As artificial intelligence continues to reshape industries and transform the global economy, trade policy must evolve to keep pace and ensure equitable growth for all nations.” This is how Chat GPT, the viral artificial intelligence (AI) chatbot sensation that has dominated the media since late 2022, suggests starting an article about AI and trade.

Already back in 2018, McKinsey predicted AI would contribute USD 13 trillion to the global economy by 2030. Today, with news outlets increasingly reporting on AI and major tech giants such as Google, Microsoft, and Baidu all rushing to release their own chatbots, the policy relevance of AI for international trade is a contemporary reality.

At the intersection of trade policy and AI, the traditional view is that policy must get out of technology’s way. AI in this conception brings unbridled productivity if only trade barriers can be stemmed as the technology spreads from developed economies to the Global South. Under this view, also shared by the Organisation for Economic Co-operation and Development, policy recommendations include further liberalization of information and communication technology goods trade; lowering barriers to digital services trade; facilitating mode 4 delivery of services (presence of natural persons); and harmonizing data flow regulation. These policy recommendations would doubtlessly help the proliferation of AI technology in international trade, but they do not tell the whole story.

Policy Gaps in International Trade Regulation

Beyond merely providing an additional impetus to liberalize international trade, AI presents several policy gaps that current rules cannot address.

The rise of AI brings a familiar problem in the form of the goods–services distinction, which has proven difficult in the case of digital goods, for example. Although World Trade Organization (WTO) case law has shed some light on how to determine if a product is a good or a service, the WTO’s work program on electronic commerce—which was meant to settle the question more conclusively—is still being negotiated after 25 years. As AI is incorporated into more goods (think self-driving cars and AI robotics), it will become increasingly important to establish universal rules to determine whether General Agreement on Tariffs and Trade or General Agreement on Trade in Services (GATS) commitments dictate. The current patchwork that has emerged in the form of free trade agreements creates a fragmented landscape that is likely to boost the cost of trade.

Where AI can clearly be considered a service, other issues emerge. GATS market access commitments for certain professions including accounting, legal services, or medical services are often tied to certification requirements or legal personhood. This poses problems for AI systems such as legal tool Harvey or even Chat GPT (which recently passed the bar exam). Can such systems be said to have received education and training such that they are covered by GATS commitments? Similarly, where GATS commitments are based on legal personhood, does this exclude AI systems? Would this also be the case in a situation where a form of electronic or digital personhood is adopted for AI systems, as has been suggested in the European context?

Another GATS-related problem concerns the four modes of delivery: cross border, consumption abroad, commercial presence, and the presence of natural persons. These modes are ill-adapted to products that have AI embedded in them, like self-driving cars, smartphones, or medical devices. Such products create a market access issue for services trade, which, according to the GATS, is not supposed to be subject to tariffs. However, services that are embedded into goods are liable to tariffication because the value of the services is included in the cost of the final product for which a tariff is levied. Software bought online and delivered through mode 1 is not tariffed, for instance, yet the same software, when installed on an imported computer, will effectively be tariffed, given that the customs value of the computer includes the value of the software. This has led some to call for the addition of a 5th mode of services delivery, meant to capture the services content embodied in goods exports. In 2009, the European Union’s estimated mode 5 services exports amounted to EUR 300 billion. A 2017 study, meanwhile, suggested that multilateral liberalization of mode 5 trade could increase world trade by EUR 500 billion. Though some attempts have been made to include mode 5 facilitation in bilateral agreements, this has not been attempted at the WTO.

Lastly comes the issue of intellectual property. AI is producing graphics, poetry, and even music—all of which are the legal purview of intellectual property rights (IPR). In the context of international trade, it is the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) that sets minimum standards for the protection and enforcement of IPR. Unfortunately, the TRIPS agreement does not define how to deal with AI-generated works, and individual members have taken different approaches in their domestic legislation, ranging from full protection of AI-generated works to a requirement of human creativity that effectively leaves such works unprotected. This patchwork is likely to become increasingly unsatisfactory as the share of intellectual property—both copyright and patents—generated by AI and traded across borders continues to rise.

A Job for the WTO?

As the only organization with a near-global mandate to regulate trade, the WTO seems like the logical place to forge agreements to deal with these policy gaps. The goods–services distinction, GATS professional certification issues, mode 5 services delivery, and IPR issues all situate themselves comfortably within one or several WTO committees and working groups. So, too, do the more traditional issues of ICT tariffs, services liberalization, and data regulation. Legislating at the WTO prevents international fragmentation and provides a rules-based system that stands in opposition to the might-makes-right approach that preceded the organization’s creation.

