The Digital Trade Paradox: Challenging Big Tech Dominance for Public Benefit

Big Tech severely constrains the power of EU democratic bodies through permanent binding trade agreements.

Deborah James, Director of International Programmes at the Center for Economic and Policy Research and expert on issues of trade and democratic global governance, argues that the data locally produced should rather help promote digital industrialisation, jobs, and SMEs locally. We must debate and regulate not just about privacy but also about the economic governance of data.

 

This article is part of transform!’s Economics Working Group Blog Series.

 

Big Tech corporations^[1] are working to constrain the ability of European Union (EU) democratic bodies to regulate their activities in the public interest through permanent and binding “trade” agreements.

Digitalisation is the defining economic transformation of our time. The societal benefits of increased digitalisation are well known, but the harmful effects of the expansion of Big Tech are still being understood.

While the technological improvements are welcome, the policy environment within which these new technologies operate defines who stands to benefit, and who may suffer in the long run. This policy environment is the result of choices made by lawmakers and regulators, it is not the result of an unseen force under which the winners and losers are inevitable. It is, in fact, a political choice.

Heretofore, policy makers have allowed technology companies to accelerate the incursion of technology into our lives without a priori regulation. While Big Tech companies are now the largest and most powerful corporations in the history of the world, they are also the least regulated of any sector.

Big Tech companies have long argued that regulation would stifle innovation. But the reality is that today, the largest and most powerful technology corporations act not as innovators but as monopolists, seeking to prevent competition and dominate markets. They accomplish this through a business model that depends on mass surveillance of users, the monopolisation of data and data processing as well as digital infrastructures, and through control over the use of technology through their proprietary algorithms.

In particular, they have sought to commodify and control the production, harvesting, and use of data for private profit, rather than to allow the public the opportunity to use digitalisation and data for the greater common social, environmental, and economic good. They have done this by evading the application of human rights and public interest regulation to the technological sphere.

Big Tech prefers using trade agreements because they are intergovernmentally-negotiated permanent treaties.

The EU has started to recognise the urgent need to rein in some of Big Tech’s most pernicious practices. The Digital Services Act (DSA), the Digital Markets Act (DMA), along with the Data Act, the Data Governance Act (DGA) and the Artificial Intelligence Act (AI Act) are first steps towards ensuring that the digital sector of the economy operates under the same framework of fair play and attention to the public interest as the rest of the economy.

At the same time, US Big Tech has successfully convinced the European Commission to adopt its long-term business agenda as the EU agenda on digital trade. Many of the provisions in this agenda affect domestic policymaking on myriad issues beyond “trade”. The tech sector lobby’s budget saw a 16% increase to 113 million euro over the course of two years. But this is not the only way they lobby: the “European” business lobbies are heavily dominated by US-based Big Tech. Main Europe-based trade groups lobbying for digital trade in the EU include DigitalEurope, Ecommerce Europe, and the European Services Forum. These lobby groups operating in Europe have staff and members that represent the interest of US tech companies. Corporations use international “trade” agreements to achieve their agendas because they are the policymaking process most beholden to the business sector and the least open to other public interest stakeholders (such as labour unions, privacy advocates, anti-discrimination groups, and others.) They are legally binding while recommendations from the Organisation for Economic Cooperation and Development (OECD) or statements by the G20 are not. Big Tech also prefers using trade agreements to set limitations on national legislation because although countries can change governments, it is nearly impossible to change trade agreements as they are inter-governmentally-negotiated permanent treaties. Similarly, trade deals have a “chilling effect” on the way countries legislate. In the European context, a notable example was the ban on the import of hormone-treated beef into the European Union. The European Union imposed this ban because of food safety and public health concerns. However, this ban became the subject of trade disputes with countries such as the United States and Canada, which considered it to be an unjustified trade barrier and in violation of World Trade Organization (WTO) rules. As a result of the trade disputes and international pressures, the European Union had to review its policy and relax its restrictions on the import of hormone-treated beef in order to comply with its international commitments under the WTO and other bilateral trade agreements. This implied modifying or eliminating the import ban that had been established for sanitary reasons.

