The JSI is one of the most important negotiations because it would be a globally binding agreement in the area of e-commerce/digital trade, and incorporate a large number of countries into such an agreement for the first time.

Previously, we looked at the earlier texts and politics of the JSI: the controversial “plurilateral” structure of the agreement, the refusal of some large developing countries to join the JSI and the potential politics of future implementation within the WTO. As other commentators of the latest JSI release have observed, these points still stand.

Here we want to examine the content more closely. Now that a nearly final text is available, it is possible to dig deeper to examine what has been agreed upon and its implications.

JSI content

Broadly, we can say that the ambition of the JSI is quite modest. There are still some controversial areas (as discussed in the next section) but many of the more decisive aspects of digital trade are not present in this final draft. For instance, rules common in bilateral and regional agreements on cross-border data flows and data localisation are not present.

According to negotiators, one of the main reasons for this is that, frankly, powerful countries are still quite divided on their positions on these big topics. The JSI include diverse regional powers such as the US, EU and China as well as large emerging countries such as Brazil and Indonesia with varying views. Early on, negotiators had already started to talk about a first stage “quick deal” for the JSI which captured the “low-hanging fruit”. Only when this is done will they move on to more challenging issues within future agreements.

This strategy was cemented a year ago when the US changed its position in the JSI. It stepped back from examining data and source code “..to provide enough policy space for those debates to unfold”. With the US not negotiating such issues, it was not viable for them to be incorporated into the agreement at this point in time.

The agreement content (see table below) might then be described as focussing on establishing more foundational rules – encouraging members to become more standardised in areas such as online transactions, authentication, e-contracts and e-invoicing as well as installing effective regulation in areas such as consumer protection and data protection.

Much of the JSI text is written in “soft” rather than “hard” law (as shown in the table). This means that rules are not formally binding within law. Rather countries “endeavour to follow.” or “recognise the importance of..” specific rules. Agreeing to such softer rules can lead to momentum and may push political pressure from change, but provides more flexibility.

Even if these rules might then appear to be “low hanging fruit” and with flexibility, a significant number of JSI members have chosen not to be associated with the stabilised text. This includes Brazil, Colombia, El Salvador, Guatemala, Indonesia, Paraguay, Taiwan, Türkiye and the United States. This list includes a number of the more engaged developing countries in the negotiations and suggests issues still to be resolved.

Notable aspects of the agreement

Perhaps the most controversial component of the JSI text is the article on custom duties on electronic transmissions. The current bi-annual renewal of the temporary “Moratorium on custom duties on electronic transmissions” has become much debated in recent years. Some countries such as India have voiced their desire to end this rule, given the growing extent of digital goods in the economy and the long-term potential to cannibalise tax revenue.

The JSI makes this Moratorium more permanent. Although the JSI includes a “five-year review” of the rule, this is different to the current temporary moratorium which simply ends if WTO members do not agree to renew it at every WTO Ministerial meeting. This more permanent commitment to not implementing customs duties will be controversial to many. Likely, it is the reason for several of the non-signatories.

A second component of interest in the JSI is a long article on telecommunication regulation, including an annex on this topic. As commented in the earlier post, the presence of this in the agreement is an oddity. It is something that is already part of other agreements (GATS and telecoms agreements) and somewhat different to the broader digital trade discussion in the JSI. The justification made for this would be that digital trade requires sound telecom regulation as a foundation. But it feels out of place compared to the focus of the agreement.

For those who have signed the WTO “Telecom reference” paper previously, this inclusion might be uncontroversial – a rewording and extension of best practices in telecoms. But others have only partially agreed to the telecoms reference paper. For example, Thailand is an advocate of digital trade but in telecoms has included several exceptions and modifications in its GATS schedules. For such countries, agreeing to telecoms reform by the backdoor then is quite a significant step.

Beyond these two aspects, other articles allude to how such rules may limit policy space around emerging technologies. For example, does the binding text that countries “cannot prohibit parties from determining” e-authentication methods (A6) cause issues with Digital Public Infrastructure being implemented? Does the binding text granting public e-payment access to domestic payment and clearing systems (A10) limit important policy space in regulating central bank digital currencies (CBDC) in Asia? Such questions would require further technical analysis but suggest invisible dangers exist in even more innocuous rules.

Finally, it is worth highlighting the new aspect included in this agreement. A new exception called a personal data protection exception is present. In previous digital trade agreements, these exceptions tended to be highlighted within specific rules (such as those around free flows of data). Clearly, these previous forms of exception did not go far enough for parties such as the EU, Brazil and China who have stronger personal data rules. This exception then more unambiguously highlights this across the agreement, even though data flow rules are not part of the current JSI draft.

Is the JSI a development-orientated agreement?

As emphasised in the preamble to the text, the convenors strongly position the JSI as a developmental-orientated agreement. It 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”. So it is worth examining what is included in the JSI text in this respect.

