If and when the agreement comes into force, it will represent the first set of global ground rules for digital trade.

A statement released by the three co-convenors of the so-called ‘joint statement initiative’ – Australia, Japan and Singapore – confirmed that participants had “achieved a stabilised text”.

The new agreement “recognise[s] the importance of global electronic commerce and the opportunities it creates for inclusive trade and development, and the important role of the WTO in promoting open, transparent, non-discriminatory and predictable regulatory environments in facilitating electronic commerce,” the co-convenors said.

“The agreement is set to benefit consumers and businesses involved in digital trade, especially MSMEs. It will also play a pivotal role in supporting digital transformation among participating members,” their joint statement adds.

United States wants stronger security exceptions

Nine of the 91 participants in the negotiations – including the United States – declined to be associated with the declaration.

A footnote stated that “due to ongoing domestic consultations and considerations, this statement is circulated on behalf of joint statement initiative participants, except for Brazil, Colombia, El Salvador, Guatemala, Indonesia, Paraguay, Taiwan, Türkiye and United States”.

The US government said the text released today represented “an important step forward for the WTO in a sector of growing importance to the global economy while demonstrating the supportive role that JSIs can play in revitalizing the WTO’s negotiating function”.

But it added: “As the United States has repeatedly communicated to the co-convenors and participants, the current text falls short and more work is needed, including with respect to the essential security exception”.

“We look forward to working with interested members in finding solutions to all remaining issues and moving the negotiation to a timely conclusion.”

Dissenters focus on permanent ban on import duties on e-commerce transactions

The other eight dissenters primarily have issues with the article which commits its signatories to a permanent ban on the imposition of import duties on digital transactions.

This clause is subject to a review five years after the agreement enters into force. But the text of the agreement may only be amended by unanimity: this makes a reversal of the commitment not to impose duties highly unlikely in practice.

Countries such as Indonesia, Brazil and Türkiye have repeatedly expressed concerns about being compelled to give up the option of applying import duties on digital products.

A global moratorium on the imposition of duties on digital products has been in force since 1998 and renewed at the WTO every two years.

The future of the moratorium hangs in the balance. At the MC13 ministerial conference in February, WTO members said deal will lapse in 2026 unless extended by unanimity once again.

The threat of a lapse gives added significance to a plurilateral commitment by a group of WTO members who encompass between them around 90% of global digital trade to keep digital cross-border transactions duty-free.

What’s in the agreement

The ‘Agreement on Electronic Commerce’ as it is now officially called, runs to 38 articles, plus a two-page annex on telecommunication services.

The provisions are classified under five broad themes.

Enabling electronic commerce: This section includes provisions on maintenance of an electronic transactions framework, electronic authentication and e-signatures, electronic contracts, electronic invoicing, paperless trading, the creation of ‘single windows’ for data submission, and electronic payments.

Openness and electronic commerce: This part includes an article banning customs duties on electronic transmissions, as well as provisions on open government data and access to the internet.

Trust and electronic commerce: This section includes articles on online consumer protection, unsolicited commercial messages (i.e. ‘spam’), and personal data protection.

Transparency, development and cooperation: This part contains articles on each of these three themes in turn. The article on development specifies that developing countries and LDCs may have a grace period of up to 7 years to implement provisions which they may find tricky, and that financial support should be made available to them.

Telecommunications: The agreement states that “each party shall ensure that its telecommunications regulatory authority does not hold a financial interest or maintain an operating or management role in a supplier of public telecommunications networks and services”.

The accord consists of a number of firm legal commitments interspersed with looser expressions of intent. The word ‘endeavour’ appears 32 times in the text, while the word ‘encourage’ makes 11 appearances.

In many cases – such as personal data protection – the agreement does little more than require participant countries to apply and maintain legislation to govern this topic.

Attempts to reach agreement on basic principles to govern such regimes foundered in the negotiations, given the very differing approaches taken in jurisdictions such as the EU and US.

Nevertheless, even the minimalist principles set out in the accord are viewed by most observers of being of value, given that some of the developing countries involved in the negotiations do not currently have such regimes in place.

Review within two years

The agreement is designed to grow and evolve, in recognition of the rapidly-developing digital trade environment.

Signatories are due to review of the agreement “no later than two years after the date of entry into force of this agreement, and periodically thereafter,” the text says.

“Taking into account the evolving nature of electronic commerce and digital technology, and recognizing the importance of establishing global rules for electronic commerce […] the parties recognize that further negotiations may include outstanding issues […].”

This gives the participants the option of returning to questions which were left out of the final agreement because of failure to reach consensus.

These include provisions relating to data transfers, localisation of data storage, or transfers of source code.

India likely to oppose incorporation into WTO law-book

The agreement would be governed by the general WTO dispute settlement process, which would give the non-optional elements of the accord some teeth.

But access to dispute settlement will be dependent on whether or not the agreement is ultimately incorporated into the WTO’s treaty architecture, as its proponents would like.

Earlier this week, a small group of countries led by India and South Africa blocked a second attempt to have a similar plurilateral agreement, covering investment facilitation, accepted as a full WTO agreement.

The objections of these two countries – who were not among the 91 participants in the talks – are expected to extend equally to the new e-commerce agreement.

Governments and business welcome deal

The deal has nevertheless been welcomed by governments around the world, and by business organisations.

The European Commission said it “proudly supports” what it described as “the first-ever set of global digital trade rules”, while the UK government said that “global adoption of digital customs systems, processes and documents could significantly grow the UK economy”.

The Global Services Coalition and Asia Pacific Services Coalition said that the deal “will be the defining 21st century moment for the multilateral trading system and not a minute too soon for global economic development, MSME revival and jobs growth.”

