The Economic Importance of Getting Data Protection Right

Monday, April 15, 2013 - 8:00pm

Protecting Privacy, Transmitting Data, Moving Commerce

A trade impact assessment of the General Data Privacy Regulation (GDPR) by the European Centre for International Political Economy (ECIPE) for the U.S. Chamber of Commerce

Executive Summary

  • This study assesses the potential external trade impact of the EU's proposed General Data Privacy Regulation (GDPR), using the well-established GTAP 8 model to estimate the potential trade effects on GDP, general welfare, services sector output and trade. The assessment of the impact is associated with many uncertain assumptions due to ambiguity and unclear propositions in the proposed regulation itself, especially the controversial proposal of ‘right to be forgotten’.
  • The results from the modeling show that EU GDP shrinks as the degree of trade disruptions increase. The magnitude of the effects varies in accordance with the disruptions and could under some modest assumptions eradicate the estimated economic recovery for 2014, or all the estimated growth contribution from the proposed EU-U.S. Free Trade Agreement. This result holds even if GDPR comes into force in its most conservative form.
  • If services trade and cross-border data flows are seriously disrupted (assuming that binding corporate rules, model contract clauses and EU-U.S. Safe Harbor framework are no longer recognized), the negative impact on EU GDP could reach -0.8% to -1.3%. EU services exports to the United States drop by -6.7% due to loss of competitiveness. As goods exports are highly dependent on efficient provision of services (up to 30% of manufacturing input values come from services), EU manufacturing exports to the United States could decrease by up to -11%, depending on the industry. In such case, the export benefits produced by the EU-U.S. FTA are eradicated by a good margin.
  • The direct negative welfare effect (under the same assumptions) of the regulation could reach up to 1,353 USD (1041 euro) per year for a household of four people.
  • If the ‘right to be forgotten’ rule is added, the regulation could cause a GDP decrease for the EU of -1.5% to -3.9%, and welfare loss of or 4,566 USD (3,512 euro) per household. This rule, however, is contested and considered by experts to be ‘technically impossible’ to implement.
  • To offset the potential negative effects from trade and productivity losses under the assumption that the ‘right to be forgotten’ rule is not implemented, final private consumption in the EU would have to be boosted by 13% on all goods and services.
  • The study clearly illustrates the importance of choosing the least restrictive measures for the objectives sought. Disrupting services supply chains and cross border flow of data has a serious detrimental impact on the economy and is likely to hurt the domestic economy more than foreign trading partners.