Article 20 provides a specific article on the development aspects. These outline soft rules around mechanisms for technical support and capacity building between more and less advanced nations. They provide more detail on the mechanisms than is usually covered. Nevertheless, it is difficult to assess the impact that this might have in terms of support and funding for implementation.

For developing countries (as defined by the UN), extensions can be taken up on specific provisions in the JSI, including a five-year implementation period, with a potential extra two-year extension. LDCs are also excluded from dispute settlement mechanisms for seven years, as are developing countries when they seek the implementation periods above.

Given that for the most part the rules are less rigorous, this provides relatively generous periods. However, unlike other agreements such as GATS and the Trade Facilitation Agreement (TFA) which define more flexible endpoints, the JSI specifically expects convergence in rules once implementation periods are over. Latecomer countries considering domestic industrial policy and specific digital infrastructures may find this idea of convergence in all these areas as limiting to their future ambitions.

With debates on digital development increasingly entwined with sovereignty, another interesting clause is the one on indigenous peoples (A26). It mirrors an earlier “Treaty of Waitangi” exception pushed by New Zealand in the earlier DEPA agreement, which supports the ability of Māori to assert and maintain sovereignty. How this new flexibility translates in the digital sphere is still up for debate, but this highlights an important clause in potentially allowing for certain types of sovereignty and control that move away from the straightjacket of technology convergence.

Summary

Overall, a provocative summary of the JSI “stabilised” text is that it is an agreement to make a ban on customs duties on electronic transmissions more permanent, with a few extra add-ons! Certainly, in comparison to other articles, this is the one which is more likely to make or break the inclusion of developing countries.

After earlier drafts, the inclusion of considerations of development has grown in this version, although some might still see these as limited – they hold hidden risks to “policy space” in terms of emerging technology and those who seek diverging technological pathways in the long term.

Beyond the content, as we discussed elsewhere – we need to admit the JSI is much more than its content, and whether this agreement can be done or not will be dependent on the broader politics that face the WTO as it moves forward.

The post What’s in the WTO JSI “stabilised” text? appeared first on Digital Trade Tracker.

An important question for researchers would be whether the current rules and logistics systems genuinely support such small firms. If these favour larger firms or foreign sellers, they may be the ones who benefit from expanding e-commerce apps and platforms.

A key area of policy are the fundamental rules on how goods are imported and exported when they are sold on e-commerce platforms. Recent research shining a light on such rules highlights a complex and understudied area of policy [1]. Below I will argue that prevalent directions, although pitched as developmentally beneficial, are much more ambiguous and could lead to counterintuitive and problematic outcomes.

The role of small-package logistics

Many cross-border marketplaces in the global south, such as Jumia, Lazada and Shopee operate using cross-border platform models. Rather than running operations within a single territory, they operate regionally integrated business models.

In comparison to global north countries, this results in major differences in how logistics are organised. Where e-commerce platforms operate marketplaces independently in each country, the “downstream logistics” to the customer takes place in-country (i.e. from a local warehouse to a local customer). In contrast, in cross-border platforms, goods being sold may not be available in local warehouses. When a consumers makes an order, logistics then have a cross-border component.

The most common way such goods are transported across borders is through “small-package trade”. Sellers on marketplace platforms will package each sale individually, sending them through cross-border delivery or third-party (3PL) logistics firms such as FedEx, DHL and many others.

Why small package trade is a norm, is a quirk of history. Prior to the Internet, parcel trade was seen as a niche, individual-to-individual exchange. Under the assumption that these parcels were low volume and low value, they were subject to lower regulation (in comparison to general trade) making them quicker and cheaper.

This is specified by so-called de minimis rules on trade (roughly translated as “lacking significance or importance”). So the argument goes, the cost of trade regulation, taxation or other documentation checks for small packaging trade would have higher costs than benefits. As such they are less regulated.

As e-commerce trade has expanded globally, small parcel logistics has rapidly expanded particularly in global south countries. What does it mean when these rules, that are a quirk of history, become mainstream?

Small-package logistics for the digital age

When e-commerce is in its infancy in a country, small package logistics can support the emergence of digital marketplaces. As cross-border models expand though, countries may struggle to handle the unruly volume of small packages. This will require investments and upgrading to allow small package logistics to work in the digital age.

Support has readily come from private firms and donors. When the Russian postal system was reportedly struggling under the weight of small packages, it was Alibaba that stepped in to support and invest. Other marketplace platforms, global logistics firms and payment providers have also readily supported this through investments, partnerships and technical support.

There has also been action at an international level. Rules on small packages can still be variable across different countries [2]. Discussions within the WTO and regional “digital trade” agreements have begun to touch on these topics [3]. The goal here is that countries make binding commitments to equalise rules on small packages for e-commerce. Ambitions often go further than this. Global south countries are pressured into higher threshold levels – allowing higher-value goods to be considered small packages – with more agile cross-border e-commerce potentially emerging.