The suitability of the WTO must be considered in light of certain limitations, however. Chief among them is the pacing problem, a well-known phenomenon wherein technological innovation progresses too quickly for regulation to keep up. This issue is not unique to the WTO; it also exists in domestic legislative contexts. Even so, the fact that the WTO’s Joint Statement Initiative on e-commerce is finalizing texts on electronic signatures and spam in a world where AI, cryptocurrencies, non-fungible tokens, and blockchain technologies remain virtually unregulated illustrates the risk of relying exclusively on the WTO to legislate.

Secondly, the lack of universality regarding normative approaches to AI regulation also inhibits a multilateral solution. Indeed, AI regulation is intrinsically linked to questions of privacy, morality, and property that differ across cultures. Even markets with similar levels of development, such as the European Union and the United States, have taken radically different approaches to privacy and free speech (think the General Data Protection Regulation). This is all without considering the divergent national interest with regard to trade liberalization. Rich countries, which dominate the AI market, want to liberalize trade as much as possible. The calculus for poorer countries, where tariffs remain an important source of government budgets, looks starkly different.

These limitations notwithstanding, it appears unadvisable to let AI regulation develop exclusively in national or regional contexts. The policy issues detailed above require solutions, and multilateral solutions are preferable from a trade standpoint.

In the absence of hard law provisions, which have largely remained elusive in the WTO, the organization can still play an active role in this area. Soft law, informal rules, and norms can still be introduced in the WTO—as they have been for years—without relying on hard law. This would allow states to experiment with AI regulation in line with their economic, social, and moral objectives. Soft law approaches have proven successful in other international policy-making areas, and in the context of the WTO, could act either as a sort of greasing mechanism for the growing number of AI-impacting free trade agreements or, more ambitiously, as a halfway house, building toward hard law commitments in the future.

Timing is of the essence. With policy already lagging behind technology and the use of AI set to increase drastically in the real economy, some sort of international coordination is necessary. At a time when WTO reform is front and centre in the minds of many trade diplomats, an innovative approach to tackle the policy issues raised by AI could be an illustrative case in point of the organization’s continued value.

Whether or not states come together to regulate AI, it is clear that this technology is set to transform industries and trade patterns. Much like trade generally, AI will generate great economic growth but also painful labour market disruptions. Faced with the risk of worsening the digital divide by remaining inactive, policy-makers should make sure whatever solutions they arrive at contribute to creating a more sustainable and inclusive global economy.

Pascal Krummenacher is a trade policy professional and a former project officer at the World Trade Organization.

To read the full policy analysis, please click here.

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My post of November 2 had raised a number of question presented by the proposed waiver:

” The proposal raises a series of questions that should be addressed to understand whether the waiver is appropriate. These questions include whether such a broad waiver request is appropriate or envisioned by Article IX:3 and 4 of the Marrakesh Agreement? Shouldn’t those requesting a waiver be required to demonstrate that the existing flexibilities within the TRIPS Agreement are inadequate to address concerns they may have? Can two Members request a waiver of obligations for all WTO Members? Can a waiver request be considered where the product scope is lacking clarity, and the uses/needs of the waiver are very broad and potentially open to differing views? To what extent is there a need for those seeking a waiver to present a factual record of actions being taken by governments, companies and international organizations to provide access to medical goods during the pandemic including to developing and least developed countries? Shouldn’t those seeking a waiver identify the extent of existing licenses by major pharmaceutical companies with them or other WTO Members for the production of vaccines or therapeutics to address COVID-19?”

The supplemental information provided by South Africa identifies various patent pending matters and identifies what it describes as restrictive actions by some companies and some patent litigation by certain companies. As such the communication provides some information of possible relevance in examining the proposed waiver. However, there is little if any information provided on most questions that seem important to an informed discussion of the proposed waiver.

On November 27, Australia, Canada, Chile and Mexico filed a communication entitled “Questions on Intellectual-Property Challenges Experienced by Members in Relation to COVID-19”. IP/C/W/671. While the entire communication is embedded below, paragraphs 3 and 4 are copied below and present a framework for the consideration of the proposed waiver and seek factual answers to a series of questions which would help understand if there are in fact any significant barriers being confronted by WTO Members in addressing the pandemic.

“3. The co-sponsors of this communication remain of the view that these important, challenging, and complex issues merit further reflection and significant consideration, in order to identify any specific and concrete IP-related challenges faced by Members in addressing COVID-19. In addition, we take note that IP rights are one part of a broad discussion informing the availability and accessibility of treatments for COVID-19. Indeed, as the Doha Declaration on the TRIPS Agreement and Public Health emphasizes, the TRIPS Agreement itself is part of the wider national and international effort to address public health problems. With respect to COVID-19, this broader response includes significant investments through procurement mechanisms like the Access to COVID-19 Tools Accelerator and the COVAX Facility and Advance Market Commitment, as well as work within the WTO and elsewhere to safeguard and protect global supply chains.

