Can the TPP Launch a New Era of Governance For Digital Commerce?

With Congress passing trade promotion authority, negotiation of the Trans-Pacific Partnership (TPP) agreement is entering its final stages. In the authorizing legislation, Congress recognized “the growing significance of the Internet as a trading platform in international commerce” and instructed President Obama to achieve objectives concerning digital trade in goods and services and cross-border data flows. The Obama administration wants “digital trade rules-of-the-road” in the TPP agreement. These rules could mark a turning point in the global governance of digital commerce.

The importance of digital technologies to trade has grown without multilateral rules keeping pace. The World Trade Organization (WTO) is the main source of multilateral trade agreements, but it was established before the Internet transformed how companies produce, sell, and deliver products and services. In a 1998 declaration, WTO members agreed not to impose customs duties on electronic transactions and recognized the need to address e-commerce directly. However, the WTO’s e-commerce work program has not progressed much because WTO members disagree on various issues.

Without multilateral progress, countries have addressed e-commerce in bilateral and regional trade agreements. Since the WTO’s creation, the United States has negotiated nine bilateral agreements and one regional pact that contain e-commerce chapters. These agreements are not identical in their e-commerce provisions, but common features include rules that:

• Affirm that the agreement’s rules on trade in services apply to services supplied or performed electronically;
• Prohibit customs duties, fees, or other charges on the importation or exportation of digital products; and
• Treat digital products in a non-discriminatory and transparent manner.

These types of provisions ensure that digital goods and services benefit from traditional international rules that liberalize trade through increased market access, non-discriminatory treatment, and transparent laws and procedures.

But, over time, the agreements reveal increasing interest in issues specifically associated with e-commerce. While the U.S.-Chile agreement (which Congress approved in 2003) only contains the traditional rules described above, the U.S.-Korea agreement (which entered into force in 2012) also includes provisions on electronic authentication and signatures, online consumer protection, access to and use of the Internet for e-commerce, and cross-border information flows. The U.S. e-commerce agenda for the TPP reflects this trajectory because it seeks to apply traditional disciplines (e.g., non-discrimination) and adopt specific e-commerce provisions, including rules that ensure cross-border data flows over a single, global Internet and that restrict data-localization requirements.

TPP parties have not released a draft of the e-commerce chapter, nor has Wikileaks disclosed it, as it did TPP’s intellectual property and environment chapters. A Wikileaks-released document dated November 2013 described TPP-country negotiating positions under the e-commerce chapter on, for example, non-discriminatory treatment of digital products, cross-border data flows, and data-localization requirements. These issues reflect the U.S. desire for expanded e-commerce governance, even if toward the end of 2013 consensus did not exist and the United States was alone in reserving its position on, rather than accepting, privacy obligations as a limitation on cross-border data flows.

With TPP countries accounting for forty percent of the world’s economy, the TPP agreement will constitute a major trade governance instrument. But it will also affect negotiations in the WTO, U.S.-EU talks on the Transatlantic Trade and Investment Partnership (TTIP), and efforts on regional and bilateral trade agreements. Much as NAFTA’s conclusion in 1994 influenced subsequent trade negotiations, the TPP agreement could be seminal in shaping trade governance, including on rules for digital commerce.

The TPP’s e-commerce provisions are important for reasons beyond trade. For many, the TPP is strategically important for U.S. efforts to counter China’s growing influence. Such considerations include U.S. interests in advancing an open, globally accessible Internet as a counterweight to China’s emphasis on subjecting cyberspace to national sovereignty.

The TPP’s impact will depend on the rules ultimately agreed. Rules fostering cross-border data flows will probably reflect countries’ interests in protecting privacy. The agreement might allow data localization requirements through (1) "negative list" carve-outs for certain information (e.g., health records) and/or (2) exceptions that permit localization for legitimate purposes and which do not create unnecessary restrictions on cross-border data flows. Negotiators also have to decide whether e-commerce rules will be subject to the agreement’s dispute settlement provisions, including the proposed investor-state dispute settlement procedure.

At the strategic level, whether the United States can generate sufficient support for e-commerce rules that maximize the Internet’s potential to support commerce might depend, among other things, on how Snowden’s revelations still affect policy thinking in TPP countries about the dominance of U.S. companies in e-commerce and the need to protect information from flowing outside national borders, where it is more vulnerable to foreign law enforcement and intelligence agencies.

We might not have to wait long to learn whether the TPP agreement will start a new era of governance for digital commerce and for trade’s strategic importance in world politics. Trade ministers for TPP countries are meeting this week to resolve differences and are reportedly scheduled to hold a press conference on July 31 on the status of the negotiations.