Don Quijones: Did the European Court of Justice Just Torpedo the Mother of All US Trade Agreements?

Yves here. Many commentators have been even more worried about TISA, the pending Trade in Services Agreement, which has gotten less press than the TransPacific Partnership and the Trans-Atlantic Trade and Investment Partnership. So this European Court of Justice decision looks to be a rare bit of good news.

By Don Quijones, of Spain & Mexico, and an editor at Wolf Street. Originally published at Wolf Street

Europe’s already rocky trading relationship with the U.S. just got a whole lot worse. Thanks to one young man’s battle against one of the world’s biggest tech companies, data traffic underpinning the world’s largest trading relationship has been thrown into jeopardy.

As the Wall Street Journal warns, hanging in the balance could be billions of dollars of trade in the online advertising business, as well as more quotidian tasks such as storing human-resources documents about European colleagues.

A Decidedly Unsafe Harbor

When, in 2013, the Austrian law graduate Max Schrems filed a data-privacy-infringement lawsuit against Facebook after Edward Snowden had revealed the full extent of the company’s collusion with the NSA, little could he have imagined the impact he would end up having. Now, two years later, the European Court of Justice has ruled that the Safe Harbor Agreement that has governed EU data flows across the Atlantic for some 15 years is no longer valid.

As Tech Crunch notes, the new ruling will affect all companies that outsource data processing of E.U. users’ data to the U.S:

The Safe Harbor executive decision allows companies to self certify to provide “adequate protection” for the data of European users to comply with the European data protection directive, and with fundamental European rights such as the right to privacy (under Article 8 of the European Convention for the Protection of Human Rights).

In response to the ruling, Schrems said it “draws a clear line” by clarifying that mass surveillance “violates our fundamental rights.” The ruling will also directly affect the operations of some 4,500 European and international companies, including U.S. tech giants Alphabet (Google’s newborn parent company), Amazon, Facebook, and Microsoft.

However, while the biggest players claim to have already set up backup legal mechanisms to avoid clashes with regulators, including expanding the size of their European data centers, smaller companies may find it prohibitively expensive to build their own European facilities or pay companies that already have them. Setting up servers in Europe could double operations costs, said Chris Babel, chief executive of TRUSTe, which advises startups on data-protection laws.

No Protection

More important still, the ECJ’s ruling could torpedo a sizable chunk of the world’s biggest and most secretive trade agreement currently under negotiation, the so-called Trade in Services Act (TiSA). Allegedly in the late stages of negotiation, TiSA currently has 52 prospective signatory nations (compared to the Trans-Pacific Partnership’s paltry 12). Those nations include both the U.S. and all 28 members of the European Union.

As WOLF STREET previously reported, TiSA appears to have three primary goals: 1) privatize all services; 2) rip up national and regional financial regulations and 3) spread the U.S. approach to data protection — i.e. no protection — around the world:

The draft Financial Services Annex of TiSA, published by Wikileaks in June 2014, would allow financial institutions, such as banks, the free transfer of data, including personal data, from one country to another.

As Ralf Bendrath, a senior policy advisor to the MEP Jan Philipp Albrecht, writes in State Watch, TiSA would constitute a radical carve-out from current European data protection rules:

The transfer and analysis of financial data from EU to US authorities for the US “Terrorist Finance Tracking Programme” (TFTP) has already shaken EU-US relations in the past and led the European Parliament to veto a first TFTP agreement in 2010. With the draft text of the TiSA leak, all floodgates would be opened.

The weakening of EU data protection rules through TiSA goes further than “only” the financial sector. According to sources close to the negotiations, a draft of the TiSA “Electronic Commerce and Telecommunications Services Annex” contains provisions that would ban any restrictions on cross-border information flows and localization requirements for ICT service providers. A provision proposed by US negotiators would rule out any conditions for the transfer of personal data to third countries that are currently in place in EU data protection law.

Big Brother Unleashed?

If signed, TiSA would set Big Brother (led by the NSA and fellow five-eye partner organizations such as the UK’s GCHQ) free to roam and eavesdrop on a very large part of the globe completely unhindered by national laws or regulations. Multinational corporations from all sides of the Atlantic and Pacific Ocean would also have carte blanche to pry into just about every facet of the working and personal lives of the inhabitants of roughly a quarter of the world’s 200-or-so nations.

