Each country has its own digital laws. How can data flow freely between them?

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  • Data Free Flow with Trust (DFFT), a proposed guiding principle for international cooperation on data flows, is entering the implementation phase.
  • The implementation of the DFFT has so far mainly focused on trade agreements, including e-commerce negotiations at the WTO and regional/bilateral FTAs.
  • Recently, these developments have been complemented by more pragmatic and bottom-up approaches.

Data is the fuel that powers the digital economy. Although data processing rules inevitably vary from country to country, it is important to ask: Can we minimize barriers to cross-border data transfers in order to address common challenges and bring benefits to the society ? Creating an environmentally sustainable circular economy, for example, requires a system to be in place to capture carbon-related information on products throughout global supply chains. This, in turn, requires coordinating data regulations in each country – a huge and complicated task. How can we get there?

This is where Data Free Flow with Trust (DFFT) comes in. DFFT was first proposed by Shinzo Abe, then Prime Minister of Japan, as a basic principle for the development of rules in the field of cross-border data transfers. After its debut in Davos, DFFT was endorsed in June 2019 by members of the G20 group of nations.

The DFFT concept has influenced the development of rules on data-related issues in many countries. Since then, countries around the world have been working to establish rules for digital trade that align with the DFFT concept. For example, the Japanese government agreed to high-quality e-commerce rules in two trade agreements: the Digital trade agreement between Japan and the United States and the Japan-UK Economic Partnership Agreement (EPA). In addition, preliminary discussions on data rules are ongoing between Japan and the EU. At the regional level, the Regional Comprehensive Economic Partnership (RCEP) is also part of this trend, as Japan, Singapore and Australia jointly facilitate multilateral e-commerce talks at the WTO.

The challenges of data consensus

The DFFT initiative currently faces several obstacles. More importantly, international harmonization is extremely difficult because each country has a different approach to data protection and trust. Achieving a global consensus on the rules that involve security and privacy, in particular, will take time, as national interests and viewpoints vary widely. The issue of government access to private sector data is a prime example of such a problem. Government access can include actions ranging from purchasing data from the private sector to requesting information for national security reasons.

Categorizing the different types of government access in a way that policymakers and other stakeholders in a range of countries can understand is an important step in reconciling perceptions and creating a basis for discussion, and is part of our work on this subject. the OECD worked on this issue and made steady progress, but it is expected that it will take some time to reach a global consensus. Ultimately, each country must take responsibility for explaining its rules and gaining the understanding of its trading partners.

the DFFT roadmap, developed at the G7 Ministerial Meeting on Digital and Technology in 2021, reflects this understanding of the issues. In addition to offering guidelines for reliable and trustworthy government access to data, the roadmap established action plans in three other areas: data localization; regulatory cooperation; and data sharing for priority sectors.

DFFT: a bottom-up approach

One argument against DFFT is that if a country participates in a cross-border data transfer system before its domestic data ecosystem is firmly established, its data assets could be stripped by foreign entities.

But the cost of staying away is high. Cross-border data flows can have significant benefits for local economic growth, as the World Economic Forum white paper, Advancing Data Flow Governance in the Indo-Pacific: Analyzes and Dialogues in Four Countries describe.

What is needed, then, is a pragmatic, bottom-up approach to DFFT that meets business needs. This means that comprehensive, high-level intergovernmental rule-making efforts can parallel public-private partnerships to solve individual problems.

A recent report by the Japanese Ministry of Economy, Trade and Industry (METI) analyzed cross-border data flows at the enterprise level, dividing the issue into six categories (see below) of challenges and measures specific, and made recommendations.

According to the report, some IoT manufacturers face the following problem: they sell IoT equipment worldwide and provide maintenance service, including failure prediction based on real-time data on operating conditions. However, regulations regarding the processing of this data vary from country to country and change frequently. A clear and consistent process for determining what types of information can cross borders would enable greater exploitation of IoT capabilities, including real-time monitoring.

“Few discussions of DFFT have looked at specific situations where ‘data doesn’t flow’ in business environments,” said Professor Tatsuhiko Yamamoto, chair of the panel that compiled the report. “We have collected and analyzed cases on the lifecycle of global data transfer using voices from the private sector and real-life examples.”

These challenges could be addressed by establishing a mechanism using RegTech, technologies designed to automate compliance and process monitoring. In this regard, a white paper published by the Forum in April 2022 identifies seven common success factors that help define best practices in deploying RegTech.

RegTech Deployment Examples

RegTech Deployment Examples

Image: World Economic Forum

One of the next big steps for DFFT is likely to be the G7 in 2023, which will be hosted by Japan, the country that came up with the concept in 2019. During Davos Agenda 2022, Kishida Fumio, Prime Minister of Japan, expressed his commitment to the effort saying, “Three years ago in Davos, our country advocated for DFFT. We go even further in the DFFT.

The unprecedented disruption created by COVID-19 has accelerated digitalization and exposed inequalities in who benefits from the benefits of technology, increasing the urgency for an inclusive digital transformation.

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As the summit milestone nears, we hope the discussion about DFFT will broaden to include real-world benefits and applications. In this context, we anticipate that DFFT-aligned public-private partnerships will become even more important as solutions to business problems.

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