“Today’s announcement demonstrates that the WTO negotiating function can deliver through a plurilateral process,” said Annette Meijer, president of the European Services Forum.

“This deal has the potential to deliver benefits for European businesses in every sector of the economy and to reduce the cost and complexity of international commerce and support trust and security for European consumers” added Pascal Kerneis, the Forum’s managing director.

To read the full article as it was published by Borderlex, click here.

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In general, no major breakthroughs

The list of themes on the agenda of MC13 includes a wide range of issues, such as agriculture, an extension of the agreement on fisheries subsidies, trade and development, and dispute settlement reform. On most of the issues, members do not seem close to achieving an agreement. Some of the reasons for this are external to the WTO dynamics – for example, the US is one of the main proponents of dispute settlement reform, and no progress on this issue can be expected before the upcoming US elections. Difficulty in fostering convergence also relates to the fact that WTO members seem to be increasingly inhabiting different ‘filter bubbles’. They have very different assessments on where the Doha Development Round stands at the present time, and where to go from here. Diverging opinions lead to different understandings of the present situation, as well as different views on priorities and next steps. WTO members seem to be trapped in a clash of narratives, which opposes groups of countries across fault-lines, contributing to the gloomy mood in the weeks leading to MC13. Options on the table are not clear and narrow enough for Ministers to be able to bridge gaps.

The agenda item on e-commerce

In Abu Dhabi, members will discuss the continuation of discussions taking place under the Work Programme on e-commerce, and will decide on the future of the current Moratorium on Customs Duties on Electronic Transmissions. The Work Programme, launched in 1998, involves all WTO members, and aims to build understanding around the trade-related aspects of e-commerce, including the relation between e-commerce and existing WTO agreements, and its interplay with development. The Moratorium was also introduced in 1998, and exempts digital products, such as online films, music, and software from tariffs (customs duties) as they cross borders. The Moratorium has been extended roughly every two years by consensus, and the current extension will expire at MC13.

The continuation of the Work Programme could be relatively straightforward, especially considering the 2022 Ministerial decision to reinvigorate the Work Programme, and the concrete efforts made to ensure that the discussions emphasize the development dimension. However, the issue may become embroiled in the controversy surrounding the extension of the Moratorium. While some countries hope to make the moratorium permanent, others are increasingly putting its renewal into question. A vocal group of developing countries – including India, South Africa and Indonesia, among others, claims that the Moratorium is depriving developing countries of much needed revenue, citing a study that supports this position. This revenue loss could be even more significant in the future, as digitalization continues, and new technologies, such as 3D printing, develop.   

Alternatively, the Moratorium is supported by a considerable group of WTO members, including the EU and China, and by a large number of organizations in the business sector, as can be observed from a recent Global Industry Statement. Countries often cite studies produced by the OECD, WTO and St. Gallen Endowment for Prosperity Through Trade, among others, to argue that the imposition of customs duties would not only be difficult and costly to implement, but it would actually bring reduced additional revenue to developing countries. In general terms, developed and developing countries agree on the importance of increasing governmental revenue collected from e-commerce transactions, but not on the preferred instrument to do so (tariffs or domestic taxation, such as VAT).

Rendering the Moratorium permanent is not achievable in MC13. Currently, there are split views on whether the Moratorium will be extended for another couple of years or not. While some think an extension does not seem likely – especially considering the US wavering commitment to the liberalization of digital trade – others believe that the give-and-take dynamics at the WTO will once again produce compromise. All sides agree, however, that the extension is becoming harder to approve at every Ministerial, and the multilaterally-agreed Moratorium may be coming to an end. This would not mean, however, that the topic would be absent from the WTO, since a moratorium on customs duties is also being discussed in parallel by the Joint Initiative on e-commerce, an ongoing negotiating process among 90 WTO Members aiming to produce a binding agreement on e-commerce among participants.  

The side discussions at MC13: Joint Initiative on e-commerce

A statement issued by the co-conveners of the JI on e-commerce made clear that, despite best efforts made throughout 2023, a final agreement would not be concluded by MC13. The JI officially began negotiations in 2019 with an ambitious agenda, which included enabling issues, customs duties and market access, as well as a wide range of digital policy issues, such as data flows, localisation, data protection, access to the source code, cybersecurity, and spam. A preliminary agreement has been achieved in the broad areas of digital trade facilitation, open digital environment, and business and consumer trust, covering thirteen specific issues.

Henceforth, negotiators will focus on topics in which agreement could be “within reach”, according to the co-conveners, such as e-payments, development provisions, and customs duties. Nevertheless, the future of negotiations on some of the most ‘digital’ issues, such as data flows and source code, is uncertain. These issues have been very polarized from the outset, and suffered a considerable setback when the US decided to withdraw its support for these areas in order to preserve domestic policy space.

In January, the co-conveners issued a ‘Chairs’ text’ which expresses their views about where the landing zone of potential agreement could be. This text will inspire side discussions at MC13. Negotiators will seek to take advantage of the presence of high-level officials to unblock stalemates before the March round of negotiations of the JI begins.

The indirect impact of other MC13 agenda items on digital trade

At MC13 discussions on WTO reform will continue, including on whether and how to incorporate agreements produced by Joint Initiatives into the WTO legal architecture. Some actors see Joint Initiatives as key mechanisms to make progress on trade liberalization, in a context in which consensus on rule making has been harder to achieve on a multilateral basis. Others argue that Joint Initiatives go against consensus-based decision-making and weaken multilateralism at the WTO. India, South Africa, and Namibia in particular, introduced a communication questioning the legality of Joint Initiatives and their outcomes.

