A soft law approach can regulate Big Tech well enough

Live Mint, April 4, 2023 

By Pradeep S Mehta

Principle-based guidelines may balance our need for rules with innovation better than an EU-style law

As a standard practice, competition enforcement is an ex-post activity, except in cases of
merger regulation. However, in the case of Big Tech, following a Parliamentary Committee’s report, it is being proposed that enforcement can be done ex ante: i.e., before a violation takes place. There is a global debate on this and we too need to take note of it to ensure that we have economic democracy in our tech markets. These new economic giants work with deep pockets. We also need to take into account our unique domestic innovations, such as the Open Network for Digital Commerce (ONDC), account aggregators system and Unified Payments Interface (UPI).

These policy developments—a fallout of the Big Tech ignoring self-regulation, as recommended by the Competition Commission of India (CCI)—have also triggered a serious debate in India. While some favour a hard law approach, like the EU’s Digital Markets Act (DMA), others suggest there should be no ex ante regulation. There could, however, be a middle path in the form of a soft law—with principles-based guidelines—that prescribes dos and don’ts for big digital platforms.

Adherence to a soft-law approach was also in essence the consensus of a diverse panel recently organized on the issue by the BRICS Competition Centre and CUTS Institute for Regulation & Competition, supported by the CCI. Russia and China are understandably adopting a soft law (i.e., a guidelines approach), rather than a legal fiat. In Brazil, which is also considering an ex ante regulation, similar advice has been offered by Brazilian academia. Likewise, Indian experts are near-unanimous in suggesting that we should avoid copying the EU’s DMA. For example, when we proposed our new data privacy bill, we decided to stay away from the EU’s General Data Protection Regulation (GDPR) model.

After the EU-DMA, the US, UK, Germany and Japan, among others, are all considering some form of ex ante regulation to deal with competition concerns posed by Big Tech. However, their approaches are not at all uniform. Not only is the scope of existing or proposed ex ante regulations in these countries different, there are also major differences in the criteria that qualify tech businesses as digital gatekeepers.

Designating an entity as a ‘gatekeeper’ seems to be a very complex regulatory task. Imagine an Indian regulator going by the EU criteria, identifying platforms providing an “important

gateway” for business users and/or enjoying (or likely to enjoy) an “entrenched and durable position” locally, and assessing “significant impact” on our internal market. Do our regulators have the right skills, tools and resources to process such complex criteria? Since a flawed
determination can be quite harmful to India’s emerging digital ecosystems and be inconsistent with the underlying policy objectives of promoting domestic champions, we should guard against adopting such yardsticks.

Skill and capacity gaps among economic regulators have been a problem in India. They often have retired knowledge-proof bureaucrats or judges in leadership roles and/or secondments from other government services. A particular lack of understanding of micro and behavioural economics tends to accompany other missing skills needed to regulate complex contemporary markets. It is not that Indian civil servants or judges do not possess or are not capable of acquiring and using such skills, but more often than not, they are found out of depth when such skills are needed. Often, with secondments, by the time they acquire key skills, they either retire or get transferred. It is thus important for our regulators to work with Indian civil society to institutionalize capacity-building programmes.

Regulations must ensure a proper balance between innovation and competition. Hard ex-ante rules could make such a balance harder to attain. Notably, an avalanche of regulations has been implemented or proposed in recent times in our digital space. In this scenario, without an adequate understanding of the interplay between these new and proposed rules, and in the absence of a comprehensive cost-benefit analysis, the introduction of another hard law may end up doing more harm than good. The form of such interventions should not be such that India ends up with a swelling tide of litigation. But hard regulations like the EU’s DMA are likely to deliver just that.

On the other hand, a principles-based set of guidelines issued by the CCI or government can inform big digital platforms what they are expected to do and not do. This could gradually evolve into a ‘comply or explain’ approach to incentivize transparency and let consumers make informed choices based on the self-declared norms of digital platforms. This approach favours highlighting ethical values in the development and implementation of digital technologies, rather than micro-managing market behaviour and structure. Big Tech can be expected to realize that with great power comes great responsibility and adhere to the guidelines for their brands to gain in value.

The government committee formed to take the recommendations of the parliamentary panel forward should carefully deliberate what is best suited for India. In the present Indian scenario, a soft-law approach seems to be the best way ahead. No one can stop the government from legislating a hard law if needed.

Pradeep S. Mehta is secretary general, CUTS International

Amol Kulkarni and Ujjwal Kumar of CUTS contributed to this article.

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