPA) goes further than the EU-Japan EPA agreement in addressing digital trade with the digital provisions contained within the Trade in Services Chapter, reflecting drafting from the USMCA and CPTPP, both regarded as setting high standards for digital trade. However, it is difficult to ascertain a country’s “approach” from any single agreement.

 

  1.                 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. This is to be welcomed.

 

What approach should the UK take towards renewing the WTO’s moratorium on customs duties on electronic transmissions?

  1.                 We believe the UK should advocate strongly for the WTO’s moratorium on customs duties to be renewed and if possible, seek to reach a permanent agreement among members for the moratorium to be extended indefinitely.
     

 

What objectives should the UK have when negotiating digital and data provisions during its accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)?

  1.                 In seeking to join the CPTPP, the UK would be acceding to an established agreement. There is therefore likely to be minimal, if any, room for seeking concessions from existing participants on entry. The primary focus will therefore be on the concessions those partners seek from the UK as the “price” of membership, and any defensive interests which the UK wishes to protect.

 

  1.                 In particular we note that concerns have sometimes been raised that some of the digital provisions under the CPTPP would conflict with the EU’s requirements as set out in the GDPR. We have commented elsewhere on the importance of ensuring that the UK is awarded data adequacy status to avoid interrupting data flows between the EU and the UK. However, both Japan and Canada are recognised by the EU as operating adequate personal data protection regimes, while being members of the CPTPP. This goal is therefore eminently achievable, but should be borne in mind throughout the negotiations to ensure that data can flow freely to and from the UK in both arenas.

 

 

Will the global increase in digital trade affect the environment in a positive or negative way? What steps can be taken to mitigate any negative environmental impacts of increased digital trade? 

  1.                 The PBSC does not currently hold specific data on the likely environmental impacts of increased digital trade. Building an accurate picture is likely to require granular data to accurately reflect the nuances of both positive and negative trends, particular given the wide array of factors, which will need to be taken into account. We will continue to monitor this issue, with a view to providing input to future discussions as our understanding increases.
  2.                 However, broadly we note that digital trade in professional services should reduce the amount of business travel required to provide these services, and is likely to have a positive environmental impact in comparison with, for example, Mode 4 services provision.

 

What domestic and international law is relevant to the Government’s approach to digital trade?

  1.                 Numerous domestic initiatives and provisions of international law may be of relevance to the Government’s approach to digital trade.

 

  1.                 The WTO legal framework – notably the GATS, GATT and ITA – provide the foundation for all trade relationships. The GATS, as noted above, is of particular relevance for professional services providers. In the longer term, there may be a need for widespread reform of the WTO structures but for the time being, we support the UK’s proactive involvement in the JSI on e-Commerce.

 

  1.                 International laws and treaties – eg those IP protections such as the Berne Copyright Convention, rules on telecommunications regulation which fall under the jurisdiction of the International Telecommunications Union and the European Convention on Human Rights, will all impact upon the Government’s approach, in their own individual ways.

 

  1.                 Existing FTAs and digital trade agreements[2] can also provide inspiration and helpful blueprints in ensuring modern best-practice is reflected in UK asks and offers. In some cases, conflicts or conditions may arise as a result of these agreements which impact global trade dynamics. However, any analysis of the form this might take would be largely speculative at this stage.

 

  1.                 Relevant domestic legislative initiatives are similarly too numerous to list in full. However, key statutes such as the Data Protection Act 2018 and ongoing initiatives, for example around online harms and digital competition, will also form part of the wider debate around the UK’s digital trade policy.

 

  1.                 Domestic legislation of other countries and blocs – such as the EU’s GDPR or more emphatic data localisation rules in other jurisdictions, will also need to be taken account on both a case-by-case and macro basis.

 

  1.                 Lastly, we note the role of “soft law” – for example industry standards produced by the International Standards Organisation – may be highly influential, particularly where it is possible to achieve broad consensus on adoption.

 

February 2021

[1] World Trade Organisation

[2] See eg (1) Singapore-Australia and (2) New Zealand- Chile-Singapore