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TWN Info Service on WTO and Trade Issues (Apr19/17)
19 April 2019
Third World Network


Development and E-com free flow of data rules are incompatible

Published in SUNS #8891 dated 18 April 2019

Geneva, 17 Apr (Chakravarthi Raghavan*) – Digitalisation of national and global economic activities is becoming more and more pervasive, and so are its impacts on development, in particular the development of developing countries.

At a time of many unknowns in rapidly evolving digital technologies and their linkages to economic activities, and with still little understood implications of these even in advanced countries, current efforts by a minority of WTO members to frame trade rules and disciplines in this area are highly premature and would impact negatively on the development of developing countries.

Such rules as have been envisaged merely try to cast in stone existing business models of the few technology giants, guarantee them free access to the raw material of data owned by individuals, communities and countries, and ensure oligopolistic control by the few firms (based in the US and China).

These were some of the key messages that emerged out of a panel event on 2 April (during the 2019 UNCTAD eCommerce Week in Geneva).

Speakers at the event included Ambassador J. S. Deepak (Indian Ambassador to WTO), Ms. Vahini Naidu (Counsellor in South Africa Mission to WTO), Ms Deborah James (Director of International Programs at Washington DC-based Center for Economic and Policy Research), Mr. Abhijit Das (Head, Centre for WTO Studies, India), and Ms. Sanya Reid Smith (senior advisor, Third World Network, Geneva).

Mr Richard Hill (President of the Organisation for Proper Internet Governance, a CSO that organised the event) moderated and spoke at the event, “How e-commerce, international trade, and data flows can contribute to development.”

(Session description, and presentations at https://eweek2019.unctad.org/meetings/969110. All quotes in article are from documents at the link).

In the context of digitalisation of national and globaal economies, there is considerable interest and debates on domestic policies of countries that will best favour growth of e-commerce and foster international trade based on e-commerce.

Debates on these issues are taking place with many unknowns regarding the technological advances ahead, and thus the unknowns of the fast-changing an devolving digital economy.

While digital policies, domestic and international, can contribute to development, a key issue is that of data-related policies, such as data privacy, data flows, and data localization.

Proposals that have been agreed in the Trans-Pacific Partnership (TPP) Agreement, which the US sponsored and shaped under the Obama administration (and which the Trump administration has not signed on to), and the USMCA (amongst Canada, Mexico and the US to replace NAFTA), etc. are being drawn upon and proposed in these so-called plurilateral negotiations on e-commerce (outside the WTO framework).

A key message out of the event was that any agreement arising from these “plurilateral” talks would have the effect of enshrining current business models based on data monetization, thus harming rather than favouring development.

In particular, the discussions brought out that rules regarding data protection/data privacy are not likely actually to result in meaningful data protection because they are set forth as exceptions to the principle of free flow of data.

Current proposals do not address the real issues of Micro-, Small- and Medium Enterprises (MSMEs), especially those in developing countries: e.g. access to payment and physical delivery systems.

On the contrary, the MSMEs will be reduced to and forever remain sub-contractors (the biblical hewers of wood and drawers of water of the digital economy) for the global value chains of dominant Internet platforms.

Data is clearly a valuable natural resource, in some ways akin to oil. Nobody would agree to “free flow of oil”. Why should they agree to free flow of data?

In fact, existing WTO rules do not mandate free flow of natural resources. Why should such rules for data be introduced now at the WTO, except to favour existing dominant Internet companies?

It is thus premature to negotiate binding rules in the WTO or in Free Trade Agreements.

E-commerce is taking place right now. If new international rules are needed, they should focus on bridging the digital divide, ensuring data privacy, ensuring taxation of the digital economy, and combating abuses of dominant market power by large Internet companies.

Furthermore, there is no agreement within the WTO on negotiating binding e-commerce rules. Only the Ministerial Conference or the General Council of the WTO can provide such a mandate for launching such negotiations. Such an attempt, made at MC11 in Buenos Aires in 2017, failed.

