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Turkey’s DMA Spinoff Is Another Threat to Global Innovation

Turkey’s DMA Spinoff Is Another Threat to Global Innovation

February 26, 2024

Spinoffs of the EU's Digital Markets Act (DMA) are emerging in numerous jurisdictions (e.g., AustraliaBrazilIndia, and the United Kingdom), propped up by fears about the dominance of large technology firms. Turkey has also quietly been pushing ahead with its own version of digital market regulation. The Turkish government published a draft revision of the Turkish Competition Act (TCA) in October 2022, which heralds major changes for Turkey’s digital markets. Legal scholars expect the legislature to enact the revisions this year.

The legislation imperils Turkey’s growing tech sector

The TCA appears to be a solution in search of a problem. As Turkish competition expert Kerem Cem Sanli put it in a recent article:

Turkey has serious economic problems, and concentration in digital markets is not even on the list of problems. So, from a macro perspective, regulating digital platforms does not seem to be in the priority list.

While the need for such rules is unclear, these rules could ruin the nation’s ability to develop into an innovation leader in the 21st century. Turkey’s tech sector grew in recent years at an impressive rate: by 2021, it was 67 percent larger than in 2012—outpacing overall GDP growth of 49 percent over the same period. By 2022, Information and Communications Technology (ICT) industries represented about three percent of Turkey’s GDP. Recognizing the key importance of these industries, the Turkish government has made securing ICT investment a key economic priority.

But these new regulations take Turkey in the opposite direction. The regulations create major compliance costs for firms and inhibit growth in digital markets—imperiling the country’s burgeoning tech sector and the high-paying jobs that accompany it. DMA bills also often single out large American tech firms (online intermediation, search engines, social networks, and so on), among the most important entities for global innovation, for a special regime of rules. To be sure, this also appears to be a foregone conclusion with Turkey’s bill, which would apply to “undertaking[s] with significant market power” (SMP)—much like the EU’s DMA targeted “gatekeepers” (five out of six of which are American firms).

This hostile regulatory environment risks exacerbating the harmful effects of the TCA on Turkey’s digital economy by stifling large American technology companies from choosing Turkey for their investments, which are staggering. For instance, Amazon’s 2022 R&D spending ($73 billion) exceeded France’s public and private R&D spending that same year ($69 billion). That Amazon’s R&D expenses outpace those of a G-7 nation suggests that leading tech firms can be a significant source of investment if they are not chased away by unnecessary regulation. The Turkish government is also expected to maintain large discretionary authority in determining which firms will be subject to the regulations, which raises the concern that the rules could be applied arbitrarily and in a way that discriminates against American companies.

The bill singles out the tech industry for harsh regulations and sanctions.

Even if it were justified by some market failure, the legislation itself is problematic because it introduces a litany of ex-ante prohibitions for SMPs. The prohibitions encompass bans on self-preferencing, bans on using private data when competing with platform users, bans on tying, and interoperability requirements. These blanket bans provide no scope for companies to engage in these behaviors—even when they benefit consumers, as they almost always do. For instance, bans on self-preferencing prevent businesses (such as Google) from improving user experience by seamlessly integrating complementary products (such as Google Maps and Google Flights).

The bill’s proposed sanctions also stand out as some of the highest worldwide. While current regulations already allow massive fines of up to 10 percent of annual turnover, the draft bill pushes this one step further, allowing the government to fine up to 20 percent of annual turnover in cases of repeated infringements. In addition to steep financial penalties, the Turkish government can ban mergers and acquisitions for up to five years in cases of repeated infringements. The bill also provides for structural remedies (i.e., breakups, divestitures) when behavioral remedies are unfeasible.

The inevitable result of these overbroad bans and steep penalties will be the chilling procompetitive and innovative behavior that will make large technology firms afraid to do business there, rather than view Turkey as an opportunity to access vast human talent in a pro-business country. For these reasons, Turkey should abandon its attempt at digital regulation and prioritize enforcement of its competition laws to address anticompetitive behavior in any industry. Without question, the Turkish Competition Authority is already well-equipped to handle anti-competitive breaches in both digital and non-digital industries and has done so for decades.

Conclusion: The Threat of DMA Globalization

More than 130 jurisdictions have competition law regimes. Multiple antitrust authorities already review the same mergers and sometimes issue diverging decisions. Some nations even use antitrust as a policy weapon to punish firms from rival nations, generally to prop up domestic industry.

But as global economic integration increases, global cooperation on antitrust and pro-innovation principles is needed, not regulations that unnecessarily worsen regulatory fragmentation and target American firms with special rules. As such, Turkey’s DMA is yet another example of the need for a unified approach to competition policy as the best path forward.

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