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How Data Became a Trade Issue

Photo: pxfuel.com

By Adil Nussipov

Global data regulation is mostly discussed as part of the digital trade agenda at the World Trade Organization, even though data protection and privacy have a broader scope than digital trade, and it may seem more effective to address them as issues on their own.

In her book, professor Sarah Schoonmaker discusses how globalization of technology affected the relations between developing and developed states. The arguments that she presents shed light on another question that has always been puzzling for those interested in global data governance, which is why data governance has never been addressed as an issue on its own.

No international organization with authority to create global rules has been established to regulate data. Rather, global data regulation was always linked to electronic commerce and trade policy. United Nations (UN) barely scratched the surface in the 1970s whereas the World Trade Organization (WTO) surprisingly became a forum for global data regulation.

Why the regulation of cross-border data flows was linked to global trade policy remains a puzzle. I argue that it was mainly because the U.S. managed to shift data policy debates from domestic regimes to the international trade regime by including them into the negotiations of General Agreement on Tariffs and Trade (GATT).

According to Schoonmaker, the advancement of technologies changed global business and spread data dependency fears among developing nations. In turn, data dependency created a global division between developing and developed states over the free cross-border flow of data. The U.S. strategically used forum shopping to rebrand data flows as a trade policy matter.

How Technology Changed Global Business

Schoonmaker writes that around the mid-1970s, technological innovations became heavily integrated in all global business operations. Multinational companies became reliant on a steady supply of and access to technology. The integration of telecommunications tech with computer tech was one of the groundbreaking moments: now, computers located in different geographic points could transfer and share data between each other via telecommunications networks.

Using these networks, multinational companies were now able to centralize and coordinate their global operations across offices located in different countries. Data networks became a channel for digital exchanges of goods and services, a phenomenon that Schoonmaker terms as digital trade. The effects of global data flows were felt across almost all industries, but most distinctly in finance and trade, news, marketing and communications.

Ability to transmit data across various locations reflected existing global economic inequality. States with a developed IT sector benefited the most as their companies were able to scale globally via telecommunications networks. Companies from states with weak or no IT sector became less competitive. As Schoonmaker argues, not only markets of these states became easy targets for tech goods and services exports from global IT giants, but free flows of data via telecommunications networks allowed foreign companies to more easily penetrate these markets beating local champions.

As a result, Schoonmaker argues, developing states became increasingly concerned with the political and economic effects of information (or data) dependency. Schoonmaker defines information (hereafter, data) dependency as a type of economic dependency between IT-advanced states and IT-underdeveloped states (which lack needed technology, skills and infrastructure) for the provision of data services. In the 1970s, data dependency fears marked the beginning of a new order of global data politics.

Data Dependency and Global Data Politics

Surprisingly, as cross-border data flows allowed multinational companies to penetrate markets of IT-underdeveloped states, governments were not worried about international trade. Rather, they were observing how international digital trade was making their sovereignty vulnerable to foreign influences.

Developing states mainly showed concerns about the corporate control over cross-border data flows. Since developing states hosted foreign branches of multinational companies, their headquarters, usually located in developed states, processed and stored any data collected by their foreign subsidiaries, not necessarily with the consent of hosting governments. Governments of developing states got worried about how their national data could be used by foreign governments. In one of the feared scenarios, the headquarters could switch off the data supply to its local branch, thereby disrupting operations of the branch and preventing it from providing services and fulfilling contracts. As Schoonmaker writes,

already by 1978, 18 countries either had laws on cross-border data flows or were drafting one.

Worries about data dependency sparked debates at the level of international organizations, too. Schoonmaker writes that in 1979, in one of the resolutions of United Nations General Assembly, there was as strong call for changing the status of developing countries in the global data supply chains.

In 1978, UNESCO sponsored the first intergovernmental conference on Strategies and Policies for Informatics (SPIN I), where developing states raised their concerns over structural inequalities dominating cross-border data flows. Especially in developing regions of the world like Latin America and Africa, Schoonmaker writes, regional intergovernmental conferences started to multiply. There, governments stressed the need to create their own national data capabilities such as data banks and national data networks as a strategy to counteract data dependency.

National telecommunications policies were at the heart of governments’ data strategies. Governments used their telecommunications policies as a way of re-establishing their control over digital trade, at least within their borders.

National telecommunications policies essentially established rules and barriers for foreign companies’ access to the countries’ telecommunications infrastructures by, for example, setting high rates to rent private telecommunications infrastructure or setting rules on which type of hardware are allowed. Governments hoped that will this make them gain more from foreign firms and provide more favorable conditions for their own local champions in global markets.

On the other hand, Schoonmaker wrote, multinational companies, which were suffering the most as a result of these policies, challenged the powers of governments to control digital trade and demanded equal competition and “the right to plug in” into the countries’ networks.

Strategic Forum Shopping

Forum shopping is a “strategic selection and use of policy venues by actors in order to advance their policy goals.” States usually have a menu of possible venues (forums) where they could address their policy goals. Selection among them often is based on governance arrangements, memberships, decision-making rules, openness toward lobbying and other design features, Hannah Murphy argues.

Evidence in Schoonmaker’s book indicates that data became linked to trade in services and addressed at WTO (or GATT back then) level as a result of successful strategic forum shopping by the U.S.