In fact, MC11 only reaffirmed and continued the earlier mandates on e-commerce at the 1998 Geneva MC, reiterated in para 34 of the Doha Ministerial Declaration of 2001 at MC4.

The move for plurilateral talks was initiated, after MC11 concluded, and announced at the Davos meeting of the World Economic Forum, the annual jamboree where the CEOs of big TNCs fly in on their executive jets, to meet and lobby political personalities and government leaders of countries (with ski holidays at company and tax-payers expense thrown in).

These pluri-talks are thus not part of the WTO agenda. However, the statement by 76 countries, issued after a breakfast meet at Davos, was within minutes up on the WTO website, that normally does not function so promptly.

Any plurilateral accord that the proponents negotiate and conclude cannot find its way into the WTO framework, even as a plurilateral agreement in Annex IV to the WTO Treaty, except by following the mandatory procedures in Article X:9. That requires decision “exclusively by consensus” at the Ministerial Conference.

With the announced intent of the proponents, for e-commerce transactions an d imports of goods and services via e-commerce to get tax/tariff-free treatment, such a “conditional” pluri-accord may even be in violation of the MFN requirement under Article I of the GATT 1994.

Hence, in fact an amendment to the WTO agreement may be needed and can come into force only after acceptance by all WTO members of preferential tax/tariff treatment for goods and services imported from members of the plurilateral accord, and discriminatory denial of that to non-members.

A pluri-accord outside the WTO framework would be illegal; and the non-MFN border-treatment actionable and amenable to retaliation by aggrieved WTO members.

This apart, the negotiations for plurilateral e-commerce trade agreement, launched by a group of “like-minded countries”, will surely result in rules that are unfavourable to developing countries, and they should, and clearly would be resisted.

Though the proponents have been saying that the pluri-rules will enable “development”, on which the WTO has a mandate, this agenda is getting pushed aside in fact. The e-commerce rules will only favour a few transnational companies, mostly based in developed countries.

As a World Bank representative pointed out at the UNCTAD-organised “event” on 5 April during its eCommerce Week, while “development” figures as an item on the agenda in all negotiations, “development issues always get pushed to the end of negotiations, and wind up not really being taken into account” (see “E-com pluri-talks a reality, so better join, says UNCTAD SG”, in SUNS #8885 dated 10 April 2019).

As it is, even contractual rights, such as S&DT for developing countries that are part of the WTO’s GATT-1994 (incorporating GATT-1947 and GATT-acquis, the Understandings and the Ministerial decisions at Marrakesh in 1994) are brushed aside, as in the drive of the US and other industrialised countries to push so-called WTO “reform” proposals.

Any doubts in anyone’s minds on the intentions of these highly advanced countries were removed at the last session of UNCTAD’s Intergovernmental Group of Experts (IGE) on 5 April.

During the negotiations at the IGE on that day, the developed countries blocked inclusion, in non-binding recommendations, of key proposals from developing countries.

For example, they refused to accept any references to “data ownership”, “economic value of data”, or “data policies”. As a result, the IGE ended unable to make any recommendations.

There are some basic pre-requisites for developing countries, before negotiating any new e-commerce rules.

These include: 1. Infrastructure; 2. Affordable Internet access; 3. Digital literacy; 4. National digital policies for Data, in particular on how data can enable development and on sharing the revenue from monetization of data: (a) Protecting local businesses from large international players; (b) Taxation of the digital economy; (c) Income distribution; and (d) the effects of digitization on jobs and work.

National digital policies need also to be formulated on: 1. Global measures to deal with the concentration of the digital economy arising from network effects and economies of scale; 2. Global measures to deal with abuses of dominant market power; 3. Global measures to tax the digital economy and avoid the current tax optimization.

[* Chakravarthi Raghavan, Editor-Emeritus of the SUNS, contributed this comment, with inputs provided by Mr Richard Hill.]

 


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