Are U.S. Digital Platforms Facing a Growing Wave of Ex Ante Competition Regulation?
Recognizing the advantage of being the first mover in regulation, the European Union has developed several digital regulations that shape the way global technology companies do business in Europe and beyond. In recent months, the European Union has adopted several sweeping digital regulations, such as the Digital Services Act (DSA) and Digital Markets Act (DMA), which require so-called gatekeepers—large digital services providers—to adhere to ex ante competition policy rules that preempt various potential future behaviors. While U.S. Congress has failed to produce a national regulatory policy of its own, new challenges loom on the horizon as other leading economies seek to copy the EU model. These rules can shackle leading U.S. technology companies while promoting Chinese tech giants.
The European Commission is interested in regulating digital service providers before supposed anticompetitive practices occur to preempt long probes into such practices after they are claimed to have occurred. A CSIS report previously estimated that the DMA’s potential negative impacts could rise to tens if not hundreds of billions of dollars and undermine large U.S. digital services companies and their U.S. and European businesses and individual customers. One prominent concern CSIS and others have highlighted is that in primarily targeting U.S. companies, the DMA could inadvertently hand market share to Chinese technology giants in Europe.
The question now is whether ex ante regulation—and its negative effects on innovation—or more prudent ex post regulation in the digital space will spread around the world.
Particularly surprising is the possible adoption of DMA-like rules by the pro-tech and pro-trade government in Korea. The Korean Fair Trade Commission (KFTC), which has been coordinating digital regulations issues with the European Union, has organized a task force to explore a digital regulation bill along the lines of the DMA. The KFTC has also issued new abuse of dominance guidance clarifying how the agency will approach multihoming (interference with competing platforms) restrictions, interlinked services, and self-preferencing such as preventing a search business from using algorithms to highlight its own products and services.
The Korean bill is expected to designate six companies—Google, Apple, Meta, Naver, Kakao, which runs a highly popular messaging app KakaoTalk, and Coupang, the so-called Amazon of Korea that is actually a U.S. company—for heightened regulation, and create a “cease-and-desist” power for the KFTC to stop a company’s operations before a finding of wrongdoing is made. Korean tech companies are understandably worried, but this proposal primarily targets U.S. companies.
Other Asia-Pacific economies are considering similar policies. India’s Parliamentary Standing Committee on Commerce presented in June 2022 a report proposing a DMA-style ex ante regulatory model. Six months later, the Parliamentary Standing Committee on Finance presented a report on technology companies’ presumed anticompetitive practices, calling for an ex ante regulation to ensure fair and transparent digital markets. Now, companies have sounded alarms that the proposed Digital India Act will contain EU-style provisions on “gatekeepers.”
Meanwhile, digital services businesses operating in Indonesia have been counseled to use the DMA as a navigation tool in light of the activity of the country’s competition authority, KPPU. The Australian Competition and Consumer Commission (ACCC) has also called for binding codes of conduct to address self-preferencing, linked services, and practices that limit interoperability, and has discussed concerns regarding presumed anticompetitive conduct in the supply of digital platform services. In November 2022, the ACCC released its Digital Platform Services Inquiry report calling for ex ante measures to tackle perceived harms associated with digital platforms. The government then launched a consultation to consider the need for a new competition and consumer protection regulatory framework for digital platforms.
In the Western hemisphere, the Lula da Silva government in Brazil presented a digital competition bill to the Brazilian congress in November 2022 to address digital platforms’ market power. The text also calls for a Digital Platforms Inspection Fund that would be funded by a 2 percent tax on the large digital platforms’ gross revenues in Brazil. This is notwithstanding Brazilian competition authority CADE’s repeated comments against an ex ante regulatory framework as a suitable policy intervention in Brazil.
On the brighter side, Taiwan’s Fair Trade Commission (TFTC) issued a white paper on “Competition Policy in the Digital Economy” in December 2022 that struck a more skeptical tone on ex ante regulation. The white paper cited the “controversy of whether it is appropriate for competition authorities to implement ex anti controls,” and counseled that “as the digital economy features frequent innovation, short life cycles, and noticeable dynamic competition, the best enforcement principle at this stage is ‘issue driven,’” with an eye toward ex post efforts to “[resolve] problems based on each case.”
In addition, the United Kingdom has sought to be more nuanced than the European Union and called for “participatory regulation” in dialogue with different tech companies to avert overregulation.
The debate over digital regulation has also been at a fever pitch in the United States, but Congress has so far failed to pass competition policy legislation—or a federal privacy law, for that matter. While the U.S. Department of Commerce and the U.S. State Department warned the European Union against structuring the DMA to specifically target U.S. companies, the Federal Trade Commission and Department of Justice have been more favorable to the DMA and are seeking stronger competition policy implementation. Those efforts, however, are facing legal hurdles and raising strong objections from the Chamber of Commerce and other business groups.
The European Union is seeking to embed DMA-style ex ante competition policy as the default position globally, forging Digital Partnership Agreements with Korea, Japan, and Singapore. For countries with formidable and growing digital service sectors such as Korea and India, these rules can hamper local businesses’ competitiveness in their local and foreign markets by creating new compliance costs and possibly leading businesses to raise their prices.
These efforts are particularly worrisome for the United States because they so far appear to unfairly target U.S. companies and complicate their operations—while being unclear on their treatment of Chinese tech companies. So far, the Biden administration has compounded the problem by appearing silent on the discrimination faced by U.S. businesses. Moves by allies like South Korea that disproportionately target U.S. companies—while giving Chinese companies like Alibaba a pass—risk driving a wedge between the United States and its partners, making the development of a common regulatory approach more difficult.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Kati Suominen is an adjunct fellow (non-resident) with the Europe Program at CSIS.