One of the strategies used by states to advance their interests in different forums is regime shifting. Regime shifting is a process, where states turn the policy debate that fits their interests from one regime into a parallel regime, which may have different priorities. It may result in strategic inconsistencies between two regimes, where rules in the second regime may conflict with rules in the original regime, which provides states with a wider menu of rules they can decide to follow.

By mid-1970s, the international dialogue on the governance of cross-border data flows became increasingly fragmented. Nations were divided both along the lines of economic inequality, between developing and developed states, and the lines of perception differences between those that saw data as an issue affecting their sovereignty, and those that saw data as a trade issue.

On one hand, developing nations saw data flows as yet another tool in the hands of developed nations to take advantage of their economic superiority, now translated into the digital world. Free flows of data made these nations less economically competitive and more politically vulnerable in relations to giant multinational corporations and foreign governments.

On the other hand, for states like the U.S., which was fiercely advancing interests of its corporations, the cross-border flow of data presented no danger for their sovereignty. Instead, it provided an economic opportunity.

At the time, only few countries in the world came close to the U.S. in terms of developed IT infrastructure and expertise. However, strict telecommunications policies and protected markets presented a real danger for the global operations of its multinational corporations. Due to data flow disruptions, companies could not centralize their data management systems, would have to set up different data processing mechanisms in different countries, increase investments into inventories and technical personal and spend additional resources and time on setting up a new global data processing system.

Even if they did all that, these systems would have to work differently in differently countries, thereby slowing down global production, providing inconsistent information and worsening costumer service. Simply said, their economic costs of data flows barriers were way too high.

To counteract restrictive telecommunications policies of developing states, the U.S. engaged in two strategic actions. First, it re-branded cross-border data flows as a trade issue, which not only allowed the U.S. to distance itself from sovereignty and dependency concerns of developing states, but also to market the free flow of data using the language of globalization, free and open trade and economic growth, Schoonmaker wrote.

In essence, this step marked the shift of data policy from telecommunications, data networks and economic development regimes to the regime of international trade. The first three sets of regimes had a technical, inward-looking domestic policy focus. The international trade regime prioritized openness, free trade and economic growth.

Secondly, the U.S. moved the debate from the national level to the international level to create a strategic inconsistency between national and international rules. Previously, telecommunications policy was a matter of domestic politics where governments were free to define their own terms, allowing them to require any foreign firm to comply with their internal rules. Now, the U.S. planned to create a set of international rules on data flows that would override national telecommunications rules and limit the ability of governments to control trans-border data flows unilaterally.

The U.S. needed an international venue, one aligned with its interests and providing it with advantage to set and lead the data flows debate. The World Trade Organization (WTO), or the international bureaucracy of what then was known as General Agreement on Tariffs and Trade (GATT), was a good fit across multiple lines.

First of all, there was a little menu to select from. No international organizations at the time explicitly dealt with cross-border data flows. Most of data regulations came much later, with OECD’s Guidelines published in 1980, Council of Europe’s Convention 108 in 1981 and both the UN’s Guidelines and the EU’s Data Protection Directives released as late as 1998.

There was International Telecommunications Union (ITU), a UN body, but it had little rule-making authority; it mostly dealt with technical standard-setting and was (and is) dominated by experts and technocrats.

Moreover, taking the debate to the UN was not going to work for the U.S. for several reasons. As it was seen already, the General Assembly as well as UNESCO promoted a general pro-development and pro-developing nations tone. At the same time, the U.S. was conscious that it would not gather the necessary support in the UN as the majority of members as well as other major powers in the Security Council were more on par with developing nations than the U.S. in terms of IT capabilities.

Secondly, GATT fitted in terms of political culture and the ideas that its bureaucracy promoted. GATT was a part of the U.S.’ wider plan of setting up a management system over global economy, on par with already created the World Bank and the International Monetary Fund (IMF). All three organizations inherited an American focused political direction. They advocated for the same set of economic ideas, including liberalization, market economy and free flows of capital and trade, and, as some argue, ensured the sustainability of free competition in the international market, rather than creating a system of fair incentives.

Thirdly, decision-making via consensus-building institutionalized in GATT in comparison to voting and vetoing systems, provided much more space for the U.S. political maneuvering, under-the-table deals and lobbying. In such a decision-making environment, a nation’s global market share is equivalent to its political power; it by default put the U.S. in the better position vis-a-vis its trade partners.

Finally, GATT’s membership also had a critical mass of states, or of early adopters, needed to implement new rules among participating states. It incentivized non-complaint states to bandwagon later out of fear of being left out of the global trade.

In that environment, developing states failed to mobilize against the actions of the U.S. and seek alternatives forums. That was mostly because no countries at the time had power or resources to compete with the U.S. in terms of creating alternative institutions and rules. Moreover, they lacked the needed support. China was to engage in creating alternatives internationally, led by China, but that would happen much later.

Adil Nussipov is a researcher working on a project aiming to map the global data governance and to identify the design of the global data governance architecture. He also works on the Media Influence Matrix project at the Center for Media, Data and Society and acts as Global Governance Editor at E-International Relations. Contact him at NussipovA@ceu.edu, or Twitter: @adilnsspv

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