2.3 REGIONAL AND GLOBAL ECONOMIC POLICY COOPERATION

Taxation, trade, consumer protection and competition are among the areas of economic policy that require new thinking in the digital age: they are the ‘guard rails’ of the digital economy. Increased cooperation could lead to effective national approaches and experience informing regional and global multilateral cooperation arrangements.

Taxation, trade, consumer protection and competition are among the areas of economic policy that require new thinking in the digital age: they are the ‘guard rails’ of the digital economy. Increased cooperation could lead to effective national approaches and experience informing regional and global multilateral cooperation arrangements.

Currently, however, there is a lack of regional and global standards in these areas, and multilateral cooperation is generally not working well. This may inflict far higher costs than is widely recognised. To take one relatively simple example, regional and global standards in areas such as interoperability of mobile money systems and best practices for digital ID would have considerable benefits. To discourage misuse, such standards and practices would also need to include clear accountability.

International trade rules need to be updated for the digital age. Technologies and trade have changed dramatically since 1998, for example, when the World Trade Organisation (WTO) last brokered an agreement on e-commerce.79 In January 2019, 76 WTO member states announced the initiation of plurilateral negotiations on trade-related aspects of e-commerce.80 Any agreement will need to address concerns of a diverse range of countries, including lower-income countries in which the e-commerce sector is less developed.81

Some argue that restrictions on data flows should be treated like any other trade barrier and generally minimised.83 However, views differ sharply, and decisions on national legislation are complicated by concerns about privacy and security – discussed in the next chapter. Countries that require companies to store and process data within their national borders argue that it promotes local innovation and investment in technology infrastructure and makes it easier to tax global corporations.84 Others argue against such approaches on the basis that they are protectionist or represent an effort to obtain access to the data.

There is growing recognition that taxation is an area where digital technology has moved faster than policy frameworks. In particular, technology firms may operate business models – such as multi-sided platforms or “freemium” models – which offer free services to some individual users and earn revenue from other users, merchants or advertisers.85 A company may provide services to millions of people in a country without establishing a legal entity or paying tax there. This has become a source of growing popular resentment.86

Where possible, new regulatory approaches should be tested on a small scale before being rolled out widely – through, for example, pilot zones, regulatory sandboxes or trial periods.

International digital cooperation could assist countries to develop appropriate tax policies. The G20 and OECD’s Base Erosion and Profit Shifting project is currently seeking consensus on issues such as how a global company’s tax receipts should be allocated to different jurisdictions based on its business activities.87 An agreement in this area could offer countries a source of revenue that they could, for example, use to invest in human capital or lower the tax burden on small businesses.

Some countries are now taking unilateral action. Countries such as Italy, France and the United Kingdom (UK) have announced the intent to impose taxes on digital sales rather than profits, at least on an interim basis.88 Other countries, such as Thailand, have amended tax rules relating to offshore digital services.89 The lack of cooperation and coordination among different regulators is creating a patchwork of different national rules and regulations which makes trade and e-commerce more difficult. Ensuring that such emerging tax policies do not have unintended consequences on small enterprises or poor populations deserves special attention.

An international perspective is also needed to tackle concerns about competition, which have grown as large firms have established leading positions in many digital services. This is due in part to network effects: the more users a platform already has, the more attractive it becomes for new users and advertisers.

Recent discussions have proposed three main approaches.90 First, a relatively laissez-faire approach that favours self-regulation or minimal regulation. Proponents argue that government regulation is often poorly conceived and counterproductive, harming innovation and economic dynamism. Critics counter that an overly hands-off approach has led to a concentration of market power in large firms and abuses of privacy that have sparked public and government concern.

A second approach calls for more active state intervention to set rules for digital companies. Experience in industrial policy shows that such an approach can either help or hinder depending on many factors, including regulators’ willingness and ability to engage varied stakeholders in a smart discourse to balance competing interests effectively.91

A third approach suggests regulating digital businesses as public utilities, analogous to railroads or electricity companies. The analogy is not an exact one, however, as physical infrastructure is easier to segment and harder to replicate than digital infrastructure and lends itself more easily to hosting competition among service providers. There is also dispute about how contestable are digital markets – that is, how vulnerable are the leading firms to new competitors. Moreover, traditional competition law operates far more slowly than changes in technology.

 

Finding the right approach in these areas will require not only different countries to work together, but also regulators in different government agencies. Models for how agencies can come together for peer-to-peer information sharing include the International Conference of Data Protection & Privacy Commissioners and the International Competition Network.92

Alongside existing models, new models of governance and cooperation may be needed. They will need to be multi-stakeholder, including the private sector, civil society and users. Their debates should be transparent and open to citizens, as modelled by Mexico’s National Institute for Transparency, Access to Information and Personal Data Protection.93

Where possible, new regulatory approaches should be tested on a small scale before being rolled out widely – through, for example, pilot zones, regulatory sandboxes or trial periods. We stress the overall need for a “systems” approach to cooperation and regulation that is multi-stakeholder, adaptive, agile and inclusive in Recommendation 5B.

However, regulators need to have sufficient resources and expertise to engage in such an approach – and the Panel’s consultations highlighted concern that many regulators and legislators have insufficient understanding of complex digital issues to develop and implement policies, engage with companies developing technologies and explain issues to the public.94 This increases the risk of regulations having unintended consequences.

There are several existing examples of initiatives to develop the capacity and understanding of public officials, from countries such as Israel,95 Singapore96 and the United Arab Emirates (UAE).97 But much more could be done, and the Panel’s Recommendation 2 envisages “digital help desks” which would broaden opportunities for officials and regulators to develop the skills needed for the smart governance that will be required to create inclusive and positive outcomes for all.