global commerce and cross border data flows · 2017-09-29 · global economy is increasingly...
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@ITIFdc
Global Commerce and Cross Border Data Flows
Dr. Robert D. AtkinsonPresident, ITIF
@RobAtkinsonITIF
About ITIF
One of the world’s top science and tech think tanks
Formulates and promotes policy solutions that accelerate innovation and boost productivity to spur growth, opportunity, and progress
Focuses on a host of issues at the intersection of technology innovation and public policy:
– Innovation processes, policies, and metrics
– Science policy related to economic growth
– Digital technology issues (e.g., e-commerce, e-government, e-health)
– IT and economic productivity
– Innovation and trade policy
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ITIF Global Engagement
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ITIF Publication Highlights
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Today’s Presentation
Digital Trade is Growing
Keys to Digital Trade Success
Digital Protectionism is Growing
What Should Government Do?
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3
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Global Economy Is Increasingly Digitalized
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Digital economy accounts for 25% of global GDP.
Half of value created over the next decade will be created digitally.
Value of cross-border data flows surpassed value of merchandise trade for first time in 2015.
Sources: Accenture, “Digital Disruption: the Growth Multiplier”; McKinsey Global Institute, “Digital globalization: The new era of global flows”
IT is Driving Rising Share of Services Trade
Face-to-face services are now able to be traded either in whole (e.g., banking, higher education, retail) or part (e.g., Uber, Redfin, Airbnb).
“Second unbundling” of international trade where service tasks in manufacturing are unbundled and traded separately.
Services exports account for 40% of world trade. The services content is significantly higher for developed countries (46%) than developing countries (33%).
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Many Industries Rely on Cross-Border Data Flows
A 9-hour flight from New York to Sao Paulo on an aircraft with two engines can generate 320 terabytes of data.
This data allows airlines to decrease flight delays, lower costs, and improve safety.
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Many Industries Rely on Cross-Border Data Flows
Each day, Rio Tinto sends and receives around 30 gigabytes of laboratory, control system and mining data to and from each of its operations in over 40 countries.
Rio Tinto uses this data to be more environmentally friendly, reduce costs, and promote safer mining in each of its locations
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Trend Will Speed Up With Emerging Technologies
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1. Cloud Computing
2. Internet of Things
3. New Production Systems (e.g., Industry 4.0)
– Generative Design & 3-D Printing
– Automation: Robotics & Artificial Intelligence
4. FinTech/Block Chain
Benefits of IT-Enabled Trade
Domestic competition
Economies of scale
Innovation
Productivity
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ICT Enables Scale—and Scale Enables Productivity
0.0
0.2
0.4
0.6
0.8
1.0
Average Firm Size Relative Performance of Least-Productive Firms
USA
Latin America
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Source: Grazzi, Pietrobelli, and Szirmai, Firm Innovation and Productivity in Latin America, Inter-American Development Bank, 2016; and Hugo Hopenhayn, 2016.
Today’s Presentation
Digital Trade is Growing
Keys to Digital Trade Success
Digital Protectionism is Growing
What Should Government Do?
