Global governance for the digital ecosystems: Preserving convergence and organising co-existence


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Vox EU

The expansion of the global digital economy in recent decades and the convergence of its governance have contributed to scientific progress and global welfare. They have also created the deeply interconnected technology ecosystems and supply chains we know today. While strong forces are still pushing towards deeper convergence, geopolitical frictions and the reassertion of states’ control are pressing towards segmentation into divergent sub-parts. The principle that digital ecosystems are interconnected at a global scale can no longer be taken for granted. The world is moving at an increasing pace towards a technological decoupling that will have a profound impact on all aspects of the modern economy.

Divergent or non-compatible digitally enabled or data-intensive cross-border systems across the major geopolitical blocs will be extremely costly. The freezing or failure of the financial systems, global value chains, and the management of global public goods, services, and common spaces – including outer space, weather management, and civil aviation – could wreak havoc. In addition, it could generate a technological lock-in for decades and have ripple effects well beyond the tech economy.

The outcome of the tension between convergence and segmentation of the digital economy is critical not only for the global economy but also for the global balance of power. Therefore, it would be wise for policymakers across the world to stop for a moment, consider the changing landscape of digital regulation, governance, and the globalisation process, and carefully weigh the alternatives.

Against that background, and as developed in a recent, comprehensive Centre on Regulation in Europe (CERRE) report to which some 30 academics and experts from Europe, the US, China and other countries have contributed (Lamy and Liebhaberg 2022), we are convinced that the general objective for the global governance of digital ecosystems should be to preserve, and promote where possible, convergence – to reap the benefits of economies of scale and of a level playing field – and organise co-existence when divergences are unavoidable.

A full, comprehensive convergence would be neither realistic nor, in many instances, appropriate. Some divergence in digital regulatory policies is both inevitable and desirable. Diverse preferences and priorities among countries must be respected and accommodated. But, if those preferences do not yield to market optimisation, inflexibility in preferences should also not lead to unnecessary costs in terms of economic welfare. Both risks must be avoided. The benefits thatcan be derived and shared from a relatively open, cross-border digital economy should be carefully balanced with appropriate protection of public policy objectives.

A distinction must be made here between decoupling and divergence. Decoupling is the active restriction of the way technology products, services, and inputs move between countries and continents. It involves extensive use of technology restrictions: export controls, divestment orders, licence denials, visa bans, and sanctions.

Divergence is the accumulation of distinctive national or regional regulations in an uncoordinated manner, eachresponding to specific collective preferences. In that respect, divergence is not an absolute, binary ‘yes versus no’ concept; it is relative, and its assessment will be based on the compliance cost it imposes.

While decoupling occurs mainly between the US and China, divergence occurs at all levels (e.g. privacy in the transatlantic framework). However, the line between the two concepts may sometimes be blurred. This is due toreasons for trade restrictions that are not always explicit, as well as to a growing acceptance of an expanded definition of national security that includes economic security and, as such, may go beyond the national-security exception of the WTO framework.

In both cases, segmentation between major digitally enabled or data-intensive cross-border systems will be extremelycostly. The freezing or failure of a financial system, global value chains, and the management of global public goods – including space, weather, and civil aviation – could wreak havoc.

In light of the above decoupling trend, there is a need for a fundamental policy choice to be properly debated. Divergence is more often a consequence of a multitude of implicit choices. In this sense, better-constructed governance mechanisms can mitigate any unintended effects. We must nonetheless recognise that the risks of triggering escalation spirals should not be overlooked: decoupling measures could set in motion a series of retaliatory measures and incentivise actors to pre-emptively reduce technology linkages to avoid future costs.

To enhance the considerable economic and socio-political benefits and opportunities provided by the digital economy and meet, at the global level, the new challenges the latter raises in terms of regulation and governance, the abovementioned CERRE report contains a series of policy recommendations. These focus on the global governance of online platforms, data, infrastructure, and digital trade. They are organised around four policy objectives: efficiency, compatibility, resilience, and coherence.

Efficiency

Wherever convergence can be achieved at a lower cost to collective preferences, it should be sought. This meansreaffirming that openness must be the rule, with justified restrictions being an exception. This involves setting-up procedural and co-ordination mechanisms that can facilitate the functioning and regulation of the digital economy, reduce transaction costs, and increase efficiency for all stakeholders involved, including regulators.

Specific recommendations under the efficiency heading include, among others:

  • the harmonisation of international standards on transparency measures imposed on platforms
  • an international agreement stating the principles of openness and non-discrimination while recognising exceptions for legitimate national public policy imperatives
  • a strengthening of the current, formal and informal international networks of regulators to ensure better exchange of expertise and confidential information-sharing between agencies
  • a new WTO Reference Paper for digital platforms to consolidate pro-competitive regulation.

Compatibility

For many years, national-security-related trade restrictions were considered to be outside the scope of WTO jurisdiction. In recent years, however, the number and scope of measures taken on that ground and constituting trade barriers have increased. Restriction of trade for national-security reasons should be selective, targeted, and co-ordinated as much as possible. Furthermore, everything that allows the compatibility of systems that are not convergent must be actively sought and prioritised to maximise the mutual benefits.

There are encouraging examples, such as the adequacy approaches, that make it possible to maintain a high degree of openness in exchanges between blocks with slightly divergent preferences, for example on privacy of non-personal data. This also means preserving global standards at the technical level if they can be detached from values; and anticipating future regulatory issues now to identify and bridge possible divergences in the future.

Resilience

The stability of transnational digital infrastructures is a prerequisite for the functioning of digital ecosystems. However, these infrastructures are still structurally fragile and subject to increasing offensive pressures. A series of measures concerning the interoperability of operators, a rapid switch between wireless networks in the event of network disruption, approval procedures for critical equipment, and security reinforcement for submarine cables must address these weaknesses and reinforce the resilience of the global digital infrastructure.

Coherence

The global governance of the digital economy cannot be based on a single regime or institution. It can only be a ‘regime complex’, that is, a loosely coupled set of regimes providing sets of norms at diverse levels involving a wide variety of stakeholders. That said, coherence of the system requires new co-ordinating venues. On such a crucial subject for the future of the global economy, international co-ordination is clearly underdeveloped. Dialogues happen often in silos preventing the proper integration of competing policy objectives, and national interventions are multiplying without a global institution mandated to monitor them and assess their effects.

We therefore propose the establishment of a Digital Stability Board by the G20. Designed like the Financial Stability Board, this forum would gather representatives from national governments (including security agencies) and regional institutions, regulators in charge of digital privacy, consumer protection, finance and competition, industry, think tanks, and relevant non-governmental organisations. The Digital Stability Board mandate could be as follows:

  • identify, observe, and monitor technological and regulatory developments and business practices,including related ‘vulnerabilities&#…
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