“4. The co-sponsors of this communication are actively committed to a comprehensive, global
approach that leverages the entire multilateral trading system in place to supporting the research, development, manufacturing, and distribution of safe and effective COVID-19 diagnostics, equipment, therapeutics, and vaccines. The co-sponsors also reaffirm their support for the TRIPS Agreement, including the flexibilities it provides, and for the Doha Declaration on the TRIPS Agreement and Public Health. In this context, we invite consideration of how the existing legal framework under the TRIPS Agreement, including the flexibilities affirmed under the Doha Declaration on the TRIPS Agreement and Public Health, have operated thus far in the context of Members’ efforts to address the COVID-19 pandemic. We are also committed to fully understanding the nature and scope of any concrete IP barriers experienced by Members related to or arising from the TRIPS Agreement, and such that would constitute impediments to the fight against COVID-19. To that end, and with a view to facilitating a consensual, evidence-based approach, the co-sponsors of this communication therefore respectfully submit the following questions to Members for their consideration and response.”

The communication from Australia, Canada, Chile and Mexico then provides eight questions designed to develop a factual record of challenges faced on procurement of products, local production, compulsory licenses, as well as copyright-related challenges, industrial-designs-related challenges, and challenges from undisclosed information. The questions also include an inquiry as to “what specific legal amendments or actions would the proponents seek to enact for the prevention, containment, and treatment of COVID-19 that are not – or may not be – consistent with the TRIPS Agreement and its flexibilities?”

There is a meeting of the Council for Trade-Related Aspects of Intellectual Property Rights scheduled for December 11 at the WTO. It is assumed that the only item on the agenda will be the consideration of the proposed TRIPS waiver submitted by India and South Africa and joined by four other countries. A recommendation should be forwarded to the General Council by December 31. While the proposed waiver may receive support from many WTO Members, it will be opposed by many as well as not justified and undermining the existing WTO TRIPS Agreement and built-in flexibilities. The communication from Australia, Canada, Chile and Mexico provides a possible path forward by seeking to gather factual information that would permit Members to identify what challenges actually exist and what existing tools are available for addressing the existing challenges so that the need for any waiver is limited to what is actually needed instead of being the very broad waiver proposal for all countries regardless of actual problems faced.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.

To read the original blog post, please click here. 

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After an 18-month-long trade war that has been waged through retaliatory tariffs, agreement is welcome news. It halts new tariff increases and also signals a modest de-escalation of the trade conflict between the world’s two largest economies, which will go some way towards increasing investor confidence and optimism.

Since the start of the trade war in 2018, higher tariffs and prolonged trade policy uncertainty have damaged investor confidence, disrupted manufacturing activity and trade flows, and reduced global economic growth due to supply chain disruptions. While the interim deal is a positive indicator, ultimately it only addresses a limited set of issues. Deeper structural issues, such as the controversy over Chinese state subsidies, have not been addressed.

The deal will not significantly alter the fundamentals: the wider US-China geopolitical competition and the battle over economic creativity and new technologies are set to continue, even if the ‘Phase One’ deal is fully implemented. A resolution of these underlying issues in any subsequent ‘Phase Two’ negotiations is anything but certain.

What has been agreed?

Under the ‘Phase One’ agreement, the US has promised to halve the existing 15 per cent tariff to 7.5 per cent on US$120 billion of Chinese imports ranging from food to technology. It has also promised not to proceed with planned 15 per cent tariffs on US$160 billion of Chinese products, including cell phones, laptop computers, toys and clothing, scheduled to go into effect on 15 December 2019.

This is in return for Chinese pledge related to its currency, intellectual property and a large US$200 billion increase in its purchase of US goods and services over the next two years. This is based on a 2017 baseline of US$183.8 billion. Specifically, this includes US$32 billion in new purchases of US agricultural exports, such as soybeans; and US$52.4 billion in energy exports, namely liquified natural gas and crude oil.

China has also promised to increase purchases of US manufacturing products, including pharmaceuticals, and boost imports of financial services. Access to China’s financial services market has for years been a source of complaint for the US.

The agreement on currency stipulates China to refrain from competitive currency devaluation, and not to use exchange rates for its trade advantage. In return, on 13 January, the US Department of the Treasury reversed its August decision to designate China as a ‘currency manipulator’, a label given to countries accused of ‘unfair currency practices’ – something China denies doing.

