Commercial policies and regulations now fragment the digital economy

As more-private digital technology is reviving our society, governments are adopting different approaches to control and, in some cases, to advance the digital domain (Global Commission on Internet Governance 2016, O’Hara and Hall 2018, UNCTAD 2021). Although governments have taken some joint approaches (Nemoto and Lopez Gonzalez 2021, Taped 2022), most policy interventions have been unilateral, have not merged with business partners, and often have not merged internally (i.e., the policy was regulated) silos.

Although useful lists of policy interventions in specific regulatory domains have recently been compiled (Curry and Driscoll 2021, Feraken and Van der Merrell 2021), the last comprehensive inventory of state action in the digital domain was published four years ago (ECIPE 2018). The result: policymakers are going blind because they both control and nurture the digital domain.

This is a recipe for weak public decision making. Inconsistencies in policy at home can coexist with international regulatory differences. A fragmented Internet and global digital economy denies users choice, reduces incentives for innovation, increases trade tensions within government, and increases the risk of numerous crises. Yet, as a matter of fact, where do the issues stand? Digital Policy Alerts and Global Trade Alerts use fancy evidence from independent policy monitoring initiatives, a new report evaluates whether policy choices are fragmenting the global digital economy (Evenett and Fritz 2022).

The concept of digital fragmentation and the role of policy and control

The negative connotations associated with the term ‘fragmentation’ may be unfamiliar to some trade economists. For them, fragmentation refers to the fragmentation of production processes at multiple stages located in different economies, resulting in an international or global value chain. In the digital domain, fragmentation refers to the form and consequences of a policy that separates the national market from the world market or hinders the cross-border establishment of data or digital technology. Inspired by the speeches of experts and businessmen, Drake et al. (2016) Describe the digital fragmentation of the digital economy as the “Internet” [being] At some risk of being disconnected or loosely connected to the island. ”

Our report focuses on fragmented risks for the digital economy arising from trade policy and regulation choices. In addition to the choice of completely discriminatory policies, divisions can occur due to national differences in the regulatory approach to the same digital activity. Such regulatory inequalities arise when (a) when some countries do not have laws that are widely considered necessary for digital domain control, or (b) when there are material differences across jurisdictions in the legal provisions associated with the administration of a particular class of digital domains.

Filling in the blanks of evidence

We take a broad view of the domains that affect digital domains and their cross-border responses. A complete-of-supply-chain approach is adopted, taking into account policy decisions that affect upstream activities that support the digital economy (such as rare earth mining), mid-range operations (such as in the critical semiconductor sector, and hardware and software development). And downstream activities (such as platform business and digital delivery to customers).

Digital Policy Alert and Global Trade Alert – To draw on two broad inventories of public policy intervention, we describe the global policy landscape towards the digital domain with a focus on the G20 nation and EU members. Evidence of legal and regulatory developments – related to information governance, content restraint, and differential taxation – is presented along with information on trade and investment policy changes and the adoption of subsidy policy to provide a comprehensive perspective. More than 15,000 policy and regulatory development data were used to compile this report.

A highly active, growing variety of landscapes with different principles

The main results are:

1. Governments have gone into regulatory overdrive in the digital sector since the beginning of 2020.

  • Together, the European and G20 governments have taken 1,731 legal and regulatory steps since the beginning of 2020. Fifty-five percent of these measures have already been converted into state measures; 41% are in the pipeline.
  • The three most active regulatory areas are data governance, online content regulation, and competition law enforcement.
  • The adoption of regulations is accelerated. The first quarter of 2020 saw 71 regulatory developments; The first quarter of 2022 saw 217.

2. Regulatory inequality is increasing, creating a greater risk of digital fragmentation.

  • As China, the EU, India, Russia and the United States move from different directions, there is particular concern about the rules of data storage, use and transfer.
  • Different regulatory approaches to moderating online content – including the demand to remove content posted on the Internet – are emerging.

3. The development of commercial policy over the past decade has created even more barriers within the national digital sector.

  • One-third of the global trade in digital economy products currently faces barriers to market entry.
  • Over the past decade, the sectors of the digital economy as a whole have seen twice as much inequality towards foreign companies as in global commodity trade, measured by the ratio of discriminatory and implemented reform systems.

