JSI

The Impending Collapse of a Key Digital Rule

The Impending Collapse of a Key Digital Rule

At the end of November, the 164 members of the World Trade Organization (WTO) will meet. In what was originally billed as an every-other-year obligation but has been less smooth in practice, trade ministers will be gathering in Geneva for MC12. There are a number of outcomes that are meant to flow from the session, including something on the apparently endless negotiations over fisheries subsidies, a few bits and bobs that might be pulled from various plurilateral initiatives, and maybe an announcement on trade and health. (Stay tuned for the Talking Trade update in the wake of MC12.) But what has not been noticed is that 2021 is likely to spell the end to a critically important digital trade rule. It goes by the innocuous name of the “customs moratorium on electronic transmissions.” It may be that the bland and unfamiliar phrasing has not captured imaginations. Or it may be that this provision has seemed to be under threat for so long that most have forgotten about it. Covid disruptions have not helped anyone focus on much. But now odds are high that the moratorium will actually fall at MC12. Companies and consumers will have an unexpected and potentially rude awakening to this apparently minor rule that did not ever get the support it needed.

An American Digital Trade Agreement?

An American Digital Trade Agreement?

In short, there are some sensible reasons for pushing the US to pick up and lead a new digital agreement. However, the Americans are not—to use a sporting metaphor—stepping onto a clean pitch. The game has already been underway for some time, particularly with important American trading partners and likely participants in any digital arrangements. The US will have to operate within an increasingly crowded landscape. More than 80 WTO members have been working on e-commerce through a Joint Statement Initiative (JSI) for some time. Other ongoing digital activities include the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), the Regional Comprehensive Economic Partnership (RCEP) and also, as noted, upgraded commitments in AANZFTA or Japan’s various trade deals, as well as ASEAN’s E-Commerce Agreement which is entering into force this year. There are also two types of digital-only trade deals already in place. The Digital Economy Partnership Agreement (DEPA) is a stand-alone deal. It builds on the CPTPP commitments and included three original members of the agreement: Chile, New Zealand and Singapore. It is currently in force for the latter two countries and is likely to undergo expansion with the addition of new members shortly. There are also growing a number of Digital Economy Agreements (DEA) in place for Singapore. One is already in force with Australia with two more nearing the finish line: with South Korea and the UK. The DEAs are designed to build on existing bilateral free trade agreements. This means that they need not replicate all the features of a comprehensive agreement, including dispute settlement or the agreement management infrastructure, but compliment existing policies and procedures. If the US shows up and is prepared to work on a digital economy agreement, the first question will be what is to be included in such an arrangement that is not already covered under the JSI, CPTPP, RCEP, AANZFTA, DEPA, DEAs or other e-commerce and digital trade chapters in bilateral trade agreements?

Designing Next Generation Trade Agreements for the Digital Economy

Designing Next Generation Trade Agreements for the Digital Economy

From a business perspective, getting an agreement on digital rules among the widest number of countries is best.  Such a decision will create conditions for improved stability, lowered risk and reduced compliance costs in engaging in trade and business everywhere, with similar or identical rules and regulations in place.  But there is a trade-off between getting an agreement with many parties and getting an agreement in a timeframe that businesses would view as helpful.  While governments can operate in cycles of years, companies are concerned about results every quarter.  This mismatch between expectations and timing is particularly acute in the digital world, where business developments are often made at light speed.  Governments are sometimes struggling to even understand the ideas and principles of digital trade and are faced with particular challenges in crafting sensible regulations. Digital trade was largely unregulated, or lightly addressed, in most places up until a few short years ago.  With few exceptions, firms were free to do whatever they wanted in the digital space, as long as they did not violate existing non-digital rules.  Governments tried to adapt physical rules, in some instances, to the digital realm.  This situation has grown increasingly untenable.  The exponential growth rates of the digital economy means that governments cannot go on trying to shoehorn analogue rules to digital products and services.   So how should governments manage the increasingly important digital world?  There are at least four broad responses so far.