Data localisation

Data localisation policy is used by nations to shape the activities of foreign digital providers. Within trade agreements, such rules are sometimes referred to as “location of computing facilities”

Details of data localisation vary, but the overall goal is that it will require data (or certain categories of data) created within a country to be stored domestically.

Motivations for data localisation

Data localisation rules have several motivations. Nations often cite data security concerns, leading them to demand that firms store data or host cloud computing in-country.

There are legitimate reasons why countries would want data localisation. Stories of state espionage and spying on data cables may push nations to consider such measures. Data localisation rules will also ensure data is within national jurisdiction which can be important for legal claims.

But beyond these security motivations, this regulation is sometime used as an industrial policy measure. Data localisation may strengthen the potential of domestic firms to operate competitively. Requiring local storage can also affect which companies can bid for government contracts

Although still much debated, data localisation might be used as a policy to promote aspects of a national digital industry. It forces transnational firms to invest in a country, or support sectors in areas such as cloud computing and data centres. Developing a data industry is an important component of the development of a digital economy.

In future, in areas such as cloud AI, digital machinery or driverless vehicles, which are highly data-intensive, data localisation may act as an even stronger policy. This is especially the case considering the huge costs of establishing data infrastructure for such large scale storage and processing.

Large and emerging nations

Such data localisation rules have attracted interest among large emerging countries. Such countries, with growing digital economies, become important markets for expansion of multinational digital trade and services.

Localisation has often been used as a leveraging tool in these scenarios. Nations use the threat of “data localization” as a bargaining chip, for example negotiating local content use by multinationals in exchange for no rules on storage.

Rules to prevent localisation

Data localisation is strongly opposed by globalized digital firms. The freedom to freely locate cloud servers, web servers and data centers is central to their business models.

Rapid expansion into new markets and economies of scale is based upon firms operating a limited number of globally located data hubs. Localisation rules would push foreign digital firms to develop more scattered data storage infrastructure which adds complication and costs.

New trade agreements look to remove the possibility of such policy. Trade agreement often specifically includes rules that prevents data localisation. Some categories such as government or sensitive data are likely to be exempt from such rules.