AJISS-Commentary
The Association of Japanese Institutes of Strategic Studies
NPIRIPS

Nakasone Yasuhiro

The Japan Institute of

Research Institute for

Peace InstituteInternational Affairs

Peace and Security

Editorial Advisory Board:

No. 276

Akio Watanabe (Chair)
Ichiro Fujisaki
Masashi Nishihara
Kenichiro Sasae

8 October 2019

Editorial Committee:
Tsutomu Kikuchi
Fumiaki Kubo
Tsuyoshi Sunohara
Shujiro Urata andYasunori Nakayama
Editor & Online Publisher:
Kenichiro Sasae
President, JIIA“A SYSTEM OF POLICIES TO SUPPORTTHE FREE FLOW OF DATA”
Fukunari Kimura

・ Digital technology, particularly communication
technology such as the Internet andsmartphones, has rapidly penetrated intopeople’s life even in newly developed anddeveloping countries. Smooth data flow isessential for consumers and network users toenjoy the benefits.
・・ However, policymaking on data flow anddata-related businesses has so far been
confused and fragmented across countries. It is
important to establish an organized approachfor related policies to catch up with themarket-based introduction of new technology.
・ T20 Japan 2019 proposes a conceptual frameworkin which economic benefits from the free flow ofdata are placed at the starting point, and policies
necessary to address various economic and social
concerns are classified into five categories as policy
guidelines.
The views expressed in this piece are the author’s own and should
not be attributed to The Association of Japanese Institutes ofStrategic Studies.

AJISS-Commentary
The Association of Japanese Institutes of Strategic Studies

Digital technology has rapidly penetrated the whole world, including
newly developed and developing countries, and has started changing people’s
lives in substantial ways. In particular, communication technology led by theInternet and smartphones has reduced the cost of communicating, acquiring
information, matching supply and demand, and offering business opportunities
not only to big players but also to small businesses and individuals. Smooth data
flow is essential for taking advantage of the benefits of communication
technology.
However, the policies designed to govern the flow of data anddata-related businesses are now in disastrous confusion and are also
fragmented across countries. The United States, the European Union, China andother countries have not so far shown any signs of policy convergence orharmonization. Once policy formulation starts from the supreme value of privacy
protection or cybersecurity, policies tend to be too cautious about data flows andpossibly disregard economic efficiency. Policies on large platformers such as
GAFA (Google, Amazon.com, Facebook, and Apple Inc.) often target multiple
policy objectives such as privacy protection, competition policy, taxation, andeven protectionism at the same time, making any logical justification of policies
difficult.
One fundamental issue is that the economics of data have not yet been
well established. This is a major issue that needs to be addressed by economistsright now, though a bit more time may be needed to settle various debates.
However, the demand for policies will not wait for our slow response. Promptedby such a sense of emergency, the Think 20 (T20) team on trade, investment,
and globalization this year proposed a simple logical framework to provide anorganized approach for necessary policies on the flow of data and data-related
businesses by drawing an analogy from trade in goods (Chen, et al., 2019).
Here we will set the free flow of data as a logical benchmark. As in thestandard microeconomic model, economic benefits are based on the welfare ofconsumers or network users. A series of policies is then considered in order toaddress various socioeconomic concerns possibly associated with the free flowof data.
http://www.jiia.or.jp/en/commentary2

AJISS-Commentary
The Association of Japanese Institutes of Strategic Studies

Policies that support the free flow of data are logically classified into thefollowing five categories (see figure below). The first category is a series ofpolicies for further liberalization and facilitation, which include non-discrimination
for digital content, customs duties on electronic transmissions, customs duties
on parcels, and electronic authentication and signatures.

The second consists of policies to address economic concerns bycounterbalancing market failure. Market failure tends to occur when imperfectcompetition, economies of scale, increasing returns, public goods, or incomplete
information exist, and policies that cancel out market distortions due to market
failure may be justified. Competition policy, consumer protection, and intellectual
property protection fall into this category.
The third comprises policies that reconcile non-economic values orsocial concerns with economic efficiency. There certainly exist important values
in our judgment other than economic efficiency, and we must try to reconcile

http://www.jiia.or.jp/en/commentary3

AJISS-Commentary
The Association of Japanese Institutes of Strategic Studies

such values with a minimal loss of economic efficiency. Privacy protection,cybersecurity, and other general exceptions for health and culture, for example,
should be addressed by policies in this category.
The fourth includes a series of policies dealing with data-relatedbusinesses. Those businesses are new, and some special attention must be
paid in order to place them in a proper regulatory framework without losing
economic dynamism. Most of the related policies are domestic policies but they
have strong international implications. These policies include taxation, regulationon e-payments, fintech and other industries, artificial intelligence, information
disclosure by firms and statistics, and due process in government access to
privacy or industry data.
The fifth is industrial policy and strategic trade and investment policies. It
is understandable that governments may want to strengthen their own industries.
However, we have to note that such policies are often implemented without
careful cost-benefit analysis. Inefficient government intervention or protectionism
must be avoided. We also need some international norm with proper listing andnotification of such policies in the future.
G20 Japan 2019 adopted a concept of “data free flow with trust (DFFT)”for the coming rule-making effort on data flows. It is meaningful to set the freeflow of data as a logical starting point, if not as a legal principle, in order toanchor the benefits of consumers and network users. Then we should write
down what would constitute enough “trust” for us to enjoy data flows with comfort.
Our conceptual framework will provide a list of “must dos.”
The formulation of pertinent policies has been delayed particularly inmany newly developed and developing countries while economic forces havealready pushed the application of new technologies in various fields. In order toenjoy huge benefits from this digital wave, these countries must promptly
construct a system of data-related policies. It is important to place the benefits ofconsumers and network users at the center and try to avoid inefficient protectionof domestic players, while carefully monitoring intense debates among bigplayers on difficult issues such as competition policy, privacy protection, andtaxation. It is also important to nurture policy implementation capabilities.
http://www.jiia.or.jp/en/commentary4

AJISS-Commentary
The Association of Japanese Institutes of Strategic Studies

Cooperating internationally in capacity building and learning best practices fromeach other will be as important as ever.
References
Chen, L., et al. (2019) “The Digital Economy for Economic Development: Free
Flow of Data and Supporting Policies,” Policy Brief under T120 Japan Task
Force 8: Trade, Investment and Globalization(https://t20japan.org/policy-brief-digital-economy-economic-development/).

Fukunari Kimura is Professor, Faculty of Economics, Keio University and Chief Economist,
Economic Research Institute for ASEAN and East Asia (ERIA).

http://www.jiia.or.jp/en/commentary5