These campaigns for expanded small package logistics have been closely associated with development. Within major discussions on “e-commerce for development” or “aid for e-trade”, maximising small package trade is seen as a key to pushing SMEs in the global south to be part of regional markets. So it is argued, in the digital age, we need to remove any logistics barriers to allow creative “micro multinationals” to operate more regionally or globally.

The deregulatory dynamics of rules

There is, however, another side to this debate. The emergence of small package logistics in e-commerce is having major regulatory challenges. Goods that go through traditional general trade (i.e. imported/exported in bulk) are supported by a well-agreed global system with regular tariffs, rules, procedures, checks and taxes. As more goods move through small package delivery these rules are side-stepped by the less regulated system of small package trade.

This has significant implications. The most direct impact is that it often gives foreign firms an unfair advantage in cross-border marketplaces involving global south countries. With e-commerce small packages not needing to go through detailed checks and with lower taxes, foreign firms may be at an economic advantage (including lower taxes and regulation) over local producers (who pay local taxes, VAT etc).

Evidence from Malaysia, for example, showed some such evidence when the country upgraded its small-package systems [4]. Even though a few local SMEs were able to gain through integrating better with Chinese platforms and exporting small packages, this was dwarfed by the expansion of cheap online goods imported into Malaysia. Local firms were being “crowded out” by Chinese imports – leading to net national losses.

With e-commerce expansion, regulation may also begin to risk eroding an important tax base. For many developing countries, industrial policies have also been an important measure to develop local skills and industries. One way these are applied is through tariffs or quotas on foreign trade. For example, by focusing policy on imports of certain goods (such as clothing, machinery, and certain technologies) a country might seek to support domestic industries in this area. Within the deregulated system with expanding small packages, these strategies become more difficult.

Conclusion

Small package logistics is rarely discussed and when it is, it is seen as a developmental good. However, with significant tensions and choices to be made by developing countries, there needs to be more critical analysis. At present, there has been a strong skew towards pushing small package logistics expansion in the name of efficiency and development. But it might be useful to consider this further. There needs to be a discussion of alternative approaches that have longer-term benefits for smaller nations and reduce the risks of deregulation and crowding out.

As an illustration, Chinese policymakers, well aware of the growing challenges of small packages e-commerce have sought to radically reform their e-commerce logistics systems [1]. In legislation enacted in recent years, rather than deregulate small packages, they look to redefine and guide cross-border e-commerce much more strongly. Although these Chinese rules have their own challenges, they highlight that there may be alternatives to the small-package logistics orthodoxy for digital marketplaces.

Originally posted on the CDD blog

References

Foster, C.G. (2023) Shaping a Digitalising Infrastructure: Logistics and the Dynamics of Chinese-Southeast Asian e-Commerce, Digital Development Working Paper Series, 102, University of Manchester, Manchester, UK.

The post The minor rules shaping the development impacts of digital marketplaces. appeared first on Digital Trade Tracker.

The WTO “Joint Statement Initiative on E-commerce” (E-commerce JSI) may not have been concluded or formalised during the bi-annual Ministerial Conference (MC12) in June, but it remains very much at the forefront of discussions on digital trade.

As the previous blog on the JSI negotiating positions summarised, one of the major questions about this negotiation is not about the content, but process and if such a plurilateral agreement is legal within the WTO system. Since then, this debate has intensified, and this blog will outline some of the discussions.

Implementing an e-commerce JSI

WTO agreements are decided by consensus, meaning they will not come into force unless they are agreed upon by all 164 WTO member states. Plurilateral agreements, where only a subset of members are involved, have been incorporated into the WTO in the past, but rarely and only under very specific circumstances.

The E-commerce JSI discussions have been notable for the fact that several WTO members have decided not to join negotiations. So for this agreement, a key question has is how it could be legally implemented within WTO rules and regulations.

What is at stake was illustrated in strongly worded communication from India and South Africa in March 2021. These two countries, who have been outside the JSI, suggest that it would break the “Marrakesh Agreement” which defines major WTO rules.

Similar sentiments have been echoed in more detailed analysis, suggesting that E-commerce JSI negotiations might face barriers

JSI parties are likely to face challenges if they are to consider negotiating the JSI as a plurilateral agreement…..consensus from the WTO membership is likely to be required. Garnering consensus has not been possible to date and would be expected to be onerous in the future

However other nations, including the lead negotiators of the JSI (Australia, Singapore, Japan) remain convinced that they can push such an agreement through in the future.

More insight on how they see this happening comes from a major source of guidance – an opinion from Geneva-based law firm King & Spalding written by Hamid Mamdouh. (Mamdouh is a former Director at the WTO, and a trade negotiator from Egypt once going as far as standing as a reform candidate for the WTO director-general).

Although this opinion [not available publicly but with some copies online] argues that plurilateral negotiations are consistent with WTO rules, its major message is that the negotiations will be

…political in the first order….WTO rules were made by Members and can be changed by Members.

