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EU Data Protection Rules and U.S. Implications

Changes from August 9, 2019 to April 14, 2020

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Updated August 9, 2019April 14, 2020 EU Data Protection Rules and U.S. Implications Data Privacy and Protection in the United States and Europe U.S. and European Union (EU) policymakers are focusingfocused on protection of personal data online with recent and proposed with new and proposed legislation and enforcement actions. Data breaches at companies such as Facebook, Google, and Marriott have contributed to heightened public awareness. The EU’s General Data Protection Regulation (GDPR)— which took effect on May 25, 2018—has drawn the attention of Congress, U.S. U.S. businesses and other stakeholders, prompting debate on U.S. federal and state data privacy and protection policies. Both the United States and the 2827-member EU assert that they are committed to upholding individual privacy rights and ensuring the protection of personal data, including electronic data. However, Differences in U.S. and EU approaches to data privacy and protection issues , however, have long been sticking points in U.S.-EU economic and security relations, in part because of differences in U.S. and EU legal regimes and approaches to data privacy. The GDPR highlights some of those differences and poses challenges for U.S. companies doing business in the EU security relations. The GDPR highlights some of those differences and poses challenges for U.S. companies doing business in the EU. Although no longer a member of the EU, the United Kingdom (UK) remains bound by GDPR through 2020 and intends to incorporate GDPR into UK data protection law. The United States does not broadly restrict cross-border data flows and has traditionally regulated privacy at a sectoral level to cover certain types of data. The EU considers the privacy of communications and the protection of personal data to be fundamental rights, which are codified in EU law. Europe’s history with fascist and totalitarian regimes informs the EU’s views on data protection and contributes to the demand for strict data privacy controls. The EU regards current U.S. data protection safeguards as inadequate; this has complicated the conclusion of U.S.-EU information-sharing agreements and raised concerns about U.S.-EU data flows. The transatlantic economy is the largest in the world, with goods and services trade of $1.2 trillion in 2018Figure 1. U.S.-EU trade of information and communications technology (ICT) services and potentially Trade of ICT and Potentially ICTEnabled (PICTE) Services, 2017 ICT-enabled services was over $307 billion in 2017 (see Figure 1). Figure 1. U.S.-EU Trade of ICT and Potentially ICTEnabled (PICTE) Services Figure 1). What Is the GDPR? The GDPR establishes a set of rules for the protection of personal data throughout the EU. It seeks to strengthen individual fundamental rights and facilitate business by ensuring more consistent implementation of data protection rules EU-wide. The EU hopes the GDPR will further develop the EU’s Digital Single Market (DSM), aimed at increasing harmonization across the bloc on digital policies. The GDPR identifies what is a legitimate basis for data processing EU also views the GDPR as underpinning efforts to foster the EU’s digital transformation and bolster the EU’s technology sector vis-à-vis Chinese and U.S. competitors, while protecting privacy rights and European values. The GDPR identifies legitimate bases for data processing and sets out common rules for data retention, storage storage limitation, and record keeping. The GDPR applies to (1) all businesses and organizations with an EU establishment that process (perform operations on) personal data of individuals (or “data subjects”) in the EU, regardless of of where the actual processing of the data takes place; and (2) entities outside the EU that offer goods or services (for payment or for free) to individuals in the EU or monitor the behavior of individuals in the EU. Processing certain sensitive personal data is generally prohibited. Stronger and new data protection requirements in the GDPR grant individuals the right to:  Receive clear and understandable information about        Source: Bureau of Economic Analysis interactive data Table 3.3. The transatlantic economy is the largest in the world, with goods and services trade of $1.3 trillion in 2019; the UK accounted for 20%. U.S.-EU trade of information and communications technology (ICT) services and potentially who is processing one’s personal data and why; who is processing one’s personal data and why;  Consent affirmatively to any data processing; Access any personal data collected; Rectify inaccurate personal data; Erase one’s personal data, cease further dissemination of the data, and potentially have third parties halt processing of the data (the “right to be forgotten”); Restrict or object to certain processing of one’s data; Be notified without “undue delay” of a data breach if there is a high risk of harm to the data subject; and Require the transmission of one’s data to another controller (data portability). The potential high penalties for noncompliance have attracted significant attention, since a company or organization can be fined up to 4% of its annual global turnover or €20 million (whichever is greater). Fines are assessed by the national supervisory authority (a Data Protection Authority, or DPA) in each member state and subject to appeal in national courts. The GDPR also requires some companies to hire data protection officers. GDPR: Year One Source: Bureau of Economic Analysis interactive data Table 3.3. https://crsreports.congress.gov EU Data Protection