European firms 'could quit US internet providers over NSA scandal'

European commission vice-president says American cloud services providers could suffer loss of business

guardian.co.uk, Ian Traynor in Vilnius, Thursday 4 July 2013

Neelie Kroes, European commissioner for digital matters, who said: 'If I were
 an American cloud provider, I would be quite frustrated with my government
right now.' Photograph: Yves Logghe/AP

European businesses are likely to abandon the services of American internet providers because of the National Security Agency surveillance scandal, the European commission has warned.

Neelie Kroes, the commission vice-president who speaks on digital affairs, predicted that providers of cloud services, which allow users to store and access data on remote servers, could suffer significant loss of business if clients fear the security of their material is under threat.

The warning came as it appeared that the Americans and the Europeans were to start investigating alleged breaches of data privacy in the EU as well as US intelligence and espionage practices.

Despite threats from France to delay long-awaited EU-US negotiations on a new transatlantic free trade pact, scheduled to open in Washington on Monday, EU ambassadors in Brussels reached a consensus on Thursday to go ahead with the talks.

They could not yet agree, however, on how to respond to a US offer of parallel talks on the NSA scandal, the Prism and Tempora programmes and issues of more traditional espionage arising from reports of how US agencies bugged and tapped the offices and embassies of the EU and several member states.

Dalia Grybauskaitė, the president of Lithuania, said on Thursday that she was not seeking an apology from the Americans. Lithuania takes over the rotating six-month EU presidency this week.

While no decision had yet been taken, she said she hoped the EU-US talks on electronic surveillance would also be launched on Monday and run concurrently. Since much of the alleged US hoovering up of telephone and internet traffic in Europe is assumed to amount to commercial and industrial espionage, the two parallel sets of talks will affect one another.

Senior EU officials complain that there is no point engaging in sensitive trade talks when the other side has already eavesdropped on you and knows your negotiating position.

Grybauskaitė emphasised that the American side was keen to come clean on the dispute.

"They are open to co-operation. They are open to explain," she said. "I never seek an apology from anyone. I seek information … We don't want to jeopardise the strategic importance of free trade."

Pointing to the potential fallout from the disclosures about the scale of NSA operations in Europe, Kroes, the European commissioner for digital matters, predicted that US internet providers of cloud services could suffer major business losses.

"If businesses or governments think they might be spied on, they will have less reason to trust cloud, and it will be cloud providers who ultimately miss out. Why would you pay someone else to hold your commercial or other secrets if you suspect or know they are being shared against your wishes?" she said.

"It is often American providers that will miss out, because they are often the leaders in cloud services. If European cloud customers cannot trust the United States government, then maybe they won't trust US cloud providers either. If I am right, there are multibillion-euro consequences for American companies. If I were an American cloud provider, I would be quite frustrated with my government right now."

The German chancellor, Angela Merkel, the European commission and Grybauskaitė made clear they wanted the trade talks to go ahead as planned on Monday. France appeared to drop its objections despite previously insisting on guarantees that the espionage had been halted before the trade talks could start.

Grybauskaitė also voiced suspicions of a possible Russian role in the furore, pointing to Edward Snowden, the NSA whistleblower, being stuck in Moscow at the same time as weekend revelations about US spying on Europe emerged in the runup to the trade talks.

She insisted that the espionage dispute should not be allowed to derail the trade talks but conceded that "some countries are very sensitive on this question." The Lithuanian finance minister, Rimantas Šadžius, said: "The French have some problems."

EU diplomats said ambassadors from the 28 member states engaged in "urgent and tricky" discussions on Thursday on how to proceed. While the European commission would lead the EU side on issues of data privacy, the talks on intelligence and espionage practices would need to be done by national governments.

It was not clear where Britain fitted into the picture since it is one of the biggest EU countries but has not been targeted by the NSA, unlike Germany or France, according to the reports, and the UK's GCHQ has itself been collecting vast quantities of European internet and telephone data.

Kroes warned that US firms could be the biggest losers from the US government's voracious appetite for information.

"Concerns about cloud security can easily push European policy-makers into putting security guarantees ahead of open markets, with consequences for American companies. Cloud has a lot of potential. But potential doesn't count for much in an atmosphere of distrust."

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