Written evidence submission from Professor David Collins (DTD0002)

UK International Trade Committee – Written Evidence on Digital Trade

 

 

  1. There are a number of ways the UK should approach these important issues. A plausible starting point is the 2011 joint proposal of the US and EU of general principles on electronic commerce.[1] These ten principles can provide a degree of legal predictability necessary for UK businesses and consumers to operate in a digital environment.[2]
  2. The principles include the following: transparency for all information on technology relevant rules; promotion of open networks, network access and use, including promotion of inter-operability; ensuring unhindered and non-discriminatory cross-border information flows; no local infrastructure or local presence requirements; no restriction of foreign participation in information technology services sectors, through establishment or other means (subject to national security vetting); legally distinct and functionally independent regulatory authorities to deal with digital trade and e-commerce; unrestricted and un-burdensome authorization and license procedures; ensuring interconnection for SMEs; and international co-operation, in particular for bridging the digital divide in developing countries and under-developed regions and increased digital literacy.[3]
  3. More generally, it is vital that the UK has a clear data strategy to meet the opportunities and challenges of digital transformation. While larger economies have policies in place (e.g. the EU and China), others have yet to adopt a framework and instead operate on a default combination of domestic legislation and obligations undertaken in trade agreements.[4] This can be problematic from a compliance standpoint – especially for SMEs. The UK must select an appropriate policy which meets its own circumstances and priorities as a services-dominated economy, in the knowledge that the direction chosen will affect national competitiveness attractiveness to business.[5] The UK must also be aware of how its chosen policies and implementing regulations interact with the frameworks of trading partners, such as the EU, as well as emerging regional and international norms, notably the Comprehensive Progressive Trans Pacific Partnership (CPTPP).
  4. There are three key considerations when developing a strategy on cross-border data: 1) national competitiveness: this will depend on innovation and technological capacities as well as business operational efficiency; 2) business attractiveness: this will depend on access to relevant information, support for new business forms, logistical infrastructure (both physical and digital), and access to the skills and talents – not only to create and support but also design, promote and provide other support (e.g. financial, legal); 3) regulation: this must be reconsidered in light of new technology – i.e. how to regulate in a fast-changing technological landscape, for example in relation to Artificial Intelligence, and how to strike a balance where regulations provide the proper (negative) deterrence without harming the (positive) benefits (of new innovations, collaboration, enhanced business efficiency).[6]
  5. Cross-border data obviously impacts on trade (for example, issues of digital trade, e-commerce and banking services) and finance, including issues of trade finance, compliance, blockchain / cryptocurrencies, as well as regulation generally. It also affects innovation – the capacity of companies to develop new technologies of interest to consumers and to society at large, potentially affecting new challenges such as the environment and viruses. This is further linked to issues of international collaboration, national bans, the importance and impact of data flows on new technologies and new product development as well as unintended consequences on matters such as intellectual property and competition. Furthermore, there are key issues of safety and security which include privacy and consumer protection, such as data transfer, data storage, anonymization, derived data/combinations of data from different sources, data residency and cybersecurity.
  6. Flowing from this, the UK should consider the following objectives: 1) Increasing cooperation between regulatory and professional bodies (e.g. finance and legal) to improve regulatory coherence domestically and with trading partners; 2) Ensuring that privacy and security remain a central focus of the UK’s future regulatory digital framework; 3) Creating a regulatory environment that supports trade and investment and gives effect to relevant commitments, such as transparency, accountability and enforcement, supplemented where feasible by assistance for SMEs including contact points for foreign investors; 4) Working multilaterally and bilaterally to reduce behind-the-border barriers to trade and investment including divergence between regulatory regimes, barriers to cross-border data and knowledge flow; poor transparency; 5) Pursuing bilateral, regional and multilateral agreements to liberalise cross-border data flows, subject to appropriate safeguards for matters such as national security and consumer protection.[7]

 

