3 ways to safeguard the future of digital trade

Technology Eye | Feb. 16, 2016

These days, economic growth is hard to achieve. In industrialized and developing countries alike, policy-makers are battling lagging employment levels and potential instability. They recognize that although the internet is not a magic bullet, it and associated digital technologies can stimulate economic growth, new technologies and markets, and enhance human welfare.

However, one country dominates both the global digital economy and digital trade, which we define as commerce in products and services delivered via the internet through cross-border information flows . The United States is home to 11 of the world’s largest internet companies, all of which will benefit from a rules-based system governing cross-border information flows. Not surprisingly, the US is the main demander of such rules in trade agreements.

It was the late 1980s when America first proposed rules to govern cross-border information flows. These days the US, Canada and European Union include non-binding language in trade agreements. However, in October 2015, after seven years of negotiation, the US and its 11 negotiating partners found common ground on binding language in the Trans-Pacific Partnership (TPP).

This binding language is designed to make the free flow of information the default for trade, and to limit how and when nations can restrict information flows (with clear exceptions for privacy, public morals and national security). The US is also trying to include similar language in the Transatlantic Trade and Investment Partnership (TTIP), and the Trade in Services Agreement (TiSA) under the World Trade Organization (WTO).

The TPP will have an impact on internet governance simply because it covers so many internet providers and users, and also because its commitments will affect how governments can behave when regulating cross-border information flows. TPP parties are made up of some 800 million people, or 11.4% of the world’s population. Many of these individuals are already active online. Colombia, Indonesia, the Philippines, South Korea, Taiwan and Thailand – all have expressed interest in joining the TPP should it come into effect.

Moreover, if TPP is approved, it could have significant spillover effects on how other governments deal with cross-border information flows. They will have to comply with TPP rules when they exchange information with TPP parties. At minimum, the US will want to use TPP as a guidepost for other trade agreements including TTIP and TISA under negotiation. Meanwhile, other governments too will need to consider this language and what it means for their companies’ cross-border flows.

But there are several reasons why policy-makers should carefully weigh the pros and cons of trade agreements as a strategy for regulating these flows.

· Internet demographics will have important implications for trade policies and agreements. The largest and fastest-growing internet markets are in highly populated developing and middle-income countries such as India, China and Indonesia, where absolute numbers of users are high but the percentage of penetration is still relatively low. Western internet providers in these markets increasingly find contradictions between the norms that govern their business practices and the requirements of the jurisdictions where they now operate. Executives are calling for clear and universal rules regarding censorship, filtering, subsidies and other domestic policies that can affect trade flows.

· Trade agreements could help clarify how and when governments can limit information flows, and could have positive implications for global internet governance. As noted above, TPP will provide an impetus to the development of globally coordinated policies on a wide range of global issues, from privacy to cybersecurity. A system of shared rules builds greater trust and could reduce costs for companies and individuals who must deal with different rules about how and where data can be collected and stored; when and under what conditions data can be transferred to other organizations; and what types of user authorizations are needed for collection, storage and transfer.

· But trade agreements might not be the best venue for governing cross-border information flows. Trade agreements regulate the behaviour of states, not of individuals or companies; thus companies and citizens have no direct way to influence trade agreement bodies. Moreover, trade agreements are negotiated in secret by governments; these negotiations move slowly and the public is not directly involved. In contrast, the internet is governed in a more ad hoc, bottom-up and transparent manner. Stakeholders from civil society, business, government, academia and national and international organizations make Internet governance rules in a timely, open and collaborative manner without a central governing body.

Many internet activists would not take kindly to such a dramatic change to internet governance. Moreover, many internet issues that involve information flows, such as privacy or the security of data, are not market-access issues. But they are regulatory issues, and finding common ground on cross-border regulations has become an important rationale for 21st-century trade agreements. Finally, trade agreements are not explicitly designed to facilitate interoperability or universal standards, which is how internet policies have traditionally been designed.

· Trade agreements are sometimes perceived as favouring US interests and actors. Government officials probably do not want to use trade policy to perpetuate US digital dominance.

· Trade agreements do not include clear language regarding human rights, yet will have direct effects on them. Human rights are a key element of the rule of law online and thus must be coordinated with international efforts to regulate cross-border information flows. As information flows across borders, it can simultaneously enhance and undermine specific human rights. These effects are complex and constantly changing, and governments are just learning to protect and respect such rights online. However, most trade agreements do not contain language that links government obligations to protect, respect and remedy violations of human rights to government obligations for trade. Policy-makers must clarify this relationship.

In light of these findings, policy-makers should:

Encourage interoperability and the rule of law. Governments negotiating binding provisions to encourage cross-border information flows should also include language related to the regulatory context in which the internet functions (for example, provisions to encourage interoperability, free expression, fair use, the rule of law and due process). By including such language, policy-makers can argue that these rules enhance human welfare and internet operability. Hence, they will be better positioned to argue that trade agreements are appropriate avenues for mediating tensions between national law and cross-border flows of information.

Define and challenge barriers to digital trade . WTO members should ask the WTO Secretariat to analyse if domestic policies that restrict information (short of exceptions for national security and public morals) are also barriers to cross-border information flows that could be challenged in a trade dispute. Moreover, policy-makers should develop strategies to quantify how such information restrictions might affect trade flows. Finally, they should use the WTO (and if it goes into force, the TPP) to test these provisions in a trade dispute.

Do a better job of linking trade and other internet policies. Although many countries have taken steps to advance digital rights globally, these governments have not figured out how to coordinate policies to promote cross-border information flows with national security and digital rights policies. Nor have these governments developed clear and compelling arguments as to how these agreements will benefit netizens. They should connect these arguments in order to build public support among their public, and convince citizens and policy-makers from other nations (including those that heavily censor the internet) to adhere to digital trade agreements.

SOURCE: World Economic Forum

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