The Exponential Growth of the Digital Economy: Is There a Solid Legal Framework Regulating the Digital Economy?

Businesses all over the world are moving quickly to build new and advanced digital technology capabilities, they are gradually shifting their resources away from physical products to software and internet based services. This strongly implies that companies all over the world are developing powerful warehouses of digital technologies to promote their trade and services. The reason for this shift from the physical economy to the digital economy is not far reached, this is as a result of the fast growing pace of the fourth industrial revolution which gave rise to the ubiquity of smart devices, the rise of global tech companies and ground breaking technological innovations and the “digitalization” of all aspects of human life. The society and the economy are rapidly changing as traditional business models are being digitally transformed and several industry’s regulations turned upside down.

Meaning of Digital Economy

The term “Digital Economy” describes the range of Trade, Economic and Social activities that are enabled by information and communication technologies. The digital economy enables and executes the trade of goods and services through electronic platforms on the internet.

The exponential growth of the digital sector has been a key driver of economic growth in recent years, and the shift towards digital world has had effects on society that extend far beyond the digital technology context alone, the impact of the digital economy extends beyond information, goods and services to other areas of the economy as well as lifestyles more generally. Digital Trade embodies activities like banking, advertisement, buying and selling of wide range of products and services and accessing education or entertainment using the internet and connected devices. It impacts all industries and business types, and influence the way we interact with each other every day.No longer is the digital economy perceived as been distinct from the general economy, recent economic activities and trend as proven that data and the digital economy are inextricable aspects of a nation’s economic growth and development.

As much as the benefits of new technologies and trade model are immense, new technologies can pose new risks to the community and consumers around privacy, security and ethical concerns including the implications of autonomous systems making decisions for us, or around us, for example, autonomous vehicles. Digital transformation can also lead to new forms of market power and barriers to entry through control over data, networks and platforms thereby creating monopoly concerns. Traditional industries are being disrupted and the distinctions between industry sectors are becoming blurred as tech firms move into new areas like banking, advertisement, marketing, retail and healthcare. Our traditional regulatory approaches, which take a sectoral and limited approach to regulation, may no longer be appropriate to regulate the digital economy.It is of utmost importance that the regulators and regulations keeps to pace with technological and trade model changes in order to effectively regulate this fast growing sector for the good of all.

There is the need to create a balance in the regulation of the digital economy, while a heavy and stiff regulatory framework would act as a deterrent to innovation, which is the bedrock of the digital economy, an unregulated landscape might lead to uncompetitive practices and cause great harm along the lines of consumer protection and ethical concerns. Therefore, there is the need to create regulations flexible enough to promote innovation but also rigid enough to protect all stakeholders concerned in the digital economy.Also as technology advances, outdated or inconsistent regulation which is what is applicable in several jurisdictions can stifle innovation and may also expose the people such regulation seeks to protect. New businesses may find themselves operating in a regulatory grey area and new risks may not be anticipated by old legislation. There is a need to update regulations to bring it up to speed with the digital economy.

Uber which enables people to connect with available drivers through a smartphone app is an example of how advances in trade models and technology have disrupted the entire taxi service industry, rendering their regulatory model almost obsolete. How can regulators, faced with fast-paced innovation, reimagine new rules for yet to be invented technologies for the future? How can governments ensure that the values of privacy, fair competition, and consumer protection are not compromised in the digital economy?

The risks associated with internet regulation are clear. The role of the government then is to make “light-touch” regulation which neither interferes nor is unresponsive. It is essential to conduct broad based research to determine the effect of policies undertaken on the market and then decide on the best way forward.

To counter-balance the competing risks involved in the regulation of the Digital Economy, governments and institutions are already legislating to protect economic interests and the public. This article will now examine the various mechanisms adopted by various countries, Nigeria and the International arena in the regulation of the digital economy.

