The European Commission is ignoring US requests to slow down the implementation of its data privacy directive despite fears that the issue could spark an ecommerce trade war.
Enacted in late 1998, the directive, which covers most electronic transmissions, including email, allows EU member countries to cut off data flows to other countries that do not safeguard consumers privacy to EU standards, such as the US.
Potentially, this could result in a transatlantic silence between US and European banks and financial centres.
The dispute has arisen over the protection measures in place to control how companies use the data gathered from consumers. In EU member countries, consumers can access, change or destroy information held on them. The US, on the other hand, allows data from public records to be collected and re-sold, but gives consumers the chance to opt out of information sharing.
Despite the differences, the EC and the US Department of Commerce last year agreed a 'safe harbour' arrangement in which companies agree to abide by a set of guidelines dealing with the transfer of data.
However, these did not include financial institutions as the US had just passed the Gramm-Leitch-Bliley law, which US officials felt matched European standards.
But EC officials say the US law is not good enough as it has no proper enforcement mechanism, does not give individuals the right to check data held on them by companies and does not cover the sharing of data by firms with their affiliates.
The EC will shortly approve a model contract that all EU financial institutions will have to sign, committing themselves to a guarantee that all their exports to non-EU companies comply with the directive.
The contract is expected to be far more stringent that the safe harbour provisions, to which only a few companies have signed up so far.
US trade officials have objected to the proposed contracts, arguing that they exceed the terms of last year's agreement and could prejudice current efforts to agree how the directive should apply to financial services if they were not delayed.
A temporary exemption of data flows from the EC directive expires in October, and could then be challenged legally. US firms would then have to write to individual EU customers asking their permission to export their data to be sure of complying with the directive.
Although US officials are unhappy at the EC's stance, the EC has dismissed fears that talks could be broken off, saying it is still open to further negotiations.
Frits Bolestein, EC internal market commissioner, is currently in Washington for a two day visit and representatives from the US financial services industry plan to lobby him before sending a delegation to Brussels next month.
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