Even as U.S. and European officials negotiate a major free-trade agreement, a new form of protectionism has surfaced across the Atlantic. Some in Europe are pushing for policies that would limit the free flow of data over the Internet. The calls for regulating the Web are also a symptom of a broader problem—a languishing economic partnership between the U.S. and Europe.
Most pernicious is the proposal to create a “European cloud,” a communications network that would prohibit data from traveling to servers outside the continent. Germany’s largest telephone company Deutsche Telekom AG DTE.XE +0.86% is an outspoken advocate of the idea, ostensibly hoping to quell privacy concerns. This would mark the end of an open, global Internet, which has been an incredible engine of economic growth. In an April report, the U.S. Trade Representative called the concept “draconian” and a way to give a “protectionist advantage” to companies based in the European Union.
Why the tension? America’s relationship with Europe, for one, has taken a back seat as President Obama pivots to Asia and Congress’s old internationalist consensus erodes. Europeans feel neglected by Washington, and they made those sentiments known when in April the organization I head, the Progressive Policy Institute, led a bipartisan group of congressional staff and policy analysts to Paris, Brussels and Berlin for talks with government, business and opinion leaders. The key take-away: The White House and Congress should make reinvigorating the trans-Atlantic partnership a top priority.
The specter of slow economic growth haunts both the U.S. and EU. Since 2000 U.S. gross domestic product has grown less than 2% a year on average. As Europe emerges from the euro-zone debt crisis, projected growth this year across the 28-member EU is 1.5%. This has produced middle-class stagnation in both places: In America, the per capita median income is no higher than in 2000. In Germany, the EU’s economic powerhouse, median income has inched upward by 1.4% in the same period.
In short, the West needs to tap new sources of economic growth. Liberalizing trade—the purpose of the continuing Transatlantic Trade and Investment Partnership talks—will help. But there’s another way to unleash much-needed growth, and that’s by capitalizing on our shared comparative advantage in digital innovation.
There is currently a “data gap” between the U.S. and Europe, as a recent study by my organization and the Brussels-based Lisbon Council found. Americans use more than three times as much data per capita as Germans and six times as much as Italians. If you remove consumer video usage and limit the sample to business data, the U.S. advantage shrinks but remains substantial. Europeans have been slower to embrace data as a new factor of production and driver of global growth.
Instead of trying to catch up, however, some European regulators have elected to punish big U.S. tech companies for alleged privacy violations. Spain slapped Google GOOGL +0.51% with a roughly $1.2 million fine in December, and France demanded about $200,000 from the company in January. The European Parliament has passed new data-protection regulations that would impose stringent new rules on companies doing business with Europeans anywhere.
Some U.S. companies have indeed failed to be responsible stewards of customer data. But the privacy rift is more a matter of cultural differences: Europeans regard privacy as a “fundamental human right,” while Americans are more inclined to let companies collect personal data in exchange for access to the Internet’s boundless information. U.S. tech companies are especially worried that a too rigid approach to privacy threatens the use of “big data” analytics to improve services and raise productivity.
Former National Security Agency contractor Edward Snowden‘s intelligence revelations have made matters worse. After it was leaked that German Chancellor Angela Merkel‘s cellphone may have been monitored by the NSA, she endorsed the idea of building a European communications network to keep data from passing through the U.S. A European cloud would no doubt be great for European cloud providers, but it would raise the cost of accessing information for consumers and businesses. The same is true for “data localization,” a popular concept that would require companies to build servers in the countries they do business in.
In March the European Parliament passed a nonbinding resolution to suspend agreements with the U.S. on bank data-sharing and Internet privacy. EU Justice Commissioner Vivian Redding is now calling for revisions in the “Safe Harbor” principles, an agreement between the U.S. and EU that gives roughly 3,000 U.S. companies the right to repatriate the personal data of Europeans, as long as the company allows users to opt out and limits collection to “relevant” information.
Upending this agreement would devastate U.S. Internet companies, whose existence relies on data collection. But ultimately the steps toward Balkanizing the Internet would damage European companies as well. The Internet enables small- and medium-size firms to compete in global markets previously unavailable to them. Europe will also never cultivate a startup culture with a restricted Internet.
The U.S. and Europe’s differences are considerable but bridgeable. Nobody wants a trade war as a newly aggressive Russia lurks in the background. But President Obama must offer more forceful leadership to finish TTIP and to offer reassurances on surveillance, data protection and privacy. That would go a long way in fostering the trans-Atlantic cooperation that has atrophied since the Cold War ended.
This article was originally published in The Wall Street Journal, find it on their website here.