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In order to embrace policies on cross-border data flows that enable the economy to grow, countries must shift their regulatory approach from “policing” to “refereeing.”
These five countries were selected as a representation of a wide range of policy approaches towards cross-border data flows and the digital economy that are currently being considered by governments around the world. Additionally, these countries are at pivotal points in the development of their digital economy infrastructure, which is clearly affected by their regulatory environments.
International service providers are closely following every move to see how Vietnam will choose to approach these issues. If it seems that new regulations may require companies to go against their internal policies on the protection of user privacy or to incur significant new expenses through requirements such as data localisation, some companies would be forced to withdraw from the market.
According to our estimation, this would result in estimated losses of 1.7 per cent of the GDP, 3.1 per cent in domestic investment, and $1.5 billion in consumer welfare losses.
It is difficult to isolate a single business sector as the most heavily affected because cross-border data flows enhance productivity and business opportunities across the entire economy. As highlighted in our report, in the healthcare industry, ViCare benefits from cross-border data flows by obtaining access to the highest-quality cloud services, enabling the rapid yet stable expansion of their business.
In the logistics industry, ships utilise Google Maps technology in combination with cloud technologies to optimise routing and communications with clients in Vietnam. In tourism, Vietnamese startup triip.me now connects tourists with local guides in 600 cities around the world thanks to their ability to utilise cross-border data flows.
Cross-border data flows present immense opportunities for entrepreneurs and technology innovators in developing countries who can now create businesses with impacts (and revenue streams) going far beyond borders. We see this enthusiasm reflected in the intense interest of international media, institutions, and investors in the digital startup community in Ho Chi Minh City.
However, entrepreneurs and technology innovators around the world are only able to compete on the international level when they have access to the best digital resources available and are able to share their creations with the widest audience possible. This is true for entrepreneurs in developing countries as much as it is for those in the developed world. Therefore, we think that developing countries should not apply their own approach to regulate cross-border data flows.
We are aware that the Vietnamese government is seeking ways to regulate cross-border service providers by requiring data localisation. We share the government’s concerns, but, as analysed in the research report, there should be more workable and practical policy options that ensure data privacy and national security. As data is encrypted to ensure security and privacy, even operating companies often do not have access to the information stored inside. Therefore, data localisation is unlikely to achieve the government's objectives.
Some other suggestions for consideration include:
In order to embrace policies on cross-border data flows that enable the economy to grow, countries must shift their regulatory approach from “policing” to “refereeing.” In other words, rules should be created that target specific and identified risks, rather than creating blanket rules that consequently limit all activities, including those which are beneficial to society.
For example, many countries have a central bank which has sought to reduce the risks to their financial markets, and the rules and regulations have always sought to define what can and cannot be done. However, now with fintech, central banks need to encourage risk-taking and entrepreneurship, which is a big regulatory change for the central bank. No longer are they saying “here are the rules without exception,” but they are saying “here are the boundaries, let us test them out and see how far we can go together.”
In another example, the Philippines has actively sought to promote the development of their digital economy through initiatives such as the “Cloud First Policy” of 2017, which seeks to reduce the cost of ICT services and transfer some civil services to cloud-based solutions. Thanks to an absence of data localisation requirements, the Philippines has succeeded in attracting substantial foreign investment in Filipino data centres and the business-process-outsourcing industry.
Where necessary, the Philippines has created regulations to target specific and identified risks to national security, such as Circular No. 889 which restricts offshoring of domestic banking operations to jurisdictions that uphold confidentiality.
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