The above quote is crucial. It suggests that the path for the e-commerce JSI is likely to be linked to a change in the rules at the WTO (this is more overtly expressed in Mahdouh’s presentation at the 2021 WTO public forum).

This provides the basis for the JSI to continue to negotiate. There is an expectation of the need for (unspecified) political actions needed in the future for the e-commerce JSI to come into force.

The WTO 2.0

The idea might initially seem far-fetched. No matter how important digital trade is, it might seem unlikely that such a large amount of political capital would be spent on ensuring that the JSI is ratified. But the e-commerce JSI is not the only plurilateral agreement emerging.

Over recent years, other areas of plurilateral negotiation have been revived or sprung up in areas such as domestic regulation and investment facilitation.

Some see such JSIs as the heart of how a future WTO would work (the so-called WTO 2.0). Stalled agendas would be pushed forward through a set of plurilateral agreements at the WTO, with E-commerce as just one strand of a broader agenda.

These pluilateral directions are also becoming visible in discourses in more liberal countries, with arguments being built as to how this reform can be beneficial to all nations. In the UK for instance, a recent report on the future of plurilateral agreements by the UK Trade Policy Observatory, a government-sponsored policy research group, argues that such initiatives would be beneficial even for developing countries

…once they [developing countries] have the security and ability to stand aside from new agreements, the nervous or indifferent might no longer feel the need to veto them.

This would reduce the ability of ‘the system’ to bring laggards along i.e., to muscularly encourage reluctant parties to liberalise – but equally, it would greatly reduce the incentive for those laggards to hold everybody else back.” (p6)

Opposing voices

For those who oppose the JSIs, these future directions are problematic because they move towards a WTO where consensus is not required.

In a response to the King & Spalding option, Auckland-based legal and trade scholar Jane Kelsey discusses these ideas in some detail. In her paper, she examines the legal opinions related to JSIs. But more critically, she pushes back on the idea that the JSIs should instigate political actions to move forward.

[Actions]…must be legal in the first order….[and going outside this]….would seriously undermine another foundational tenet of the WTO…

In contrast to this bringing benefits to less powerful nations, Kelsey argues they might not be represented within new rules, if consensus is not necessary.

…if the JSIs are legitimised, the voice of the Global South, already foresaken in the stagnant Doha round, will become even more marginalised in the WTO.

The positions gives just a flavour of the recent debates surrounding the e-commerce JSI and how it links this into a broader discussion about the future of the WTO.

The legal question about how to implement a plurilateral e-commerce JSI is increasingly entwined within broader discussions about plurilateral agreements at the WTO. How these questions pan out appear to be core to how the WTO will operate in the future. Will the WTO operate within new remits defined by plurilateral groups of powerful nations, or will a new direction or consensus be found?

Image source: “World Trade Organization: MC12 – Day 3 – 14 June 2022” (CC BY-SA 2.0)

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Return of the US to global governance? OECD digital tax.

Discussion about the global taxation of firms has become increasingly controversial. One aspect of this has been the digital economy. Given that it is common for digital firms to operate at distance and outside the territory of consumers, this poses challenges for how taxes are defined and collected.

Smaller and less powerful countries often face specific tax challenges, with the digital economy more dominated by foreign firms. Digital tax has also become a more significant issue as a result of the COVID-19 pandemic driving growth in the digital economy. Governments see risks in such shifts – reducing the national tax base away from local firms towards remote ones outside their jurisdiction.

Before the crisis, we already saw European countries (such as UK, France and Turkey) implementing “digital service” taxes. Over the last six months, a broader range of countries have begun to adopt similar rules (see image below), most notably a group of emerging South Asian countries – Indonesia, Cambodia, Vietnam, Thailand, Philippines and Malaysia.

In this region, nations are looking to implement a tax on foreign digital companies as well as better track platform e-commerce sellers for VAT and tax purposes.

The OECD has become the major global forum for discussing these issues with proposals from 2013 onwards. Until recently lack of progress related to US opposition under the Trump presidency; the US position was that digital tax initiatives would have a discriminatory impact on US-based tech firms who are by far the most successful in terms of global reach.

The lack of progress at the OECD led to countries unilaterally implementing digital taxation schemes, such as those mentioned above. This has come even in the context of strong political pressure to stop unilateral activity. For example, UK and France have been publicly warned of trade reprisals by senior US officials and a US “Special 301” investigation on trade barriers in European countries remains in progress.

Following pronouncements of President Biden towards renewed international engagement, there has now been confirmation that the US will support the “two pillars” of the OECD tax rules.

These pillars – a minimum global corporate tax rate for multinationals; and taxation of profits based on the location of customers – are the foundations of reformed tax rules in the digital sphere. Nevertheless, Biden’s team will likely still push for rules that reduce the overall impact on US tech firms in negotiations.

Examining emergent digital tax rules in different countries reveals a diversity of agendas in this domain. For example, implementations in South East Asia push rules on taxing foreign platforms and making e-commerce trade more legible, which might be less discussed at the OECD.

