The Ten Worst Digital Protectionism and Innovation Mercantilist Policies of 2018

By Nigel Barber For Information Technology and Innovation Foundation
Summary of Study

Bottom Line:  It is troubling that a growing range of countries is following the early adopters of innovation mercantilism and digital protectionism—especially the world leader, China. These countries are also extending these discriminatory and trade-distorting rules to new categories of data, digital services, and forms of behind-the-border regulation. Ten protectionist policies from 2018 stand out as particularly bad. 

As they continue to compete in advanced technology industries, many countries are doubling down on digital protectionism and innovation mercantilism. While these forms of protectionism typically rely on behind-the-border regulations rather than tariffs to protect local firms, the objective and impact remain the same—either to replace foreign goods and services with local ones, or to unfairly promote exports, or both. These destructive “beggar-thy-neighbor” tactics often target the data, technologies, and services of high-tech firms involved in sectors such as Internet-based services, data analytics, and electronics. 

Innovation mercantilist and digital protectionism measures do not just damage other economies and businesses; they damage the entire global innovation and trading system, leading to less overall innovation and productivity growth. As this trend evolves, it is possible to give policymakers in certain countries the benefit of the doubt in that they may have inadvertently considered or enacted policies that discriminate against foreign technology firms and their goods and services. 

Innovation mercantilism and digital protectionism undermine the following three key factors needed to maximize innovation:

  1. Ensuring the largest possible markets
  2. Limiting nonmarket-based competition
  3. Ensuring strong intellectual property protections

The following ten innovation mercantilist policies are the most egregious 2018 policies that policymakers and the global trading system need to address as a top priority.

  1. China Shuns International Principles and Enacts a New Standardization Law That Could Favor Local Tech Firms and Products
  2. China (Potentially) Blocks the International Transfer of Scientific Data
  3. Europe Attempts to Introduce a Mercantilist Digital Tax 
  4. Kenya Mistakenly Follows the EU Approach to Data Privacy and Considers Data Localization for Sensitive Personal Data 
  5. India Enacts Regulations That Discriminate Against Foreign E-commerce Firms
  6. India Enacts Data Localization for Payments Data
  7. Indonesia Moves to Enact Tariffs on Imports on Digital Goods
  8. Italy Enacts Rules to Protect Cinemas and Discriminate Against Video-on-Demand Services
  9. Saudi Arabia Introduces Data Localization as Part of Cloud Computing Regulatory Framework
  10. Turkey Introduces Data Localization for Publicly Listed Firms

Read the full report here.