Understanding the Linkage Between E-Commerce, Domestic Internet Governance and Role of Corporations: A Trade Perspective

Understanding the Linkage Between E-Commerce, Domestic Internet Governance and Role of Corporations: A Trade Perspective

The aim of this paper is to contribute to the most comprehensive picture of Internet governance, and clarify the ways in which Internet governance influences the growth of e-commerce. It attempts to do so by analysing Internet governance and its implications for e-commerce, an area that has mostly been overlooked in the understanding of international trade implications of e-commerce. Authors: Marta Piazza, Nivedita Sen, and Sun Ying


Understanding the Linkage Between E-Commerce, Domestic Internet Governance and Role of Corporations: A Trade Perspective

Introduction

The aim of this paper is to contribute to the most comprehensive picture of Internet governance, and clarify the ways in which Internet governance influences the growth of e-commerce. It attempts to do so by analysing Internet governance and its implications for e-commerce, an area that has mostly been overlooked in the understanding of international trade implications of e-commerce.

In the first half, the paper examines this moot issue by analysing the role of national authorities in Internet governance, especially through enforcement of national law and policy. In the latter half of the paper, the role of private corporations will be explored. Corporations de facto play an important role in Internet governance and in the development of e-commerce.

Traditionally, there is a different approach between developed and developing countries towards Internet-related policy and regulatory issues. This difference also shapes countries’ different positions in relation to e-commerce, and may be exacerbated as the trade barriers usually faced by developing countries with respect to e-commerce. These barriers can be classified into four categories: Market access and trade facilitation which includes, among other issues, domestic taxing regime; development issues such as infrastructure gaps, technology transfer, local content, and literacy to use Internet; online security and consumer privacy concerns; and financial services including the lack of secure online payment options. These four types of concerns are the most likely impediments to the growth of e-commerce in developing countries: therefore, identifying these concerns can help in analyzing the ways in which they may be overcome by means of national norms or international negotiations, but such norms must be to the extent that they do not become detrimental to the countries’ national interests.

 

Internet Governance at the Domestic Level

The State plays an important role in Internet governance, as on one hand, it dominates the Internet control within the State, on the other hand, it is the primary participant in international negotiations concerning Internet affairs. There are multiple layers of State’s functions at the domestic level, such as the enforcement of technical standards and coordination, the construction and daily management of Internet infrastructure, the organization of domestic discussion and so on.

Among the multiple layers of the function of the State, the function on enforcement of national law and policy is essential to the analysis of Internet governance. The complexity of this issue hinges on the fact that although the current international system is based on the Westphalian model of exclusive territorial state sovereignty and national jurisdiction, the territorial nexus is always partial and uncertain in Internet issues or disputes. The inherent characteristic of Internet frequently results in complicated territorial nexus as the Internet server, the company providing Internet based service, the user and the place where the domain name registered are highly likely to be in different jurisdictions, which leads to competition of States’ Power in exercising national jurisdiction.[1]

Specifically, there is significant diversity of national regulations and measures on Internet control, which reflects different attitudes of countries towards cross-border e-commerce development and Internet security. A series of traditional measures of Internet control are frequently imposed by countries, which have great impact on international transactions. These traditional measures include market access limitation, licensing requirement and certification, taxation and also promotion plans. For instance, in April 2016, the Chinese government increased the tax rates, and imposed an RMB 20,000 limit on cross-border purchases made by individual consumers.[2] The enforcement of this policy will have a direct and severe impact on Chinese imports through retail transactions online.

Further, from the perspective of Internet governance and competition of State powers, a bifurcation of tendency in Internet control exists between developed countries and developing countries. Developed countries are seeking to extend their jurisdiction on Internet issues by various approaches.

Firstly, developed countries may pass legislations including clauses establishing extraterritorial reach. One example is that in 2014, the European Parliament passed the proposed EU data protection reform package. Under the new package, privacy protections would apply extraterritorially, regardless of the jurisdiction in which the personal data is processed.[3] Secondly, some countries establish national jurisdiction in Internet disputes by using the advantages on territorial nexus. Since big Internet companies’ DNS registration place or servers are more likely to be located in developed countries, they generally occupy greater territorial nexus over Internet disputes. Developed countries sometimes use their advantage of territorial nexus to establish their general jurisdiction on Internet disputes. One example is the Global Santa Fe Corp v. globalsantafe.com[4] case. In this case, the US Court confirmed its jurisdiction since the company responsible for the entire registry of ‘.com’ is VeriSign, located in Virginia (US). Consequently, the US through their domestic courts has more influence on the management of Domain Names Registrars in comparison to any other jurisdiction. Thirdly, domestic litigation also contributes to setting of new global standards, the impact of which might be far beyond their respective jurisdictions. For instance, Facebook is required to change its global ‘Terms of Service’ provisions following an action that was filed in the US jurisdiction on privacy violations. Fourthly, there are some attempts by countries to enforce law outside national territory, such as requesting for access to data from companies located abroad, or asking for removal of certain content on website.