The Regulation of the Digital Economy in various parts of the world

Digital Trade regulation models vary in different parts of the world, influenced and determined by the constitutional and political framework present in each country. What is prevalent in the regulatory framework of most countries is the absence of a comprehensive law regulating the digital economy but it is regulated by several laws indirectly regulating different aspects of the digital economy which at the time they were enacted were not intended to regulate the digital Economy.

Digital Economy regulatory models can be broadly classified into three types; first, the traditional model of supervisory function undertaken by the state through a regulatory body of experts. The second model of the regulatory model spectrum is self-regulation, where industry associations determine their own code of conduct. However, a fully unregulated landscape also poses a number of threats to all other stakeholders. A third model of regulation which is increasingly seen as a compromise between the first two models is the idea of co-regulation, this is voluntary self-regulation which is supervised by legal recognition thus transforming it into a co-regulatory scheme. In regulating the Digital Economy, different countries adopt any of the different forms of regulatory models or hybrid of two of the regulatory models.

In regulating the Digital Economy, the European Commission adopted the Digital Single Market strategy, it is a strategy of the European Commission to ensure access to online activities for individuals and businesses under conditions of fair competition, consumer and data protection, preventing copyright infringement issues. It attempts to remove the disparity between the physical and digital worlds, breaking down the barriers to cross-border online activity. The European Commission intends to make the EU’s single market fit for the digital age, moving from 28 national digital markets to a single one.

The digital single market strategy was adopted on 6 May 2015 and it is made up of three policy pillars; improving access to digital goods and services; the strategy seeks to ensure better access for consumers and business to online goods and services across Europe by removing barriers to cross-border e-commerce and access to online content while increasing consumer protection. The Digital Single Market aims to create the right environment for digital networks and services by providing secure and trustworthy infrastructures and services such as cybersecurity, data protection/e-privacy. The Digital Single Market Strategy aims at maximising the growth potential of the European Digital Economy so that every European can fully enjoy its benefits.

In the US, a major challenge faced in the regulation of the digital economy is that many digital platforms fall within the jurisdiction of multiple government agencies and Laws, at the local, state, national and international levels. There are bits and pieces of the regulation of the digital economy is contained in various laws.

The 1996 Telecommunications Act makes provision for internet regulation. Section 706 of the Act provides the Federal Communications Commission (FCC) with the authority to use “regulating methods” to “encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans”. Section 706(b) also charges the commission with “determining whether advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion”. This language provides a clear policy tool to regulators for establishing internet related regulations under existing law. The section also provides the FCC with the ability to guard against anti-competitive behaviours. Section 706 can also be used to ensure the continued growth in the deployment of advanced telecommunications capabilities and it can be used to take corrective actions in the event of untoward behaviour by firms that retard output.

Also in the United States, private industry has taken steps to coordinate policy and harmonize initiatives to ensure better coordination in the industrial internet of things space. These efforts reached an important milestone with the introduction of the Industrial Internet Consortium in 2014, charged by its members with promoting initiatives to connect and integrate objects with people, processes, and data.

Unlike what is obtainable in most parts of the world, Nigeria does not have any regulatory policy for the regulation of the Digital Economy. Nigeria maybe left in the lurch, if policies are not formulated and implemented for Nigerians to integrate into the global system of digital economy. The President of the World Bank Group, Dr. Jim Yong Kim stated candidly that Africa is not prepared for Digital Economy, he made this known at the recently concluded 2018 IMF/World Bank spring meetings. During the meeting, he expressed concern over the dreary attitude of policymakers in Africa to harness the boundless opportunities digital economy presents for sustainable national development.

Also for Digital Economy to thrive in Nigeria, critical infrastructure has to be fixed, for instance, access to electricity. Nigeria is not positioned to take maximum advantage of digital opportunities. Nigeria’s economic growth is hinged on creating digital economy infrastructure and encouraging enterprises to adopt digital technologies in providing goods and services.