During MC13, the chairs of the JI on Investment Facilitation for Development (IFD) will seek the inclusion of the recently-produced agreement under Annex 4 of the Marrakesh Agreement, which deals with WTO Plurilateral Agreements. Nevertheless, such an inclusion would require a hard-to-achieve consensus among all WTO Members. In this context, the JI on IFD will be an important test-case for other JIs, including for a JI on e-commerce agreement.

Another issue under discussion during MC13 with impact not only on digital trade, but also on digital policy, more broadly, is the ‘Draft ministerial declaration on strengthening regulatory cooperation to reduce technical barriers to trade’. The Committee on Technical Barriers to Trade (TBT) has been one of the hot spots in which geoeconomics have more clearly reverberated in the work of the WTO. In recent years, the number of trade concerns related to digital issues have been rising.  

On the one hand, domestic regulations have been questioned under the TBT Agreement, notably in fields such as cybersecurity and cryptography. On the other hand, Members of the TBT committee have discussed the role of international standards in addressing (and mitigating) regulatory fragmentation in the field of emerging technologies, such as artificial intelligence. The draft declaration states that “cooperation on emerging issues – particularly in the context of international standards development and adoption – provides an opportunity to promote regulatory convergence where appropriate”. The declaration urges the the Committee to enhance its work on emerging regulatory challenges, including in the digital economy.

Looking forward: The impact of MC13 on digital trade governance

The outcomes from MC13 are not going to significantly change the e-commerce landscape. The non-renewal of the moratorium would carry an important symbolic weight, and could be a setback against the WTO’s primary goal to remove tariff barriers to trade, contributing to sapping trust in the Organization. Nevertheless, even if the Moratorium is not renewed, many countries have already committed to a moratorium on customs duties in the context of free trade agreements that they celebrated – according to the OECD 95% of digital trade chapters include such provision. Moreover, if a moratorium is agreed in the JI, at least 90 countries would abide by it at the WTO. The end of the moratorium would certainly create policy space for the countries which have not committed to the non-introduction of customs duties, but it is not clear whether and how they would make use of such space.

One of the collateral consequences of MC13 could be, therefore, to highlight once more the key importance of FTAs for the legal architecture of global digital trade. In particular, FTAs could be seen as the way to “get things done” if the opposition to JIs manages to deter the incorporation of outcomes from joint initiatives into the WTO legal architecture. This could consolidate the growing perception that the most dynamic aspects of the digital economy need to be taken elsewhere and discussed separately, notably in Digital Economy Agreements (DEAs). The WTO continues to be a custodian of the baseline agreements that serve as pillars to the global trading system. However, advancements are taking place outside the WTO framework, at different speeds and geometries, enhancing the complex tapestry of trade policy and regulation.  

Marília Maciel is the Head of Digital Commerce & Internet Policy at Diplo.

To read the full blog post published by Diplo, click here.

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“Those who would gain all under heaven by tampering with it — I have seen that they do not succeed. Those that tamper with it, harm it. Those that grab at it, lose it.”

Prosaic modern economists occasionally echo him, with the unexciting but sometimes correct advice: “Don’t just do something, stand there.”

As the World Trade Organization (WTO) prepares for its 13th Ministerial Conference late in February, both the ancient sage and the modern wonks are offering very good (if also very modest) advice on the most modern of all technologies: the internet and the world’s digital economy. If the WTO members take heed, they will help growth and development in lower-income countries, and simultaneously help the Biden administration achieve its goal of a more “inclusive” trading system that does more to create opportunities for the small and the less powerful “empowering small businesses to enter the market, grow, and compete.”

THE MORATORIUM AND THE DIGITAL ECONOMY 1989-2023

The WTO’s 164 members have some significant calls to make this month, on an array of agenda topics ranging from fishery subsidies to agricultural stockpiling, intellectual property, and — not least — whether to extend their quartercentury-old pledge for “duty-free cyberspace.” This policy, more technically if clunkily termed a “moratorium on application of tariffs to crossborder electronic transmissions,” represents a 25-year-old consensus — always temporary but regularly renewed at each WTO Ministerial meeting — which helped to create and continues to underpin the modern global digital economy. If they renew it, no WTO member would need to change policy. Rather, they would simply continue to refrain from grabbing and tampering, while focusing their energy on issues in need of activist policy, from privacy protection to cybersecurity and action against disinformation. This commitment, simply by avoiding unintentional harm, would allow the digital economy to continue the natural growth that has helped hundreds of thousands of small businesses, and an uncountable but very large number of individuals, enter the global economy and find new ways to realize dreams and earn incomes.

The “moratorium,” however, is under some stress and criticism, mainly from left-populist NGOs and a few large developing-country governments. Their argument, fundamentally, is that the moratorium prevents taxation of data flows and therefore deprives developing-country governments of some tax revenue. But abandoning the moratorium would be a sad mistake, for global growth, for innovation, and for the governments who, in focusing on potential tax revenues (which, see below, are quite modest), are losing sight of their much larger growth and development opportunities. And it would be a sad mistake for the Biden administration’s hope for a more ‘inclusive’ trading system that offers more opportunity for small businesses and marginalized communities. Duty-free cyberspace remains critical to all these things, and the WTO members should enthusiastically endorse it once again. By way of context, the WTO’s “moratorium” dates to the late 1990s — the era just after the launch of the World Wide Web — and originates in prescient American thinking about the Internet’s potential future growth. Developed in that world of 150 million mostly American, European, and Japanese internet users, their hypotheses and projections look very good a quarter-century later. Here for example is that era’s U.S. Trade Representative, Charlene Barshefsky, explaining the early U.S. agenda in 1999:

“Moving on from the foundational commitment we won from the WTO members in 1998 on the principle of “dutyfree cyber-space” — that is, ensuring that electronic transmissions over the Internet remain free from tariffs — we are moving on to a longer-term work program. Its goals include ensuring that our trading partners avoid measures that unduly restrict development of electronic commerce; ensuring that WTO rules do not discriminate against new technologies and methods of trade; according to proper application of WTO rules to trade in digital products; and ensuring full protection of intellectual property rights on the Net. At the same time, we are working with individual trading partners on a series of related questions — for example, on privacy issues where we have worked closely with the European Union to create a model that both protects consumer privacy and prevents unnecessary barriers to transatlantic economic commerce.”