At least that was the plan. However, according to Spain’s biggest daily, El País, data protection has always represented a big fat red line in the EU’s trade negotiations with the U.S. In the wake of Snowden’s revelations, there have even been proposals to introduce changes to the routing of internet data packets, so that they take a certain path and remain within the EU. Brussels has also negotiated the construction of a deep-sea Internet cable between Portugal and Brazil that is intended (but is unlikely) to be NSA-proof.

In the European Parliament an amendment tabled by the Green Party to encrypt all Internet traffic from end to end was adopted as part of a compromise on the committee vote in February. Now, thanks to Snowden’s revelations and Schrems’ court case against Facebook, the EU has a perfect opportunity to redraw the limits of data protection.

In private and behind firmly closed doors, however, the European Commission’s trade negotiators – the people with real clout in the negotiations – will continue to come under intense U.S. pressure to sign away virtually all European data protection rights. To what extent they yield will ultimately hinge on the extent to which the Commission’s recent outrage over the U.S. government’s wholesale subversion of Europe’s data protection laws – with a little help, of course, from Germany’s intelligence agency – is genuine or faux.

As the president of the Transnational Institute, Susan George, told El País, “you never really know what is really being negotiated between the two trading blocs.” Until it’s too late, of course: in the case of TiSA the treaty’s binding text is to be “considered confidential” — i.e. not for public consumption — for at least five years after being signed.

After this Monday’s provisional signing of TPP, an agreement that civil rights groups warn could herald a new age of unbridled global Internet censorship, the momentum appears to be shifting in the corporatocracy’s favor. What this might mean for the increasingly strained trade relationship between the U.S. and Europe — a relationship that is, according to El País, in critical condition — it’s still too early to tell. After all, the only chance we have of knowing what decisions our elected representatives are making on our behalf these days is if someone, somewhere has the uncommon decency to leak them. By Don Quijones, Raging Bull-Shit.

A secluded private courthouse in Washington DC is currently the scene of a legal battle that could have serious ramifications for all of us. Yet virtually nobody knows about it. There’s no trial, no judge, and no jury. Read… Corporation vs. Nation: The Ultimate Showdown

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  1. jgordon

    Speaking of Wikileaks revealing (formerly) secret trade treaty documents, I’m confused about something: shouldn’t Obama be thrilled about the activities of wikileaks? After all, he did repeatedly pledge that his regime would be the most transparent in history(tm). And wikileaks is only helping him keep that pledge.

    Wouldn’t it be a shame if people formed the mistaken impression of Obama that he’s a lying hypocrite, merely because he accidentally kept a couple of innocuous trade treaties top secret? But thanks to the ever helpful wikileaks he doesn’t have to worry about that now! Therefore I’m not sure where all this animosity and angst for wikileaks is coming from.

    1. Bob

      Obama is not a lying hypocrite, you and the rest of mankind are ignorant about what’s really going on.

      Crisis of democracy

      Our brains are much worse at reality and thinking than thought. See the manufacturing consent videos when you get the time.

      Science on reasoning:

      Protectionism for the rich and big business by state intervention, radical market interference.


      Manufacturing consent:

      Other important info

      Michael Hudson

      The real news

      The Citibank memo

      Citigroup memo

      Richard wolf on capitalism

      US distribution of wealth

      This is a project of american empire, aka the rich (big business) vs the rest of mankind.

      The grand chessboard

      The Grand Chessboard: American Primacy And Its Geostrategic Imperatives

      Grand chessboard user review

    2. Valerie

      Laughed and laughed! Poor Obama (and Clinton for that matter), his spot in history isn’t going to be the grand and glorious place he envisions for himself.

  2. Jerry

    I have trouble making sense of the claim that a treaty on commerce could remain secret for years after it is enacted. How would it be enforced? How would parties know they are violating it? How would they know what changes to make to comply with it?

    1. Ruben

      One way to make sense of the 5-yr-after secrecy clause is by understanding that the treaty would be kept opaque to the voters, not to the corporations and the gov’t, which would be the parties involved in any conflict resolution. The idea is to protect the politicians from being voted out because they established the treaty.

