TWN Info Service on WTO and Trade Issues (Jun19/04)
10 June 2019
Third World Network

Attempts to push “digital free flow” at G20 to test resolve of South

Published in SUNS #8920 dated 6 June 2019

Geneva, 4 Jun (D. Ravi Kanth) – The G20 trade ministerial meeting in Tsukuba, near Tokyo, on 8-9 June, will test the resolve of major developing countries such as China, India, and South Africa among others in safeguarding their policy space for building robust domestic digital industries, trade envoys told the SUNS.

The G-20 trade ministerial meeting will see attempts to finalize an outcome on “digital free flow with trust.”

Japan, which is hosting the meeting, has called on countries to enact new global rules and norms for managing data.

Japan’s Prime Minister Shinzo Abe seems determined to push for a strong initiative on “data free flow with trust” in the e-commerce negotiations.

“We have yet to catch up with the new reality, in which data drives everything, where the D.F.F.T [or] the Data Free Flow with Trust, should top the agenda in our new economy,” he had said at the World Economic Forum’s annual meeting in Davos early this year.

The G20 must create “trust toward the system for international trade. That should be a system that is fair, transparent, and effective in protecting IP and also in such areas as e-commerce,” he had said.

Japan, which was a member of the failed TPP (Trans-Pacific Partnership) Agreement, has joined forces with the United States, Australia and the European Union among others to demand maximalist outcomes in digital trade.

The US wants that “no party shall prohibit or restrict the cross-border transfer of information, including personal information, by electronic means, if this activity is for the conduct of the business of a covered person.”

The US has demanded that “no party shall require a covered person to use or locate computing facilities in that Party’s territory as a condition for conducting business in that territory.”

In the textual proposal circulated on 26 April, Japan said that “each member shall allow the cross-border transfer of information by electronic means, including personal information, when this activity is (for) conduct of the business of a person of Members.”

Like the US, Japan wants that “no member shall require a person of Members to use or locate computing facilities in that Member’s territory as a condition for conducting business in that territory.”

The US, Japan, and Australia among others, who were all members of the failed TPP project, want to bring most ambitious rules in global digital trade at the G20 meeting.

China, however, remains opposed to free flow of data and removal of prohibitions on data localization rules.

Although China has not submitted a textual paper on digital trade, it has emphasized that negotiations on electronic commerce should be committed to tapping into the great potential of electronic commerce, helping Members, particularly developing Members and LDCs, to integrate into global value chains, bridge the digital divide, seize development opportunities and benefit from inclusive trade, and hence better participating in the economic globalization.

India has signalled its intention to use electronic data of its citizens “for its own development rather than allow its value to be appropriated by others”.

At a meeting of the heads of delegation at the WTO on 3 May, India said it is imperative “to assess the extent of sacrifice of revenue involved [because of not imposing customs duties on electronic transmissions], and the distribution of this loss among Members, when new technologies like additive manufacturing will result in electronic transmissions cascading and many dutiable goods manufactured by digital printing.”

Against this backdrop, serious differences continue to remain on data flows as well as on localization of data among major developing countries, including China, India, and South Africa, on the one side, and the major developed countries led by the US and Japan on the other.

Moreover, the G20 trade ministers’ meeting faces a crisis of confidence because of the ongoing trade war launched by the US against China in which Washington is imposing a range of security-related restrictions on Huawei and other Chinese companies, said a trade envoy, who asked not to be quoted.

The US, which wants most ambitious rules on digital trade, has unveiled a slew of restrictive measures to ensure that the American companies are cordoned off, including start-ups in areas of frontier technologies, from takeovers and mergers by the Chinese companies.

The proposed legal provisions under the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) in the US are directed against China.

It intends to add significant changes to the existing powerful Committee on Foreign Investment in the United States (CFIUS) review process.

The Chinese telecoms giant Huawei is being subjected to a range of security measures, which are difficult to justify under the existing rules at the World Trade Organization, say several analysts.

The US trade war against China, including the restrictions imposed on hi-tech Chinese firms, have not only resulted in a breakdown of talks, but also raised serious doubts about negotiating rules for digital trade at this juncture.

On Sunday, China issued a White Paper on why the trade talks with the US had failed. China said while it is willing to work with the US to find solutions, it “will not compromise on major issues of principle.”

China said that every country has “its own matters of principle”, adding that “a country’s sovereignty and dignity must be respected, and any agreement reached by the two sides must be based on equality and mutual benefit.”

“On major issues of principle,” said China, it “will not back down.”

Further, China maintained that “both China and the US should see and recognize their countries’ differences in national development and in stage of development, and respect each other’s development path and basic institutions.”

However, the “data free flow with trust” initiative attempts to ignore fundamental differences in the levels of development among countries and turns a blind eye to issues such as the “digital divide” and growing “digital- dependency” driven by four or five American digital behemoths such as Google, Amazon, Microsoft, and Apple among others.

At a time when the digital trade is premised on friction-less trade built on the framework of supply-chains, the US tariff and non-tariff (security-related) measures revealed whether there is any purpose in crafting global rules for digital free flow of data at the G20 meeting, said several trade envoys who asked not be quoted.

[With respect to the US “trade war” against China, and the restrictions that the US has placed on Chinese enterprises like Huawei buying technology and parts from the US, China has put in place retaliatory measures that it plans to take against the US. It has announced the setting up of an “unreliable entities list”, stopped its “goodwill” purchases of US soybeans, and has hinted at restrictions on US access to its rare earths.

[Several of the major US enterprises, including its military and defence, depend on downstream rare earth products from China – like magnets for electric cars, and for night-vision goggles for the US defence industries and armed forces. SUNS]