Legal Commentary

Regulatory Arbitrage Lives

By Professor University of Miami School of Law

Back in 1997 — more than a decade ago — I wrote what may be my most-influential internet law article, The Internet as a Source of Regulatory Arbitrage. Here’s the abstract:

The Internet is a transnational communication medium. Once connected, there is little that a single country can do to prevent citizens from communicating with the rest of the world without drastically reducing the economic and intellectual value of the medium. As a result, connection to the Internet enables regulatory arbitrage by which persons can, in certain circumstances, arrange their affairs so that they evade domestic regulations by structuring their communications or transactions to take advantage of foreign regulatory regimes. Regulatory arbitrage reduces the policy flexibility of nations by making certain types of domestic rules difficult to enforce. Citizens with access to the Internet can send and receive anonymous messages regardless of national law; both censorship and information export restrictions become nearly impossible to enforce, although governments have it in their power to impose some impediments to ease of use. The effectiveness of European-style data protection laws is reduced when personal information can be stored in offshore data havens. Ultimately, restrictions on certain types of transaction, e.g., restrictions imposed by securities laws, also may be undermined if these transactions can easily be carried out offshore. However, claims that income tax systems will be seriously undermined are, I argue, vastly overstated, at least in the medium term. On balance, therefore, I predict that the Internet’s regulatory arbitrage effects will tend to promote liberal democratic values of openness and freedom more than they will detract from what most consider to be the modern states’ legitimate regulatory powers.

In recent years I’ve started to fret that some of the assumptions on which it was based are not holding up — governments are getting better at blocking and filtering, whether it’s the Great Firewall of China, or Saudi Arabia’s attempts to crowdsource censorship.

Still, there’s clearly some life left in the concept, as seen from this NYT article on how images from Iran are getting out to the internet

Throughout the week, supporters of the protesters around the world had been making their own computers available to Iranians who wanted to evade government censors.

These people have been publishing the IP addresses of their computers to public forums like Twitter — offering them as so-called proxy servers.

We hoped the Internet would be bad for despots; we feared it would be the Panopticon. The race is still on.

Full post as published by Discourse.net on June 18, 2009 (boomark / email).