Small business innovators are key to the success of the U.S. digital economy.  As trade negotiations between the United States and a range of trading partners go forward, ACT | The App Association is making sure that small tech businesses’ voices are heard. This is important because many countries are proposing or implementing regulatory schemes that make it harder for small developers to compete, grow, and create jobs.

As a prime example, a range of harmful government interventions into digital platform markets around the world, often modeled after the European Union’s Digital Markets Act (DMA), are blocking free and fair trade in the process. For some government regulators, it’s easier to adapt an existing model than reinvent the wheel, even if that model is still not yet implemented or its impact is fully understood. American small businesses need trade negotiators to stand up for them by clearly opposing this type of regulation, especially when bilateral negotiations on trade are in progress with many nations that are considering DMA-style legislation. A few examples:

    • Japan’s implementation of its Smartphone Software Competition Promotion Act.
    • India’s proposed Digital Competition Bill.
    • Brazil’s proposed digital platform regulation in Bill No. 2768/2022.
    • Australia’s continued development of a new digital platform competition regime.
    • The Republic of Korea’s legislative proposal to amend its Monopoly Regulation and Fair Trade Act.

For App Association Members, Regulatory Hurdles Mean Diminished Prospects

 This global regulatory ripple means small business innovators in the United States face mounting challenges.

    1. Diminished Distribution Value for Small Businesses
      Small businesses that distribute their goods and services through curated online marketplaces (COMs) benefit disproportionately from those marketplaces making active management decisions. Examples include removing bad actors and elevating the best deals so that consumers want to come back to the marketplaces. These functions matter less to billion-dollar app brands and larger sellers for several reasons:

      1. They have their own brand recognition and need to rely less consumers’ knowledge of and trust in established marketplaces;
      2. They have more resources to provide their own intellectual property enforcement, marketing, privacy, and security features, and are less reliant on the marketplaces’ versions of these services (e.g., they have the money and most importantly the time to shop around on the market for these things); and
      3. They may actually benefit from their smaller competitors bearing greater distribution costs as a result of DMA-style regulations.

DMA-style proposals punish these management activities in order to hamstring American marketplaces versus domestic alternatives. Ultimately, this serves to diminish the value U.S. small businesses, in particular, derive from the COMs they prefer to use.

2. Increased Overhead Costs for Small Businesses
Smaller companies leverage COMs to reach global markets and benefit disproportionately from using the relatively cost-effective services COMs provide. They save substantially on being able to rely on the management and complementary services the COM provides. For app developers, for example, being able to hit “publish” after undergoing app review and immediately be available to more than a billion smart devices and discoverable through on-device search is an exceptionally cost-effective path to market with minimal overhead. Under DMA-style regimes that mandate the existence of scores of app stores, each app developer must likely go through far more layers of app review and abide by multiples of app store guidelines to reach the same number of potential consumers. Such an arrangement benefits specific, well-resourced rent-seekers to the obvious inconvenience and detriment of both U.S. small businesses and consumers.

3. Shifting Costs Down from Big App to Small Tech
In jurisdictions without DMA, including the United States, mobile app distribution on the major stores is subject to a progressive fee structure. That is, the largest companies distributing through the stores pay far more than their smaller rivals, like App Association members. Similarly, developers that monetize by selling digital-only goods and services (songs, video game items like “skins” for characters, and mobile app dating services) pay a commission while apps used in connection with or providing access to real world goods and services pay no commission at all. Unsurprisingly, an estimated 85 percent of apps on the major stores pay no commission because they are a means of accessing real-world items as opposed to items that live only on your smartphone. Thus, the large companies that make billions every year via in-app purchases—the large mobile app dating companies and video game makers—essentially bear the costs of maintaining the stores. As a result, the smallest market entrants and developers benefit from low barriers to entry and low overhead costs, while benefiting disproportionately more from the value the stores provide. DMA-style intervention flips this arrangement on its head by prohibiting the fee structure in place in non-DMA jurisdictions and only allowing alternatives that are more regressive and charge smaller businesses relatively more. For example, Apple’s latest attempt to meet EU demands under DMA offers the largest companies an option to lower their commissions by 13 percent while adding a new fee on free apps that have been downloaded more than a million times in a 12-month span. Thus, the only acceptable arrangement under DMA directly shifts distribution costs downward from the largest companies with the loudest complaints—like Spotify and Epic Games—to the smallest businesses distributing through the stores.

When Digital Laws Collide With Trade Talks

DMA-style regimes are non‑tariff trade barriers. These laws set up obstacles to outside companies when attempting to enter a country’s marketplace, driving up costs for American businesses and fragmenting global commerce. In May, we warned that Japan’s law—leaning on DMA logic—could block U.S. apps from app stores or monetizing freely unless reciprocal concessions were secured. We also urged India to support its micro, small, and medium-sized enterprise (MSME) innovators during ongoing U.S.–India bilateral trade talks. In recent U.S.–India negotiations (June 4–10), digital trade and non‑tariff barriers were top agenda items—suggesting nations see “digital regulation” as the next frontier of trade friction. We have also expressed similar concerns to the Korean and Brazilian negotiators, along with the U.S. government itself.

Trade deals today aren’t just about steel or farm goods—they’re about who controls market access in the digital realm. Digital rules infused into trade talks introduce fresh dilemmas:

    • Enforceability Issues: While tariffs can be slashed via formal agreements, digital rules are baked into regulation and harder to reverse.
    • Balancing Acts: Importing DMA-style laws risks stifling U.S. app makers unless included in trade terms as exceptions or with safeguard clauses.
    • Diplomatic Dynamics: U.S. trade negotiators must convince partners that heavy-handed digital regulation warrants digital trade carve-outs to preserve bilateral fairness.

Final Take: Innovation vs. Regulation

The DMA sparked a global wave, including Tokyo, New Delhi, Brasilia, Seoul, and elsewhere. First, policymakers should carefully study the implementation of existing digital platform regulations, including the DMA, before following their lead, especially given how little evidence there is of public benefit from that implementation. Second, trade negotiators should work with their counterparts to mitigate barriers to trade, particularly in the digital economy, which should include avoiding the enactment of harmful ex ante regulation on curated online marketplaces; and should support access and innovation across new and emerging technology markets by securing commitments to non-discrimination, transparency, and adequate notice and consultation in new trade agreements.