Korea has an opportunity to demonstrate leadership in the global digital economy
In July, Tongsang, the South Korean trade magazines, featured an interview with Audrey Stienon, OMI’s industrial policy program manager, as part of the cover story on digital trade.The following is the full text of that interview.
What notable changes have you observed in the global digital economy, and what are the reasons behind the shift in digital trade norms among countries?
The first challenge for trade policymakers comes in defining the scope of the digital economy, and thus of digital trade. If we start with the UN definition of digital trade as the cross-border commerce that is ordered or delivered digitally, we can see that the global digital economy includes all the individuals, companies and industries that use digital technologies to communicate, send and receive information, coordinate supply chains, and facilitate sales between countries.
However, the other important group of stakeholders in the digital economy are the tech companies that provide the infrastructure of these markets: namely the suppliers of physical infrastructure (including personal devices, satellites, semiconductors, and data centers) and the suppliers of digital infrastructure (including browsers, social media platforms, e-commerce marketplaces, cloud service providers, and generative AI models).
These tech companies play a dual role in the digital economy. They are, first of all, the conduits that shape how all other industries and stakeholders’ access, utilize, and benefit from digital resources. Second, they are digital market participants in their right, who compete with these other stakeholders to sell products and capture profits and market share. This dual role is particularly evident in tech companies’ relationship to data: the core of their business is in helping other digital market stakeholders share, store, and move data, but they simultaneously profit from collecting, analyzing, and processing the content of that data, using it to create new products like personalized social media feeds, targeted advertising, or AI.
For much of the history of the digital economy, trade policy discussions have focused almost exclusively on supporting tech companies in their first role as data conduits, primarily by preventing governments from restricting individuals’ and industries’ ability to digitally transfer information across borders, as China did with its “Great Firewall.”
However, in the past decade, many national governments have started regulating the tactics that tech companies use to profit as part of their second role from their position in digital markets. Competition policy regulators, in particular, have increased their scrutiny of the ways that these companies have concentrated digital markets, leveraging other stakeholders’ dependence on their products to accumulate data and capture an ever growing share of the value of the digital economy.
Importantly, whereas digital trade policy discussions have prioritized the goal of maximizing cross-border data flows, national governments have responded to a broader set of public goals. These public goals include protecting trade in data and information alongside goals for protecting privacy and intellectual property, guarding against misinformation and manipulation, and developing sustainable digital business models for critical industries like media.
The challenge for governments is therefore to shift the conversation on the global digital economy away from a narrow focus on promoting unrestricted trade in data as an end unto itself, and instead towards a discussion about how governments can cooperate to best structure global digital markets so that they create opportunities for stakeholders from across industries, and around the world.
How do digital economy trade agreements such as the Digital Economy Partnership Agreement (DEPA) impact actual trade and the economy?
Digital trade agreements (DTAs) focus on the ways that governments support or impede access and use of digital technology. This can be positive, such as how DEPA includes provisions encouraging governments to adopt the use of digital technologies to streamline customs procedures for goods crossing the border. However, the more consequential impact of most DTAs, including many bilateral agreements currently under negotiation, is to restrict governments’ ability to regulate the activities of tech companies in the digital economy, even when their actions threaten the economic opportunities of other digital market stakeholders.
In traditional trade policy discussions, variations in national regulations are viewed as a form of non-tariff barrier that impedes trade. This logic is particularly ill-suited for the digital economy given that tech companies and cross-border data flows have, for most of their history, faced little to no regulation. Therefore, any digital market regulation introduced after a government signs a DTA can be portrayed as an unfair barrier to trade. Of course, DTAs include exceptions that allow governments regulate in certain cases, but DTAs are designed to make it exceptionally onerous, if not impossible, for governments to do so.
In particular, “non-discrimination” clauses are typically included in DTAs to prevent governments from implementing domestic policies that unfairly target the companies from a given trade partner. However, digital markets, and in particular the tech sectors that supply the infrastructure of the digital economy, are overwhelmingly dominated by a small handful of American companies. As experienced in South Korea, this means that almost any digital market regulation will disproportionately impact American companies, who can than then threaten to call on the U.S. government to initiate a trade dispute on their behalf. Even if governments have good grounds to win a trade dispute settlement case, this threat of U.S. retaliation can be enough to dissuade governments from pursing these types of policies.
Overall, DTAs overlook the ways that tech companies, by supplying digital market infrastructure, can also be the source of digital market trade barriers for other stakeholders. By protecting tech companies’ right to move data across borders, while limiting governments’ ability to regulate how these companies collect, protect, or process this data, DTAs facilitate tech companies’ growing capture of digital markets. This allows tech companies to build unfair digital markets, thus limiting the opportunities that other global stakeholders have to benefit from participation in digital markets and digital trade.
