Data sovereignty or data protectionism?

Restricting data to sovereign borders hurts Australian businesses

Amid ongoing disclosures about the unsavory scope of U.S. and British intelligence-gathering programs, Australian policymakers have championed protectionist policies designed to restrict the flow of data across the country’s borders and lock foreign technology providers out of its domestic market.

While local tech companies may be grateful for the competitive advantage this gives them with Australian customers, the effect is quite different, and much less welcome, for domestic firms outside the tech sector.

For them, data protectionism is a distinct hardship. Such policies isolate them from the international marketplace, limit their horizons for growth and cut off access to some of the most innovative products and services the world has to offer.

These days almost every industry is a digital industry. In fact, the largest beneficiaries of the digital economy have been industries in mature sectors that have come to depend on information technology to do business.

For example, manufacturers and retailers rely on moving data across borders to increase efficiency in their supply chains and hold down costs for their customers. Automakers and aerospace companies aggregate and analyze data in real time to assess risks and provide reliable services.

And financial industries rely on data moving across borders so they can operate efficiently, fight fraud, and provide personalized services.

Take the case of Rio Tinto, the global mining company based in Brisbane. It has pioneered data-driven mining practices, aggregating information from its locations around the world to root out logistical inefficiencies and lower costs. The company sends and receives around 30 gigabytes of data each day to and from its central data facility in Brisbane. This information is critical to how Rio Tinto makes mining safer, more cost-effective, and more environmentally sustainable.

Another example is Westpac, the multinational bank based out of Australia and New Zealand with branches in London, New York, Singapore, and Beijing. Westpac aggregates data from all over the world based on how its customers interact with the bank and uses that data to offer personalized services and fraud protection.

None of this could work as well if these businesses were inhibited from moving data across Australia’s borders.

Currently, Australia has laws that restrict certain data on Australian citizens from leaving its borders. The rationale is to protect Australians’ privacy and security. However, there is little evidence to suggest that mandates on where data is stored really improve privacy or security.

A secure server in Brisbane is no different from a secure server in Brooklyn. Where differences may arise is in how those countries handle government-mandated disclosures of data, such as for law enforcement purposes.

This is where we run into a sticky wicket. Some believe the United States can use its Patriot Act to compel U.S. cloud providers to provide information on Australian citizens, or that the U.S. National Security Agency will simply circumvent this process altogether.

Australian businesses have used this fear to promote protectionist policies that spare them from having to compete with U.S. tech giants. For example, when Rackspace built its first data center in Australia, MacTel—a domestic competitor—tried to stoke fears of foreign spooks to push Rackspace out of the market.

It is a bogus assertion. Since Australia and the United States have signed mutual legal assistance treaties to partner on lawful investigations, data stored by an Australian provider has no more legal protections than those stored by a U.S. provider.

If those agreements are of concern for Australians, the answer is not to restrict access to services from leading U.S. providers which hurt Australian companies, but to refine the agreements adopted by both sovereign states.

In the end, restricting barriers to data flows limits Australia’s economy. By propping up local tech businesses, Australia may inadvertently set them up to fail because they will be less competitive in the global market than those operating without similar crutches.

Australia should not give in to protectionist impulses. It should instead seek parity with its trading partners on data issues. This can be done through the creation of international legal standards for government access to data, plus multilateral agreements to settle questions of jurisdiction and improve transparency.

Only by enabling the free flow of data (PDF) can Australia empower its domestic industries and fully realize its potential for growth in the digital economy.

Daniel Castro is vice president of the Information Technology and Innovation Foundation (ITIF), and Alan McQuinn is a Research Assistant at ITIF.

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