The European Union (EU) put into effect today a law which could have considerable impact on American companies. The goal of the law is to prohibit companies from using information about their customers in ways the customers never intended -- for example selling it to other companies for use as a marketing tool.

Experts say that it has the potential to disrupt electronic commerce with the U.S. unless the two sides resolve deep philosophical and legal differences over protecting privacy.

• American officials say they agree with Europe on the basic principle that privacy should be protected.

• Experts say that the main obstacle is that European countries enforce laws in a bureaucratic, top-down approach -- while the current U.S. approach is to allow industries to police themselves through self-regulating organizations.

• The law was adopted three years ago after a majority of EU nations agreed to issue a directive requiring countries to enact their own laws -- of which six have drafted legislation or passed such laws so far.

• Observers say that neither EU nor U.S. officials paid much attention to the potential problems until a few months ago.

European officials could theoretically soon begin blocking transatlantic data transfers by multinational corporations and the growing number of Internet companies. But a temporary solution is expected to give the two sides more time to negotiate.

European nations essentially ban telephone marketing to people's homes, and that prohibition is now being applied to unsolicited sales approaches by fax and E-mail. Several nations, including Germany and the Netherlands, have government agencies devoted exclusively to protecting personal data. Companies that are accused of violating privacy laws can be prosecuted under criminal laws.

Source: Edmund L. Andrews, "European Law Aims to Protect Privacy of Data," New York Times, October 26, 1998.