To align or not align? That is the question.
21 Jan 2020
“Two roads diverged in a wood and I took the one less travelled by, and that has made all the difference”.
So goes the Robert Frost quote. The implication, of course, is that the road less travelled may be a more difficult, but it is often a more rewarding and fulfilling path to tread.
This image—of striding out into the world and forging a path of originality—has been used by many throughout the Brexit ordeal whereby the UK would not seek to align with EU regulations. Post-Brexit ‘global Britain’, they say, would be able to capitalise on market opportunities across the world in a way that wasn’t possible when conforming to EU rules and standards limited what businesses could and couldn’t do.
Indeed, the Chancellor this week has reaffirmed this position, saying there will be ‘no alignment’ with the EU post-Brexit and that businesses must ‘adjust’ to the new reality.
Instinctively, this might seem like a fairly logical argument. If we are outside the EU, perhaps some businesses would be able to produce a product cheaper by avoiding import tariffs on materials. Maybe another would be able to make their businesses run more efficiently by cutting out the bureaucratic administration that often comes with proving conformity to EU laws. A third could make savings by outsourcing labour to cheaper markets.
So is this the right thing to do?
While this could be true for a few specific businesses, a more macro examination of this argument reveals fatal flaws.
For a start, in a world of free markets, the road less travelled is often the one taken by the EU. It has diverged from a global standard of less-strictly regulated market to—by their own admission—a comprehensively regulated, high-standards economy.
It is also not true to say that regulations been necessarily limiting to UK businesses. Indeed, in spite of criticism, EU regulations have often been the impetus for more innovative business practices, increased global competitively and greater prosperity.
This fact can be demonstrated in an area that applies to every element of modern economies: data and digital regulation. The use of data—now near-exclusively gathered by digital means—allows one to market to prospective customers; store their information; send them the products or services they have bought; conduct market research; speculate on investments; purchase necessary goods; run supply chains; and a huge amount more. Indeed, the creation, capture, storage and use of data provides means of facilitating nearly every business operation.
Previously, many hard-line Brexiteers (including Boris Johnson) argued for the repealing of EU data and digital regulations—like GDPR—after the UK leaves the EU. They said they were restrictive pieces of legislation that place limits on the way businesses can use digital and data practices to their advantage. Similar moans of discontent about GDPR have come from No. 10 Downing Street in the past weeks, too.
While it is true that a small minority of businesses see EU-prescribed data regulation to be encumbering, DMA research shows that the overwhelming majority of UK businesses think GDPR and other digital regulations have had a positive effect on their business. Furthermore, similar numbers think losing alignment with EU practices would be detrimental to their business.
Ultimately, this is because the GDPR and tighter data and digital regulations were adopted, in part, in recognition of the fact businesses had been misusing personal data.
DMA research showed that 86% of people want more control over the use of data. The same amount wanted greater transparency about the way their data was used. Clearly, prior to GDPR, individuals did not trust businesses to act responsibly with their data.
The effect of this was simple: people didn’t buy from companies or use platforms they didn’t trust. They still don’t.
Going forward, businesses will have to treat data better in order to survive. People are sick of careless or negligent treatment and deliberate misuse of data. They have demanded that legislators take action to increase standards across business and beyond.
It is only with the creation of GDPR that businesses have begun to innovate better data practices, restore trust with consumers, attract more customers and, as a result, become more competitive and successful. What’s more, while regulations can be a pain to implement, it is often the case that they force companies to reassess and improve their business practices, which in turn facilitates better performance.
Being able to catalyse universal change across the world’s largest market shows the benefit—and necessity—of regulating at an EU-level, too. Adding to this, most EU regulations have aspects which can be altered or determined at a state-level, leaving plenty of room for tighter or looser regulation at a national level.
Moreover, in the field of data and digital, the UK has played a crucial role in developing the rules and standards within the EU.
Estimates predict that over 50% of EU data and digital regulation is developed by the UK. The language of the internet is English, after all. Similarly, most large digital businesses in the EU are either started or are based in the UK.
Furthermore, EU standards in this area are now being adopted by countries across the globe. Switzerland, Argentina, Japan, Australia, New Zealand (and on a qualified level, the US and Canada) to name but a few, have chosen to match European standards of data protection in order to be able to compete with EU businesses on the global stage.
