Global reset – Technology decoupling (Part 5: Digital trade agreements and digital governance)
Phuah Eng Chye (7 May 2022)
Divergence in data governance approaches reflect differing ideological beliefs and national interests. These differences, in turn, lead to diverging negotiating positions in digital trade agreements. However, these national positions are not static. As familiarity with the workings of the digital economy grow, there is likely be greater convergence in opinions on governance arrangements. This would provide the impetus to break the current impasse on global digital trade negotiations; providing geopolitical hurdles can be overcome.
Digital trade agreements
James Bacchus notes “the World Wide Web was not created until 1990, and it was not commonly used commercially until the mid-1990s. Thus, digital trade barely existed during the Uruguay Round of multilateral trade negotiations, which began in 1986 and concluded with the Marrakesh Agreement of 1994 that established the WTO in 1995…WTO members have been trying to modernize WTO rules to deal with digital trade…At the First WTO Ministerial Conference…in 1996, members agreed on a temporary moratorium on the application of customs duties for electronic transmissions of digital products and services…to prevent the rapid spread of digital trade from being slowed by…border tariffs…the moratorium has been renewed repeatedly…Yet, after all this time, WTO members have still not been able to reach a consensus that would make this moratorium permanent”.
“In 1998, WTO members adopted a declaration on global e-commerce, which called on the WTO General Council…to examine all trade-related issues of e-commerce…divided among four different WTO councils: those on goods, services, intellectual property (IP) and development. In June 2001, the General Council…identified seven issues for deliberation…the classification of digital products as goods or services; issues concerning developing and least developed countries; the revenue implications of e-commerce, especially for developing countries; the relationship between e-commerce and traditional forms of commerce; the impact on developing countries of a continued moratorium on customs duties; competition-related issues, including constraints on e-commerce due to concentration of market power; and jurisdictional challenges for e-commerce disputes…in the 16 years that followed, WTO members accomplished little within the WTO toward addressing the mounting and manifold commercial concerns of what was rapidly becoming an increasingly digital global economy”.
James Bacchus adds “real progress did not seem possible until 2017…71 WTO members – led by the United States, the European Union and Japan – issued a Joint Statement on Electronic Commerce…would initiate exploratory work together toward future WTO negotiations on trade-related aspects of electronic commerce…2019, 76 WTO members issued another Joint Statement, which announced their intention to commence WTO negotiations on trade-related aspects of electronic commerce. The 76 countries joining in the second statement said they sought to achieve a high standard outcome that builds on existing WTO agreements and frameworks with the participation of as many WTO Members as possible. In December 2020, the 86 negotiating countries agreed on a consolidated negotiating text for a proposed WTO agreement on digital trade. Topics…included enabling e-commerce, transparency and e-commerce, trust and e-commerce, cross-cutting issues, market access, telecommunications, and scope and general provisions…the 90 pages of this text are replete with bracketed language, which denotes that no agreement has yet been reached on most of the major issues…countries participating…86 WTO members, accounting for 90 percent of world trade – a critical mass of trade that is sufficient to support the goal of a plurilateral WTO agreement with benefits that would be applied by the negotiating parties on a non-discriminatory most-favoured-nation basis to include all the free riders that do not sign the agreement”.
It has been difficult to negotiate global agreements in a large forum like the WTO and thus the trend has been to seek out compromise solutions on contentious issues in smaller trade forums. Six international digital agreements have been signed. Gary Clyde Hufbauer and Megan Hogan point out “most digital agreements are chapters of larger trade agreements, and the rules in these agreements are not limited to digital commerce. Online activities covered by existing digital agreements include cross-border data flows, digital communications, digital identities, artificial intelligence, and website access”.
- Chapter 14 of the Trans-Pacific Partnership (TPP), now incorporated in the 11-country Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) (2016).
- Chapter 12 of the 16-country Regional Comprehensive Economic Partnership (RCEP) agreement (2020).
- Chapter 19 of the US-Mexico-Canada Agreement (USMCA), which replaced the North America Free Trade Agreement (NAFTA) (2019).
- The US-Japan Digital Trade Agreement, which is very similar to Chapter 19 of the USMCA (2019).
- Revised Chapter 14 of the Singapore-Australia Free Trade Agreement (SAFTA) (2020).
- The Digital Economic Partnership Agreement (DEPA) between Singapore, New Zealand, and Chile (ratified by the first two) (2020).
