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The future is digital, but we should keep digital chapters out of our trade deals

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Equal Times | 1 October 2020

The future is digital, but we should keep digital chapters out of our trade deals

Par Duncan McCann

We are currently living through a digital revolution. These new technologies and the data revolution that underpin them offer great opportunities to answer humanity’s challenges – climate chaos, poor quality work, hunger, and disease. But, as history clearly demonstrates, the technological revolution does not reach everyone nor impact everyone in the same way. Even today, about 1.2 billion people have yet to experience the second industrial revolution while others are launching into the fourth one.

The digitisation of the economy has been underpinned by a rapidly growing e-commerce sector due to the development and expansion of the speed and reach of digital networks. In 2019, e-commerce retail sales worldwide amounted to US$3.53 trillion and e-retail revenues are projected to grow to $6.54 trillion in 2022.

And just as e-commerce and the digital revolution are now permeating ever more sectors, the chapters (as the different sections are called) in free trade agreements (FTAs) have also expanded to deal with many issues that are way beyond the original scope of facilitating trade over the internet.

In a recent report that I wrote for the International Trade Union Confederation (ITUC) on the impacts to labour markets of the digital trade chapters in free trade agreements I highlighted four key reasons to resist the these chapters as currently drafted.

1) Generally, they are NOT trade specific

In general, the topics covered in the provisions are not specifically trade issues and therefore are inappropriate for inclusion in free trade agreements. The default position for policy on these topics, therefore, should be to regulate through domestic legislation wherever possible, especially where model legislation exists.

One example is the provision that generally (precise wording will vary) seeks to make it very difficult for governments to require access to source code (the original form of a computer program as it is written by a programmer) as a condition of market access. Source code, however, is already included in intellectual property, through copyrights and patents, and trade secrets protections across the globe and cannot really be considered a trade issue. The extension of the prohibition to request source code beyond that already enshrined in patent and trade secret protection represents a brazen attack on the ability of governments to ensure that software, in its myriad of applications, is keeping us and our data safe, secure and private

2) They are anti-rules

Indeed, the inclusion of specific digital chapters in international trade agreements is designed to limit the ability of domestic governments to regulate in key emerging areas of the digital economy.

For instance, the wording in the latest US FTA (the United States-Canada-Mexico Agreement), dealing with the cross-border transfers of data states that “no Party shall prohibit or restrict the cross-border transfer of information, including personal information”. This formulation makes it abundantly clear that the purpose of the provision is to make a particular area of policy off-limits to government intervention.

In addition, many of the provisions limiting the role of government also contain the phrase that they may only derogate from the provision that “achieves a legitimate public policy objective”. This is because “legitimate” has been interpreted to mean widely recognised policy solution, while only considering protecting health, the environment and privacy as “acceptable”. This means that novel approaches in sectors, especially ones undergoing digital transformation, could be ruled illegitimate, even when concerned with health, the environment or privacy, despite being a valid policy objective. This is especially true when combined with the necessity that a policy does not “impose restrictions on transfers of information greater than are required to achieve the objective”. This has meant that in 44 attempts to use this method to derogate from a particular provision only one has been successful.

3) Digital chapters in trade agreements make existing disruptions harder to mitigate

Digital technologies are already impacting and disrupting our economy irrespective of how and whether they are included in international trade agreements. Nonetheless these digital chapters will in many instances exacerbate the existing risks of adverse social and economic effects arising from digital disruption by locking in a liberal, under-regulated environment.

Currently digital markets all over the world are concentrating into fewer and fewer companies. Although one of the publicly stated rationales for digital chapters is to enable and empower micro, small and medium enterprises (MSMEs) to be able to trade digitally and therefore open up markets that would previously only been available to large multinationals. In reality, the proposals and signed agreements will do little or nothing to help MSMEs and in fact they are very much aligned with the needs of big tech companies.

4) The importance of digital chapters will grow as the digital economy grows

As data and algorithms become ever more central components of our social and economic lives, the importance of digital trade provisions in international trade agreements will also grow. While digital was a small segment of the economy the impact of digital chapters was also small. However, many sectors of the economy are undergoing rapid digital transformation. This means that areas of economy that no one would suspect will be impacted by these provisions.

An illustrative example is agriculture. Global agriculture and the wider food system is undergoing a revolution that may well be as dramatic as any previous one. The advance of big tech companies into agriculture and the wider food system presents a number of challenges to those trying to make a living, and feed themselves, from small-scale agriculture. There is worry from local communities who fear that liberal cross-border transfers will enable bio-piracy. In addition, as the process of growing food becomes ever more reliant on technology – from growing, to harvesting, to distribution – technology companies from outside the agricultural sector, such as Fujitsu and Amazon, are increasingly buying existing companies with the potential to further dominate and consolidate the agritech sector. As more food is sold via platforms, often based internationally, liability remains poorly defined and rules no longer requiring local legal entities could make enforcement extremely complicated.

A liberal data regime will also help the vertical and horizontal integration of the agritech sector that we are seeing. The provisions cementing the international free flow of data will make it easier for multinational agritech businesses to harvest and compile data from around the world. This will allow them to generate better products, since they will have more data, than those that could be developed, either locally by farmers using their own data, or even by attempting to aggregate data nationally. In addition, the prohibition on requiring the sharing of the source code of the software that will be increasingly essential for farms to use, even under technology transfer programmes, will act to protect the interests of multinational agritech at the expense of empowering local farmers and fostering a domestic industry.

We must ensure that, as we enter a new phase in the digital disruption of the economy, we do not shackle our democratic institutions from regulating the digital sphere.

Our first goal should be to dispute the merits of many of the provisions in the digital chapters being discussed. Topics like data protection and data localisation should be dealt with locally by democratic governments. Secondly we should ensure that where provisions are passed that countries maintain the ability to derogate from them for any legitimate public policy objective, with legitimacy focused on the democratic mandate and acknowledging that there are more important policy objectives than maximising trade, like climate mitigation and health. Finally, we need to ensure that there is wider discussion of the suitability of the provisions given the fact that soon almost all sectors of the economy will have a digital component and so these provisions will apply to everyone. Only by doing this can we ensure that the future digital economy is one that benefits everyone.

 source: Equal Times