USIS Washington 

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

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.