Info Service on WTO and Trade Issues (Feb21/13)
cautions against JSI e-commerce negotiations at WTO
Geneva, 17 Feb (D. Ravi Kanth) – The United Nations Conference on Trade and Development (UNCTAD) has cautioned that the digital rules being negotiated by the members of the informal Joint Statement Initiative (JSI) group at the World Trade Organization will “have high costs of compliance and can adversely impact trade competitiveness of developing countries in the digital economy.”
The 31-page research report authored by Ms Rashmi Banga, a senior economist at UNCTAD, was circulated on 15 February (https://unctad.org/webflyer/joint-statement-initiative-e-commerce-economic-and-fiscal-implications-south)
Ms Banga comprehensively laid out the case as to how the ongoing JSI negotiations to frame new digital rules adversely impact developin
“The rule-book must be updated to take account of 21st century realities such as e-commerce and the digital economy,” she emphasized.
The new DG said that “the pandemic has heightened the importance and accelerated the role of e-commerce, which is expected to grow significantly in the coming years.”
Without naming the ongoing JSI negotiations on e-commerce, Ms Ngozi said that “E-commerce offers important opportunities for inclusivity of MSMEs and women in international trade, especially in developing countries.”
“To make it possible for some developing and least developed countries to participate in the e-commerce negotiations, we must partner with governments and other organizations to bridge the digital divide,” Ms Ngozi emphasized.
She said that “success in the e-commerce negotiations could provide an impetus for reviving more broadly the negotiations on Trade in Services, a sector of increasing importance in the economy of most Members.”
Ms Ngozi said the “plurilateral initiatives have brought new energy in the Multilateral Trading System,” arguing that “negotiating work on other joint statement initiatives – domestic regulation and investment facilitation – has continued fairly intensively despite the pandemic.”
She said the JSI “participants need to pursue their efforts to build support and attract interest from a significant part of the WTO membership, including from developing countries with a view to concluding at least the domestic regulation by MC12.”
Her speech has caused alarm among developing countries as she is openly advocating an agenda that is inimical to the core interests of the developing countries, who want the multilateral system g countries that are currently suffering from an unbridgeable digital divide.
Significantly, the report came on the same day that the new WTO Director-General Ms Ngozi Okonjo-Iweala underscored the need to accelerate the JSI negotiations on digital trade.
In her acceptance speech at a special General Council meeting on 15 February, contained in document Job/GC/ 250, Ms Ngozi (as she prefers to be called) said “the WTO rule-book is outdated, and its rules lag behind those of several regional and bilateral trade agreements which are incorporating a lot of innovations.”
to be strengthened with multilateral initiatives such as the 1998 e-commerce work program, said a trade envoy, who asked not to be quoted.
In sharp contrast to the WTO DG’s pronouncements on the JSI digital trade negotiations, UNCTAD’s digital trade expert Ms Banga argued, in her research paper, that “while many developing countries are in the process of designing national policies to build their digital infrastructure in order to bridge the digital divide, there are ongoing efforts led by the leading digital economies in the North to have binding commitments through digital rules to curtail their existing policy and regulatory space.”
The JSI negotiations are being propelled by the United States and coordinated by Japan, Australia, and Singapore on the lines of the Trans-Pacific Partnership covering a range of issues.
UNCTAD’S RESEARCH PAPER
“These digital rules,” the UNCTAD expert said, “are mainly being pushed as “e-commerce-rules” with the aim to facilitate exports and operations of their big tech firms and digital and super digital platforms.”
The issues include: (1) enabling electronic commerce, including digital trade facilitation; (2) openness and electronic commerce, especially non-discriminatory treatment of digital products, particularly the controversial cross-border data flows; (3) trust and electronic commerce covering online consumer protection and personal data protection and privacy; (4) transfer or access to source code; (5) cross-cutting issues, and (6) market access services among others.
Even though trade ministers had agreed to “continue” the work under the Work Programme on Electronic Commerce based on the existing mandate as set out in document WT/L/274 at the WTO’s 11th ministerial conference (MC11) in Buenos Aires, Argentina, in December 2017, a group of developed countries led by the US hijacked the negotiations by forming the JSI with support from the former WTO director-general Roberto Azevedo.
“While the WTO mandate covers the Work Program on E-commerce, any initiative to negotiate e-commerce rules recognized by this group (of 27 European Union members and 43 other countries) declared that they would initiate exploratory work towards future WTO negotiations on trade-related aspects of electronic commerce,” Ms Banga argued.
