Written evidence submission from Department for International Trade (DTD0025)

Response to the International Trade Committee’s digital trade and data inquiry

1.     HM Government has ambitious plans to secure trade agreements with countries that cover 80% of our trade within three years. Trade agreements make it easier for British businesses to export to new markets and facilitate access to a greater range of intermediate and final products at competitive prices for consumers and producers, as well as having a positive impact on innovation, productivity and competition.
 

2.     We welcome the International Trade Committee (ITC) inquiry into digital trade and data. Our 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.

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

3.     The importance of digital trade has been heightened as a result of the Covid-19 pandemic, with an even greater proportion of trade now happening digitally and online.
 

4.     The Department for International Trade engages regularly with external organisations through informal consultation and through such fora as our Trade Advisory Groups. Businesses can also report barriers to market access to DIT’s Digital Market Access Service. This provides a rich picture of barriers to digital trade. We are working with like-minded countries to address these barriers and to champion commitments to open markets, future regulatory cooperation and more.
 

5.     According to the OECD, the lack of access to high-quality infrastructure and connectivity represents a significant barrier to digitally-enabled services.[1] The OECD’s interpretation of connectivity includes the facilitation of “cross-border data flows.” Barriers to the cross-border flow of data have the potential to affect any business that uses digital means, for example to produce, deliver or receive payment for their work, or to pay their salaries and taxes. One major barrier to the free flow of data is data localisation, which requires businesses to store data using facilities that are physically present within the borders of a specific country. Data localisation requirements impose significant costs to businesses by requiring them to use multiple data storage mechanisms in different jurisdictions and can be prohibitive for SMEs seeking to expand overseas. Research suggest that the imposition of data localisation requirements negatively impacts GDP, domestic investment and the economic well-being of citizens.[2]
 

6.     British businesses also face barriers to cross-border electronic transactions. Such barriers include discriminatory conditions for issuing licences for e-commerce activities, online tax registration and declarations for non-resident firms, as well as measures inhibiting the use of electronic authentication. The process of ordering physical goods online is hampered by undeveloped digital customs and logistics processes and a lack of alignment of domestic and international standards.

7.      Electronic payments face barriers in overseas markets such as reduced access to payment methods and internet banking restrictions. Countries may also lack appropriate domestic security standards that are aligned to international practice.

What opportunities does digital trade present for UK businesses?

8.     Firms selling goods or providing services digitally have taken local markets to a global scale, with digital services continuing to expand around the world, from music streaming to e-commerce. In 2019, the United Nations Conference on Trade and Development estimated that the digital economy represented between 4.5% and 15.5% of global GDP.[3]

9.     The digital sector contributed £150.6 billion in 2019 to the British economy,[4] employing 4.6% of the national workforce.[5] In the same year, the United Kingdom ranked third in the world for tech investment after the United States and China, with British cities including London, Manchester, Bristol, Oxford and Cambridge growing as hubs for innovation and digital technology.[6]

10. The number of British high-value tech businesses rose to 95 in 2019.[7] Of these companies, 45% are based outside London, with the opportunities of the digital economy benefiting businesses across the country.[8]

11. Our strength in the digital sector is reflected in how we trade. In 2019, our remotely delivered trade with the world was worth £326 billion, equating to one quarter of total trade.[9] This has enabled businesses to innovate, resulting in traditional sectors becoming increasingly digitised and providing more innovative services. A US report suggests that the use of digital technologies by business for trading in goods and services contributes even more to productivity than their production, driving broad trade growth across a wide range of industries.[10]

12.  The digital provisions in the United Kingdom-Japan Comprehensive Economic Partnership Agreement (CEPA) support British businesses across a wide range of sectors. Provisions include open digital markets, digital trade facilitation and consumer and business safeguards.[11] We are committed to helping British businesses make even more of these opportunities in the future, so that the United Kingdom becomes a hub for digital and services trade. As part of this, we are negotiating Free Trade Agreements (FTAs) with the United States, Australia and New Zealand and are seeking accession to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).
 

13. We are also committed to playing a visible leadership role in international fora to shape the global norms around digital trade and open new markets across the world. The UK is actively participating in negotiations of the Joint Initiative on E-Commerce at the WTO, aiming to set new global rules on digital trade and reduce barriers for businesses. Digital trade will play a role in the United Kingdom’s Presidency of the G7 during 2021.

14. In the coming decades, digital trade has the potential to be the dominant form of trade, surpassing the value of traditional commerce.[12] The continued exponential rise in computing power will allow digitally-enabled technologies such as artificial intelligence, the Internet of Things, additive manufacturing, and blockchain to flourish.[13]

How does the regulation of digital trade impact consumers?

