igital trade is not something abstract but has become an essential part of everyday life — think of the numerous Amazon packages delivered every day or the countless iTunes songs streamed on daily commutes. Digital trade, however, encompasses more than selling goods and services online and includes more complex transactions, where the flows of data are not necessarily linked to one particular service or good but involve multiple flows. The back-and-forth data flows associated with financial services or physical activity-tracking devices are good examples.
Over time, data flows have radically changed the picture of global trade. Data is said to be the “new oil” and, like other factors of production, such as natural resources and human capital, it is increasingly the case that much of modern economic activity, innovation and growth cannot occur without data. Recent studies show that cross-border data flows now generate more economic value than traditional flows of traded goods. This is a remarkable development, given that the world’s trade networks have developed over centuries, while cross-border data flows are relatively young. Data flows are also said to be more inclusive and allow the participation of micro-, small and medium-sized enterprises (MSMEs), including those in developing countries.
In the context of trade policies, data’s growing economic importance has one crucial implication: data must flow across borders. Things such as the provision of digital products and services, cloud computing applications, the Internet of Things and artificial intelligence (AI) would not function if cross-border data flows were restricted. This critical interdependence puts trade policy under pressure and demands urgent and clear-cut solutions. Finding those solutions may not be easy, however.
Data’s growing economic importance has one crucial implication: data must flow across borders.
The use of data opens many questions related to the control of data and the protection of privacy and national security. Furthermore, when data leaves the country, many jurisdictional issues arise, and countries no longer feel that they are in a position to secure adequate protection for their citizens. This has, on many occasions, motivated governments to prescribe diverse measures that localize the data, its storage or suppliers, so as to keep these components within the state’s sovereign space. This approach has had repercussions for the divergent digital trade strategies of different countries on the international scene.
Is Existing Trade Law Dated?
Unfortunately, the answer to this question is yes. A lot of existing trade law is out of date. The World Trade Organization (WTO) agreements,1 which form the basis of international trade law, were adopted during the Uruguay Round (1986–1994) and came into force in 1995. Despite some adjustments — such as the Information Technology Agreement (ITA, updated in 2015) and the Trade Facilitation Agreement, the WTO is still very much in its pre-internet state. One could, of course, argue that laws need not change with each and every new technological invention. Indeed, WTO law lends credence to such an argument because it is, in many aspects, both in the substance and in the procedure, flexible and resilient. There are multiple rules with regard to the application of the basic principles of non-discrimination, standards, trade facilitation, subsidies and government procurement that do operate in a technologically neutral way and can accommodate new situations.
The evolution of the case law of the WTO dispute settlement system may also support a path of legal adaptation. The US–Gambling2 case is illuminating in this context: not only did this case confirm that the General Agreement on Trade in Services (GATS)3 commitments apply to electronically supplied services but it also clarified key notions of services regulation, such as the application of the likeness test and the scope of the “public morals/public order” defence under the general exceptions of GATS article XIV.
It is, however, flawed to assume that these positive features of WTO law suffice. Indeed, there are many reasons for skepticism. Some relate to the ways WTO rules — and, in particular, the GATS provisions — were designed to allow WTO members to tailor their commitments. Others relate to outdated, pre-internet classifications of goods, services and sectors, upon which these commitments were based and which are becoming increasingly disconnected from trade practices. For instance, as WTO law presently stands, it is unclear whether previously unknown offerings, such as online games, should be categorized as goods or as services. Online games, as a new type of content platform, could also fit into a number of categories: computer and related services, value-added telecommunications services, and entertainment or audiovisual services. It is equally unclear when the electronic data flow is intrinsic to the service, and whether this flow should be classified separately or as part of the traditional service. Classification is by no means trivial; each category may imply a completely different set of duties and/or flexibilities. The classification dilemma — which is particularly critical for digital trade — is a revealing example of the WTO’s paralysis, but it is by far not the only one. Many other issues, although discussed in the framework of the 1998 WTO Work Programme on Electronic Commerce,4 have been left without a solution or even a clarification.
Against the backdrop of pre-internet WTO law, many of the disruptive changes underpinning the data-driven economy have demanded regulatory solutions outside the ailing multilateral trade forum. States around the world have used, in particular, the venue of preferential trade agreements (PTAs) to fill in some of the gaps of the WTO framework, clarify its applications, address the newer trade barriers and accommodate their aspiration for seamless digital trade. Yet, the framework that has emerged as a result and now regulates contemporary digital trade is not coherent, evenly spread across different countries or otherwise coordinated. The WTO can, in this sense, play an important role in optimizing the regulatory conditions for the data-driven economy.
Where Is Reform Needed and Where Is It Feasible?
When considering changes to the multilateral rules to address digital trade, two types of questions can be asked. First, how can adjustments to the WTO agreements be made to remedy the existing problems of inadequacy, inconsistency and legal uncertainty with regard to burgeoning electronic commerce? Second, is the international trade governance system fit to face both the current digital challenge and the ones yet to come? The first question can be addressed with some incremental changes, while the second demands more innovative legal engineering, which is likely to transcend issues of market access, elimination of tariffs or the concrete classification of a digital good or service.
