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Digital Censorship Drives Trade Barriers, Fragments the Global Internet

Efforts to extend restrictions on free expression and information access to the digital sphere continue to accelerate globally, with deeply damaging implications.

Just in the past year, Russia has become effectively isolated from the global internet and increased crack downs on the dissemination of any news and opinion critical of the government and its invasion of Ukraine, Turkey has proposed expanded restrictions on the use and operation of social media platforms, and India has continued its campaign to push social media companies such as Twitter to remove political content.

Quantitative data showcasing the harm digital censorship imposes on U.S. economic interests has emerged. A new report from the U.S. International Trade Commission (USITC) sheds light on the economic toll that government-sponsored restrictions—whether from blocking or throttling services, shutting down the internet entirely, or barring foreign providers from the market—can have on companies operating in those markets.

The findings should accelerate concerns in the United States of the harm digital censorship and fragmentation brings to U.S. exports. The report estimated that shutting down the Internet or otherwise blocking social media and user-generated video services (Facebook, Instagram, YouTube, and Twitter) resulted in local economies losing millions. An estimated $549.4 million was lost in India due to repeated Internet shutdowns affecting those services from 2019-2021, while $82.2 million in losses in Indonesia resulted due to the shutdown of the Internet in 2019, and $14.6 million was lost in the less-populated Turkey after it blocked several U.S. services in early 2020. All of these shutdowns were employed to quell protests and/or stifle political dissent.

The findings regarding losses in Indonesia have taken on urgent concern as the government has blocked several websites in Indonesia in recent weeks—such as Yahoo!, PayPal, and several gaming websites—for failing to register for the country’s opaque online services law that simultaneously undermines free speech by forcing takedowns of content whil e also representing a labyrinth of requirements that could leave many online services providers unable to comply. 

Outright exclusion from a market can prompt even more grave outcomes for digital exports. The USITC estimated that U.S. social media and user-generated video services providers lost at least hundreds of millions and potentially tens of billions of dollars (shown in the chart below) as a result of restrictions to market access in the country resulting from the censorship imposed by the “Great Firewall of China.” This is a glimpse at a dystopian future of Internet fragmentation that U.S. policymakers should stop from spreading any further.

A wide array of factors dictate the strength of digital trade between two nations including Internet freedom but additionally local technology market size, strength in other forms of trade in goods and services, local culture and politics, and industrialization goals of the nation. However, there also appears to be some passive correlation between Internet restrictiveness and strength of U.S. digital exports to various countries where the less restrictive a country’s Internet policies are, the more prominent U.S. digital services exports are in the country. For example, China and Japan buy roughly equivalent amounts of U.S. services overall ($39.5 billion and $36.9 billion, respectively). However, in Freedom House’s latest “Freedom on the Net” report, China’s Internet freedom score is the worst among all nations surveyed, just 10 out of a possible 100, while Japan was given a score of 76. U.S. ICT services exports and potentially ICT-enabled services exports to Japan ($34.6 billion) were significantly higher than those estimated for China ($19.5 billion) in 2020.

These estimates show a clear picture of how closely intertwined the priorities of an open and interconnected global Internet, democratic ideals, and U.S. economic strength truly are.  

The digital authoritarian tools used to reshape the Internet and how they are spreading

The latest USITC report served as a Part 2 for a previous investigation from the agency that highlighted the threat that growing censorship brings: 

The evolution of censorship policies and practices in the key markets has largely been driven by the growing importance of the internet. Recent laws often take a multipronged approach by including direct censorship measures and potentially censorship-enabling measures in the same law or package of laws. 

The Office of the U.S. Trade Representative (USTR) similarly detailed examples of the extent of countries’ descent into protectionism through walled-off approaches to digital governance in its 2022 edition of the annual National Trade Estimate Report.

Measures pursued by governments that censor content online are part of a broader global strategy in certain markets to adopt restrictive rules that nationalize and fragment the Internet to extend their control to the digital sphere. These actions render the Internet less secure, less open, and less safe. As the latest Freedom on the Net report highlighted: 

Authorities in at least 48 countries pursued new rules for tech companies on content, data, and competition over the past year. With a few positive exceptions, the push to regulate the tech industry, which stems in some cases from genuine problems like online harassment and manipulative market practices, is being exploited to subdue free expression and gain greater access to private data

Foreign authorities are taking extreme measures to force content removal. Brazil, India, Russia, Turkey, Vietnam, and Pakistan are deploying “hostage-taking laws to detain workers from social media platforms if they refuse to take government orders.” For instance, India has extraterritorially barred apps on platforms, shut down the Internet when faced with opposition in Kashmir, and compelled companies to remove speech critical of political leaders. Authorities have gone so far as to raid local offices of U.S firms in attempts to make the company comply with take-down demands. These rules often include substantial civil and/or criminal penalties, even direct liability on company representatives. 

Countries are also using competition tools in a manner to coerce compliance with egregious demands. The USITC observed in Part 1 of its report that governments in key markets have “used the threat of investigations . . . to pressure U.S. companies to accept censorship demands.” The USITC cited China’s invocation of antitrust law and what it called misleading advertising as justification for breaking up tech firms or removing their content from app stores as well as using economic coercion to force compliance with censorship mandates. Russian authorities are also leveraging antitrust actions against U.S. firms “to exert tighter control over the internet.”

These burgeoning attempts build on continued growth of data flow restrictions and localization measures. Others leverage extra-legal data disclosure and IP transfer requirements.

