Over the past decade, the European Union’s dynamic trade policy has emerged as one of the bloc’s most successful foreign policy tools. The EU’s incoming Trade Commissioner, Valdis Dombrovskis, will soon bring Europe’s ongoing Trade Policy Review through to completion, and digital trade is set to form an essential, modern pillar of Europe’s new strategy.
How the EU updates its digital trade policy, especially on international data transfers, could have big impacts globally—on the emergence of multilateral digital trade rules, on privacy, and on COVID-19 recovery efforts. Here’s why.
Worldwide impetus for digital trade
Digital trade represents an ever-growing part of the global economy. According to recent estimates, more than 60 per cent of global GDP will be digitised by 2022 - and this projection was made before the COVID-19 crisis accelerated the uptake of digital technology. Despite this rapid increase, no specific multilateral rulebook exists to govern digital trade. As a result, building international consensus on digital trade rules and on the movement of data across borders is rising on many governments’ agendas. Over 80 World Trade Organization (WTO) members - including the EU - are currently negotiating the update of e-commerce rules in Geneva.
At the same time, digital protectionism and calls for data localisation are on the rise. Some governments view data as a domestic asset that should stay at home - an approach that neglects the many benefits that the movement of data brings to people and economies, including enabling innovation, encouraging investment, creating jobs, and promoting productivity, safety, and environmental responsibility.
What’s more, the sudden shift to a remote economy in response to the COVID-19 crisis has further spurred the digital transformation. Remote work, digital healthcare services, and online learning, all reliant on international data flows, play a critical role in responding to the pandemic. And increased levels of telecommuting will likely be sustained after the immediate public health emergency wanes.
As the world’s largest trading bloc, the EU is a leading voice on the multilateral stage. Alongside like-minded partners - including Australia, Japan, Singapore, and the United States - Europe should continue to advocate for responsible and progressive digital trade rules that can help stimulate the global economy. If they do not, the protectionist drumbeat will grow louder, making recovery from COVID-19 ever more difficult.
Advancing forward-looking digital policies, including more ambitious data flows provisions, into Europe’s new trade strategy would be an important step.
Europe’s data flows/privacy conundrum
The current EU Trade Policy Review coincides with greater focus on how personal data is transferred from Europe to the rest of the world. Traditionally, the EU has opted for a privacy-driven approach to data flows, but that is now challenged in different settings.
In the transatlantic context, the EU must negotiate an enhanced data transfer tool with the United States after a landmark ruling from the European Court of Justice on July 16 in the Schrems II case, which invalidated the so-called Privacy Shield. This had enabled companies to operate on both sides of the Atlantic with a reliable and secure data transfer mechanism. Finding a long-term alternative will be critical for both the US and the EU economies.
At the same time, the EU is confronting a more advanced approach to international data flows in its bilateral trade talks with Australia and New Zealand, both signatories to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CP-TPP). Its forward-looking digital chapter contains broader commitments relating to cross-border data transfers than the EU proposal, as well as narrower exceptions to those commitments.
Separately, the EU and the UK are discussing a new data transfer regime as the UK prepares to formally leave the bloc on January 1, 2021.
The tie that binds all three sets of negotiations is that data flows and privacy are not mutually exclusive. In fact, strong privacy safeguards are essential to earning trust and enabling the global digital economy. Trade policy can help remove the perceived friction between international data flows and privacy by enshrining cross-border data flows as a cornerstone of trade agreements and by encouraging the compatibility of data protection and cybersecurity regimes globally.
Digital trade for the EU’s recovery and growth
As Europe heads into its digital decade, businesses and governments - here in the EU and around the world - are increasingly relying on data to improve their efficiency and their ability to service their customers and citizens. Data-enabled software tools and services enable companies across all sectors of the economy to run, improve, and optimise their day-to-day operations, including research and development, product design, human resources, and supply-chain management. The COVID-19 pandemic has accelerated this trend, further highlighting the importance of e-commerce, data flows, and the benefits of digital transition for economies and societies.
Digital trade should therefore be an integral part of the EU Trade Commissioner’s plans for recovery and economic growth. In Europe, one in seven jobs depends on exports, and the manufacturing industry accounts for 80 per cent of goods exports. Enabling digital trade will help Europe in its efforts to strengthen European industry and advance the EU’s digital strategy. Because Europe is the primary trading partner to many countries, including the United States, a strong EU recovery will directly impact the resilience of global supply chains.
As Dombrovskis takes on the role of EU Trade Commissioner, as he is widely expected to, it is critical that Europe’s five-year trade outlook remains focused on these important issues. By fully embracing a forward-looking and ambitious digital trade agenda, the EU will have far greater chances of setting global currents toward international cooperation and economic stability, and make the Union itself a more modern, attractive partner to invest in too.
- Isabelle Roccia is Senior Manager for EMEA Policy at BSA | The Software Alliance in Brussels
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