Gary Clyde Hufbauer and Megan Hogan categorise the key features of digital trade agreements as follows:
- Good Housekeeping provisions are generally non-controversial. They are (a) Customs duties, fees, or other charges should not be imposed on electronic transmissions; (b) Digital products should not be subject to discriminatory treatment; (c) Electronic signatures and authentication should be enabled; (d) Authorities should accept paperless trade documentation. All six existing digital agreements include these provisions but national security can be invoked to override them. However, the prohibition on customs duties is contested by developing countries which would like to impose duties on technology giants.
- Provisions protecting consumer and personal information have not been made mandatory nor has minimum standards of protection been set. Instead, protection provisions are framed as calls for national action rather than binding rules. According to these provisions, each party should adopt or maintain (1) consumer protection laws that prohibit fraudulent and deceptive commercial activity and unsolicited messages (spam) and (2) a legal framework that protects the personal information of digital trade users. However, it is difficult to set minimum standards as personal data protection regulation and enforcement measures differ widely across countries.
- Standard exceptions are (a) National security measures, as determined by each party, can override other commitments in digital agreements (b) Exceptions spelled out in Article XIV of the General Agreement on Trade in Services (GATS) – to protect public morals; protect the life and health of humans, animals, and plants; secure compliance with laws and regulations; prevent deceptive practices; and protect the privacy of individuals – can override other provisions in digital agreements; (c) Government procurement and information held or processed by governments are exempted; and (d) Agreements covering investment, trade in services, and financial services take precedence over digital commitments.
Generally, trade agreements and proposals tend to reflect the preferences of either US, China or groupings comprising countries seeking a neutral and flexible posture. The US[1] initially led the scoping of digital trade agreements through efforts to promote the TPP. Subsequently, it withdrew from the TPP and solidified its preferences in the USMCA and other bilateral agreements. In the USMCA, Gary Clyde Hufbauer and Megan Hogan notes the US preferred “that (1) digital platforms should not be liable for content posted by third parties, (2) digital platforms should be free to delete postings by third parties, and (3) digital service taxes[2] (DSTs) that discriminate de facto against US technology firms should be prohibited”.
Hung Tran notes “among the three major data-governance models and their variations, the main fault line is between the free flow of data across borders versus requirements of data localization and government access to companies’ algorithm and source code. The United States has been the main driving force in insisting on the unconstrained flow of data and banning data localization and government access to algorithm and source code in trade talks – in particular during the TPP negotiations. After the US withdrawal…the Trump administration then negotiated tougher language promoting the free flow of data in the USMCA, the US-Japan Digital Trade Agreement, and US-South Korea trade deal”.
Hung Tran adds “the WTO negotiations have finalized texts on spam, electronic signatures, and authorization. However, the sticking points remain the language governing cross-border data flows and rules covering new services based on data such as AI…the United States and the EU…continue to differ on several data governance issues…include how to police the content of online information; the liabilities of platform companies regarding content; data localization; the US demand to have access to personal data on national security grounds; and the subject of digital services taxation”. On September 2021, the EU-US Technology and Trade Council tasked the Data Governance and Platform Governance Working Group to discuss seeking consistency and interoperability where feasible to bridge the differences on data governance between the two.
Many US-proposed rules were carted over to other agreements but were significantly diluted. Gary Clyde Hufbauer and Megan Hogan note while the electronic commerce chapters of RCEP and CPTPP are similar, the RCEP reflected modifications made “largely at the insistence of China”. “The RCEP chapter, however, includes more exceptions and omissions than the CPTPP chapter”. “RCEP members are given substantial scope to require localization of computing facilities and restrict cross-border data flows with respect to services and investment…allowed to require localization of computing facilities to achieve legitimate public policy objectives and to protect essential security interests…can require disclosure of source code as a condition of doing business in a member’s territory…can restrict cross-border data flows to achieve legitimate public policy objectives and protect essential security interests”. In addition, the RCEP prohibition on customs duties ceases to apply if the WTO prohibitions on such duties are not renewed. The RCEP dispute settlement rules do not apply to electronic commerce with differences between members to be addressed by consultations in good faith. “The RCEP differs from the CPTPP and most other digital trade agreements in that it does little to restrain government interference in the digital market”.
