The EU/Japan data flows agreement is a strategic move against US trade wars

Schermata 2018-07-18 alle 01.07.20

(NB: the original version of this article was published in Italian on La Stampa)

European Union and Japan agreed to create the world’s largest area of safe data flows, allowing their companies to securely process personal data of both European and Japanese citizens anywhere within this vast territory. This creates the digital market among the largest but above all the most important in the world, made up of almost 640 million consumers with an average spending capacity higher than the world population.

For European and Japanese companies it is a breath of fresh air in times of commercial wars. Thanks to the agreement, exchanges will be facilitated, especially in services and sophisticated and high-tech goods, which are mainly based on the processing of personal data of users: ranging from services via the Internet, from the most common (e-commerce and billing) to more sophisticated ones (e.g. cloud), but also to many innovative assets like connected-TV, consoles for electronic games, all kinds of IT assets. Even seemingly less sophisticated but valuable assets, such as luxury or gastronomy, will benefit the data agreement, to the extent that the sellers need marketing policies focused on certain customer segments.

European Union and Japan have agreed that the respective data protection systems (in Europe the famous “GDPR” entered into force on 25 May 2018) are equivalent and therefore the respective companies will be able to process and transfer consumer data anywhere from Lisbon to Tokyo in an homogeneous framework, without having to question whether something is allowed or not from a coast to another of this huge market. Conversely, in the absence of such an agreement a European or Japanese company should instead make an ad hoc analysis whenever its business involves the processing of data of the other party’s citizens, and whether is is lawful under the other country’s legislation.

It is interesting to note that the agreement between the European Union and Japan does not constitute a compromise between the two parties: on the contrary, it is basically Japan that has agreed to adjust its data protection legislation to the European GDPR, which sets more rigorous levels of protection.

From a geo-economic point of view, the agreement is extremely significant, because it happens during the explosion of research on the Internet of things, connected cars, robotics and artificial intelligence, extremely sophisticated sectors which need access to a large amount of user data. The creation of this unique big data market helps European and Japanese industry that normally suffer the competition of US and Chinese, which usually enjoy greater economies of scale as well as an accumulation of data (also of European citizens). This is an advantage, however, that will tend to decrease, at least as regards the processing of data of European and Japanese citizens, since US and Chinese can no longer freely process such information after May 25, 2018 (date of entry into force of the GDPR).

In fact, although US and Chinese may be able to do at home what they want (in compliance with the respective local legislation), it is not the same for their global businesses, which will have to comply with the GDPR. This is a problem that Google, Facebook and other non-European OTTs are considering seriously: in other words, even if a company is quartered in California, it is unthinkable to divide its global data business depending on whether data of European citizens are involved or not. From a technological point of view such a separation would be complicated and expensive, and there would still be the risk of European fines for every mistake. Therefore, it may be better, at the end, to adapt the whole business to the European GDPR, even if US legislation is less stringent. At this point, however, it would be even better for US OTTs to adapt US legislation to European legislation, that is, to the GDPR, in order to close the circle.

It is precisely what Japan has done, anticipating and resolving the problem of its multinationals, whereas Trump’s administration, committed to the contrary in worsening international trade, is not catching this opportunity in time. But they will have too, sooner or later.

 

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