The Next Big Data Battlefield: Server Geography
WHY YOU SHOULD CARE
Whoever has physical access to the servers that hoard our data could determine who controls the global economy of the future — and our lives.
By Maroosha Muzaffar
At the G-20 summit last June, when Japanese Prime Minister Shinzo Abe introduced a resolution endorsing the free flow of data across borders, India, South Africa and Indonesia refused to sign it. India’s then foreign secretary Vijay Gokhale described data as a “new form of wealth” to explain the country’s reluctance to part with it.
It wasn’t an isolated standoff. President Donald Trump’s trade war with China and tariff battles with India and Europe dominated the global financial discourse in the months before the coronavirus crisis. But the next trade conflict after the pandemic eases is already brewing, and it won’t involve only tariffs on products. It’ll be focused on territorial control of data.
A growing number of emerging economies with giant populations, like China, India, Nigeria, Indonesia and South Africa, are leveraging the markets they offer to demand that foreign firms keep the data they gather from these countries within their borders, and not on servers in the West. That’s leading to rising tensions over “data localization,” especially with the U.S., which has an overall global trade deficit but enjoys a massive trade surplus in digital services — in good measure because of its control over global data, say experts.
Indian Prime Minister Narendra Modi dangled his country’s 1.3 billion-strong market during a visit to the U.S. last September, calling data the “new gold.” China has 13 data localization laws that span all sectors of life — all data on Chinese nationals and infrastructure must be stored within the country. Nigeria has a similar requirement. An Indian government panel has meanwhile recommended that New Delhi do the same.
There’s very much an imbalance in the direction of the flow of the data.
John Selby, Macquarie University, Sydney
U.S. senators and tech giants are fighting back, lobbying their governments and the administrations of nations that are tightening data control regulations. U.S. Trade Representative Robert Lighthizer and the European Union have publicly criticized India’s proposed data localization plans, for instance.
“With technological advancement, countries across the world have realized the power and value of data as the new oil and are making efforts to preserve its value to their own advantage,” says Munjal Kamdar, a partner with consulting firm Deloitte.
This battle over the global data market — and especially in fast-growing and populous markets — will only sharpen, say experts. India’s data generation is expected to grow at twice the global rate in 2020. Yet the emerging data wars remain “an underappreciated subject,” says Rohinton P. Medhora, president of Waterloo, Canada-based Centre for International Governance Innovation. Concerns over who controls data range from questions of personal security and privacy to national security and national sovereignty.
The battles are likely to be most intense in fields that are most sensitive — such as health or financial records. The U.S. is already accusing China of trying to steal data related to clinical trials of potential vaccines for the coronavirus. But the data localization debate is distinct from efforts like Europe’s General Data Protection Regulation — which lays down data protection standards for all foreign companies, but doesn’t insist that they locate their servers in Europe.
Kamdar says the concept of data localization represents an inherent contradiction with the free flow of information on which the Internet is based. “We have witnessed nation states implementing geographical firewalls that effectively contain the flow of information about and to their citizens,” he says. “We are likely to witness a slew of legislation that will curb the flow of information across the globe.”
But John Selby, a lecturer at Sydney-based Macquarie University whose research has focused on data localization, says several countries are concerned that “the free flow of data is not an equal flow of data around the world.”
“If your data is in the U.S., owned by U.S. companies or hosted using servers located in the U.S., they are the ones extracting the value from that for their shareholders,” says Selby. “There’s very much an imbalance in the direction of the flow of the data.” That’s why countries are willing to fight it out with the U.S. As the U.S. has a rare trade surplus in digital services, it won’t give in easily, he says. American tech giants like Amazon and Google are also using a variety of tax strategies including transfer pricing to minimize the taxes they pay to governments in their users’ home nations, Selby adds. All of this means that the free flow of data creates trade deficits in digital services for India, China, Russia, Brazil, Australia and other major markets for U.S. tech firms.
Data localization could bring other concerns though — leaving aside questions over the global trade regime. Medhora says activists in several countries with authoritarian regimes have articulated concerns that data localization might lead to mass surveillance or abuse of individuals, dissidents and minority communities. At the moment, the absence of local data offers a challenge for intelligence agencies in these countries.
Implementing data localization isn’t easy, either. Data centers are energy intensive and several emerging economies such as Nigeria struggle with providing reliable electricity to their populations. “Building new data centers, which consume massive amounts of electricity on inadequate infrastructure that … prevents people cooking their evening meals, may not necessarily be the best policy choice,” says Selby.
The Information Technology Industry Council, a U.S.-based tech industry lobby group, asked India to rethink its plans. At least two senators in the Senate India Caucus have written to Modi to dissuade him.
But with the pandemic underscoring the risks of depending on other economies across oceans and continents, the fight over where data makes its home is just getting started.
- Maroosha Muzaffar