UK emphasises EU split by kicking digital trade scheme into long grass

The British government has kicked talks over a digital tie-up with the European Union (EU) into the long grass, snubbing an effort that EU states and industries have been making since Brexit to bridge incompatible legal regimes that have hindered the growth of the international digital economy.

The UK’s snub of the German government-funded Gaia-X data platform raises the question of whether it is a welcome consequence of a post-Brexit initiative it has been pursuing, in collaboration with the US and Japan, to create an international legal agreement governing cross-border digital trade – one that is more liberal than the EU has pursued under the strict terms of its immense Digital Agenda – or if it is a cutting of ties that will leave UK firms at a disadvantage as German manufacturers and other European industries build complex systems of international data sharing on EU terms.

But with claims emerging that the Gaia-X venture has failed, and that bureaucracy has hindered its ambitious attempt to create a technological platform to enable free-flowing digital trade between countries with complex and incompatible laws, the CEO who brought it close to fruition has suddenly resigned.

UK firms trying to do digital business overseas have told Computer Weekly of their growing frustration over the huge cost and complexity of trying to run their operations under EU laws that the UK inherited from Brexit.

In an exclusive interview with Computer Weekly before tendering his resignation last week, Gaia-X CEO Francesco Bonfiglio said he’d held long talks with UK officials, trying to persuade them to give their official backing for the EU venture, but was told finally that he could not expect a UK decision until 2025. That would be after the next election, when a more pro-European party might be in power. The delay would put Britain at a disadvantage, he said.

“The UK is losing momentum. The new economy will be data driven – to be data driven, you need to digitalise existing relationships between companies, and you cannot do that if you are not participating in this endeavour. You cannot be out of the EU economy, regardless of Brexit,” said Bonfiglio.

The Department for Culture, Media and Sport’s (DCMS) key question was whether Gaia-X would become irrelevant if the world embraced the liberal data regime being pushed by Japan through the G7 group of most developed nations, which Britain backed this year, called the Global Cross Border Privacy Rules. DCMS wanted to know whether Gaia-X was only relevant in a world governed by the EU model, said Bonfiglio.

“They believed that Gaia-X was an EU initiative to force everybody to comply with EU regulations. This is simply not possible. Gaia-X is totally agnostic of any single regulatory regime,” said Bonfiglio.

“It’s not the EU against the world. It’s not a protectionist initiative. It’s not the imposition of EU jurisdiction outside Europe. It is a technology project. It’s a new economy thing.”

The outgoing chief said he was not a political person, just a businessman trying to build technology that gave other business people a way to work around opposing legal regimes.

Gaia-X had been launched initially by the German and French governments as a scheme to protect the EU’s characteristically small indigenous cloud providers, operating in Europe’s fragmented digital markets, from big tech hyperscale firms grown on the huge domestic US and Chinese markets before going global and gaining immense economies of scale and power. 

Bonfiglio steered it away from protectionism into a technological solution to a problem that companies are struggling with at great expense while the UK and other countries try to square their regulatory differences.

“It’s ridiculous. I’m just trying to do analytics here,” said Suzanne Coumbaros, data governance director at Sodexo, a global catering firm with contracts with prisons, hospitals, military bases in the UK.

“God forbid that I can share one bit of data with another part of the world. We have created a monster. The exponential growth in the cost of analytics has become a bigger and bigger problem,” she said.

Its own effort to improve its business by analysing data gathered from global operations required it to hire legal teams in every country to create different legal agreements to transfer data from each business unit.

Suki Dhuphar, head of EMEA at tech firm Tamr, said it had to create separate legal agreements to do digital business in Canada, US, Singapore, Australia, Korea, India, Turkey, Slovenia and the Czech Republic. Each time it cost about £250,000 in legal costs and to host its data locally to satisfy local laws.

“The bureaucracy and cost of setting up all these systems all over the place is not cost-effective for a relatively small firm,” said Dhuphar, for whom the lack of common international rules of data governance were hindering cross-border trade.

Localisation rules that force companies to house sensitive data on native soil when they are doing business overseas have been condemned for being protectionist measures, forcing foreign firms to invest in local computing infrastructure and services.

The EU’s prosecution of Meta for storing personal data about EU citizens in US datacentres, by which it fined the social media firm $1.3bn in May, was the greatest example of a conflict being fought over data rules between different countries and firms.

OpenUK, a pro-European association promoting the interests of open source software developers, which became UK representative and founding member of Gaia-X when the German government launched the initiative in 2019, has been lobbying the British government to back the scheme ever since.

The German federal government hailed OpenUK’s appointment as a “lifeline” for post-Brexit Britain. OpenUK billed Gaia-X as a portal through which UK firms could do digital trade with Europe, and help build a pan-European digital infrastructure built on EU principles and policies. OpenUK chief Amanda Brock said in 2020 that its talks with DCMS were then going well.

Speaking at an event OpenUK held to promote Gaia-X last year, DCMS data policy official James Mitchell gave muted praise for the project. He said the first aim of the government’s Digital Strategy was to cut the cost and effort of data sharing that was deterring firms from trading with data.

Stuart Mackintosh, former chair of OpenUK, said: “It is unfortunate that the UK does not have bandwidth or understanding to grasp this opportunity.”

The UK Department for Science, Innovation and Technology and OpenUK were unavailable for comment.