Brexit briefing | 28 Jan 2021 |

What does the UK-EU trade agreement say about digital trade?

The Trade and Cooperation Agreement (TCA) between the UK and the EU, which took effect on 1 January 2021, dedicates an entire chapter to digital trade arrangements, such as the supply of goods and services through online channels. This is the first time an EU trade agreement has included a specific chapter of this nature and marks the importance of digital trade between the two jurisdictions. But how much will it really impact UK-based tech businesses?

Digital trade

The TCA provisions relating to digital trade have the stated objectives of addressing "unjustified barriers to trade enabled by electronic means" and ensuring an "open, secure and trustworthy online environment for businesses and consumers". Subject to various exceptions (discussed further below), the UK and the EU make commitments in the following areas:

        SOFTWARE AND SERVICES
    
not to impose customs duties or tariffs on electronic transmissions (such as software) provided in its territory;
to adopt a broad definition of "computer-related services" (see discussion below)
not require businesses to obtain prior authorisation for any services purely because they are provided by electronic means;
not require the forced transfer of source code as a prerequisite to doing business in its territory;

        DATA LOCALISATION
    
not to require that the use of computing facilities or processing of data takes place in its territory;
not to make data transfers contingent on the use of computing facilities in its territory;
not to prohibit the storage or processing of data in the other party's territory.

        CONSUMER PROTECTION
    
not to allow businesses to issue direct marketing communications to individuals without their consent;
to ensure that businesses supplying goods and services to consumers online act in good faith, provide clear and thorough information and allow customers to exercise rights when things go wrong.

They also agree to:

ensure that electronic execution of contracts is recognised as valid and enforceable;
cooperate on regulatory issues relating to digital trade.

Impact of the digital provisions in practice

The main value of the digital provisions is in providing comfort to businesses that they will be less likely to face substantial new barriers in relation to EU-UK trade in future.

An example would be the issue of customs duties on software downloaded via electronic transmissions (as is the case with most software); it is clearly helpful for a UK software business to know that its products will be very unlikely to face tariffs on sales to EU customers because the TCA expressly prohibits this. Similarly, it is also helpful that the TCA requires the parties to adopt a wider definition of "computer-related services" than is generally thought to apply under the WTO GATS regime. Without this, both parties would have more scope to restrict the provision of such services in future.

LIMITED IMPACT ON EXISTING LEVELS OF MARKET ACCESS

Welcome as they are, however, the digital provisions will be very unlikely to require the parties to sweep away existing measures which might be regarded by some as barriers to trade. On the contrary, those measures are likely to continue to be permitted, mainly as a result of the numerous public policy carve-outs to which the digital provisions are subject. For example, although both parties make commitments on cross-border data flows, they remain able to impose conditions on transfers of personal data where these are considered justified to protect privacy.

That said, it is important to bear in mind that, as a general rule, the level of access granted to third country tech sector businesses by the UK and the EU under WTO rules was already fairly liberal. As a result, there was arguably fairly limited scope for the TCA to remove a large number of existing barriers in this sector.

Read James Longster Profile