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Keys for Digital Industry Success
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Large Markets
Few or No Policies Raising Firm Costs
Few or No Policies Limiting Firm Revenues
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
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44
77
09
31
16
13
91
62
18
52
08
23
12
54
27
73
00
32
33
46
36
93
92
41
54
38
46
14
84
50
75
30
55
35
76
59
96
22
64
56
68
69
17
14
73
77
60
78
38
06
82
98
52
87
58
98
92
19
44
96
79
90
1,0
13
1,0
36
1,0
59
1,0
82
1,1
05
1,1
28
1,1
51
1,1
74
1,1
97
1,2
20
1,2
43
1,2
66
1,2
89
1,3
12
1,3
35
1,3
58
1,3
81
1,4
04
1,4
27
1,4
50
1,4
73
Digital Firm Traditional Firm
Firms in Digital Industries Need Larger Markets to Survive
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Adults, (100,000s)
Costs for 2 hypothetical firms with different fixed and marginal costs
Larger Markets Enable Digital Firm Competitiveness
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-$400
-$350
-$300
-$250
-$200
-$150
-$100
-$50
$0
$50
1 2
4 4
7 7
0 9
3 1
16
13
9 1
62
18
5 2
08
23
1 2
54
27
7 3
00
32
3 3
46
36
9 3
92
41
5 4
38
46
1 4
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50
7 5
30
55
3 5
76
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9 6
22
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5 6
68
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1 7
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7 7
60
78
3 8
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9 8
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5 8
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92
1 9
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96
7 9
90
1,0
13
1,0
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1,0
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1,0
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1,1
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1,1
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1,1
51
1,1
74
1,1
97
1,2
20
1,2
43
1,2
66
1,2
89
1,3
12
1,3
35
1,3
58
1,3
81
1,4
04
1,4
27
1,4
50
1,4
73
Adult Population, 100,000s
Model of a firms with 350 units fixed costs, and 0.25 units of profit for unit of sale
Cos
t un
its
-400
-350
-300
-250
-200
-150
-100
-50
0
50
100
12
44
77
09
31
16
13
91
62
18
52
08
23
12
54
27
73
00
32
33
46
36
93
92
41
54
38
46
14
84
50
75
30
55
35
76
59
96
22
64
56
68
69
17
14
73
77
60
78
38
06
82
98
52
87
58
98
92
19
44
96
79
90
10
13
10
36
10
59
10
82
11
05
11
28
11
51
11
74
11
97
12
20
12
43
12
66
12
89
13
12
13
35
13
58
13
81
14
04
14
27
14
50
14
73
Total Profits Profits With Lower Costs
Adult Population, 100,000s
Lower Costs Enable Digital Firm Competitiveness
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Cos
t un
its
Today’s Presentation
Digital Trade is Growing
Keys to Digital Trade Success
Digital Protectionism is Growing
What Should Government Do?
1
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2
3
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Obstacles to Increased E-Commerce and Digital Trade
Protectionism for domestic incumbents
Limitations on cross border data flows
Taxes and regulations that raise IT costs
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Barriers to Data Flows Are Growing
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A growing number of countries are making it more expensive and time consuming, if not illegal, to transfer data overseas.
Currently: 34 enacted barriers and a range of proposed barriers.
– Trendline: These measures are spreading rapidly.
For Example: Data Localization in China
World leader in its use of data localization
Long limited data imports through “Great Firewall of China.”
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• 2016 – Counter-terrorism (broad requirements)
• 2016 – Cybersecurity law (broad requirements)
• 2016 – Cloud computing restrictions
• 2017 – Personal and Important Data (broad requirements)
• 2006 – e-banking data• 2011 – personal financial data• 2013 – personal credit data• 2014 – health and medical data• 2015 – (proposed) insurance data• 2016 – online publishing (apps,
audio and video platforms, online gaming)
Main Motivations for Data Localization
Privacy and Cybersecurity
Digital Mercantilism
Government Access to Data
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Motivation: Privacy and Cybersecurity
Many policymakers reflexively and mistakenly believe that data is more private and secure when it is stored within a country’s borders.
Geography ≠ Privacy/Security
– The privacy and security of data does not depend on which country the information is stored in
– National privacy and security rules follow the data.
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Motivation: Digital Mercantilism
Some countries believe data localization offers a quick way to force high-tech economic activity to take place within their borders.
Misguided and self-defeating.
– Data centers don’t create many jobs, especially as they become more automated.
– Increases the cost for all IT service users
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Motivation: Government Access to Data
Governments want access to data.
E.g. U.S. DOJ vs. Microsoft in Ireland
Need to Differentiate
– Non-democratic countries: want access for political/social purposes, such as China and Russia
– Democratic countries: need a legal process to facilitate legitimate requests to access data for law enforcement and national security purpose
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The Costs of Barriers to Cross-Border Data Flows
Firm Competitiveness
– Companies pay more for data-related services and compliance services.
Productivity
– Higher ICT costs for all business users
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The Cost of Barriers to Data Flows are Significant
– Causes prices for some cloud services in Brazil and the European Union to increase 10.5 to 54 percent.
– Reduces GDP by 0.7 to 1.7 percent in Brazil, China, the European Union, India, Indonesia, Korea, and Vietnam.