Hung Tran notes “most of those trade agreements include exceptions to the ban on data localization and sharing of algorithm and source code with the government, when justified by public policy. In many agreements, the exception has been worded very broadly and loosely, basically allowing member countries to invoke privacy protection, social stability, or national security to require data localization. In particular, the RCEP permits member countries to make use of the exceptions without being challenged by other signatories. Basically, the fact that a country like China, with clear data-localization requirements and other restrictions, is a founding member of RCEP suggests that its provision against data localization is meaningless”.
Henry Gao notes China’s positions are outlined in its JSI submissions. China prefers to focus on establishing “a sound environment for electronic commerce transactions” including facilitating e-customs and clarifying the legal framework for electronic contracts. It also prioritises creating “a safe and trustworthy market environment for electronic commerce” covering consumer safety regulations, online consumer protection, personal information protection, and combating spam. Interestingly, China reserved its right to invoke with exceptions in Article XX of GATT and Article XIV of the General Agreement on Trade in Services. This is due to “the bad experiences China had in the China-Raw Materials and China-Rare Earth cases in the WTO, where due to the lack of explicit references to the GATT general exception clause in its Accession Protocol, China was not allowed to justify its export restrictions under GATT Article XX”.
In addition, China “emphasized that the new agreement shall not prevent members from adopting or maintaining measures to protect cybersecurity and safeguard cyberspace sovereignty, an issue…regarded as non-negotiable by China”. Henry Gao points out “China has also made clear in its JSI submissions that it was not ready to discuss the main demands of the United States in that initiative, such as data flow, data storage, treatment of digital products and so forth. Citing the complexity and sensitivity of these matters, as well as the vastly divergent views among the Members, China stated that more exploratory discussions are needed before bringing such issues to the WTO negotiation, so as to allow Members to fully understand their implications and impacts, as well as related challenges and opportunities. However, with its acceptance of rules on free flow of data and prohibition on data localization requirements in the RCEP, China has now indicated its willingness to negotiate on these issues”.
China’s preferences are widely supported by developing countries. While the US preferences are generally supported by developed countries, there are critical disagreements. Gary Clyde Hufbauer and Megan Hogan notes during the discussions on the Indo-Pacific digital agreement, while the “text may be similar to the JSI or RCEP provisions, Indo-Pacific countries should be less inclined to invoke exceptions and more faithful to the spirit of key elements, including non-discriminatory treatment, source code rights, anti-localization goals, and information freedom commitments. Moreover, Indo-Pacific countries may hold similar views on the proper content of national laws dealing with consumer protection and personal information and might even inscribe minimum standards in their pact. Despite these similarities, US Sticking Points pose an obstacle to an Indo-Pacific digital agreement. Trade agreements other than the USMCA and the US-Japan Digital Trade Agreement do not provide platform immunities or prohibit DSTs…The United States is unlikely to join an Indo-Pacific agreement that fails to recognize at least its DST Sticking Point. Moreover, even if other Indo-Pacific countries are willing to accommodate US wishes, an agreement is not guaranteed. The Biden administration’s prioritization of domestic investment and worker-centric trade policies, as well as the potential need for Congressional approval, pose obstacles to US entry”.
One well-known area of contention is data protection. Gary Clyde Hufbauer and Lucy Lu Zhiyao explains “the European Union and the United States have different interpretations and systems of privacy protection. The European Union views privacy and data protection as fundamental human rights and has a single set of privacy and data protection rules for all companies operating in the bloc through the General Data Protection Regulation (GDPR). In the United States, the Fourth Amendment protects individual privacy interests from unreasonable search and seizure by government officials…But the Fourth Amendment does not apply to private companies that collect and process personal data. Their actions are limited, if at all, by the prospect of civil litigation and money damages for the invasion of privacy. Citizen privacy was a thorny issue in the erstwhile Transatlantic Trade and Investment Partnership (TTIP) negotiations between US tech giants and intelligence agencies, on the one hand, and EU privacy advocates on the other. The European Union values privacy more, arguing that member states can implement measures – such as restrictions on cross-border flows of personal data – to protect privacy. By contrast, the United States places a higher value on free cross-border data flows and asks WTO members to ensure that any restrictions are necessary and proportionate to the risks presented…China seems to side with the European Union on privacy issues in its proposal, arguing that necessary and appropriate measures can be implemented to protect privacy. However, while the EU focus is personal rights, China’s focus is security… strong encryption could create significant hurdles for law enforcement and intelligence agencies”.