Rules and U.S. Implications GDPR Implementation Many U.S. firms have made changes to comply with the GDPR, such as revising and clarifying user terms of agreement and asking for explicit consent. While it creates more requirements on companies that collect or process data, some experts contend that the GDPR may simplify https://crsreports.congress.gov EU Data Protection Rules and U.S. Implications compliance for U.S. firms because the same set of data protection rules apply across the EU. Also, companies established in the EU that engage in cross-border data processing primarily only have to liaise with the supervisory authority DPA of the EU country where the firm is based (the “lead” authority), possibly decreasing administrative costs. However, a firm is still subject to oversight and enforcement by the supervisory authority of every country where it does business. The GDPR and U.S.-EU Privacy Shield Under the GDPR, the U.S.-EU Privacy Shield continues to serve as a mechanism to transfer data for U.S. and EU firms that meet EU data protection requirements. Participation by a company in Privacy Shield does not necessarily guarantee full GDPR compliance. A case challenging Privacy Shield’s validity is pending before the EU’s Court of Justice. DPA of every country where it does business. Some member states have criticized the system as many of the largest digital firms are based in a few countries and overseen by those states’ DPAs, creating enforcement delays and logjams due to limited resources. U.S. firms have voiced several concerns about the GDPR, including the need to construct a compliance bureaucracy and possible high costs for adhering to the GDPR’s requirements. While large firms have the resources to hire consultants and lawyers, it may be harder and costlier for small and mid-sized enterprises (SMEs) to comply, possibly deterring them from entering the EU market and creating a de facto trade barrier. Some U.S. businesses, including several newspaper websites and digital advertising firms, opted to exit the EU market rather than confront the complexities of GDPR. Some industry surveys show that GDPR’s restrictions on the use and sharing of data may be limiting the development of new technologies and deterring potential mergers and acquisitions. The GDPR and U.S.-EU Privacy Shield Under the GDPR, the U.S.-EU Privacy Shield continues to serve as a mechanism to transfer data for U.S. and EU firms that meet EU data protection requirements. Participation by a company in Privacy Shield does not necessarily guarantee full GDPR compliance. A case challenging Privacy Shield’s validity is pending before the EU’s Court of Justice. Although the GDPR is directly applicable in EU member states, implementing legislation is required to enact certain parts of the GDPR (e.g., appointment of a supervisory authority; ability to levy penalties). Critics note that the GDPR permits diverging national legislation in specified areas (e.g., employment data) and contend that this could lead to uneven implementation or enforcement. They also note the potential for localization trade barriers in areas where divergence is allowed. The EU reports that GDPR has increased European citizens’ awareness of their rights. Since taking effect, European DPAs have received almost 145,000 GDPR complaints and have initiated a range of enforcement actions, including issuing fines. In January 2019, France’s DPA (or CNIL) imposed a €50 million fine on Google for a “lack of transparency, inadequate information and lack of valid consent regarding the ads personalization.” In July 2019, the United Kingdom’s DPA (the ICO) issued the largest penalty to date, imposing a €230 million fine on British Airways for a data breach that affected half a million passenger records, including users’ name, address, login, payment card, and travel booking details. comprehensive national legislation may be needed to better safeguard privacy, especially online. Stakeholders representing consumer and industry groups have issued proposals, with some advocating for the United States to adopt an approach similar to GDPR. The United States has played an important role in international discussions and has begun to address data privacy and data flows in recent free trade agreements. With no multilateral rules on crossborder data flows, experts contend that the GDPR may effectively set new global data privacy standards, since companies and organizations will strive for compliance to avoid being shut out of the EU market or penalized, and as other countries seek to introduce rules modeled on the GDPR. It may also be easier and cheaper for some U.S. companies to apply GDPR protections to all users rather than maintain different policies for different users. Such developments could limit U.S. influence in trade negotiations such as the ongoing World Trade Organization (WTO) plurilateral negotiations related to digital trade. Other elements of the GDPR are controversial. The GDPR’s right to be forgotten requires data controllers to delete personal data when it is no longer needed or when an individual requests it. Some question whether the right applies only to those accessing the Internet from the EU, or if the GDPR requires that a company delete specific information globally. Another issue is that the GDPR right to erasure could clash with freedom of information, and, for U.S. firms, with the First Amendment. The GDPR includes exceptions and recognizes the need to balance the right to personal data protection with freedom of expression, but advocates worry that Internet companies may be quick to grant erasure requests to avoid possible legal challenges, which, over time, could erode information online. Many stakeholders view the GDPR as pitting