Japan and the European Union announced an agreement in principle on major components of a substantial free trade deal on the eve of the recent G20 summit in Hamburg. This free trade deal rivals NAFTA in scope and impact, as it will impact 40 percent of the world’s trade. Once finalized, this free trade pact is expected to remove tariffs and other trade barriers between the EU and Japan on a variety of goods and services. Removing barriers would make European goods and services more competitive in Japan, and likewise, Japanese goods and services more competitive in Europe, likely boosting sales in these markets.
One of the major unresolved areas in this pending free trade pact is the unrestricted flow of consumer transaction data. The ultimate resolution of this data flow issue could be of interest to U.S. companies as it may have a broader impact on how data flows globally and where it may be stored in the cloud.
Under current law, a European business selling its products and services in Japan must store its customer data on servers located in Japan. Separate storage in Japan means higher costs for that European company. Japanese companies operating in Europe face the same types of storage restrictions and increased costs. In the free trade deal, the Japanese had hoped to include language that would serve as a global model for the free movement and store of data across borders. However, the European Union was unwilling to include such broad language in a trade agreement out of concern it would compromise its strong and comprehensive data protection regime.
Rather than delay the announcement of an agreement in principle on free trade, Japan and the European Union instead agreed to include in their pact a commitment to review the data flow issue after three years. The ultimate resolution could well be closer to the European Union data protection regime, with conditions or restrictions on the free movement and storage of data between Japan and the European Union. Such a resolution would be at odds with the goals of major U.S. technology companies and cloud providers who have long negotiated for the free transfer and storage of data worldwide. The U.S. government is not a party to this free trade pact, and may not be able to influence the final resolution of this issue. Therefore, monitoring the trade pact discussions between Japan and the European Union will be important for U.S. companies and their counsel.