      You may imagine the following conversation:

      Business apparatchik: We want you to establish international treaties to make business impenetrable to political uncertainty.
      Political apparatchik: But aren’t we supposed to be democrats?
      Business apparatchik: Democratic decisions are sometimes bad for business and for the people making those democratic decisions, your role is to defend people from their own mistakes.
      Political apparatchik: I got that, but people will then vote me out because they are ignorant of all the bad implications of their democratic decisions.
      Business apparatchik: Then make the treaties secret for the period of one electioneering cycle, thus for the following electioneering cycle you can claim it was not you and look it is working anyways.

      1. Alejandro

        Business apparatchik: We want you to establish international treaties to make business impenetrable to political uncertainty.

        Concerned Citizen: Isn’t that making Corporations more unaccountable than they already are?

        Business apparatchik: Democratic decisions are sometimes bad for business and for the people making those democratic decisions, your role is to defend people from their own mistakes.

        Concerned Citizen: Aren’t business decisions sometimes also bad for “we the people”, e.g., when they decide to make stuff elsewhere, that we’ve been making and can continue to make right here…who’ll defend us then?

        Business apparatchik: Then make the treaties secret for the period of one electioneering cycle, thus for the following electioneering cycle you can claim it was not you and look it is working anyways.

        Concerned Citizen: What if it isn’t “working anyways”, can we change it then? Isn’t it really just an adroit way of crystallizing permanent racketeering cycles?

      2. susan the other

        Last nite’s coverage on France24 of the TTIP protest in Berlin. There were @250,000 demonstrators, all articulate. One young woman said the TTIP amounted to “dictatorship of the market.”

    2. danny

      They can’t. It’s patently unconstitutional. There’s case law that directly addresses your point. Laws need to be public and not overly broad to be enforceable.

      1. Anarcissie

        So how is all this happening, then? It does seem patently unconstitutional, at least in the US. I don’t mean unconstitutional under interpretation. I mean overtly, directly, incontrovertibly unconstitutional.

        1. MaroonBulldog

          It’s only unconstitutional if someone in a position to object, does object, and succeeds in her objection.

          Nothing is unconstitutional if no one stands up for the constitution.

          1. Ulysses

            Important point! The Patriot Act is “overtly, directly, incontrovertibly unconstitutional,” and yet very few people had the guts to call out our surveillance state– over its unilateral abrogation of many citizen rights protected in the first ten amendments.

        2. danny

          It’s arguably legal to keep terms secret until the deal is signed. After that it needs to be made public for a) legislatures to sign; b) to make enforceable; and c) for courts to interpret. So a five year secrecy pact would be unconstitutional.

    3. Brooklin Bridge

      These are excellent questions. In a related area, there was discussion the other day about whether or not the TPP was an agreement or a formal treaty:

      My understanding is that If Congress passes a trade agreement into law by a 2/3s majority, it’s considered a treaty, but does passing Fast Track into law allow an end run around the 2/3’ds rule while maintaining the status of “treaty”?

      Browsing the internet (while it’s still legal), the term treaty is often used when discussing, reporting on, or describing the TPP (etc.), but I can’t find the subject specifically addressed with regards to TPP. Wikipedia defines TPP as a “trade agreement” which in turn is a link which specifies, “A trade agreement (also known as trade pact) is a wide ranging tax, tariff and trade treaty that often includes investment guarantees.”[emphasis mine]:

      I say related to the issues you raise, because these distinctions weigh very much on how such agreements are enforced and maintained – including, I would imagine, on whether or not they can be enforced in secret or without recourse to judicial protections.

      On a broader level, how does a nation get out of such an agreement? Can an agreement can simply be a law and thus repealed? A treaty can have exits, but those can be made very difficult, for instance, requiring all signatories to unanimously agree.

      Coming back to your points, there was also discussion in comments the other day,, that the TPP or any such agreements must be made public 60 days before Presidential signing. Others pointed out that in practice this may be gotten around. I pointed out that the way this was being described didn’t sound like the TPP was going to be made public any time soon.

    4. Yves Smith Post author

      It’s not a treaty. And all sorts of parties who are involved in the negotiation have seen it That’s been one of Congress’s beefs about the TPP: tons of people at big corporations have seen draft language, but they have to schedule a viewing time, go into a room with guards, and are not permitted to take any notes of what they’ve read.

      This has been well covered. For instance:

      As for it being secret after passed…ignorance of the law is no defense against prosecution. The members of the ISDS trade panels are also the ones who file the suits. See here for details. Be sure to scroll down to the image:

      1. Brooklin Bridge

        This has been well covered.