Her list of topics remains strikingly current. Some of the issues she cites still raise complex questions within the United States and are still politically contested both within countries and between large trading economies and technological powers. Technical debates over copyright continue to animate thinkers and lawyers in Silicon Valley and Hollywood, for example; likewise, the U.S. and the European Union still argue over privacy while working to preserve cross-Atlantic data flows. But two things seem clear.

One, the “foundational” moratorium on tariffing electronic transmissions remains at the heart of digital policy. In pleasing contrast to many trade agreements, it is a short one-sentence commitment in plain English. (Or plain French, or plain Spanish — the other two official WTO languages.) The actual texts of its first 14-word iteration, and the slightly longer renewals in 2019 and 2022, read like this:

“Members will continue their current practice of not imposing customs duties on electronic transmissions.” (Original moratorium in 1998)

“Members agree to maintain the current practice of not imposing customs duties on electronic transmissions until the 12th Ministerial Conference.” (2019 renewal)

“We agree to maintain the current practice of not imposing customs duties on electronic transmissions until MC13, which should ordinarily be held by 31 December 2023. Should MC13 be delayed beyond 31 March 2024, the moratorium will expire on that date unless Ministers or the General Council take a decision to extend.” (2022 renewal)

And two, in practical terms it continues to work. Over this quarter-century of not grabbing and not tampering:

World Internet Population Up by More Than 5 Billion: As governments have “stood there,” the world’s Internet user population has grown from 150 million to 5.5 billion, or from about 4% to 60% of humanity.

Over 1000-Fold Rise in Data Transmission: Transmissions of data over the Internet, estimated at 100 quadrillion bytes in 2000 by Cisco Systems in its fondly remembered “Visual Networking Index,” rose to 93 quintillion in 2017 — nearly 1,000-fold — before the Cisco statisticians gave up trying.

U.S. Domestic E-Commerce Up by $35 Trillion: The level of e-commerce within the United States has grown from the $700 billion Ambassador. Barshefsky noted in her speech (as estimated by the Commerce Department) to $36 trillion, a figure now about 30% greater than the U.S.’ $26 trillion GDP. Internationally no such figures exist, but the WTO’s most recent annual statistical summary, World Trade Statistics 2023, points to a single form of electronic commerce — digitally enabled trade in services — as the most dynamic element of 21st-century trade:

“Looking back through the entire pandemic period, computer services were the most dynamic sector in services trade, with global exports in 2022 worth 44% more than their value in 2019. Digitally delivered services — that is, services provided via computer networks, from streaming games to remote consulting services — are an emerging source of growth, accounting for 54% of global services exports in 2022, and 12% of total global trade in goods and services.”

New Industries Steadily Emerging: The moratorium has facilitated this by keeping the cost of data transfer low, enabling not only growth, but also the transformation of existing industries, and the creation of entirely new ones: “influencers,” social media, telemedicine, and distance education; or, alternatively, digital services integrated in manufactured goods from cars and medical technology to rice-planting machines and smartphones.

SMALL BUSINESS AND THE ‘DEMOCRATIZATION’ OF TRADE

The picture of trading firms has also changed noticeably and to the benefit of the smaller and less advantaged: digital technologies lower the costs of entry to the trading world for everyone, but disproportionately for small firms and individuals.

In-depth reviews of the challenges American SMEs (small and medium-sized enterprises) face in international trade done by the U.S. International Trade Commission in 2010 suggest obvious reasons why these businesses (and by extension individual entrepreneurs) would, relatively speaking, find special value in lowcost Internet access. They report particular challenges, for example, in finding overseas customers, navigating required customs documentation, securing payment, and managing returns. Large firms traditionally open overseas offices that settle these problems; small ones, except in special cases such as family firms with relatives in two or more countries, can’t. The smaller ones, with new access to low-cost email, data analytics, and social media, should be able to use digital technologies to (at least in part) compensate for this disadvantage.

Edward Gresser is Vice President and Director for Trade and Global Markets of the Progressive Policy Institute. Before joining PPI in October 2021, he served as Assistant U.S. Trade Representative for Trade Policy and Economics, and concurrently as Chair of the U.S. government’s interagency Trade Policy Staff Committee.

Malena Dailey is the Director of Technology Policy with the Progressive Policy Institute, where she works on issues relating to social media and the internet and technology sector.

To read the introduction as it is posted on Progressive Policy Institute’s website, click here.

To read the full report published by the Progressive Policy Institute, click here.

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The theme of APTIR 2023/24 is “Unleashing digital trade and investment for sustainable development.” Prepared in collaboration with the United Nations Conference on Trade and Development and the United Nations Industrial Development Organization, the report explores the roles of digital trade and investment in guiding the Asia-Pacific region towards sustainable development. It examines digital trade and investment patterns in the region and provides an overview of the digital trade and investment policy environment, viewed through a sustainable development lens. The report also assesses the potential of unilateral policies on trade and investment, as well as the impact of multilateral and regional cooperation, in maximizing the benefits of digital trade and investment while focusing on the Sustainable Development Goals (SDGs). Incorporating a quantitative assessment, this study evaluates the role of digital trade in archiving the SDGs and examines the impact of various policy scenarios. Building on this understanding, the report concludes by offering a series of action-oriented policy recommendations, specifically targeting the trade and investment domains, to ensure that digital and investment policies effectively unlock the potential of digital trade and investment for sustainable development.