The potential for agreement on OECD tax rules is an important step forward on tax. But given US power and the corporate pressure negotiators will face, close attention will be needed to ensure it does not water-down impact for countries outside the US.

New forms of governance? UN Digital cooperation

The “UN High-Level Panel on Digital Cooperation” was launched by the UN secretary-general in 2018 to examine global cooperation and trust in the digital sphere, with a focus on the SDGs. The panel was chaired by Jack Ma and Melinda Gates with the panel reporting in 2019.

Many of the actions of the Panel were relatively uncontroversial with calls for the UN to renew engagement in key areas such as human rights online, cybersecurity and building digital capacity.

As the panel report has moved into implementation, a more controversial focus has been on implementing updates to UN governance mechanisms for digital. In particular, it was suggested that a “new strategic multistakeholder high-level body” would be formed that would coordinate steps forward.

This goal aligns to the critique that the UN has failed to have a strong policy influence in the digital arena (unlike say OECD on digital tax and WTO on digital trade). The UN does convene important multi-stakeholder bodies such as the IGF (internet governance forum), but so far these have had limited policy making power.

A “high-level body” as a way to push policy making functions within the UN has provoked unease amongst civil society actors. A particular fear is that this effort will move focus away from the multistakeholder and inclusive spaces such as the IGF and WSIS.

Rather than look to reform these more open spaces towards a policy function, the “high-level body” proposal suggests less open mechanisms of discussion, with fears of capture by corporate agendas.

This unease cumulated in a letter written by the JustNet Coalition made up of 170 civil society groups in March 2021 that articulated these fears. “What we are most concerned about here is the completely unacceptable over-reach”.

The letter continues to suggest that the UN should “immediately withdraw the proposal for a High-level Multistakeholder Body, since it would become the de facto body for ‘global digital governance’ “.

Platforms as governors? Apple’s new tracking rules

IDFA (Identifier for Advertisers) is an interface that allows tracking of Apple users across different sites and apps. As part of their focus towards privacy, Apple has recently implemented new rules that resulted in consumers being alerted to this type of tracking and having to opt-in. It is expected that the majority will opt out.

What is interesting is that this seemingly small decision by Apple promises to have spillover impacts across a whole ecosystem of digital organisations. Apple has argued that this change is important to reduce the impacts of questionable tracking behaviour, particularly by third-party ad networks.

There are suggestions, however, that it will unevenly impact smaller firms. Dynamic online sellers and digital marketing firms often look towards marketing-led and a niche focus, using targeting mechanisms such as IDFA to profile customers. Such firms claim that changes will impact their business models.

There have also been suggestions that Apple’s goal of improving security and tracking may not be the main agenda. Associations of small firms involved in the digital economy (in France, Spain and Germany) have argued that this change should be seen as anti-competitive. This is simply a dominant digital firm using its platform power to push users towards new Apple marketing products and ad platforms.

Whichever side one sits towards these arguments, this development illustrates how large firms have significant governance power across (international) ecosystems of firms. We might see such rules in parallel with other frameworks that look to regulate the data economy such as data protection rules.

Emerging data protections rules provide important new protections on data, but with their drawn-out processes of litigation and many grey areas, there is evidence that they have a limited impact, with major power remaining within decisions by large tech firms and their implementations of data tracking systems.

In the run-up to the Apple changes, we also saw an attempt by China to define a publicly supported standard called CAID. This would look to standardise tracking activities across platforms, reducing dependency of single platform firms. In China this was being developed by digital giants such as ByteDance and Tencent amongst others.

This initiative has so far been rebuffed. Apple warned Chinese firms that such implementations would be outside their terms of service and their apps would be taken off the Apple store. There is the potential for this to become an area of significant tensions between China and Apple in the future.

Digital profiling and data are at the heart of business models in the digital economy. Therefore, regulation of such activities will be important to consider further. This is particularly true as new data initiatives on the horizon promise similar conflicts (such as new standards for web cookies, and how Google and Facebook respond to Apple’s new rules).

Clearly, these have a global impact. But there is little understanding or clear consensus of how rulemaking might be evolved.

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Background

Following the failure of WTO members to push extended e-commerce negotiations during the 2017 Ministerial, a sub-group of members came together to push forward under the Joint Statement Initiative (JSI). The JSI includes 76 nations, and while including larger countries does not represent the full WTO membership. Notably, a significant number of developing countries have chosen to remain outside the JSI, including India and South Africa. These countries argue that the JSI discussions are problematic from the start in terms of them being skewed towards developed country agendas, failing to address previous unresolved WTO issues, and with impacts on domestic policy space.

Recent events across the globe, however, suggest a renewed impetus around the JSI. The COVID pandemic has driven rapid expansion in digital technologies with some countries seeing this as a motive to push forward new rules at the WTO. In the US, President Biden’s appointment suggests more support towards international negotiations. At the WTO, the recently elected DG, Ngozi Okonjo-Iweala is also known to be supportive of pushing digital trade forward. With the 2020 Ministerial now rescheduled for Geneva in November 2021, there is likely to be significant discussion around the JSI in the run-up to this event.

