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PUZZLED BY DATA

How can WTO Members’ interests with respect to data

transfers and data protection be reconciled with free trade

under the WTO regime?

2018-2019

Master Thesis

Track: International and European Law – International Investment and Trade Law

University of Amsterdam

Student: Kristina Iotzova Student number: 12403229

Supervisor: Professor Dr. Ingo Venzke Word count: 12 848

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i

In an age where data drives commerce, data-related laws are proliferating. The present paper explores cross-border data regulations and specifically focuses on localization requirements. Localization requirements obligate data to be stored within a specific jurisdiction. Some of these requirements may hinder cross-border data flows; yet often localization laws, along with other regulatory tools, are introduced and potentially justifiable on the grounds of privacy. Industrial interests may further be implicated, especially since developing countries are falling behind in their digital capacity. In this context, this paper studies the potential conflicts between the World Trade Organization (‘WTO’) Members’ interests with respect to data transfers and data protection, arguing that the WTO could address this topic in the ongoing e-commerce negotiations. This paper takes a predominantly economic law perspective. It presents data as a factor of production and advocates for the role of the WTO in serving as a venue for discussions on cross-border data flows. WTO Members’ positions in the present WTO negotiations and their experience in regional trade agreements (‘RTAs’) are reviewed. The conclusion is reached that while WTO Members’ interests are, at the present moment, hardly reconcilable, inclusiveness of the decision-making process is imperative.

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1. Introduction ... 1

2. The first pieces of the puzzle – definitions and context ... 4

2.1. Data as a factor of production ... 4

2.2. The WTO context ... 6

3. Data protection or data protectionism... 9

3.1. The spectre of protectionism: local storage requirements ... 9

3.2. Reviving privacy: protecting data transfers? ... 12

4. Chapter III: Digital inclusion and digital exclusion: developing digital capacities .. 16

4.1. Digital exclusion? ... 17

4.2. Digital inclusion ... 20

5. Solving the question of negotiations and dispute resolution ... 21

5.1. Choosing the forum: Bilateral, plurilateral, multilateral? ... 21

5.1.1. Challenges ... 22

5.1.2. The WTO? ... 23

5.2. The WTO embracing digitalization: Standing on the shoulders of RTAs ... 25

5.2.1. Early steps ... 25

5.2.2. RTAs ... 26

5.2.3. WTO’s Current E-commerce Negotiations ... 28

6. Conclusion ... 29

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iii

CETA Comprehensive Economic and Trade

Agreement

CPTPP Comprehensive and Progressive Agreement

for Trans-Pacific Partnership

DSU Understanding on Rules and Procedures

Governing the Settlement of Disputes/ Dispute Settlement Understanding

EU European Union

GATT General Agreement on Tariffs and Trade

GATS General Agreement on Trade in Services

JEFTA/EU-Japan EPA EU-Japan Economic Partnership Agreement

LDC Least developed countries

NAFTA North American Free Trade Agreement

OECD Organisation for Economic Cooperation and

Development

RTA Regional trade agreement

UN SDGs United Nations Sustainable Development

Goals

TiSA Trade in Services Agreement

US United States

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1. Introduction

In the Fourth Industrial Revolution – the digital revolution – data is considered one of the most valuable assets, with some labelling it ‘the new oil’.1 In contrast to oil, however, data is inexhaustible.2 The Digital Revolution was arguably a product of extreme automation and connectivity,3 resulting in ‘datafication’4 of human activity with potential for scientific developments as well as for the commercialization of data. The renowned economist Michael Porter views data as a ‘core asset of the corporation’.5 In fact, digital information exchanges or data transfers cause a disruptive change to commerce giving birth to e-commerce: ‘less constrained by national borders than (…) any other form of exchange’.6

In April 2019, the Director-General of the World Trade Organization (‘WTO’) Roberto Azevêdo discussed e-commerce as an important aspect of today’s economy, which can ‘unleash great potential’.7 Digital operations are indeed a catalyst for trade relations in the form of e-commerce, which may be include the production, distribution, marketing, sale or delivery by electronic means.8 Currently, while several sectors are seeing a decrease in trade flows, data-driven trade is generating trillions in revenue.9 Certainly, the digital economy allows for a fast-paced transfer of information from one country to another without crossing a single physical border. Multinational corporations need to be minimally or not at all incorporated in a state to establish trade relations therein.10 A 2018 WTO study further found that digital technologies lower costs and increase productivity, possibly leading to an increase in trade by up to 34% over 15 years.11 The intangible and transnational nature of this trade provokes

1 ‘The World’s Most Valuable Resource is No Longer Oil, but Data’ (The Economist, 2019)

<https://www.economist.com/leaders/2017/05/06/the-worlds-most-valuable-resource-is-no-longer-oil-but-data> accessed 29 June 2019.

