[EAI Commentary] <Response Strategies for Global Digital Governance> Digital Economy and Global Digital Governance: The Multidimensionality of Competition and International Politics of Forum Linkage

Editor's Note

This commentary, the third in the special commentary series on "Digital Global Governance and Diplomatic Strategy," was published by Lee Seung-ju, Director of EAI's Center for Trade, Technology, and Transformation and Professor at Chung-Ang University. It analyzes the international political processes surrounding the establishment of digital governance. This commentary argues that the axes of competition and conflict surrounding global digital governance are becoming increasingly complex. In addition to the US and EU, which have led the establishment of rules and norms for global digital governance, the axis of developed versus developing countries has been added with the commencement of discussions at the WTO level. The commentary highlights the formation of a US-China competitive axis within the realm of global digital governance as US-China hegemony competition becomes more visible. It analyzes that intensified competition among major powers could lead to the fragmentation of global digital governance. The author argues that to prevent the fragmentation of global digital governance, an intermediate strategy linking bilateral and multilateral discussion processes is necessary. While the 'Osaka Track,' proposed at the 2019 G20 Osaka Summit, faces challenges, it presented the possibility of a forum for linking bilateral and multilateral discussions in establishing global digital governance.

The establishment of global digital governance entails both the competition for data collection, analysis, and utilization, and the mitigation of potential side effects arising from this process. Given the prospect that the digital economy will be a core element of inter-state competition in the 21st century, global digital governance is inevitably linked to the reshaping of the world economic order in the 21st century, as it concerns the establishment of norms and rules for data management and control (Sack and Sherman 2019). Due to the interconnectedness of various issues, it is difficult to form a basis for consensus as national interests are sharply divided.

This article discusses the international political processes surrounding the establishment of global digital governance by focusing on three aspects. First, a complex conflict structure is forming where major powers are creating multidimensional axes of competition in the process of establishing global digital governance. Second, despite sharing a basic understanding of the cross-border movement of data, significant differences are emerging in the implementation strategies of developed countries that have led the establishment of norms and rules, and a phenomenon of pursuing dual strategies of competition and cooperation is emerging in this process. Third, major world powers are linking forums at various levels—bilateral, regional, and multilateral—to secure advantageous positions in the process of establishing global data governance.

Three Dimensions of Competition and Cooperation

The main axes of competition and cooperation in global digital governance are formed by the structure of developed countries versus developed countries, the US versus China, and developed countries versus developing countries. First, the 'developed countries versus developed countries' structure is primarily formed around the US and the EU. There is a significant consensus between the US and the EU on the need to establish global digital governance for the full development of the digital economy, addressing key issues such as the cross-border movement of data, personal data protection, national security, ethics related to artificial intelligence, and copyright. However, the issue lies in the fact that the US and the EU pursue significantly different paradigms based on their distinct visions regarding personal data protection, regulation of non-personal data, internet service barriers, and rules for cross-border contracts (The Office of USTR 2018). Despite having some common ground, the US and the EU exhibit a dual aspect of competition and cooperation to promote their preferred visions. This duality is clearly evident in their competition to set their own paradigms as global standards, while simultaneously seeking bilateral solutions through 'Safe Harbor' and 'Privacy Shield.' The dual dynamics of competition and cooperation pursued by the US and the EU will continue to be a core axis of discussions shaping global digital governance.

The second axis surrounding the establishment of global digital governance is the 'developed countries versus developing countries' structure. There is no single unified position among developing countries. However, the international political landscape for establishing data governance is becoming more complex as some developing countries emphasize safeguards due to concerns about increasing dependence on large technology companies in developed countries. Furthermore, the WTO's declaration on electronic commerce, while significant for providing an opportunity for developed and developing countries to express their respective positions on digital trade, suggests a potential escalation of conflict between developed and developing countries. This is because if developing countries actively participate in multilateral discussions, the structure of global digital trade governance is likely to become more complex and intense, in addition to the existing conflict between developed countries.

Third, US-China competition is also becoming visible in the establishment of global data governance. The US has been very active in supporting the activities of its multinational technology companies. Based on its stance against data localization, which hinders the promotion of digital trade, the US is most actively advocating for the codification of rules regarding the cross-border movement of data. In contrast, China, advocating for 'data sovereignty,' restricts the cross-border transfer of data to foster its domestic data-related industries and ensure domestic political stability, while being passive in regulating personal data protection. China's position differs not only from the US, which prioritizes the cross-border movement of data, but also from the EU, which emphasizes personal data protection. Notably, the US and China are in sharp conflict over issues such as data localization, disclosure of source code, and forced technology transfer for foreign technology companies. The opposing stances of the US and China are also evident in the WTO e-commerce negotiation proposal mentioned above. The US included extensive provisions on the definition of digital products, non-discriminatory treatment of digital products, and regulations related to financial services, whereas China presented specific issues and abstract goals such as electronic certification, market environment for promoting e-commerce, and inclusive development of e-commerce.

