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Obama says that Europeans are using privacy rules to protect their firms against U.S. competition. Is he right?

- February 17, 2015

President Obama speaks at the White House Summit on Cybersecurity and Consumer Protection at Stanford University in Palo Alto, Calif., on Feb. 13, 2015. (Nicholas Kamm/AFP/Getty Images)
In an interview with the tech site ReCode, President Obama has suggested that European distrust of U.S. tech firms has base motivations. In his description:

We have owned the internet. Our companies have created it, expanded it, perfected it in ways that they can’t compete. And oftentimes what is portrayed as high-minded positions on issues sometimes is just designed to carve out some of their commercial interests.

What exactly is Obama complaining about?
He’s responding to a question about differences between how Europe and the United States deal with privacy. The United States does not have any strong comprehensive regulations covering how the private sector deals with your personal data. Under U.S. law, a few kinds of data (e.g., weirdly, video rental records) are heavily protected, but large categories of personal data get very little protection. If a company promises not to use your data in certain ways and then breaks its promises, the FTC can go after it. But if it doesn’t make any specific promises, or if it reserves the right (as many companies do) to change its mind, there is very little protection.
The European Union, in contrast, has strong and comprehensive laws governing how private businesses can use your data. It is updating these laws to deal with two decades of change on the Internet, with new legislation likely to be forthcoming this year. A recent judgment from the European Court of Justice that people have the right to be forgotten (by getting certain search results removed) has serious implications for Google’s business model. The forthcoming privacy rules are likely to have even more substantial implications.
Why is Obama accusing Europe of hiding protectionism behind a veil of principle?
Probably in part to change the topic of conversation. Obama made the comments while in Silicon Valley attending a summit with leaders of the technology industry. But some key leaders didn’t show up because they are very, very unhappy with the U.S. government at the moment. Revelations of NSA spying have seriously damaged the reputation of U.S. technology firms, which are perceived abroad, whether fairly or unfairly, as having tacitly cooperated with U.S. spying efforts. This, in turn, has hurt the ability of U.S. technology companies to sell their products overseas — especially to government clients. Silicon Valley companies such as Apple are responding by stressing their commitment to privacy — even when that commitment conflicts with the wishes of the U.S. government.
By criticizing European protectionism, President Obama is shifting some of the blame away from the U.S. government. He is suggesting that the true blame lies with protectionist European firms and governments because they can’t compete fairly against U.S. Internet businesses and are trying to compete unfairly instead.
Is he right?
Not really. European businesses are no less willing to use politics to disadvantage their competitors than businesses in other parts of the world. But the new rules have less to do with discrimination against U.S. firms than with European discomfort at the e-commerce model that has taken root in the United States. Businesses such as Google and Facebook offer their services free and make money by observing what you do in enormous detail, then using that information to sell carefully targeted ads. This is inevitably a privacy-intrusive service. Furthermore, these firms face the persistent temptation to push the boundaries ever further, weakening their customers’ privacy to make more money. It’s inevitable that there are going to be big clashes between businesses operating under this model and regulators worried about privacy.
The European Union also has to deal with a European Court of Justice that has started becoming actively involved in privacy questions (and is going to rule on a case brought by a European citizen that could stop Facebook and other U.S. firms from taking advantage of the Safe Harbor Arrangement, a special mechanism that allows them to avoid the full extent of E.U. privacy law).
Obama’s claims might be a bit more accurate if he were talking about antitrust regulation, where European firms would certainly like to cut Google and other US competitors down to size. However, as European politicians have pointed out, it’s not just European firms that are pushing for European action against leviathans such as Google, Microsoft and Facebook. It’s U.S. firms, too. Ever since the debacle of its failed action against Microsoft, the Department of Justice has been reluctant to take on cases against big U.S. technology companies. This has spurred U.S. companies to shop around internationally for a more active antitrust regulator — and they have found one in the European Commission. Complaints against companies such as Google have been driven by complaints coming from both European and U.S. businesses.
Finally, U.S. businesses are just as willing to use U.S. regulators to disadvantage their foreign competitors as Europeans are to use European regulators. Not only does the United States sometimes use technology restrictions to discriminate against foreign companies — Chinese firms, for example — but it also has built up a massive legal apparatus that is designed to force other countries to comply with U.S. preferences over intellectual property, whether this suits their economic circumstances or not. This is arguably a form of protectionism for U.S. movie and music companies.
One of the interesting side effects of Wikileaks was that it revealed just how important the United States views intellectual property rights as being in private negotiations and how willing it is to play hardball to get its way. The United States is becoming angry because it sees its own game being turned against it.