The Data Localization Paradox

//Tatevik Sargsyan, a doctoral candidate at the School of Communication at American University, explores the economic and trade implications of data localization on governments and citizens. In lieu of the recent ‘Safe Harbor’ agreement, Sargsyan considers localization within the contexts of human rights and commercial exchange. 

The Court of Justice of the European Union (CJEU) decision to invalidate the Safe Harbor agreement on October 6, 2015, and the subsequent legal uncertainty surrounding data transfer between the United States and European Union (EU), have sparked conversations about data localization. As the US and EU negotiate a new transatlantic data transfer regime and internet companies consider moving data to Europe, it is worth reflecting on the potential consequences of data localization.  

Most commonly, “data localization” refers to legal restrictions on data location and export, which mandate online service providers to physically locate servers containing data belonging to a country’s residents within that country’s jurisdiction, and/or ban the export and processing of data elsewhere. China, Indonesia, Vietnam, South Korea, Russia, Canada, and Australia are among the many countries where such restrictions exist or are being considered.

The 2013 revelations about the US National Security Agency (NSA) surveillance PRISM program have particularly pushed countries to turn to data localization as a reasonable solution to privacy and security concerns related to intrusive foreign intelligence. This is the rationale behind German authorities’ proposal to store Europeans’ data on servers inside EU. This is also the claim that Russian authorities used to enforce the Data Localization Law on September 1st of this year.

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