Such tactics are not limited to within jurisdictions. The use of Internet restrictions beyond autocrats’ borders was used this year by Russia, which redirected online traffic from Ukraine to its servers to block access to a variety of social media and news websites and by China, which passed a law in 2021 limiting content and speech on the topic of Hong Kong globally and also has taken steps to discourage online discourse in Taiwan.

The problem is spreading. Many leaders and policymakers have used certain regulation as models, or ‘borrowing’ the most egregious aspects from a country’s new regulatory frameworks. 

Some examples include Brazil’s pending Internet Freedom and Responsibility Act, which reflects aspects of Russia’'s Anti-Censorship Act and continued measures to demand online service to carry out government-led misinformation and censorship. In India, the 2021 IT Act Amendments introduced new local presence requirements for local authorities to leverage control over firms to comply with government requests. Under Russia’s 2021 Landing Law, companies have to “land” by establishing a local unit that will represent its interests in Russia and will be liable for its activities. Germany’s 2017 NetzDG law has been cited as the basis for several concerning content regulations including legislation in Singapore, Turkey, and Venezuela, as a “prototype” for online censorship. France’s 2020 hate speech law, also built on the NetzDG law, was also struck down by the French Constitutional Court for free expression concerns. Just this year in Turkey, a high-ranking official in the ruling Justice and Development Party explicitly cited the Germany and France laws as informative for a “disinformation bill” that detractors have argued would “become another tool for harassing journalists and activists and may cause blanket self-censorship across the Internet” as well as the possible “last nail in the coffin of an independent media.”

To be clear, legislation that seeks to govern digital technologies, with an aim to strengthen consumer protections, user trust, and ensure a competitive market is not inherently protectionist or a reflection of authoritarian control. Many governments are seeking to address genuine concerns they witness in their societies. However, heightened regulatory concern should be based on demonstrated and studied harms applied in a non-discriminatory manner. 

How policymakers can leverage trade to address digital censorship

At the heart of this issue is the ability of consumers around the world to harness the benefits of an open Internet, using new and innovative digital services from different markets to speak freely and engage in global commerce. This inherently requires open channels for digital trade, which makes trade policy a key arena to fight digital authoritarianism.

To the extent that censorship, extrajudicial access through arbitrary government demands or court orders, or other market blockades are implemented in a discriminatory manner, a country’s national treatment or most-favored-nation commitments under the General Agreement on Trade in Services or pertinent Free Trade Agreements could provide a basis for challenge, depending on the circumstances.

Broader claims of discriminatory treatment aside, trade rules have not yet been designed and agreed to that specifically and effectively restrict  state-sponsored censorship and government demands for data access outside the lines of due process or the rule of law. However, there has been potentially foundational work done in this space. 

Many countries have introduced provisions on access to and use of the Internet in trade agreements, such as Article 18.3 and Article 19.10 of the U.S.-Mexico-Canada Agreement (USMCA). These address unjustified blocking of content for anti-competitive reasons but could equally apply to unjustified government-sponsored censorship. 

The United States has launched a series of trade, investment, and economic cooperation talks that could also help reset the growing trend of Internet balkanization towards openness. The U.S.-EU Trade and Technology Council, the developing Indo-Pacific Economic Framework, and the recently-announced Americas Partnership for Economic Prosperity all include pillars dedicated to cooperation in the digital economy to promote digital trade. Promoting good regulatory practices and combating online censorship is particularly key in the initiatives involving the Indo-Pacific and Latin America, two regions where China holds influence through free trade and significant investment and advancements in emerging technologies and infrastructure, respectively.

The United States has also launched cooperative initiatives with Taiwan through the U.S.-Taiwan Initiative on 21st-Century Trade and Kenya through the U.S.-Kenya Strategic Trade and Investment Partnership. For both countries, laying down a marker of U.S. intent to set the regulatory and norms standards in the digital space is key to combating China’s influence. China remains Taiwan’s largest trading partner and Kenya has received significant investment from China for digital and infrastructure projects, including the construction of their 5G network

For the United States to maximize the utility of these developing economic frameworks and agreements listed above, it will be paramount that clear and binding commitments combating government-sponsored digital censorship and protectionism are secured and policed. At a minimum, countries should commit to craft regulatory frameworks that follow good practices and limit unintended consequences, particularly those that impact online speech and access to information. The United States should also push back against the rising phenomenon of “hostage-taking laws,”whereby governments force Internet platforms to establish local presence and in-country data storage with the express goal of leveraging jurisdictional power to enforce takedowns of free expression and other content through the detainment of employees.

Many countries have already recognized the threat of growing fragmentation of global rules governing digital services.The U.S. joined over 60 countries in April in signing the Declaration for the Future of the Internet, a pledge to uphold a shared vision for a democratic and global Internet including to uphold “the right to freedom of expression while encouraging diversity of opinion, and pluralism without fear of censorship, harassment, or intimidation.”  Many participating countries in the various U.S.-led trade initiatives have endorsed the United Nations Human Rights Council Resolution 47, which: 

“Condemns unequivocally measures in violation of international human rights law that prevent or disrupt an individual’s ability to seek, receive or impart information online, including Internet shutdowns and online censorship, calls upon all States to refrain from and to cease such measures, and also calls upon States to ensure that all domestic laws, policies and practices are consistent with their international human rights obligations with regard to freedom of opinion and expression, and of association and peaceful assembly, online.”

From a U.S. perspective, centering the trade impact of online censorship and the rule of law could be crucial going forward, given the growing nexus between commercial activity and the promotion of legitimate expression.

Digital Trade

Companies rely on clear, predictable rules that facilitate digital trade to export their products and services around the world. These rules include balancing the competing interests between encouraging investment and enabling information access; promoting the free flow of information online; and maintaining balanced intermediary liability regimes.