This Article First Appeared on: Huntonak.com
Business Without Borders: The Importance of Cross-Border Data Transfers to Global Prosperity
I. IntroductIon
The movement of information across national borders drives today’s global economy. Cross-border data transfers allow businesses and consumers access to the best available technology and services, wherever those resources may be located around the world. The free-flow of data across borders benefits all industry sectors, from manufacturing
to financial services, education, health care and beyond. The seamless transfer of information is as critically important as it is inexorably linked to the growth and success of the global economy.
To function in the international marketplace, businesses need reliable, continuous access to data, wherever they are located. Routine business activities, such as providing goods and services to customers, managing a global workforce, and maintaining supply chains, require the transfer of data among corporate locations and to service providers, customers, and others situated around the world. In addition, as the Internet has facilitated the growth and success of micro-multinationals, these small businesses now have access to billions of potential customers beyond their borders and are able
to compete based on the quality of their offerings, unconstrained by geographic limitations.
Despite the myriad benefits of allowing data to flow freely between countries, some governments continue to push for restrictions on cross-border data transfers. This limits the ability of companies to process, store, and access information on a global basis, and impedes end users from being able to choose the best available technologies and access information regardless of location.
Recent restrictions proposed in response to allegations regarding foreign government surveillance inappropriately conflate concerns about access to data for national security and law enforcement purposes with commercial use of, and access to, data. Other restrictions are rooted in government efforts to bolster domestic industry and support national companies. Ultimately, however, instead of creating jobs, these rules reduce efficiency, increase costs to local businesses, and block access to customers abroad, as they simultaneously prevent local consumers from obtaining the products and services of their choosing. Restrictions on cross-border data transfers may isolate domestic economies from the economic growth potential associated with the digital economy.
Regardless of intent, data transfer restrictions imposed by national laws that impede the free flow of data cause significant ramifications globally. Among other consequences, these restrictions create barriers to entry for companies seeking to expand into new markets. For example, when data localization requirements increase the cost of launching a business in a particular jurisdiction, capital investments may be diverted to other countries with more pragmatic legal regimes.
Localization requirements also may have the effect of decreasing data security. Forcing companies to maintain local data centers frequently results in the establishment
of minimally-resourced facilities that are more likely to permit network intrusions and data compromises. In the end, compliance costs are passed on to consumers when prices for goods and services are increased to fund local outposts rather than having centralized service centers that maximize efficiency. In addition, data transfer restrictions often have a disproportionate effect on smaller businesses, in some
cases potentially thwarting growth opportunities altogether and preventing today’s startups from becoming tomorrow’s multinationals. For these businesses, data transfer restrictions have the effect of cutting the “world” out of the “World Wide Web.”
Privacy safeguards are critical, and businesses play a key role in protecting the information under their control. But privacy need not be the enemy of prosperity – we can embrace strong, innovative privacy regimes that also promote trade and growth. This report offers recommendations for a path forward by highlighting existing privacy rules that can be implemented on a more global scale, and proposes new mechanisms to facilitate cross-border data transfers.
The paper begins by detailing the significance of data flows and digital trade to the global economy, illustrating these themes with case studies that demonstrate the wide variety of benefits that result from unimpeded data transfers. Next, it provides an overview of existing data transfer restrictions, refutes unjustified rationales for imposing data localization requirements, and offers insights into the very real impact data
transfer restrictions have on the economy. The report describe existing, commonly used data transfer mechanisms and comments on the benefits and shortcomings of each, then focuses on how best to forge a path forward through international cooperation, highlighting favorable data transfer regimes that could be scaled to expand their applicability. Finally, the text concludes by exploring opportunities for new data transfer regimes and outlining foundational principles for future policymaking.
Technological advances and an increasingly globalized economy have brought us to a policy crossroads: one path leads to a “splinternet” of economic isolation, characterized by misguided attempts to safeguard data by building protectionist walls. Since the dawn of the global trading system, this isolationist approach has repeatedly caused economic stagnation.1 The other path is one of shared global economic growth fueled by an increasingly interconnected digital economy. Ideally, this would be supported by regulatory frameworks that encourage competition by opening borders for businesses of all sizes, driving innovation, creating jobs and lowering prices. This paper makes a case for seizing the opportunities presented by this critical juncture, and maps out a path toward prosperity.