How to improve digital economy regulation through increased transparency

Simon Evenett and Johannes Fritz

Life is full of ironies. The internet was to herald an era of greater transparency and accountability of governments – putting more information in the hands of citizens. Yet, it turns out, the regulation of the digital economy is one of the least transparent policy domains. No international organization systematically tracks changes in laws, regulations and enforcement practice in this space. The media no longer has the resources for tasks like this. A few think tanks and researchers put out occasional reports. For law firms, policy surveillance is often just a marketing tool.

Nothing good comes of this knowledge gap. Best practices barely get identified, let alone shared. Poorly designed regulations threaten to fragment the digital economy, compromising business models that are only profitable at the large scale. Companies face huge amounts of political risk which, in turn, dulls the incentive to innovate. The cost and quality of service offerings deteriorates. SMEs, whose contribution to more inclusive economies is increasingly recognized, are stymied by compliance outlays.

The imperative of properly regulating the digital economy must be paired with far-reaching surveillance of public policy. To that end, we created the Digital Policy Alert. Our goal is to provide comprehensive and even-handed tracking of regulatory developments in nine areas of law in the G20 nations and in Europe. Here we report on the trends we’ve gleaned from six months of operation.

Outside the media spotlight

Competition enforcement actions against digital behemoths, global talks on tax matters and China’s crackdown on tech garner headlines. However, looking across the 700+ policy and regulatory changes proposed so far this year, plenty of action is happening below the radar (see below). For example, there have been almost 300 developments in data governance rules alone in the G20 and in Europe. There have been twice as many developments in content regulation and intellectual property than on the tax front. Systematic monitoring of policy allows policy-makers and advisers to avoid the drunkard’s search – looking for their keys underneath the streetlight since that is where the light is. Then they might focus on the significant issues, rather than the ones receiving media attention.

 Number of proposed or implemented changes in 2021, selected instruments by area of law.

Number of proposed or implemented changes in 2021, selected instruments by area of law. Image: digitalpolicyalert.org

So far this year, actions by American and European officials account for just over half of the policy initiatives implicating the digital economy (see below).

Number of proposed or implemented policy changes in 2021, by implementing country.

Number of proposed or implemented policy changes in 2021, by implementing country. Image: digitalpolicyalert.org

In Europe, the European Commission stipulated conditions for the extra-EU transfer of data adopting general standard contractual clauses as well as approving individual decisions for the UK and South Korea that determine that these countries have adequate levels of data protection. In the member states, we observe more activity relating to content moderation, the national implementation of the GDPR and the taxation of the digital economy. Competition law is a focus of both national and supranational enforcers, as we will see below.

The most active regulatory areas in the United States mirror those in Europe. State and federal initiatives concentrate around data governance issues. States, however, acted more often on tax matters, and federal governments resorted more to antitrust actions. On both sides of the Atlantic, it is reasonable to ask on what basis regulators and policy-makers are prioritizing action. To what extent are fear and perceived inequities rather than methodical cross-country comparison and deliberation driving policy intervention? Are the least trade restrictive policy options being given any consideration? This is particularly important given the Brussels effect, the tendency for foreign governments to adopt regulations enacted by the European Union.

Online platforms in the crosshairs

Much of the observed policy and regulatory activity cuts across the digital economy, affecting in principle any service provided online (see below). During 2021, however, online platforms have been a particular focus in at least two areas of regulation: content moderation, as well as competition law and its enforcement. Regulations that require platforms to moderate user content were adopted in several European nations, as well as India and Russia, and are under deliberation in Canada, the UK and the United States. Adding bite to moderation requirements, some governments, including Austria and France, made platforms liable for specified user content.

Number of proposed or implemented policy changes in 2021, by economic activity. Most changes are general, yet platforms are often targeted.

Number of proposed or implemented policy changes in 2021, by economic activity. Most changes are general, yet platforms are often targeted. Image: digitalpolicyalert.org

Competition law and its enforcement is particularly active globally and principally targets the large online platforms. In January 2021, Germany implemented an amendment to its competition law that broadens the market definition and allows its competition authority to pre-emptively assess threats to online competition. The German competition authority since began investigations against the GAFA tech giants and recently stated an appetite for more. Germany is far from alone. The UK established a new Digital Markets Unit and started several topical competition law investigations, as have Australia and South Africa. Several countries currently probe the app store practices of Apple and Google, with South Korea being the first to act and require opening app stores to alternative payment systems.

Stealth protectionism

The DPA database includes fewer than 50 policy changes in 2021 that overtly discriminate against foreign digital suppliers. The relevant policy instruments, ostensibly motivated by national interest considerations, include local operation and data storage requirements, obligations to invest in local content, and restrictions on FDI. Is it appropriate to conclude that so few instances of overt discrimination imply little fragmentation risk for the global digital economy? We aren’t sanguine.

In the digital economy, the distinction between de jure and de facto discrimination is particularly pertinent. It’s easy for governments to claim they are regulating platform providers even-handedly when there isn’t a single significant domestic provider. When local rivals exist, what assurances are there that enforcement action is not influenced by industrial policy considerations? Many governments keen on actively regulating the digital economy also have policies to nurture local digital firms. Limited transparency and the absence of a holistic assessment of digital policy-making across the board make it difficult to identify such indirect protectionism – which also cramps the growth of the global digital economy.

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