EXECUTIVE SUMMARY

To read the abstract published by United Nations Economic and Social Commission for Asia and the Pacific, click here.

To read the full report, click here.

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The United States was a first mover in advancing trade rules for the digital economy. The most recent Trade Promotion Authority legislation, reflecting a strong bipartisan consensus, states: “The principal negotiating objectives of the United States with respect to digital trade in goods and services, as well as cross-border data flows, are . . . to ensure that governments refrain from implementing trade-related measures that impede digital trade in goods and services, restrict cross-border data flows, or require local storage or processing of data[.]” 

Just four years ago at the start of the JSI talks, the United States put forth a communication detailing just how important data flows are and emphasized why it is critical that the JSI tackle the challenge of negotiating rules to facilitate data flows. The text tabled by the United States in the JSI also mirrored the data flows text in United States-Mexico-Canada Agreement (USMCA) and the text in the U.S.-Japan Digital Trade Agreement. The United States is now bound by those rules, not only vis-a-vis Canada, Mexico, and Japan, but also vis-a-vis over a dozen Free Trade Agreement (FTA) partners who enjoy Most-Favored Nation (MFN) rights from those prior agreements.

But these policies go back further and rules to enable cross-border data flows have been a part of modern U.S. trade policy. 

1. The 2012 U.S.-Korea FTA contains an electronic commerce chapter with commitments on data flows. Article 15.8 states: “Recognizing the importance of the free flow of information in facilitating trade, and acknowledging the importance of protecting personal information, the Parties shall endeavor to refrain from imposing or maintaining unnecessary barriers to electronic information flows across borders.”  
2. Article 15.5 of the 2004 U.S.-Chile Agreement states: Parties recognize the importance of “working to maintain cross-border flows of information as an essential element for a vibrant electronic commerce environment[.]” 
3. Article 14.5 of the 2006 CAFTA-DR (Dominican Republic-Central America FTA) states: Parties affirm the importance of “working to maintain cross-border flows of information as an essential element in fostering a vibrant environment for electronic commerce[.]” 
4. And, with respect to financial services, a U.S. obligation, available to all WTO members, was memorialized in the General Agreements on Trade in Services (GATS) Financial Services Understanding in 1994. Article 8 states: “No Member shall take measures that prevent transfers of information or the processing of financial information, including transfers of data by electronic means, or that, subject to importation rules consistent with international agreements, prevent transfers of equipment, where such transfers of information, processing of financial information or transfers of equipment are necessary for the conduct of the ordinary business of a financial service supplier.”

Principles underlying these rules have been prevalent throughout U.S. law and policy, but it’s also part of the Biden Administration’s agenda. 

The U.S. Commerce Department has spent decades negotiating agreements with trading partners on data transfer mechanisms. Under Secretary Raimondo, these efforts have continued and expanded. In 2022, Commerce announced the establishment of the Global Cross-Border Data Privacy Forum. The preamble of the Declaration states: “Believing that cross-border data flows increase living standards, create jobs, connect people in meaningful ways, facilitate vital research and development in support of public health, foster innovation and entrepreneurship, and allow for greater international engagement”. Commerce also successfully negotiated a new agreement with the European Union on transatlantic data transfers. Later this month, the United States will also host the APEC Leaders Summit, a venue where the United States and aligned trading partners have long championed the APEC Cross-border Privacy Rules System that facilitates data flows among member economies. 

Enhancing data flows is a part of U.S. foreign policy under the Biden Administration. The U.S.-led Declaration on the Future of the Internet commits signatories to “[p]romote our work to realize the benefits of data free flows with trust based on our shared values as like-minded, democratic, open and outward looking partners.” And just days after the United States announced its JSI decision at a meeting in Geneva, the United States then joined G7 members in a statement emphasizing importance of facilitating digital trade and data flows: 

“We recognize that unjustified data localization measures have a negative impact on crossborder data flows, by increasing data management costs for businesses, particularly Micro, Small and Medium-Sized Enterprises (MSMEs) and heightening cybersecurity risks. We remain committed to tackling unjustified data localization measures that lack transparency and are arbitrarily imposed, which should be distinguished from measures implemented to achieve legitimate regulatory goals.”

In short, USTR’s announcement last Wednesday should have those in the inter-agency process puzzled, in addition to sparking stakeholder concerns. It is also alarming that USTR’s move appears to be driven by domestic interests in pursuing competition-related legislation in the United States. However, the effects of rules promoting data flows on abuse of monopoly power have no obvious relevance or articulated rationale, other than to constrain the export potential of a handful of companies, while denying benefits to a much broader set of stakeholders who are arguably the more important beneficiaries. Research continues to show the benefits of data flows and access to new markets are particularly beneficial for start ups and SMEs. Further, digital trade provisions not only catalyze the exchange of digital products and goods between markets, but also serve as a multiplier effect for other sectors. The OECD has found that reducing barriers to cross-border data flows is essential to increasing non-digital services exports and goods exports from industries such as agriculture and food.

In the retreat of U.S. leadership at the international level, one is left to ask who steps in. Many were quick to point to China following the announcement, including many voices in Congress criticizing USTR’s decision. 