Key issues

1) The nature of the JSI

It is first worth reflecting on the nature of the JSI process as this will likely be core to debates. As a process involving only a sub-group of WTO members, and with the strong resistance of WTO members outside the JSI, how might such an agreement be implemented? As UNCTAD highlight in a recent progress report, there are two options: one to get it agreed within the WTO, the other to spin it out in a similar way to recent Regional Trade Agreements.

While either option is possible, both will require significant political capital from those involved. Any moves within the WTO would be significantly limited by the strong opposition of WTO members who were not part of the JSI negotiation, and although there are workarounds, they appear challenging. Moves outside the WTO would be controversial and given the current scope of the text, such an agreement might itself sit outside other WTO rules. So, perhaps more important than the JSI text itself will be the politics of shaping an agreement, and what this will mean in terms of countries across the globe.

In response to opposition, key nations had sought to affirm that the JSI would embed strong development objectives. Looking at the early texts though, this goal seems to have dissolved. The text is mainly made up of contributions of just a handful of countries – US, EU, China, Japan, Korea, Singapore, China and Canada – and the focus clearly reflects these countries agendas. As highlighted by her analysis of the implications of the text for developing countries, Banga further points out that “out of 43 developing countries which are members of the JSI, not a single proposal on any of the negotiating issues has been received from 30 countries”. While there are nods to “cooperation” and “capacity building” there should be no mistake that, in its current form, this is an agreement primarily crafted by a small number of powerful nations.

2) Positions on key issues

The negotiation drafts outlines the different sections, but given the early stages of negotiation it is difficult to gain insight. It is clear though that key issues (that this site has covered in more detail elsewhere) will be the main area of debate amongst JSI negotiators, such as rules on data localisation, free flows of data, custom duties on digital goods and source code requirements, which are all present in the draft with significant numbers of annotations.

For such texts, much of the implications will be in how they are implemented. What clauses are included that exempt different actions or sectors are liable to have significant economic implications. Already there appears to be issues:

• Rules requiring free-flows of data and the interpretation of what “legitimate public policy objectives” mean, and who will be able to claim these.
• How “electronic transmissions” are interpreted within rules on custom duties on electronic transmissions. Suggestions are that the current draft has a problematically wide scope.
• If rules preventing sharing of source code will include algorithms. With the growing role of algorithms in society, and the need for states to verify, monitor and audit these, any inclusion could be problematic.

3) A shopping list of additions

Many countries are seeking to add on a range of additional clauses. Often these come from outside the rules on e-commerce and digital trade that have been seen in other agreements.

Many of these will not make it to the final text, but some might do. While this approach to ‘add-ons’ is not a surprise, it highlights again the problematics of opaque trade discussions where, with a lack of attention, significant global rules could slip by almost unnoticed.

The table below outlines some selected issues that may require more attention. It also highlights the politics of these by suggesting key actors who are driving such rules forwards.

Summary

No doubt this site will come back to the JSI as discussions become clearer. The three aspects mentioned above should be important areas of attention, particularly for those concerned about this agreement in terms of equitable global impacts.

Political manoeuvring around implementation will determine the direction of the JSI and which countries are included. More importantly which countries find themselves pulled, voluntarily or involuntarily, into such an agreement.

Specific rules within key areas potentially have major implications for their impact when they are implemented. This requires close attention to how rules are being authored and discussion of their global implications.

Tracking additional ‘tag-on’ rules is vital to avoid later issues. With less precedence, these require further attention to clearly understand the implications and drivers. These rules also suggest more fundamental limitations in creating digital rules within the trade regime – centring on the unclear scope and the lack of transparency in the process.

Further reading

Banga, R., 2021 Joint statement initiative on e-commerce: economic and fiscal implications for the south.

UNCTAD. 2021 What is at stake for developing countries in trade negotiations on e-commerce?

The post A first look at the WTO/JSI discussions on digital trade. appeared first on Digital Trade Tracker.

RCEP agreement

The RCEP (Regional Comprehensive Economic Partnership) draft was signed earlier in the month incorporating 15 Asian-Pacific nations into a new trade agreement (Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, the Republic of Korea, Singapore, Thailand and Vietnam).

RCEP includes a full e-commerce chapter. The chapter text can be found on the Australian department of trade site. The e-commerce chapter is quite extensive, with clauses mainly focussing on supporting the environment for E-commerce and supporting digital trade facilitation. This makes sense in supporting the emergence of cross-border trade where a number of the countries involved are still in the process of setting up regulation in this area.

The e-commerce chapter includes clauses on three more debated issues, customs on electronic transmission, data localisation and cross-border transfers, but all are relatively broadly defined, ensuring that signatories have policy space within these areas.