In another critical area, Dan Ciuriak and Maria Ptashkina notes “the WTO national security[3] exceptions as set out in GATT article XXI were crafted in 1947 in light of the experience of World War II. They allow countries to take trade measures that are otherwise inconsistent with their GATT/WTO obligations under circumstances that relate to fissionable materials, traffic in arms, or measures taken in time of war or other emergencies in international relations. These measures were framed for a membership that was essentially co-extensive with a hegemonic region, conceived in an era when physical borders also were largely coincident with economic borders, and based on implicit assumptions that physical borders were effectively policed and defended. These are not the conditions that raise concerns in the modern digital context. Reflecting this, the recently concluded CUSMA, which provides national security exceptions using article XXI-type language, drops the specific examples. However, by not replacing them, it leaves open the question of what would be the scope of threats that would rise to a level that warrants invoking a national security exception to limit trade or other commercial interactions. In particular, the requirement of an emergency to defend measures under the existing WTO regime is hard to read in the kinds of national security concerns that have been raised in connection with the IoT infrastructure build-out, which have to do with access to data on an ongoing basis through backdoors in IoT equipment and so forth…The challenge of developing a national security exception fit for purpose for the digital age is made more difficult by the fact that the WTO has little experience in dealing with national security issues as an exception. GATT article XXI was not invoked for the first 70 years following its introduction…This Pandora’s box has now been opened and a number of trade-restrictive policies that were justified on national security grounds have been challenged[4] at the WTO”. Key issues include “whether the national security exception is wholly self-judging or non-justiciable[5]”, the requirement to sustain an emergency for national security exception[6], and the fact that “governments contesting national security matters are unlikely to divulge information”. Overall, “the framing of a national security exemption for the digital age has not been materially advanced through regional trade agreements”.
The path forward on digital trade agreements
The challenge is to find common ground to reconcile the divergent perspectives on digital trade. The disagreements straddle topics such as source code disclosure, data localization, customs duties, internet taxes, state control, internet censorship, net neutrality[7], ISP liability, spam, and various other cyber-related issues. Susan Ariel Aaronson[8] notes most trade agreements also do not address other potential barriers to cross-border data flows such as “datasharing rules, regulations on algorithmic decision making, competition policies, policies to limit disinformation, privacy labels for apps, censorship, internet shutdowns, and cybersecurity rules”. In this context, she argues that “at its heart, digital protectionism differs from traditional protectionism because trade in data is unlike trade in goods or other services…because there are many types of data; and because both data and the analysis of data can be a public good and can have huge ramifications for human rights. Moreover, many cross-border data flows are not directly affiliated with a transaction and they may not truly represent trade…censorship and disinformation as trade barriers because, having additional implications for human rights and political integrity, they are particularly pernicious”. In this context, the current digital trade agreement discussions can, at best, be considered as tentative because the digital environment is undergoing a rapid transition and the learning curve is steep. Various approaches are therefore being explored in different settings.
Lindsey R. Sheppard, Erol Yayboke and Carolina G. Ramos notes “various formal governance bodies and informal groups of like-minded nations are working to reduce barriers to data flows…The argument against data localization mandates is often referred to as data free flow with trust, as coined by the Group of 20 (G20) Osaka Leaders’ Declaration in 2019…the cross-border flow of data, information, ideas and knowledge generates higher productivity, greater innovation, and improved sustainable development, while raising challenges related to privacy, data protection, intellectual property rights, and security. Though G20 leaders supported this concept, the declaration did not have much initial success in establishing global data flow standards and norms”. Subsequently, in April 2021, the Group of Seven (G7) put forward “new proposals intended to help guide continued development of an open, interoperable, reliable and secure internet, one that is unfragmented, supports freedom, innovation and trust which empowers people.” It calls for developing digital technical standards to which online services and protocols can refer and highlights the G7’s intent to seize the benefits of data free flow with trust through continued surveillance of the effects of data localization, promotion of regulatory cooperation, and including more priority areas within current data-sharing approaches”. In addition, “the Organization for Economic Cooperation and Development (OECD) has focused on refining interdisciplinary, international standards on data governance and reducing barriers to data flows. A two-year horizontal project planned for 2021–22 seeks to advance a multifaceted approach to build trust and minimize barriers to data flows. The OECD project is centered around four categories it sees as integral to constructing global consensus on data governance: access, control, and data sharing; cross-border data flows; data’s impact on business models, market dynamics, and market structure; and the measurement and classification of data”.