But this abdication of leadership involves more than just competition between the United States and China. This issue is about deciding the preferred governance model going forward for the digital economy. At a time when many countries are pursuing digital sovereignty and industrial-focused policy with respect to new technologies, the United States is sending a clear signal that it is at least amenable to these approaches–pointing to a more fragmented and unstable framework for trade likely to undermine global prosperity. 

It’s telling how others are reacting to the abrupt change to U.S. policy. India has long been critical of negotiating digital rules at the WTO. While it represents one of the fastest growing digital markets, it is also one of the most restrictive, protectionist, and closed markets for foreign exporters. Stakeholders in India have taken note of the reversal, seeing it as a “validation” of a digital isolationist approach. Ajay Srivastava, founder of Global Trade Research Initiative (GTRI), opined: “The new US stand on digital trade validates India’s approach on the subject. India had long ago foreseen potential challenges with unregulated digital trade and thus refrained from participating in the WTO e-commerce negotiations.”

It remains to be seen how others in the WTO process will respond, noting that many of these countries are actively pursuing their own regional and multilateral trade agreements with similar digital trade provisions outside the JSI such as Singapore’s Digital Economic Partnership Agreement and the EU’s pursuit of new bilateral trade agreements and initiatives like the recently-concluded EU-Japan data flow agreement. While the various approaches may differ in level of ambition, ultimately countries negotiating digital rules among themselves stand to benefit their economies and their suppliers, as the United States watches from its self-imposed exile.

So where does this leave the WTO process? 

It is encouraging that progress has been made on other elements of the JSI agreement. Last week co-conveners announced consensus text on the following areas: online consumer protection; electronic signatures and authentication; unsolicited commercial electronic messages (spam); open government data; electronic contracts; transparency; paperless trading; cybersecurity; open internet access; electronic transaction frameworks; electronic invoicing; and “single windows.”  

However, the dereliction of U.S. leadership with key trading partners to pursue an ambitious agreement with key outcomes on critical components of digital trade dampens the significance and effectiveness of global rules.

To read the full article, click here.

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Conclusion

Although a large group of WTO members are actively having conversations on digital trade under the JSI, a far-reaching multilateral agreement on e-commerce appears to be unlikely. Therefore, regional and preferential agreements remain the main channel for the formulation of digital trade rules, especially for emerging issues. DTPs are increasingly being mainstreamed in PTAs. The more recent PTAs tend to have a broader coverage and more comprehensive DTPs, and a dedicated chapter on digital trade (or e-commerce) may become a standard feature in upcoming PTAs. The bigger players such as the US, EU, China, and Singapore have taken different approaches and are actively replicating their own templates across PTAs. At the same time, low and lower middle-income economies have been slow in incorporating DTPs in their trade agreements. In the Asia-Pacific region, East and South-East Asia countries are prominent in incorporating DTPs in their trade agreements, while Central Asia and South Asia countries lag.

The most common DTPs found in PTAs are those enabling and facilitating trade digitalization. The protection of consumers and personal information is also widely covered by PTAs, which reflects common regulatory needs. Common commitments across PTAs include: no customs duties on electronic transactions, paperless trading, reducing restrictions on cross-border transfer of data, and the protection of personal information. However, despite the emerging overlap in coverage, countries use different legal languages to adjust the level of binding in different areas. Nonetheless, the most common commitments across agreements have the potential to shape some universally applicable disciplines.

The more advanced Asia-Pacific economies, especially Singapore, are taking the lead in signing DEAs. The recent surge in signing dedicated DEAs provides a novel, useful and flexible approach to negotiations on digital trade. DEAs include a wider range of DTPs addressing key and emerging issues of digital trade and the development of digital economy, and in many DEAs these DTPs are structured in modules which could allow parties to choose different levels of commitment. Creating a new “noodle bowl” of inconsistent agreements should be avoided. However, creating a new “noodle bowl” of inconsistent agreements should be avoided. The growing number of bilateral DEAs may make the digital trade environment unnecessarily complex, in particular for smaller firms in developing economies. Interoperable standards and mutual recognition mechanisms may be needed to address the existing digital regulatory heterogeneity and prevent further fragmentation in digital trade rules.

Looking ahead, given the growing importance of digital trade as an engine of growth and development, less developed countries need to keep abreast of the existing DTPs and develop a clearer understanding of their own needs and situation. Participation in multilateral level efforts may be particularly important for them given that they may be de facto excluded from preferential trade negotiations. Smaller and less developed countries may stress the inclusion of MSMEs in digital trade, capacity building, transfer of digital technologies and other means of reducing the digital divide. Further, progressive commitments may be a good strategy to promote for them when negotiating DTPs, particularly since they will often need time and to enhance domestic legislation on digitaleconomy-related issues, such as online consumer protection, personal information protection, and internal electronic transactions.

For deeper cooperation and closer integration in digital trade, legal and technical interoperability need to be promoted. To enhance interoperability, countries should refer to and build upon existing international standards and instruments when developing their domestic regulatory environment. For example, countries are encouraged to adopt the existing UNCITRAL model laws related to electronic commerce, including the model law on electronics transferable records, as well as relevant UN/CEFACT technical standards for electronic business. Similarly, at the multilateral and regional level, countries should also actively participate in existing multilateral or regional cooperation frameworks and agreements, before considering creating new ones. For instance, the UN treaty called the Framework Agreement on Facilitation of Cross-border Paperless Trade in Asia and the Pacific (CPTA) already provides an inclusive and neutral platform for the pilot testing of cross-border paperless trade solutions among over 50 member states, enabling harmonization of electronic trade data and document exchange rules and systems currently being developed only at the bilateral or subregional levels.38 Such agreements and frameworks may be directly referred to in relevant DTPs. At the global level, active participation in the on-going WTO JSI discussions on e-commerce, as well as initiatives such as the UNCTAD-led E-trade For All capacity building initiative should be positively considered, with the ultimate goal of achieving an inclusive digital trade environment supportive of the sustainable development goals.

