The idea of non-discriminatory treatment of products is a core part of many trade agreements.
This might be implemented in different ways. Most favoured nation(MFN) treatment means that signatory countries to an agreement will not discriminate amongst each other. National treatment rules means that countries will treat imported products from signatory countries in the same way as they would their own.
“Non-discrimination of digital products” applies these ideas into the digital domain, to ensure that digital products from countries involved in a trade agreement are not subject to discrimination.
These rules somewhat overlap with customs duties on digital, but these clauses are broader and apply to a broader set of subsidies, tariffs or non-tariff barriers that might be applied to digital goods.
Technical Challenges for digital
Two important technical challenges arise from these clauses in terms of the digital: customisation and multi-territory.
An important question for applying non-discriminatory treatment in digital goods is to understand what “similar” digital goods means.
This can be obvious when digital goods resemble physical goods and clearly fit into standardised categories (audio, visual, games). However, there is growing potential for grey areas over time. Online services (and some forms of online media) can be highly customised. Products can dynamically change over time as they integrate new module or services. In both cases, it may be difficult (or unfair) to identify parallel categories to compare for MFN treatment.
The production of digital goods and services is shaped by multiple cross-border collaborations and combinations. This potentially causes challenges in specifying the origins of digital products or services. With the growth of bilateral agreements with digital clauses, digital goods could also readily include contributions from countries both inside and outside an agreement.
For physical products, such complications have been embedded in complex procedures around “rules of origin”, that have been used to determine when and where such treatments are applied. But there are questions about how this would be apply where goods are produced digitally across borders.
As non-discrimination clauses around digital are being added to trade agreements, an additional challenge is they potentially clash with previous agreements.
An example of this is the WTO, where developing countries have hard negotiated exceptions within GATS that allows them to either favour domestic services or gives them favourable terms on exports to other signatory countries. Such rules have been historically important in ensuring trade agreements come to agreed conclusions.
Developing nations might agree to open their markets to foreign products in certain areas in return for preferences in others. The goal here is to provide their domestic firms time to become competitive as the country opens up.
The challenges in non-discrimination of digital is that it leads to digital services that potentially overrides some of these exceptions. A developing nation may have favourable terms in GATS in certain areas, but similar services delivered digitally may be subject to digital trade rules.
Digital trade chapters have typically referred to ‘digital products’ (i.e. products that are now digitalised) which goes some way to avoiding such challenges around services. Others have explicitly stated priority to previous agreements to avoid some of the challenges and overlaps. Even with potential workarounds, introducing such grey areas is potentially problematic for the future.
Image credit: Flags at the United Nations headquarters 2 – Wikimedia commons – CC Attribution Sharealike