Although there are legislations that already cover some aspects of the regulation of the digital platform, like the Copyrights Act, National Office for Technology Acquisition and Promotion Act, Companies and Allied Matters Act, Consumer Protection Act, but there is no specific legislation passed to regulate the digital platform. Also some of the existing laws indirectly regulating the digital economy in Nigeria were not enacted for the regulation of the Digital Economy therefore their provisions are not adequate and comprehensive enough in regulating the Digital Economy.

In the International arena, there has not been much consensus by states on the regulation of the Digital Economy. However, Free Trade Agreements, (FTA) have offered a means of advancing a digital policy agenda. As of October 2017, there were a total of 445 free trade agreements concluded between countries, taking into account goods, services and accession separately. It is estimated that over 80 of the 164 countries that are signatories to the WTO have all signed at least one agreement that contains e-commerce provisions, and at least 70 FTAs to date contain detailed e-commerce chapters.

These Agreements have stepped in to fill the vacuum created by the impasse in the World Trade Organization working group provide an alternative universe of e-commerce regulations since the early 2000s. The e-commerce templates in FTAs generate a new form of instability in international norm setting by limiting policy space of countries to promote national digital regimes. The FTAs have focused on a number of issues that remain sticky at the international level in e-commerce negotiations, such as the establishment of a permanent duty free moratorium on the import and export of digital products and electronic transmission, definition and classification, intellectual property protection on digital products and enforcement. The most recent FTAs put forward regulatory templates on e-commerce and intellectual property protection. The FTAs are not just seeking to fill in policy gaps in e-commerce, but rather setting a normative bias in favour of extreme liberalisation of the digital economy, the FTAs leans in favour of trade at the expense of development and consumer protection.

Also there are a lot of questions not covered by the FTAs that remain in the open such as data privacy, encryption technology, the development of secure payments systems, electronic contracts and taxation, which raise legitimate public policy questions and interface with other areas of domestic policy within countries.

Restrictions in Data flows as a means of regulating the Digital Economy

Cross-border data access, usage and exchange are essential to economic growth in the digital age. Whether directly, or by indirectly taking advantage of global-scale data infrastructure such as cloud computing, global connectivity has enabled cross-border economic activity, allowing individuals, startups, and small businesses to participate in global markets.

By increasing access to information, the internet increases productivity and enables markets to function more efficiently. The free flow of data reduces transaction costs and the constraints of distance and increases organizational efficiencies. Extending internet access can also increase market efficiency by reducing barriers to market entry.

While the economic and trade opportunity from connectivity and data flows are significant, governments are increasingly introducing measures which restrict data flows; data localization measures. Such measures will have economic and trade costs. They take several forms, which includes: the data cannot be transferred outside national borders, the data can be transferred outside national borders but a copy must be maintained domestically, prior consent is required before global transfers are allowed. The main reasons for doing this is to protect or improve citizens’ personal privacy and to manage the risks of cyberattack.

It is recommended that regulatory authorities should restrict data localization as this may hinder the growth of the Digital Economy for the world at large.

Recommendations and Conclusions

Regulators must know how the digital economy works and be knowledgeable about key networks, platforms and technologies to formulate all-encompassing regulation for the digital economy. Regulators must also realize that technological developments are taking place at a much more rapid pace than which they normally legislate. Close consultation with all stakeholders is important whilst formatting regulations to avoid unintended consequences of new policies or regulation.

Nations of the world should harmonize their laws in terms of regulation of the digital economy to enable a single digital market, uniform legal provisions are needed and at the same time this uniform body of law should not hinder the spread of innovation and progress within the digital economy. Regulatory frameworks should be applied consistently across those engaging in similar activity; should have predictable outcomes.

There is an urgent need for countries to come together to create a consistent regulation for the digital economy to keep up pace with the growing digital trade all over the world.

Oluwakemi Oke is currently employed as an Associate in a leading law firm in Nigeria. She has four years post call experience and has worked and interned in several other top law firms in Nigeria. She enjoys reading, writing, researching, volunteering and public speaking. She believes that laws should be brought up to speed with the new digitalized society.