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Trade Rules for the Digital Economy: Charting New Waters at the WTO

Published online by Cambridge University Press:  25 January 2019

NEERAJ R. S.
NEERAJ R. S.*
Affiliation:
Columbia Law School
*
Email: neeraj.rs@columbia.edu
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Abstract

This Article attempts to explore the challenges in situating a multilateral digital trade agreement within the legal framework of the World Trade Organization (WTO). Section 1 of the article discusses the broad challenges that digitization poses for the international legal framework for trade regulation. I argue first that the traditional classification of products into goods and services under the WTO system is structurally incompatible with the digital economy. I also argue that striking the appropriate balance between trade liberalization and the pursuit of legitimate public policy objectives in a digital trade agreement will be uniquely challenging because certain features that are intrinsic to the digital industry and business strategies of established players in the digital market raise serious anticompetition challenges. A multilateral agreement regulating digital trade needs to acknowledge and address these challenges. Section 2 surveys the efforts that have been undertaken to regulate digital trade as manifested in the WTO Work Program on Electronic Commerce. Acknowledging that the digital trade agenda of the Trans-Pacific Partnership (TPP) agreement could be used as a benchmark for discussions on e-commerce at the WTO, I argue that future negotiations for a multilateral digital trade policy will not benefit from using the TPP's digital trade agenda as a benchmark. The TPP does not reconcile systemic tensions between the digital economy and the extant WTO system or address the anticompetition challenges that are unique to the digital ecosystem.

Type
Review Article
Information
World Trade Review , Volume 18 , Special Issue S1: Digital Trade , April 2019 , pp. S121 - S141
Copyright
Copyright © Neeraj Rs 2019 

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Footnotes

*

I am deeply grateful to Professor Abhijit Das, Professor Merit Janow, and Professor Petros Mavroidis for their guidance and helpful insights on the article. I am also grateful to Parkhi Vats and Zaki Hussain for helping me compile the data presented in the article. All errors and omissions that remain are my own.

References

1 See generally Richard Baldwin et al., ‘Unveiling the Evolving Sources of Value Added in Exports’, IDE-JETRO Joint Research Program Series No. 161, Geneva (2015); Dirk Pilat and Anita Wölfl, ‘Measuring the Interaction Between Manufacturing and Services’, OECD STI Working Paper, Organisation for Economic Co-operation and Development, Paris (2005); Dominik Boddin and Philipp Henze, ‘International Trade and the Servitization of Manufacturing: Evidence from German Micro Data’, Working Paper, European Trade Study Group, Münich (2014).

2 Although, the US has left the TPP arrangement, there is no reason to believe that the norm-shaping potential of the TPP has waned. First, the e-commerce text of the TPP remains intact in the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP), which was adopted by the remaining 11 parties on 8 March 2018. Second, the US itself has shown its continued commitment to the e-commerce disciplines contained in the TPP by proposing the same template under NAFTA renegotiations with Canada and Mexico. See ‘Digital Trade in Goods and Services and Cross-border Data Flows’, ‘Trade in Services, Including Telecommunications and Financial Services’, and ‘Intellectual Property’, USTR, ‘Summary of Objectives for the NAFTA Renegotiation’ (17 July 2017), https://ustr.gov/sites/default/files/files/Press/Releases/NAFTAObjectives.pdf,

3 Multilateral Agreements on Trade in Goods, 15 April 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1867 UNTS 187.

4 General Agreement on Trade in Services, 15 April 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1B, 1869 UNTS 183.

5 See Baker, Stewart A. et al. , ‘E-Products and the WTO’, 35 The International Lawyer. 5, 6 (2001)Google Scholar.

6 In 2017, for the first time, sales from online streaming and downloading of movies and TV shows (£1.3bn) in UK surpassed sales of Blu Ray discs and DVDs (£894m). Mark Sweney, ‘Film and TV streaming and downloads overtake DVD sales for first time’, The Guardian (5 November 2017), www.theguardian.com/media/2017/jan/05/film-and-tv-streaming-and-downloads-overtake-dvd-sales-for-first-time-netflix-amazon-uk. In the US, consumers spent just $9.7 billion on physical-video formats, down from $22 billion in 2007 when Netflix was launched. Ashley Rodriguez, ‘The Worst Countries to be in if You're in the DVD Business’, Quartz (5 November 2017), https://qz.com/628917/the-worst-countries-to-be-in-if-youre-in-the-dvd-business/. Also in 2014, global digital music sales ($6.85 billion) surpassed CDs sales ($6.82 billion) for the first time. James Vincent, ‘Digital Music Revenue Overtakes CD Sales for the First Time Globally’, The Verge (15 April 2015), www.theverge.com/2015/4/15/8419567/digital-physical-music-sales-overtake-globally. Physical books, however, remain relatively popular as e-books have plateaued at about 20% of the market. Alexandra Alter, ‘The Plot Twist: E-Book Sales Slip, and Print is Far from Dead’, New York Times (22 September 2015), www.nytimes.com/2015/09/23/business/media/the-plot-twist-e-book-sales-slip-andprint-is-far-from dead.html?_r=0.

