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Info Service on WTO and Trade Issues (Feb21/02) Geneva, 3 Feb (D. Ravi Kanth) – The proposed informal plurilateral Joint Statement Initiative (JSI) for framing digital trade rules at the WTO will have serious economic implications for developing countries and undermine their policy and regulatory space in developing their digital industries, a senior official at the United Nations Conference on Trade and Development (UNCTAD) has said. The JSI negotiations on digital trade are being propelled by the United States, with Japan, Australia and Singapore acting as the coordinators, ostensibly aimed at entrenching the global interests of GAFA (Google, Amazon, Facebook, and Apple), Microsoft, AliBaba, and Tencent among others. These companies currently have a “vampire-like” grip on the global digital trade, former South African trade minister Rob Davies had suggested at a virtual meeting convened last year by the New Delhi-based Centre for WTO Studies, the Geneva-based South Centre, and Penang-based Third World Network. [For any agreement on digital trade rules (or any other plurilateral agreement) to find its way into the WTO rule-book, either it has to be as a new plurilateral agreement to be included in Annex 4 of the WTO treaty, or through an amendment to any of the existing agreements in Annex 1. Any additions or changes to the agreements in Annex 1 (1A, 1B or IC), would need to go through the amendment processes of the WTO Agreement. For any new Annex 4 plurilateral agreement, it must be on a subject, not part of any existing agreements, and agreed to exclusively by consensus at a ministerial conference. – SUNS] Against this backdrop, at a meeting of the informal group of developing countries (IGDCs) at the WTO on 29 January, a senior UNCTAD official, Ms Rashmi Banga, highlighted her preliminary findings on the proposed plurilateral digital trade rules and their negative implications for developing countries. Along with Ms Banga, the former director of the WTO services division, Mr Hamid Mamdouh, also took part in the meeting. Mr Mamdouh apparently spoke positively about the proposed JSI agreement and its promised outcomes in all areas of digital trade, said a person present at the meeting. The three coordinators of the JSI negotiations – Japan, Australia and Singapore – had presented a bracketed text in December last year. That text contained brackets on all the issues, particularly on scope and definitions, data flows, restrictions on sharing source code, localization of data and market access among others. At the IGDC meeting on 29 January, Ms Banga presented her findings on issues such as: (1) cross-border data flows; (2) location of computing facilities; (3) market access, particularly in the area of trade in services; and (4) market access in trade in goods. On the “economic implications of the proposed digital rules around cross-border data flows” in the JSI text, Ms Banga said the JSI rules requiring that “no member shall prohibit/restrict/prevent the cross-border transfer of information” will have several consequences for the developing countries. She said “free flow of cross-border data will give “first-mover advantage” to those who have the capacity to store and process data and build the “software” which are used in the digital technologies.” She cited the “3D Printing for customized mass production,” offering examples of first-mover advantage. She said “with market capitalization of $2 trillion in 2020, Apple Inc. has become bigger than 82% of countries in the world which have GDP of less than $2 trillion.” Ms Banga argued that “protecting non-personal data is as important as protecting personal data because the latest research shows that by using reverse engineering and machine learning, non-identifiable data can re-identify individuals, i.e., non-personal data can be converted into personal data.” The UNCTAD official said the nature of communications in 2019 revealed that “99.98 per cent of Americans were correctly re-identified in available “anonymized” dataset.” DATA LOCALIZATION RULES Commenting on “data localization rules”, Ms Banga said “data centers and clouds hosted within the data centers are key digital infrastructure which needs to be built for digital industrialization.” She suggested that without data localization rules, it would be difficult for developing countries to industrialize digitally, according to participants present at the meeting. She said “new technological developments such as “Edge Data Centers” have greatly reduced the costs of setting up data centers.” Ms Banga cited studies by the African Export-Import Bank that showed that “African countries like Nigeria, Kenya and South Africa have huge potential of hosting data centers.” While data localization policies are still being used extensively by the developed countries, the developing countries could lose the policy space if the JSI rules intend to lift restrictions on data localization, she suggested, according to the participants. According to a recent study, she said that 22 data localization measures are still being used by the EU-member countries where the countries impose restrictions on the transfer of data to