Hello from Brussels, where we’ve apparently entered a semi-tropical monsoon season, featuring short spells of heat followed by days of heavy rain and the odd electrical storm. Perhaps it’s the weather gods showing their disquiet at this week’s extraordinary upturning of the natural order (England 2, Germany 0). Speaking of things British, today’s main piece is about the competing spheres of data management in the global economy and what happens when you’re a country like the UK that has the temerity to want to belong to more than one.
Charted waters takes the latest survey of UK purchasing managers to track the link between broken supply chains and higher prices for companies.
Are you feeling adequate? The UK is, for this week at least. It’s not just the football (for the English, anyway), but the news that a couple of days before deadline — going down to the wire being a Brexit thing — the EU had granted an adequacy finding to Britain’s data protection regime. Companies in the two jurisdictions can now pass personal data back and forth freely without having to go to cumbersome lengths like hiring pricey lawyers to sort out company-to-company “standard contractual clauses” to allow information transfer.
At the same time, though, the UK has been heavily hyping (another feature of the post-Brexit landscape) a digital deal it is doing with Singapore, hoping to knit into a growing network of such agreements in the Asia-Pacific region.
How are these compatible? We keep reading everywhere, in fact we’ve sometimes written, that the data world is dividing into different spheres of influence, roughly speaking centred on models inspired by the EU, the US and China, with the EU de facto exporting its General Data Protection Regulation (GDPR) rules through trade. How can the UK straddle two?
As often with problems in trade, indeed in life: it’s not impossible but it’s by no means straightforward. It requires assuring the EU that data won’t be passed on to third countries with lax privacy rules. Japan has managed it. Tokyo signed up to US-inspired provisions in the Asia-Pacific CPTPP trade deal which aim to guarantee the free cross-border flow of data. But it also has a sufficiently stringent domestic data protection regime that the EU granted Japan data adequacy simultaneously with (but separate to) the bilateral trade deal between the two that went into force in 2019. This can be a bit fiddly — Japanese companies have to distinguish data that can move on freely elsewhere from those which cannot — but it’s not cripplingly difficult. Let’s keep some perspective: it’s not a truly intractable regulatory coherence problem like, say, sausages.
This idea of an EU regulatory regime pulling other economies into its orbit is the familiar Brussels effect, established for years in chemicals (the Reach rules) and vehicle standards (the UNECE specifications, heavily influenced by the EU). But in data it’s quite a bit messier. Not only is the vastly complex GDPR more controversial than Reach (though Reach attracted plenty of complaints early on), but the repeated legal attacks on it by the Austrian privacy activist Max Schrems, which have twice invalidated EU data-sharing agreements with the US, have made the system fragile and uncertain. British companies reliant on data flow to and from the EU are bracing themselves for a separate legal challenge to the UK adequacy finding.
Accordingly, while some true-believer Conservative backbench MPs want the UK to experiment with loosening privacy rules to encourage tech innovation, British businesses generally prefer erring on the side of sticking close to the EU model. Deviation could rapidly cause damage. Data adequacy is a unilateral assessment by the EU, not a reciprocal treaty obligation. (The EU has an unhelpful neurosis about addressing data flow in trade deals). And while the finding will be formally reviewed in four years’ time, it can be pulled at short notice by Brussels if it feels data transferred to the UK is not secure.
So where does this leave the UK with its digital deal with Singapore and future similar agreements? “Treading carefully”, is the answer.
This deal will address relatively uncontroversial issues like protecting source code and promoting econtracts and esignatures. It will encourage and build on existing private-sector efforts to create paperless trade systems, hopefully one day including customs procedures. It will also institute regulatory co-operation, or at least consultation, on issues like cyber security and artificial intelligence.
It’s certainly a deal worth doing. For our money, the UK’s and Singapore’s instincts on proactively governing data and digital are more constructive than those in the EU. But by far the most weight in the UK’s digital and digital-enabled economy will remain on the foot firmly planted in the sphere of data influence that lies across the sea. Signing aspirational digital deals with go-getting Singapore, former British colony and trading jewel of the Asia-Pacific, feels great. Having Brussels grudgingly tell you that you’re adequate is less enjoyable. But it’s the second one that matters more.
What do you get if you cross a pandemic with a Brexit? When it comes to supply chains, a great big mess. The latest poll of UK purchasing managers, or PMI, watched closely as a barometer of economic activity, highlights just how much damage shipping delays and higher barriers to entry at the border are causing businesses.
A sub-index for delivery times hit 18.4 in June — note that any reading under 50 represents a worsening in supply chain conditions. This is the second-lowest reading on record after April 2020. Meanwhile, the reading for input prices have soared to a fresh high of 89.2, signalling that almost all of those surveyed have seen costs rise over the past month. Here’s a chart that shows the performance of each sub-index over the past decade:
Clearly the correlation between these two sub-indices is not perfect. And even if it was, that doesn’t necessarily mean there’s causation here. However, in this instance we do think the combination of logjams and high demand for consumer durables are what’s behind the surge in costs.
When will those logjams ease? In truth, no one knows. It had been hoped that they would dissipate over the summer, but the impact of fresh Covid-19 outbreaks in China on major ports there seems to have dashed those hopes. Claire Jones
UK trade secretary Liz Truss has overruled her own trade remedies authority and decided that emergency safeguard blocks on steel imports will continue.
The Financial Times has a scoop, published last night, on the US and Japan conducting war games amid rising China-Taiwan tensions. Reuters has a worrying piece on how YouTube is taking down videos produced by human rights groups covering the treatment of Uyghurs in China’s Xinjiang province.
James Crabtree, writing for Nikkei ($), points out that Joe Biden’s team has quietly accepted many of Trump’s executive orders on tech supply chains linked to China. Chip giant Taiwan Semiconductor Manufacturing missed (Nikkei, $) sustainability targets for water usage and waste generation last year — which, by all accounts, was a rather busy one.
Politico has a nice read on why Brussels went easy on the UK over data adequacy. Peggy Hollinger, our international business editor, calls for the EU to get tougher on the shipping industry over emissions. Law firm Eversheds Sutherland has published the latest edition of its quarterly trade bulletin, a handy guide to the latest developments in Europe and the US. Alan Beattie and Claire Jones