Regarding intellectual property – a key sticking point in US-China trade relations – the ‘Phase One’ deal promises stronger Chinese legal protections for patents, trademarks and copyrights. In particular, the deal details enhanced criminal and civil procedures to combat online infringement, pirated and counterfeit goods.

An agreement is only as good as its implementation

The key issue with the ‘Phase One’ deal is its implementation and enforceability. Will the US and China deliver on their promises? Given nearly two years of escalating trade tensions, it’s not surprising that mistrust runs high.

Since the start of the trade war in mid-2018, the US has imposed tariffs on over US$360 billion of Chinese imports. China has retaliated with tariffs on over US$110 billion of US imports.

Although the ‘Phase One’ deal averts new tariffs, it leaves in place tariffs on US$250 billion of Chinese imports. The promised tariff reductions will also not take place until there is ‘Phase Two’ deal, according to President Trump. This means companies and consumers will continue to pay more than they did pre-trade war.

Maintaining the tariffs has its rationale; it gives potential leverage to the US to negotiate the next stage of the agreement and reinforce Beijing’s promise on new purchases. Meeting the Chinese purchase targets would open new opportunities for US businesses. It would also reduce the US$419 billion US trade deficit with China.

There is, however, widespread scepticism among analysts about whether the targets, especially in agriculture, are attainable, given the previously low levels. Under the enforcement provisions of the deal, if China fails to meet its additional purchase commitments, a dispute resolution will be triggered, according to the US. If bilateral consultations do not resolve disputes, the President has the authority to increase existing tariffs or impose additional tariffs.

Meanwhile, China has also tempered expectations. During the ‘Phase One’ deal signing ceremony, Liu He said the purchases of agricultural products will be “based on market conditions”, adding that both countries should create favourable conditions for Chinese purchases of US products. This raises the question of potentially differing interpretations of the deal that would have the potential to renewed conflict.

Regarding financial services, the promise of greater market access in terms of the number of granted licenses and removal of equity limits for US banks and insurance services does not translate into equal opportunities overnight. China’s financial service sector is dominated by state-owned and private digital payment players.

While Beijing continues to open up the space for foreign players, it is likely to do so at its own pace. The same is likely to be true with intellectual property protections. While China has given its commitment to implement a comprehensive legal system of intellectual property protection, it remains to be seen how well the US can monitor and enforce this.

To view the full blog, click here.

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Fabrice Fries (58) has been President of news agency “Agence France-Presse” (AFP) – one of the three largest news agencies worldwide – since 2018. Its 2,400 employees from 80 nations are distributed throughout 151 countries. They report around the clock on world affairs in six different languages. Sven Lilienström, founder of Faces of Democracy, spoke with Fabrice Fries about quality journalism, right-wing populism and the new mission for AFP.

MR. FRIES, THE FACES OF DEMOCRACY INITIATIVE WANTS TO SUPPORT A BETTER UNDERSTANDING OF DEMOCRACY IN GERMANY, EUROPE, AND AROUND THE WORLD. HOW SIGNIFICANT ARE DEMOCRACY AND DEMOCRATIC VALUES TO YOU PERSONALLY?

Fabrice Fries: Democracy is looking tired at the moment. The rise of demagogues and “strongmen”, the denigration of expertise, the scorn for pragmatic compromise, the polarization of politics – there is now a lot of literature on the malaise afflicting democracy.

Yet, I think it is not difficult to sustain that democracy has a better record than any other form of government, starting with some contemporary alternatives like authoritarian capitalism and “government by experts”. It is often said that one of the great merits of democracy is its capacity for self-questioning, and I want to believe this is key to its capacity to renew itself and its biggest comparative advantage.

RIGHT-WING POPULISM IS ON THE INCREASE ACROSS EUROPE – IN FRANCE TOO, THE NEW RIGHT-WINGERS ARE GOING ON THE OFFENSIVE, RALLIED BY THEIR “ROCK STAR” LEADER, MARION MARÉCHAL. HOW DO YOU ASSESS THE RISE OF THE NATIONALISTS IN YOUR COUNTRY?

Fabrice Fries: Many predict that the next elections at the European Parliament will see the rise of nationalists and I am afraid France will be no exception. Beyond France, this could be extremely damaging for Europe. As CEO of a news agency, I cannot go beyond this very general comment as I need to remain non-partisan.

JOURNALISM IS A STRONG PLAYER IN PUBLIC DEBATE. BUT THE INFLUENCE OF “FAKE NEWS” AND HALF-TRUTHS IS GROWING. ARE WE ON THE WAY TO A MISINFORMED SOCIETY AND, IF SO, HOW CAN THIS TREND BE STOPPED?