Ms Banga has said “some interested parties (of the JSI agreement) are misleading countries by referring to the Joint Statement Initiative (JSI) on E-Commerce as a “Plurilateral Agreement which is being negotiated at the WTO”.”
Interestingly, the JSI Consolidated Text which was released in December 2020 is titled “WTO Electronic Commerce Negotiations: Consolidated Negotiating Text – December 2020.”
“This is confusing for the policymakers since these negotiations between a group of countries are neither a part of the WTO negotiations nor is there any certainty that it will lead to the plurilateral agreement,” Ms Banga has pointed out.
She argues that “in the WTO it is the Ministerial Conference which exclusively decides by consensus to add or delete a Plurilateral Agreement to/from Annex 4 that lists all the plurilateral agreements in the WTO – and if the consensus fails, there is no recourse to default voting for it.”
The JSI negotiations are largely conducted by the developed countries like Canada, the EU, the United States, the United Kingdom, Japan, and New Zealand, as well as China, Russia, Singapore and South Korea among others.
FINDINGS IN THE RESEARCH PAPER
The digital rules which are touted as facilitating electronic transactions include the necessity of adopting a legal electronic transactions framework by the members of the JSI and laws on electronic authentication and electronic signatures; electronic contracts; electronic invoicing; and electronic payments services.
To facilitate e-commerce, the members of the JSI are mandated to adopt a legal framework governing electronic transactions consistent with the principles of the UNCITRAL Model Law on Electronic Commerce 1996.
The UNCTAD paper argues that the Model Law does not define Electronic Commerce but the scope of the Model Law is wide as it includes current as well as future developments.
The negotiated digital rules will also make it mandatory for the members of the JSI to have laws with respect to electronic authentication, electronic signatures, electronic contracts and electronic invoicing.
While developing countries may want to encourage the application of electronic signatures, contracts and invoicing in their transactions, many of them, especially the least developed countries, may not have the capacity or technology to implement these laws.
Apart from raising the costs of compliance, these rules will put the domestic firms in developing countries at a digital disadvantage as compared to the foreign firms which are already using these digital technologies.
ELECTRONIC PAYMENTS SERVICES
Another proposal on Electronic Payments Services mandates that each member of the JSI “shall accord to electronic payment services and services suppliers of another party/member within its territory treatment no less favorable than it accords to any other like services and services suppliers”.
Further, “each member shall grant the electronic services supplier of another member the right to establish or expand commercial presence within its territory, including through acquisition of existing enterprises.”
This proposal severely limits the flexibilities available to developing countries under GATS.
Members’ obligations under the GATS apply only to trade in those services sectors for which Members have voluntarily assumed obligations and commitments in their Schedule of Specific Commitments.
It is also extremely important for developing countries to develop their own electronic payment services suppliers which are extremely limited in number and size.
The proposal, if accepted, will allow the foreign firms to establish or expand their businesses including through acquisition of existing enterprises. This will allow the foreign services providers to disregard the existing national laws around mergers and acquisitions.
Under the section on digital trade facilitation and logistics, the rules being negotiated are stricter than those in the Trade Facilitation Agreement of the WTO to which most of the developing countries are a party.
The paper warns that these rules entail costs depending on the level of development of the digital economy.
Compliance costs will be high for the developing members who may not be able to afford these costs especially in the times of the ongoing pandemic.
FLOW OF INFORMATION
One of the most controversial digital rules which are being negotiated are under the section of flow of information or cross-border data flows.
The countries which have proposed digital rules around cross-border data flows are the US, South Korea, Canada, Japan, the EU, Brazil, Singapore, the UK and Chinese Taipei.
According to the proposals, no member shall prohibit/restrict/prevent the cross-border transfer of information, including personal information (including data, about an identified or identifiable natural person), by electronic means if this activity is for the conduct of business of a national/enterprise/investor/service supplier/organization or for the consumers to access, distribute and use services and applications.
The paper highlights the development implications of these restrictive rules.
According to the paper, the role played by the “data” in digital revolution is now well understood by countries. It emphasizes that while the importance of protecting personal data is accepted, it is important to understand that as digital revolution is unfolding, the importance of protecting non-personal data is also growing rapidly.
One of the reasons for protecting non-personal data is 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 research demonstrates for the first time how easily and accurately this can be done – even with incomplete datasets.
In the research, 99.98 per cent of Americans were correctly re-identified in any available “anonymized” dataset.