2 MH Brackett, Data Resource Integration: Understanding and Resolving a Disparate Data Resource (Technics

Publications 2012) preface 19.

3 UBS White Paper for the World Economic Forum, ‘Extreme Automation and Connectivity: The Global,

Regional, and Investment Implications of the Fourth Industrial Revolution’ (2016) 31.

4 D Ciuriak, ‘The Economics of Data: Implications for The Data-Driven Economy’ (Centre for International

Governance Innovation, 2018)

<https://www.cigionline.org/articles/economics-data-implications-data-driven-economy> accessed 2 June 2019.

5 ‘How Smart, Connected Products are Transforming Companies’ (Harvard Business Review, 2015)

<https://hbr.org/2015/10/how-smart-connected-products-are-transforming-companies> accessed 15 May 2019.

6 M Mueller and K Grindal, ‘Data Flows and the Digital Economy: Information as a Mobile Factor of

Production’ (2019) 21 Digital Policy, Regulation and Governance 72.

7 ‘DG Azevêdo: The Conversation on Digital Trade and E-Commerce Concerns Us All’ (Wto.org, 2019)

<https://www.wto.org/english/news_e/spra_e/spra254_e.htm> accessed 12 April 2019.

8 WTO, Work Programme on Electronic Commerce, WT/L/274 (1998).

9 McKinsey Global Institute, ‘Digital Globalization: The New Era of Global Flows’ (2016) 2-3. 10 M Mueller and K Grindal (n 6) 74.

11 WTO, ‘World Trade Report 2018: The Future of World Trade: How Digital Technologies are Transforming

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2 excitement. Nevertheless, Azevêdo warned the international fora about the challenges ensuing from e-commerce, including connectivity and infrastructure issues.12

Digital trade is one big step for mankind in the context of the development of commerce posing old and new questions to international economic law. Previously, the WTO was the result of a gradual shift from the General Agreement on Tariffs and Trade’s (‘GATT’) focus on removing traditional trade barriers to disciplining regulatory barriers. The GATT was drafted in the 1940s with a view to regulating trade barriers at the border, such as tariffs and quotas.13 Following the Kennedy Round of negotiations, the focus switched to scrutinizing more than border trade barriers.14 The Tokyo Round introduced the ‘code’ approach, which, albeit through voluntary commitments, addressed non-tariff issues (e.g. technical barriers to trade).15 The Uruguay Round then expanded the trade rules’ coverage of ‘behind the border measures’ to include intellectual property and investment.16 The current Doha Round of negotiations was launched in 2001 and remains ongoing. This paper argues that the regulations on data flows accompanying new technological developments pose new, ‘across borders’ challenges and asserts that this calls for a further rebalancing of Members’ right to regulate and trade liberalization within the ambit of international trade law.

As digitalization penetrates the entire economy of states, it is pivotal to address the different regulations governing data transfers and assess whether, and to what extent, they could fit within the international trade law realm. The Organisation for Economic Co-operation and Development (OECD) articulates an indicative taxonomy on the approaches to cross border data flows, outlining the categories as (i) ‘free flow’, (ii) ‘flow conditional on safeguards’ (i.e. adequacy/equivalence decisions), (iii) ‘flow conditional, including on ad-hoc authorization’. The OECD further mentions data localization, i.e. the requirement to store data locally (e.g. 2014 Russian Federal Law No. 242-FZ). These data-related regulations’ trade restrictiveness, used in this paper as synonymous to barriers to digital trade, varies. Conditions on cross-border

12 DG Azevêdo (n 7).

13 JA Finalyzson and MW Zacher, ‘The GATT and the Regulation of Trade Barrier: Regime Dynamics and

Functions’ (1981) 35 International Organization, 562-563.

