A new initiative aims to modernise global trading rules
“SATISFACTION GUARANTEED!” promises the seller of “The Law and Policy of the World Trade Organisation” (WTO). The magic of e-commerce means that the doorstopper can be exported from America to Tajikistan for a cool $35.95 (plus shipping). A new initiative on digital trade at the WTO strives to add to the laws and policies described within. But far from increasing general satisfaction, this plan is controversial.
At first glance, it is hard to see why. On January 25th representatives of 76 WTO members gathered at the annual shindig in Davos announced plans to negotiate new rules covering “trade-related aspects of electronic commerce”. Compared with the trade talks between America and China that restarted this week in Washington, this venture seems positively collegial. It makes sense: global trade rules were written when cloud computing was the stuff of science fiction. And what better way to show the value of the WTO, just as President Donald Trump is busy undermining it?
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But a closer look reveals conflict. Though the 76 members account for 90% of global trade, they are a minority of WTO members. Many developing countries claim that tighter e-commerce rules would tie national regulators’ hands and that the issue is a distraction from others they care about more, such as limiting rich countries’ agricultural subsidies.
The plan is to sidestep such complaints, which have blocked agreement at the WTO for years. Instead of getting all members to sign up to a multilateral deal, a like-minded group will set rules among themselves. Hold-outs, like India and South Africa, will not be able to block progress if their demands are not met. The cost is the legitimacy that a broader group would generate—and the fact that non-signatories will free-ride on any deal, gaining from others’ commitments, without making any themselves. Further battles lie ahead. “Countries don’t have a shared definition of what they’re negotiating,” complains Susan Aaronson of George Washington University. The WTO defines e-commerce as the “production, distribution, marketing, sale or delivery of goods and services by electronic means.” That is broad.
An agreement could include regulations covering spam emails or rules helping digital purchases zip through customs. It could reach deep into members’ domestic regulations to cover cybersecurity or the protection of personal data. It could prevent barriers to cross-border data flows, or ban requirements to store citizens’ data on local servers. Every two years WTO members renew a promise not to tax digitally-provided goods, such as films from Netflix. A new deal could make that permanent.
American negotiators would like all of the above. Their technology firms benefit from data flowing freely, which helps them to train algorithms and generate sales. Data-localisation is expensive, and could weaken security by giving hackers more targets. And, obviously, they would rather their digital sales were not taxed.
This powerful lobby group’s ambitions have already been enshrined in trade deals away from the WTO. The United States-Mexico-Canada Agreement (USMCA), which America’s Congress is supposed to ratify later this year, bans customs duties on digital products. So does the Trans-Pacific Partnership (TPP), which was negotiated by 12 countries, including America, and revived by the others when Mr Trump pulled America out. The TPP bars governments from forcing companies to hand over their source code, and the USMCA goes further by including algorithms, too. Both ban data-localisation requirements.
Many worry that American technology companies are using trade rules to neuter national regulators. In theory, there are exceptions to the rules regarding data localisation and technology transfer. But critics fear that governments will be wary of invoking those exceptions, and that arbiters at the WTO will side with companies.
It will be hard to get European negotiators on board with some of this. European law treats privacy as a fundamental human right, and the free flow of data as secondary; the Americans (and Japanese) start from the premise that data should flow and only then consider exceptions on privacy grounds. Still, a recent deal between the European Union and Japan suggests the differences may not be insurmountable.
The biggest fight will be with China. Its government views data as an issue of sovereignty, and trade in data as a national-security matter. Chinese representatives reportedly tried to narrow the scope of the talks, threatening not to participate. They joined in the end, presumably deciding that it would be better to have influence over any new rules rather than see standards that could become global set without them. Other countries see little value in rules that enshrine China’s draconian approach to data, but also know the value of having a country of China’s size involved.
American administrations have tried to resolve these differences in the past. The Transatlantic Trade and Investment Partnership, a proposed deal between America and the EU, was supposed to cover the two sides’ differing approaches to data. Together with the TPP, it was meant to draw China into a less hostile regulatory pattern.
Americans are once again working with other countries to pull in China. In December Roberto Azevêdo, the WTO’s head, described American efforts on e-commerce as “very active”. But negotiators may be short of bargaining power. Plurilateral negotiations on narrow topics at least mean that China cannot block all discussion. But they also remove the opportunities to bargain unrelated concessions against each other, which is how trade negotiators reach consensus. This initiative could be the success the beleaguered WTO desperately needs. Or it could be another demonstration of its weakness.