Digital trade, data protection and the EU adequacy club

Between 2000 and 2020, the EU granted 14 so-called adequacy decisions, permitting EU citizens’ personal data to flow freely between the EU and the respective trading partners, including among the countries accorded adequacy. Most adequacy decisions are unilateral, complementing the more commonly observed and analyzed mutual recognition arrangements for technical regulations. Using structural gravity to assess the relationship between EU adequacy decisions and digital trade, and applying different approaches to define digital trade, we find that adequacy increases bilateral digital trade between the EU and the adequate countries by 7 to 9 percent compared to non-digital trade. We also provide evidence of a “club effect,” with digital trade increasing between countries that have been granted adequacy, but only to the extent that the US is part of the club. Using synthetic control methods, we show that the magnitude of the club effect varies across countries.