Data privacy shapes up as a next-generation trade barrier

Revelations about U.S. digital eavesdropping have fanned concerns about Internet privacy and may complicate U.S. attempts to write rules enshrining the free flow of data into trade pacts with European and Pacific trading partners.

As more and more consumers and businesses shop and sign up for services online, the IT industry is working to fend off rising digital protectionism it sees as threatening an e-commerce marketplace estimated at up to $8 trillion a year.

"Restrictions on information flows are trade barriers," Google's executive chairman, Eric Schmidt, said at a Cato Institute event last month, warning that the worst possible outcome would be for the Internet to turn into "Splinternet."

The unease of U.S. technology companies has mounted in lockstep with rising worries overseas about data privacy.

German Chancellor Angela Merkel — a target of U.S. spying — has called for a European Internet protected from Washington's snooping. Brazil and the European Union plan to lay their own undersea communications cable to reduce reliance on the United States. And other countries are showing a preference for storing data on local servers rather than in the United States.

President Barack Obama acknowledged this week that it would take time to win back the trust of even friendly governments.

Trade experts predict the United States will have to make concessions on data privacy in the Transatlantic Trade and Investment Partnership talks (TTIP) with the EU, and will probably not get all it wants in Pacific Rim trade talks either.

"It is unfortunate because there were some good nuanced conversations happening before the spying allegations," said Adam Schlosser, director of the Center for Global Regulatory Cooperation at the U.S. Chamber of Commerce.

"But there is now a tendency to inappropriately conflate national security and law enforcement with ... commercial privacy practices, which has put a damper on rational debate."

The TTIP and the Trans-Pacific Partnership (TPP) talks are billed as next-generation trade negotiations, covering not only tariffs and goods trade but also common standards and goals in areas ranging from labor standards and environmental protection to intellectual property and data flows.

The last two issues are key for digital trade, which encompasses everything from U.S. cherry farmers selling direct to Chinese families via Alibaba Group Holdings' Tmall electronic shopping platform to plane maker Boeing monitoring in-flight diagnostic data on-line.

$8 TRILLION QUESTION

A 2011 report by the McKinsey Global Institute found almost $8 trillion changed hands each year through e-commerce, something that explains the keen interest IT firms and industry associations are taking in the trade agreements.

According to data compiled by the Sunlight Foundation, the computing and IT industry has been the second-biggest lobbyist on the TPP, after the pharmaceutical industry.

Industry groups such as the Software & Information Industry Association say free exchange of data is the key focus.

"For SIIA and its members, the most crucial issue in the trade agreements under negotiation is to get provisions permitting cross-border data flows," said Carl Schonander, international public policy director at SIIA, whose members include Reuters News parentThomson Reuters.

BSA the Software Alliance, an advocacy group for the software industry has warned that TPP partners Australia, Canada, Chile, Mexico, Peru and Vietnam are among countries adopting or proposing rules banning or limiting companies from transferring personal information off-shore. This might mean U.S. companies have to set up local servers in every country.

"Data flows are the lifeblood of the digital economy," said BSA policy director David Ohrenstein. "Trade agreements (must) ensure borders are open to data flows."