7 World Trade Organization, WT/MIN (98)/DEC/2, 25 May 1998.

8 World Trade Organization ‘Communication from the European Communities and their Member States on the WTO Work Programme on Electronic Commerce’, WT/GC/W/306, 9 August 1999.

9 Mann, Catherine L. and Knight, Sarah Cleeland, ‘Electronic Commerce in the WTO’, in Schott, Jeffrey (ed.), The WTO After Seattle (Washington, DC: Institute for International Economics, 2000), 259Google Scholar.

10 Agreement on Technical Barriers to Trade, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1867 UNTS 187 [hereinafter TBT Agreement].

11 Tran, Jasper, ‘The Law and 3D Printing’, 31 John Marshall Journal of Information Technology and Privacy Law (2015), 507–508Google Scholar.

12 See generally Tran, Jasper L., ‘To Bioprint or Not to Bioprint’, 17 NC Journal of Law & Technology (2015), 123Google Scholar.

13 D'Aveni, Richard, ‘The 3D Printing Revolution’, Harvard Business Review, May 2015Google Scholar, at 42.

14 Clear Correct Operating, LLC v. International Trade Commission, 810 F.3d 1283 (Fed. Cir. 2015).

15 ITU-T Y. 2060 ‘Recommendation offers a standard definition of Internet of Things’: ‘A global infrastructure for the information society, enabling advanced services by interconnecting (physical and virtual) things based on existing and evolving interoperable information and communication technologies.’

16 Maxwell Wessel, ‘Embracing Disruption in Mobility – Wilko Stark, Vice President Daimler’ (accessed on 29 January 2017).

17 Appellate Body Report, European Communities – Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R (25 September 1997).

18 Appellate Body Report, Canada – Certain Measures Concerning Periodicals, WT/DS31/AB/R (30 June 1997).

19 Ibid. at p. 18.

20 Appellate Body Report, China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, WT/DS363/AB/R (21 December 2009).

21 Mavroidis, Petros, Regulation of International Trade, Vol. I (Cambridge, MA: MIT Press, 2016), 140Google Scholar.

22 The Geneva Ministerial Declaration on Global Electronic Commerce, WT/MIN(98)/DEC/2 (20 May 1998).

23 UNCTAD, ‘$22 trillion e-commerce opportunity for developing countries’, 19 July 2016, http://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=1281&Sitemap_x0020_Taxonomy=Information, (accessed 24 December 2017).

24 PWC, ‘Global Top 100 Companies by Market Capitalization’, 31 March 2017, www.pwc.com/gx/en/audit-services/assets/pdf/global-top-100-companies-2017-final.pdf (accessed 25 December 2017).

25 See Farhad Manjoo, Tech's ‘“Frightful 5” Will Dominate Digital Life for Foreseeable Future’, New York Times (20 January 2016), www.nytimes.com/2016/01/21/technology/techs-frightful-5-will-dominate-digital-life-for-foreseeable-future.html: ‘By just about every measure worth collecting, these five American consumer technology companies [Amazon, Apple, Facebook, Google, and Microsoft] are getting larger, more entrenched in their own sectors, more powerful in new sectors and better insulated against surprising competition from upstarts. Though competition between the five remains fierce – and each year, a few of them seem up and a few down – it's becoming harder to picture how any one of them, let alone two or three, may cede their growing clout in every aspect of American business and society.’

26 Banjo, Shelly and Ziobro, Paul, ‘After Decades of Toil, Web Services Remain Small for Many Retailers’, Wall Street Journal (27 August 2013, 8:31pm)Google Scholar, www.wsj.com/articles/SB10001424127887324906304579039101568397122.

27 Olivia LaVecchia and Stacy Mitchell, Amazon's Stranglehold: Ho w the Company's Tightening Grip Is Stifling Competition, Eroding Jobs, and Threatening Communities, Institute for Local Selfreliance, 10 (November 2016), http://ilsr.org/wp-content/uploads/2016/11/ILSR_AmazonReport_final.pdf.

28 Taplin, Jonathan, ‘Why is Google Spending Record Sums Lobbying Washington?’, The Guardian, 30 July 2017Google Scholar, www.theguardian.com/technology/2017/jul/30/google-silicon-valley-corporate-lobbyingwashington-dc-politics (accessed 10 February 2018).

