Many countries have reacted to the global connected economy by attempting to put up barriers, such as data residency requirements, to keep leading U.S. information companies like Google, Facebook, and Microsoft from moving data across national borders. Thinking that they are cracking down on U.S. tech leaders and in the process helping their own domestic information firms, these policymakers overlook that many of their domestic companies, in a wide range of industries, now rely on cross border data flows for competitive advantage. Only by creating a global trade system that respects the free flow of data in all industries can countries fully realize the benefits of a data-driven economy.
Cross-Border Data Flows Enable Growth in All Industries
The importance of cross-border data flows is not confined to high-tech industries. Increasingly, firms in a wide array of industries, from mining and retail to finance and manufacturing, have operations, suppliers, or customers in more than one country and rely on the data that come from these other countries. The benefits of sharing data across borders are realized by consumers in a myriad of ways: from cheaper, safer, and more environmentally friendly products to personalized services. Unfortunately, many countries have begun creating policies that impede cross-border data flows. Such policies are likely to backfire and hurt these nations’ own domestic firms.
This report offers several examples of how cross-border data flows are vital to not only technical industries, but traditional industries as well. It argues that countries should avoid protectionist rules that limit data exchange across borders, such as data residency requirements that confine data to a nation’s borders. This report explains why protectionist data policies—whether they are intended to enhance security or privacy, or foster economic activity—tend to backfire in the long run.
Finally, this report recommends six ways to roll back anti-competitive trade practices for data:
- International organizations should develop mechanisms to track data-related localized barriers to trade, making it easier to quantify the economic impact of those measures.
- International organizations, such as the World Bank, should push pack against countries that create barriers to cross-border data flows.
- The United States could negotiate its trade agreements, such as the Trans-Pacific Partnership (TPP) agreement, to eliminate these barriers.
- The United States should use international forums, such as the World Trade Organization (WTO), to propose a treaty to reduce member states’ incentives to pursue data-related localized barriers to trade. This agreement could be called a “Data Services Agreement”.
- All future U.S. trade promotion authority legislation that the U.S. Congress produces should push back on data protectionism by directing U.S. negotiators to do so.
- The United States should engage its trading partners in a “Geneva Convention on the Status of Data” to resolve international questions of jurisdiction and transparency regarding the exchange of data.
Only by creating a global trade system that respects the free flow of data can countries fully realize the benefits of a data-driven economy.
China’s Dangerous Digital Agenda
Whether it is data or copyright, the Internet of Things or privacy, the EU and the US must agree on a common path for technology policy – centered on shared values like democracy, the rule of law, and freedom of speech. Otherwise, China, with its focus on mercantilism and restricted freedom of information, will soon be dictating the terms of trade in the world's fastest-growing economic sector. If open and pluralistic societies do not stand up for an open Internet and market-based trade, who will?
How and When Regulators Should Intervene
Regulatory oversight keeps companies in check, promotes fair competition, and upholds consumer protections. However, regulators can also go too far and overzealously target companies acting in good faith. Such actions are not just unfair, but they also divert companies towards needless compliance at the expense of useful product advancements. Policymakers must get regulation right to protect competitiveness in the innovation economy. This report proposes a typology that regulators can use when evaluating which infractions should be pursued and what type of penalty should be administered based on a sliding scale of intent and resulting harm. The report argues that smaller penalties should result when consumers are not harmed and the company acts unintentionally, while larger penalties should result when consumers are harmed by a company’s actions and that company acted with intent.
This sliding scale is represented by the following situations based on harm and intent. First, if a company makes a mistake and something happens that does not result in real consumer harm, then regulators should work to resolve the complaint, but not impose any penalties. Second, if an action is unintentional but results in real harm to consumers, then regulators should again work with the company to fix the problem but levy only a modest penalty against the company to mitigate the damage that resulted from the company’s mistake. Third, if a company intentionally commits an infraction that results in no harm, then regulators should not only work to resolve the problem, but also levy a modest penalty against the company to create an incentive against similar future infractions. Finally, if a company acts with intent, including negligence, and its actions harm consumers, then regulators should impose significant penalties.
The report then analyzes four case studies involving past or possible Federal Trade Commission action against companies—including Amazon, Google, Path, and Uber—each corresponding to a square in the below table.
Comments to ICANN on its Five-Year Operating Plan
The Internet Corporation for Assigned Names and Numbers (ICANN) is a non-profit organization that brings together various stakeholders to “discuss, debate, and develop policies about the technical coordination of the Internet’s domain name system (DNS).” ICANN has requested public comment on its Draft Five-Year Operating Plan. The Center for Data Innovation has filed comments describing how the ICANN community would benefit greatly from ICANN committing itself to open data and how such a commitment would bring its transparency and openness efforts in line with other leading global organizations.