In fact, free flow of cross-border non-personal data or “aggregate data” (as it is sometimes referred) can also be economically costly for developing countries as it can accelerate their loss of existing trade competitiveness and hinder their digital industrialization.
While digital technologies offer huge opportunities, the first mover advantages go to those enterprises/exporters who have the capacity to store “data” and process “data” and build the “software” which are used in the digital technologies.
For example, with a market capitalization of $2 trillion in December 2020, Apple Inc. has become bigger than 82% of countries in the world which have GDP of less than $2 trillion. These also include countries like Mexico, Indonesia, the Netherlands, Saudi Arabia, Turkey, and Switzerland.
The paper points out that Data Centers store and process data and are the “factories” of the digital economy.
Developing countries need to develop this key digital infrastructure to be able to store their data, which is rapidly growing in volume, as well as develop capacities to process data. New technological developments have greatly reduced the costs of setting up data centers.
According to the paper, while the proposals for “free flow of cross-border data” and “no restrictions on data localization” have come mainly from the developed countries like the US and the EU, these countries themselves promote data localization in their countries.
Bauer et al (2016), has identified 22 data localization measures still being used by EU countries where the countries impose restrictions on the transfer of data to another country.
A further 35 restrictions on data usage have been identified which indirectly localize data within their countries.
It is also interesting to note that within the US, many states compete to attract investments in data centers in their states by providing extensive data center incentives which include sales tax exemptions, tax breaks, property tax exemptions, grants and concessional loans, etc.
Annex 1 in the paper provides details of Data Centre Incentives provided by 22 states in the US.
Data localization policies become an effective alternative tool in the hands of governments to attract investments in the data centers.
The paper also warns that 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.
On customs duties on electronic transmissions, based on the proposals of Japan, the US, Singapore, Hong Kong, Brazil, Korea, New Zealand, Canada, the EU, Ukraine, the Russian Federation and the UK, Para 2 of the JSI Text proposes that no member shall impose customs duties/fees/charges, on Electronic Transmissions (ET) which [includes content transmitted] between members of the JSI.
The development implications of no regulations on imports of electronic transmissions are highlighted in the paper.
Apart from potential tariff revenue loss to developing countries which is estimated to be around $10 billion per annum, it is advised that developing countries not waste their domestic financial resources on imports of luxury items which includes video games, movies, music and printed matter.
Moratorium on ET with growth of 3D printing can also jeopardize two decades of negotiated tariffs on industrial products under GATT as manufactured products will be 3D printed within their national boundaries and their negotiated tariffs become meaningless.
Further, the protection given by developing countries to some of their domestic services sectors under GATS may also be lost if the broad definition of ET is accepted which includes services which are electronically transmitted.
Based on the proposals of Canada, Chinese Taipei, Japan, Mexico, Peru, Ukraine, US, UK, Korea, Singapore, and EU, digital rules are also being negotiated around source code under the category of enhancing business trust in e-commerce. Source code is defined as algorithms or sequence of steps taken to solve a problem or obtain a result.
According to the paper, taking binding commitments on no source code transfer/disclosure/access would imply that developing countries will never be able to benefit from the presence of foreign digital firms or platforms in terms of digital technology transfers.
This is a huge cost which developing members of the JSI will pay. This may lead to rising dependencies on foreign digital technologies as the operations of foreign digital players increase in their national territories, which will come with interconnected technologies.
Further, recent studies have shown that source codes and algorithms which are inter-connected and learn from themselves (machine-learning) can lead to many undesired outcomes which include discrimination based on income, colour and gender.
The paper recommends that “to regulate the digital players and their use of algorithms, developing countries must preserve their existing regulatory space by not taking any binding commitments on source code disclosures. Not knowing what kind of algorithms will be developed in the future, this regulatory space is extremely important for the governments.”
The paper concludes by warning that the Covid-19 pandemic has revealed the impact of the digital divide on widening global inequalities.
The profits of big digital players based in developed countries have skyrocketed during the pandemic while many SMEs in the developing countries have been forced to shut businesses creating massive unemployment and pushing millions of people into extreme poverty.
In this context, developing countries should urgently design comprehensive national digital policies.
For this, they need at least the same policy and regulatory space as was available to the developed countries at the beginning of their digital advancement.
The paper also suggests that developing countries would greatly benefit by discussions within the Work Program on E-Commerce in the WTO on issues like bridging the digital divide, facilitating digital technology transfers, developing digital infrastructure, and building digital skills, etc. “rather than from negotiating on the digital rules outside the WTO.”