• For custom duties, the agreement is defined in terms of the parallel WTO discussion on this issue. As all signatories are already WTO members, this clause only reaffirms previous agreements and effectively delegates future agendas in this area to WTO negotiations.
• On data localisation, signatories agree not to require data localisation, but the article includes clauses that allow such rules to be put in place for reasons of “security and confidentiality of communications” and “legitimate public policy objectives”. In addition, for a number of developing countries – Cambodia, Lao, Myanmar and Vietnam – these rules are delayed. Overall, this article therefore suggests a desire to reduce data localisation, but with weak binding rules in this area
• The cross-border transfers article follows similar wording to the one on data localisation, with security and public policy clauses. Bearing in mind signatory countries such as China and Indonesia have rules that already restrict certain cross-border data transfers, it can be assumed that this rule is likely to have relatively weak enforceability.

Commentators who have been pushing for binding global digital trade rules, expressed disappointment with RCEP in terms of it being relatively weak, with some suggestions that this was a success for China in setting multilateral agendas.

But it may be that the approach to digital trade in this agreement is most appropriate. This is particularly the case where the agreement includes a number of smaller nations where digital economies are still in their infancy. It provides clear direction and frameworks towards regional e-commerce but without forcing nations into broad binding rules where the implications are not yet clear.

UK-Japan agreement

The UK-Japan agreement is the first of a number of major bilateral agreements to be struck by the UK as it leaves the EU and is likely to signal the UK directions going forward.

If RCEP is relatively weak agreement in terms of digital trade then the UK-Japan e-commerce chapter is far stronger. It includes all the major digital trade rules including rules preventing custom duties, source code/algorithm requirements, prior authorisation, cross-border flows and data localisation. Given the UK position on open trade, this is not unexpected. It looks likely that the UK will become one of the stronger advocates for global agreements on open digital trade in the coming years.

Key critiques about digital trade in this agreement have most strongly focussed on the lack of transparency in the process, with very little scrutiny or discussion on what these rules might mean for firms in the UK . The implications of free flows of data is particularly concerning, given that the UK is seeking an “adequacy” ruling within the EU GDPR and the potential costs of not achieving this are significant.

It remains unclear how having a free flows agreement with Japan will work alongside the requirements of ‘adequacy’ with the EU GDPR. Some commentary has gone further, suggesting that where multiple agreements lead to overlapping data flow rules there are risks to data privacy and potential for ‘data laundering’.

Apps blocking

Discussions around state banning/blocking of apps continue. The Indian Electronics and Information Technology ministry has expanded the number of Chinese apps that it has blocked. This round included a number of important Chinese business apps including Alibaba’s AliExpress app, and business communication app Dingtalk. Such exclusions are likely to be impactful on cross-border trade between India and China if the ban remains in place in the longer term.

Meanwhile in the US, ByteDance has had a number of extensions to its deadline as it looks to resolves US concerns around social media app Tik-tok under threats that it be banned in the US. Originally Bytedance proposed a partnership with Oracle as an attempt to meet requirements, but it is unclear if this was sufficient to satisfy the US administration. Adding to the complexity, the issue appears to have gone off the agenda during the election crisis in the US. At the moment ByteDance has been given another weeks extension, and it is unclear how this issue will be resolved during the transition between Trump and Biden.

The broader point here is that how these cases are resolved is likely to be important in terms of directions of digital trade. With two of the largest countries enforcing app bans (and China in addition controlling domestic apps stores), fundamental question need to be asked about the viability of rules enforcing open digital trade in other countries. This case also suggests the need for further discussions on how to differentiate between actions that are associated with national security and those linked to economic goals.

EU data flows after Schrems II

The successful “Schrems II” case was brought by privacy campaigner Max Schrems at the European Court of Justice earlier in the year. It looked at the legal validity of EU-US data flows. One of the outcomes of the successful case was the invalidation of so-called “standard contractual clauses” (SCC), an important mechanism which enables data flows outside the EU. The courts judgement suggested that the SCC did not provide sufficient protection for EU cross-border transfers to the US and in response, the EU has revised the SCC.

The discussion on SCCs, an obscure contracting mechanism, are difficult to follow for those from outside a law background, but the implications are significant. The SCC is an approach that allows firms to transfer EU data across borders even where countries have not reached EU adequacy rules. It is also the way that many US multinationals have enabled cross-border data flows from the EU. If the old SCC were already a challenge for medium-to-small firms to implement, according to commentators the new SCC is even more onerous, if not unachievable.

The major focus of discussion has been on SCC in terms of EU-US data flows which was part of the Schrems case. However, firms across the globe with ambitions to engage with EU consumers are likely to be looking to this ruling. These changes add futher significant barriers to accessing EU data. It will be interesting to see how countries deal with these changes, particularly in regions that have ambitions to become outsourcers of EU data, suppliers of e-commerce or integrated in EU business processes.

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Will the FTA include digital trade? The signs suggest it will! The USTR’s announcement of negotiations highlights the digital economy as an “area of cooperation”; Kenya has included a section on digital trade in their negotiating objectives.

