Brazilian President Pursues Server Localization Policies

by White & Case LLP

Brazilian President Dilma Rousseff reportedly aims to push Congress to vote in February 2014 on sweeping legislation relating to internet governance. The bill, titled "Civil Internet Framework (Marco Civil da Internet)," sets forth the principles, guarantees, rights and obligations for internet use in Brazil, according to its introductory language. The most recent version of the Framework includes a provision that authorizes the Brazilian Executive Branch to require the establishment and use of domestic data centers by internet service and program providers.

The Brazilian Executive Branch, under President Dilma Rousseff, introduced the Framework to Congress on August 24, 2011. However, disagreement among congressional coalitions in regard to certain provisions – such as those relating to internet neutrality, one of the main pillars of the Framework – has prevented lawmakers from considering and voting on the Framework. Internet neutrality, as the Rousseff Administration proposes in the Framework, would prohibit service providers from throttling internet speed based on content (e.g., music, video or email).

Amidst the scandal stemming from US National Security Agency foreign surveillance activities and in response to a request from President Rousseff, House of Representatives Framework Rapporteur Alessandro Molon (Workers Party Member from Rio de Janeiro) introduced on November 5, 2013 an updated version of the Framework, which allows the Executive Branch to force certain internet connection and program providers to build or use data storage, management and dissemination infrastructure (e.g., data centers) in Brazil. According to the updated Framework, whether an internet connection and program provider is subject to the domestic data center requirement will depend on its size, domestic sales, and the breadth of services it offers in Brazil. The updated Framework also prescribes possible sanctions for violations of the domestic data center requirement and other requirements, including (i) a warning, with a deadline for corrective action, (ii) a fine of up to 10 percent of after-tax domestic revenue, and (iii) temporary or permanent suspension of infringing activities.

The domestic data center language contemplated under the Framework has received considerable criticism from both foreign and Brazilian industry actors and coalitions. The US-based Information Technology & Innovation Foundation (ITIF) listed the proposed domestic data center requirement as one of the "10 worst innovation mercantilist policies of 2013." The also US-based Telecommunications Industry Association (TIA) has urged the Brazilian government not to "unnecessarily impede the cross-border flow of information through local data storage mandates," and has asserted that "proposed actions by the Brazilian government would unnecessarily impede the ability of [US] and Brazilian companies to operate in the interests of their customers through government mandates and competition." Such groups as Digital Europe, the Canadian Chamber of Commerce and the Brazilian Association of Information Technology and Communication Companies (Associação Brasileira de Empresas de Tecnologia da Informação e Comunicação (BRASSCOM)) have also reportedly warned the Rousseff Administration against seeking the domestic data center requirement.

Owing to apparent inaction in Congress on the Framework since its August 2011 introduction and the controversy stemming from allegations of NSA spying activity targeting Brazil, President Dilma Rousseff declared the Framework to be of so-called "constitutional urgency" in September 2013, thus placing the bill on an expedited 45-day congressional consideration schedule. The Rousseff Administration's Workers' Party (PT), however, has been unable to obtain key support from the usually allied Brazilian Democratic Movement Party (PMDB) on the internet neutrality issue. PMDB lawmakers fear that any restriction on the ability of service providers to throttle internet speed based on accessed content is an affront to free market principles. Although the 45-day constitutional urgency period has expired, the Rousseff Administration now argues that lawmakers should turn their attention to the Framework before any other Executive Branch-pushed initiative currently in Congress. Nevertheless, because it remains unclear whether the Rousseff Administration and PMDB will be able to reconcile their differences over the internet neutrality language in order to pass the Framework, the prospects for implementation in the near-term of the domestic data center requirement contemplated under the Framework are uncertain.

President Rousseff has pointed to the NSA foreign surveillance allegations in connection with her Administration's support for enshrining in law the Framework's domestic data centers language. Industry critics allege that the Rousseff Administration's intentions on domestic data centers are similar to digital localization initiatives pursued by such countries as Vietnam and Indonesia as part of larger industrial policies targeting the inward investment in high-tech sectors. The concern among industry actors is that, if countries like Brazil impose domestic data center requirements, and service providers relocate data centers and related jobs and knowledge to such countries due to the enticing size of their internal markets, other countries could follow suit and impose similar domestic data center measures.

Click here for the updated Framework (in Portuguese), and here for an unofficial English-language translation of the same.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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