 

 

  1. Although Japan is relatively more open to foreign trade in digitally traded services than many other developed countries, it still maintains material restrictions on communication infrastructures and connectivity, including restrictions on cross-border data flows and electronic transactions. The UK-Japan Comprehensive Economic Partnership Agreement (CEPA) contains a modern chapter on digital trade which should be replicated in future FTAs. There are a number of provisions in its chapter on digital trade reflecting new technologies, demonstrating that the UK takes liberalization of digital trade seriously and acting as a benchmark for future negotiations in this area with countries such as Canada and Australia. These include: clarity on the disclosure of source codes and cryptology; confirmation of the validity of e-contracts and e-signatures; overarching principles on access to and use of the internet; enhanced consumer protection/data protection provisions; clarity on use of government data and associated restrictions; a ban on unjustified data localisation. The CEPA is arguably still weak in terms of transparency with regards to rules on protecting personal information and clarity regarding consumer protections where safeguards may be enforced. There is also a lack of clarity regarding liability when digital transactions cross multiple platforms involving numerous actors or entities. This latter point can be restrictive for the regulated professions and financial services more generally. It may be that joint interpretive statements issued between the UK and Japan can refine these issues as the parties works towards developing its domestic strategy in these areas.

 

 

 

  1. The UK unquestionably needs to pursue digital trade leadership at the World Trade Organization (WTO), including renewing the moratorium on duties on electronic transmissions. Clearly, the WTO’s ‘Work Programme on Electronic Commerce’,[8] has been inadequate.[9] Indeed, the regulation of digital trade at supranational level is incoherent and highly fragmented,[10] with rules derived variably from the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS) and the Information Technology Agreement (ITA). This disorganization inevitably brings legal uncertainty to the companies that wish to conduct their cross-border business activities electronically. At the same time, despite digital trade’s engagement with new technologies, ultimately it is merely another means of conducting international commercial transactions. Therefore, coherent, effective regulation at the multilateral level is conceivable.
  2. The lack of consensus on the correct categorisation of digital products / services is one of the major obstacles for the advancement of ongoing initiatives for e-commerce rules.[11] Currently, digital products still have not been clearly distinguished within the traditional separation between goods and services, revealing the artificiality at the heart of treatment of goods and services in the GATT and GATS.[12] The WTO’s current framework does not recognise that one product could be both a good and a service. The UK could use its new independent position at the WTO to initiate discussions on greater clarity on how digital matters are to be categorized.
  3. One potential means by which these principles may become legally binding is via the GATS Article XVIII. This provision provides that countries ‘may negotiate commitments with respect to measures affecting trade in services not subject to scheduling under Articles XVI or XVII, including those regarding qualifications, standards or licensing matters.’ The UK could push for the creation of an Annex on Digital Trade to be included as a schedule to GATS, enabling Member States to schedule entire service sectors. This might facilitate the inclusion of potentially newly arising services in the light of the rapidly developing information technology sector.[13]
  4. Another way forward at the WTO which the UK could pursue could involve the be through widening the scope of 1996 ITA. The ITA is seen as one of the most ambitious developments in trade liberalisation for the elimination of tariffs for ICT products on the basis of the most favoured nation (MFN) principle.[14] The ITA’s plurilateral structure has allowed more and more WTO Members to join. Currently, the 80+ signatories have covered 97 per cent of world trade in information and communication technology products, such as computers, manufacturing equipment, telecommunication utensils, data-storage media and appliances, various hardware and software.[15] The ITA extended the application of the zero-tariffs obligation to all WTO Members in accordance with the MFN principle. Building upon the ITA could be a good way to build consensus.
  5. Another strategy for the UK to consider, while not through the WTO, is to reopen negotiations on the currently moribund Trade in Services Agreement (TiSA) and thereafter expanding it to cover digital trade. This agreement was an ambitious plurilateral attempt for liberalisation of trade, in services among developed economies with enhanced services sectors. TiSA builds upon GATS, with the idea that certain countries are prepared to go beyond GATS rather limited liberalization. While the major aim of the instrument was service liberalisation, it also aimed at higher market access commitments and deeper regulatory arrangements.[16] Such approach could be useful for digital trade because of rapid changes to the world economy in which digital trade has risen to unprecedented importance. Furthermore, the typical plurilateral nature of TiSA, could be more effective in terms of liberalizing digital trade across a larger number of states since it will bind only those states that are ready to make the concessions.[17]
  6. Finally, keeping in mind the importance of the WTO and multilateralism in trade generally, there is an emerging need for one single comprehensive multinational agreement on digital trade, potentially addressing all issues that arise in relation to cross-border data flows and their impact on commerce in one instrument. The instrument must go beyond the question of custom duties and market access, covering matters such as data localization as well as interoperability and electronic signatures as well as privacy and data protection. An ambitious agreement of this nature would need to provide governments with sufficient sovereign flexibility and policy space embracing concepts such as public interest and public morals as well as national security. The WTO as a global forum for trade relations is capable of addressing these issues in a balanced manner, although this may be asking too much of it, particularly given recent failure to make progress in trade liberalization on matters such as agricultural subsidies. Some commentators have suggested that a new organization should be created – a kind of WTO for digital matters.[18] The UK could consider taking a lead on this approach too, however, it may also be time to accept that the era of globalization in governance may have passed and that smaller, regional-based systems moving more incrementally may be more effective.
  7. Some general principles could be established and formulated as multilateralised into a binding treaty, other issues would be difficult to achieve global consensus (notably data localization) and therefore an attempt to do so may be misguided. With a global treaty, even one with policy flexibility for matters such as national security, the more likely result will be low level commitments with wide exception clauses such that every signatory ends up keeping their laws and policies unaltered. The same outcome could result even if the agreement were plurilateral in nature, perhaps in conjunction with TiSA or tacked onto the GATS as an Annex. With so many states yet to set out their own data policy, a multilateral agreement through the WTO or another global organization may be premature. It would be better to delay reaching an international agreement until more states have carefully analysed the complex considerations that cross-border data flows raise and make policy decisions on how to manage this emerging form of trade.[19] This further intensifies the need for the UK to set out its digital strategy, including on trade and investment, as clearly and comprehensively as possible before seeking to export this to the world (notwithstanding the need for commitments with FTA partners).