15. The internet has revolutionised our ability to connect with others and created entirely new economic opportunities for businesses and consumers. Along with lower prices for products and services, digital trade provides access to new and more tailored offers, as well as greater transparency.[14] This benefits consumers by increasing their choices and giving them access to a wider range of products and services.[15]
 

16. These benefits need to go hand in hand with appropriate consumer rights. HM Government’s digital trade policy includes a fundamental commitment to protecting consumers online. This is underpinned by a robust domestic framework that provides consumers with protection online as well as offline.

17. As part of negotiations with trading partners, the United Kingdom pursues provisions that require countries to develop laws or regulations that protect consumers from unfair practices, as well as mandating cross-border cooperation to enhance consumer protection. These measures help to enhance consumer welfare and establish trust in digital trade.

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?

18. HM Government’s approach to digital trade has five pillars 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.
 

19. HM Government aims to promote open digital markets by negotiating ambitious and liberalising digital trade provisions both bilaterally and multilaterally. Among other things, we seek to agree effective regulatory principles with trading partners, as well as provisions that eliminate customs duties on electronic transmissions.

20. We continue to champion Britain’s highly successful telecommunications sector by negotiating fair and transparent access to international markets and minimising trade distortions. Where there are known barriers in partner countries, we seek to agree strong regulatory principles that are fair, independent and transparent.
 

21. HM Government aims to support digital trade facilitation by negotiating provisions in the WTO and in our trade agreements that cut red tape, speed up administrative processes and diversify supply chains for British businesses.

22. We are prioritising provisions such as paperless trading, electronic contracts, electronic authentication and electronic trust services. We are also working to enable efficient and cutting-edge electronic transactions by engaging with like-minded trading partners on norms and standards for digital identities and e-payments.
 

23. HM Government aims to enable trusted cross-border data flows by negotiating provisions in the WTO and with our trading partners to minimise unjustified data localisation while ensuring appropriate data protection and safe access to data.

24. A key objective of our trade agreements is to ensure that restrictions to cross-border data flows and data localisation are applied only in limited and legitimate circumstances. We champion innovation through provisions for open government data that can bring a range of social, environmental and economic benefits.

25. At the same time, the free flow of data needs to go hand in hand with data protection. The United Kingdom has high standards of personal data protection enshrined within the Data Protection Act of 2018 and HM Government is committed to maintaining high standards of protection for personal data when it is transferred across borders. Nothing in the UK’s trade agreements will interfere with the high level of protection afforded to personal data, even as it flows outside of the UK.
 

26. HM Government aims to promote a safe trading environment and secure safeguards for both consumers and businesses. For consumers, we are addressing issues such as online consumer protection and unsolicited commercial electronic messaging. For businesses, we are addressing barriers to innovation in areas such as the transfer of source code and cryptographic algorithms.

27. We are seeking net neutrality commitments to open internet access as a means of developing an open, secure and trustworthy online environment whilst retaining scope for legitimate public policy interventions. This will enable development of innovative technologies and the protection of both right holders and consumers of content.

28. We recognise that the online infringement of digital intellectual property rights is a significant challenge. We aim to use our trade agreements as an opportunity to ensure that the interests of right holders are protected.
 

29. HM Government aims to champion global norms, rules and standards for digital trade that can benefit all. We are seeking to promote transparency, sound regulatory principles and robust and evidence-based approaches in the WTO and as part of our wider multilateral engagement. We are also committed to working with international partners to further develop global rules and standards that reflect British values. This includes international cooperation on emerging technologies and cyber security.

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

30. The United Kingdom is now negotiating trade agreements according to our independent trade policy.

31. Our CEPA agreement with Japan represents one of the world’s most ambitious FTAs with respect to digital trade and data. It not only positions the United Kingdom as a global leader, but also sets a strong foundation for our trade negotiations with other partners around the world.

32. CEPA goes further on digital trade than the EU-Japan Agreement, demonstrating our level of ambition and our commitment to providing opportunities for British businesses. Provisions in CEPA include:

1. a prohibition on unjustified data localisation;
2. a commitment to world-leading standards of protection for personal data when transferred across borders. This includes adopting or maintaining measures such as comprehensive privacy, personal information or personal data protection laws, sector-specific laws covering privacy, or laws that provide for the enforcement of voluntary undertakings by enterprises relating to privacy;
3. avoiding unjustified restrictions on trusted data flows between the United Kingdom and Japan, assuring businesses that they can collect, process, and transfer data between the two countries, without unnecessary red tape;
4. encouraging the release of anonymised government datasets where appropriate to create opportunities for innovative new products and foster economic and social development;
5. protecting encryption technologies by prohibiting either party from requiring suppliers of Information and Communications Technology (ICT) products that use cryptography to, amongst other things, transfer  their proprietary information to the other party or persons in that country as a condition of market access. This provides confidence that the security of products will not be undermined by unjustified requests for the disclosure of their trade secrets or other proprietary information; and
6. ensuring open internet access as a means of developing an open, secure and trustworthy online environment that will enable development of innovative technologies and the protection of users.

