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Europe Should Ensure the Free Flow of Data with Its Trade Partners

by Christophe Carugati
Leaders of the G7

Data is integral to the European economy. Restrictions on data flows outside of Europe have a substantial cost, in terms of both GDP and jobs, as underscored by a new study. European policymakers have heard this point countless times before, and yet they continue to propose or enact new barriers to cross-border data flows. The EU should reverse its gradual slide to ever greater restrictiveness and instead revise its conceptualization and pursuit of digital policy to make the free flow of data an integral part of both domestic and international trade and economic policy.

The new study, sponsored by the trade association DigitalEurope, found that more restrictions on cross-border data flows resulting from data localization requirements would cost the EU economy a total of €1.3 trillion and 1.3 million jobs by 2030. In contrast, fewer restrictions would bring €720 billion and 700 thousand jobs. The most severe restrictions would result in a 9.6 percent reduction in exports, with exports falling by as much as one quarter in sectors such as IT and media.

Even if these findings are on the high side, they are still striking because the European Commission has set a goal of achieving 75 percent use of cloud computing services, big data, and artificial intelligence (AI) over the next decade. This is an ambitious goal, given the relatively anemic adoption of much of this technology across the EU. Achieving it will be made even more difficult if the Commission does not remove or at least minimize restrictions on cross-border data flows because these restrictions will prevent European organizations from making use of many digital services.

Data is a critical component of the digital economy. Firms collect, process, and store personal and non-personal data to offer new or better products and services to businesses and consumers. Technologies like the Internet of Things (IoT) produce rich new sources of data, which technologies like AI and cloud computing make easier than ever to analyze.

In a digital world, distance should not matter to trade, as data can flow from one country to another to provide data-driven products and services anywhere in the world. However, EU regulations hinder free data flows. The EU’s General Data Protection Regulation (GDPR) restricts sharing personal data outside Europe to countries that do not have similar data protection laws. This restriction has a negative impact not only on business but also on research, including health research. The proposed Data Governance Act (DGA) includes similar requirements restricting sharing non-personal data to countries that the European Commission has not deemed as having essentially equivalent protections for intellectual property rights and trade secrets. Unfortunately, the EU’s adequacy decision-making process is lengthy, complex, and arbitrary, and so these legal barriers to cross-border data flows hurt consumers and businesses, translating into losses of EU exports, GDP, and employment.

The EU should work with other members of the G7 to develop the concept of “data free flow with trust”—aiming at ensuring trustworthy data exchange—by working on reducing data localization measures, promoting regulatory cooperation, enhancing government access to data held by the private sector, and fostering data-sharing for priority sectors such as healthcare.

The EU should also promote transatlantic data sharing as part of the ongoing dialogue between Europe and the United States within the EU-US Trade and Technology Council (TTC), which among other things, aims to cooperate on key technology, digital, and supply chain policies. Establishing viable and enduring options for transatlantic data flows should be on this agenda, as well as addressing lingering concerns of EU member states about U.S. surveillance practices (which often generates intelligence that benefits Europeans).

EU policymakers once again have been put on notice about the adverse effects of restrictions on data flows outside of Europe. They can address this issue by striving to make the free flow of data an integral part of domestic regulations, including the DGA and the proposed regulation for a Data Act, and international trade and economic policy.

The free flow of data does not mean there are no rules, only that the rules ensure data exchanges. Moving forward, European policymakers should work with their international trade counterparts to ensure the free flow of data by design in their laws and regulations.

Image credit: The White House

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