While advancing new laws governing the EU-internal digital economy, the EU is promoting a digital trade policy contradicting current and future public-interest policymaking in the EU and beyond.

While “trade” agreements used to focus on tariffs, today the vast majority of the provisions in these agreements set rights to trade, which are exercised by trading firms, and restrict the ability of states to regulate those firms in the specified sectors.

The same EU that is advancing new laws governing the EU-internal digital economy is simultaneously promoting a digital trade policy that contradicts, and would severely constrain, current and future public interest policymaking in the EU and beyond. Indeed, there is a conflict within the European Commission and its ability to regulate, where on the one hand it seeks to give rights and protections to citizens, but on the other hand trade specialists seek to deregulate the digital economy, making it difficult to find common ground for effective regulation.

Through a number of bilateral and regional trade agreements, Big Tech is seeking to maintain a policy environment which favours private control of data as well as technological resources and practices, in service of supernormal profit. Control over data – and in particular, the ability to transfer data across borders – and keeping their algorithms or source codes secret are the top priorities of Big Tech in any “digital trade” agreement.

The EU has finalised trade agreements with a dedicated digital trade chapter with Canada, Singapore, Vietnam, Japan, the UK, Mexico, Chile, Mercosur, and New Zealand. And it is currently negotiating digital trade chapters with Indonesia, Australia, India, South Korea, Singapore, the region of Eastern and Southern Africa (ESA), and plurilaterally in the WTO, among others.

A study commissioned by the Left in the European Parliament, “The European Union’s Digital Trade Rules: Undermining European Policy to Rein in Big Tech” (2023), addresses several of the worst provisions in the EU’s Digital Trade rules, particularly the bans on regulating cross-border data transfers and bans on data localisation requirements; as well as the bans on the state’s ability to require the disclosure of source code, or algorithms.

The myth of the “free flow of data”

Big Tech often uses the euphemism of the “free flow of data” (FFOD) to refer to its cross-border data transfer objectives. But it is clear that the intention is not really to allow data to flow “freely”. Big Tech’s intention is for private corporations to appropriate and control all forms of data – no matter who produced it, who processed it, in what state it originated, or how the public might benefit from it – for purely private interest.

Digital trade proposals in trade agreements represent an effort by Big Tech to further consolidate the upward distribution of income from labour to capital.

Over the last 40 or so years, the use of digital technologies has expanded dramatically. While productivity growth in developed economies has been slower in recent decades than in the post-war period, digital technology likely has been an important contribution to the growth that there has been. However, it is the owners of capital, rather than people who work, who have captured increasing shares of the income from the expansion of productivity in the tech sector in the last four decades.

This is a major source of inequality within societies today. Digital trade proposals in trade agreements represent an effort by Big Tech to further consolidate the upward distribution of income from labour to capital. The most important aspect in shaping who will benefit from expanded technological use will be the policy environment in which that technology is utilised.

If corporations are able to claim “ownership” over data produced by workers, communities, and states, it will permanently skew the balance of power further in favour of corporations against labour as a whole.

Big Tech corporations are now four of the five largest corporations in the world, by market capitalisation. Apple, Microsoft, Alphabet (Google), and Amazon are so highly valued by investors because of the data they hold, and its potential for revenue, among other reasons.

Given the economic value of data, it is essential to debate and regulate not just about privacy but about the economic governance of data. Should the data produced by residents of a jurisdiction be available to help promote digital industrialisation, jobs, and SMEs locally? Or should it only be appropriated and controlled by Big Tech?

Why we need the right to data localisation

The provisions banning data-localisation measures strike at the heart of communities’ potential to use data for the public good. In addition to an individual exercising their rights over the data they produce, there are many reasons why the public has a stake in ensuring availability of collective data for public goods such as ending pandemics or mitigating climate change; why a local community or government (such as a traffic jurisdiction) might want to claim rights to data (such as that of private ridesharing apps) to improve traffic infrastructure; or why communities or social groups such as workers might have claims to data regarding their own labour.

