Digital commerce is at the forefront of free trade agreements (FTA) in various stages of negotiation or ratification around the globe. But from the Trans-Pacific Partnership (TPP) to the World Trade Organization (WTO) efforts and the Doha agenda, there’s little consensus on how to shape policy that can better define and guide digital commerce.
Access recently connected with Joshua Meltzer to better understand this rapidly evolving dynamic.
Meltzer is a fellow in Global Economy and Development at Brookings, focusing on international trade and U.S. trade with key economies such as China, India, Japan and the European Union (EU). He teaches at the Johns Hopkins University School for Advanced International Studies and Georgetown University Law School.
Access: Is global trade policy keeping pace with digital innovation?
Joshua Meltzer: There is serious thinking underway among senior trade officials about how to make trade policy and trade agreements more responsive and reflective of the way the digital environment facilitates commerce. But if you look at the current set of rules, these agreements have not kept up with the way the digital environment has affected international trade.
Access: So what can be done about that?
Meltzer: One important element is the issue of cross-border data flows, and the extent to which trade rules and trade policy get at this issue and can facilitate it. Internet restrictions in other countries have affected to different levels the free flow of data over the internet. That has very important economic implications on how businesses are able to operate.
When this is a cross-border issue, trade policy is engaged. Currently there’s not much in trade agreements and rules to get at what countries should or should not do regarding their policies’ impact on cross-border data flows. This certainly needs a lot more attention.
The U.S. is attempting to get at this issue. If you look at the U.S.-Korea free trade agreement, language there seeks to essentially create a requirement for countries to allow all cross-border data flows. But the way it’s been worded states it as a goal rather than a mandate.
Access: Is the Korea FTA the first to include that sort of language?
Meltzer: More or less, yes. So in a sense it’s really a cutting-edge trade policy. It contains the most effective language that’s been developed and inserted in a trade agreement so far.
I think we’re looking at trying to create a slightly more mandatory set of obligations for countries with cross-border data flows. But language also has to be crafted around legitimate concerns about the type of information on the internet and what citizens can access. There needs to be a way to provide suitable carve-outs for exceptions, structured to prevent those exceptions from being broadened or abused. That is one element where trade policy needs to move to reflect what is happening on this sort of digital innovation or e-commerce front.
Access: With cross-border data flows, a key element in play is data storage facilities and cloud computing. What implications will that have on economic growth?
Meltzer: Cloud computing requires enormous storage capacity. Companies will need to decide where they want to locate these storage facilities, based on a range of factors. Some countries are requiring they be located in their country — which is becoming a significant barrier in a sense and is a trade policy issue.
Companies are resisting because it makes no commercial sense to locate data storage facilities in every country you want to offer cloud computing services. Of course, countries feel consumer information privacy can only be managed if the data is physically located in their country. This is another issue trade policy needs to address.
Connected to that is the broader issue of the importance of e-commerce to how companies operate. The fact is, e-commerce between countries is hindered by a range of barriers. These include de minimis levels at customs, trusted trader programs and how delivery services work — there needs to be mechanisms in place to allow for seamless transition between the buyers and sellers with the goods and the interoperability of postal services and delivery services.
Access: Looking out over the next 12 to 18 months, what major benchmarks in global trade policy should we be aware of?
Meltzer: The TPP is the most important free trade agreement in negotiation right now. Since Canada and Mexico have joined, that makes it much more significant. And it now looks likely that Japan will join. If Japan were to join, TPP would be an even bigger deal than it is. It would raise the stakes considerably.
From a U.S. perspective, the ambition for the TPP is for it to become a vehicle for a free trade agreement for the Asia Pacific region. Getting the rules right in the TPP is significant because it won’t be only the rules that govern international trade and investment among TPP parties, but potentially these rules could be extended to the Asia Pacific region as a whole.
That’s why getting sufficient attention to some of these new, evolving issues such as data flows, the broader e-commerce environment and a range of other issues going on with TPP, are part of creating a framework and structure for international commerce broadly in that region going forward.
Also in 2013 will be the trade negotiations between the U.S. and the EU. The main gains from a transatlantic agreement are going to be in addressing non-tariff barriers, all the types of behind-the-border regulations that make trade difficult. Those barriers are very difficult to get at effectively. The U.S. and EU have been trying to do this through the Transatlantic Economic Council for a while, with limited success. If it gets off the ground it will be very important.
Then there’s the WTO. We should see a more ambitious approach to a true multilateral services agreement this year. In a very formal technical sense this agreement will be a free trade agreement that is going to be done basically under Article 5 of the GATS Agreement, which is the exception for free trade agreements for services. It could be built out and expanded upon and become part of a Doha deliverable in the future.