The geopolitics of standards-setting

The grand-scale struggles of power between international superpowers might appear a far cry from the everyday business of a technology company. However, in reality, geopolitics has very tangible implications for corporates within the tech sector, and the tug of war taking place over the direction of industry standards is a prime example.

The ongoing saga as to whether the UK would permit Chinese telecommunications giant Huawei into its 5G networks came to a head last month when officials decided to contradict their US counterparts by enabling limited entry. For many, this case was an eye opener to two things: firstly, that technology companies can become collateral in escalating trade wars. And secondly, that traditional alliances are not necessarily guaranteed.

In fact, Huawei is just one example of the shift from East vs West bipolarity towards multipolarity when it comes to international tech policy. Despite Europe’s historical alignment with the US, the past decade has seen a growing suspicion of tech giants like Amazon and Facebook in France and Germany particularly, but also across the European continent. European Commission President Ursula von der Leyen has explicitly laid out her ambitions for Europe’s ‘technology sovereignty’, and re-appointed Margrethe Vestager as her lead on digital policy – a Danish politician renowned for views on greater policing and taxation of US tech companies. 

Elsewhere, despite the ongoing soft power that the US wields in many developing countries, the offer of cheaper technology from its rival of China pulls them in the opposite direction. The result is a fragile balance of power with the issue of technology – or tech assets – being highly charged.

What are standards?

Amidst this backdrop, the fast-evolving tech sector continues to require industry standards to prop it up. While high level legislation and regulation are important, standards are imperative too as they provide precise specifications for products and services, which in turn ensures interoperability.

Think, for example, of our daily exposure to A4 paper. No Government has dedicated legislature that dictates this specific size; rather, industry came together to develop consensus on a common format that would increase efficiency for everyone. In 2020, it’s hard to imagine what office life would look like without it. The same principles apply to technology too, except arguably even more so. With multiple layers of complex technicalities that are evolving faster than the legislation can keep up, industry standards play a critical role in ensuring compatibility between the various component parts that make up our burgeoning digital sector.

The problem with this arises from the fact that standards committees once characterised by international cooperation risk slowly morphing into to yet another arena for a tripartite dominance contest. The EU’s traditional power in standards setting; the US’ domination in terms of tech industry power; and China’s ambition and sheer scale means that tech companies are finding themselves caught in the middle not knowing (a) what direction future standards will go and (b) if – or when – there will be a catastrophic fragmentation that would hit multinationals hard.

The individual strengths of the EU, the US and China

At present, European Member States punch well above their weight in international standards-setting committees. The EU holds significantly more leadership positions across bodies like the International Standardization Organisation (ISO) and the International Electrotechnical Committee (IEC) than other major economic powers including the US, China, Russia or India.

The cross-cutting European strategy for the Digital Single Market has only further consolidated this status quo. The initiative’s priority of breaking down barriers between Member States and maximising potential for growth contributed to 30 legislative proposals during the most recent Juncker Commission, and continues to bolster the EU’s competitiveness on the global stage.

However, it is impossible to ignore the fact that the US’s power in standards-setting bodies has swollen significantly, with the number of US secretariat, convenor and chairmanship positions in the ISO and IEC almost doubling over the past fifty years.

Perhaps even more importantly, we have seen some markets become increasingly shaped and defined by dominant US technology firms. Inevitably, company size equates to influence and although some standards are set through voluntary consensus and committee deliberations, others are determined by market competitiveness. The network effect phenomenon would suggest that the more prevalent a technological standard, and the larger its creators, the more additional users are attracted to fall in line. Therefore, the US’ sheer industry power and scale does matter to the dynamics of power in standards-setting as others often want to follow where it leads.

But in 2019 came the news that China had overtaken the US with the highest number of tech unicorns, each valued at $1 billion and over. What is more, China has made no secret of its ambitious intent to dominate technological standard-setting, stating outright that there is a first mover advantage opened up by new technologies and this “is the golden opportunity for our country’s industries and standards to realize the goal of ‘overtaking by changing lanes’”.

Cementing this objective was the ‘China Standards 2035’ strategy, announced in 2018, which laid out an action plan to play a new leading role in the formation of technology standards across areas like AI, Internet of Things, big data, cloud computing and payment systems. Since then, China has translated more than 500 domestic standards into English and incorporated standards clauses into a number of MoU agreements with countries across what is becoming known as the Digital Silk Road.

Why does standard-setting power matter?

The jostling for power amongst these three forces begs the question why it matters who sets technological standards, especially if the end goal is harmonisation across international markets anyway. The answer lies largely in the economic benefit that stands to be gained; a shift towards Chinese product standards and specifications would allow domestic manufacturers to not only circumvent existing (and high cost) Western patents and royalty obligations, but even reverse the financial flow.

Through this lens, one of the most high-profile battles over standards setting for 5G makes more sense. While the US’ averse attitude to Huawei may indeed be a consequence of fears about data and broader security concerns, it is worth noting that a US congressional report warned even as much as two years ago that the US should be concerned about Chinese domination of 5G technical standards for more economic reasons.

The European Commission has also flagged concerns about the rising role of China in technological standards, suggesting that it should be a “cause of common concern [between the US and EU] given the important role played by the state in deploying market-distorting practices to build domestic champions”. This argument that the leading power matters less than the process through which standards are built is another point worthy of note: should we be prioritising method over actor? Does it matter whether committee-based, market-based or government-based modes of standardisation are pursued, and should this therefore inform which superpower is designated responsible?

At this moment, the future direction of travel seems far from clear. But what is at least certain is that a tech decoupling, or a ‘new cold war’ in the words of UN Secretary General Antonio Guterres, would be far from conducive to international industry development in the tech sector. Corporates operating in the midst of all of this ignore the twists and turns of geopolitics at their own risk.