Data Without Borders: International Effects of Data Flow Regulation

By: Tamar Giladi Shtub & Michal S. Gal

Data has no inherent jurisdictional boundaries, and cross- border data and data-based information transfers can significantly affect national and global welfare. Accordingly, local data flow regulation in one jurisdiction may create intended or unforeseen externalities in other jurisdictions. This Article examines the complex challenges and implications of national regulation on data flows in an increasingly interconnected world. Given the pivotal role of data in our economies and societies, it is essential that governments recognize such externalities and take measures to ensure that an efficient balance is reached between the relevant considerations, including economic growth, privacy, and national security.

To illustrate such cross-border effects, we analyze two contrasting case studies: China’s data localization requirements, which restrict cross-border transfers of data out of China, and the European Union’s Data Act of 2023, which facilitates data sharing. Through these examples, we demonstrate how local regulation can create externalities that ripple across the global digital landscape. The analysis highlights the inadequacy of current international frameworks in addressing the complexities of data flows.

Our findings underscore the urgent need for increased international cooperation on data governance frameworks, as unilateral actions risk fragmenting the global digital landscape and limiting the welfare-enhancing potential of data synergies. We contend that countries, particularly the United States, are missing crucial opportunities by delaying engagement in shaping international data flow policies. By highlighting the complex interplay between local data flow policies and global effects, this Article provides a foundation for governments to take a more proactive role in shaping welfare-enhancing frameworks for international data flows.