So far, countries have disagreed on both questions and, as a result, reforms are not readily available. On some issues, however, the advancements made in preferential trade venues — in particular with the more recent and highly sophisticated templates such as those of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)5 and the Canada-United States-Mexico Agreement (CUSMA)6 — may enable solutions at the multilateral level.
PTAs as a Stepping Stone toward a Multilateral Agenda on Digital Trade
One preliminary, but critical, issue will be to have a shared understanding of digital trade as a broad rather than a narrow policy topic. In the latter sense, digital trade is plainly equated to commerce in products and services delivered via the internet — a view supported by China in the ongoing negotiations. The broader conceptualization of digital trade goes beyond online trade and has to do with enabling innovation and the free flow of information in the digital networked environment — a view shared by the United States and other WTO members.
One preliminary, but critical, issue will be to have a shared understanding of digital trade as a broad rather than a narrow policy topic.
When one looks at the level of commitments and rule creation in PTAs, which have in the last two decades increasingly dealt with digital trade7 in this broad sense, one can observe that despite certain variations across treaties, there are important levels of regulatory convergence on key objectives and principles. The customs duty moratorium on electronic transmissions is one good example, as it has been covered by almost all PTAs and made permanent in the treaty texts. Other rules that show convergence and could be multilateralized are those that support the facilitation of e-commerce, the reduction of unnecessary barriers and the needs of MSMEs, as well as the rules around transparency, paperless trading and electronic authentication.
PTAs have also permitted some innovative rule making that is meant to specifically address the new set of concerns in the context of data protectionism. Next to the new generation of critical norms on data that ban localization measures and bind parties to a regime that must allow the free flow of information, there are some other rules worth mentioning. If we take CUSMA, for instance, algorithms are, for the first time, included in the digital trade chapter and have been added to the ban on requirements for the transfer of access to source code (article 19.16). A second innovation refers to the recognition of “interactive computer services” as particularly vital to the growth of digital trade (article 19.17). A third and rather liberal commitment of the CUSMA parties regards open government data.
Protecting Data While Keeping It Open
It should be noted that in the area of data governance, significant differences across countries remain, in particular with regard to the treatment of cross-border data flows, data localization and personal data protection. In this context, it should be acknowledged that while governments do have the right and the responsibility to protect interests and values important to their citizens, they also have a variety of tools available to achieve these goals, and many of them can be congruent with the functional nature of the internet while fostering an open and innovative data economy.
Here, two paths are important to consider, especially when developing digital trade rules that are also politically feasible. The first such avenue is to address cross-border data issues in trade agreements horizontally, and not in a manner directly related to a discrete service or a discrete transaction. There are various ways to do this: as part of the horizontal commitments of the services schedules; in the form of a reference paper attached to the schedules as an additional commitment under GATS article XVIII; as part of a plurilateral trade in services agreement or more radically; or as part of a dedicated digital trade agreement, which can either work on a most-favoured-nation (MFN) basis, like the ITA, or benefit only the signatories on a non-MFN basis, like the Agreement on Government Procurement.
A solution must also provide working mechanisms that can counterbalance the free flow of data and the non-economic concerns raised by cross-border data transfers. Personal data protection is likely to be critical here. In this context, it may be apt to differentiate between types of data, such as business, personal or sensitive data. While such an exercise may allow for a special treatment and higher levels of protection of personal data and more liberal treatment of the rest, the exercise comes with many pitfalls. Big data poses serious challenges to conventional privacy safeguards and puts into question the very distinction between personal and non-personal data.
Big data poses serious challenges to conventional privacy safeguards and puts into question the very distinction between personal and non-personal data.
The Role of Trade Law
As the WTO faces the challenge of evolution, we must not forget that trade law has, over the years, provided for flexible and well-working mechanisms to reconcile different values. The General Agreement on Tariffs and Trade8 article XX and GATS article XIV are great examples in this context, as they provide possibilities for permitting certain violations of WTO commitments, when these pursue public policy objectives and do not unjustifiably restrict trade. Other agreements — such as CUSMA and the CPTPP in particular — have also helped to pave the way. States have increasingly realized the value of data and the critical importance of cross-border data flows. Even the most skeptical and cautious parties are rethinking their positions with regard to digital trade. For instance, the recent EU-Japan free trade agreement provides that “the Parties shall reassess the need for inclusion of an article on the free flow of data within three years of the entry into force of this Agreement.”9 This is a novel approach and signals that the topic of free data flows has been intensely discussed between the two partners. More generally, this means that the discourse on data flows is evolving and that we are bound to see more deliberate action and commitments in future trade agreements. The recent US-Japan Digital Trade Agreement and the Digital Economy Partnership Agreement between Chile, New Zealand and Singapore confirm this trend. Overall, there is a profound need to better understand the implications of the data-driven economy and to curb digital protectionism — policy makers must ensure a sustainable regulatory environment in the age of big data and AI.