Geopolitical fragmentation, the AI race, and global data flows: the new reality
Most countries in the world have data protection or privacy laws and there is growing cross-border enforcement cooperation between data protection authorities, which might lead one to believe that the protection of global data flows and transfers is steadily advancing. However, instability and risks arising from wars, trade disputes, and the weakening of the rule of law are increasing, and are causing legal systems that protect data transferred across borders to become more inward-looking and to grow farther apart.
The geopolitical race to take a leading role in the development of AI (the ‘AI race’), a technology which requires borderless access to data for the best performing systems and models, is also fundamentally reshaping the international data flows landscape and leading to increased regulatory fragmentation. These two areas (privacy and data protection on the one hand and AI on the other) are intimately connected, as privacy and data protection law form the basis for AI regulation in many regions of the world.
Fragmentation refers to the multiplicity of legal norms, courts and tribunals (including data protection authorities), and regulatory practices regarding privacy and data protection that exist around the world. This diversity is understandable in that it reflects different legal and cultural values regarding privacy and data protection, but it can also create conflicts between legal systems and increased burdens for data flows.
While this new reality affects all regions of the world, it can be illustrated by considering recent developments in three powerful geopolitical players, namely the European Union, the People’s Republic of China, and the United States. Dealing with these risks requires that greater attention be paid to geopolitical crises and legal fragmentation as a threat to protections for the free flow of data across borders.
The end of the ‘Brussels effect’?
There has been much talk of the ‘Brussels effect’ that has allowed the EU to export its regulatory approach, including its data protection law, to other regions. However, the rules on international data transfers contained in Chapter V of the EU General Data Protection Regulation (‘GDPR’) face challenges that may diminish their global influence.
These challenges are in part homemade. The standard of ‘essential equivalence’ with EU law that is required for a country to receive a formal adequacy decision from the European Commission allowing personal data to flow freely to it is difficult for many third countries to attain and sometimes leads to legal and political conflicts. The protection of data transfers under the GDPR has been criticised in the recent Draghi report as overly bureaucratic, and there have been calls to improve harmonisation of the GDPR’s application in order to increase economic growth. In particular, the approval of adequacy decisions is lengthy and untransparent, and other legal bases for data transfers are plagued by disagreements about key concepts between data protection authorities. The GDPR also applies to EU legislation dealing with AI (see the EU AI Act, Article 2(7)), so that problems with data transfers under the GDPR also affect AI-related transfers.
These factors indicate that the EU approach to data transfers may gradually lose traction with other countries. Although many of them still seek EU adequacy decisions and are happy to cooperate with the EU on data protection matters, they may also simultaneously explore other options. For example, some countries that are already subject to an EU adequacy decision or decisions (such as Canada, Japan, Korea, and the UK which has received adequacy decisions under both the GDPR and Law Enforcement Directive) have also joined a group that is establishing ‘Global Cross-Border Privacy Rules’ as a more flexible alternative system for data transfers.
Political challenges to the EU’s personal data transfer regime are now also present. Some companies are encouraging new US President Trump to challenge the enforcement of EU law against them, and some far-right parties in Europe have called for its repeal.
Meanwhile, partly in response to the increased need for access to data in the AI race and partly under a novel digital sovereignty paradigm in this new geopolitical reality, the EU has also begun introducing restrictions on transfers of non-personal data outside the EU, such as through the Data Act, the Data Governance Act, and data localization requirements under the European Health Data Space Regulation. In addition, under the Data Act ‘data holders,’ regardless of where they are based in the world, must make data related to the use of connected devices readily available to EU-based users and recipients. Initiatives to promote the EU’s digital sovereignty and minimise the need to transfer data to centralized foreign platforms can also be expected to gain momentum.
The rise of China
China has already enacted many data-related laws, including some dealing with data transfers, after first introducing sweeping data localization requirements in 2017. It was all the more surprising that in November 2024 the Chinese government announced that it will launch a ‘global cross-border data flow cooperation initiative,’ and that it is ‘willing to deepen cooperation with all parties to promote efficient, convenient, and secure cross-border data flows.’ In a speech he gave at the same time, Chinese leader Xi Jinping said that China ‘is willing to deepen cooperation with all parties to jointly promote efficient, convenient and secure cross-border data flows’.
Exactly what this means is presently unclear. However, China is a member of the BRICS group, which includes countries with nearly half of the world’s population, and has also enacted many regulations dealing with AI. If China is able to use its political and economic clout to influence the agenda for cross-border data flows, as some scholars hypothesize, this could bring the BRICS countries and others deeper into its regulatory orbit for both privacy and AI.
The arrival of data transfer rules in the US
The United States government has recently relaxed its traditional opposition to controls on data transfers and enacted regulations to regulate certain transfers based on US national security concerns.