29 See Jeevan Vasagar and Alex Barker, ‘Amazon Is Our Biggest Search Rival, Says Google's Eric Schmidt’, Financial Times (13 October 2014), www.ft.com/cms/s/0/748bff70-52f2-11e4-b917-00144feab7de.html (accessed 24 December 2017).

30 See generally, Lemley, Mark A. and McGowan, David, ‘Legal Implications of Network Economic Effects’, California Law Review, 86 (1998), 479CrossRefGoogle Scholar.

31 Directorate General for Internet Policies, ‘Challenges for Competition Policy in a Digitalised Economy’, European Parliament, IP/A/ECON/2014-12, 8 (2014).

32 Ibid. at 8.

33 See generally, Pasquale, Frank, ‘Privacy, Antitrust, and Power’, George Mason Law Review, 20 (2013), 1009–1024Google Scholar; Wu, Tim, The Master Switch: The Rise and Fall of Information Empires (London: Atlantic Books, 2010)Google Scholar.

34 See Candeub, Adam, ‘Behavioral Economics, Internet Search, and Antitrust’, 9 ISJLP (2014) 407, 409Google Scholar.

35 Jack Nicas, ‘Apple and Samsung End Smartphone Patent Wars’, New York Times (27 June 2018) https://www.nytimes.com/2018/06/27/technology/apple-samsung-smartphone-patent.html.

36 Archived page, ‘Fighters in a Patent War’, New York Times (7 October 2012), https://archive.nytimes.com/www.nytimes.com/interactive/2012/10/08/business/Fighters-in-a-Patent-War.html

37 UNCTAD, ‘E-Commerce and Development Report: Trends and Executive Summary’, UNCTAD/SDTE/ECB/1/Overview, 10 (2001).

38 Khan, Lina M., ‘Amazon's Antitrust Paradox’, 126 Yale Law Journal (2016), 710, 745Google Scholar.

39 Ibid., at 753.

40 The potential of the TPP to shape multilateral norms has been studied by various scholars. Cottier cites several reasons why rules contained in mega-FTAs such as the TPP could filter into the WTO, chief among them being the economic heft of the parties to these FTAs creating incentives for non-FTA parties to unilaterally adjust to the new rules in the FTA. Cottier, Thomas, ‘The Common Law of International Trade and the Future of the World Trade Organization’, 18 Journal of International Economic Law (2015), 3CrossRefGoogle Scholar; Hufbauer and Cimino-Isaacs observe that mega-regional agreements such as the TPP could set precedents which could translate to new ideas for the WTO. Hufbauer, Gary Clyde and Cimino-Isaacs, Cathleen, ‘How Will TPP and TTIP Change the WTO System?’, 18 Journal of International Economic Law (2015), 679CrossRefGoogle Scholar; More recently, Das and Singh have cited contemporary developments in WTO negotiations on a range of issues (including e-commerce) to argue that the norm-shaping potential of TPP is not just a theoretical possibility but a perceivable reality. Das, Abhijit and Singh, Shailja, ‘Introduction’, Trans-Pacific Partnership Agreement: A Framework for Future Trade Rules? (Thousand Oaks, CA: Sage, 2017)Google Scholar. More specifically, the proposals submitted by TPP parties, such as US and Japan, under the Work Program on Electronic Commerce mirror the TPP provisions on e-commerce (chapter 14) and telecommunications (chapter 13). World Trade Organization, ‘Work Program on Electronic Commerce Non-Paper from the United States’, JOB/GC/94 (4 July 2016). World Trade Organization, ‘Work Program on Electronic Commerce Non-Paper for the Discussions on Electronic Commerce/Digital Trade from Japan’, JOB/GC/100 (25 July 2016).

41 Martin Moore, ‘Tech Giants and Civil Power’, Centre for the Study of Media, Communication and Power (April 2016), www.kcl.ac.uk/sspp/policy-institute/CMCP/Tech-Giants-and-Civic-Power.pdf; Simon Marks and Harry Davies, ‘Revealed: How Google Enlisted Members of US Congress It Bankrolled to Fight $6bn EU Antitrust Case’, The Guardian (17 December 2015), www.theguardian.com/world/2015/dec/17/google-lobbyists-congress-antitrust-brussels-eu.

42 Shamel Azmeh and Christopher Foster, ‘The TPP and the Digital Trade Agenda: Digital Industry Policy and Silicon Valley's Influence on New Trade Agreements’ (London School of Economics, Working Paper Series 2016, No. 16-175); See also, Alana Abramson, ‘Google Spent Millions More Than its Rivals Lobbying Politicians Last Year’, Time Magazine, 24 January 2018, http://time.com/5116226/google-lobbying-2017/.