 

 

  1. Acceding to the 11 nation mega-regional CPTPP is an excellent development and the UK is quite right to pursue this objective. The UK’s participation in the CPTPP will help promote UK interests as a global leader in digital trade. The CPTPP provides an opportunity to work with signatories with whom the UK has deep cultural linkages especially Common Law countries such as Australia, Canada and New Zealand. Further work on the CANZUK project (Canada, UK, Australia and New Zealand) may uncover even more fruitful common ground on digital matters because of even closer cultural ties. Among CPTPP partners, the UK should seek to establish cooperation on the regulation of Artificial Intelligence through enabling open government data and text/data mining, fintech and other emerging technologies in particular those which have implications for global challenges such as healthcare and renewable energy. The CPTPP is also a chance to advance cooperation on cybersecurity.
  2. More generally, accession to the CPTPP has the potential to offer UK digital service providers an advantage over those outside the bloc. To achieve this, the UK must aim for maximum market access for services delivered electronically across the CPTPP. There is no point to sign up and leave services sectors out of its coverage as the UK can be a world leader in finance, legal and other areas. On digital matters, the CPTPP is a gold-standard agreement in that it encourages unrestricted cross-border data flow, prohibits disclosure of source code and data localization requirements. The CPTPP further recognises the different legal approaches taken by each jurisdiction and encourages the development of mechanisms that promote compatibility. There is more flexibility built into the CPTPP regime than is often realized, with each signatory including various reservations.
  3. The CPTPP has exceptions for public policy which are legitimate and supportive of key public policy issues such as national security. In order for these not to be abused by parties and for clarity for traders and investors, a strong CPTPP secretariat needs to be developed promoting regular dialogue and standard-setting through committees – of particular relevance to the rapidly evolving field of digital trade. The UK should therefore become involved in augmenting the institutional structure into which the CPTPP is embedded. Lastly and more generally, the UK should use its position from within the CTPTPP to encourage the accession of the US, precluding the need for a bilateral FTA with the US. US accession to the CPTPP may be expected to change the agreement’s coverage, however it is just as likely that such changes will be largely cosmetic, much as the updating of NAFTA to the USCMA.