In February 2024 former US President Biden issued an executive order limiting bulk sales of personal data to ‘countries of concern.’ The Department of Justice then issued a Final Rule in December 2024 setting out a regulatory program to address the ‘urgent and extraordinary national security threat posed by the continuing efforts of countries of concern (and covered persons that they can leverage) to access and exploit Americans’ bulk sensitive personal data and certain U.S. Government-related data.’
It is no secret that these initiatives are primarily focused on data transfers to China, which is one of the six ‘countries of concern’ determined by the Attorney General, with the concurrence of the Secretaries of State and Commerce (the other five are Venezuela, Cuba, North Korea, Iran and Russia, according to Section 202.211 of the Final Rule). While some scholars have expressed skepticism about whether these initiatives will really bring their intended benefits, it is significant that national security has been used as a basis both for regulating data flows and for a shift in US trade policy.
It is too soon to tell if President Trump will continue this focus. However, some of the actions that his administration has already taken have drawn the attention of digital rights groups in Europe who believe they may imperil the EU-US data privacy framework that serves as the basis for the EU adequacy decision allowing free data flows to the US. It is also questionable whether the EU will put resources into negotiating further agreements to facilitate data transfers to the US in light of the current breakdown in transatlantic relations.
Conclusions
We have entered a new era of instability where geopolitical tensions and the AI race have a significant impact on the protection of data flows. To be sure, political factors have long influenced the legal climate for data transfers, such as in the disputes between the EU and the US that led to the EU Court of Justice invalidating EU adequacy decisions in its two Schrems judgments (Case C-362/14 and Case C-311/18). The European Commission has also admitted that political and economic factors influence its approach to data flows. However, in the past political disputes about data transfers largely remained within the limits of disagreements between friends and allies, whereas the tensions that currently threaten them often arise from serious international conflicts that can quickly spiral out of control.
The fragmentation of data transfer rules along regional and sectoral lines will likely increase with the development of AI and similar technologies that require completely borderless data flows, and with increased cross-border enforcement of data protection law in cases involving AI. Initiatives to regulate data transfers used in AI have already been proposed at the regional level, such as in the Continental Artificial Intelligence Strategy published in August 2024 by the African Union, which refers to cooperation ‘to create capacity to enable African countries to self-manage their data and AI and take advantage of regional initiatives and regulated data flows to govern data appropriately’. This will likely also give additional impetus to digital sovereignty initiatives in different regions, which will lead to even greater fragmentation.
Data protection authorities have also begun sanctioning companies for improper data transfers in connection with the use of AI systems, as happened recently in a case where the South Korea Personal Information Protection Commission ordered the Chinese fintech company Alipay to destroy AI models containing personal information transferred to China in violation of South Korean data protection law (see press release no. 135).
The growing influence of geopolitics demonstrates that the protection of data flows requires a strong rule of law, which is currently under threat around the world. The regulation of data transfers is too often regarded as a technocratic exercise that focuses on steps such as filling out forms and compiling impact assessments. However, such exercises can only provide protection within a legal system that is underpinned by the rule of law. The weakening of factors that comprise the rule of law, such as the separation of powers and a strong and independent judiciary, drives uncertainty and the fragmentation of data transfer regulation even more.
The approaches to data transfer regulation pursued by the leading geopolitical players each have their strengths and weaknesses. The EU approach has attained considerable influence around the world, but is coming under pressure largely because of homegrown problems. The US emphasis on national security is inward-looking, but could become popular in other countries as well. China’s new initiative to regulate data transfers seems poised to attain greater international influence, though this may be mainly limited to the Asia-Pacific region.
Although complying with data transfer regulation has always required attention to risk, geopolitical risk has been broadly overlooked so far, perhaps because it can seem overwhelming and impossible to predict. Indeed, events that have disrupted data flows such as Brexit and the Russian invasion of Ukraine were sometimes dismissed before they happened. However, this new reality requires incorporating the management of geopolitical risk into assessing the viability and legal certainty of international data transfers by organizations active across borders. There are steps that can be taken to manage geopolitical risk, such as those identified by the World Economic Forum, namely: assessing risks to understand them better; looking at ways to reduce the risks; ringfencing risks when possible; and developing plans to deal with events if they occur.
Parties involved in data transfers already need to perform risk assessments, but geopolitical events present a larger scale of risk than many will be used to. Risk reduction and ringfencing for unpredictable ‘black swan events’ such as wars or sudden international crises are difficult, and may require drastic measures such as halting data flows or changing supply chains that need to be prepared in advance.
Major geopolitical events and the AI race are having a significant effect on data protection and data flows, making it essential to anticipate them as much as possible and to develop plans to cope with them should they occur. The only thing that can be safely predicted is that further geopolitical developments are in store with the potential to bring massive changes to the data protection landscape and disrupt global data flows, making it essential to give them a prominent place in risk analysis when transferring data.
