Data localisation: Balancing trade disciplines and national policy objectives

Event report

The event, which was held in the exact room where the General Agreement on Trade in Services (GATS) had been negotiated before entering into force in January 1995, was organised by the Department of Communication and Media Research of the University of Zurich, the Global Economic Law Network, the Melbourne Law School, and the European Centre for International Political Economy.

The session was moderated by Mr William J. Drake (International Fellow and Lecturer, Department of Communication and Media Research, University of Zurich) and explored the challenges that growing considerations for data localisation policies might present to the international trading system, and the transition to a global digital economy. After a few introductory remarks, the moderator introduced talking points of the session, the costs and potential benefits of data localisation for developing countries; the extent of fit between data localisation and exception provisions in trade agreements; and the potential utility of informal intergovernmental, and inclusive multistakeholder dialogues can provide in data localisation that parallel and enhance trade community efforts.

Ms Mona Farid Badran (Digital Development Consultant, and Associate Professor of the Faculty of Economics and Political Science at Cairo University), who recently published her research on the “Economic impact of data localization in five selected African countries”, said that data localisation provisions would, as of now, affect developed nations more than it would affect developing nations, given their deeper interconnection with the global economy. Regardless, Badran said that data localisation would increase the cost of goods and therefore decrease national income, where these types of policies are implemented.

The economist further mentioned that benefits of data localisation in helping overcome economic issues, and solving privacy and data protection issues are often exaggerated. This is because storing data locally or nationally can be extremely costly in developing countries due to lack of infrastructure, electric power and other resources. She added that data storage policies would not facilitate creation of jobs but instead rely on very few high-skilled workers to be implemented.

The speaker presented the results of an empirical study which pointed to a potential 1,8% drop in the EU’s GDP, if a limitation on cross-border flow of data were to be implemented. Therefore, imposing data localisation regulations tends to cut down the benefits of free flow of data, which reduces production costs; increases productivity; supports the creation of new global value chains; and is a driving force for the creation of new jobs worldwide.

In light of this, Badran highlighted the importance of striking a balance between privacy policies and maintaining cross-border flows of data. She mentioned the Asia-Pacific Economic Cooperation’s (APEC) approach which enables free flows of data between APEC member states, even if governments do not formally recognise the other country’s privacy regulations, all the while guaranteeing a certain standard of privacy and data protection. This framework also suggests that businesses are held accountable for data protection by independent oversight entities. The EU-US Privacy Shield was mentioned as a further example of privacy protection models.

Finally, Badran underlined the necessity of well-drafted localisation rules, and reminded the audience that many African states had enacted laws on privacy and data protection this year.

Mr Daniel Crosby (Partner at King & Spalding) explained that in his view, no new regulations on data localisation were needed given that the GATS already covers the free flow of services, and data by extension. He mentioned that countries wishing to apply restrictions to data flows for specific reasons are already entitled to do so under the current GATS provisions as long as they are reasonable. He therefore saw no need for the creation of new regulations regarding data flows in the context of a WTO rule.

Additionally, he mentioned the risk of unfair treatment of other nations due to protectionist policies, and cautioned against the risk of countries trying to hide regulatory exceptions under the scope of data localisation.

Similarly to Badran, Crosby also explained that higher costs applied for data localisation would result in higher costs for consumers and businesses, and harm economies rather than help them. He further said that, especially in developing countries, infrastructure and equipment would also need to be imported, as hardware is usually not locally produced, further adding to trade imbalances.

Ms Lee Tuthill (Counsellor, Trade in Services Division, WTO) pointed out that data localisation laws do not necessarily solve concerns regarding fiduciary, law enforcement, privacy protection, industrial policy, cybersecurity and cyber sovereignty. She mentioned the Microsoft-Ireland lawsuit and explained that data localisation was not the main issue at heart, but that the solution rather lies with closer cooperation of law enforcement agencies.

With regards to exception rulings to WTO agreements, Tuthill explained that, no general statements about the acceptance or rejection of exception requests could be made, given that per WTO procedures, rulings on these requests are issued on a case-by-case basis with decisions are rendered by respective panels. The same procedures apply to regulations that might be used to veil restrictions for WTO members.

Ms Neha Mishra (Researcher, Global Economic Law Network, and Doctoral Candidate, University of Melbourne), spoke about the importance of understanding the institutional framework when analysing data flows. Given that these flows occur on so many different levels, locally and globally, it is important to take the complexity of the matter into account, and separate trade disputes from other fields.

The researcher pointed out that the debate about the benefits of data localisation is currently lacking empirical evidence, and is being carried out on a more ideological basis. Speaking about the costs of these policies, Mishra reminded the audience about the risks these policies posed to the open and free nature of the Internet, and cautioned against the fragmentation of the latter, due to increased difficulties in communication of information and collaboration mechanisms that benefit from the open nature of the Internet.

Similarly to the general debate about data localisation, Mishra mentioned that exception rulings should also rely on more empirical data. According to her, these findings are essential in measuring improvements, and determining whether they occurred in relation to stronger data localisation rules. Finally, the panellist highlighted the importance of WTO panels that do not shy away from these difficult discussions, avoiding forum shopping and creating a web of contradictory regulatory frameworks within different organisations.