Data centres are the factories of the digital economy and governments should have the right to promote digital factories within their national boundaries through data localisation policies.

The data produced by residents of a jurisdiction should be available to help promote digital industrialisation, jobs, and SMEs locally. 

Corporations should not be able to do an end-run around democratic processes at a time when citizens, workers, regulators, and legislators are engaging in debates about the value of data and the first wave of necessary regulation on this sector. Particularly if these firms aim to forestall the ability of governments to ensure broader access to data and its benefits for all.

Why our governments need the right to disclose the source codes & algorithms

There is increasing recognition of how corporations are expanding their use of algorithmic decision-making. Every day we hear of new aspects of our work lives, our social lives, our financial lives, and our political lives being determined by algorithms, meaning that corporations are using them for ever-increasing aspects of their business decisions. At the same time, corporations want to shield algorithmic systems from being able to be disclosed. Suddenly, none of their business decisions can be subjected to public interest oversight!

Big Tech increasingly uses tax heavens as “data havens”.

Civil society expert organisations have argued^[2] that the exceptions included for judicial bodies or regulators are inadequate to ensure that algorithms and digital technology comply with EU law. To facilitate true public interest oversight, EU trade deals must not foreclose the possibility of policy developments which would facilitate public scrutiny of algorithms in the interest of civil society as well as academic, media, critical engineers and trade union interests. Otherwise, it’s a “black box” for business decision-making!

The study also demonstrates unequivocally 10 areas of European society which would be harmed by these so-called “Digital Trade rules.” These range from tax policy to public services; from data privacy to anti-discrimination efforts; from anti-monopoly efforts to financial stability, from small businesses to Europe’s green deal, and from digital industrialisation to workers’ rights and power in the expanding digital economy.

For example, on tax policy, the digital trade rules would constrain the EU’s ability to tax the most profitable corporations in the history of the world.

Digital firms have seen their profits soar during the last few years as a result of a sharp increase in cross-border digital activities. Yet the taxes they pay remain extremely low, including in Europe. A company like Uber, for instance, can easily shift “highest value creation” from the country of its operation to a tax haven like Ireland from where the backend software and analytics are shown to be provided. Over the last decade, Amazon has generated greater untaxed profits than the total amount of taxes it has ever owed. The company’s US income in 2020 was $20 billion. If Amazon had paid 21 percent of its profits in federal income tax, that would have come to $4.1 billion. The company’s reported current tax of $1.8 billion was less than half that, meaning that in that year alone Amazon avoided $2.3 billion in taxes. A study by The Left in the European parliament adeptly shows the international method Amazon has developed to achieve this. Already in 2018 the European Commission proposed to improve unfair taxation for the digital economy, and in 2021 the EU joined the global tax agreement reached at the OECD. Yet, the EU’s efforts to tax Big Tech could still be undermined by its own digital trade policies.

The provision banning governments from being able to require a copy of data to be held locally makes it more difficult for governments to assess corporate profit taxes. Tax havens are increasingly used by Big Tech as “data havens” to prevent government access to data that could otherwise carry tax implications. This is the case for many European and foreign companies that hold their data in The Netherlands, Ireland, or Luxembourg, where they have good connectivity, strong privacy laws, and states that invest in green energy, among other things. Google for instance holds its European data mainly in The Netherlands, Ireland and Belgium.

Why trade rules of the digital world are so important for workers’ rights

One can easily see how the power imbalance between Big Tech and workers would be skewed even further, permanently, against working people if Big Tech gets its way rewriting the rules that govern digitalisation.

The privatisation of data would limit the ability of governments to ensure widespread job creation and full employment through digitalisation as well as a fair distribution of the income generated.