the “right to be forgotten” against the “right to know.” U.S. officials voice concerns about the GDPR’s impact on the WHOIS database (managed by the Internet Corporation for Assigned Names and Numbers, or ICANN) used by law enforcement and cybersecurity researchers to identify hackers and malicious Internet domains. To comply with the GDPR, ICANN restricted the amount and types of data available on WHOIS, potentially limiting its effectiveness. The GDPR and ePrivacy Regulation The EU is considering a new ePrivacy Regulation to ensure privacy of electronic communications in the digital era that would complement the GDPR’s data protection requirements. The regulation would require traditional telecom providers as well as messaging services (e.g., WhatsApp and SnapChat) to obtain explicit user consent for online tracking (use of cookies), and limit the amount of time that tracking data may be stored. Some analysts suggest this could hinder the online advertising industry and others dependent on tracking data. The regulation has proved controversial in the EU and remains pending. Policy Implications Also see CRS Report R45584, Data Flows, Online Privacy, and Trade Policy, by Rachel F. Fefer. While the United States has traditionally regulated privacy at a sectoral level to cover certain types of data, in 2018, California passed a consumer privacy law and other states are considering similar legislation. Some U.S. policymakers and Members of Congress are examining whether Rachel F. Fefer, Analyst in International Trade and Finance Kristin Archick, Specialist in European Affairs https://crsreports.congress.gov EU Data Protection Rules and U.S. Implications Since taking effect, European DPAs have received a steady stream of GDPR complaints—almost 145,000 in its first year—and have initiated various enforcement actions. These have included issuing fines for a range of violations against companies such as Google and Facebook, as well as smaller entities and organizations. In July 2019, the UK’s DPA issued the largest penalty to date, imposing a €230 million fine on British Airways for a data breach that affected half a million passenger records, including users’ name, address, login, payment card, and travel booking details. The EU is set to review the implementation of GDPR, including international data transfers, in June 2020. The GDPR and ePrivacy Regulation The EU is considering a new ePrivacy Regulation to ensure privacy of electronic communications in the digital era that would complement the GDPR’s data protection requirements. The regulation would require traditional telecom providers, as well as messaging services (e.g., WhatsApp and SnapChat), to obtain explicit user consent for online tracking (use of cookies), and limit the amount of time that tracking data may be stored. Some analysts suggest this could hinder the online advertising industry and others dependent on tracking data. The regulation has proved controversial in the EU and remains pending. GDPR and COVID-19 To track the spread of Covid-19, some EU governments are using anonymized, aggregated mobile phone data from telecom firms. Some countries, like Poland, go further, mandating persons who may have Covid-19 to install a mobile tracking app. The scope of data collected varies by country. The EU Data Protection Supervisor has stated that limited data collection with certain constraints (e.g., temporary data retention) is GDPR compliant and that the “right to the protection of personal data is not an absolute right.” EU officials call for an EU-coordinated app rather than country-specific apps. Some privacy advocates raise concerns that such data collection will set a precedent that lasts past the pandemic. As U.S. officials also begin considering using mobile tracking apps and data analytics to combat Covid-19, some Members of Congress express interest in examining the possible benefits of such measures, as well as privacy and other data-related issues. Policy Implications While the United States has traditionally regulated privacy at a sectoral level to cover certain types of data, in 2018, California passed a consumer privacy law and other states are considering similar legislation with varying rules. While the state laws have similarities with the GDPR, they do not fully replicate it. U.S. policymakers and Members of Congress are assessing the need for comprehensive national legislation, and multiple online privacy bills have been introduced. Some consumer and industry groups have advocated for a U.S. approach similar to the GDPR. The United States plays an important role in international discussions on data protection and has begun to address data privacy and data flows in free trade agreements, including in the U.S.-Mexico-Canada Agreement. With no multilateral rules on cross-border data flows, the GDPR may effectively set new global data privacy standards, as firms and organizations strive for compliance to avoid being shut out of the EU market or penalized, and as other countries seek to introduce rules modeled on the GDPR. Such developments could limit U.S. influence in trade negotiations, such as the ongoing World Trade Organization (WTO) plurilateral negotiations related to digital trade. Also see CRS Report R45584, Data Flows, Online Privacy, and Trade Policy, by Rachel F. Fefer. https://crsreports.congress.gov EU Data Protection Rules and U.S. Implications Kristin Archick, Specialist in European Affairs Rachel F. Fefer, Analyst in International Trade and Finance IF10896 Disclaimer This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the permissionpermissio n of the copyright holder if you wish to copy or otherwise use copyrighted material. https://crsreports.congress.gov | IF10896 · VERSION 67 · UPDATED