EU Information Localization Would Harm U.S. Companies | Womble Bond Dickinson
The European Union has been affected by Brexit and has suffered negligible US foreign policy. She has started exploring new ways to break away from the rest of the world, including measures to embed EU data in locally managed systems. While this type of protectionist move is short-sighted for the EU, it would create significant problems for US companies as well.
Americans have embraced the benefits of an open internet, where companies, located almost anywhere in the world, can store and manage the information they receive in a way that makes sense to the company, without the government inappropriately Intervenes in company decisions or expenses. We have built our technological infrastructures based on these rules since the dawn of the connectivity era thirty years ago. Countries with closed political systems like Iran, China, and Russia cut off their national internet from the rest of us in order to maintain political and financial control, but we understood that this could happen and have approached their markets differently.
However, we all assumed that free societies would participate in an open and free Internet – for both information and business. Maybe that was naive. The protection of freedom of speech and association under the US First Amendment has no direct counterpart in Europe, and EU / UK restrictions on freedom of speech affect the prospect of freedom of expression on the Internet. However, it seems that the ability for companies to manage their data from servers in their home countries, which was a fundamental tenet of e-commerce, may have reached its end.
The dominance of US technology companies over the most important data collection activities in the non-Chinese part of the Internet – Google / Microsoft via search, Facebook / Microsoft via social media, Amazon via e-commerce – with no equivalent players from Europe, South America or the rest of the English / Spanish speaking World has put pressure on the EU to curtail the wings of huge entities that are far beyond its control. It has also raised intellectual and governmental concerns in Europe about how to create European versions of these successful companies.
Earlier this year, the New York Times reported on “Generational Efforts” in Europe to develop European solutions for the digital age. The plan was to invest heavily in AI, encourage the development of data companies based in the EU, and impose restrictions on US and Chinese data companies, particularly in the area of antitrust and data protection. The Times wrote: “Since Europe has built a reputation as the world’s most aggressive watchdog in Silicon Valley, it has failed to maintain its own technological ecosystem. As a result, the countries in the region are increasingly dependent on companies that many executives distrust. “It’s one thing to be the world leader in technology innovation. World leadership in the regulation of technology companies is another.
I’ve already written twice about the growing excitement for data localization in the EU here and here, but I haven’t discussed why this is important for US business. All America-based companies, not just technology firms, should be affected when one of our largest trading partners decides they need to determine how overseas companies organize their databases, maintain their infrastructure, and spend their money. It is clear that EU regulators and Euro-Crats want to restrict Facebook, Google, Amazon, Microsoft and Apple as much as possible, but in doing so, their rules will likely harm any US manufacturer with plants and customers in Europe and any consultation with companies European customers and any retailer selling online worldwide.
For any company that wants to take advantage of the EU market, data localization is like any other tax – there may also be specific data-driven taxes. However, this is an added cost of organizing the technology infrastructure and complying with new regulations that affect the profitability of such a business. In addition, EU Internal Market Commissioner Thierry Briton has put forward a plan for companies that collect information in the EU to share with European governments and competitors. EU rules already stand for the suggestion that the data you collect for your own transactions does not belong to you and may soon be for the suggestion that your valuable business data should be shared with people who want to infringe your business.
What is important is that other countries and regions would be empowered to do the same as the EU moves towards data localization. The US and EU have kept trading partners from shutting down, and the concept that a free and fair internet helps everyone is one of their best arguments for openness. Shutting down any significant movement of data from the EU would ruin that point and others would react. At present, only those companies localize their data that seek political control over all information. If Brazil, Japan, or even Australia thought they could localize their internet to protect their own local businesses, business internet would quickly be closed down into discreet spaces to promote local business. US companies looking to expand into other markets would suffer from additional regulations, costs and, in some cases, partial or total restrictions on competition in those markets.
This is not an academic discussion. If the EU tries to locate its data and restrict movement out of a “Fortress Europe”, companies around the world will suffer. We must stop the EU from following this course.