The Section 1377 Review (“Review”) is based on public comments filed by interested parties and information developed from ongoing contact with industry, private sector, and foreign government representatives in various countries. This year USTR received four comments and two reply comments from the private sector, and one comment from a foreign government.

The ability to send, access and manage data remotely across borders is integral to global services, including converged and hybrid services such as cloud services. However, the tremendous increase in cross-border data flows has raised concerns on the part of many governments. Given that cross-border services trade is, at its essence, the exchange of data, unnecessary restrictions on data flows have the effect of creating barriers to trade in services.

Recent proposals from countries within the European Union to create a Europe-only electronic network (dubbed a “Schengen cloud” by advocates) or to create national-only electronic networks could potentially lead to effective exclusion or discrimination against foreign service suppliers that are directly offering network services, or dependent on them.

Deutsche Telekom AG (DTAG), Germany’s biggest phone company, is publicly advocating for EU-wide statutory requirements that electronic transmissions between EU residents stay within the territory of the EU, in the name of stronger privacy protection. Specifically, DTAG has called for statutory requirements that all data generated within the EU not be unnecessarily routed outside of the EU; and has called for revocation of the U.S.-EU “Safe Harbor” Framework, which has provided a practical mechanism for both U.S companies and their business partners in Europe to export data to the United States, while adhering to EU privacy requirements.

The United States and the EU share common interests in protecting their citizens’ privacy, but the draconian approach proposed by DTAG and others appears to be a means of providing protectionist advantage to EU-based ICT suppliers.

Given the breath of legitimate services that rely on geographically-dispersed data processing and storage, a requirement to route all traffic involving EU consumers within Europe, would decrease efficiency and stifle innovation. For example, a supplier may transmit, store, and process its data outside the EU more efficiently, depending on the location of its data centers. An innovative supplier from outside of Europe may refrain from offering its services in the EU because it may find EU-based storage and processing requirements infeasible for nascent services launched from outside of Europe.

Furthermore, any mandatory intra-EU routing may raise questions with respect to compliance with the EU’s trade obligations with respect to Internet-enabled services. Accordingly, USTR will be carefully monitoring the development of any such proposals.