Brexit will spur divergence in the regulation of digital services

Out-Law Analysis | 14 Jan 2021 | 11:44 am | 4 min. read

There is potential for differences to emerge between how the UK and EU regulates e-commerce and digital services in light of the new trade agreement reached by the UK government and EU27 countries.

Major differences are unlikely in the short-term, but businesses should expect there to be divergence in the regulatory regimes over time despite the EU-UK Trade and Cooperation Agreement (TCA) setting out minimum standards which reflect the two sides' overlapping interests.

Digital trade

Trading by electronic means is subject to the general provisions on cross-border trade contained in the agreement, but in addition to those provisions is an entire chapter dedicated to online trade – Part II Title III. The chapter primarily serves the purpose of emphasising and regulating those aspects that are specifically relevant to online transactions.

It is the first time that the EU has agreed a separate chapter dedicated to online trade within a trade agreement reached with a trading partner, reflecting the significance of digital means of exchange to current and future trade.

Rauer Nils

Dr. Nils Rauer, MJI

Rechtsanwalt, Partner

Businesses operating between the EU and the UK now will only be successful in challenging trade obstacles if they are able to prove unjustified unequal treatment
Non-discrimination persists, but not as before

The stated object of the chapter is "to address unjustified barriers to trade enabled by electronic means and to ensure an open, secure and trustworthy online environment for businesses and consumers". This is reflected in the chapter's articles, including Article DIGIT.9 which provides that EU and UK businesses can provide electronic services across the two jurisdictions without needing prior authorisation to do so solely on the ground that the service is provided online, though exceptions apply for services such as telecommunications, broadcast and gambling.

Digital trade under the agreement is guided by the overarching principle of 'national treatment' which stems from the General Agreement on Tariffs and Trade (GATT). In practice this means neither the EU27 nor UK can apply internal taxes or other internal charges, laws, regulations, or other requirements affecting imported or domestic products that results in discrimination in favour of domestic production. This general rule governs goods as well as services exchanged between the EU and the UK.

In the context of services, Article SERVIN.2.4 also promotes non-discriminatory behaviour by committing both parties to treat state investors and enterprises from the other party no worse than those from third countries.

However, while the TCA's non-discrimination provisions are welcome, they fall short of the principles of free movement of goods, capital, services and labour that applied under the UK's membership of the EU single market. Businesses operating between the EU and the UK now will only be successful in challenging trade obstacles if they are able to prove unjustified unequal treatment. Any rise in transactional costs impacting businesses will be hard to challenge on the grounds they amount to unjustified discrimination.

The aspects of digital trade that the TCA governs

Part II Title III addresses a wide range of issues, from online contracting and electronic authentication, to cross-border flow of data, data protection and privacy, and customs duties on the supply of electronic services. It also provides protections against the access to and transfer of source code and sets out minimum standards in relation to online consumer protection, including prohibiting certain marketing practices. Audio-visual services are not within the scope of the provisions under the chapter.

Nothing in Part II Title III prevents either side from developing new regulations governing digital trade – so, despite the provisions agreed on non-discrimination, the two legal and administrative regimes have potential to diverge. This scope for divergence is in addition to provision made in Article DIGIT.4 for the two sides to diverge under general and specific listed exceptions, which include on security grounds.

It is unlikely that there will be an immediate overhaul of the existing laws and regulations on either side. Provision for EU legislation and case law to be retained in UK domestic law means the regulatory position in the EU and UK begins from a point of close alignment from the commencement of the new trading arrangements. However, businesses should expect to have to deal with differing regimes applicable to cross-border transactions entered into, operated and executed over the internet over time.

Bousonville Ruth Maria

Ruth Maria Bousonville

Rechtsanwältin, Legal Director

A common understanding and close cooperation in digital trade matters would benefit businesses keen to be able to operate smoothly across the two different markets without regulatory frictions, particularly when exploring new technologies

The TCA, however, does oblige both the EU and UK, under Article DIGIT.16, to exchange information on regulatory matters in the context of digital trade, notably in respect of:

  • the recognition and facilitation of interoperable electronic trust and authentication services;
  • the treatment of direct marketing communications;
  • the protection of consumers, and;
  • any other matter relevant for the development of digital trade, including emerging technologies.

The aim of these provisions is to facilitate a steady dialogue between regulators in both jurisdictions. A common understanding and close cooperation in digital trade matters would benefit businesses keen to be able to operate smoothly across the two different markets without regulatory frictions, particularly when exploring new technologies.

Article DIGIT.13 provides a useful example of how the TCA promotes convergence in a general sense while providing reasonable discretion to either party to develop different rules from one another.

The article commits the UK and EU to "adopt or maintain measures to ensure the effective protection of consumers engaging in electronic commerce transactions" in four areas:

  • by proscribing fraudulent and deceptive commercial practices;
  • by requiring suppliers to act in good faith and abiding by fair commercial practices;
  • by requiring suppliers to provide consumers with clear and thorough information, and;
  • by granting consumers access to redress for breaches of their rights.

These are all uncontroversial issues on which there is a great deal of common ground between the parties. In practice, however, there is scope for significant differences to emerge in the measures developed in law and applied by the courts in both the UK and EU as to how the 'effective protection' is provided for.

Changes should also be expected in relation to digital content services, as the TCA does not guarantee the rights of UK consumers to continue accessing digital content and services behind subscription walls when travelling through the EU. In addition, copyright law relevant to the making content available online is set to diverge across the EU-UK border, meaning content providers will face different liability frameworks and may need to adapt their terms and conditions of their services for operating across the two jurisdictions.