It is the case that not only has the EU been the one to stride out and create a new path for data and digital regulation which the world is following behind, the UK has also been at the front of that charge within the EU.
While this is just one area of regulation (albeit an all-encompassing one), the theory that EU rules and regulations help businesses and the economy stands true elsewhere. In the UK and across the globe, people no longer look for the cheapest product.
KPMG research shows that consumers increasingly take into account other factors, such as businesses’ ethical practices, respect of consumer and worker’s rights, environmental sustainability and quality standards when making purchasing choices.
Again, it has been the EU—often with the UK as a central driving force—that has carved out the lesser-travelled path of regulating in these areas. Consequently, with global demands for higher standards, EU businesses are a step ahead.
Why do we need to be in the EU to have high standards?
The response to this from more hard-line Brexiteers is that the UK can strive to be a high-standards economy itself instead of having a partial say in how EU standards are made.
However, as is evident from discussions with the USA, it will be more difficult to maintain high standards when countries who would agree a trade deal with the UK ask for a compromise on standards as a condition. Negotiating as part of a block, as with the EU, is clearly a more advantaged position.
While it has to be said that the UK has ceded some decision making power, it is still true that the EU can and would do well to learn from UK businesses and regulatory practices going forward.
Indeed, in the data sphere, the UK and devolved governments continue to strive to make the digital and data economy some of the world’s most successful. The UK and Scottish governments are forging future-thinking data and AI strategies; consulting on a raft of innovative and growth-fostering regulations; are united in the aim of seeking to make Edinburgh the ‘data capital of Europe’ and the UK ‘the safest place in the world to go online’.
What does this mean for the UK after Brexit?
Post-Brexit, it might well be possible for the UK to be the one taking the road less travelled by showing how effective rules and regulations can work for business. But this would be most effective be as a proactive and leading partner of the EU, rather than a lone figure stretched between the demands of a multitude of external markets.
After all, this is what the UK and EU have done successfully so far and, if both partners want and kind of future relationship, it is how cooperation will be most fruitful—and economic growth most sustainable—in future.
This means two things.
First, the UK must make agree a future relationship deal with the EU – even if that means extending beyond December 2020. A desire to sate public frustration at delayed Brexit implementation cannot justify the consequences of not taking adequate time to negotiate a trade deal. Especially when a no-deal Brexit does not put the future relationship issue to bed.
Second, the deal the UK makes with the EU must see close alignment with EU rules. While there are still points of concern, many components of the deal as outlined in the Political Declaration achieve this.
Indeed, if it gives us more time to assess all options and align as close as we can, a little more time to think is the best way forward.
After all, who has ever wished they’d taken less time to make an important decision?
One last thing...
Finally, there is one argument for alignment born out of age-old economic theory.
They say when distance doubles, trade halves. While this is less true than it once was, and even less so given the service-heavy nature of the UK economy that does not rely on the physical movement of goods in the same way it once did; it rings true in a way that cannot be excluded from consideration.
If a country suddenly appeared in the North-West corner of Europe with a booming economy and ability to trade, it is impossible to believe it would choose to make a multitude of trade deals with economies further away over making a single deal with the largest economy on its doorstep.
The fact is, the EU is the globe’s largest market. It is the closest market to the UK. Keeping close alignment with the EU will be simpler. Businesses won’t have to play by a plethora of different rules trading with a host of different jurisdictions. They would also have access to all the customers they could possibly need in one market. Proximity saves money on delivery of products and services. The market also maintains a standard of workers rights and quality that is rarely seen elsewhere, which we know chimes with preferences of UK citizens.
Ultimately, this is a question of how the UK operates in a way that can support itself outside the political decision-making of the EU. Diverging from EU rules creates far too many issues for a huge number of businesses to remain successful. This is certainly true for our industry and many others.
At the very least, for now, it is vital that the UK keep alignment with the EU or it will see a decline in the success of business and significant damage to the UK economy.
The DMA has been and will continue to lobby for alignment with the EU. For more information on what we have been doing, or to share ideas, please contact Michael.firstname.lastname@example.org.