EU data ruling could stunt single digital market

October 6, 2015

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

A ruling by Europe’s top court on data transfers could stunt the growth of one of the European Commission’s key objectives: the digital single market. The European Court of Justice ruled on Oct. 6 that the so-called “safe harbour” agreement, which allows U.S. and euro zone-based tech companies to repatriate each other’s customer information, was invalid. For an industry that thrives on the free movement of data, it’s a significant setback.

The ECJ ruling, which expressed scepticism that U.S. corporates would ever turn down a request from their own government to snoop following Edward Snowden’s revelations, will initially hit smaller companies worst. That’s because it can take the expensive legal resources found at blue-chips to devise workarounds to markets that now lack a safe harbour regime. Corporations can agree bilaterally with customers to share their data in other jurisdictions, and they can introduce intra-company legislation to shift information from one foreign subsidiary to another. Many already have these rules in place. Ironically, this includes Facebook, whose content-sharing practices spurred Austrian law student Max Schrems to launch the case against the Irish data protection agency that the ECJ has ruled on.

The longer-term ramifications could be more significant. The verdict has essentially handed national data protection authorities like Ireland’s more power – they will now be able to review cases approved at the European Commission level. That may frustrate attempts to create common data protection laws for the European Union – one of the key objectives of the digital single market project. Cross-border online services within the EU still only currently account for 4 percent of total internet trade, the commission says. It could even damage trade more widely, by affecting negotiations around the Transatlantic Trade and Investment Partnership.

Europe may yet create a vibrant internet-driven industry that benefits consumers and technology firms. The commission began work in January 2014 on a new safe harbour agreement with America that could ultimately restore the former status quo. But it now looks less likely that Jean-Claude Juncker’s dream to create a more meaningfully integrated marketplace will be fulfilled by the end of next year.

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