What are the major issues arising in the process of establishing trade norms for emerging technologies?
Emerging technologies like AI are certain to radically transform markets and business models both within and outside the digital economy. However, it is impossible to know what opportunities, or risks, will emerge from this transition. This means that governments need to continually monitor markets as they evolve in response to new technologies, and to maintain their capacity to be innovative in how to respond to new risks and opportunities as they emerge. In particular, national competition policy regulators need to ensure that entrenched monopolies, be they national or multinational companies, do not act as barriers to the development or adoption of new technologies (for example, through killer acquisitions of new rival companies), and do not use anti-competitive practices to capture new markets as they emerge.
In doing so, governments will have to weight a number of different priorities based on what the stakeholders in their society hope to achieve by developing and using new technologies. The challenge, from a trade perspective, is that different governments, representing different combinations of stakeholders, are likely to come to different conclusions about how to rank these priorities, and will thus have differing ideas about how to regulate their national digital markets, and how to engage in international digital commerce.
Despite these differences, governments should not forgo all regulation of digital markets in the name of protecting the lowest common denominator of policy harmonization. Instead, governments—and especially democratic governments—should develop new forums and mechanisms of international economic cooperation, creating spaces diverse stakeholders to share their concerns about emerging technologies, and allowing governments to share best practices and develop inter-operable policy regimes that advance shared values and priorities.
How do digital platform regulations like the EU Digital Markets Act (DMA) affect global trade?
Digital platform regulations like the DMA help create digital markets that are fair and open to individuals and businesses from around the world. In doing so, they help remove the barriers to trade that are erected by tech companies, and thus open up opportunities for a more diverse range of digital market stakeholders.
For example, while enforcing the DMA, the European Commission required Apple to remove the barriers it had built into the App Store that rescript app developers’ ability to directly communicate with European consumers about new offerings and deals. In doing so, the Commission increased the opportunities that app developers from around the world have to attract and sell their products to European consumers, thus facilitating digital trade.
Although the DMA increases the policy diversity that companies must navigate in the digital economy, its ultimate impact is to make markets more fair, and thus to increase opportunities for a wider range of stakeholders. The more countries that adopt similar practices to protect fair market practices, the more these opportunities will increase around the world.
What changes do you foresee in trade and industrial competitiveness with the emergence of new trade norms focused on AI and big data?
AI is a technology that is the product of combining large quantities of data with advanced computing capabilities. Few companies other than the largest American and Chinese tech companies have access to the financing, data, cloud and computing capabilities necessary to develop new generative AI technologies. This means that AI is one more part of the digital economy on which all other industries and stakeholders will be dependent on these tech companies who have already built chokepoints and barriers in other parts of the digital economy.
It is therefore critical that governments find ways to collaborate in ensuring that AI is developed and disseminated in ways that are fair to global stakeholders. One concern about AI is the way that tech companies are acquiring the data that they feed into these models. Countries like South Korea that are home to entertainment industry exporters will want to ensure that these industries’ intellectual property rights are protected, and that these industries receive fair compensation for their data contributions to AI models. Another concern about AI is that industries, like electronics manufacturers, who wish to incorporate AI into their products, or who use AI to increase their productivity, will become dependent monopolistic tech companies to remain globally competitive; this dependence could allow tech companies to charge monopoly rents on other industries, and once again extract a larger share of the profits of digital trade.
The introduction of AI therefore makes it more urgent than ever that governments work together to develop new norms about how to ensure that global digital markets and digital infrastructure provide fair access, compensation, and opportunities to all stakeholders. This will certainly include norms to ensure that AI services, as a form of data, can be sent across borders, but other goals are equally critical. The countries that see the greatest benefits from AI will be those who are able to best balance and protect the interests of the diverse industries who will develop, contribute to, and use this new technology.
What is your opinion on the harmonization and conflicts of digital trade norms, and the gap between developed and developing countries?
The global digital economy has the potential to be a powerful tool for economic development, as it creates new opportunities for businesses of all sizes to reach foreign consumers of both goods and digital services. However, these opportunities are only possible so long as businesses from all countries are treated fairly in the digital markets controlled by tech platforms. Once again, exporters need to be able to access foreign consumers, receive fair compensation for the goods and services that they sell digitally, and ensure that participation in digital markets does not undermine their long-term business model by, for example, violating their intellectual property or privacy rights.
