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Inside international data flows

November 18, 2021  l  By Chris Harrall

What are the main barriers to efficient international data flows?
Some primary barriers to data flows include technical limitations, such as insufficient broadband capacity and related IT infrastructure. But these typically can be overcome through engineering solutions. More pernicious barriers arise as a result of ill-advised public policy decisions,  such as data-localization policies that create obligations to process or store data within a particular jurisdiction. These are often framed  as efforts to enhance data security or national interests, but are more properly described as a form of trade barrier. 

Are the “national security” and  “critical infrastructure” justifications for data-localization laws legitimate? 
To be sure, there are valid security and infrastructure concerns that accompany data flows and the equipment that facilitates them. But data-localization requirements do not  address such concerns effectively. For example, data-localization laws essentially force firms to duplicate data across jurisdictions, presenting more attack vectors for hackers. Similarly, by prohibiting firms from selecting the most efficient service providers, wherever they are located, firms may lose the ability to leverage security expertise across borders.

What are the dangers of free and easy international transfer of data? 
Free and easy transfer of data can magnify risk, but no one is seeking the completely unconstrained ability to transfer data. Reasonable requirements to ensure security would include obligations to use legitimate service providers and comply with best practices. Overly prescriptive regulations that dictate where and how data are stored are, like many other attempts to regulate fast-moving tech, doomed to fail.

What are the potential impacts on consumers of barriers to international data flows?
The problem is potentially huge, but its impacts are distributed unevenly across countries and industries. As it becomes harder to secure and share data, it becomes more expensive to facilitate collaboration. This affects everything from firms’ ability to discover new medicines and perform scientific research, to  their ability to create new products in international supply chains, to their ability to monitor data on the performance of goods and services. The sum total of these costs serve as a drag on innovation, a reduction in available goods and services, and higher prices for consumers.

What are the cost implications, for businesses and governments of data-localization laws?
Higher prices are likely, as the input cost of research, development, and product support enabled through data sharing all increase.

Why are financial services particularly at risk from restrictions on global data flows?
By their nature, efficient payment networks must span borders. When payment networks cannot share data across borders, it becomes exceedingly difficult to support cross-border payments. This affects people at all levels of society—from those who consume and produce data-reliant goods and services traded across national borders to migrant workers who rely on global payment networks to send remittances to their home countries.