The reasons behind developed countries’ extension of power are multidimensional. Generally, they have more urgent need in data protection to succeed in international competition. Further, their domestic laws on Internet governance are more nuanced and consequently puts more emphasis on public interest protection.

On the other hand, due to the lack of capacity and willingness to challenge the hegemony of foreign-based Internet operators, developing countries tend to strengthen digital sovereignty in pursuit of preserving domestic interests. The measures include blocking foreign IP address, establishing strict requirements in data localization and so on. These measures often have a negative impact on international business. For instance, to meet the data localization requirement, foreign companies burden more cost for devices and data storage, and some of them might exit the market of a country for this reason. However, considering developing countries’ lack of capacity in using data and protecting privacy of their citizens, to strengthen the sovereignty in Internet might be their reasonable choice at the current stage.

Understanding the Role of Corporations in Internet Governance

Private Internet companies that affect e-commerce can usually be categorized into three types. The first is content-based companies, for example Google, which is usually the primary platform across most jurisdictions to access information on the products that consumers seek to purchase online, as well as to compare prices of different suppliers. Google has made massive investments in developing countries with the aim of democratization of information, and has publicly endorsed the network neutrality principle. However, given its ‘monopolistic’ position in the searches market, Google can easily influence and shape users’ knowledge and preferences.[5]

The second category is companies selling tangible and intangible goods. Such companies comprise the main entities in e-commerce, including Amazon and Alibaba. They are commercial platforms that work as an online marketplace enabling businesses and consumers to realize their transactions. While Amazon’s initial success can be contributed to its focus on consumers’ needs, Alibaba’s success is based on innovation and diversified services. Alibaba Group operates through a unique combination of multiple business models in different platforms, including Alibaba.com (online business-to-business trading platform), Taobao (consumer-to-consumer online shopping platform in China), Tmall.com (B2C platform to complement Taobao’s C2C marketplace), eTao (shopping search engine in China), Alipay (online payment platform), Aliyun (Alibaba Cloud Computing) and China Yahoo! (A portal with a focus on essential Internet services including news, email and search.). Therefore, Alibaba combines features of both Google’s and Amazon’s business models, and goes even beyond. Such companies are exerting huge pressure on traditional brick-and-mortar shops. However, they have also enabled niche businesses and SMEs to develop and flourish by reaching out to a wider consumer base. Both Amazon and Alibaba endorse the network neutrality principle but often determine which sellers are given preference to.

Interestingly, in some countries, domestic companies have dominated the e-commerce markets rather than the multinational companies due to their nuanced understanding of regional culture and market challenges. For example, Jumia, the leading e-commerce platform in Africa has, in its home market, Nigeria, developed a large network of motorbikes for delivery while also accepting cash on delivery to overcome the payment obstacle.[6]

The third category of companies includes a recently emerged platform which sells ‘services’ with the use of the Internet, and is often known as ‘uberisation of services’. It is a disruptive technology which has altered the process of supply of services, facilitated connection between suppliers and customers via the Internet, thereby strongly minimized the costs linked to services and rendered the marketplace as open as possible. Apart from Uber itself, other illustrations of such ‘uberisation of service’ include Airbnb, Spotify, Netflix etc. ‘Uberisation’ causes commodification of services[7], by which a company/app merely provides a platform for suppliers and users, who can then directly connect with each other in real-time offering services and enjoying services. Being a relatively recent phenomenon, there is little data to help analyze how disruptive technology companies will impact Internet governance. However, certain speculative conclusions can still be made. For instance, by their very nature, the business model of such companies will thrive on free flow of data and no localization of servers. Such clauses are preferred by several western countries who have pushed for its inclusion in e-commerce chapters in agreements like TPP or TiSA (although such agreements have not yet come into force), however several Asian and African countries including Russia and China are vehemently opposed to such provisions in various trade fora.