According to the US Congressional Research Service, the digital trade barriers in China that the US raises can be broadly divided into four areas. First, internet access barriers, where the Chinese government severely restricts foreign companies' internet access to the Chinese domestic market through web filtering and blocking, imposing joint venture requirements, and limiting foreign investment. Second, in data localization, the US views that the Chinese government substantially restricts the business operations of foreign technology companies in China by limiting the cross-border movement of data and imposing localization requirements. Third, there are technological barriers that mandate the disclosure and transfer of source code and other IP. Fourth, there are cybersecurity threats and weak intellectual property protection (Congressional Research Service 2018).

Differences in Approach

The US and the EU are leading discussions on international norms and rules as a preliminary process for establishing global digital governance. Both commonalities and differences are found in the strategies pursued by the US and the EU. Both the US and the EU employ a strategy of accumulating precedents through bilateral negotiations with numerous countries to preemptively secure advantageous positions in future multilateral negotiations. Meanwhile, the US and the EU pursue very different strategies in realizing their preferred digital trade regulations.

One approach is to link digital trade norms and rules that promote the cross-border movement of data with FTAs, which is the preferred method for the US. Among the FTAs signed between 2001 and 2016, 90 FTAs directly or indirectly included digital trade-related rules. Of these, 69 FTAs codified digital trade rules in separate chapters, while 21 FTAs included digital trade-related provisions in the FTA agreement text, although not in a standalone chapter. While the digital trade norms and rules discussed in FTAs previously focused mainly on consumer protection and electronic certification and signatures, they have gradually expanded to include the cross-border movement of data, data localization, personal data protection, and prohibition of source code disclosure (Wu 2017).

The US is a country that aims for the most comprehensive digital trade rules. The US approach is well-illustrated by the inclusion of digital trade provisions in the Korea-US FTA, TPP, and USMCA. In particular, the USMCA, renegotiated from NAFTA, is considered the most comprehensive and robust FTA to date, with many codified provisions and numerous mandatory obligations. For example, the USMCA includes rules on access to public data, which were not present in the Korea-US FTA and TPP, as a 'best efforts' provision, and also makes rules related to 'interactive computer services' mandatory obligations. Thus, the US plays a leading role in codifying digital trade norms and rules (Lee Kyu-yeop and Kang Min-ji 2019).

The Trump administration's strategy continued in the US-Japan trade negotiations concluded in September 2019. The US and Japan agreed on high-level, comprehensive provisions to address priority areas related to digital trade. Priorities included the prohibition of tariffs on digital products, ensuring non-discriminatory treatment of digital products, eliminating barriers to cross-border data transfers in all industries, prohibiting data localization, prohibiting arbitrary access to source code and algorithms, and ensuring flexible access for companies in the use of innovative encryption technologies. By extending the USMCA's digital trade rules to the US-Japan agreement, the Trump administration has accumulated another important precedent for establishing global digital governance (USTR 2019).

In contrast, as seen in the negotiations with Japan, the EU adopts a differentiated approach by approving separate 'adequacy decisions' rather than codifying digital trade-related provisions within FTAs. This approach, while not opposing the cross-border transfer of data itself, reflects the EU's traditional stance that personal data protection measures must be adequately in place. It emphasizes that efforts for high-level personal data protection are necessary to promote the cross-border transfer of data in the digital economy era. In this sense, adequacy decisions complement the EU-Japan EPA (EU-Japan Economic Partnership Agreement 2019). This has not only created the world's largest safe harbor for data transfer but also secured an important bridgehead for the approaches adopted by the EU and Japan in the future process of establishing global data governance.

What is noteworthy here is that the EU's approach to forming norms and rules for digital trade at the bilateral level differs from that of the US. The US government pursues a strategy of including digital trade-related provisions in FTAs, and not as declarative provisions but through separate chapters. The US government is establishing its own preferred standards for digital trade-related provisions through the process of concluding or renegotiating numerous FTAs. In contrast, the EU independently pursues FTAs and adequacy assessments, while indirectly linking them with FTAs.