33. CEPA also expands on important areas of the EU-Japan Agreement. These include commitments to encourage the use of interoperable electronic authentication and electronic signatures, as well as future cooperation on personal information protection, emerging technology and electronic trust services.

34. The twin advantage of the CEPA approach is that it will 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, supporting a digital sector that employed an estimated 1.6 million people in 2019.[16]

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

35. HM Government is a strong advocate for the WTO moratorium on customs duties on electronic transmissions and is committed to opposing to the imposition of such custom duties.
 

36. A permanent prohibition on customs duties being applied to electronic transmissions forms part of our standard objectives in negotiations with trading partners. We also support such a move more broadly within the WTO, through the negotiation of the Joint Initiative on E-commerce and the ongoing e-commerce work programme.

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)?

37. The Electronic Commerce Chapter of the CPTPP was widely considered to be one of the best in class when it was agreed in 2018 and broadly aligns with the UK’s digital trade objectives.

38. The Chapter enables the use of e-signatures, encourages paperless trading, restricts the imposition of customs duties on electronic transmissions and content transmitted by electronic means, tackles spam and recognises the importance of cyber security collaboration. The Chapter minimises unjustified data localisation and encourages the flow of data between CPTPP Parties. The Chapter also contains a commitment to maintaining comprehensive legal frameworks to protect personal information. UK data protection laws will not be affected by the CPTPP, with transfers of personal data having to satisfy the UK’s high standards of data protection.
 

39. We are clear that our accession must be right for British businesses and consumers. Where there are areas of divergence, HM Government will work with CPTPP Parties to understand the Agreement’s intention and reach outcomes that are acceptable to all Parties, without compromising our interests.

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?

40.  HM Government remains committed to advancing new global trade rules that are fit for the 21st century and can support the climate agenda. We have already harnessed our new independent trade policy to reduce import tariffs on 104 environmental goods entering the United Kingdom, helping to promote the deployment of renewable energy generation, energy efficiency, carbon capture, and the circular economy through recycling and reducing single-use plastics. This includes the use of digital technologies, for example in smarter energy systems.

41. Various commentators have highlighted potential interlinkages between digital technologies and the climate change agenda. HM Government will continue to monitor the growing evidence base in this area.

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

42. Owing to the nature of digital trade, the relevant international and domestic legal framework is extensive. Annex A sets out examples of international and domestic laws that may be relevant to HM Government’s future digital trade policy. In addition to the examples of domestic and international law in Annex A, the UK has incorporated, through the European Union (Withdrawal) Act 2018, a range of EU legislation into UK domestic law.

Annex A

International law

The United Kingdom is a signatory to the following agreements and other instruments that either contain provisions concerning digital trade or impact on its digital trade policy:

1. Marrakesh Agreement Establishing the World Trade Organization including its Annexes (e.g. GATT, GATS, TRIPS etc);
2. WTO Moratorium on Customs Duties on Electronic Transmissions (extended on 10 December 2019 to the 12th WTO Ministerial Conference);
3. WTO, Joint Statement on Electronic Commerce, 11th WTO Ministerial Conference, WTO Doc WT/MIN(17)/60 (13 December 2017);
4. Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data (Convention 108) and the modernised Convention (as it will be amended by its Protocol CETS No.223);
5. Agreement between the United Kingdom of Great Britain and Northern Ireland and Japan for a Comprehensive Economic Partnership;
6. Agreement on Trade Continuity between the United Kingdom of Great Britain and Northern Ireland and Canada (when it is provisionally applied / enters into force);
7. Free Trade Agreement between the United Kingdom of Great Britain and Northern Ireland and the Republic of Singapore;
8. Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part.

Domestic Law

The following domestic laws and proposals are relevant to the United Kingdom’s domestic electronic commerce framework or legislate for mechanisms that facilitate digital trade:

9. Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013;
10. Consumer Rights Act 2015;
11. Consumer Protection from Unfair Trading Regulations 2008;
12. Data Protection Act 2018;
13. Digital Economy Act 2017;
14. Electronic Commerce (EC Directive) Regulations 2002;
15. Electronic Communications Act 2000;
16. Electronic Communications Act (Northern Ireland) 2001;
17. Electronic Identification and Trust Services for Electronic Transactions Regulations 2016; 
18. Finance Act 2020 (Digital Services Tax);
19. Online Harms White Paper: Full government response to the consultation, Command Paper Number: 354 (15 December 2020);
20. Open Internet Access (EU Regulation) Regulations 2016;
21. Privacy and Electronic Communications (EC Directive) Regulations 2003.

February 2021