Tech industry faces data security crisis amid increase in global protectionism

06 June 2018

Data protectionism is on the rise across global technology networks and could be stunting tech growth and development, according to a report by international law firm Gowling WLG.

The report - Global Protectionism: Are you leaving yourself open? - analysed global trade data and found that protectionist measures across the globe have increased by more than 7,000 since 2009 and that the US - home to tech hotspot Silicon Valley - has overseen the largest increase of more than 1,000 policies since the recession.

Protectionist policies include South Korea requiring credit card numbers to be stored domestically and Finland requiring that all accounting information must be stored within the country. Some European countries (including France and Germany) already have restrictive policies for cloud services and these are becoming more frequent.

Due to an increasing difficulty to share information, this climate of protectionism could be detrimental to the growth of the industry.

David Brennan, partner and co-chair of global tech at Gowling WLG, said: "Data protectionism is on the rise and it's something that we all will have to come to terms with over the coming years. Currently, there aren't any reliable ways to measure the flow of data between countries. As our digital footprints become both larger - and indeed more valuable - the need to protect, store and manage will become increasingly important, particularly for governments.

"Recent seismic events such as Brexit, the election of Trump, the rise of the far right political parties in Europe and flat wages and productivity point to an era of deglobalisation and increased protectionism. Businesses tend to be split on protectionism, for example 45 per cent of those questioned in our research believe protectionism is good for their business.

"It means those leading the strategy for their business should factor in both the risk and potential reward when it comes to increasing global protectionism - changing supply chains and investing in alternative markets."

According to the report, some of the world's most successful technology economies, including Finland, Sweden, Korea, The Netherlands, UK and Canada, are susceptible to protectionist policies. All but the USA and Japan of the world's top ten tech economies are rated highly vulnerable to protectionist policies.

The report also discovered that 78 per cent of CEOs surveyed believe this increased climate of protectionism will lead to a global recession and 70 per cent believe that generally, the world is becoming a more difficult place to do business.

However, businesses are evenly split on the effects of protectionism. Almost half (45 per cent) think that protectionism is positive for their own sector, but they are cynical about the reasons for protectionism with 50 per cent saying that these policies are for political gain.

Globally, the top 60 economies have overseen a net increase of more than 7,000 protectionist trade measures and tariff costs totalling more than $400 billion since the financial crisis. Only Brazil, Saudi Arabia and Tunisia have loosened their borders as the majority of the world tightened its borders, with the majority of the G20 creating more protectionist policies than liberal ones since 2009.

The issue of protectionism is also set to cast a long shadow over the UK's relationship with the EU and future trading partners. Almost half (49 per cent) of all EU trade policies made since 2009 were harmful to international trade with countries outside of the single market, which means, without a free trade deal post-2019, Britain stands excluded and on the edge of one of the world's biggest protectionist blocs. Gowling WLG's analysis of EU-imposed trade measures applied from 2009 to 2016 found there were 5,657 directives and measures that can be seen as actively restrictive for trade.

Further analysis finds the UK is the world's 8th biggest victim of protectionist trading measures since 2009, but it is not blameless for the rise of protectionism as it is ranked 6th in the world for the net number of protectionist policies implemented against other countries.

The US has increased its protectionist policies by 1,085 measures since 2009 - the biggest increase across the globe. Aside from the US, Argentina and India are the countries with the biggest protectionist agenda in recent years. These countries are rated as very difficult to trade with as they have high trading tariffs (Argentina 6.6 per cent; India 6.2 per cent) and have created a high net amount of protectionist measures since 2009 (Argentina 365; India 438).

For the full report and interactive heat map of the countries most affected by protectionist policies, please visit gowlingwlg.com/protectionism.

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