Digital Competition Policy: Can ASEAN Learn from the EU?

SUMMARY

Digital competition has become one of the most hotly contested and consequential policy areas in global digital regulation, as recent events in the European Union have shown. As ASEAN considers its own regulations, how can it learn from Europe’s experience?

COMMENT

When Apple announced on June 21, 2024 that it was delaying the rollout of updated software features across all of its operating systems in the European Union due to so-called “regulatory uncertainties,” it immediately sparked a debate about the EU’s digital regulatory system.

Many questions have specifically focused on whether the announcement demonstrates that the balance between facilitating competition on the one hand and fostering creativity and innovation on the other in Europe’s digital antitrust law – the Digital Markets Act (DMA) – has become too unfavourable to competition, limiting innovation and consequently negatively impacting the experience of European customers.

Apple, which the EU has already found to be in breach of the DMA due to its restrictive App Store policies, is not the only tech company required to comply with the DMA. All five of the so-called “MAMAA” companies (Microsoft, Apple, Meta/Facebook, Alphabet/Google, and Amazon) along with TikTok’s parent company, ByteDance, have been flagged as guards under the DMA, which is defined as a business that “provides essential digital services” such as app stores, web browsers and search engines.

Companies designated as gatekeepers will have certain obligations under the DMA, including enabling interoperability of their digital services across providers under certain conditions. Of these, Meta and Alphabet, like Apple, are subject to similar investigations into alleged anticompetitive practices and other practices inconsistent with the DMA.

The Limits of the Brussels Effect

In her 2019 book The Brussels Effect, Anu Bradford argues that Europe managed to become a leading global regulatory force by imposing obligations on companies that voluntarily moved to global standards because they wanted to make their global operations more efficient.

Bradford further argued that no other European legislation has had such a profound global impact on the digital political economy as the General Data Protection Regulation (GDPR), which has set a global standard by which multinational corporations collect, store and process personal data. It also establishes a global benchmark against which data protection laws in the rest of the world are compared.

However, we could see the limits of the Brussels effect in the tech industry with the DMA. Instead of voluntarily adopting interoperability as a principle of their global platforms, many large tech companies have opposed the DMA, defending their business models amid EU enforcement actions. This has left other markets and governments, including those in Southeast Asia, home to many “Super Apps” that offer multiple services on a single platform, in a delicate position.

Some policy experts in the region have warned that adopting an EU approach to digital competition could limit the growth trajectory of the digital economy. Apple’s decision to delay the rollout of new software due to antitrust enforcement in Europe will inevitably lend more credence to this argument. But while the industry’s response to proposed regulation is worth considering, it should not entirely deter governments from regulating digital competition.

How should ASEAN consider compromise?

ASEAN policymakers will have to navigate a trade-off between ensuring a fair playing field for startups in the digital economy and allowing large companies to tightly integrate the many digital services they offer.

The companies’ unfettered, years-long pursuit of service integration may have worsened the tech industry’s antitrust woes by sacrificing interoperability and consumer choice. For example, independent software developers have complained for years that operating system vendors engage in anticompetitive behavior known as sherlocking, in which they create similar versions of the independent developers’ software and bundle it into their own operating system.

Sherlocking allows large companies to effortlessly squeeze out smaller competitors because they can easily scale development and rollout of new services and features, sometimes at no additional cost to customers. Because of their high profit margins, large tech companies can easily cut losses that would otherwise be insurmountable for smaller development studios that would have to charge users for each download or offer a subscription service to keep their business afloat. This year alone, new releases of Apple’s operating system could potentially wipe out nearly $400 million in revenue for developers whose apps have been sherlocked.

Therefore, one of the goals of the EU DMA – promoting interoperability between service providers – is crucial for digital startups in Southeast Asia, as it creates space for them to thrive in an unforgiving industry and gives consumers more options to define their own optimal digital experience. At the same time, the growth of the digital economy becomes more financially sustainable, as the windfall profit will not be concentrated in a few corporations but will be reaped by as many companies as possible.

A robust competitive system that enables startups to thrive is key for the region to emerge more tech “unicorns” with billion-dollar valuations. Many of the region’s successful unicorns in sectors such as e-commerce, fintech and ridesharing began as innovative startups.

However, ASEAN governments must also recognise that antitrust law is not meant to be a panacea for a vibrant and competitive digital economy. There are other barriers to entry for those looking to enter the market, including talent development, digital infrastructure and financing. Government support to overcome these barriers will be key, but large companies can also take action by partnering with startups and providing them with the necessary resources to develop innovative applications.

Application

As ASEAN considers its own direction for developing digital competition based on the Digital Economy Framework Agreement (DEFA), members should not be guided solely by their reluctance to adopt the EU approach due to concerns about the reaction of key industry players, as the current digital market would be disrupted by any form of competition regulation.

While there are incentives to place antitrust barriers in the digital economy, simply copying DMAs is not the answer for ASEAN. Our regional economic growth is largely driven by Super Apps and unicorns, which are largely absent from Europe’s digital ecosystem.

Hence, imposing obligations on providers of operating systems, web browsers, or search engines may not be in line with the needs of the region. Instead, competition policies that enable fair access to application platforms, limit excessive lock-in between providers and applications, and prevent unfair pricing mechanisms resulting from market dominance would be more in line with the unique characteristics and opportunities of the Southeast Asian digital economy.

about the author

Jose Miguelito Enriquez is an Assistant Professor at the Centre for Multilateralism Studies at the S. Rajaratnam School of International Studies (RSIS) at Nanyang Technological University (NTU) in Singapore.