43 Open letter signed by the Internet Association, Computer and Communications Industry Association, Information Technology Industry Council, BSA/Software Alliance, ACT/The App Association, Consumer Technology Association, https://internetassociation.org/tisa101716/ (17 October 2016). Open letter from the Internet Association to Robert Lighthizer, https://cdn1.internetassociation.org/wp-content/uploads/2017/05/Lighthizer-Letter-5.16.pdf (16 May 2017).

44 USTR, The Digital 2 Dozen, https://ustr.gov/about-us/policy-offices/press-office/reports-and-publications/2016/digital-2-dozen (24 December 2017).

45 Source Code refers to the list of instructions that is written by a human programmer using programming languages (such as BASIC, C, C++, JAVA, Fortran) and forms the ‘recipe’ for a software application. See, generally, Mitchell L. Stoltz, ‘The Open Source Revolution: Transforming the Software Industry with Help from the Government’, Pomona Senior Theses, No.7, 2.

46 In 2015, the Environmental Protection Agency (EPA) of the United States found out that the German automobile manufacturer Volkswagen had intentionally pre-programmed the software in its turbocharged direct injection (TDI) diesel engines to activate certain emission controls only during laboratory emissions tests. The actual on-road emissions by the same Volkswagen engines were found to be 40 times higher than the emissions allowed under the US Clean Air Act. From the findings of EPA, it was also clear that Volkswagen was able to maintain this test-subverting software for seven years because the regulators had no access to the embedded computers of the automobile. See Klint Finley, ‘Trade Pact Could Bar Governments from Auditing Source Code’, Wired, 5 Novermber 2015.

47 See Burcu Kilic and Tamir Israel, ‘The Highlights of the Trans-Pacific Partnership E-Commerce Chapter’, Public Citizen and Canadian Internet Policy and Public Interest Clinic, November 2015.

48 Raymond ES, ‘The Cathedral and the Cazaar’, www.catb.org/~esr/writings/cathedral-bazaar, 2000 (accessed 24 December 2017).

49 Article 39 of the TRIPS Agreement sets out minimum levels of protection that Members have to provide for ‘undisclosed information’. Article 39.2 provides that ‘natural and legal persons shall have the possibility of preventing information lawfully within their control from being disclosed to, acquired or used by others without their consent in a manner contrary to honest commercial practices’. Very few WTO members have domestic legislations in place to protect and enforce rights over trade secrets.

50 States often tie investments to certain ‘performance requirements’ that investors must meet in order to gain entry into the host State's market or operate a business, or could meet to obtain some advantage offered by the host state. The TRIMS Agreement prohibits members from imposing some types of performance requirements such as local content requirements, trade balancing requirements, import restrictions, foreign exchange balancing requirements, and domestic sales requirement. Noticeably, conditioning market access on the transfer of technology is not prohibited by the TRIMS Agreement and is a performance requirement that is widely used, particularly by developing countries.

51 Mishra, Neha, ‘The Role of the Trans-Pacific Partnership Agreement In the Internet Ecosystem: Uneasy Liaison or Synergistic Alliance?’, 20 Journal of International Economic Law (2017), 31–60CrossRefGoogle Scholar.

52 Ibid., at 8. ‘Australia, New Zealand and Canada wanted to safeguard regulatory space in the TPP to restrict cross-border data transfers to address privacy concerns regarding their citizens’ data’ whereas ‘Viet Nam was opposed to the US proposal as it would conflict with its domestic law which restricts internet use and data transfer on grounds of national security. Malaysian law also contained certain restrictions on cross-border data transfers. Singapore sought an exemption from this provision, in order to be able to restrict data flows on grounds of public morality.’

53 Newman, Nathan, ‘Search, Antitrust, and the Economics of the Control of User Data’, 31 Yale Journal on Regulation (2014), 401Google Scholar.

54 Nicholas Confessore, ‘Cambridge Analytica and Facebook: The Scandal and the Fallout So Far’, New York Times (4 April 2018), www.nytimes.com/2018/04/04/us/politics/cambridge-analytica-scandal-fallout.html.

55 Julia Carrie Wong, ‘Uber Concealed Massive Hack that Exposed Data of 57m Users and Drivers’, The Guardian (22 November 2017) https://www.theguardian.com/technology/2017/nov/21/uber-data-hack-cyber-attack.

56 Jon Emont et al., ‘Amazon Investigates Employees Leaking Data for Bribes’, Wall Street Journal (16 September 2018), www.wsj.com/articles/amazon-investigates-employees-leaking-data-for-bribes-1537106401.

57 Andy Greenberg, ‘Wikileaks Reveals the Biggest Classified Data Breach in History’, Forbes (22 October 2010), www.forbes.com/sites/andygreenberg/2010/10/22/wikileaks-reveals-the-biggest-classified-data-breach-in-history/#6030285d6353.