So, this could be the first FTA involving an African country to include a substantial digital trade section. This post will highlight some of the potential challenges that Kenya is likely to face in putting together such an agreement.

Uneven negotiating

One of the key challenges of such an agreement is that it pits a team of expert US negotiators against a much smaller set of Kenyan ones, with less resources at their disposal.

Already there has been questions asked regarding the negotiating teams in Kenya. Kenyan tech expert Ali Hussein, shared a list of some of the private sector delegates chosen to be involved on the Kenyan side. He highlighted concerns that personnel involved include a number of staff from US companies like Coca-Cola and Bechtel with potential conflicts of interest.

Looking at the list, this criticism seems to be particularly relevant to the digital area – three digital experts appear, two from IBM and one from Google!

Given the newness of applying digital trade rules in the African context, it will be crucial that such rules are carefully negotiated. Ensuring inclusion of Kenyan expertise in areas such as mobile, fintech, ICT for development and innovation hubs, for example, would be important to provide insights that feed into negotiations.

Negotiating objectives

Kenya has released a detailed set of negotiating objectives. On digital trade it describes four objectives (paraphrased below):

• “gradual regulations” around digital trade and cross-border flows “in line with the countries development agenda”
• Strengthening e-commerce
• frameworks to strengthen innovation and entrepreneurship ecosystems
• “strengthening…infant incubation, acceleration and innovation hubs”

These are a reasonable set of goals (if a little unclear in terms of how they would translate into specific rules). It also aligns with some of Kenya’s strengths in digital innovation and emerging e-commerce.

But there are questions if these will be achievable. The US in recent trade agreements has been demanding stricter and more binding digital trade rules. What they see as ‘standard’ rules includes free-flows of data, agreements preventing data localisation and undertakings on custom duties. This departs greatly from the stated Kenyan objectives of “gradual regulation” and “infant incubation”.

If the US look to impose strong binding rules in Kenya, then this will potentially restrain certain domestic objectives in the digital economy. Specifically, regulation of fintech and apps, online media distribution and taxes, and localisation rules for mobile money are areas that will need close consideration. This is particularly the case as Kenya is defined by a strong presence of international tech firms, where digital trade rules could be more relevant.

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Several questions come out of these agreements:

1. Why are these countries signing new digital trade agreements?
2. How do these agreements relate to previous agreements made by countries involved?
3. Why have we seen standalone chapters on the ‘digital economy’ rather than as part of broader FTAs?

I will discuss these questions below:

Advocates of digital trade

In terms of the countries involved, such as Singapore, Australia and Chile, these countries are well-known advocates for open trade in general. For example, Singapore has historically supported trade, which has been core to its success as a global trade hub.

So, it is natural that these countries would be the leaders in supporting global digital trade rules, which support trade flows. Indeed, Singapore and Australia were two of the three countries (alongside Japan) to launch the Joint Statement Initiative (JSI) at the WTO following disagreements around the E-commerce agenda.

One perhaps surprising observation is that all these countries are signatories to the recent CPTPP (signed in 2018), and this already includes an extensive “Electronic Commerce” chapter. Why might the same countries sign another agreement on the same topic so quickly?

There are two options: firstly, perhaps specific rules in the CPTPP were seen as lacking, and these countries wanted to go further. Secondly, it might have an important symbolic role. Let’s examine these two options….

The CPTPP vs digital economy agreements

I will leave it to the law experts to undertake detailed analysis, but a brief look at more controversial digital trade rules highlights minimal differences around these contested areas (see table)

Examining the texts, the main difference is not significant changes to key rules, but that the two digital economy agreements are more comprehensive in coverage. The new agreements cover a number of new issues rarely seen in digital trade chapters. Examples include single windows (linked to import-export), express delivery (linked to e-commerce), digital ID and AI amongst others.

However, overall the actual clauses on these new issues is weak in the digital economy agreements (e.g. They commit to very mild rules or futher policy sharing). Given that these rules are weak, one can question if these new digital agreements are really necessary – the actual rules are unlikely to change much on the ground in these countries.

Symbolic role?

As suggested by commentary from Deborah Elms from the Asian Trade Centre, such agreements actually feel more like a “set of modules” for use in the future.

Rules on digital trade are still a relatively uncontroversial area in many countries (as highlighted by the lack of critical discussion on these two agreements). This means it takes less political capital to agree to digital rules between these aligned countries. By including only digital trade, these agreements sidestep more divisive issues outside this.

SADEA and DEPA, alongside the US-Japan Digital Trade Agreement (agreed in late 2019) might then be seen as “quick digital deals”. They push the agenda forward on digital trade. They allow liberalising countries to keep the momentum on this issue, particularly in the midst of the emerging trade wars.

But more than this, they define an expanded set of issues which grounds upcoming negotiations and discussion linked to e-commerce in the next WTO ministerial (which was cancelled due to COVID).

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We may also add more detailed analysis, opinions and comments over time.

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Chris

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