Forum Linkage

Major powers not only exhibit a dual aspect of competition and cooperation in securing advantageous positions during the process of establishing international norms as a preliminary step for establishing global digital governance, but they are also exploring ways to link various forums. The US and the EU share a commonality in prioritizing bilateralism as a strategy for establishing digital governance. Bilateral approaches through FTAs have the advantage of aiming for relatively high-level digital norms and rules and allowing for preemptive discussions on regulations for the negative impacts of digital technology. On the other hand, the multilateral approach centered on the WTO, which has become visible with the recent launch of WTO e-commerce negotiations, has the advantage of maximizing effectiveness. Meanwhile, bilateral approaches require significant time and resources for individual negotiations, and even if negotiations are concluded, the expected effects are relatively small. Multilateral approaches are more aligned with the goal of establishing international norms and rules for digital trade, but they face difficulties in coordinating the interests of numerous countries, including developing countries. The need for major powers to link bilateral, regional, and multilateral forums, rather than pursuing them exclusively, stems from the clear advantages and disadvantages associated with the characteristics of each forum.

A notable change at the multilateral level is that major world powers have begun to show some success in initiating discussions at the multilateral level concerning global data governance, which is essential for the full advent of the digital economy era. A representative example is the 'WTO Joint Statement on E-commerce' in January 2019, involving 76 member countries, which provided an opportunity to establish a discussion framework involving as many countries as possible (WTO 2019). In May 2019, 14 countries, including the US and the EU, submitted position papers. The main agendas they presented include online consumer protection, electronic certification, electronic signatures, e-commerce frameworks, domestic regulations, transparency, and non-discriminatory treatment of digital products ("Governments Actively Engaged at WTO E-Commerce Negotiations"). While the 2019 WTO e-commerce negotiations represent progress compared to previous discussions, it is inevitable that reaching specific agreements will take considerable time. This is because the 76 countries participating in the joint statement are composed of developed and developing countries, leading to significant disparities in the level of digital trade norms and domestic data policies.

If major powers adhere to their respective strategies, there is a risk that various attempts will not converge into a single outcome, leading to the fragmentation of global digital governance. This is not a positive signal for either the US or the EU. From the perspective of the US government, the fragmentation of global digital governance is by no means desirable, as it must reflect the interests of its large technology companies. From the EU's perspective, adhering to adequacy assessments for personal data protection at the bilateral level could lead to the exclusion of countries not prepared domestically, thereby limiting the spread of the EU model. Furthermore, it is undesirable as it could conversely lead to the isolation of EU technology companies in expanding their cross-border activities. For these reasons, the US and the EU pursue bilateral strategies while closely linking them with strategies for establishing multilateral governance.

The G20 has emerged as an alternative to bridge the limitations of bilateral and multilateral strategies for establishing global digital governance. Although discussions at the WTO level have been initiated, given the nature of multilateral negotiations, they will take a considerable amount of time, necessitating an intermediate strategy that links bilateral and multilateral discussion processes. In this regard, the 'Osaka Track,' spearheaded by Japan at the 2019 G20 Osaka Summit, deserves attention. The Osaka Track aims to seek 'global solutions for global issues' to prevent digital economic activities from being suppressed and digital governance from fragmenting due to differing privacy standards among countries worldwide. As a means to achieve this, the Japanese government proposed 'Data Free Flow with Trust (DFFT).' The core of DFFT is that the free cross-border transfer of data such as 'medical, industrial, and transportation' data is essential for promoting economic growth, and that in this process, it is necessary to meticulously protect personal data, intellectual property, and national security-related data. The significance of DFFT lies in its incorporation of the data paradigms upheld by major powers into a single discussion, reflecting the US preference for cross-border data transfer, the EU preference for personal data protection, and China's preference for the protection of national security data. This demonstrates how the interests of major powers are projected in the formation process of global digital governance. Furthermore, the Osaka Track explicitly states that the WTO should serve as a forum for continuous discussion on data governance regulations, thereby opening up the possibility of linking bilateral and multilateral approaches pursued by major powers.■

■ Author: Lee Seung-ju_ Professor of Political Science and International Relations at Chung-Ang University and Director of EAI's Center for Trade, Technology, and Transformation. He holds a Ph.D. in Political Science from the University of California, Berkeley. His main research areas include international political economy, the international politics of trade, and global digital governance. His major works include "The Political Economy of Cyberspace" (edited by Lee Seung-ju), "Northeast Asia: Ripe for Integration?" (co-edited), and "Trade Policy in the Asia-Pacific: The Role of Ideas, Interests, and Domestic Institutions" (co-edited).

■ Responsible for and Edited by: Yoon Jun-il, EAI Research Fellow

Inquiries: 02 2277 1683 (ext. 203) I junilyoon@eai.or.kr

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