To read the full working paper, click here.

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Digitalization is allowing more services than ever to be traded internationally.

To read the full publication, click here.

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Introduction

“Electronic commerce” or “digital trade,” as it is now more frequently referred to, is a topic that has steadily moved up on the priority list of trade negotiators. On the one hand, this interest has to do with the advanced digitization and the critical importance of data to global economies; on the other hand, it can be linked to the multiple new issues that the data-driven economy has raised, such as those in the areas of personal data protection or national security, which demand urgent regulatory responses. The multilateral forum of the World Trade Organization (WTO), despite its long-acknowledged stalemate, together with its troubles to move forward with the Doha negotiation round and to secure a working dispute settlement mechanism, has also become active on the topic. There seems to be a broad agreement among the WTO Members that it is high time to finalize an agreement on electronic commerce that can address many of the so far unresolved issues of digital trade in the body of the WTO Agreements, provide a platform for cooperation, and ensure legal certainty and equity. This Article follows and contextualizes this development and seeks to address critical questions as to the form and substance of the new WTO treaty on electronic commerce.

To engage in these inquiries, the Article first sketches the status quo of WTO rules of pertinence for electronic commerce. It then provides an in-depth analysis of the rule-making on digital trade in preferential trade agreements (PTAs), which not only compensates for the lack of developments at the WTO, but also effectively creates a new, albeit fragmented, governance framework for the data-driven economy. The analytical lens here is directed in particular to the newer and more advanced models, such as those under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the United States-Mexico-Canada Agreement (USMCA), as well as those endorsed by dedicated digital economy agreements, such as the ones between the United States and Japan through the Digital Trade Agreement (DTA) and among Chile, New Zealand, and Singapore through the Digital Economy Partnership Agreement (DEPA). The Article then covers the EU’s new generation of trade deals, in particular the currently negotiated deals with Australia and Tunisia, the post-Brexit agreement with the United Kingdom (U.K.) and the recent treaty with New Zealand. The Article also looks at the Regional Comprehensive Economic Partnership (RCEP), the first agreement with digital trade provisions that includes China, to give a sense of the dynamic governance environment on issues of digital trade. Subsequently, the Article compares these PTA rule-frameworks with the WTO negotiations on electronic commerce and seeks to identify points of convergence and divergence reflected in the latest negotiation proposals tabled by WTO Members. The analytical focus is placed on the legal substance and form of the prospective WTO deal and on its viability to adequately address the practical reality (and the future) of the data-driven economy. 

Mira Burri is a Professor in International Economic and Internet Law at the University of Lucerne.

To read the abstract as it is posted on Social Science Research Network’s website, click here.

To read the full article published in the Georgetown Journal of International Law, click here.

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Their vision is right, but it is highly contested — in part by authoritarian governments seeking to restore or strengthen controls over their publics (or even, at least in part, other countries’ publics), and in part by often friendly countries mistakenly believing that their own technological leadership might depend on diminishing that of the U.S. tech industry. The administration can help achieve its vision, and in doing so contribute to the realization of the Declaration’s vision, through four steps: 

1. An idealistic and ambitious approach in the 15-country “Indo-Pacific Economic Framework” (IPEF), that provides a future vision more attractive than authoritarian alternatives resting on free flows of data, opposition to forced localization of server and data, strong consumer protection, non-discriminatory regulation, anti-spam and anti-disinformation policies, cyber-security, and broad-based growth through encouragement for open electronic commerce.

2. A strong response in the U.S.-EU Trade and Technology Council (TTC) to European Union attempts to create discriminatory regulations and taxes targeting American technologies and firms.

3. Defense of U.S. values in the U.N., WTO, and other venues against “digital sovereignty” campaigns by China and others that endanger the internet’s multi-stakeholder governance, normalize large-scale censorship and firewalling, and generally place the political fears and policy goals of authoritarian government above the liberties of individuals.

4. Supporting responsible governance of technology and politely but firmly pushing back on attempts either at home or internationally to demonize technological innovation and American success.

Ed Gresser is Vice President and Director for Trade and Global Markets at Progressive Policy Institute (PPI).

To read the full summary, please click here.

To read the full report, please click here.

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These charges are unfounded. On the contrary, digital trade is critical to the success and growth of the American economy, a recent U.S. Chamber study found, and American workers have benefitted tremendously as the digital economy has generated high-wage jobs, innovative products, and market opportunities at home and abroad. Considering the benefits of digital trade: 

Companies of all sectors and sizes are benefiting from digital trade. One of the chief claims in the AFL-CIO’s report is that large technology companies are the main beneficiaries of digital trade. Ask almost any company operating in today’s economy, and they are likely to disagree.  

Industries of all sectors and sizes have reaped benefits of digital innovation. The U.S. Chamber study, entitled The Digital Trade Revolution: How U.S. Workers and Companies Can Benefit from a Digital Trade Agreement, found that a diverse range of firms, from transportation, warehousing, and agriculture to arts and entertainment have been empowered to seize new market opportunities abroad as a result of advances and investments in new digital technologies.  