There is scepticism that agreement can be achieved in a large forum like the WTO and that smaller settings offer better prospects for success. The most promising is the Digital Economy Partnership Agreement (DEPA), negotiated by Chile, New Zealand and Singapore, often held out as a “model in structuring a new WTO digital trade agreement”. James Bacchus lauds DEPA as “the first stand-alone international agreement that deals exclusively with digital trade”. Its coverage is extensive with modules on business and trade facilitation; treatment of digital products and related issues; data issues; wider trust environment; business and consumer trust; digital identities; emerging trends and technologies; innovation and the digital economy; small and medium enterprises cooperation; digital inclusion; transparency; dispute settlement; and exceptions. “The modules in the DEPA are structured so that they can be adopted and then slotted into other trade agreements…In this way, the DEPA puts in place a set of legal building blocks that can be stacked up in different combinations by different countries while establishing a basic framework for the incremental construction of a global legal architecture to promote digital trade”. The novel modular approach “permits countries to pick and choose which specific legal commitments on digital trade they are willing to assume immediately while refraining for the present from assuming other potential commitments that are not currently politically attainable”. “DEPA is open to accession by other countries, and, as other countries join, they can choose to accept the different levels of commitments contained in each of these modules…Conceivably, other countries could join the (DEPA) agreement in its entirety. Alternatively, they could incorporate specific modules either within their domestic policy settings or in different trade negotiations”
Others believe alternatives to trade agreements might be more effective in establishing new governance regimes for cross-border data flows. Ingo Borchert and L. Alan Winters notes one idea is the formation of single data areas that “would allow personal and non-personal data to flow freely between the member states’ borders, because…common (or equivalent) high-quality data regulations and standards”. Another is to establish a Digital Stability Board or an International Data Standards Board that would be “responsible for devising common principles and standards to ensure a high degree of trust in the data-driven economy among the single data area’s individuals, consumers, workers, businesses and governments so that all forms of data could flow freely across borders. It would develop standards on data consent, ownership, collection, processing, aggregation, transmission, storage, analysis, certification and disposal”. “National regulatory authorities would be responsible for implementing the IDSB’s decisions. National data protection authorities or their equivalent would be the logical choice for such a role”.
UNCTAD notes “the three data behemoths – the United States, China and the European Union – have each created distinct data realms, which creates problems of compatibility or interoperability among them, severely impeding the ability to devise global rules to govern cross-border data flows and, thereby, create a level playing field for all countries. For those countries outside these dominant data realms (except for a few exceptions, such as India and the Russian Federation), this means that, as rule-takers, they will likely have to choose which of the models of data governance to follow if divergence continues to grow. To enhance their access to data and their market dominance, the United States, China and the European Union seek to bring other countries under their realm through instruments such as trade agreements or capacity-building, or in exchange for market access. Officials in smaller or less advanced countries will likely feel compelled to choose one realm over the others, because they already have significant trade relations with that market, or because they favour that realm’s approach to data governance. For many countries, however, it will prove difficult, if not impossible, to choose, since they have significant economic relations with more than one realm. Consequently, those countries’ Governments will try to delay for as long as possible before aligning themselves with one particular realm”.
UNCTAD points out “developing countries would be trapped in making choices that would affect other economic relations. For instance, Latin American countries often have to choose between the GDPR model and the United States model with regard to regulation of cross-border data flows and data protection rules; given that their economic interests are aligned with both these blocs, most Latin American countries face a tough choice. Several countries in Africa now appear to be aligning with the Chinese model of cybersovereignty, but they also have ties with the European Union and the United States. China has stronger influence in many Asian developing countries. The traditional allies of the United States have been encouraged to take a tough stance against Chinese companies, such as excluding Huawei from their telecommunications networks and banning social media apps such as TikTok. In terms of infrastructure, less points of interconnection to the global network resulting from Internet fragmentation would entail increased costs and overall lower efficiency; fragmentation would also lead to a reduced ability to participate in the network effects of the dynamics of a relatively global interconnection”.
