Localization to Fragment Data Flows in Asia
In recent years, Asia has seen a push by governments to implement data localization laws. Such laws require businesses to ensure various forms of data are processed and stored in servers physically located within national borders.
A number of countries in the region — including China, India, Indonesia, South Korea, and Malaysia — have already introduced data localization requirements, and there are efforts across Asia to introduce or enhance such regulation. The arguments for such regulations range from enhancing national security, protecting personal privacy, aiding law enforcement, and preventing foreign surveillance, in addition to appeals to the principle of sovereignty. But governments have also restricted the transfer of data across national borders in order to foster the development of domestic technology sectors. Furthermore, governments have implemented data localization policies as a short-term means of promoting economic development via the construction of in-country data centers and the creation of highly-skilled technical jobs.
On the other hand, a number of markets in the region have not joined the trend, including Myanmar, Cambodia, Philippines, Hong Kong, Singapore, Thailand and Japan. Singapore stands out for its differentiated approach. Instead of pursuing localization, it is focusing efforts on promoting its digital economy, harnessing data analytics, and creating the best possible ecosystem for digital technologies to thrive across all sectors.
Data localization policies can have real downside impacts on foreign investors: they complicate the management of international technology infrastructure, limit a company’s ability to transfer data from place to place, and add operation costs as businesses are suddenly mandated to build expensive local data centers.
Recognizing the risks and looming compliance costs, multinational firms advocated strongly for regional trade agreements that would ease the trend of data localization and allow data to flow more freely across borders. The centerpiece of this push was the Trans-Pacific Partnership (TPP), which included specific provisions meant to limit data localization (which the agreement called “digital protectionism”), prohibit digital customs duties, and enable cross-border data flows.