another country. The UNCTAD official gave specific examples of extensive “Data Centre Incentives” in the United States. “It is important to note,” she said, “data localization allows countries to have “full” access to their own data,” while “storing data in other countries may imply partial access to your own national data as the laws and regulations of the country where the data resides may apply and will need to be fulfilled before accessing your own data.” Highlighting the implications concerning market access in services as proposed to be extended by all JSI members through their GATS (General Agreement on Trade in Services) schedules, Ms Banga pointed out that “the members shall indicate no limitations or specific “None” under limitations on Market Access and National Treatment in five identified broad services sectors for Modes 1, 2, and 3 (cross-border services, consumption abroad, and commercial presence, respectively).” Significantly, the Mode 4 relating to the movement of short-term services providers, which is an area of vital interest to developing countries, is kept “unbound” in the JSI text, implying that JSI members may provide or not provide market access in this area. The five identified broad services sectors, according to Ms Banga, include (1) business services, (2) communications services, (3) distribution services, (4) financial services, and (5) transport services. “The global exports of these five identified services amount to USD 6.8 trillion in 2017, of which around USD 5 trillion is exported by the developed countries,” she said, suggesting that the EU and the US have a 53% share in global exports of these five services. Worse still, “most of the developed countries are net exporters of these services, while most of the developing countries that have joined are net importers of these five services,” she observed. Even developing countries such as Indonesia, Malaysia, India, South Africa, Mexico, Nigeria, and Kenya are net importers of these five services, she said. Ms Banga cautioned that “given the competitive advantage of developed countries in these services, any further efforts to increase the market access will benefit only the big-tech exporters and digital platforms of these developed countries.” Further, developing countries will lose their GATS flexibilities, and “will also lose their regulatory space with respect to imported services,” she argued, according to participants present at the meeting. It is imperative that developing countries would need restrictions on market access and national treatment to provide a “level playing field to the domestic SMEs (small and medium enterprises),” she said. On the proposed JSI digital trade agreement’s impact on trade in goods, she said that the JSI participants such as Canada, the EU, and the US, have proposed that all members must join the expanded ITA (Information Technology Agreement). She said that the expanded ITA would cover digital products and electronic transmissions, suggesting that there would be serious adverse impact on domestic production of ITA products as well as inputs that go into the production of these products. In conclusion, she underscored the need for safeguarding “policy and regulatory space” that will irreparably be damaged due to the JSI’s proposed digital trade agreement. Moreover, JSI negotiations on e-commerce are not part of the WTO mandate “since e-commerce rules are not mandated for negotiations in the WTO,” she argued. “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 33 countries,” she argued. She urged the developing countries to discuss the implications of digital rules in the WTO-mandated work program on e-commerce. During the question-and-answer session at the meeting, where Sri Lanka asked about the implications for market access in areas of interest to developing countries, Ms Banga said the proposed JSI agreement will pose serious problems for services exported under Mode 4. When asked by South Africa whether the caveat of “allowed for a legitimate public policy objective” is sufficient to protect the national interests of developing countries, Ms Banga said the JSI rules provide flexibilities to the members for applying measures that are deemed as needed for achieving a “legitimate policy space.” However, the caveat which accompanies this flexibility is that “any such measure should not be applied in a manner which is arbitrary or leads to unjustifiable discrimination or is a disguised restriction on trade,” she said. According to Ms Banga, such a measure should not also impose restrictions on transfer of information greater than what is necessary or required to achieve the public purpose. She drew attention to the escalating actions by G20 members against big digital players like Google and Facebook on account of breach of trust, emphasizing that these actions should serve as a warning to the developing countries. Lastly, “while regulations for providing a level playing field to domestic firms may be seen as a legitimate public policy objective by the governments of developing countries, these regulations may be seen as an “unnecessary restriction” by the foreign firms,” she argued.
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