Simon Milner is Facebook's vice president for public policy, Asia-Pacific.
Today, any small Vietnamese company can quickly and economically market its products to new customers in Thailand using cloud computing services from Europe. That's a win-win-win, and it is made possible thanks to data flowing seamlessly across borders to where it can be most efficiently processed.
From Mumbai to Manila, from health care research to human resources, this flow of cross-border data now underpins every sector of Asia's economy. It also promises to be a platform for Asia's economic recovery from COVID-19. But this cross-border collaboration is under serious threat. We risk an Asian "splinternet."
Digital protectionism is on the rise. Rather than working together to harness the potential benefits of the digital economy, states are jeopardizing future growth by erecting virtual borders. The EU is threatening to stop cross-border data flows to the United States because of a disagreement over surveillance laws. In Asia, a number of countries have already pursued protectionist digital policies. Some are considering going further.
Businesses across Asia should be extremely concerned about this rising digital protectionism and moves to breakdown the internet into country-by-country platforms. Pursued on a wide scale, these actions would cripple the benefits of technology, undermine regional economic growth, and set our economies back years.
In many countries, physical restrictions due to COVID-19 have increased business reliance on online products and services. They need them to survive and recover. On Facebook, millions of small businesses across the region are seamlessly connecting with customers around the world. Cross-border data flows make this possible. They have long-added enormous value -- trillions of dollars to the global economy each year -- by supporting global commerce, said McKinsey Global Institute in 2016. In 2019, analysis by Bain & Company, Google and Temasek noted that Southeast Asia's digital economy was worth over $100 billion per year. Prior to COVID-19, it was on track to treble to over $300 billion by 2025.
But increased digital protectionism would block the crucial digital infrastructure that businesses and consumers rely on for communication, sales and everyday services. Cross-border connectivity and communication, the backbone of the real economy, would be broken. This would hobble companies seeking to recover from the impact of COVID-19. It would also stymie the regional growth of e-commerce in countries such as Indonesia, Pakistan and Vietnam, driven largely by small businesses.
Why are states pursuing data localization policies, when the risks are so great? Some cite economic growth, believing that ring fencing data within national borders will stimulate growth. Sadly, this is incorrect. Data localization does not increase GDP and stimulate domestic innovation; it is in fact proven to undermine both by creating artificial barriers to the free flow of information, the lifeblood of the global economy. By contrast, countries that lift localization provisions can -- according to research by the European Centre for International Political Economy -- expect a 5% rise in services investment.
Localization increases costs for businesses, mandated to set up or use local data centers without the same economies of scale. It would also decrease their access to overseas customers and the latest technology. Small companies, lacking the resources to navigate compliance and technical costs, would suffer most. And fewer companies and services means less choice and higher prices for consumers.
Next, consider data security. Data must be physically stored somewhere. By preventing the cross-border flow of information, data localization would mandate the creation of new data sites across different countries. Without agreed global standards or protections for data storage security, a new, more complex system would create significant opportunity for hackers and criminals.
Other implications are more sinister. If free nations demand local data storage, it would legitimize the practice for other nations with less noble goals -- those seeking to access citizens' data for purposes of government censorship, for instance.
We must act now to protect and improve the system we have. Rather than creating a patchwork of uncoordinated and unilateral policies that will take years to unpick, countries should support an overarching framework promoting cross-border data flow with enhanced protections. The year of 2020 has reminded us that we still face global challenges. How will doctors solve the problems of tomorrow if they cannot share the knowledge of today? How will we feel if we can no longer make international video calls, for free, with loved ones around the world?
These are complex issues. The public and private sector must fix them together. We are at a global crossroads, deciding how the data flows that drive our international modern economy are regulated. We can turn inward, pursuing uncoordinated rules that jeopardize future economic growth. Or we can work in concert, harmonize regulation, and build a sustainable data framework that supports the real economy. On a number of issues, Facebook has proactively called for regulations that are forward-looking and pro-innovation. Policy decisions that drain the lifeblood from modern international commerce are neither.