The impact of the emerging measures is likely to depend, in part, on the extent to which firms rely on digital solutions to enable their economic activities. When asked about the approximate share of data management costs in total expenses, responding firms highlighted that data management costs were, on average, 11% of total expenses. Differences arise across sectors with services showing a higher share of their costs occupied by data relative to manufacturing and agricultural sectors (Figure A A.1).
Economic Implications of Data Regulation
Balancing Openness and Trust
Note: Figure shows responses to the business questionnaire when asked the following question: “What is the approximate share of Data Management Cost (including ICT tasks, equipment and legal compliance costs) in your firm's total costs (total gross expenses)?”
Source: Own calculations based on OECD-WTO Business Questionnaire.
When asked about how their businesses were responding to the emerging regulation (Figure A A.2), most (near 65% of respondents) suggested they had taken internal action, strengthening their own compliance departments. Only 7% claimed to have outsourced compliance. Just over 10% of respondents claimed that they had had to either limit the services they offered, pull out of markets or significantly change their business operations.
Note: Figure shows responses to the business questionnaire.
Source: Own calculations based on OECD-WTO Business Questionnaire.
When asked about the incidence of the costs in terms of the activities of the firm, businesses claimed that these were most important for legal compliance, followed by data management and supply chain activities (Figure A A.3). The nature of these costs was perceived to either be variable, in that the costs increased with the number of sales or transfers, or fixed, not varying with transfers (Figure A A.3). This highlights that there could some heterogeneity as to what these costs mean for different companies in different sectors, as well as across different types of measures (open and pre-defined safeguards might face different costing structures with open safeguards being more of a variable cost with pre-defined safeguards being more of a fixed cost).1
When the costs associated with different existing transfer mechanisms are ranked, responses highlighted that pre-defined safeguards, such as contractual clauses and binding corporate rules were perceived as the most costly, followed by contractual safeguards defined by the companies themselves, and public adequacy decisions (Figure A A.4). This is in line with the responses received about the size of the costs which suggested pre-defined safeguards as somewhat more costly. The least costly options were identified to be certification schemes and trade agreements.
The responses to the business questionnaire also allow us to gauge how the business community feels about some of the other goals that are targeted by data localisation policies. Around 43% of respondents believe that local storage does not lead to increased privacy protection or increase data security and 54% do not believe that it leads to more domestic innovation. Respondents also highlight a range of uncertainties about the degree to which these policies meet other public policy objectives. Only 30% of respondents feel that data localisation can help with privacy, security, or other regulatory objectives with only 19% believing that it can help with domestic innovation.
Note: Top panel shows a weighted average of ranked responses. Bottom panel shows number of responses. Variable costs are defined as those which vary with the amount of sales or transfers, e.g. having to undertake specific action each time data is transferred. Fixed costs are those which do not vary with sales or transfers, e.g. costs associated with keeping up with regulation in a particular economy. Sunk costs are those incurred only one time, e.g. to set up a system of compliance.
Source: Own calculations based on OECD-WTO Business Questionnaire.
Note: Results show weighted average of ranked responses (assigning higher weights to higher rankings). A weight of 10 points is given to the first choice, 8 to the second, 6 to the third, 4 to the fourth, and 2 to the fifth. The axis shows the sum of each category after applying these weights.
Source: Own calculations based on OECD-WTO Business Questionnaire.
← 1. It is, a priori, difficult to tell whether this is the case as the questionnaire did not ask the firms to identify what type of safeguard they currently faced.