Fabrice Fries: I am afraid we have seen only the tip of the iceberg. Fake news reaches an industrial scale in some countries. “Deep fake news” (videos imitating voice and lip moves) is the new issue, with experts speaking of a looming “infocalypse”. Honest, verified information is becoming a luxury good!

News agencies can no longer only report facts: they must now debunk fake news and this is a new mission for AFP. Overall, the best answer to fake news is investment in quality journalism.

THE KEY ROLE OF THE NEWS AGENCIES AFP, AP AND REUTERS MEANS THAT OUR MEDIA OUTLETS MOSTLY REPORT ON THE SAME TOPICS. TO WHAT EXTENT ARE THE WORLD’S THREE LARGEST NEWS AGENCIES INFLUENCING REPORTING?

Fabrice Fries: The significant role played by social media in the sharing and distribution of information has greatly enriched and varied the topics reported on by the entire media ecosystem. The three big agencies bring context, explanation and verification to the conversation. But we do not play the same role of “gatekeeper” that we did 20 years ago. It is also fair to say that AP, Reuters and AFP have grown more distinct and different over time, as we have responded to the challenges in the media industry. We have different strengths and positions from region to region. We also tackle stories in increasingly varied ways because we have all evolved from purely B to B providers into multimedia news organizations working for an increasingly large variety of clients.

SINCE THE TURN OF THE MILLENNIUM THE ADVERTISING REVENUES OF NEWSPAPER PUBLISHERS THROUGHOUT EUROPE HAVE PLUMMETED – IN FRANCE BY 70 PERCENT. IN THIS CONNECTION, HOW DO YOU ASSESS THE “YES” VOTE BY THE EU PARLIAMENT TO REFORM COPYRIGHT LAW?

Fabrice Fries: The EU Parliament’s vote is obviously good news, and AFP played its part in lobbying in favor of the directive. But the fight goes on and publishers are going to face very clever lobbying from Google and Facebook, who will try to make neighboring rights ineffective or marginal. I want to stress that our fight is not a defensive move from a corporation that has not been able to adapt: press publishers have invested a lot in order to have an online presence and their online readership has increased dramatically.

But what have not followed are the advertising revenues, which are being absorbed by Google and Facebook in an unprecedented way. This is a double hold-up: the platforms are using our contents without permission and are grabbing the advertising revenues that would allow us to invest in quality journalism. The directive aims at better sharing the value we create. It is as simple as that – and should be common sense!

ACCORDING TO A SURVEY, GERMANS FEEL A MORAL RESPONSIBILITY FOR THEIR HISTORY. ON THE OTHER HAND, LEADING AFD POLITICIANS ARE DEMANDING AN “END TO THE CULT OF GUILT”. HOW IMPORTANT IS THE POLITICS OF REMEMBRANCE AS A WEAPON AGAINST RIGHT-WING POPULISTS?

Fabrice Fries: The clash between history and memory is the key to understanding a number of current controversies, especially in our “old Europe”. It is true in the UK, with the polemics surrounding the Cecil Rhodes statue, in France with the recognition of torture during the Algeria War, and of course in Poland with the law about German concentration camps in Poland.

As far as Germany is concerned, I believe that the relation to history is particularly complex because of Nazism of course, but also because of the lack of a “founding myth”. Last year I read Neil MacGregor’s “Germany: Memories of a Nation”, after seeing the exhibition at the British Museum. It is the best antidote to the rewriting of history, which is a constant temptation.

I know it is now common to compare today’s political situation with the 1930s and ask ourselves if fascism is making a return. Yet this exercise has its limits, because the conditions of political life have changed dramatically since democracy was last under so much strain. Understanding history is important, but I believe the challenges we are facing and – more importantly – the answers we can bring, are brand new.

MR. FRIES, OUR SEVENTH QUESTION IS ALWAYS A PERSONAL ONE: WHAT DO YOU LIKE TO DO MOST OF ALL IN YOUR LEISURE TIME AND WHAT OBJECTIVES HAVE YOU SET YOURSELF FOR THE NEXT YEARS?

Fabrice Fries: I am an avid reader and movie junkie. I mostly read literature and history. I am currently finishing Edward St Aubyn’s “Patrick Melrose” semi-autobiographic books and “SPQR”, a history of Rome by Mary Beard. I also love skiing and am planning a Zermatt-Chamonix crossing in 2019.

MR. FRIES, THANK YOU VERY MUCH FOR THE INTERVIEW!

© 2018 Initiative Gesichter der Demokratie | Faces of Democracy

To read the full interview made by Faces of Democracy, click here.

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