Published on the 02/05/2017 | Written by Newsdesk

The unintended consequences of ‘data sovereignty’ laid bare…

In the old days, it was trade barriers, the protectionism of which was designed to shield industries from cheaper goods manufactured elsewhere at the expense of the consumer. While trade barriers might not have disappeared entirely, the modern era has seen the same faulty logic being applied with data barriers. While far from the worst of the bunch, Australia and New Zealand aren’t looking completely rosy when it comes to artificial information flow restrictions which can limit trade and the prosperity which typically flows from it.

That much has emerged in a press release out of Washington, DC, with the Information Technology and Innovation Foundation (ITIF) providing a catalogue of national barriers to the flow of data and a review of studies detailing their economic costs in a new report.

ITIF pointed out that ‘data is the lifeblood of the modern global economy, yet 34 countries have enacted unwarranted policy restrictions that make it more expensive and time consuming—if not illegal—to transfer data across national borders’.

A review of the current research finds that these barriers impose significant costs: reducing U.S. GDP by between 0.1 and 0.36 percent; causing prices for some cloud services in Brazil and the European Union to increase by between 10.5 and 54 percent; and reducing GDP by between 0.7 and 1.7 percent in Brazil, China, the European Union, India, Indonesia, Korea, and Vietnam, all of which have either proposed or enacted data localisation policies.

In its list of countries which have such restrictions, it noted that ‘In 2012, Australia enacted the Personally Controlled Electronic Health Records Act, which requires that personal health records be stored only in Australia’.

And across the ditch, ‘New Zealand’s Internal Revenue Act requires businesses to store business records in local data centres’.

ITIF said the practice of locking data behind geographic borders is costing the global economy billions of dollars, with the burden falling not just on trading partners, but also on the very countries that impose barriers on data. The report urges policymakers around the world to step up their efforts to roll back these unwarranted barriers to modern trade, especially in the countries that use them most, such as China, Russia, Indonesia, Nigeria, and Vietnam.

“The use of data analytics in virtually all industries—both tech-driven and traditional—has streamlined business practices and increased efficiency. But it has also made the movement of data more important than ever,” said Nigel Cory, ITIF trade policy analyst and the report’s author.

“While countries employ a range of rationales for blocking data—from protecting privacy to stimulating economic growth—none holds up under scrutiny. It’s time to push back. Policymakers should appeal to other nations’ self-interest: These policies won’t help them reach their privacy, security, or economic goals, but they’ll force all firms that use IT services to pay more, a self-inflicted wound that undermines economic growth and their own firms.”

Cory details two main drivers of these costs: At the firm level, barriers to data flows make firms less competitive, because companies are forced to spend more than necessary on IT services. At the country level, barriers make it harder and more expensive for domestic companies and citizens to gain global exposure, benefit from the research and best practices that accompany data flows, and use innovative new goods and services that rely on data.

The report explains that concerns about privacy, cybersecurity, and economic growth are the main reasons countries give when they institute these policies. However, ITIF said these rationales are faulty:

• In almost all cases companies are bound to a nation’s privacy and data protection laws merely by doing business there—thereby establishing a legal nexus—so a firm cannot escape complying with a nation’s privacy laws simply by transferring data overseas.
• The security of data does not depend on where it is stored, only on the measures used to store it securely. A secure server in Laos is no different from a secure server in Brazil. If anything, by allowing data to leave its borders, a country allows its companies and individuals to store their data with companies that use the most advanced measures to protect the data, regardless of where it is physically stored.
• Countries are mistaken in believing that if they restrict data flows, they will gain a net economic advantage from companies relocating data-related jobs to their nation. As data centers have become more automated, the number of jobs associated with each facility has decreased, especially for technical staff. Conversely, by allowing local companies to store data anywhere in the world, these countries can reduce costs and make their firms and workers more productive, bolstering the local economy.

ITIF provided recommendations to policymakers for how to address this barrier to modern trade. These include:

• Recognising the critical role of data flows in promoting growth and innovation and abandon data-localisation policies;
• Promote international interoperability in privacy and data protection; and
• Encourage international organisations, such as the World Trade Organisation and the Organisation for Economic Cooperation and Development, to focus on digital trade barriers.

“Data flows are essential to today’s modern economy,” said Cory. “This fact will only become more evident as innovative firms and individuals around the world come up with new ways to leverage data. While we do not always know exactly what new innovations will look like, we do know that data will be central. The Trump administration, with the support of like-minded countries, needs to understand the importance of global data flows and step up efforts to prohibit and roll-back these digital trade barriers.”

The ITIF report is available here.