Lindsey R. Sheppard, Erol Yayboke and Carolina G. Ramos asks “where and how will the Brussels-Beijing competition play out, especially with the United States on the sidelines? If the United States does not cooperate with like-minded friends and allies to produce a coherent strategy, the European Union and China will continue to compete for influence in non-aligned parts of the world. Whether via the Beijing or Brussels effects, the prevailing approaches to transnational data governance rely heavily on narrow privacy arguments that lack a clear, holistic understanding of the impact a more fractured internet will have on freedom, commerce, and national security…Both policymakers and experts are increasingly concerned that the vague U.S. stance on data flow restrictions will heighten privacy fears and contribute to continued adoption of these mandates in other nations. Will a firm U.S. stance against localization matter?…such a stance might not be enough to persuade other democracies – let alone authoritarian-leaning countries – not to implement data localization restrictions. Authoritarian and democratic countries alike are moving forward with policies that will further fragment the internet. The United States alone is unlikely to affect data localization; however, it can make a positive difference if it reconciles and coordinates efforts with like-minded friends and allies…To date, the United States has largely been absent from global debates around data governance, which increasingly includes various data localization mandates. Relatedly, there has been little to no debate in the United States about the real national security challenges of data localization and what a viable, alternative model of data governance could look like”.
The challenge of global digital governance
The greatest risk posed by the absence of an international governance framework is not fragmentation but the conflict posed by overlapping extra-territorial jurisdictional reach and the role of private platforms should play in governance. Ronaldo Lemos and Christian Perrone note nations are increasingly “adopting regulation with a broad jurisdiction or interpreting existing ones with expansionary lenses. This trend is particularly visible within data protection…Additionally, judicial decisions are also seeking a broader unilateral reach. In the area of access to electronic evidence by law enforcement agencies, platforms are called upon to provide data even if it may be stored or operated overseas…This is particularly true for countries that have blocking legislations that do not allow certain types of data to leave the country without a specific authorization, usually through a court order. Cases such as the Microsoft warrant in the United States (discussing access to data stored by Microsoft in Ireland) and the WhatsApp case in Brazil (requesting data that circulated in the platform and backing the order with a suspension of the service) are illustrative. In other instances, platforms have been ordered to take actions with global implications, such as de-indexing worldwide particular contents (under the heading of the right to be forgotten in the European Union, for example) or even excluding global access to content or accounts (as in an inquiry on disinformation promoted by the Brazilian Supreme Court). Without an international framework, this may lead to a governance conundrum for platforms, as in many instances to comply with the requests, the platforms may be in breach of, or may mean to violate a legal obligation in another country. These overlapping – and sometimes contradictory – obligations may lead to selective compliance for the platforms. Smaller countries and those with less bargaining power to enforce their laws, policies and orders – at least not without potential impacts in terms of their citizens’ access to services – may suffer from geopolitical imbalances”.
Ronaldo Lemos and Christian Perrone explain “as regulatory competition and jurisdictional overreach gain traction, less opportunities are available for smaller players to influence and take part in developing policies and rules for the space their citizens will spend much of their time on or, more importantly, where their elections will be debated and even, in some cases, won or lost. Adding to the current geopolitical disputes and lack of avenues to contribute, choices for such smaller players may be based on extremes: accepting regulatory models from one side or the other, banning certain services and apps, or shutting down apps to foster compliance. On the other side of the spectrum, platforms pressed between complying with one state’s regulation or judicial orders and risking violating the legal regime of another may adhere as a policy to the strictest common denominator – a race to the top – where the top means potentially the most limiting to freedom of expression or access to other digital rights. In a pinch, if companies cannot harmonize their different obligations, they may not adhere to local laws, particularly those of nations with less political or economic clout, potentially impacting the legitimacy of the domestic legal order…Finally, societies and communities in the Global South may be subject to a data trap in which they supply data for algorithms and AI tools developed elsewhere and then become consumers of such technologies. This creates a possible cycle of exploitation and dependency that will be hard for countries and communities to leave”.
Ronaldo Lemos and Christian Perrone also highlight “that companies are expected to play new roles, becoming both norm setters (as their terms of service increase in importance) and norm enforcers (as gatekeepers of conduct and content online). Platforms become the trusted mediators between government’s public interests and policies and what happens within the digital space. This means that without clear rules, platforms will default to their own terms of service and business practices, while also being relied upon by governments to implement and enforce their policies and rules”.