– If Brazil had enacted data localization as part of its “Internet Bill of Rights” in 2014, companies would have had to pay an average of 54% more to use cloud services from local cloud providers compared with the lowest worldwide price. Higher prices and displaced domestic demand would lead to consumer welfare losses of $15 billion.
Sources: Brendan O’Connor, “Quantifying the Cost of Forced Localization” (Leviathan Security Group, June 2015); Matthias Bauer, Hosuk Lee-Makiyama, Erik can der Marel, Bert Verschelde, “The Costs of Data Localisation: Friendly Fire on Economic Recovery” (European Centre for International Political Economy, March 2014); and Nigel Cory, “Cross Border Data Flows: Where Are the Barriers and What Do They Cost” (ITIF, 2017).
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Today’s Presentation
Digital Trade is Growing
Keys to Digital Trade Success
Digital Protectionism is Growing
What Should Government Do?
1
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2
3
4
EU’s Digital Single Market is not the Model
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EU policies raise costs of digital companies
– Regulating “over-the-top” apps as telcos
– “Right to be forgotten”
– Data localization (e.g., “EU cloud”)
– Subjecting Internet platforms to special regulation
– “Right to explanation” for artificial intelligence
– Rights to access, delete and change data
– VAT on e-books, but not paper books
EU policies reduce revenues of digital companies
– General Data Protection Regulation
– Geo-blocking
– Strong net neutrality / limitations on zero rating
Higher ICT Costs Mean Less ICT Use
For every 1 percent drop in price in ICT products, there is a 1.5 percent increase in demand.
- (Gurbaxani, 2003)
Limit or Eliminate:– ICT Tariffs and taxes
– Data center and data localization requirements
– Local content requirements
– Procurement preferences for domestic companies
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Countries/Regions Differ in Enabling Digital Success
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United States China EU Brazil
Large Market
Few Policies To Raise Costs
Few Policies To Reduce Revenue ?
Steps for More Robust Digital Trade (I)
Reduce tariffs on ICT imports (Join the Information Technology Agreement).
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Steps for More Robust Digital Trade (II)
Ban limitations on cross border data flows and data center localization requirements.
Ban customs duties on cross-border data transmissions.
Exempt digital goods imports from taxes.
Prohibit the requirement of the transfer of software source code and encryption as a condition market access.
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Steps for More Robust Digital Trade (III)
Enact a commercially meaningful de-minimis threshold for low-value e-commerce packages—exempt packages worth less than USD $200 from taxes/duties.
As part of improved trade facilitation, simplify returns processes, certificates of origin and duty drawback procedures, and streamline VAT collection on trade.
Create appropriate intermediary liability safe harbors.
Legal recognition of digital signatures and financial payment services.
Allow inward investments in all ICT industries.
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Steps for Domestic Digital Policy
Eliminate ICT-specific taxes.
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Source: Robert D. Atkinson and Ben Miller, “Ranking 125 Nations by Taxes and Tariffs on ICT Goods and Services,” (Information Technology and Innovation Foundation, October 2014), Figure 2, Appendix B.
Steps for Domestic Digital Policy
Don’t subject OTT providers to telecom regulation.
Embrace light touch, opt- out privacy rules.
Focus on 5G, not gigabit networks.
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Make Government a Force for Digital Innovation (I)
Have access to an innovation “Incubator”. (e.g., US “18F” or UK Government Digital Services).
Put innovation in the strategic plans/agendas of all agencies.(e.g., Dept. Transportation & ITS; Dept. Energy & Smart Grids/Meters).
Appoint a Chief Innovation Officer (CIO) for every agency.
Establish an “Office of Innovation Review” within the government. (Mission to screen the impact of laws/regulations on innovation).
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Make Government a Force for Digital Innovation (II)
Industry 4.0
Agriculture 4.0
Mining 4.0
Electricity 4.0
Education 4.0
Financial Services 4.0
Transportation 4.0
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www.globalinnovationrace.com
Yale University Press, 2013
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Obriagdo!
Robert D. Atkinson | ratkinson@itif.org | @RobAtkinsonITIF
@ITIFdc
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