Abstract
Data is, logically enough, one of the pillars supporting the modern digital economy. It is, however, not terribly useful on its own. Only once it has been collected, analyzed, combined, and deployed in novel ways does data obtain its highest utility. This is to say, a large part of the value of data is its ability to flow throughout the global connected economy in real time, permitting individuals and firms to develop novel insights that would not otherwise be possible, and to operate at a higher level of efficiency and safety. Although the global transmission of data is critical to every industry and scientific endeavor, those data flows increasingly run into barriers of various sorts when they seek to cross national borders. Most typically, these barriers take the form of data-localization requirements. Data localization is an umbrella term that refers to a variety of requirements that nations set to govern how data is created, stored, and transmitted within their jurisdiction. The aim of data-localization policies is to restrict the flow of data across a nation's borders, often justified on grounds of protecting national security interests and/or sensitive information about citizens. Data-localization requirements have in recent years been at the center of a series of legal disputes between the United States and the European Union (EU) that potentially threaten the future of transatlantic data flows. In October 2015, in a decision known as Schrems I, the Court of Justice of the European Union (CJEU) overturned the International Safe Harbor Privacy Principles, which had for the prior 15 years governed customer data transmitted between the United States and the EU. The principles were replaced in February 2016 by a new framework agreement known as the EUPrivacy Shield, until the CJEU declared that, too, to be invalid in a July 2020 decision known as Schrems II. (Both complaints were brought by Austrian privacy advocate Max Schrems). The current threatened disruption to transatlantic data flows highlights the size of the problem caused by data-localization policies. According to one estimate, transatlantic trade generates upward of $5.6 trillion in annual commercial sales, of which at least $333 billion is related to digitally enabled services. Some estimates suggest that moderate increases in data-localization requirements would result in a €116 billion reduction in exports from the EU.