In content moderation, Ronaldo Lemos and Christian Perrone note “in the West, platforms have traditionally been granted a wide latitude to implement their own rules and practices. This rationale of providing incentives for them to innovate and find creative ways to deal with harmful and even illegal content in their space, however, is now brought into question…This creates a scenario where international platform governance becomes all the more important. One the one hand, the more platforms play a significant role (either voluntarily or through domestic regulation), the more is demanded of them in terms of legitimacy and transparency in their decision-making processes. On the other hand, more potential normative conflicts appear (for example, terms of service versus domestic regulation) and between different domestic regulation”. In contrast, in China “the state has historically been more involved in moderating the content available online”. This poses problems for private governance arrangements such as Facebook’s oversight board. “The board aims to help manage existing international challenges as it has a global scope of action (it may decide for the whole platform). Yet, in a scenario of tension between China and the West, the board only has a very narrow reach. Particularly, it does not provide an arrangement for a multiplatform problem, and it may find itself in a situation where national legislations and court orders may challenge its decisions, thus impacting even further its sphere of action”.
Ronaldo Lemos and Christian Perrone conclude “the geopolitics of today involving a dispute between China and the West are probably more impactful and divisive because no global governance framework serves a coordinating purpose. In the absence of such an arrangement, the aforementioned major trends – disputes over digital sovereignty, regulatory competition, jurisdictional overreach, and tension over the role and responsibility of platforms – emerge. These trends reinforce the significance of the paradox of having global technologies and local and/or domestic constraints. For the Global South – pressed among competing forces and without a venue to express its grievances and concerns – the consequences of such a complex context materialize in the predominance of commercial spaces versus public interests; the imposition of social, cultural and legal standards; the lack of diversity and exclusion of individuals and groups; and a data trap”.
Yves Tiberghien, Danielle Luo and Panthea Pourmalek point out “digital governance is a new domain, where innovators and disruptors have been able to run ahead of rule making. We are emerging from more than two decades of an under-institutionalized digital economy, in which many large imbalances and market deficiencies are appearing in every society around the world…The current moment may be the first time in human history that a private company such as Facebook (Meta) has the ability on its own to screen messages of leaders and politicians from every country in the world, except China, North Korea, Cuba, and maybe Iran. And this global function is only peripheral to Facebook’s core business, with just hundreds of assigned staff. In other words, Facebook, along with Twitter and a couple more giant for-profit digital companies, has acquired in less than 15 years the power to control information, emotions, narratives and political/social mobilization in the majority of countries of the world, including the United States. And they are generating disproportionate profits from this dominant position. All this is taking place in a near complete vacuum of digital governance. Most countries outside the United States and China have limited power to regulate and control these US-based and China-based global digital companies”.
Yves Tiberghien, Danielle Luo and Panthea Pourmalek point out there are mounting “risks of explosive social disruptions and inequality” with “a historic concentration of capital and wealth and growing numbers of displaced or laid-off workers in declining industries…Such fast-paced social dislocation and inequality could prove politically explosive and very hard to manage. No social system is ready – and the global governance is not ready either. The viability of modern states is also at stake, as their revenue base keeps eroding”. Given “the global digital economy is extraordinarily interconnected and fast-paced”, questions need to be asked about whether the current system is resilient against contagion effects or collapse”, whether democractic institutions are ready to cope with “human behaviour may be profoundly changing in ways never seen before”, whether risks from the “the open structure of the internet” such the threats from “hackers and organized gangs” and the escalating risks of cyberspying competition and even cyberwar can be managed. “There is a huge disconnect between the speed of technological development, the scale of existential risks involved, and the acceleration of securitization on the one hand and the supply of national/global governance and increase in human capacity on the other hand”.
Rohinton P. Medhora and Oliver Letwin point out “globally, our digital infrastructure is undergoing a sweeping transformation. Whereas the first wave of internet expansion featured the proliferation of open networks, we are now in the midst of a digital arms race. The competition between software stacks, data-collection capacities and digital business models is creating clashes across developed and emerging economies, and within democratic and authoritarian countries alike. At issue is the core architecture of the digital economy itself. Questions about digital governance are central to how we reconstruct our post-pandemic world. The spread of digital technologies and the coronavirus are both manifestations of an era of undermanaged hyper-globalization, and the pandemic has deepened the economic, geopolitical and technological divide between the United States and China. Governments emerging from the current economic shock will be in dire need of revenue. And after the society-wide lockdown, technologies that have become deeply embedded in our lives more or less overnight will need to be scrutinized…The internet was once defined primarily by an absence of centralization. But now what matters most are concentrations of data and computational capacity…Yet they are also concentrating decision making and expanding the power of those who control the data. This new reality poses difficult policy challenges because it produces winner-takes-all economic outcomes, concentrations of influence that circumvent democratic institutions and national sovereignty, unanticipated national- and human-security threats, and entirely new geopolitical blocs”.