        Sorry, I should have done further research. The reason I brought it up was because someone suggested that a simple agreement was simply a law and could thus be repealed whereas a treaty could be made far more difficult to get out of. And then I also seem to remember you saying the TPP (and the evil siblings) have provisions making it indeed very difficult to beg off from once signed. A cursory search has not found the post.

        1. Brooklin Bridge

          Note, I’m well aware that the TPP is secret and has been kept so, but I think the question raised was will it remain secret after (and IF) it is passed and if so, how?.

        2. Brooklin Bridge

          Note to Note,
          Man how time flies. I could have sworn the, “House Pushing Back On Trade Deal;…” was posted only a few months ago. I remember being bowled over by the diagram (unless you copied it recently).

          1. Yves Smith Post author

            Yes, I have reposted that chart that Public Citizen published way back in 2013 (it may even be older, but we used it first in 2013) repeatedly because it’s so damning. Everyone really needs to see how corrupt the ISDS panels are.

            Of course, the problem is getting people to understand that they are part of the deal.

            Re the treaty part, logically it ought to be a treaty, particularly given the geopolitical aims, but I suspect that the lack of any provisions re military actions/obligations makes it arguably not a treaty.

            1. vlade

              I am pretty sure that double taxation agreements are treatites and have no military actions or obligations in then ( one would hope)

        3. Oregoncharles

          i suspect any obstacles to withdrawing are pretty moot when it comes to the big dog on the block. Who’s going to enforce penalties against the Sole Superpower (not so sole any more, but still)?

          There are advantages, to go with the considerable costs. This is very likely also the reason there have been so few suits against the US under ISDS-type mechanisms. Not none – remember COOL? The Trade Office was lying bare-faced about that. But very few, because one that actually upset the Big Dog could end the whole charade.

          And again: it isn’t a treaty, because it’s passed by a majority of both houses. It may well be a treaty in other countries with different laws. And yes, that seems to imply that it can be rescinded the same way – in the US. As could all the trade “agreements.”

          The point about post-passage secrecy being unconstitutional (in the US) appears ironclad. Apparently Shrub was right: it’s just a g-d piece of (hemp) paper. But Obama already claims and exercises dictatorial powers, and no one says him nay.

      2. jgordon

        Wait–you said it’s not a treaty? Just to make sure I checked multiple definitions for the word “treaty” around the internet. Here is one from Miriam-Webster. It’s typical:


        noun trea·ty \ˈtrē-tē\

        : an official agreement that is made between two or more countries or groups
        plural treaties

        1: the action of treating and especially of negotiating
        2a : an agreement or arrangement made by negotiation: (1) : private treaty (2) : a contract in writing between two or more political authorities (as states or sovereigns) formally signed by representatives duly authorized and usually ratified by the lawmaking authority of the state
        b : a document in which such a contract is set down

        I don’t understand. Does the Constitution have some other drastically different definition of the word “treaty” that’s not commonly in use? And if so why wasn’t it mentioned anywhere I looked on the internet. Is it some super secret legal interpretation that only those steeped in the arcane mysteries of Law have privy to? I’m seriously confused here. If this isn’t a treaty, then just what is it?

        1. Oregoncharles

          Yes, the Constitution has its own definition. A treaty requires confirmation by 2/3rd of the Senate (alone). If not passed that way, not a treaty IN THE US.

          1. John Zelnicker

            And, IIRC, avoiding the necessity of rounding up 2/3 of the Senate for a vote in favor is another reason Obama is calling it something like an “executive agreement” instead of a treaty.

  3. Kris Alman

    In the meanwhile, states are competing to give the most tax breaks to data centers. Where I live in Oregon, we are literally giving away the farm.

    These subsidies don’t fulfill objectives for job creation. But they do please the FIRE sectors. Data centers set the bar for ROI in the knowledge economy. In capitalizing on American’s addiction to data, smart executives use smart phones and smart technology to monopolize the market through the Internet of Things.

    Data/information = $$$. Data hoarders want to know the granular details of our lives. Since people are the product in the knowledge economy, income inequality is fueled by data inequality.

    Of course, Europeans understand this better than Americans. Europeans are fed up by NSA surveillance through the backdoors of Google, Facebook and telecom providers.

    The memories of post WW II fascism led the German Federal Constitutional Court to recognize in 1983 an individual’s right to control information about himself. So-called “informational self-determination” doesn’t work well if there are limits on corporate surveillance. After all, advertising business is expected to be worth more than $80 billion worldwide by 2018.