Services, which make up a majority of digital exports​ and the majority of U.S. jobs​, have experienced strong growth in the U.S., but the potential for further expansion internationally is vast. U.S. digital exports — often called ICT-enabled or potentially ICT-enabled services in government reports — have more than doubled in the past 10 years, making it one of the country’s fastest growing export sectors, unleashing new opportunities for huge numbers of workers.​​ ​More than 20 million Americans work in the business and professional services sector, a majority of which can be traded digitally.​ 

Digital trade is transformative for small business exporters. Digital tools are allowing more small business exporters to expand their reach to international markets. Consider: 

• First, digital advertising plays an overlooked but critical role in allowing U.S. small businesses to economically reach potential foreign customers in a targeted fashion. Small businesses simply had no such tools in the pre-internet era: Print advertising in newspapers or direct mail were never feasible options for U.S. small businesses trying to tap even nearby and familiar markets such as Canada or Europe. 
• Second, modern digital tools are revolutionizing payment collection, cited by small business exporters as a top challenge. Uncertainty around international payment collection was a principal brake on small business exports even a few years ago, but such risks and foreign exchange complexities can now be managed in a cost-effective manner by digital payment services. 
• Third, international shipment firms, including express delivery companies, today provide comprehensive services that handle customs clearance procedures and costs for small business owners who lack the expertise and time to tackle the minutiae of such matters. The evidence supports the view that online channels reduce transaction costs associated with international trade significantly. 

Another U.S. Chamber report, entitled Growing Small Business Exports: How Technology Strengthens American Trade, uncovered some surprising findings. Based on a national survey of more than 3,800 small businesses and a related economic analysis, the report produced a new estimate that 9% of U.S. small businesses currently export goods or services, a figure considerably higher than indicated by official statistics. The report estimated that small business exports supported more than 6 million U.S. jobs. Small businesses that export have been expanding the overseas markets they serve, the report found, from an average of seven countries in 2016 to 10 countries in 2018.  

Digital trade supports millions of good American jobs. The AFL-CIO asserts that digital trade does nothing but spawn low-wage jobs abroad — a dubious charge belied by the benefits foreign governments are securing via digital trade — but somehow fails to see the millions of excellent jobs it’s creating here at home. The digital economy has proven a huge and growing source of employment in the U.S. with 7.7 million jobs and counting in all 50 states. The number of digital economy jobs has grown at an average rate of 2.7% over the last decade, compared to 1.6% for all jobs, and the digital economy has experienced wage growth of 5.9%, compared to 4.2%. As the U.S. Chamber’s Digital Trade Revolution explains:   

“Jobs tied to the digital economy can be found in nearly every sector, and their number is growing at a faster rate than that of overall job growth over the last decade. These jobs pay well, and compensation growth for digital jobs exceeds that for all jobs generally.” 

Should digital trade continue to prosper, the U.S. economy is poised to create many good, highly-compensated jobs right here at home.  

Data flows sustain growth in almost every sector. The cross-border transfer of data underpins the U.S. and the global economy. No company, regardless of sector, can do business, let alone engage in international trade, without the ability to transfer data.  

The AFL-CIO expresses concern in its report that “unfettered cross-border data flows” put worker and consumer privacy at risk. The group also maintains that data localization policies can not only be justified but should be authorized. Specifically, the report says:  

“Governments should have the ability to require that individuals’ sensitive personal information… or data related to certain sectors… be kept onshore to ensure it is subject to strong and enforceable privacy standards and effective government oversight.” 

However, contrary to these assertions, the ability to transfer data across borders does not impede data protection, nor do data localization policies guarantee privacy. How data is protected is more consequential than where it is stored, and mandating local storage of data is often counterproductive to data protection. In fact, it serves as a barrier to trade and poses a threat to economic growth and new market opportunities for American businesses. 

Further, concerns that these principles are “rigid restrictions on the measures governments can adopt to promote legitimate public policy interests” are unfounded. Enshrining the commitments to protect cross-border data flows and prevent mandated data localization in trade agreements does not preclude policymakers in the U.S., or other governments, from passing robust federal privacy legislation, something the U.S. Chamber has pressed for.

The effort to “preserve robust public policy space” in digital trade agreements is code for making those agreements toothless and unenforceable. And given the U.S. role as a leading digital innovator, American workers and companies stand to gain tremendously from the continued ability to move data across national borders — and much to lose should digital protectionism spread. As the U.S. Chamber advocates in its Digital Trade Priorities, these policies can work hand in hand to uphold high standards in privacy, while at the same time promoting trade and innovation. 

Ensuring high standard commitments: The “sweeping nature of these commitments” in U.S. agreements with Canada and Mexico or Japan alarms the AFL-CIO. What is, in fact, truly alarming is the number of onerous digital regulations cropping up from governments around the globe. A study by the Information Technology & Innovation Foundation found that “the number of data-localization measures in force around the world has more than doubled in four years. In 2017, 35 countries had implemented 67 such barriers. Now, 62 countries have imposed 144 restrictions— and dozens more are under consideration.” The experience of U.S. Chamber member companies affirms this trend and its widespread nature. 

Many of those measures discriminate against U.S. companies. Others offer little to no flexibility to account for evolution in the digital economy. These provisions not only harm industry’s ability to do business but will result in lost jobs for American workers both at home and overseas.  

American leadership on digital trade has resulted in high-standard digital provisions found in global pacts. Rather than facilitating an “unregulated status quo,” digital trade binds countries to principles that support a growing, innovative, and competitive economy. In fact, as the U.S. Chamber has written, these very commitments protect American workers and companies from harmful and discriminatory rules that target the U.S. economy more than any other. 

U.S. workers, consumers, and industry have reaped the benefits of digital trade, proving that when offered the opportunity to compete on the global stage, American dynamism flourishes time and again. A worker-centered digital agenda should support that strength rather than stifle it.  

Mary Kate Carter is Associate Manager of International Policy at U.S. Chamber of Commerce

John Murphy is Senior Vice President of International Policy. He directs the U.S. Chamber’s advocacy relating to international trade and investment policy.

To read the full trade agreement, please click here. 

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