Surveying the Damage: Why We Must Accurately Measure Cross-Border Data Flows and Digital Trade Barriers

01/27/2020

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Nigel Cory | Information Technology and Innovation Foundation

Digital trade flows—which were practically nonexistent just 15 years ago—now play a central role in global trade and commerce. Yet efforts to better assess the extent and value of data flows, and the impact of government restrictions on them, are frustratingly few and far between. A survey from Japan on the impact of China’s cybersecurity law (CSL) and the European Union’s General Data Protection Regulation (GDPR) is a notable and welcome exception. Surveys from the Organization for Economic Cooperation and Development (OECD) and the Inter-American Development Bank (IDB) provide similarly valuable insights into the impact of barriers to cross-border data flows and digital trade.

This briefing analyzes these surveys in order to make the case for policymakers in key countries and international organizations to expand their use of surveys to better identity, measure, and analyze cross-border data flows and digital trade—and barriers to them. This is particularly important, as what gets measured and surveyed is more likely to get managed and addressed. Countries that value an open, competitive global digital economy need to do more both at home and with like-minded regional and global partners, such as at IDB and OECD, to fill this information gap to better inform domestic policy debates and trade negotiations at the World Trade Organization (WTO) and elsewhere.

Data will naturally flow across borders unless governments enact barriers. Flows of data are important, as they stimulate growth and productivity. They are also critical to trade in all sectors—not just tech—as the Swedish Board of Trade makes clear in its report No Transfer, No Production: a Report on Cross-border Data Transfers, Global Value Chains, and the Production of Goods.Despite the large and growing role of data flows, a growing number of countries are making it harder and costlier—or even illegal—to transfer data.

However, there remains a large gap in the understanding of the extent and impact of these restrictions. Econometric modeling is the most common tool, providing macro-level estimates of the economic impact of restrictions.Firm-level interviews and surveys are a micro-level tool policymakers and other stakeholders should use more extensively to complement formal modeling and fill the knowledge gap regarding the specific impacts.

Surveys are useful, because they allow firms to quantify the levels and values of data flows without disclosing commercially sensitive information. Survey responses provide details about how different firms use and move data to create value, and they provide subjective assessments that help policymakers understand the harms that transfer restrictions create. They also help calibrate the underlying estimates econometric modeling is based on, such as firm data intensity and ad valorem equivalents (i.e. the tariff or tax rate equivalent) of data-flow restrictions.

These surveys come at an important time for the global digital economy. Over 70 countries are negotiating potential new rules on e-commerce and digital trade at the WTO (as well as in other bilateral and regional trade negotiations). The initial insights from these surveys show why there needs to be rules to protect the flow of data, given its critical role in digital trade. If countries are truly committed to updating the global trading system, and making it relevant for modern business, it needs to include strong rules around data flows. In addition, given the growing digitalization of the global economy, policymakers and other stakeholders should build on these surveys to better capture, measure, and analyze the growing role and value of cross-border data flows, digital trade, and e-commerce, and the impact of barriers to them. 

Read the full report here