EU Privacy Pact Held Hostage by Powerful Few

Just when it appeared that several years of negotiations between the U.S. Commerce Department and the European Union would lead to a new international privacy pact, a coalition of U.S. businesses is voicing strong opposition to its ratification.

In a letter sent to the department this week, the newly formed National Business Coalition on E-Commerce claimed that the proposed agreement would “have grave implications for the ability of U.S. businesses to compete effectively in the global marketplace.”

“The EU privacy principles that would effectively be imposed on American business by this agreement far exceed any privacy requirements that have ever before been imposed in the U.S., thus raising a very real question of national sovereignty,” the letter stated.

U.S. Must Abide by European Privacy Laws

This protest comes less than a month after the Commerce Department announced that U.S. and European Union negotiators finally reached a formal agreement on a deal that would guarantee privacy protection for EU member consumers who do business with U.S.-based e-tailers.

Currently, relevant U.S. online privacy laws are far more liberal than those in Europe. For instance, European law prohibits companies from sharing any data without first getting permission from the consumer. This disparity is why some industry observers feared that Europe would eventually bar U.S. e-tailers from selling to its consumers.

However, under the terms of the new agreement, U.S. companies would be allowed to do business in Europe as long as they agreed to abide by European privacy laws — or equivalent measures — when dealing with European consumers.

“This data-privacy success comes none too soon to support the growth of the almost $2 trillion (US$) United States-EU trade and investment relationship, particularly in the rapidly growing business-to-business (B2B) and retailing e-commerce sectors,” Commerce Secretary William Daley said in published reports.

Still, for now, the agreement does not include U.S. financial services firms because U.S. regulators are still writing new privacy rules for the industry.

Does Safe Harbor Create Trade Barrier?

Under the pending agreement, online merchants will have several options for obtaining “safe harbor” from litigation or prosecution in Europe. They can agree to formally subject themselves to oversight by EU regulators, sign up with an accepted self-regulatory organization subject to oversight by the U.S. Federal Trade Commission (FTC), or demonstrate that U.S. laws are comparable to those of Europe in the area in which they operate.

This provision particularly annoys the new coalition’s members, which include such heavyweights as General Electric Co., Home Depot, Inc. and Fidelity Investments.

“The safe harbor agreement in effect establishes a non-tariff trade barrier in that a U.S. person cannot do business with EU unless that person agrees to play by EU rules,” the letter states. “This trade barrier will disadvantage U.S. companies in relation to their competitors in other areas which do not have to abide by the principles of the EU directive.”

A Hidden Agenda

While this legalese makes little sense to me, there may be a hidden agenda behind the group’s efforts to nix the agreement.

Chris Mustaine, government relations manager for the European American Business Council, told the Wall Street Journal that it is no accident that most of the companies involved in the coalition are also in the financial services industry. Their protest was motivated, Mustaine contends, by the fact that their industry was not afforded more protection by the pact.

So, it appears that the interests of a powerful handful could impede adoption of international privacy standards, and could put the plans of hundreds of smaller U.S. e-tailers that want to establish themselves in the European marketplace on hold.

The coalition’s action unwittingly provides another strong argument for those who claim that a remedy for online privacy violations can be reached only through aggressive government intervention. In this case, the reluctance of big business to look beyond its own interests seems to be the spoiler in pursuing global e-commerce opportunities for all.