TWN Info Service on WTO and Trade Issues (May19/01)
6 May 2019
Third World Network

“Digital trade” war underway in e-com pluri-talks at WTO
Published in SUNS #8897 dated 30 April 2019

Geneva, 29 Apr (D. Ravi Kanth) – A new “digital trade” war appears to be underway at the World Trade Organization after the United States, the European Union, and Japan upped the ante for framing the most ambitious rules in global electronic commerce so as to counter China’s proposals in the ongoing plurilateral negotiations on e-commerce.

In three separate proposals circulated on Friday (26 April), the US, the EU , and Japan proposed almost identical rules that seek to eliminate the restrictions on cross-border data flows and prohibitions on location of computing facilities, including financial computing facilities (for deepening financialization).

The three members, part of the Trilateral group created in the run-up to the WTO’s eleventh ministerial conference in Buenos Aires in December 2017, called among others for the removal of conditions for transferring or accessing source code, cloud computing and interactive web services, and the imposition of customs duties on electronic transmissions.

The US has raised these same issues at the ongoing US-China trade negotiations.

What is, however, significant is that the EU and Japan have also called for almost the same rules on these issues in the plurilateral negotiations under way, following the informal ministerial summit at Davos on 25 January.

In a negotiating counter to China’s proposal of 23 April that called for furthering “development opportunities” that are beneficial in inclusive trade in electronic commerce for developing and least-developed countries (see SUNS #8896 dated 29 April 2019), the three members of the Trilateral group brought to the centre-stage maximalist rules that were never even discussed, said a trade envoy, who asked not to be identified.

While the US and Japan issued restricted proposals, the EU made their proposals public (non-restricted).

Under the title “WTO Agreement on Digital Trade”, the US has proposed 14 articles in its restricted textual proposal circulated on 26 April.

After providing all the “definitions” of what would constitute “digital trade” in Article 1 of its proposal, the US has stated, in Article 2 of its proposal, that the proposed agreement will not apply to government procurement.

Parties to the proposed agreement, as per Article 3 of the US proposal, shall not impose customs duties on electronic transmissions, including content transmitted electronically.

China has also proposed the continuation of the current moratorium for not imposing customs duties on electronic transmissions.

Under Article 4 on non-discriminatory treatment in its proposal, the US said that “no party shall accord less favourable treatment to digital product created, produced, published, contracted for, commissioned, or first made available on commercial terms in territory of another party.”

Under the US proposal for Article 4, members to the agreement will “avoid unnecessary regulatory burden.”

The US Article proposes “no party shall adopt or maintain measures for electronic authentication or electronic signatures.”

As for protection of personal information, a main demand of the EU, the US, in Article 7, has suggested that members can “adopt or maintain” an appropriate legal framework.

On the issue of “cross-border transfer of information by electronic means,” one of China’s redlines, the US has suggested in Article 8:

1. 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.

2. This Article does not prevent a Party from adopting or maintaining a measure inconsistent with paragraph 1 that is necessary to achieve a legitimate public policy objective, provided that the measure:

(a) is not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on trade; and

(b) does not impose restrictions on transfers of information greater than are necessary to achieve the objective.

As regards the location of computing facilities, which is another major concern for China that wants to locate computing facilities within its borders, the US has stated, in Article 9 of its proposal, 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.”

Moreover, to strengthen the predominant role of Wall Street, the US has stated in Article 10 on the location of financial computing facilities that:

1. The Parties recognize that immediate, direct, complete, and ongoing access by a Party’s financial regulatory authorities to information of covered financial service suppliers, including information underlying the transactions and operations of such persons, is critical to financial regulation and supervision, and recognize the need to eliminate any potential limitations on that access.

2. No Party shall require a covered financial service supplier to use or locate financial service computing facilities in the Party’s territory as a condition for conducting business in that territory, so long as the Party’s financial regulatory authorities, for regulatory and supervisory purposes, have immediate, direct, complete, and ongoing access to information processed or stored on financial service computing facilities that the covered financial service supplier uses or locates outside the Party’s territory.

3. Each Party shall, to the extent practicable, provide a covered financial service supplier with a reasonable opportunity to remedy a lack of access to information as described in paragraph 2 before the Party requires the covered financial service supplier to use or locate financial service computing facilities in the Party’s territory.

The US, a world leader in cyber espionage according to the Snowden leaks, has stated that members to the agreement can build appropriate cyber security capabilities, in Article 11 of its proposal.

On source code, another contentious issue between the US and China, the US has stated in Article 12 of its proposal that “no Party shall require the transfer of, or access to, source code of software owned by a person of another Party, or to an algorithm expressed in that source code, as a condition for the import, distribution, sale, or use of that software, or of products containing that software, in its territory.”

Under the title of “interactive computer services”, including web services and cloud computing, the US has stated, in Article 13 of its proposal, that “no Party shall adopt or maintain measures that treat a supplier or user of an interactive computer service as an information content provider in determining liability for harms related to information stored, processed, transmitted, distributed, or made available by the service, except to the extent the supplier or user has, in whole or in part, created, or developed the information.”

In Article 14 of its proposal, the US has included market access and national treatment commitments.

The EU’s proposal circulated on 26 April largely contains the conditions listed in the US proposal. The EU’s proposal has emphasized more on “consumer protection”, “unsolicited commercial electronic messages” or spam, “competitive safeguards” to curb anti-competitive cross-subsidization, “interconnection” under non-discriminatory terms, “universal services,” and the creation of separate “telecommunication regulatory authority” to oversee electronic commerce among others.

Japan which circulated its restricted proposal on 26 April has also suggested almost identical provisions like the US.

Tokyo has suggested “prudential measures” for protection of investors, as well as general exceptions as stated under Article XX of the GATT 1994 and Article XIV of the General Agreement on Trade in Services.

Effectively, the three members of the Trilateral group brought to the centre-stage issues that were hardly negotiated either under the 1998 work program on electronic commerce or even at the informal JSI (joint statement initiative) plurilateral negotiations until now.

The US, the EU, and Japan seem determined to create the most ambitious rules on electronic commerce at the WTO regardless of the US attempts to dismantle the WTO’s highest adjudicating body, the Appellate Body, for resolving global trade disputes.

China faces two battles now with the US: on the bilateral front and simultaneously on the plurilateral front at the WTO. Clearly, it is pitted against the US, the EU, and Japan on digital trade at the WTO.