The Cloud needs a new global trade agenda to prevent economic contagion

Grazed from BusinessCloud9. Author: Stuart Lauchlan.

Some of the fastest-growing emerging global markets are erecting new trade barriers that discriminate against foreign ICT and services – and holding back the progress of Cloud Computing.
That’s the grim conclusion of the Business Software Alliance (BSA), the global software industry lobby group, in a new study that concludes that the actions of some of the new economic giants – most notably China, India and Brazil – are having what the BSA calls “a contagion effect” by encouraging other smaller markets to take similarly protectionist measures.

“The global scope of the problem poses immediate and long-term threats to the IT industry and the broader global economy,” warns the BSA. “ These threats cannot be overstated or ignored . Leading IT economies should press a concerted bilateral, multilateral, and regional effort to combat discriminatory trade barriers where they already exist and eradicate them before they spread further.”…

Cross border blockage

Chief among the BSA’s concerns is the imposition of regulatory obstacles to Cloud Computing that unduly burden or discriminate against foreign firms by, for example, requiring suppliers offering Cloud services to locate data centres in-country or by significantly restricting cross-border data flows.

This has been an increasingly thorny issue with US Cloud services providers who want to expand overseas. The problem has been more prominent with the move by public sectors across the world moving to the Cloud, but demanding in-country data centres.

While US firms are ready to invest in data centres on a continental scale, the prospect of placing centres in every region of the European Union, for example, becomes prohibitively expensive.

The point has been made – and is reiterated by the BSA – that such a nationalistic mindset runs counter to the Cloud Computing model which often involves the storing and processing of data in multiple locations. BSA notes: “Many of Cloud Computing’s primary advantages — such as reliability, resiliency, economies of scale, and 24-hour service support — can require that data be stored in multiple markets. Confining data within a given country inhibits the ability of cloud service providers to offer these benefits.”

While the EU and the US are making some efforts to address this, other nations are heading in the opposite direction, most notably China, Indonesia, Vietnam, Brazil, Argentina, Chile, Colombia, Peru, and Costa Rica who have all have adopted or proposed rules that prohibit or significantly restrict companies from transferring personal information out of the domestic territory .

The BSA notes: “Such policies often have a disproportionate impact on foreign Cloud providers, whose primary data centres are more likely to be located outside of a given country. In some markets, licensing rules have created significant obstacles to the entry of foreign Cloud providers . For example, because appropriate licenses are available to foreign firms only in certain narrow circumstances, the Cloud market in China is largely closed to foreign competition.”

In fact in China if you want to deliver “value-added telecommunication services – VATS “ you need a VATS licence and in particular a ICP licence to provide commercial internet services, including Cloud services. These are awarded under strict regulation by the Ministry of Industry and Information Technology.

Foreign owned companies cannot apply for a licence, only joint ventures in which the foreign stake does not exceed 50% and any servers and data centres used to support Cloud services must be located in China . It is believed that no ICP licences have been granted to any foreign provider in recent years.

An action plan

The BSA also notes that markets such as China and India – the so-called ChIndia economic power bloc – and Brazil do not have adequate data protection laws in place whereas Japan, the US and the EU have the legal and regulatory frameworks in place or emerging to support Cloud expansion.

The BSA has proposed a seven-point policy blueprint for governments around the world to expand economic opportunity in the Cloud:

Protect users’ privacy while enabling the free flow of data and commerce .
Promote cutting-edge cyber-security practices without requiring the use of specific technologies .
Battle cyber-crime with meaningful deterrence and clear causes of action against criminals .
Provide robust protection and vigorous enforcement against misappropriation and infringement of cloud technologies .
Encourage openness and interoperability between cloud providers and solutions .
Promote free trade by lowering barriers and eliminating preferences for particular products or companies .
Provide incentives for the private sector to invest in broadband infrastructure, and promote universal access to it among citizens .

These are simple enough points, but entirely dependent on political and governmental will to enforce. If governments chose to pursue a nationalist agenda, the global economic potential of Cloud Computing will be fatally undermined.
"We are seeing a domino effect," said BSA President and CEO Robert Holleyman. "Two years ago, we started seeing discriminatory ‘indigenous innovation’ policies in China. Now we see them in India, Brazil, and Indonesia, among others. It’s a similar story with policies that limit companies’ ability to offer Cloud Computing services across borders — we are seeing them start to take hold all over Asia and Latin America.

“Exacerbating the problem with this kind of IT protectionism is the fact that many of the trade barriers we are talking about are masked as policies to promote innovation, enhance security, or advance other domestic priorities. This makes them far more difficult to challenge using traditional WTO rules or trade remedies. We need a new trade agenda for the digital economy."