The G7 first met nearly 50 years ago with the goal of addressing the global macroeconomic issues of the day, from the 1970s energy crisis to tackling high unemployment and inflation. Today, the G7’s mission of ensuring economic growth and prosperity remains no less urgent, with its members working to address the Russia-Ukraine crisis and fight climate change. As G7 leaders arrive in Hiroshima, Japan later this month, they will have an opportunity to take on another critical issue: the fragmentation of the digital economy.
The digital economy has been transformative in every aspect of modern life. Cross-border data flows underpin how we work and live, from booking hotel rooms and flights to tackling cybercrime. They also facilitate the orderly and efficient operation of financial markets, including our global trading platforms. Whether it’s accessing the cloud or facilitating remote work, the need for cross-border data flows is ubiquitous in organisations of all sizes, sectors and geographies.
Despite the opportunities, we are not unlocking the full potential of the digital economy. To do so, the world’s biggest economies must act decisively and in pursuit of a shared goal.
In 2021, the G7 set out its Digital Trade Principles, outlining support for open digital markets and opposition to digital protectionism. However, amid heightened geopolitical tension, progress has been slow. Many governments around the world have chosen to assert greater data sovereignty, threatening to fragment the global open data ecosystem.
Every minute, LSEG updates 480 million financial records, manages 147 million real-time market messages, and processes 208,000 trade orders. When a country tightens its restrictions around open data, we see the implications. For example, we provide a range of solutions that help to tackle financial crime. The criminal networks of today operate without borders, so financial institutions, companies and governments need access to global data to manage a constantly changing risk landscape. If jurisdictions restrict access to this type of data, companies may be less confident to do business across borders – or worse, they may end up working with a company facilitating financial crimes like money-laundering or forced labour.
It doesn’t have to be this way. Cross-border data flows have the power to drive sustainable and inclusive economic growth, helping countries around the world raise living standards and improve the lives of their citizens. They drive innovation, empowering businesses and communities to create solutions for society’s greatest challenges.
When Russia invaded Ukraine, we saw a 600% spike in customers’ use of World-Check, our risk intelligence database, to implement sanctions quickly and effectively. With 40,000 requests from customers per day, the ability for data to cross borders made a huge difference in our ability to meet their needs.
But data localisation measures continue to increase around the world. Estimates from the World Economic Forum show that these measures, combined with data flow restrictions, could lower the GDP of some countries by 1 to 2 percent. This could exacerbate already fragile economic environments, deepening crises and negatively impacting businesses, consumers and workers.
As G7 leaders arrive in Japan for the group’s 49th summit, they should look for multi-lateral, cross-sector solutions to fragmentation. In March, LSEG and other global companies supported Japan’s call to establish a G7 leader-led Institutional Arrangement for Partnership (IAP) to advance international cooperation and trust on digital governance issues.
The formation of the IAP builds on Japan’s success in bringing global leaders together to endorse the concept of “data free flow with trust,” first introduced at the 2019 G20 leaders meeting in Osaka. At the end of last month, the creation of the IAP was endorsed by G7 digital and technology ministers, affirming the need for G7 economies to strengthen international coordination on data and digital governance by creating mutually acceptable principles for data and digital governance.
Given the potential of the digital economy, governments should be concerned about protecting national security and the privacy of their citizens. A forum accountable to leaders with separate government and government-private stakeholder panels like the IAP will provide a mechanism to drive alignment on frameworks and promote globally coherent regulatory approaches for data privacy and security.
This will help build the mutual trust in data governance across jurisdictions needed to underpin cross-border data flows and digital trade. With these safeguards in place, we can establish a long-lasting secure, trusted and resilient digital economy that will protect citizens and allow innovation to thrive.
We must be proactive in fighting entrenched digital fragmentation and building an open digital economy. There is no better time than now for G7 leaders to act, so government and industry can tackle this critical issue.
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