Internet without borders: The balkanisation of digital territory to protect privacy is not ultimately in consumers’ interests

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The tectonic plates of the internet, if such an analogy can be made, are not a perfect match with those of global geography. One has, historically, covered all of North America and Europe. Of late, Russia has moved away from this zone, where free exchange of information rules, and headed into the realms of censorship and protectionism. China, for its part, has been isolated from the very off, its 650 million internet users – more than the US and EU combined – operating online in a strictly controlled and limited environment. Or at least this was the picture up until two years ago, when Edward Snowden revealed the extent of the American National Security Agency’s (NSA) snooping on digital communications across the globe.

Since then, Europe has started to pull away from the US, citing concerns not only with the privacy of its citizens, but the competitive dominance and tax juggling of tech giants such as Google. In the early months of 2015 Barack Obama highlighted this growing transatlantic gulf. He suggested, in uncharacteristically spiky terms, that the EU’s digital regulation drive stemmed from little more than commercial jealousy: “We have owned the internet,” claimed the President, “and perfected it in ways that they can’t compete [with].”

Mr Obama’s ire will be excited again today. The European Court of Justice (ECJ) has just ruled that Safe Harbour – the 2000 agreement that allowed companies to transfer customer data from the EU to the US – breaches European citizens’ right to privacy. According to the EU’s highest court, there are not sufficient safeguards in place to stop the NSA prying into a German internet user’s data, for example, once it has landed in Palo Alto. The entire Safe Harbour agreement has as a result been struck down, leaving the 4,400 internet firms that rely on it – whose number includes Facebook and Amazon – in disarray.

Yet the actions of the ECJ deserve a more open hearing than they are likely to receive in the White House. Even before Mr Snowden’s revelations, European politicians complained the protections provided to their citizens were weak. Thanks to feeble enforcement on the part of the US Federal Trade Commission, American firms have got away with all kinds of negligence. The principle of Safe Harbour – that a European consumer’s data could not be passed on to a third party – looked paper-thin even before the extent of the NSA’s spying became clear.

That is not to say that the ECJ’s ruling will translate well in the real world. Simply enacting the court’s verdict will pile costs on to US firms which would have to set up infrastructure in Europe to hold EU customer data. Even payroll data could not be shared between an office in London and one in New York. Of more concern is the shift this would mark to a so-called “balkanisation” of the internet, whereby digital firms have to tailor their services to each country they operate in. Not only would such stratification compromise the “open borders” that have allowed the internet to flourish; it would increase the cost of running a digital business – costs which would inevitably be passed on to the consumer.

Far better than summary implementation of the ECJ verdict, then, would be for the European Commission to complete its negotiation with Washington over an updated Safe Harbour treaty, which takes into account the European concerns over privacy. Solving this dispute through the creation of more digital borders will do more harm than good.