During a virtual policy discussion on Aug. 16, the American Chamber of Commerce, together with partners at the Joint Foreign Chambers of the Philippines, US-Asean Business Council, IT and Business Process Association of the Philippines, Asia Cloud Computing Association, and Asia Internet Coalition, expressed support for the Philippine government in its efforts to maintain open and enabling policies on data governance to champion the free-flow of data in the region.
I highlighted during my opening remarks the key role the Philippines has played in championing cross-border data flow amid ongoing negotiations on the Indo-Pacific Economic Framework for Prosperity and Asean Digital Economy Framework Agreement (Defa).
Trade and Investment Secretary Alfredo E. Pascual, together with other Asean Economic Ministers (AEM), endorsed the Study and Framework for Negotiating Defa during the 55th AEM meeting on Aug. 19 in Semarang, Indonesia—a critical step in paving the way forward for Asean to start negotiations on an agreement that will accelerate trade growth, enhance interoperability, and increase participation of micro, small, and medium enterprises in the digital economy across the region. Progressive rules in Defa, including those governing digital trade, cross-border e-commerce, cybersecurity, digital ID, and digital payments are expected to double the projected size of Asean’s digital economy in 2030 to $2 trillion, according to the endorsed study.
As highlighted by President Marcos in his State of the Nation Address in July 2023, the digital economy contributed 9.4 percent ($35 billion) to the Philippines’ 2022 GDP. As one of the regional leaders for cross-border data flows, the Philippines is well poised to access a large chunk of the projected $2 trillion Asean digital economy pie and become a net winner in the Defa.
At its current trajectory, the Philippines is on its way to becoming a digital economy heavyweight in the region. However, any shift away from the current open and enabling policy regime, such as through regulation that will impose data localization requirements, could significantly alter this trajectory.
The ability to freely use, share, and access data across borders is vital for innovation and economic growth and to leverage technologies, such as the Internet of Things and artificial intelligence. A survey conducted by the OECD on the impact of data localization measures on sectors like aviation, cloud computing, and cross-border e-payments found that restrictions in the flow and storage of data have led to a significant increase in data management costs; regulatory fragmentation, and cybersecurity risks due to the inability to share data on threats or system vulnerability. Moreover, imposing restrictions on cross-border data flows could increase the cost of services and pose risks for cybersecurity, disaster recovery, and redundancy in the information technology and business process management industry—a sector of great importance to the Philippine economy.
The Philippines does not currently have any broad data localization mandates in force aside from some residency restrictions on above-sensitive and top-secret government data under the Cloud First Policy. If any proposed data localization or data residency mandate is put forward, this will stand directly at odds with the Philippines’ trade commitments and the government’s policy approach of allowing data to flow across borders.
Such mandates fundamentally impede the growth of the digital economy because they hinder companies from being able to offer cross-border services, access cutting-edge digital technologies and solutions, and keep costs low; prevent citizens from being able to benefit from cross-border services and solutions, and not improve security or data protection outcomes. Data localization and data residency mandates also result in higher costs, less choice, less innovation, and less secure digital services for businesses and citizens.
It is therefore imperative that government takes a deliberate, transparent, and consultative approach to this issue given the multitude of stakeholders that will be affected and the potential negative consequences it could have on the country’s digital economy ambitions. Continued government support for open and enabling policies on data governance and the free flow of data will allow the Philippines to lead by example, and take full advantage of the opportunity offered by emerging digital technologies and adoption of agreements like Defa to drive greater progress for the country and the region.
Ebb Hinchliffe is executive director of the American Chamber of Commerce of the Philippines.