25 September 1998
(U.S., EU still working for resolution) (510) By Bruce Odessey USIA Staff Writer Washington -- The U.S. complaint against European Union (EU) policy on electronic privacy could eventually wind up in the World Trade Organization (WTO), a Brookings Institution scholar says. Robert Litan, director of Brookings' economic studies program, said he could not predict what action the EU will take when its directive on data protection -- opposed by the United States -- enters into force in October. At a September 24 meeting of the Coalition of Service Industries (CSI) he speculated on some of the potential outcomes, however. At issue is the EU directive restricting the collection and use of personal information on the Internet. Most contentious is a provision prohibiting electronic transmission of personal information about EU citizens to countries that lack "adequate" privacy protection. Enforcement of that provision might mean, for example, that EU authorities might block U.S. companies in Europe from communicating electronically with their offices in the United States. Co-author of a forthcoming book on the electronic privacy issue, Litan guessed that, if the two sides cannot resolve the dispute, the EU might test its directive by imposing data embargoes on specific U.S. business sectors or on certain business practices. He noted that EU authorities have requested staff reports on four sensitive related issues: medical information, electronic commerce, airline reservations and personnel records. Litan also identified four service sectors he considered especially vulnerable to the directive: banking, insurance (especially health insurance), investment banking (especially merger and acquisition financing) and accounting. If the dispute ends up before a WTO panel, he said, the two sides could pick their arguments from different parts of the General Agreement on Trade in Services (GATS). He said the EU could base its argument on Article XXIV, which allows governments to protect the privacy of their nationals. The United States could base its argument on Article XXII, which prohibits discrimination against foreign providers, he said. In contrast with the EU, the Clinton administration has been pressing in the WTO and other multilateral and regional groups for minimal government regulation of electronic commerce. The administration has encouraged the emerging U.S. industry to engage in self-regulation instead. Litan said EU authorities have choices on whether to enforce the EU directive in a more or less intrusive way. For one example, they could distinguish between business and other personal information, he said. For another, he said, they could offer "safe harbor" exemptions for corporate communications, or for certain industries, or for certain equipment like laptop computers. He said big multinational companies will somehow cope with the EU directive, however it is enforced, possibly by entering into contracts with the EU. But Litan could not guess how small and medium-sized U.S. companies could afford the expense of working out special arrangements with EU authorities or how those authorities could enforce the directive against small companies doing business in cyberspace. "It's hopeless," he said.