And, in a new report just released, the US-based global tech-policy think tank maintains that 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 the “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’s trade policy analyst and the report’s author.
“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.”
According to the report, as well as the 34 countries which have restricted data from leaving their borders, many more are considering similar laws.
Cory says a review of the current research finds that these barriers impose significant costs including:
- Reducing US GDP by between 0.1 and 0.36%;
- Causing prices for some cloud services in Brazil and the European Union to increase by between 10.5 and 54%; and
- Reducing GDP by between 0.7 and 1.7% in Brazil, China, the European Union, India, Indonesia, South Korea, and Vietnam, all of which have either proposed or enacted data localisation policies.
The report explains that concerns about privacy, cyber security, and economic growth are the main reasons given by these countries when they institute these policies.
But, according to Cory these rationales are faulty and he says:
- 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 centres 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.
“Data flows are essential to today’s modern economy,” Cory concludes.
“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 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.”