Economies of scale and scope, global reaches, and freedom of information made the digital economy globally integrated. However, certain market failures, such as “winner takes all” effects, the bad attitudes of market tipping, or the implementation of a national champion’s logic together with the geopolitical turbulences of the past years have created a somewhat different digital landscape.
Despite global awareness of the benefits of the free flow of data and the open internet, we are heading towards a fragmented digital world. The global unstoppable hegemony of a few digital players coupled with continuous uncoordinated data and privacy regulation by states creates a more and more a fragmented world. This, in turn, raises tensions even among established trading partners.
Regulation represents the main cause for digital fragmentation. Up until five years ago, the G20 members had adopted more than 1200 protectionist measures because of the global financial crisis. Recently, European and G20 governments took 1731 legal and regulatory steps together. A Joint Report of the Digital Policy Alert and Global Trade Alert identifies the three most active areas of state intervention: data governance, online content moderation, and competition law enforcement. Particular concerns arise about the rules regulating the storage, use, and transfer of data. China, the European Union, India, Russia, and the United States are going obviously towards different directions.
Tensions in international data flow
The number of countries with data privacy laws have more than tripled in the last two decades. However, this says little about how convergent all those legislations are, for instance, with the European General Data Protection Regulation – the legislation considered a ’gold’ privacy standard. On 25 March 2022, President von der Leyen and President Biden announced that they had reached an agreement in principle on a new EU-U.S. Data Privacy Framework. This should foster transatlantic data flows and address the concerns raised by the Court of Justice of the European Union in the Schrems II decision of July 2020.
However, legal uncertainty will continue in the coming period, and many commentators expect a Schrems III case challenging the “new” data deal. At the same time, data protectionism frequently declared as data or digital sovereignty is on the rise: from 35 countries having localisation restrictions in 2017, to 62 countries imposing 144 restrictions in 2021, among those, China, India, and Vietnam.
Having in mind the similar challenges faced by economies and societies with global big tech companies, regulatory tendencies in certain areas such as competition enforcement are clear. There is a growing need for cross-disciplinary collaboration among enforcement agencies responsible for antitrust and data protection. Legislation directly targeting competition in the digital economy is in the pipeline in many countries (for example in India or in the US, with the American Innovation and Choice Online Act & Open App Market Act). However, only the EU has made a clear holistic regulatory move with the Digital Markets Act. Other countries like South Korea have indeed only targeted selective areas, adopting a law prohibiting app store providers from requiring the use of their own in-app purchasing systems.
From today’s perspective, no one can anticipate the effects of the European ex-ante regulation of the biggest US-based online platforms in the transatlantic relationship if the other G20 countries do not follow Europe’s approach. Similarly, no one can anticipate the implication of the divergent regulatory policy across the Atlantic on the Big Tech business model.
Divergence in online content moderation
Similar observations can be made in the area of content moderation, defining the boundaries of permissible speech and its enforcement. Keeping in mind the experiences in the last decade on some social media platforms, the regulation of misinformation and harmful and illegal speech is without doubt a right and necessary step.
Following the acquisition of Twitter, Commissioner Breton reminded Elon Musk that ‘the bird’ will fly in Europe according to EU rules. Uncoordinated regulations may and will lead to a situation where eventually one case will be legal in one country and illegal in another, affecting businesses operating in both. This, for instance, illustrates the potential relationship between the European Digital Services Act and the as yet to be adopted Online Safety Bill in the UK. A general monitoring of online content is forbidden in the EU but should be expressly mandated in the UK.
The Russian invasion of Ukraine has accelerated fragmentation in the digital world. With decree of 6 March 2022, the Russian government amended the Russian Civil Code (regarding compulsory licenses) to authorize the use of patents, utility models, and industrial designs without the consent of the holders of related intellectual property rights. On top of this, Russia will not grant the owners any compensation when they belong to “foreign states and territories that have committed hostile acts against the Russian Federation.” This will have long-term implications in the technological sphere.
Complete uniformity seems unlikely. However, policy makers must bear in mind that rising barriers to globalization will increase IT costs massively and will hamper technological progress, reduce competition, and even enable oligopolistic market structures to emerge in some areas. Data governance, online content moderation, and competition law enforcement are challenging areas because they require a similar understanding of the digital economy across G20 countries. Those three areas are principle-based; therefore, a common approach is not impossible.
Uncoordinated regulatory overdrive in economies produces long-term negative effects. Regulation as unilateral, even as a justified, evidence-based step, must keep compliance costs in mind. While big corporations employ successful tactics in circumventing various legislation, citizens and SMSs are those most negatively affected. Fragmentation is not inevitable if policy makers bear in mind the benefits of an interconnected global economy and show a bit of patience in the coordinated drafting of new data regulation.
Indonesian’s G20 Presidency noted that it is essential to exchange insights and experiences to further common understanding and to work towards identifying commonalities, complementarities, and elements of convergence between existing regulatory approaches and instruments enabling data to flow with trust, in order to foster future interoperability. It is of utmost importance for India’s G20 Presidency to use this opportunity to promote global trust and capacity building with regard to digital technologies and stich together a fragmented global digital landscape.