As much as it presents enormous opportunities for developing countries, the global digital economy risks exacerbating power imbalances between countries based on their technological capabilities, as well as based on their digital market power. Developing countries are more dependent on tech companies to provide the physical infrastructure needed to help more of their population and businesses to access digital markets, and are more dependent economically on maintaining trade with countries like the United States. Not only do many developing countries lack the capabilities to monitor digital markets to protect diverse public priorities, but these dependencies leave countries susceptible to pressures from tech companies and, increasingly, the United States to leave digital platforms and digital trade unregulated. This risks creating exploitative trade relationships in which a disproportionate amount of the value for developing countries’ digital exports accrue to multinational tech companies as opposed to the individuals and businesses who created this value.
Governments must urgently work together to reverse this race-to-the-bottom dynamic in digital markets, and instead use trade negotiations as a forum to raise standards to maximize benefits to the greatest number of stakeholders—much as they use trade agreements to raise standards for labor and the environment.
What challenges must South Korea overcome to expand its leadership role in digital trade agreements like DEPA?
South Korea is exceptionally well placed to become a leading voice in future negotiations about the global digital economy and digital trade. For the moment, the dominant voices on digital trade in Asia come from Singapore, who has promoted the more libertarian digital trade language used in agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and Japan, whose support for “data flows with trust” sustains the narrow conversation around digital economic risks from governments, but not from tech companies.
South Korea is unique in its ability to credibly represent the interests of diverse types of stakeholders in the digital economy, and can therefore widen digital trade discussions to advance a wider range of social priorities. The South Korean government can develop digital trade norms that advance the priorities of diverse digital economy industries, including the media and entertainment industries that produce digital content; the manufacturing and services industries that consume digital tools to increase their own productivity and competitiveness; and also, tech companies that shape the national digital economy while competing against the American and Chinese platforms for market share. Furthermore, the South Korean government has an interest in protecting its citizens’ right to democratic governance against digital threats such as disinformation, digital market coercion, and even the corrosion of the business models of industries, like journalism, that are essential to democratic discourse.
In order to become a leader in digital trade conversations, South Korea has to refrain from signing on to any other bilateral or multilateral DTAs that replicate the language from past agreements, like DEPA, that will constrain the South Korean governments’ policy space. An important first test of this commitment will be the language that South Korea accepts in its forthcoming bilateral trade agreement with the EU. Although the EU has led conversations about how governments can regulate digital markets, its trade negotiators have remained wedded to more traditional trade frameworks that risk conflicting with their competition policy commitments.
Rather than making specific commitments that will reduce its governments policy choices during a time of extreme technological uncertainty, South Korea should lead conversations to define common values and priorities for the digital economy. Existing models for this more expansive form of digital economic cooperation include the Declaration for the Future of the Internet or the values-driven digital trade language proposed during Indo-Pacific Economic Framework (IPEF) negotiations.
What challenges and opportunities do you foresee in the field of digital trade over the next 5-10 years, and what strategies should governments and businesses use to prepare?
The opportunities for the global digital economy—in terms of increased productivity, innovation, communications, and trade that offers new opportunities to individuals and businesses around the world—are impressive. However, the world is not currently on course to achieve this vision.
Among the greatest challenges now facing this vision is the growing alignment between Big Tech companies and the U.S. government under the Trump Administration. The tech companies are monopolists who are now fighting to maintain their market dominance, which they see as being threatened by regulations like the DMA or South Korea’s proposed PCPA. Although the Biden Administration recognized the importance of prioritizing digital market fairness, the Trump Administration views U.S. tech companies as national champions, whose market power is an extension of U.S. geopolitical power. As a result, the Trump Administration has indicated that they would be willing to retaliate through tariffs and other trade measures against any country that tries to regulate U.S. tech companies, and is likely to require future trade agreements to include digital trade language that constrain other governments’ regulatory capacity.
It would be a mistake for countries like South Korea to give in to these demands. In recent years, many governments have recognized the chokepoint risks created when supply chains for critical goods and technologies are concentrated under the control of a small number of countries or companies. In response, they started working together to develop new forms of economic cooperation, like the Minerals Security Partnership, to create more resilient, alternative supply chains. The global digital economy is facing a similar threat from market concentration, which has already played a significant role in weakening democracy in the U.S. Rather than try to stand up to the Trump Administration alone, the South Korean government should collaborate with others, like the EU, to create more resilient, and more fair global digital markets, that advance the interests of the diverse digital economic stakeholders.
This will require the South Korean government to broaden the terms of digital trade conversations. Given the scope of the digital economy, digital trade discussions should include voices from diverse policy fields, including trade, competition policy, national security, democratic accountability, and industrial policy. Similarly, stakeholders from across industries and civil society must remain engaged in these policy debates to ensure that their perspectives are heard and reflected in future digital trade agreements.
We are in a moment of extreme change, uncertainty, and risk. And yet, South Korea has an opportunity to stand up in defense of democratic economic governance and fairness in global digital markets, and thus become a powerful leader in creating a global digital economy that lives up to its potential for spreading new opportunities across the world.