Rohinton P. Medhora and Oliver Letwin note growing consensus that “we have reached a stage in the evolution of digital technologies at which governments are increasingly concerned with digital governance in order to counteract what they see as the dangers of unregulated digital markets. This has resulted in the emergence of differing forms of national and international digital regulation. However, both globally and in individual jurisdictions, there remains a large governance gap in relation to e-commerce, digital platforms and platform content, digital infrastructure and, in fact, in almost every aspect of the digital economy. This governance gap is giving rise to inconsistency of regulation, lack of trust, the stifling of innovation and global inequities. Efforts to close the governance gap are being impeded both by the geopolitical/geoeconomic rivalry between the United States and China, and by competing models of digital governance; this was described memorably…as a potentially toxic blending of geoeconomics and geopolitics”.
Rohinton P. Medhora and Oliver Letwin point out given the current strategic rivalries and marked differences in attitudes to domestic digital regulation, various proposals have been offered “in the spirit of defining areas of commonality, within which differing jurisdictions would be able to operate differing degrees and kinds of regulation”. This includes suggestions for “tiered obligations…around a core set of commonly accepted basic principles”; a “meta regime” to enable discussion where there is no agreement; “confidence-building measures” in e-commerce and business processes; “a transnational framework that allows for some integration of local and domestic values, interests and cultural and social particularities but also maintains a degree of inter-operability”; “a patchwork of market and social bargains, often covering some, but not all, regions…that…still allows global production systems and markets”; “a thin global framework…part of a larger multi-level and partly competitive effort to generate governance capacity”. However, given “the scale, variety and complexity of the global digital economy, and the multitude of different existing international approaches to digital governance (with the OECD already identifying 52 instruments of regulation administered by 24 international bodies), precludes any simple solution” and no one has yet “put forward anything purporting to be a simple blueprint for global digital governance”.
Conclusion
One of the critical tasks in coming decades is to formulate global rules on digital trade and digital governance. But it is difficult to reconcile the divergent approaches to digital governance. Generally, the likely trend is moving against the preservation of an open global internet system and leaning towards data sovereignty as nations aim for “strategic autonomy” to protect their interests against US, China and their global platforms. Under these circumstances where the situation is still evolving, early convergence on rules is not only unlikely but also not preferable. It may be too early to consensus to be useful in a still fast-moving situation as a period of experimentation with different legal models and its consequences are needed. In addition, rising geopolitical tensions may make it impossible to manage regulatory competition and jurisdictional overreach.
References
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[1] Rachel F. Fefer, Shayerah I. Akhtar and Michael D. Sutherland provide an overview of the US perspectives on digital trade.
[2] “In June 2021, the United States and more than 130 countries agreed to update the global tax system and develop an international digital tax framework at the OECD…in June 2021, the United States and other G-7 countries announced agreement on (1) how to allocate taxing rights of the largest and most profitable multinational enterprises, including digital companies, and (2) a global minimum tax”. See Rachel F. Fefer, Shayerah I. Akhtar, Michael D. Sutherland.
[3] Susan Ariel Aaronson for a discussion of national security risks.
[4] Examples include national security tariffs imposed by US steel and aluminum imports, Qatar’s case against the United Arab Emirates measures for measures related to funding of terrorist organizations and China’s case against Australia’s exclusion of Huawei from 5G networks.
[5] A WTO member invoking this exception would be free to determine whether the applied measure is in its own national security interests and the WTO panel could make no further findings in this regard.
[6] Whether there must be “a fundamental change of circumstances which radically alters the factual matrix”.
[7] Net neutrality refers to the proposition that all internet users should share equal priority to proprietary transmission systems. The Trump administration discarded net neutrality and allowed internet platforms to sell priority access to their transmission systems. In Europe, net neutrality is guaranteed by EU Regulation.
[8] See Ingo Borchert and L. Alan Winters.