Why the impasse on data flows threatens Europe’s digital recovery

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Cecilia Bonefeld-Dahl, Director General of DIGITALEUROPE

This article is part of our special report Unleashing the power of data.

Most people’s image of world trade will be a huge container ship similar to the one that was recently stuck in the Suez canal, full of cars, clothes and other goods. However, the modern global economy increasingly runs on huge amounts of data, invisibly passing from one country to another in the blink of an eye. 

Cecilia Bonefeld-Dahl is the Director General of DIGITALEUROPE.

According to the EU, 85 per cent of global growth is expected to come from outside Europe by 2024. Yet the ability of companies in the EU to transfer data – vital for modern trade – is under threat, both from protectionist practices abroad and an overly strict interpretation of a recent European court ruling. If we don’t fix it soon, this could have profound consequences for our economic recovery. 

Data is hugely important to all types of businesses in Europe. Our recent study showed that 9 out of 10 businesses in Europe transfer data internationally; for SMEs it is 7 out of 10. And not just ICT companies, but in almost every sector of the economy.

For example, data is the backbone of the services sector, such as legal, consulting and financial services. It allows companies in the EU to export their services to countries all over the world and to access the best suppliers no matter where they are based. As services provide two-thirds of jobs in the EU, this is something we should take seriously.

Another area where data is essential is healthcare, where it is a major driver behind medical innovation. This can help find new drugs quicker, detect diseases earlier, and hopefully prevent emergencies before they occur. One good example is the recent winner of our DIGITALEUROPE Future Unicorn award, OnCompass, whose AI-powered technology can pinpoint the best available therapy for each person’s cancer type.

Even our more traditional industrial sectors are heavy users of data. Goods such as cars and household appliances are often “packaged” with services, and need to send information back and forth to the headquarters. This helps manufacturers learn more about their products and how they work in the real world – vital for innovation – and even predict faults before they happen. It, therefore, doesn’t always make sense to speak of goods and services as distinct categories anymore. 

Unfortunately, companies are often faced with barriers to the flow of data, meaning that they are missing out on business opportunities in growth markets across the world. That includes laws in other countries which force companies to keep data in their territories for no reason other than to make it harder for foreign competition – a kind of digital protectionism. 

Recently, we have seen some big steps forward, such as the decisions to treat both Japan and the UK’s data protection regimes as up to EU standard. Another is the European Commission’s recent trade strategy, which for the first time positioned trade policy as a driver for our continent’s digital transition. 

In theory, this means that our negotiators will be tasked with breaking down these barriers to data flows. However, since 2018 they have found it difficult to do so because our own position on data protection has been so restrictive.

Understandably, we need to be careful when handling personal data. The GDPR is in place for a reason, and all companies must respect it when doing business. But fighting obstacles to data flows does not equate to negotiating away privacy. On the contrary, helping to set predictable global rules on data flows is an essential means for the EU to be a global leader in promoting the protection of personal data, while at the same time creating business opportunities for our companies.

Luckily, the recent digital trade chapter of the Brexit withdrawal agreement shows that another way is possible. By building on these rules, the EU could embrace a global leadership role on data, particularly in the context of negotiations at the World Trade Organization, or at the upcoming G7 and G20 meetings of world leaders. 

This debate is closely intertwined with the fate of the Privacy Shield, the mechanism which allowed for safe and smooth data transfers between the EU and the US, our number one market. The European Court of Justice dramatically struck it down in 2020, throwing data transfers between the two continents into doubt. A top priority now is that the EU uses its new relationship with the US as ‘Tech Allies’ to build an alternative structure to allow data to flow between us. 

More alarmingly, the court also threw into doubt other tools that companies use to transfer data outside of Europe legally. If implemented, the most recent interpretation of the ruling by the European Data Protection Board would grind global digital trade to a halt. By requiring the full encryption of all data transfers – making data unreadable between companies operating abroad – it would essentially make communication between a European HQ and its American or Chinese subsidiary impossible. We must find another way.

The EU’s digital targets for 2030 rightfully call for an accelerated digitalisation of industry – a process that will help make us greener, creating new jobs and opportunities for our businesses. But without a durable solution that allows for free-flowing data across borders, we will not reach our goal.


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