The digital sector is one of the fastest evolving and innovative drivers of economic growth and job creation across the EU. In the UK, the sector is worth approximately £118 billion a year, accounting for 16% of domestic output, 10% of employment and 24% of total exports. Forty-three percent of UK digital exports go to the EU, meaning Brexit will significantly influence the sector and its role in the wider economy.
The UK has been a vocal advocate of a fully functioning Digital Single Market (DSM) in the EU. David Cameron’s government insisted a DSM should be implemented “once and for all” to unlock growth opportunities. Indeed, as one of the larger Member States, the UK was the driving force in pushing for the DSM’s completion, supported mainly by Denmark, Estonia, Sweden and the Netherlands.
Now that the UK has decided to leave the EU, it may find itself half-in and half-out of a half-completed strategy. The final outcome of the Brexit negotiations and the final trade agreement between the EU and UK will have paramount importance to the tech industry.
Regulation – a quick introduction
The DSM strategy was introduced by the European Commission in May 2015 and is one of its ten key priorities for this legislative term (2014-2019). It aims to eliminate technical digital barriers to create a free online market and further boost the bloc’s digital economy. Under this strategy, the EU has processed multiple legislative initiatives dealing with a range of issues including, e-commerce, copyright, data privacy, telecoms and geo-blocking.
The EU’s DSM strategy is based on three pillars. The first is related to e-commerce and better access for consumers and businesses to digital goods and services. The second aims to create the right conditions for digital networks and services to flourish; and the third focuses on maximising the growth potential of the European Digital Economy.
The Commission has introduced – based on these three pillars – legislative proposals to, among other things:
- address unjustified geo-blocking
- increase transparency on cross-border parcel delivery services
- strengthen enforcement of consumers’ rights
- modernise copyright rules
- amend the Audiovisual Media Services Directive (AVMSD)
- establish a European Electronic Communications Code
- introduce rules on e-privacy to align with the new General Data Protection Regulation
- harmonise VAT rules
- create an effective EU cyber deterrence
- address illegal content on online platforms
- ensure the free flow of non-personal data
While a number of these legislative files have been concluded, others are still subject to negotiations between the EU institutions and may not be finalised before the UK’s withdrawal. For the laws that have been finalised, a transitional period may stretch the enforcement of the rules beyond the UK’s membership. Consequently, it will be up to the UK Government to identify in which areas it wishes to closely cooperate with the EU or even submit itself to its rules to ensure consistency.
- If the UK and the EU do not agree on a legal basis for cross-border data flow, the UK will no longer be able to freely trade data with the EU. This makes the UK’s trade in services with the EU particularly vulnerable.
- It could become increasingly difficult for founders and investors to raise capital due to the uncertainty Brexit has created for venture capital groups. This could impact the UK’s climate for investments in tech companies.
- For UK-based broadcasters that provide services to other Member States, current country of origin rules stipulate that they can broadcast throughout the bloc as long as they abide by UK rules. Their broadcasting services may be restricted as a result of Brexit.
- With many employees in the tech sector originating from EU countries, a cap on immigration from the EU could cause problems for tech companies, as they would struggle to fill the estimated amount of 600,000 vacancies in the UK.
- Having been a big advocate of the EU’s DSM, the UK will now start to lose its influence in forming legislation with regards to the digital sector, which – depending on the final Brexit deal – could still be applicable in the UK after Brexit.
- The UK can cut loose of the EU’s stringent rules and create its own more independent legal and regulatory framework. It could then determine its own international data protection arrangements with the US, rules on intellectual property rights, cyber security and e-commerce.
- If the UK decides to adopt less restrictive regulations on services and technologies that use mobile networks, this could encourage greater investment and prompt businesses to establish UK operations and bases.
- Cut loose from EU state aid rules, the UK Government can more easily invest in infrastructure to support network services.
- For creative industries, the UK may be able to attract more investors as access to North American and Asian markets – which offer growth potential – expands and opportunities to innovate increase.