The concept of data free flows with trust (DFFT) was proposed by the late Japanese Prime Minister Shinzo Abe at the 2019 G20. As it remains a work in progress, this year’s G7 ministerial meeting tech and digital ministerial meetings in Gunma, Japan was focused on operationalizing DFFT. I was invited to speak at the Public-Private Meeting for the G7 Digital and Technology Ministerial Meeting event on DFFT (G7 Public-Private Meeting). This blog summarizes our discussion on the importance of cross border data transfers (CBDT) and concrete next steps necessary to operationalize DFFT, especially given the G7 ministers’ endorsement of the Institutional Arrangement for Partnership (IAP),[1] to be launched in the coming months.[2]
Schneider Electric believes in the power of data and supports the free flow of data, which underpins research, development, innovation, and growth. Current data localization trends and global regulatory fragmentation on CBDT present a worrying trend that is costly to businesses, the economy, and the planet.
Costs to businesses
Primarily, restrictive data policies increase the cost of cloud storage and therefore the cost of offer delivery. They also reduce businesses’ ability to aggregate data across geographies to analyze data and extract powerful insights for customers. The OECD estimates that fixed costs associated with complying with foreign laws and regulations represent up to 50% of total revenue.[3] At both the G7 Public-Private Meeting and the World Economic Forum’s Digital Transformation Summit (DXS), we discussed how the costs of obtaining legal advice and implementing infrastructure requirements in a fragmented regulatory landscape are disproportionately borne by micro, small, and medium enterprises whose services rely heavily on the use of data.
Costs to the economy
By 2024, 85% of the world’s economic growth is expected to come from outside the EU.[4] On our panel, we discussed the USD 2 trillion in digital commerce that Asia Pacific will reach by 2025,[5] two-thirds of which are cross-border. Restrictions on CBDT restrict our ability to conduct digital commerce. In Europe, DigitalEurope estimates that given the size of the digital economy and its reliance on CBDT, Europe could be EUR 2 trillion better off by 2030 if we reverse current data localization trends and harness the power of CBDT. This is roughly the size of the Italian economy any given year – and the next G7 host.[6]
Costs to the planet
As a sustainable company, we are concerned about the impact of data localization on the planet. Experts estimate that data centers contribute to about 2% of the worldwide electricity demand,[7] generating carbon emissions exceeding the global airline industry.[8] This is due to data centers’ extensive use of computing power, which generates heat, and requires cooling.[9]
The way forward
The reason for these costs is a “trust gap” – governments lack trust that citizens’ privacy will be respected, national security protected, and economic gains commensurate to the value of data attained.[10]
There is an urgent need for action to create an international framework to operationalize DFFT.
At the outset, we need a mutually agreed definition of “trust”. On our panel, we discussed that while “trust” may be hard to define, a “loss of trust” is easier to understand. A good starting point could be to work backwards to protect against a loss of trust. While today’s global data protection regime is fragmented, most regimes embody the same core principles of responsible collection, use, and processing of data, respecting data subject rights, protecting data at rest and in transit, and steps to be taken in the event of an incident. At Schneider Electric, we believe that trust is a foundational value, and include these data protection principles into our Trust Charter.[11]
Then we consider how to permit data to flow. CBDT regimes do not need to be identical; they just need to be interoperable. Under the IAP, we could leverage (1) the Global Cross Border Privacy Rules or (2) trade agreements to enable CBDT. The World Trade Organization’s Joint Statement Initiative on Electronic Commerce has the potential to establish new harmonized standards for global digital trade and data flows. We hope that the G7 can and will push hard on this, so that beyond the flow of physical and digital goods, our future trade agreements will also support the free flow of data. Japan has set a strong example by infusing DFFT into new trade agreements signed with the US and the UK.[12]
Throughout this process we must be inclusive of jurisdictions in early stages of building up their data protection capacity and CBDT mechanisms. This allows us to build trust within and across jurisdictions, such that the international regime operationalizing DFFT will be a durable one with the buy-in and trust of society. Only then can we truly harness the power of CBDT to create value for society.
Let’s do more, together.
[1] https://www.meti.go.jp/english/press/2022/1216_001.html
[2] https://g7digital-tech-2023.go.jp/topics/pdf/pdf_20230430/ministerial_declaration_dtmm.pdf
[3] https://www.oecd.org/trade/how-services-liberalisation-support-sme/
[4] https://www.digitaleurope.org/resources/data-flows-and-the-digital-decade/
[5] https://visaapnews.asia/post/679577402057375744/visas-digital-commerce-roadmap-in-asia-pacific
[6] https://www.digitaleurope.org/resources/data-flows-and-the-digital-decade/
[7] https://energydigital.com/technology-and-ai/how-data-centers-can-reduce-their-carbon-footprint
[8] https://www.climatiq.io/blog/measure-greenhouse-gas-emissions-carbon-data-centres-cloud-computing
[9] This is why we work closely with our data center partners to provide solutions that boost energy efficiency. See https://www.se.com/hk/en/work/solutions/efficiency/
[10]https://www.informationpolicycentre.com/cipl-blog/to-solve-cross-border-data-flows-we-need-pragmatic-solutions-to-build-trust
[11]https://download.schneider-electric.com/files?p_enDocType=Institutional+Document&p_File_Name=Schneider+Electric_Trust_Charter_English.pdf&p_Doc_Ref=SchneiderElectric_TrustCharter
[12] US-Japan Digital Trade Agreement and the Japan-UK Comprehensive Economic Partnership Agreement
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