The Journal The Authority on Global Business in Japan

Data is what drives our modern economy, and its flow increases each year. Because data is trans­mitted across physical borders with ease, it cannot be regulated by national or regional rules—at least in theory.

In reality, a complex tangle of challenges comes into play, including national motives and security, main­tenance of govern­ment systems, and human rights protection. A number of countries—including Brunei, China, Indonesia, Nigeria, Russia, and Vietnam—are already moving to enact and enforce data localization laws. Digital economy policy is becoming a national priority around the globe, and digitization is transforming our world in remarkable ways day by day.

On July 23, the American Chamber of Commerce in Japan (ACCJ) and Keidanren—the Japan Business Federation—jointly hosted the 9th US–Japan Cooperation Dialogue on the Internet Economy. Opening remarks were given by Richard Holbrook Jr., partner at law firm Crowell and Moring LLP, Yoshio Takeyama, chairman of Keidanren’s sub­committee on informa­tion and tele­communication policy, and ACCJ Digital Economy Committee Co-Chair Yoshitaka Sugihara.

A key conclusion to come out of the dialogue is that, based on fundamental awareness of the importance of the digital economy, the United States and Japan should:

  • Secure cyberspace
  • Abolish local data regulations
  • Harmonize personal data rules
  • Construct a global system

There is great opportunity for the governments of the United States and Japan to lead the way by working with the private sector on cybersecurity measures, building strong relationships that include the sharing of best practices in the cybersecurity field, and driving more extensive capacity building.

ITIF analysis of formal laws or regulations publicly reported as of April 2017

To this end, a session was held to discuss the prospect for future internet policy issues while another government–industry joint session explored how the two sides can work together to ensure an environment in which data can be used with peace of mind.

Robert Strayer, deputy assistant secretary for cyber and international communications and information policy at the US Department of State, Mabito Yoshida, director-general of the Global Strategy Bureau of the Ministry of Internal Affairs and Communications, and Hiroshi Yoshida, deputy director-general for IT strategy at the Ministry of Economy, Trade and Industry were among the high-level officials from the US and Japanese governments who spoke at the government–industry joint session.

It was pointed out that the state-led approach cannot be the mainstream, and that the private sector must be the curators of data policy, citing cross-border privacy rules as an example of important private partnership. And while government officials did not precisely outline what ideal private sector engagement would look like, they did note that the private sector must take an active leadership role in promoting the free flow of data and its security.

This free flow is critical because the digital economy is built on the instant cross-border exchange of data. Ensuring this flow remains uninterrupted is a prerequisite to enabling everyone to enjoy its benefits on a global scale. Regulations that require data to be stored inside a country work against this and can act as non-tariff barriers that impose additional costs and excessive business risks on companies. Such rules can also impede economic growth in the regulating country, and the impact on small and medium-sized enterprises and startups trying to use digital technology to launch themselves into global markets is especially severe.

The Electronic Commerce chapter of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) agreement—also known as the TPP11—contains high-level standards that ensure free cross-border transfer of information and prohibit requiring servers and other computing facilities to be located on a party’s own territory. Although the United States is not part of the CPTPP, its government—together with Japan—should press for these standards while also cooperating with other countries to urge the easing or abolition of counter-regulations. This would help prevent excessive regulation from becoming the norm in developing countries.

ITIF analysis of formal laws or regulations publicly reported as of April 2017

Although use of personal data enables provision of services tailored to indi­vi­dual needs, there is widespread concern over possible privacy infringe­ments and misuse. Issues are emerging over improper data use leading to arbitrary control over people’s conduct, and it is feared that centralized state control of data—based on the idea that cyberspace should be controlled by governments—could give rise to national security issues if such data includes information from other countries.

Striking a balance between use and protection of personal data—one that avoids extreme approaches that impose excessive or too-weak privacy protections—is critical to building a sustainable internet economy.

The Asia-Pacific Economic Cooperation (APEC) Cross Border Privacy Rules (CBPR) system is designed to do this, and the United States and Japan should encourage adoption of these rules on a wider scale. They should also strive for further maturity in practical enforcement of this framework and more support and involvement of APEC and non-APEC economies, including securing the interoperability between CBPR and the European Union’s General Data Protection Regulation or GDPR.

The public and private sectors in the United States and Japan also have an important role to play and must work together to identify the positions adopted by other countries, deepen ties with likeminded countries, and engage in ongoing multi-stakeholder dialogue to gradually close the gaps.

Both nations have an opportunity to take on a leading role in the use of multilateral frameworks—including the Group of Seven, Group of Twenty, the Organisation for Economic Coopera­tion and Development, and APEC—to build and harmonize balanced systems worldwide that make business easier.

Meanwhile, the business community can do its part by collaborating with stake­holders in other countries as well as proactively participating in and contri­buting to international conferences and other multi-stake­holder forums to raise topics and drive discussion—especially on ensuring the free flow of data and promotion of invest­ment and economic develop­ment through digital transformation.

The digital economy has brought about innovation by overcoming various barriers, including those separating organizations, industries, and countries. With digitization, cloud-based systems, data links, artificial intelligence, and innovative Internet of Things techno­logies changing how we live and do business, we recommend that Japan and the United States make implemen­­tation of digital economy policy a focus of their national strategies. We also encourage the private sector to manage their businesses in a way that achieves digital transformation while building consumer trust and to create services that raise people’s quality of life. The private sector should be ready and available to be an active partner in policymaking and in the establishment of best practices as the digital economy rolls out.

Member companies of Keidanren and the ACCJ are committed to promoting and leading innovation through digital transformation, harnessing data and digital technology to achieve economic growth while also resolving social issues. To do this, companies must draw upon their industries’ efforts as well as the support of individuals and communities while continuing to cooperate in global discussions. In this way they can realize self-sustaining economic development that enhances people’s lives.

The state-led approach cannot be the mainstream . . . the private sector must be the curators of data policy