US-EU Data Relationship Requires Urgent Repair, Says New Report; Rising China Tensions Underscore Need to “Build Back Better”

March 25, 2021

WASHINGTON—The United States and European Union must take swift action to reconcile the differences between the EU’s data protection laws and U.S. surveillance policies, or millions of jobs and a large share of transatlantic trade will suffer, according to a new report from the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy.

The European market is increasingly self-isolated in the aftermath of a decision last summer by the EU’s top court to invalidate a key program that allowed companies to transfer EU citizens’ data to the United States. This has far-reaching economic impact, according to ITIF’s report, because cross-border data flows are critical for firms across the whole economy—from manufacturing and transport to financial and Internet services—and restrictions disproportionately affect small and medium-sized firms.

“Tension has been building for a decade on data policy, but the situation has never been this dire. It’s as if an undersea cable has snapped and needs urgent repair to reestablish the flow of commerce,” said Nigel Cory, ITIF’s associate director for trade policy, who co-authored the report. “In reality, our technical infrastructure is solid, but recent policy decisions have had the same effect as cutting cables. Billions of terabytes of data that are essential for transatlantic commerce may be cut off. Without swift political intervention, the transatlantic digital relationship could be severed irrevocably.”

Making matters worse, the United States and Europe also face the growing influence of authoritarian digital powers such as China and Russia. Against this backdrop, ITIF argues U.S. and EU policymakers must take urgent steps not just to repair their strained data relationship, but also to forge a broader cooperative agenda based on shared values and “digital realpolitik” as a strategic counterweight to China and Russia.

The report offers four recommendations:

  1. Negotiate a new Privacy Shield. Ideally, the EU would offer a short-term solution to provide immediate relief to firms and sectors sharing data for critical economic and social purposes during the COVID-19 pandemic. For the long term, policymakers should codify their commitments, especially around government access to data and restrictions on data localization.
  2. Build new data-transfer mechanisms under GDPR. The EU should accelerate efforts to enact codes of conduct and certification schemes to provide a broad, flexible set of legal tools for firms from different sectors to manage data transfers reasonably and responsibly under the EU’s General Data Protection Regulation.
  3. Improve transatlantic law enforcement cooperation. Electronic evidence is needed in around 85 percent of criminal investigations, often from other jurisdictions, so policymakers should conclude negotiations that began in September 2019 to improve transatlantic access to electronic evidence for law enforcement investigations. 
  4. Craft a transatlantic agenda based on “digital realpolitik.” Fully harmonizing data-related policies is unrealistic, but the EU and United States share values that starkly contrast with authoritarian rivals like China and Russia, so it would be mutually beneficial to cooperate on strategically important data and technology issues such as artificial intelligence, electronic ID systems, and cybersecurity. 

“There is a real opportunity to ‘build back better’ the transatlantic data relationship,” said ITIF Policy Analyst Ellysse Dick, who co-authored the report. “The immediate task is to bridge the gap between the EU’s data-protection laws and U.S. surveillance policy, because a huge share of transatlantic commerce hangs in the balance. But there are broader stakes involved, too, as we saw last week when U.S. and Chinese diplomats met in Alaska. The tension on display there extends across a wide range of data and digital policy concerns, from artificial intelligence to cybersecurity to technology standards-setting. The EU and United States share democratic values, so it behooves them to cooperate in countering authoritarian digital powers like China.”

Read the report.