Europe and the governance of the digital economy

Shamel Azmeh,
Dr., Lecturer in International Development,
University of Manchester,

The rapid growth in digital technology in recent years has transformed the world in multiple ways. One of the areas in which this impact is most visible is the rapid growth of the digital economy and digital trade. A growing number of goods that used to be traded physically are now exchanged either electronically or are mediated by digital firms such as Amazon and Alibaba. A growing number of services are also moving to online delivery limiting the need for the physical presence of the service provider in a country. As we move toward technologies related to artificial intelligence (AI), cloud computing, autonomous vehicles, and the internet of things (IoT), the role of data flows in underpinning global exchange of goods and services is likely to expand rapidly.

This growth in digital trade is creating an important, and fundamental, challenge to international trade governance. Over decades, through multiple forums, states have agreed on rules that govern trade in goods and services including rules on tariffs, modes of service delivery, intellectual property, amongst others. Today, the rapid growth in digital trade is challenging these rules. Should digital goods traded through electronic transmission (say books and movies) be subject to tariffs? Can banks provide financial services from one country to another without having physical presence there? And what are the limits of the role of the state in controlling these types of flows?

Debates on these issues have intensified in recent years. Fuelled by demands from Silicon Valley firms, the United States have pursued a campaign to reach global rules that guarantee “free digital trade”. This campaign was manifested in agreements such as the Trans-Pacific Partnership (TPP) that included major provisions related to digital trade, the new USMCA agreement with Mexico and Canada, and a set of proposals for multilateral rules through the World Trade Organisation (WTO). This agenda is problematic for a number of reasons. First, it limits the ability to impose tariffs on digital goods which could be problematic for states who rely on tariffs for revenues or who use tariffs to protect certain economic sectors. Similarly, these rules will potentially remove some of the protections and regulations imposed by states on the services sector which could lead to negative impact on major economic sectors in most countries.

Furthermore, these rules are likely to strengthen the dominance of a small number of large American digital firms, the so-called GAFA (Google, Apple, Facebook, and Amazon), in terms of data collection and analysis and power vis-à-vis small and medium enterprises throughout the world. The problematic business model adopted by many of these digital firms with regards to data protection, privacy, and broader economic and social implications will become difficult to resist. Such rules are likely to make it harder for other countries to pursue the legitimate objectives of protecting the data of their citizens, their small and medium enterprises, or promoting their own digital economies.

However, opposing this digital economy model and the set of rules that underpin it is not enough. In the absence of any regime of global governance, what we are witnessing today is the emergence and expansion of “alternative” models that in many ways are far worse. In countries such as China and Russia, amongst others, states are developing and implementing tools to control the internet and to enlist large digital firms in controlling information and the behaviour of users. In many ways, this model is resulting in a digital model that combines the surveillance capitalist elements of the Silicon Valley model with an authoritarian political model that deny citizens not only their economic and social rights but also their political rights to resist or shape any of the rules governing this economy.

In this race between the market surveillance model and an authoritarian state-market surveillance model, Europe and the rest of the world remain to a degree marginalised. In recent debates, Europe seemed to be consumed by competing forces. Some European actors (governments and businesses) supported the more liberal digital order proposed by the United States. This model, however, was opposed by other European actors including states such as Germany and France. This opposition was driven by two main factors. The first was economic as important voices in those countries feared the economic impact of the dominance of large American tech firms on the economy of Europe. A second factor was opposition by different European political movements and civil society organisations to the impact of such rules on data protection and privacy. The result of those debates was the adoption of a compromise that included stricter protections for personal data and privacy through the General Data Protection Regulation (GDPR) and through linking European participation in free digital trade agreements with certain protections by partner countries. Effectively, although such a link is not acknowledged by European institutions, the GDPR acts as an incentive to other countries to adopt European data protection rules in order to have better access to the European digital market.

While linking data protection to trade agreements could work to encourage countries to adopt GDPR-like rules, what is needed today is a broader political discussion of the vision of the digital economy and how it relates to issues such as individual freedoms, human right, and social and political rights. Despite all the challenges facing Europe internally and externally, Europe should play an important role in envisioning a more inclusive digital world. Rather than merely resisting the two problematic models we see today, Europe has a chance to drive a global discussion on what an inclusive digital world can look like.

Expert article 2729

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