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TL;DR Data is one of the pillars of the modern digital economy, but its value is contingent on its ability to flow around the globe in real time, permitting individuals and firms to develop new and novel insights and to operate at higher levels of efficiency and safety.
Data is one of the pillars of the modern digital economy, but its value is contingent on its ability to flow around the globe in real time, permitting individuals and firms to develop new and novel insights and to operate at higher levels of efficiency and safety.
Those data flows increasingly run into barriers when they seek to cross national borders. These often take the form of “data-localization” requirements to locate, store, and/or process data within national boundaries.
Data-localization policies are often framed as necessary to protect critical digital infrastructure and national-security interests, but they serve instead as trade barriers that hurt consumers more than they help. An examination of the impact on the financial services industry helps to illustrate the problem.
Read the full explainer here.
ICLE Issue Brief A new issue brief published jointly by ICLE and the Progressive Policy Institute looks at looming threats to transatlantic data flows between the U.S. and EU that power an estimated $333 billion in annual trade of digitally enabled services.
(This issue brief is a joint publication of the International Center for Law & Economics and the Progressive Policy Institute)
Data is, logically enough, one of the pillars supporting the modern digital economy. It is, however, not terribly useful on its own. Only once it has been collected, analyzed, combined, and deployed in novel ways does data obtain its highest utility. This is to say, a large part of the value of data is its ability to flow throughout the global connected economy in real time, permitting individuals and firms to develop novel insights that would not otherwise be possible, and to operate at a higher level of efficiency and safety.
Although the global transmission of data is critical to every industry and scientific endeavor, those data flows increasingly run into barriers of various sorts when they seek to cross national borders. Most typically, these barriers take the form of data-localization requirements.
Data localization is an umbrella term that refers to a variety of requirements that nations set to govern how data is created, stored, and transmitted within their jurisdiction. The aim of data-localization policies is to restrict the flow of data across a nation’s borders, often justified on grounds of protecting national security interests and/or sensitive information about citizens.
Data-localization requirements have in recent years been at the center of a series of legal disputes between the United States and the European Union (EU) that potentially threaten the future of transatlantic data flows. In October 2015, in a decision known as Schrems I, the Court of Justice of the European Union (CJEU) overturned the International Safe Harbor Privacy Principles, which had for the prior 15 years governed customer data transmitted between the United States and the EU. The principles were replaced in February 2016 by a new framework agreement known as the EU–US Privacy Shield, until the CJEU declared that, too, to be invalid in a July 2020 decision known as Schrems II. (Both complaints were brought by Austrian privacy advocate Max Schrems).
The current threatened disruption to transatlantic data flows highlights the size of the problem caused by data-localization policies. According to one estimate, transatlantic trade generates upward of $5.6 trillion in annual commercial sales, of which at least $333 billion is related to digitally enabled services. Some estimates suggest that moderate increases in data-localization requirements would result in a €116 billion reduction in exports from the EU.
One difficulty in precisely quantifying the full impact of strict data-localization practices is that the list of industries engaged in digitally enabled trade extends well beyond those that explicitly trade in data. This is because “it is increasingly difficult to separate services and goods with the rise of the ‘Internet of Things’ and the greater bundling of goods and services. At the same time, goods are being substituted by services … further shifting the regulatory boundaries between what is treated as goods and services.” Thus, there is reason to believe that the true value of digitally enabled trade to the global economy is underestimated.
Moreover, as we discuss infra, there is reason to suspect that data flows and digitally enabled trade have contributed a good deal of unmeasured economic activity that partially offsets the lower-than-expected measured productivity growth seen in the both the European Union and the United States over the last decade and a half. In particular, heavy investment in research and development by firms globally has facilitated substituting the relatively more efficient work of employees at firms for unpaid labor by individuals. And global data flows have facilitated the creation of larger, more efficient worldwide networks that optimize time use by firms and individuals, and the development of resilient networks that can withstand shocks to the system like the COVID-19 pandemic.
In the Schrems II decision, the court found that provisions of U.S. national security law and the surveillance powers it grants to intelligence agencies do not protect the data of EU citizens sufficiently to justify deeming U.S. laws as providing adequate protection (known as an “adequacy” decision). In addition to a national “adequacy” decision, the EU General Data Protection Regulation (GDPR) also permits firms that wish to transfer data to the United States to rely on “standard contractual clauses” (SCC) that guarantee protection of citizen data. However, a prominent view in European policy circles—voiced, for example, by the European Parliament—is that, after Schrems II, no SCC can provide a lawful basis for data transfers to the United States.
