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Last November, President Obama effectively abandoned America’s longstanding free trade Internet policy established by President Clinton, in favor of a protectionist Internet industrial policy to benefit America’s national champions, Silicon Valley, under the guise of “net neutrality” policy.
Flipping U.S. Internet policy from global digital free trade to maximal national Internet regulation could end up hurting Silicon Valley the most, because they most benefit from, and depend on, the current free flow of information globally on the Internet.
Ironically, America also is forfeiting the digital free trade policy high ground by leading the world toward a “Splinternet” vision of more nationalistic maximal utility regulation of the Internet and its content.
In particular, it will be much harder for the U.S. to credibly object that the EU’s: creation of a European Digital Single Market (DSM), tightening of the EU-U.S. Data Protection Safe Harbor, and its aggressive enforcement of EU antitrust, privacy, and tax laws against Google, Amazon, Facebook and Apple, is protectionist, when America’s new FCC utility regulation of the Internet is a transparently protectionist American industrial policy to advantage America’s national champions in Silicon Valley.
The hypocrisy of urging other nations to “do as we say not as we do” has never been a winning trade negotiating strategy.
President Clinton’s 1997 “Framework for Global Electronic Commerce,” was inherently a global internet free trade vision, with the primary goals that “the private sector should lead” and “governments should avoid undue restrictions on electronic commerce.” The phenomenal Internet we know today is a result of that global-oriented vision.
In stark contrast, President Obama has called for an inherently nation-centric protectionist Internet vision in urging America’s FCC to impose the “strongest possible” utility regulation of America’s Internet, via a quasi-nationalization of America’s Internet infrastructure by reclassifying the Internet from a non-price regulated “information service” to a price-regulated “telecommunications” service under the “Title II Common Carriers” section of the 1934 Communications Act.
February 26th, the FCC is widely expected to make operative the President’s November statement of new American Internet policy in a partisan 3-2 vote.
How is Title II a protectionist Internet policy?
This is not only a domestic decision, but also a seminal trade and foreign policy decision.
By asserting the legal authority to change the legal status of the Internet in America to a “telecommunications” service, the FCC decision will effectively legally activate “telecommunications” trade treaty obligations for the Internet under the United Nations International Telecommunications Union’s (ITU) constitution.
Specifically, ITU agreement ITU-T D.50 “recognizes the sovereign right of each State to regulate its telecommunications” as it determines.
Historically, ITU “telecommunications” regulation has long been a “sender party pays” economic model, where every country can set its own per-minute tariff for telephone calls coming into the country much like a nation can set a protectionist tariff on certain types of imports.
However, the phenomenal growth of Silicon Valley’s now dominant Internet companies has flowed directly from the Internet’s opposite “receiving party pays” economic model.
“Receiving party pays” has been brilliantly re-branded in America as “net neutrality” and “innovation without permission” because ISPs and users inherently must implicitly subsidize dominant Internet companies’ substantial costs of distributing their highly-asymmetric streams of downstream Internet traffic. To illustrate, in the U.S. two companies, Netflix and Google-YouTube, comprise roughly half of all American Internet downstream traffic per Sandvine.
Thus the current free flow of global information that we know of as the Internet today is a direct result of the free trade arrangement of the “receiving party pays” model.
This lucrative model generates an enormous implicit digital trade surplus for America vis-à-vis the world because America’s Silicon Valley companies like Google, Amazon, Facebook, and Apple dominate Internet products and services, and hence downstream Internet traffic, internationally.
Only in the U.S. does it make economic sense to define the Internet as “telecommunications” to mandate a “receiving party pays” model.
However for the roughly two hundred other countries in the world, the new powerful economic incentive is to legally define their national Internet traffic like America now has as “telecommunications.”
That way, under existing ITU agreement ITU-T D.50, they can legally replace their current Internet implicit “receiving party pays” model that generates large implicit digital trade deficits with the U.S., with a per-megabyte import tariff under the ITU’s “telecommunications” “sending party pays” model to create explicit, large, and highly-lucrative digital trade surpluses at America’s and Silicon Valley’s expense – all while being able to say they are only doing what the U.S. is doing – looking out for their own nation’s economic interests.
This issue moved front and center this week after President Obama publicly accused the European Union of technology protectionism for pursuing a European Digital Single Market.
President Obama told Re/Code: “We have owned the internet. Our companies have created it, expanded it, perfected it in ways that they can’t compete. And oftentimes what is portrayed as high-minded positions on issues sometimes is just designed to carve out some of their commercial interests.”
In sum, as the old adage says, those in glass houses should not throw stones.
America’s Title II Internet utility regulation to protect America’s domestic economic interests, will beget other countries imposing their own nationalistic Internet utility regulation to protect their own national interests.
Tellingly, the UK House of Lords is now recommending just that, i.e. that the UK regulate the UK Internet as a national utility.
Apparently the FCC doesn’t appreciate another relevant old adage here: look before you leap.