#56 Data protection acts are a threat to the emerging Data Economy
Data nationalism is on the rise
Defined loosely as the effort by nation-states to ensure control over data for a range of normative and security-based reasons.
The once heralded vision of a free, open, and globally interconnected internet has been replaced by an increasingly strong push to demand data be stored locally, erect virtual borders, and keep foreign influence out—motivated by an array of economic, normative, and security-related costs.
Relatively free flow of data has already proven to be economically significant force. Globally, McKinsey analysis finds that, over the past decade, data flows have increased world GDP by 10.1 percent. Yet at the same time studies show that data localization and other barriers to data flows impose significant costs.
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Nationalism is gaining strength in the emerging data economy. Some even use the term data patriotism. In academic literature the term used is data sovereignty. Regardless of the term, the fact is that today, over 132 countries have implemented their own set of data regulations.
over 132 countries have implemented their own set of data regulations.
The number of national data protection laws has grown rapidly, but major gaps persist. Some countries have no laws in this area, some have partial laws, and some have laws that are outdated and require amendments. Companies that fail to remain compliant face hefty fines and possible expulsion; take TikTok, for example.
Growing amount of data protection constrains
It is not only about social media data alone. Legal data constrains around the world in different countries include for example:
Applicants for a gaming license to store all data related to operations in Bulgaria locally.
China - all credit information on Chinese citizens to be processed and stored in China
All data from public administrations has to be considered as archives and therefore stored and processed in France
the German state of Brandenburg requires that data on residents can only be stored on cloud computing services located in the state
India - the Companies (Accounts) Rules law that required backups of financial information, if primarily stored overseas, to be stored in India.
Iran ordered foreign messaging apps, such as WhatsApp and Telegram, to store data from Iranian users locally.
New Zealand’s Internal Revenue Act requires businesses to store business records in Zealand local data centers
Romania - new online gambling regulations requires all data on players and their gambling activities to be stored in Romania.
Data Localization Mandates
Example of rather strong data patriotism is to decline right to take certain data outside the country borders. Data localization is briefly about measures which specifically encumber the transfer of data across national borders. These measures take a wide variety of forms—including rules preventing information from being sent outside the country, rules requiring prior consent of the data subject before information is transmitted across national borders, rules requiring copies of information to be stored domestically, and even a tax on the export of data.
Many national data protection laws contain significant gaps and exemptions. Exemptions are so numerous and complex that an entire textbook could be written just listing and explaining them.
What we are calling soft data localization involves “mirroring,” which requires that copies of a certain kind of data must be stored within a certain area but does not restrict the copying or transmission of that data elsewhere
What we refer to as hard data localization mandates require that certain data be stored within certain borders and not copied or transmitted anywhere else. This is less common, but increasingly applied in an effort to protect data that is deemed particularly sensitive.
Given the above fluctuating and complex set of laws and data protection acts, it is getting harder to comply with all the various requirements while acting as data provider in the global data economy.
Data Nationalism Slows down Economic growth
The report then proceeds to review the emerging body of research that estimates the cost of barriers to data flows in terms of lost trade and investment opportunities, higher information technology (IT) costs, reduced competitiveness, and lower economic productivity and GDP growth. These studies show that data localization and other barriers to data flows impose significant costs: reducing U.S. GDP by 0.1-0.36 percent; causing prices for some cloud services in Brazil and the European Union to increase 10.5 to 54 percent; and reducing GDP by 0.7 to 1.7 percent in Brazil, China, the European Union, India, Indonesia, Korea, and Vietnam, which have all either proposed or enacted data localization policies.
Favours global giants over local startup
These policies represent a new barrier to global digital trade. Cutting off data flows or making such flows harder or more expensive puts foreign firms at a disadvantage.4 This is especially the case for small and solely Internet-based firms and platforms that do not have the resources to deal with burdensome restrictions in every country in which they may have customers.