The Landing Zone in Trade Agreements for Cross-Border Data Flows

The digitalisation of the world economy is continuing at a fast pace. Its successful progress is dependent on the ability to move data as freely as possible across international borders. Digital trade chapters are therefore becoming a critical part of bilateral, plurilateral and multilateral trade agreements.

Various domestic policy objectives are implemented at the national levelby trading partners, which lead to differences in approaches to regulating cross-border data flows (CBDF). It is therefore crucial to explore where a landing zone might be found that would allow  adoption of global rules on electronic commerce (e-commerce) and digital trade.

Understanding the background historical context is important as a first step. One can then look at the specific issue of  CBDF in various negotiating camps and examine divergences and similarities  that might lead to an acceptable solution for international rules on digital trade. This article highlights the key elements of a longer paper that seeks to identify a potential landing zone for CBDF.

1. The historical context

The multilateral route:

The WTO Uruguay Round ended 25 years ago when the internet was still in its infancy. But global rules on digital trade have not been updated since. Many WTO Members considered that a new path was necessary and decided in 2017 to launch exploratory work towards future WTO negotiations on trade-related aspects of e-commerce. 86 Members are now part of the Joint Statement Initiative (JSI) on E-commerce. Progress has been made on some important issues with legal text for future rules nearly closed, hopefully with progress registered at the 12th Ministerial  Conference in November 2021 in Geneva.  But negotiators have not yet touched upon the decisive issue which would really impact global rules on digital trade: the issue of CBDF.

The plurilateral/bilateral path:

In the absence of rules at the multilateral level, many WTO members felt the need to enact some rules for the flow of data between them. We look at the first ever agreement with a complete chapter on digital trade (Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CP-TPP), as well as the Digital Trade chapter of the USA–Mexico–Canada Agreement (USMCA). The USA-Japan Digital Trade Agreement also establishes high-standard rules in this area. Among the CP-TPP signatories, some considered that the text on digital trade did not go far enough, and decided to adopt even deeper rules which we also looked at (DEPA, DEA, etc).

The European Union (EU) has negotiated an “Electronic Commerce” chapter in its agreement with Canada but there is no provision on CBDF. The EU-Singapore FTA includes a chapter on e-commerce as does the EU FTA with Japan, in the latter case with a 3 year review clause on CBDF. The EU-Vietnam FTA e-commerce chapter is very weak. The only FTA implemented by the EU with rules on CBDF is the EU-UK  Trade and Cooperation Agreement (EU-UK TCA) which contains a fully-fledged Title on “Digital Trade”.

The EU is currently negotiating FTAs with Australia and New Zealand. The final outcomes in these digital trade chapters might demonstrate where a possible landing zone might lie for global trade rules on CBDF (including for the WTO JSI on E-Commerce).

2. Will it be possible to adopt global rules for CBDF?

There is a central nexus of rules to which the 86 governments of the  JSI on E-Commerce will hopefully be ready to commit. But clearly not all JSI participants will    be willing and able to put into question the way they manage the flow of data in their own territory.

It might then be envisaged that a group of the willing will decide to pursue negotiations on the remaining issues, such as the USA and the eleven countries of the CP-TPP, and the 27 members of the EU, to which one can add the UK, Norway, Iceland, Liechtenstein, Switzerland and South Korea. That would assemble a group of around 50 WTO Members, representing more than 60% of global trade.

Looking at the various FTAs that have been agreed by these WTO Members, one can identify subjects that should be acceptable to most of them, like source code protection and ban of localisation requirements. The matter of personal data protection is tackled in nearly all FTAs, but perhaps not in terms that would be acceptable to all.

3. Data protection provisions in future deals: a possible landing zone?

The above group will have to start negotiations on provisions on CBDF and protection of personal data and privacy. We look at the various provisions on these two related subjects in existing treaties and see whether there are similarities, what are the impediments and absolute requirements on the part of the various parties and assess whether a final solution would be reachable at some point.

In the USMCA, the conduct of business activity is the absolute priority, but there is the possibility of adopting or maintaining measures inconsistent with the principle of freedom of CBDF that are “necessary to achieve a legitimate public policy objective”. The EU considers that the protection of personal data is a fundamental human right that cannot be made subject to any “proviso” or conditionality.

USA and CP-TPP countries do have language on “data protection” with references to the principles and guidelines of APEC and OECD. But the EU considers that this language on data protection is very weak and not binding. In the EU-UK TCA however, the EU accepted some changes to its proposed text. And those might represent a possible landing zone with other trading partners, and possibly in the JSI E-Commerce negotiations.

Dr Pascal Kerneis

The views expressed here are the author’s, and may not necessarily represent the views of the Institute for International Trade.

Pascal Kerneis Working Paper No. 2021-12

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