4. Subsidy competition continues in the digital economy, especially in the semiconductor sector.

  • Looking across the sector, states are replacing digital trade barriers to subsidizing. The consolidation of public finance after COVID-19 could lead to more digital fragmentation as governments rely more on barriers to trade and investment.

5. In the absence of a global playbook to guide policymakers and regulators, unilateral state action in the digital domain remains uncoordinated, creating trade tensions through the enforcement of competition laws from corporate taxation and cooling the cross-border corporate establishment of digital technology.

Fragmentation is not inevitable: the way forward

Digital fragmentation is already happening – this is much clearer from the barriers to trade and investment documented in our report. Strictly speaking, the thousands of subsidies given to firms in sectors associated with the digital economy do not fragment the market. However, the tendency for governments to shift between subsidies and digital trade barriers suggests that revenue cuts after the COVID-19 epidemic increase the risk of further digital splitting.

The potential for digital fragmentation is much higher due to the wide pipeline of regulatory policy announcements recorded by Digital Policy Alerts. At the very least, the relevant legal and regulatory developments require careful monitoring.

As the competition between these behemoths intensifies, governments will benefit by making some rules for the road. One risk is that divergent policies become a source of tension between countries. Another is that the benefits arising from cross-border trade relations are thrown at the wolves in the name of geopolitics. These cross-border relationships are part of the reality that officials face as they create approaches to building and promoting digital domains.

The right to control the digital domain is not being questioned – rather, the concern is that without some degree of alignment of regulation and application design, the resulting digital fragmentation will be closed and a heavy price will have to be paid. The dangers of unilateral governance are becoming more apparent.

Some governments have acknowledged the need for greater alignment in policy towards the digital domain. Compared to the first decade of this century, the e-commerce chapters of regional trade agreements now include more elaborate provisions. Yet, these provisions do not address all forms of cross-border damage caused by ill-conceived unilateral state action. Progress has also been made in the WTO – a successful attempt to negotiate a multilateral agreement on electronic commerce is still in progress. Recently, a lot of energy has been expended to take a step back – namely, to change the call for an end to the WTO’s suspension of customs duty on electronic transmissions.

Going forward, there is a strong case for developing a new multilateral understanding of the digital economy, with many alternative groupings that can be advanced. For example, aligning digital policies is an important part of the work program of the recently announced Indo-Pacific Economic Framework. It is the focal point of the EU-US Trade and Technology Council.

Since this is a global challenge, we need to find ways to engage experts and officials from developing countries in thinking and shaping ideals. Inevitably, it will address the incentives of companies to deploy digital technology to close the digital divide, among other pressing digital requirements. Such discussions should be informed by evidence on unilateral policy choices and outcomes as well as collaborative options, where much research remains to be done.


Cory, N and L Dascoli (2021), “How Barriers to Cross-Border Data Flows are spreading globally, what they cost, and how to Address them”, Information Technology and Innovation Forum.

Drake, W, V Cerf and W Kleinwächter (2016), “Internet Fragmentation: An Overview”, The Future of Internet Initiative Working Papers, World Economic Forum.

ECIPE – European Center for International Political Economy (2018), Digital Trade Restriction Index.

Evenett, S and J Fritz (2022), Emergent Digital Fragmentation: The Dangers of UnilateralismCEPR Press.

Ferracane, M and E van der Marel (2021), “Regulating Personal Data: Data Models and Digital Services Trade”, World Bank Policy Research Working Paper No. 9596.

Global Commission on Internet Governance (2016), An internet, Center for International Governance Innovation and Chatham House.

O’Hara, K. and W. Hall (2018), “The Four Internet: The Geopolitics of Digital Governance”, Center for International Governance Innovation Paper No. 206.

Nemoto, T and J López González (2021), “Digital Trade Inventory: Rules, Standards and Principles”, OECD Trade Policy Paper No. 251.

TAPED – Provision of Trade Agreement on Electronic Commerce and Data (2022), Codebook.

UNCTAD – United Nations Conference on Trade and Development (UNCTAD) (2021), Cross-border digital flow and development: for whom data flowsDigital Economy Report 2021.

Leave a Reply

Your email address will not be published.