RegTech Intelligence 
This is the first in a series of occasional blogs we’ll be writing about what Brexit means for IT and IT Law in the coming weeks and months. It looks at the choices facing the UK IT industry around Brexit and Article 50. In the second, Deirdre Moynihan reviews what Brexit is likely to mean for Data Protection, where the approach to implementing the General Data Protection Regulation could well turn out to be a litmus test of what will happen more generally.
A surprising thing about the referendum was that no one explained what, it turns out, we’re leaving. The EU is an elevator with complete economic integration at the top floor. As the graphic shows, the ground level is the international trade order built after WWII, and the elevator rises through progressive levels of integration architected according to neoclassical economic ideas about rational markets, factors of production, freedoms and efficiencies.
Graphic: Brexit and the international trade elevator to economic integration
These ideas, incidentally, are also the reason why you can’t cherry pick courses from different floors and why reconciling free movement of persons and immigration restrictions will be at the centre of the UK’s negotiations: according to the EU, you can take the menu gastronomique at the top, the plat du jour at the bottom or the menu touristique in the middle but you can’t go à la carte between levels.
This is borne out by the different arrangements that different countries have made with the EU. Canada for instance, reached a level 2 bilateral free trade agreement in 2014 (that is still awaiting implementation); Turkey has been at level 3 (customs union) since 1995; Norway has had full access to the internal market (level 5) through its EEA membership since 1994 but must accept all EU law and contribute to the EU budget; and Switzerland is an EFTA but not an EEA member with more limited internal market (level 5) access.
The UK got into the elevator at the ground floor. The big Brexit questions for the UK IT industry are: which floor will the UK get out at? and what will be the best outcome for the Article 50 EU withdrawal process?
On where to get off, the answer for the UK IT industry is: the higher the floor the better. The UK is a key international IT innovation hub and, according to UKTI’s Inward Investment Report[1], was second only to the USA as a global destination for foreign direct IT investment in 2015. Retaining the openness that staying at a higher floor represents will cause the least fall-off in the country’s attractiveness to overseas technology investors.
As well as being a poster child for international business, the UK IT sector directly accounts for £100bn (6%) of the total UK economy in terms of GVA (Gross Value Add – output prices less input costs) and indirectly influences much of the remainder. Software, services and information account for a large and increasing majority of the UK IT industry. As such, where we get off really matters. The industry is better off stopping at a higher floor where the barriers that would be real grit in the wheels of international software, services and information business stay eliminated.
Aside from the tactical question of when to serve notice and set the two years running, the Article 50 EU withdrawal process raises four key legal issues for the UK IT industry. The referendum itself causes no change to English law so the first question is, on withdrawal, do we keep all the e-commerce, data protection, intellectual property, communications and other IT-related law that has come out of Brussels over the years? Question expecting the answer ‘yes’, on grounds of least legal uncertainty.
Second, what do we do about all the law that’s in the pipeline but hasn’t yet hit the statute book – like the General Data Protection Regulation, the Digital Single Market and the Unified Patent Court? Pass and implement is probably the best solution here, again for reasons of legal certainty.
Third, across all sectors of the economy, the UK civil service has lost most of the international trade expertise it built up before 1973. Trade negotiations are the biggest horse fair on the planet. The UK will be looking at putting in place new agreements with the EU and each of the 50 or so countries that the EU has trade deals with. This is a major exercise. The civil service will need to skill up and smarten up, and the UK IT industry will need to make its voice heard above the din.
Fourth, we are crossing the thresholds of Brexit and the fourth industrial revolution – after steam, electricity and computing, the transformative power of digital innovation – at the same time. What happens now to UK policy and law making as we look ahead to the vast range of IT-driven change that is coming down the pike? Whether it is autonomous vehicles, blockchain, robotics, 3D manufacturing, IP rights generally, cloud policy or international standards, Brexit piles on the pressure for policy makers in the next period and will make timely, effective and high quality decision making more difficult at this important time. The IT industry will need to look sharp and keep focused to achieve the right policy and legislative outcomes.
Starting with Deirdre’s blog on Brexit and Data Protection, we’ll be looking in a bit more detail over the coming weeks and months at what Brexit means for these particular areas of IT and IT law.
Richard Kemp, Kemp IT Law, July 2016
[1] https://www.gov.uk/government/publications/ukti-inward-investment-report-2014-to-2015/ukti-inward-investment-report-2014-to-2015-online-viewing