Editorials

Set adequate regulations for IT platform giants

The government is considering tighter regulations for global information technology giants such as Google, Apple, Facebook and Amazon. This is out of concern these so-called platform companies take advantage of their overwhelming share in internet services like search engines and online shopping to impose unfair business terms on smaller firms that use their services. An interim report compiled by an experts’ panel set up by the industry ministry urges the government to weigh setting up a watchdog organization as well as obliging the IT giants to disclose information about the key terms of transactions with users of their service.

As the report says, the platform companies “design, operate and manage the markets in which large numbers of consumers and businesses participate” and thus provide the infrastructure crucial to today’s socio-economic activities. If so, steps need to be taken to ensure that their operations are fair and equitable for all participants in the markets. At the same time, excessive regulations that hamper their efforts to create new markets and services through innovative ideas and new technology must be avoided.

The four U.S.-based IT giants, often called GAFA based on their combined initials, have rapidly expanded their businesses and dominate the top rankings of the world’s largest firms in terms of aggregate market value. In the process they’ve replaced leading firms in sectors that were long in the driver’s seat in global industrial development, like automobiles, electronics, resources and energy. The cyber newcomers have achieved phenomenal growth by pioneering web services that involve huge numbers of consumers and other firms, and have transformed the world’s economic and industrial structures in a short period of time.

These “founding” internet businesses tend to maintain the upper hand over the firms that use their services. In a survey of small and medium-size companies by the Ministry of Economy, Trade and Industry, more than 80 percent of the respondents cited complaints such as individual firms having trouble negotiating the terms of transactions with the platform companies, facing disadvantages like unilateral hikes in service fees, or having fees imposed that are too high for them to make a profit.

METI will solicit public comments for the interim report, compile basic principles for the regulations on the platform companies by the year’s end, and then start discussing concrete legislative steps. The ministry plans to hold hearings with both the platform companies and the firms that deal with the IT giants to look closely into the prevalent terms of the transactions between them. The government reportedly is weighing a probe under the antimonopoly law to expose the industry’s practices and eyes introduction of punitive charges to deter violation of relevant rules. The interim report called for launching a watchdog organization manned by experts in law, economics and information processing to keep constant watch over the business practices between the platform companies and their users.

The platform companies have accumulated a massive amount of personal data from the customers that use their web services, which range from online shopping to social networking services. Such data can be a resource that generates yet new services, and the interim report recognized its “economic value.” But specifically how this personal information is handled by the platform companies is not made clear to the users. Greater transparency is required in the handling of such data.

Taxation of the profits made by these IT giants is another area of discussion. The platform companies, mostly based in the United States, generate large profits through their cross-border digital businesses, but since their operations do not require setting up physical branches or manufacturing plants in the countries where they earn the profits, the authorities in these countries have a hard time appropriately taxing their earnings because under current international rules corporate taxes are imposed on the income earned by the companies’ local units.

As international efforts to agree on ways to adequately impose taxes on their earnings in local markets make slow progress, the United Kingdom announced in late October that it will introduce a new tax on the digital giants in April 2020, imposing a 2 percent levy on sales earned in business activities that take place in the U.K., such as online shopping. The move by the British government — the first among the world’s major powers — may set an example for others to follow, but separate and possibly varying steps taken by countries could sow the seeds of future confusion. Japan needs to play a proactive role in setting international rules on the matter that would be fair to all the parties involved.