 

 

 

  1. The relevant international laws are those of the WTO – the GATS, the ITA and to an extent the GATT. Other relevant international rules are the 60+ FTAs that the UK has signed, many of which were rolled-over from the EU. For digital, especially important ones are the CEPA with Japan and the UK-EU CPA which has a comprehensive digital trade chapter broadly similar to that of CEPA. The UK’s dozen bilateral investment treaties are also relevant for the protections of businesses engaged in digital trade which are located in the UK or in the territory of a partner country. Finally, the IMF Articles are also relevant in that the require free flow of capital – there is a strong argument to be made that the facilitation of digital trade in financial services may be seen as integral to the fulfilment of this objective.

 

 

David Collins

Professor of International Economic Law

Director, Digital Trade Working Group

The City Law School, City, University of London

 

 

 

 

February 2021


[1] WTO, Communication from the European Union and the United States: Contribution to the Work Programme on Electronic Commerce, S/C/W/338 (2011)

[2] M Burri, ‘Designing Future-Oriented Multilateral Rules for Digital Trade’ in P Sauve and M Roy (eds), Research Handbook on Trade in Services (Elgar, 2016) at 45.

[3] ibid.

[4] B Mercurio, ‘On the Importance of Developing a Coherent Policy Facilitating and Regulating Cross-Border Data Flows’ ITLR 2021:1 [forthcoming]

[5] Ibid.

[6] Ibid.

[7] Ibid.

[8] WTO, ‘Work Programme on Electronic Commerce’ WT/L/274 (1998)

[9] S Wunsch-Vincent and A Hold, ‘Towards Coherent Rules for Digital Trade: Building on Efforts in Multilateral Versus Preferential Trade Negotiations’ in M Burri and T Cottier (eds), Trade Governance in the Digital Age: World Trade Forum (CUP, 2012) at 181

[10] E Fahey, ‘The EU as a Digital Trade Actor – The Challenge of Being a Global Leader in Standard-Setting’ ITLR 2021:1 [forthcoming]

[11] Wunsch-Vincent and Hold (above n9) at 183

[12] M Janow and P Mavroidis, Introduction to Special Issue on ‘Digital Trade, E-Commerce, the WTO and Regional Frameworks’ (2019) World Trade Review

[13] Wunsch-Vincent and Hold (above n9) at 189

[14] H Lee-Makiyama, ‘Future-Proofing World Trade in Technology: Turning the WTO IT Agreement (ITA) into the International Digital Economy Agreement (IDEA)’ (2011) ECIPE Working Paper No 4.

[15] Annexes A and B, including the ‘ITA expansion’ concluded in 2015.

[16] J Marchetti and M Roy, ‘The TISA Initiative: An Overview of Market Access Issues’ (2013) WTO Staff Working Paper ERSD-2013–11.

[17] Burri above n 8, ‘The International Economic Law Framework for Digital Trade’ at 49.

[18] C Beall, R Fay, ‘In the Age of Connection, Disconnected Digital Governance Isn’t Working’ CIGI (28 December 2020) https://www.cigionline.org/articles/age-connection-disconnected-digital-governance-isnt-working

[19] Mercurio, above n 4