President Biden has issued an Executive Order which will limit the transfer of personal data to certain countries on the grounds of security. Although the order makes it clear that international trade should not be affected, there will inevitably be indirect repercussions for global businesses, technology companies and consumers. The move is part of a trend towards the adoption of data security policies throughout the emerging and developed world and the consequent fragmentation of data resources.

According to a statement issued by the White House, the order is designed ‘…to protect Americans’ sensitive personal data from exploitation by countries of concern’. It also provides safeguards around other activities that can give those countries access to sensitive data which includes ‘genomic data, biometric data, personal health data, geolocation data, financial data, and certain kinds of personally identifiable information.’

In many respects, there is little to argue against in the order. It seems appropriate that a government should institute a policy which protects its citizens’ data from being transferred to foreign adversaries – China, of course, being the main target. Regarding trade, the order specifically says that measures should, ‘…not stop the flow of information necessary for financial services activities or impose measures aimed at a broader decoupling of the substantial consumer, economic, scientific, and trade relationships that the United States has with other countries.’

However, although it may not directly impact the flows of goods, the development of so-called ‘data islands’ or ‘techno-nationalism’ (as this trend has been called) has important strategic implications for business. China is in the process of creating its own data regulations to prevent the transfer of personal data to foreign countries. Beijing’s view is less influenced by concerns of personal confidentiality and more by its belief (mirrored by many in the emerging world) that personal data is a strategic national resource to be protected from foreign exploitation. Biden’s order is more in line with the EU data regimes, although even here fundamental differences of opinion exist. Attempts to create an agreement on transatlantic data flows are presently mired in court cases over whether protections are equivalent in both jurisdictions. Many in the EU believe that US legislation which allows the surveillance of foreigners’ data but not their own citizens is unfair. As one data security organisation, Dataguard, put it, ‘The use of many software providers [by European consumers] implicitly involves the transfer of data from Europeans to the US, and European companies are thus (indirectly) promoting the surveillance practice [conducted by US intelligence agencies].’

The inevitable result will be that companies will be forced to host and maintain databases in each jurisdiction and ensure that no data is transferred globally across a common enterprise-wide network. Whilst not impacting on shipment data, it will be a hindrance to multinationals operating in multiple markets and reinforce the competitive advantage of locally based companies. This in turn will provide another headwind to global flows of goods. This view is also held by the World Trade Organisation which sees the fragmentation of data regimes as ‘value destroying’, preventing many consumers from experiencing the benefits of the global digital economy.

Author: John Manners-Bell

Source: Ti/Foundation for Future Supply Chain

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