The digital economy is increasingly indistinguishable from the worldwide “brick and mortar” economy. Consumers and businesses alike derive significant benefits from the digital economy and the constant stream of data flowing seamlessly back and forth across national borders. A recent study by McKinsey found that the ability to transfer, store, and process data globally added $2.8 trillion to the economy in 2014 alone.
Businesses use data to reach customers, create valuable products and services, enhance productivity, reduce costs, deter fraud, protect consumers, and foster economic growth and jobs. In fact, the ability to move data across national borders has become essential for companies of all sizes and sectors.
Consider how the digital economy and cross-border data flows allow many small and medium-sized businesses to reach new customers inexpensively and manage relationships with clients. The cost of trading on eBay’s online marketplace fell by 41% between 2005 and 2009, three times faster than the decline in costs for traditional trade, according to an analysis commissioned by the San José-based company.
Tapping into the global digital economy is a huge multiplier for small businesses. More than 95% of the small firms on eBay have become exporters, and they tend to export to 25 or more countries per year. It is increasingly difficult for small businesses not to sell across borders.
In addition, manufacturers rely on data flows to manage their supply chains, monitor inventory, and reach new customers. They leverage data analytics to manage increasingly sophisticated equipment such as turbines, jet engines, and locomotives. Using data flows to connect manufacturing processes and products in the Internet of Things holds great promise as a way to save energy, monitor and care for expensive equipment, and maximize efficiencies.
Cross-border data flows allow service providers to reach vast new markets, selling Internet-based products directly to customers abroad. Today, U.S. companies are leading the way in helping others use data more efficiently by providing cloud computing services, driving innovation and growth. In the financial services sector, cross-border data transfers allow companies to provide innovative pricing solutions, manage risks, and where appropriate, work with regulators to prevent fraud and protect consumers. This all ensures easier access to the credit that entrepreneurs need to create jobs.
Nonetheless, some governments are implementing rules that hamper the growth of the digital economy and restrict the flow of data across borders, often doing so under the guise of protecting national security or promoting domestic innovation. This includes plans for heavy-handed and often counter-productive approaches to cybersecurity, digital platforms, the sharing economy, and emerging technologies like artificial intelligence, drones and autonomous vehicles combined with forced localization measures for the ICT sector, adoption of unique technical standards, customs duties on data transfers, and Internet restrictions.
Foreign governments often cite privacy concerns as a rationale for barriers to cross-border data flows. However, trade rules safeguarding the cross-border movement of data and barring forced localization are not at odds with data protection. Rather, privacy rules are a separate legal domain, and these trade and privacy disciplines can and do coexist.
The United States, together with key trading partners such as Japan and Singapore, has promoted interoperable international privacy mechanisms such as the APEC Cross-Border Privacy Rules to facilitate the transfer of data across borders while maintaining appropriate privacy protections. Similarly, U.S. and EU officials negotiated the EU-U.S. Privacy Shield to provide companies on both sides of the Atlantic with a mechanism to comply with data protection requirements when transferring personal data across the Atlantic. The European Commission has deemed the framework adequate to enable data transfers under EU law. The U.S. government should continue to make the preservation of agreements such as Privacy Shield a top priority, while also advocating for flexible mechanisms that enable data flows in the context of data privacy rules in other countries.
In addition, businesses and individuals often have to comply with conflicting requirements related to law enforcement where multiple governments may attempt to assert jurisdiction. Clear, concise rules should be developed for the transfer and processing of data for both private usage and in compliance with government requests. Establishing overly burdensome and prescriptive rules for business will do nothing to settle the current debate over government access to data.
In sum, countries need to avoid creating overly burdensome and inflexible approaches to data governance. Furthermore, the United States should promote These efforts should be pursued in ways that encourage innovation and creativity, support trade, and recognize that differing approaches to these issues can achieve compatible outcomes.