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Australian Tech Policy Should Reflect Emerging Leadership Role

· April 10, 2018

During Prime Minister Turnbull’s visit to Washington in February, U.S. Trade Representative Robert Lighthizer and Australian Minister for Trade, Tourism and Investment Steven Ciobo issued a joint statement agreeing to “intensify cooperation to support the growth of digital trade between our countries, ensure an open, free and secure Internet, and advocate the liberalization and facilitation of global digital trade.” It’s great to see a visible commitment from the U.S. and Australia to promoting digital trade and to reduce barriers.

The digital trade relationship between the U.S. and Australia is strong. Australian businesses rely on U.S. services to reach international markets, illustrated by Australian service imports for telecommunications, computer, and information services from the United States. In 2016, these imports amounted to $1.046 billion AUD, or over $806 million USD. However, with only 13.2% growth from 2011-2016 there is clearly an opportunity to expand the market. The relationship is reciprocal. In 2017, 25.9% of Australian startups generated revenue from export sales, and the United States was the largest overseas customer base for these exports.

Future growth of Australian innovation will depend on the ability of companies to access and export to international markets. Predictability is especially critical when companies seek to invest in new markets. For Internet companies of all sizes, this includes predictable international liability rules, and, especially for e-commerce services, digital customs regimes that adequately reflect the consumer expectations in the digital age.   

However, domestic legislation stands in the way of Australia’s ascent to the next innovation hub of the Asia-Pacific. There are pending regulatory items that pose a barrier to entry for global technology and Internet companies looking to invest in the Australian market, as well as impeding innovation in the Australian startup community.

Bringing Australian Copyright Law into the Digital Age with an Adequate Intermediary Liability Framework

Australian legislators are poised to take steps that will enable innovation with their review of copyright law. Crafting an appropriate intermediary liability framework can expand Australia’s opportunity for digital trade. Australia’s current intermediary liability framework fails to make good on commitments included in the 2003 U.S.-Australia Free Trade Agreement (AUSFTA).

Australia’s current copyright statute limits protection to what it refers to as “carriage” service providers, not service providers generally. Article 17.11.29 of AUSFTA makes clear that the protections envisioned should be available to all online service providers, not merely “carriage” service providers. The consequence of this limitation is that intermediary protection is largely limited to Australia’s domestic broadband providers. U.S. online service providers exporting information services into the Australian market remain in a precarious legal situation. Even Australian authorities have acknowledged this implementation flaw (again and again).

Over this period of noncompliance, online intermediaries have been held liable for the actions of their users. Last year, the online marketplace Redbubble was found to have infringed the work of the Pokémon Company for images uploaded by a third-party artist. Redbubble is an e-commerce site that allows artists to upload their own artwork, and users to purchase the art printed on a variety of products. Redbubble did not upload the infringing work, and took steps to prevent copyright infringement. Nonetheless, the court found the site liable. The court found that the intermediary can be responsible for actions of users that infringe copyright when it hosts the website containing the infringing material and makes the work available online.

In December of 2017, a bill was introduced in the Australian Senate to amend the Copyright Act’s provisions on safe harbors. The bill would expand the intermediary protections to some service providers including organizations assisting persons with a disability, public libraries, archives, educational institutions and key cultural institutions. However, the bill pointedly leaves out commercial service providers including online platforms. The failure to include online services such as search engines and commercial content distribution services disadvantages digital services in Australia.

Expanding the intermediary liability protections to bring Australia into compliance with international obligations will help online innovators and content creators. Reports show that markets with robust protections for online services have enabled the production of music, movies, books, and video games which are exported all over the world. This is why a broad coalition of domestic startups, artists, designers, and consumers have urged Australia to meet its commitments regarding intermediary protections.

A recent Senate report recommended moving forward with the 2017 Bill, and to continue with updates to Australia’s copyright law in a piecemeal approach. While clearly not ideal for the thousands of online services seeking legal clarity in Australia, the government would be wise to quickly move on to the next action item and expand protections to online intermediary services.

Elimination of De Minimis Levels Threatens E-Commerce

Legislation is set to take effect in July that will significantly affect e-commerce by essentially eliminating de minimis levels for imported goods. The law – Treasury Laws Amendment (GST Low Value Goods) Act 2017 – will direct the Australian government to start collecting goods and service tax (GST) on all goods including those purchased online from overseas, previously only applied to goods over $1,000 AUD. Further, companies with over $75,000 AUD in sales to Australian customers are required to register and lodge returns with the Australian Tax Office.

Now there are reports that the Australian Government is looking to go further. The Department of Home Affairs is considering an additional tax on parcels entering Australia with goods less than $1,000 AUD – which represents 90% of all deliveries entering Australia. The tax is estimated to be $5 AUD per parcel, passed on to the consumer. When combined with the GST, this tax could almost double the costs of online goods.

Tax of low-value goods from foreign markets presents significant barriers to e-commerce. The Internet has empowered retail platforms of all sizes to deliver low-cost goods to consumers around the world. Placing additional taxes on parcels discourages engagement in the online market. It’s also not likely to help raise revenue as intended. Studies have shown that the small gains obtained through imposition of taxing low-value goods is heavily outweighed by the costs of processing the large amount of shipments.

Inquiry into “Online Platforms”

The Australian Competition and Consumer Commission (ACCC) recently launched an inquiry into “online platforms.” The stated goal of the inquiry is to examine the competition in the digital market, including a focus on online advertising. They will then deliver a report by June 2018 outlining broad policy issues and future policy directions for “digital search engines, social media platforms and other digital content aggregation platforms.”

While this inquiry is yet another in a concerning trend of competition authorities increasing scrutiny of U.S. Internet companies, the inquiry should be taken as an opportunity for the ACCC to learn about the complexity of the business models underlying these services and acknowledge their multi-sided nature. Further, often lost in these discussions is the current state of play in the space. As DisCo has previously discussed, the competition in advertising is “fierce, as advertisers continually shift budgets among platforms to maximize the return.” The ACCC has an opportunity through this inquiry to gather a full understanding of the current market over the next year.

Conclusion

If Australia is truly committed to deepening the digital trade relationship with the United States, as well as strengthening its own domestic market to be a leader in innovation, it would be wise to reconsider these proposals.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.

Intellectual Property

The Internet enables the free exchange of ideas and content that, in turn, promote creativity, commerce, and innovation. However, a balanced approach to copyright, trademarks, and patents is critical to this creative and entrepreneurial spirit the Internet has fostered. Consequently, it is our belief that the intellectual property system should encourage innovation, while not impeding new business models and open-source developments.