    In a NY Times article, Behind the European Privacy Ruling That’s Confounding Silicon Valley, Bruce Schneier (a leading computer security analyst) says: “Surveillance is the business model of the Internet.”

    That’s why last week’s European Court of Justice privacy ruling creates angst for U.S. Commerce Secretary Penny Pritzker and Silicon Valley. Senator Wyden said, “By striking down the Safe Harbor Agreement, the European Union Court of Justice… called for open season against American businesses.” Wyden blames the problem on the NSA for its digital dragnet. He says we shouldn’t wait for the expiration of section 702 of the FISA statute in December 2017.

    However, it’s likely that the NSA conducts much more of its spying under the President’s claimed inherent powers: Executive Order 12333. According to the Electronic Frontier Foundation, the Executive Order mandates in broad strokes rules for spying on United States persons (a term that includes citizens and lawful permanent residents wherever they may be) and on anyone within the United States.

    Data from government surveillance and commercial surveillance intermingle in data oceans, where data rains from clouds that cross international borders. Just like the water cycle, data also evaporates into this data ocean from data lakes on American soils. This is through lawful data sharing, surreptitious and shady data sharing, and massive data breaches. Great speech on this: Haunted by Data.

    “Free” data evangelists want you to believe that “personalized” education and health care are going to make you smarter and healthier. Ever read those terms of agreement with every app you download?

    Ever ask to see what your state collects on your child in your State Longitudinal Data System?

    I did three years ago. It wasn’t pretty.

    And since then, the databases have extended into early childhood and the workplace, linking wage records. Hurray for the college scorecard!
    In exploring the metrics that best represent those categories of information, the Department of Education evaluated all available data sources, from publically available data , including the Integrated Postsecondary Education Data System (IPEDS), as well as newly produced data from the National Student Loan Data System (NSLDS) and from the Treasury Department’s federal wage records , and non-federal data sources like the Student Achievement Measure (SAM).

    Ever ask to see what’s collected in your All Payer Claims database?

    I did. Oregonian claims data goes to Milliman Inc., a global actuarial company whose bread is buttered by insurance companies, hospitals and governments in the work they do. (Conflict of interests? You betcha!) Despite HIPAA, the Oregon Health Authority refused to show my data. So I am waiting to hear back from Health and Human Services Office for Civil Rights after my formal complaint.

  4. jawbone

    What will affect the votes of our elected reps? Analysis has shown that essentially the pols vote to please their big donors, not their many voters, of either party.

    What works???

    They will be promised sinecures and good money for going along with the damnable trade “agreements.”

  5. danny

    This piece brings up a lot of good points. However I find it unlikely this ECJ judgment on its own scuttles TISA. A more significant judgment would need to occur. That said, this ruling – like the right to be forgotten decision before it – helps set that stage. But doesn’t kill TISA, which will be like other trade deals that appear keep rising from ashes.
    In short, companies still have ways to bring EU data to the US. Safe harbor was only one option. Sure these create more work and regulatory hurdles on behalf of the companies but it doesn’t completely shut down data flows. You only need to look at reactions from the various data protection authorities (“DPA”) to see that there is a lot of political pressure to work something out. The decision also means we’ll see DPAs being more careful in how they set aside complaints like Max Schrems’s where the Irish DPA dismissed without much analysis or explanation.
    Three ways forward (and probably more). One, EU is already in process of negotiating a replacement law to the existing data protection act. The new set of regulations could bake in safe harbor like programs. As long as the regulations preserve fundamental rights i expect something workable arrives. Two, the Commission and US were also working on revisions to Safe Harbor. If they address the issues ECJ called out is possible a replacement program survives scrutiny. Three companies learn to live with what we have today, post-ECJ decision. None of those truly prevent TISA or programs under it from reducing some regulatory burdens, or at least enough to make the remainder of TISA worthwhile to other major stakeholders.
    Either way, the US will need to pass laws and take specific action to save the ability for any company to operate in Europe. For example, the Feds are still suing Microsoft for access to user data it holds for an EU resident in servers located in Ireland. If the US government wins then expect the next major ECJ ruling to be even more impaction and say US companies can’t receive any personal data of EU residents. For what it’s worth, i personally think the US should pass European-like data protection laws. We need them badly.

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