Whether workers should have economic rights to the data they help produce is a subject being debated. The Public Services International union (PSI) states that:

“Widespread access to society’s data – currently in the hands of a few digital corporations – is a precondition for a fair economy, quality public services, public policy-making and democratic governance. Asserting collective ownership rights over data is one of the most fundamental policy issues of our time. Public sector workers and their unions will need to play an important part in shaping the role of public sector in a digital society – providing data and digital intelligence as public goods, ensuring the development of appropriate digital public institutions, and managing data infrastructures”.

Locking data-related commitments under trade agreements will make any such thing impossible, likely leading to a permanent suppression of labour’s collective bargaining power in a digital age. The privatisation of data that is central to the “digital trade rules” would severely limit the ability of governments to ensure widespread job creation and full employment through digitalisation as well as a fair distribution of the income generated.

The use of automated hiring/firing systems, scheduling tools, and worker productivity-enhancing systems such as movement- and location-tracking systems as well as real-time surveillance and monitoring systems have resulted in a range of harms to workers^[3]. These include discrimination, work intensification, mental and physical health abuses, and an erosion of fundamental labour rights such as the freedom of association and the right to collective bargaining. All of these harms can only be rectified if the algorithmic systems are subject to inclusive governance and the systems can be adjusted. If source code cannot be reviewed yet is faulty, there will be no accountability and no way to remedy these harms.

Corporate proponents of digital trade rules are some of the worst violators of labour rights. Many of the jobs they generate pay low and sometimes substandard wages, violate international labour standards, and lack employment benefits. This is especially true in “platform work” which the EU is also currently looking to regulate better through the Platform Work Directive. Workers must be guaranteed their fundamental rights, freedoms, and autonomy in digitalised workplaces.

If source code cannot be reviewed, there will be no way to remedy harms to workers such as discrimination, work intensification, mental and physical health abuses, erosion of labour rights.

Big Tech applies extensive political pressure in Europe, and it appears that their lobbying activities have resulted in a deregulatory trade agenda that primarily benefits Silicon Valley.

The idea that more digital trade agreements means that there must naturally be international rules governing this trade is misplaced. Trade agreements inherently limit states’ rights to regulate economic behaviour. Yet, governments should have the space to advance regulations to ensure human and fundamental rights in the digital economy; promote the use of data and digitalisation for the public good; and promote digital industrialisation. The EU must ensure that its trade agreements do not constrain its ability to implement stronger regulation of Big Tech to protect workers, consumers, SMEs, minorities, sustainability, and fundamental rights in the digital sphere.

Recently the Biden administration in the US withdrew some of the digital trade rules being negotiated at the WTO level. This important fact demands attention, since the US is making an effort to start to hold the Big Tech companies to account. The fact that the same state that began pushing for these rules is now doubting whether to keep negotiating in favour of them, should prompt the European authorities to consider whether continuing to sign Free Trade Agreements is the right way forward.

The current “trade” agenda of the European Commission is in direct contradiction with the current efforts of many left and progressive European leaders and lawmakers to uphold human and fundamental rights in the digital sphere; to reduce harms caused by Big Tech; and to ensure that technology benefits society overall.

Given the requirement that EU external policy remain in line with its principles, documents, and existing law, there is a pressing need to fundamentally re-think the EU’s approach to digital trade agreements.

If we want to create a more just, inclusive, and equal society we should look at the digital economy companies, since they are shaping the future of the economy. In this sense, civil society should be demanding:

• • • • fair international taxation
      • algorithmic accountability and justice
      • labour rights enforced in the digital sphere
      • data rules that not only protect privacy, but share the benefits of the data driven economy to communities and society as a whole, not just corporations
      • stronger anti-monopoly rules and enforcement
      • no trade rules which have a “chilling effect” on regulators.

The economy and the society of the future is at stake. It’s time to regulate internationally the biggest industry of all time in favour of society.

 The author wishes to thank Roland Kulke and Sofia Scasserra for editing and research support.

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Cover image: Earth, Network, Blockchain, Globe by Gerd Altmann from Pixabay