The European Parliament’s Pilar del Castillo led a February 17, 2016 breakfast debate on the economic and trade impacts of data flows.  The event was organized under the auspices of the European Internet Forum with SIIA serving as the industry lead organizer.   The speakers emphasized the following elements in the data flow debate.   Data flows matter to what might be considered traditional industrial enterprises as much as they matter to “technology” sector companies.  The EU has offensive digital trade goals – the recently concluded EU-U.S. Privacy Shield might make it easier for the Commission to pursue those goals in the Transatlantic Trade and Investment Partnership (TTIP) and Trade in Services Agreement (TISA) negotiations.  Common cooperative regulatory mechanisms need to be created in order ensure that data flows can continue to underpin global value chains (GVCs).  Europe-wide initiatives such as the Single Payments Area are very important to SMEs.  For SIIA, the discussion revealed once again the need for inter-operability mechanisms that allow for cross-border data flows in compliance with non-trade distorting or discriminatory national laws.

Magnus Rentzhog, Senior Adviser, Swedish National Board of Trade, presented “No Transfer – No Production.”  The paper provides numerous examples of how modern production processes depend on cross-border data flows.  What makes for unusually interesting reading is that Mr. Rentzhog talked to 15 companies that provided him with access to the details of what makes their global value chains (GVCs) work.   The data they need can be divided into five broad categories: controller/coordination, pre-production, supply chain management, production, and post-sales.   The Swedish Adviser noted, for instance, that companies that manufacture drills for mine operators used to be able to compete based on price, delivery times, service packages, etc.  Now they must also offer digital solutions for remote control drills.  Inevitably, some personal data is generated as a result of the remote control operation such as who is handling the drill remotely.   Indeed, one of the key insights from Rentzog’s research is that it is difficult to separate personal from non-personal data in even the most seemingly technical production processes.  As he said, this does not mean that that personal data should not be protected.  Rentzhog suggested, however, that data protection rules should reflect the overwhelming importance of data in economic life.

John Doxaras, Founder & CEO of Warply, provided an SME perspective.  Warply is a mobile marketing agency.  Besides Warply, Doxaras is the Founder and VP of Blockpoint.io, a mobile payments solutions start-up.  Warply is essentially a data management platform (DMP) that deals with first, second, and third party data in order to provide targeted advertising for consumers using programmatic media buying software.  Doxaras indicated that he welcomed European-wide regulation because this was the only way for an SME to scale up its operations in this space in the EU.  He said he was particularly supportive of Commission initiatives to support a Single European Payment Area.

Harsha V. Singh, International Centre for Trade and Sustainable Development (ICTSD), discussed data flows from the perspective of a trade and financial economist.  He noted that some of the work of the ICTSD and the World Economic Forum’s E15 initiative deals with data flows.  Consistent with Rentzhog’s analysis, Singh highlighted a McKinsey report which estimates that 75% of the productivity impact of ICT occurs outside the ICT sector.  Large established industrial economies will increasingly rely on new technologies linked to Intellectual Property Rights (IPRs) to promote economic growth.  Data flows have a profound impact on trade, investment, services, value chains, and technologies.  Singh suggested, for instance, that in a world of increasingly sophisticated production chains underpinned by data, rules of origin will be much harder to manage.  This was why in his view, trade agreements such as the Trans-Pacific Partnership (TPP) needed to provide a “level-playing field.”  Ultimately, Singh called for the development of common cooperative regulatory mechanisms to manage concerns, for example, with respect to privacy, stemming from cross-border data flows.

Nele Eichhorn, Member of Trade Commissioner Cecilia Malmström’s Cabinet, represented the Commission.  Eichhorn emphasized that the EU has offensive trade interests with respect to data flows but noted that the EU does not negotiate data protection standards in trade agreements.  She  referred to the Commission’s October 14, 2015 trade strategy document, which she said provides a “clear message on the EU’s digital trade ambition.”  Eichhorn said there was some precedent for data flow rules in trade agreements through the rules found on financial data flows in previous agreements.  Today, of course, data flows are “the backbone of GVCs.”  The EU can benefit and lead in this area.  So, the EU promotes data flows and fights digital trade protectionism.  She acknowledged the criticism that, so far, the Transatlantic Trade and Investment Partnership (TTIP) does not contain a digital chapter.  However, she said that digital issues were being discussed in many other chapters currently under negotiation.  Eichhorn said that the United States had proposed data flows rules in the TTIP E-commerce chapter and that the United States had made similar proposals in the Trade in Services Agreement (TISA) negotiations.  However, the Commission had so far not agreed to discuss these proposals.  But, the Commission continues to work on transatlantic data flows.  Eichhorn said she hoped that the recently announced EU-U.S. Privacy Shield could help in international trade negotiations.

Some of the liveliest exchanges occurred during the question and answer period both between the audience and the speakers and among the audience itself.  Nele Eichhorn was asked, for instance, whether the EU had assessed the TPP E-commerce text and when it would engage in TTIP and TISA on data flows.  She said the Commission is assessing the TPP, and that the moment when to engage on data flows in TTIP and TISA would be chosen.  There was a discussion on data flow restrictions within the EU.  The Deutsche Telekom (DT) rep said that HR data could not be moved out of Germany.  Rentzhog said that financial data has to be “stored in the presence” of the Swedish regulator, effectively making it impossible to store the data in cheaper locations such as, for instance, Ireland.  (Comment: The TPP contains a data flows carve-out for financial services, presumably for reasons that are similar to the Swedish rule.  SIIA encourages U.S. and European negotiators to find a way to remove these restrictions in the TTIP and TISA contexts, while at the same time preserving regulators’ ability to regulate financial services.)  There was a question on a possible role for the WTO in data flows.  Rentzhog said that Taiwan has tabled an interesting paper in this regard. Singh said that in TPP, telecom rules prevail and that the telecom provisions include most of what the U.S. and EU want.  Eichorn said that the EU was focusing on telecom in TTIP and would seek greater market access and the removal of equity caps.  Doxaras said that international data flow rules were important for SME competitiveness.  The Telefonica rep stressed the importance of international data flow rules that provide a level playing field and suggested that some companies could be harmed if their competitors were subject to less strict data privacy rules.  The IBM rep noted correctly that mechanisms such as the newly announced EU-US Privacy Shield avoid precisely that outcome.  Companies that operate in Europe and belong to the Shield have to abide by rules established by European authorities.    

This discussion highlighted the fact that the United States and Europe have a considerable amount in common on data flows.  We are working effectively together, for example, in addressing data protectionism in China and Russia.  Assuming that the EU-U.S. Privacy Shield helps rebuild confidence in transatlantic data flows, that should indeed facilitate data flow discussions in TTIP and TISA.  SIIA and DIGITALEUROPE hosted a conference for TISA negotiators on October 9, 2015 for TISA negotiators in Geneva, which we hope made a contribution to trade negotiators’ understanding of the issues.

The bottom line is this: as the TPP makes clear, countries must have systems to protect privacy.  We support that.  But, we also agree with the European Commission that trade agreements should not be a venue for negotiating substantive privacy law.  Countries should be free to have a fundamental rights approach as in Europe or a U.S.-style sectoral system (the U.S. system also includes constitutional elements).   The important thing is that countries have functioning inter-operability systems, such as the Shield, that allow for cross-border data flows.  Those systems can be rigorous.  There should be no sense that companies are somehow evading a country’s rules on privacy.  But the mechanisms should also be consistent with fundamental trade rules on non-discrimination and least trade distorting outcomes.   This is a desirable and achievable goal in the TTIP, TISA, and other contexts.  

Carl Schonander is Senior Vice President for Global Public Policy.