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Student Blogger - "Glocalizaton" - a Third Way for Regulating Global Services?

France sues Yahoo for permitting Nazi memorabilia to be sold on it's auctions accessible in France. Strict libel law in the UK gives a forum for suits against foreign parties - either chilling speech or vindicating important interests, depending on your point of view. The US Congress tries to block access to offshore gambling sites. China builds a new, digital Great Firewall.

These examples of the challenges of regulation in a global, networked economy are familiar to even the most casual observers. A lot has been written about them, in the mass media, in blogs, and in law reviews. But nobody has figured out a solution, or really even clearly identified the problem. Many think the Internet (the main vehicle for this global services trade) should be mostly if not fully free of regulation, others think regulation is necessary but harmonization is needed, and most everybody opposes the Chinese approach (though Australia has recently made moves toward creating its own barriers to net traffic).

Professor Anupam Chander offered a partial solution to these problems at this week's Works in Progress (WiP) talk at the Law School, presenting parts of a forthcoming book (The Electronic Silk Road, Yale University Press) on the subject. More on his proposal and responses to it below the fold.

At the talk, Prof. Chander argued for "glocalization", which he defined as "requiring a global service to conform to local rules, where both the rules and their assertion to a particular transaction are consistent with international legal norms." In other words, those doing business online internationally would need to comply with local laws, as long as those laws don't violate some human rights norm. This approach, he claimed, would respect democracy and popular sovereignty (since countries could still choose their own rules), while avoiding what he calls the "stalinization" problem (in which risk-averse service providers comply with the most restrictive regulations). In this sense, Prof. Chander's proposal might offer a "third way" between a lawless global network that cripples the ability of all but the largest players to set rules, and a world where regulation forces a global version of current Chinese policy. As he put it, the idea is to "promote free trade without divesting ourselves of law."

This is certainly a worthy aim, and "glocalization" may be a good way to get there. Some commenters were not entirely convinced, however. One, for example, suggested that costs of tailoring services to myriad local regulations might be significant enough cause negative side-effects. Small countries with restrictive regulations might see foreign service providers simply refuse to serve users in those countries, and big countries with restrictive regulations might cause service providers to adopt those rules generally, resulting in the same "stalinization" problem Prof. Chander seeks to avoid. To some extent, how this will play out is an empirical question, but it is surely a problem at the margins. Big players like Google and Yahoo already tailor their content at the national level (and, increasingly, at the sub-national level), so doing so is clearly possible and even sometimes in providers' interest. Still, there must exist some size of provider for which localization is simply too expensive - that provider will either opt out of restrictive jurisdictions (hurting consumers there), or will adopt the most restrictive regulations generally (hurting consumers everywhere else).

Other commenters offered the standard libertarian critique of internet regulation: any mechanism for imposing local regulations on online activity is as much if not more likely to result in expansion of bad regulation than wider benefits from good regulation. Further, internet users in particular have become quite skilled at using self-help consumer protection mechanisms, from SSL-encrypted transactions, anti-phishing detection software, and good user practices to simply reading reviews from other buyers before making purchasing decisions. These broadly successful, opt-in, inexpensive practices undermine the case for regulation not only online, but in they physical, single-country world as well. Why presume that governments can do any better?

Finally, another set of commenters tried to look past these issues and address the book at a deeper level. One suggested that in trying to hew a path between the large majority of activity online that almost all agree should remain free, and extremes of regulation that threaten human rights norms (Chinese efforts to silence dissidents online being the best example), Prof. Chander was left with very little ground for local regulation to cover. As the commenter put it, there are very few things that societies care enough about to regulate or restrict, but do not believe should be similarly regulated everywhere. Another commenter suggested something similar - that either these problems are small, and international internet traffic will continue to be relatively unregulated, or we will come to believe they are large (as China already has), and change the structure of the internet to make regulating them possible.

While this criticism was somewhat persuasive, Prof. Chander argued that the window for "glocalized" regulation was actually quite large. As an example, he suggested that buyers of civil engineering services in California might like to be able to buy those services from abroad, but that the public would retain an interest in ensuring that those engineers' designs met, for example, local regulations for earthquake resistance. In such cases, there is a powerful local interest in regulation, but no implication of any human rights norms, or even any sense that the local rules are better than foreign ones - they are entirely local yet entirely legitimate.

It might be the case, then, that there is both a broad and a narrow version of Prof. Chander's "glocalization" thesis. In the narrow version, local regulations should apply to some forms of international trade and services. This cuts both ways - foreign service providers should be required to comply with local rules, but those rules should be written such that it is possible for foreign providers to comply with them. An Indian engineering firm should be liable for failure to comply with California building codes when it designs a building in San Francisco, but at the same time there must be a means for that firm to be certified from India. This narrow version is surely helpful - it does seem to balance the interests of local regulation and free trade, though there does exist a possibility for protectionism to masquerade as legitimate local regulation. Policing that line will be as difficult (if not more so) for the WTO in services trade as it is in goods trade.

The broad version of the "glocalization" thesis is somewhat harder to pin down, but may go something like this: countries should always enforce each other's idiosyncratic regulations on cross-border services trade (or at least judgements based on those regulations) - so long as the regulations do not violate human rights norms. This might even go a step further, with states actively enforcing other states' local regulations against service providers. It is this stronger version of the thesis that presents many of the problems noted by the commenters at the WiP, most of all the exit/stalinization dilemma discussed above.

The ambiguity between the two possible meanings of "glocalization" might be resolved in the full book (only a portion was presented), or in its final version, or it might be clearer after a closer reading on my part. I do think the distinction is important though. The narrow version of the thesis seems like a workable compromise between the competing interests involved, though I think practical implementation problems will be a real challenge. I admire the broad version for its boldness but agree with the commenters that it risks causing the same problems it seeks to avoid.

Full post as published by The University of Chicago Law School Faculty Blog on January 17, 2009 (boomark / email).