Data localization laws in a digital world: Data protection or data protectionism?

Abstract

Data localization laws are emerging as a pernicious form of non-tariff barrier which significantly harms the growth of trade in a digitally powered world. An International Political Economy approach provides a more comprehensive analysis of the policy rationale behind such laws, as compared to a purely economic approach, which only focuses on economic losses resulting from protectionism. On a closer analysis, it is found that different countries may have different policy rationales for implementing data localization laws – while some promote their domestic ICT industry through forced localization measures, others have concerns regarding national security, privacy, and ensuring sovereign control in the highly privatized world of internet governance. It is not always possible to demarcate the "protectionist" rationale from that of rational "data protection". To address data localization effectively and facilitate digital trade, it is not sufficient to negotiate for free flow of data in trade agreements without Governments and companies being open and transparent about the related issues of privacy, national security and consumer protection. Particularly, the role of US Government as well as leading US-based technology companies will be instrumental in this regard. At the same time, it may be necessary to develop policy initiatives both to encourage transparent and clear international standards on data security, as well as to enable higher levels of digital innovation in developing countries such that they can harness the benefits of evolving internet technologies.