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Tech Giants in Hot Waters as EU's Decision Closes In

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Data transfers are at the heart of the thriving transatlantic economy, but they have long been hampered by European concerns about privacy protections in the US.

Cross-border data transfers are required by ICT services such as social networks and cloud service providers, as well as other services that can be supplied over ICT networks, such as engineering, software, design, and finance.

Despite the fact that trade in digital services is difficult to measure, it has become one of the US' fastest-growing overseas sectors. With more data travelling between the US and the EU than anywhere else in the world, data flows constitute the lifeblood of the US-EU trade and investment agreement. However, since July 2020, when the European Court of Justice revoked the Privacy Shield amid concerns about the US government's legitimate monitoring methods, transatlantic data transfers have been in chaos.

The Court's decision also sparked concerns about standard contractual terms, putting the legal mechanism used by 90 percent of corporations to transfer data out of Europe in jeopardy. As a result, businesses are increasingly finding themselves caught in the crossfire of investigations and legal actions, adding to the uncertainty surrounding cross-border data transfers. Many businesses, particularly small and medium-sized businesses, are already experiencing market access difficulties as a result of the global pandemic, and their transatlantic commercial operations are now at risk.

“The economics of data have so far not been regulated," said Christoph Werkmeister, a partner with Freshfields Bruckhaus Deringer. “It is certainly going to be a very major compliance burden."

How Tech Giants Found themselves in the Hot Waters
The new rules, which were presented in a bill called the Data Act, are intended to enable smaller businesses to compete with larger ones in the battle to profit from vast amounts of non-personal data created by linked items ranging from smart appliances to autos. As more gadgets create data for control and monitoring, such as in smart homes and industries, the issue becomes more pressing. With the introduction of 5G technology, the volume of such data will skyrocket.

Big IT corporations, on the other hand, claim that the bill is biassed against them and that it will essentially force many European companies to store more of their data in Europe, with European carriers, rather than transferring it outside or using American firms.

“The Data Act will ensure that industrial data is shared, stored and processed in full respect of European rules," Thierry Breton, European Commissioner for the internal market, said. The European Commission said it anticipates the legislation could add 270 billion euros, equivalent to $305.76 billion, to the European economy by 2028.

The recent proposal is part of the most significant expansion of global technology regulation in decades. The EU is nearing agreement on the texts of two new regulations directed at giant digital corporations, one intended at limiting potential abuses of dominance and the other aimed at forcing them to take more responsibility for monitoring online content, both of which are backed by substantial fines.

What Industry Experts Say
The purpose of the new regulation, according to EU officials, is to help open up more of a data marketplace by requiring corporations to enter into data-sharing agreements that allow consumers to select between rival service providers when utilizing connected devices. Many of the provisions would apply to all businesses, not just big tech.

According to industry attorneys, the legislation will place a huge strain on businesses, which will have to figure out how to handle data demands and what data they must disclose.

“The economics of data have so far not been regulated," said Christoph Werkmeister, a partner with Freshfields Bruckhaus Deringer. “It is certainly going to be a very major compliance burden."

The act sets new requirements on so-called gatekeepers, a word that refers to the world's largest internet giants and which the EU is still defining through the Digital Markets Act, a planned regulation aimed at limiting their dominance.

Lobbyists are particularly concerned about rules requiring companies to take steps to prevent governments outside the EU from obtaining data acquired in Europe, which EU officials claim is intended to combat foreign monitoring. Tech lobbyists argue that the measure, which goes beyond GDPR standards that solely apply to personal data, will create legal uncertainty and impede cross-border data sharing.

Since the US approved a law granting it the ability to seek such data from American corporations, Europe has been concerned about foreign access to data in the EU.

The new plan would require gatekeeper corporations to disclose data collected from their devices and virtual assistants with consumers and smaller businesses when the user specifically asks for it. However, gatekeepers are not allowed to seek or receive such data in certain earlier drafts of the legislation, which industry lobbyists argue is discriminatory.

Due to an EU court precedent from 2020 also connected to government monitoring, companies' right to send personal information about Europeans is already under threat from EU privacy regulators. Ireland's privacy regulator announced this week that it is close to finalizing an order requiring Facebook owner Meta Platforms Inc. to suspend data transfers from the EU to the US, though any such order might take months to become effective.

Why Transatlantic Data Flows Matter
Data flows are economically significant and global data transfers now account for greater growth than global goods trade. The US has the most data-driven trade, followed by Ireland, Germany, the Netherlands, Switzerland, and France. The US and Europe are each other's top digital services trading partners, and they are the world's two greatest net exporters of digitally enabled services.

Business, professional, and technical services are the fastest-growing services sector in both countries, accounting for approximately half of all digitally enabled services exports from the EU to the US.

Manufacturing, transport, and other industrial sectors are increasingly reliant on cross-border data transfer as a result of global value chains. In fact, digital services are thought to have provided 25 percent of industrial inputs in 2017.

Multi-country clinical trials for novel treatments like COVID-19 vaccinations, cybersecurity threat information sharing, and anti-fraud and anti-money laundering measures are all made possible by transatlantic data exchanges.

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