Shortly after the Schrems II decision, the Irish Data Protection Commission (IDPC) issued a preliminary draft decision against Facebook that proposed to invalidate the company’s SCCs, largely on the same grounds that the CJEU used when invalidating the Privacy Shield. This matter is still pending, but a decision from the IDPC is expected imminently, with the worst-case result being an order that Facebook suspend all transatlantic data transfers that depend upon SCCs. Narrowly speaking, the IDPC decision only immediately affects Facebook. However, if the draft decision is finalized, the SCCs of every other firm that transfers data across the Atlantic may be subject to invalidation under the same legal reasoning.
Although this increasingly restrictive legal environment for data flows has been building for years, the recent problems are increasingly breaking into public view, as national DPAs grapple with the language of the GDPR and the Schrems decisions. The Hamburg DPA recently issued a public warning that the use of the popular video-conference application Zoom violates GDPR. The Portuguese DPA issued a resolution forbidding its National Institute of Statistics from transferring census data to the U.S.-based Cloudflare, because the SCCs in the contract between the two entities were deemed insufficient in light of Schrems II.
The European Data Protection Supervisor has initiated a program to “monitor compliance of European institutions, bodies, offices and agencies (EUIs) with the ‘Schrems II’ Judgement.” As part of this program, it opened an investigation into Amazon and Microsoft in order to determine if Microsoft’s Office 365 and the cloud-hosting services offered by both Amazon and Microsoft are compatible with GDPR post-Schrems II. Max Schrems, who brought the original complaint against Facebook, has through his privacy-activist group submitted at least 100 complaints as of August 2020 alone, which will undoubtedly result in scores of cases across multiple industries.
The United States and European Union are currently negotiating a replacement for the Privacy Shield agreement that would allow data flows between the two economic regions to continue. But EU representatives have warned that, in order to comply with GDPR, there will likely be nontrivial legislative changes necessary in the United States, particularly in the sensitive area of national-security monitoring. In effect, the European Union and the Unites States are being forced to rethink the boundaries of national law in the context of a digital global economy.
This issue brief first reviews the relevant literature on the importance of digital trade, as well as the difficulties in adequately measuring it. One implication of these measurement difficulties is that the impact of disruptions to data flows and digital trade are likely to be far greater than even the large effects discovered through traditional measurement suggest.
We then discuss the importance of network resilience, and the productivity or quasi-productivity gains that digital networks and data flows provide. After a review of the current policy and legal challenges facing digital trade and data flows, we finally urge the U.S. and EU negotiating parties to consider longer-term trade and policy changes that take seriously the role of data flows in the world economy.
Read the full issue brief here.
TOTM We can expect a decision very soon from the High Court of Ireland on last summer’s Irish Data Protection Commission (“IDPC”) decision that placed serious . . .
We can expect a decision very soon from the High Court of Ireland on last summer’s Irish Data Protection Commission (“IDPC”) decision that placed serious impediments in the way of using “standard contractual clauses” (SCC) to transfer data across the Atlantic. That decision, coupled with the July 2020 Court of Justice of the European Union (CJEU) decision to invalidate the Privacy Shield agreement between the European Union and the United States, has placed the future of transatlantic trade in jeopardy.
Read the full piece here.
TL;DR The process of writing and passing laws in the European Union primarily involves three institutions: the European Commission, the European Parliament, and the Council of the EU. The Commission proposes legislation, and the Parliament and the Council approve, amend, or reject it.
The process of writing and passing laws in the European Union primarily involves three institutions: the European Commission, the European Parliament, and the Council of the EU. The Commission proposes legislation, and the Parliament and the Council approve, amend, or reject it.
The Parliament is the EU’s legislature. It represents all EU citizens and is directly elected by them. The Council of the European Union represents the governments of the individual member states. The European Commission is the EU’s politically independent executive body responsible for drawing up proposals for new European legislation and ensuring, together with the Court of Justice, that these laws are properly applied by member states. It consists of one commissioner from each member state, for a total of 27.
TL;DR The European Union has unveiled draft legislation that seeks to tame so-called “gatekeeper” Big Tech firms. If passed into law, this Digital Markets Act (“DMA”) would create a list of “dos and don’ts” by which the platforms must abide, such as allowing interoperability with third parties and sharing data with rivals.
The European Union has unveiled draft legislation that seeks to tame so-called “gatekeeper” Big Tech firms. If passed into law, this Digital Markets Act (“DMA”) would create a list of “dos and don’ts” by which the platforms must abide, such as allowing interoperability with third parties and sharing data with rivals. In short, the DMA would give the European Commission significant powers to tell tech companies how to run their businesses.