Therefore, the relationship between private corporations and Internet governance is a two way street. While on one hand, governance of the Internet as seen above, impacts the business models of companies, whereas on the other hand the big, private Internet companies dominate governance of the Internet through a concept called as “shadow regulation” which is seen at both the national and international levels of Internet governance. Given the various layers of Internet governance through the multi-stakeholder form of governance internationally - where few private players and nations are currently dominating the scene; and national governance that is being influenced by corporate lobbying, there is a ‘shadow’ of hierarchy over Internet governance.[8] This shadow attempts to re-regulate the governance structure on behalf of corporate interests.[9] The way a company structures its business strategies contributes de facto to shape Internet governance, especially issues like online payments, network neutrality, privacy and security.

Several instances of shadow regulation by the big private Internet companies have been noted. Amazon has used its market power in the e-commerce industry to enforce its own pricing policies.[10] Amazon has also been accused of abusing its market power by delaying shipping of products from sellers that did not agree with its pricing mechanism.[11] This is the exact opposite of network neutrality endorsed at the multi-stakeholder Internet governance forums. In another example, Alibaba governs the content on the Internet by deciding what products will be on the homepage of the website, and what products will be recommended as first choice when customers search for it. The website also records the searching history of users and when users log into the platform next time, discounts or other updated information about previous consumption pop up. Hence, the automatic recording and analysis of searching and shopping history, is another aspect of Internet governance that Alibaba is impacting. This data on consumers is not merely available to Alibaba, but also merchants who can use it to guide their business strategies. Additionally, due to its cooperation with government and other companies as well as the fact that its business model is very diversified (ranging from trading platform to payment and searching platform), Alibaba has developed control over the whole process of online transactions in some countries, especially China. This enables it to regulate the market in a consistent and continuous way, and collect valuable data to further improve its business strategy, which may have anti-competitive elements. Content selling platform, Google, raises concerns about privacy and data protection given the structure of its business model. One of the main sources of its profit is based on data about customers and their preferences, given that 90% of its annual revenue comes from advertising. As Jovan Kurbalija[12] points out, personal data is the price customers pay for the ‘free’ services that Google offers. The data is sold to vendors (companies) and utilized for marketing and advertising their activities.

The Googles and Amazons are thus becoming online gatekeepers. While such regulation may not necessarily be detrimental for consumers and national interests of different countries (most of which do not have prominent e-commerce companies), it does signal a first-mover advantage and reflects the hegemony of the big private players, and that Internet governance is heavily based on capital.

Conclusion

As explained in the introduction, it can be concluded that there is huge distinction among different jurisdictions concerning the attitudes towards Internet governance and accordingly the measures that are adopted. The traditional measures of control, such as market access, licensing, and taxation are frequently utilized and have great impact on international e-commerce transactions. For developing countries, because of their lack of capacity in using data and protecting privacy of their citizens, the general prohibition or restriction in data flow is a relatively common method adopted. Nevertheless, considering the four categories of trade barriers, mentioned in the introduction, the defensive position of developing countries might be the most reasonable option at this stage.

 

The second part of this paper examined a lesser-known aspect of Internet governance: the role of private corporation. Shadowing takes effect at the national level through corporate lobbying influencing government policies and regulations. On the one hand, e-commerce platforms can increase the accessibility to information, in the case of content-based corporations (i.e. Google), the competitiveness and variety of goods, for companies selling tangible and intangible goods (i.e. Amazon or Alibaba) and services, for uberized enterprises (i.e. Netflix); on the other hand, the dominance of this corporations in the global market raises several concerns relating to issues such as online payments, network neutrality, privacy and security.

 

 

[1] Bertrand de La Chapelle, Paul Fehlinger. Jurisdiction on the Internet: From Legal Arms Race to Transnational Cooperation, Paper Series: No. 28 (April 2016) 2.

[2] “KWM | China’s New Tax Policies on Cross-Border E-Commerce.”

[3] Meyer, “Web Firms Face a Strict New Set of Privacy Rules in Europe — Here’s What to Expect.”

[4] GlobalSantaFe Corp. v Globalsantafe.com 250 F. Supp. 2d 610 (E.D. Va.2003)

[5] thoughtawakening, What FACEBOOK and GOOGLE Are Hiding from World.

[6] International Trade Centre, International E-Commerce in Africa: The Way Forward’ (2015), 26.

[7] Ibid.

[8] Des Freedman, “Outsourcing Internet Regulation.” p. 113 quoting Richard Collins (2009)

[9] For national examples, see ibid. p. 114.

[10] World Bank, “Digital Dividends.” p. 19.

[11] Ibid., p. 73.

[12] “An Introduction to Internet Governance | DiploFoundation.”