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WTO Law Affect Cross-Border Data Flows
By Sharanya

How Can the WTO Law Affect Cross-Border Data Flows for Exporter Business

September 15, 2021

Digital trade, over the years, has taken a more serious turn than simply being an abstract idea. It includes flows of data that might not be linked to any specific service and have multiple flows, even across borders. The estimates for global bandwidth use reflect an annual growth rate of around 40% between the years 2009 and 2013 (as per Tele Geography, 2015). Studies also show that the data transfers were around 45-times larger in the year 2014 than in 2005. This has radically changed the picture of global trade, and the same has started to depend majorly on the free cross-border movement of data. It can be represented by an estimated contribution of $2.8 trillion to global economic activity or around 3.5% of the global GDP (as per MGI, 2016). The reason for this is because data flows are inclusive and more often than not, allow the participation of micro, small, and medium-sized businesses (MSMEs).

However, there are several countries, across the world, that have imposed certain restrictions on these data flows. With this situation at hand, the provision of cloud computing applications, AI (artificial intelligence), IoT (Internet of Things), and digital products and services might stop functioning.

When it comes to protecting cybersecurity, and free data flows, the Internet and Trade policymakers are at their wit’s end. The often trade-restrictive data-restrictive measures (regulations hindering data flow across borders) typically violate the PTAs (Preferential Trade Agreements) and WTO (World Trade Organization) obligations.

On the other hand, modern-day digital services play a crucial role in facilitating businesses across the global supply chain by efficiently moving data across countries. Expert agreements have often stated that the data should also be included in the list of issues addressed by the trade policy that otherwise entails movements of goods, capital, services, and persons.

Now, the use of data brings to the fore several questions related to the control of the same and protection of national security. This is because when data leaves any country, several jurisdictional issues come forward, and many countries feel that they cannot provide adequate protection for their citizens. In quite a few instances, this has motivated the leading government to prescribe diverse means to localize their data and keep it within the sovereign space of the state. Needless to say, the digital trade strategies of different countries have faced high repercussions of the same.

The Dated Existing Trade Law and Its Workarounds

As surprising as it might sound, the WTO agreements, which are the fundamental basis of International Trade Law, were actually adopted during the Uruguay Round (1986-1994) and didn’t come into force till 1995. This means that even after a few adjustments, standing today, most of these are still in their pre-internet state.

Having said that, there are several rules surrounding the application of basic principles of trade facilitation, standards, non-discrimination, government procurement, and subsidies that work in a technologically neutral way. Across the world, several states have used the venue of PTAs to fill in gaps found in the WTO framework and gain clarity over its applications. However, the current framework that regulates contemporary digital trade is not coherent at all. It is finally time to check out how the WTO framework can and must evolve to accommodate any and all policy challenges of a data-driven economy that primarily includes:

  • Prohibition of Data Localization
  • Provisions on Free Cross-Border Data Flows
  • Introduction of Relevant Provisions that Facilitates Business & Consumer Trust

Data localization has evolved over the years to target a growing number of data in more countries. The number of those that have enacted data localization requirements has almost doubled from only 35 in the year 2017 to around 62 in 2021. The number of data localization policies has more than doubled (from a humble 67 in 2017 to 144 currently in 2021). China, India, Russia, and Turkey are the world leaders in requiring forced data localization at 29, 12, 9, 7 respectively.

Where is the Reform Actually Required and Is It Really Feasible?

When you are making changes to the multilateral rules for digital trade, two topics come into consideration:

  • The adjustments to be made to the WTO agreements for checking the existing problems.
  • An international trade governance system that might be necessary to face digital challenges.

Now, the first situation can be addressed with incremental changes, but the second one requires innovative legal engineering that might transcend market access issues or the concrete classification of a digital service.

Reforms, however, are not readily available at the moment. The advancements that are made in the preferential trade venues with the PAFTA (Peru-Australia Free Trade Agreement), CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), and the USMCA (United States-Mexico-Canada Agreement) can enable solutions at a multilateral level on a few very selective issues.

The USMCA provision, building on the similar one in CPTPP states, “each party shall maintain or adopt a legal framework that provides for the protection of personal information of the users of digital trade. In the development of this framework, each party should take into account the guidelines and principles of relevant international bodies.” The EU, on the other hand, has come up with a distinct provision on privacy protection that mentions, “each party may adopt and maintain the safeguards it seems appropriate to ensure personal data protection and privacy, including the application and adoption of rules for cross-border transfer of personal data.”

The WTO law, at the end of the day, should lie somewhere in between the USMCA and the EU provision to increase the disguised protectionist measures. This would allow sufficient opportunities for the WTO members to discuss the appropriate guidelines in the relevant institutions. Since it is a multilateral institution, the WTO is placed in a better way to facilitate increased dialogue between relevant regulators and consumer protection to ensure international cooperation in the field, effectively.

Multilateral Agenda on Digital Trade in the Form of PTAs

To implement these changes, one fundamental but important issue that needs to be addressed is to have a shared understanding of the digital trade as a broad policy topic rather than a narrow one. In the latter, digital trade is nothing but commerce in services and products delivered through the internet. In the former, however, the concept of digital trade goes beyond this and works towards enabling innovation and free flow of information – a view shared by the WTO members and the United States. In that stance, WTO members should agree on the mandatory capacity-building support and program for technical assistance to ensure LDCs and developing countries with inadequate regulatory capacity are up-to-date with the latest technology.

In a broader sense, even with distinct variations across various treaties, there are several crucial levels of regulatory convergence on the main principles and objectives. One of the finest examples on the subject can be the customs duty moratorium on electronic transmissions. PTAs have permitted innovations in rulemaking that specifically address the new set of concerns about data protectionism. As per the USMCA, the algorithms are included in the digital trade chapter and added to the ban on transfer of access to the source code. Another innovation recognizes the interactive computer services vital to the digital trade growth. While the third one speaks about open government data.

What Lies Ahead for the Data Flow Rules at the WTO?

At present, the World Trade Organization members are considering the application of two distinct mechanisms to update and change the rules on e-commerce:

  • The General Agreement on Trade in Services (GATS) could be reformed using the current mechanisms and expanding the commitments on digital services to a two-digit level.
  • A plurilateral agreement on e-commerce that covers various digital trade issues which includes data localization and data flows.

It has been seen, upon careful consideration, that the horizontal provision on cross-border data flows and the prohibition on data localization might be challenging to achieve in practice in the short run. Thus, countries might want to prefer addressing data-regulated rules in the PTAs instead of the WTO as the former provides greater flexibility in devising the rules consistent with domestic objectives.

To conclude, the future of global trade, especially when it comes to digital services, has several uncertain and complex policy challenges in store. It is going to become more central to the entire concept of the global economy as well, and thus should be taken seriously. Balancing regulatory concerns, thus, is vital to ensure a sustainable regulatory framework for data flows.

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