The DMA essentially shifts competition enforcement against gatekeeper platforms away from an “effects” analysis that weighs costs and benefits to a “blacklist” approach that proscribes all listed practices as harmful. This will constrain platforms’ ability to experiment with new products and make changes to existing ones, limiting their ability to innovate and compete.
TOTM In a new ICLE Issue Brief, we question whether there is any merit to these claims of protectionism. We show that, since the entry into force of Regulation 1/2003, US firms have borne the lion’s share of monetary penalties imposed by the Commission for breaches of competition law.
Last month, the European Commission slapped another fine upon Google for infringing European competition rules (€1.49 billion this time). This brings Google’s contribution to the EU budget to a dizzying total of €8.25 billion (to put this into perspective, the total EU budget for 2019 is €165.8 billion). Given this massive number, and the geographic location of Google’s headquarters, it is perhaps not surprising that some high-profile commentators, including former President Obama and President Trump, have raised concerns about potential protectionism on the Commission’s part.
TOTM Although not always front page news, International Trade Commission (“ITC”) decisions can have major impacts on trade policy and antitrust law. Scott Kieff, a former . . .
Although not always front page news, International Trade Commission (“ITC”) decisions can have major impacts on trade policy and antitrust law. Scott Kieff, a former ITC Commissioner, recently published a thoughtful analysis of Certain Carbon and Alloy Steel Products — a potentially important ITC investigation that implicates the intersection of these two policy areas. Scott was on the ITC when the investigation was initiated in 2016, but left in 2017 before the decision was finally issued in March of this year.
Scholarship Abstract This paper, drafted as an adjudicator’s opinion in a recent case of nearly first impression, explores an approach to aligning the strengths and opportunities . . .
This paper, drafted as an adjudicator’s opinion in a recent case of nearly first impression, explores an approach to aligning the strengths and opportunities available through the U.S. International Trade Commission (ITC) by considering how more ordinary antitrust issues can be adjudicated through the Section 337 portion of the ITC’s docket. This might be done using existing law. The basic theme is that there are several significant reasons why even a skeptic of the ITC’s Anti-dumping, Countervailing Duty, and Safeguards docket (collectively, the “Title VII” docket) – as well as an antitrust skeptic – should be significantly less worried when cases normally expected to be brought in the Title VII portion of the ITC’s docket as petitions are instead brought in the Section 337 portion of the ITC docket as complaints alleging ordinary violations of the antitrust laws. Private antitrust litigation fits well within the ITC’s Section 337 docket for several reasons. It squarely fits with the plain meaning of the ITC’s statute. It also squarely fits the well-established antitrust case law. In addition, it offers some practical benefits. Unlike the relatively easy-to-satisfy legal requirement for assessing injury in the Title VII portion of the docket, a 337 investigation involving established antitrust law would turn on the substantive legal standards within that body of established antitrust law that are seen by a broad consensus to be focused on a middle of the road attempt to represent true public interest in avoiding actual economic harm to a market as a whole. In addition, a 337 investigation, which involves initial inter-partes adversarial litigation before an Administrative Law Judge (ALJ), implicates less reliance on administrative deference than an action in the Title VII portion of the docket, and more reliance than in the Title VII portion of the docket on a detailed factual record involving the full panoply of procedural devices ordinarily available in federal court for truth-testing of evidence including cross examination of testimony, all in a timeframe likely to be significantly shorter (around 18 months) than the many years typically required for antitrust litigation in federal court. Nevertheless, at least one recent high-profile dispute involving steel imported from China shows there is at least one significant barrier that may stand as a practical obstacle to a private litigant bringing an antitrust claim under the Section 337 portion of the ITC’s docket: the doctrine that federal courts developed called “antitrust injury,” During the initial phases of such a case recently brought against Chinese importers of steel by the domestic US steel industry, with support from both companies and unions, the ALJ dismissed the antitrust complaint for lack of antitrust injury in an initial determination that was then reviewed by the Commission. The ITC affirmed. This paper explores some reasons why the antitrust injury doctrine from federal court may not be a good fit for investigations brought under Section 337 at the ITC.
TOTM The Internet is a modern miracle: from providing all varieties of entertainment, to facilitating life-saving technologies, to keeping us connected with distant loved ones, the . . .
The Internet is a modern miracle: from providing all varieties of entertainment, to facilitating life-saving technologies, to keeping us connected with distant loved ones, the scope of the Internet’s contribution to our daily lives is hard to overstate. Moving forward there is undoubtedly much more that we can and will do with the Internet, and part of that innovation will, naturally, require a reconsideration of existing laws and how new Internet-enabled modalities fit into them.