Data Divergence: A Brexit Dividend?

On 26 August 2021, the UK Government unveiled a package of announcements which effectively set out its post-Brexit data strategy.

This blog looks at the politics around the costs and benefits of a Brexit divergence dividend in this sector, which the UK Government views as a key area of competitive advantage.

High-Level Content of the UK’s New Data Package

The package has several parts:

• The unveiling of New Zealand’s current Privacy Commissioner as DCMS’ preferred candidate to be the new Head of the UK’s Information Commissioner’s Office;
• A Mission Statement on the new approach to International Data Transfers;
• A Data Adequacy Manual to assess the adequacy of a third country’s data handling system;
• The creation of a Council of Experts to inform the UK’s international data transfers policy; and
• Plans to establish Data Adequacy Partnerships with the US, Australia, Colombia, S. Korea and Singapore, and plans for future partnerships with India, Brazil, Kenya and Indonesia.

The Government also has announced that it will launch a Consultation on the UK’s post-Brexit data regime to identify a new data regime. The Consultation will focus on how to increase trade and innovation by breaking down barriers to innovative and responsible uses of data to boost growth, speed up scientific discoveries and improve public services.

The new Information Commissioner’s mandate will be extended beyond protecting data rights to include the promotion of the use of data to achieve economic growth and social goals. The Consultation is likely to include a section examining how best to do this.

Rationale:

The UK Government views data as a sector where the UK already has a competitive advantage and in which divergence from the EU could deliver further economic benefit to the UK. In the commentary accompanying the release of the package, the UK Government noted that the UK already exports £80 billion of data-enabled service exports to the above-listed countries every year and estimated that up to a further £11 billion in revenue is lost due to barriers associated with data transfers.

Data, Brexit and the EU

The EU’s GDPR was retained in UK law following Brexit, becoming the UK GDPR, supplemented by The Data Protection Act 2018 (DPA). – see our previous blog on this issue  The UK GDPR and DPA deliberately mirrored the GDPR, so as to avoid any conflict between British and European data protection legislation when the UK left the EU and ensure a continuity of rules. It is that continuity of rules which enabled the EU to grant its 28 June Data Adequacy Decision (DAD) – see Covington blog – enabling the continued and unimpeded transfer of data from the EU to the UK, a transfer which is particularly vital to companies in the AI, data-driven health, life sciences and tech sectors – key areas of comparative competitive strength for the UK.

The nature of the EU’s adequacy determination process limits the UK’s scope for divergence from the EU.  Any amendment to the UK’s domestic rules as the UK seeks commercial competitive advantage, risks the loss of the DAD, which would have serious financial implications for companies trading across the Channel. Without a DAD, companies would be obliged to seek alternative methods of transferring data to the EU, e.g., by relying on standard contractual clauses, binding corporate rules, or other methods.

Politics and Divergence

However, as noted above, this sector is one of competitive advantage for the UK.  And it is therefore one in which the UK Government is seeking to demonstrate a Brexit Dividend. So, whilst the current objective is to retain the DAD – and the imperative of hanging onto it limits the UK’s space for divergence – it may be that in due course the UK assesses it has more to gain by aggressive divergence towards a lighter touch regulatory framework (a policy position to which the UK is instinctively attracted).

Such a policy inclination risks creating tension with the EU’s direction of travel – towards tighter and tougher regulation. The content of the Consultation may give an early indication of the UK’s future direction of travel.

For its part, the EU has already warned the UK that it would be prepared to rescind its DAD in the event of a divergence it considered too great.  The last-minute granting of the original DAD, just days before the transition bridge provided for in the EU-UK Trade and Cooperation Agreement expired, demonstrates that the EU is prepared to use all the trade levers at its disposal in managing the new relationship with the UK.

Is the EU’s Loss the World’s Gain?

Only time will tell whether the UK will take the risk of losing the EU’s Adequacy Decision. But if it does, part of its calculation may be that any losses thus incurred could be offset by reaching digital partnership agreements with third countries on issues such as cyber security co-operation; acceptance of e-signatures; or streamlining standards for permitting international data transfer.

However, it is worth noting that the impact of the EU’s approach to data regulation extends beyond Europe. Several countries, most recently including South Korea, seek to obtain an EU Data Adequacy Decision and in order to ensure EU-originating data can flow easily to their jurisdictions.

This is a volatile policy area for the UK. The Government may not yet have carried out the impact assessment to check whether the divergence benefit is worth the cost of losing the EU DAD.  But the Government does feel the UK believes it has a competitive advantage in this field and the indications are that, in time, it will judge that ‘aggressive divergence’ is worth the risk and that the price of a lost EU DAD is a price worth paying.

Covington’s mixed team of legal and public policy experts is uniquely placed to help companies work out how to manage these potential changes and we would be delighted to discuss how we might assist your company navigate current and future developments in the UK’s data sector.

Data Divergence: A Brexit Dividend? posted first on http://ronenkurzfeld.blogspot.com