14 PC Mavroidis, ‘Driftin’ Too Far from Shore – Why the Test for Compliance with the TBT Agreement

Developed by the WTO Appellate Body is Wrong, and What Should the AB Have Done Instead’ (2013) 12

World Trade Review 517.

15 R Baldwin, ‘The World Trade Organization and the Future of Multilateralism’ (2016) 30 Journal of Economic

Perspectives 104.

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3 data flows can amount to a complete prohibition on transfer, while local storage requirements might, conversely, allow transfers.17

The new data policies represent a pressing topic in light of the notable impact on consumers and companies,18 the imbalances in digital capacities between developed and developing countries,19 and the divergence of views among the digital frontrunners themselves, namely the EU, China and the US.20 The intensified data transfers prompt a variety of regulations of cross-border data flows, based on differing underlying rationales, i.e. related to industrial interests (India), security threats (China), privacy as a consumer right (the US) and fundamental rights concerns (the EU).21

Given these developments, the research question that this paper seeks to answer is whether the WTO framework allows for the reconciliation of WTO Members’ interests in the context of balancing data protection and free trade. This research focuses on data localization, although it further draws relevant comparisons with other regulatory approaches, specifically the EU adequacy mechanism. This paper is delimited to the consideration of privacy (data protection) and industrial policy as underlying interests, leaving security aside. The WTO has been subjected to criticism regarding its inability to regulate the data economy, including attacks on its legitimacy, its consensus-based decision-making, alleged susceptibility to lobbying and bias towards developed states.22 Concerned about the ‘paralysis’ in the multilateral framework of the WTO,23 countries have already drafted provisions applicable to localization laws in regional trade agreements (‘RTAs’). Countries deem negotiations at the regional level more dynamic, however, scholars regard sceptically the heterogeneity of such agreements.24 This paper explores the benefits and criticism of the different international economic law fora. Although at the 11th WTO Ministerial Conference WTO Members were split as to whether digital trade should be addressed by the WTO, negotiations are now underway.25

17 F Casalini and JL González, ‘Trade and Cross-Border Data Flows’ (OECD Publishing 2019) 22. 18 The National Board of Trade (Sweden), ‘No Transfer, No Trade - The Importance of Cross-Border Data

Transfers For Companies Based in Sweden’ (2014) 17-22.

19 SA Aaronson and P LeBlond, ‘Another Digital Divide: The Rise of Data Realms and its Implications for the

WTO’ (2018) 21 Journal of International Economic Law 269-271.

20 ibid 268-269. 21 ibid 245ff.

22 A Narlikar, ‘The Politics of Participation: Decision-making Processes and Developing Countries in the World

Trade Organization’ (2002) 364 The Round Table 174ff.

23 R Baldwin (n 15) 111-113.

24 ibid 114; AD Mitchell and N Mishra, ‘Data at The Docks: Modernising International Trade Law for the

Digital Economy’ (2018) 20 Vanderbilt Journal of Entertainment & Technology Law 1123.

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4 The first chapter sets the scene through the economic characterization of data as a factor of production and a discussion of the relevant WTO jurisprudence.26 The second chapter then considers WTO Members’ regulatory approaches to the protection of privacy as a policy interest. More specifically, this chapter focuses on Members’ choice to achieve such protection through localization requirements and alternatively, through adequacy mechanisms, and how these requirements can attract complaints based on discrimination and protectionism. The third part explores the unequal impact that the data economy boom might pose on the Global South, arguably ill-equipped for such changes in trade. This chapter touches upon the issue of digital divide, developing and least developed countries’ (‘LDC’) discontent, and the role of the WTO in alleviating these concerns. The fourth part addresses the interest of the multilateral trading system to host the e-commerce negotiations. This chapter further contemplates current developments in the negotiations of related provisions, both with respect to the undergoing initiative at the WTO and the established examples of practice in RTAs. The last part concludes and suggests how the WTO can proceed with the reconciliation of WTO Members’ interests in the context of balancing data protection and free trade.

This article is descriptive to the extent that it refers to research on the current state of affairs in RTAs and national legislation. It uses legal analysis methods to highlight the implications of these developments, combined with the relevant economic and political context. It seeks to offer advances in the consideration of data as a factor of production, the impact on the Global South and the perspective it takes on the international trade law fora in the global governance of data and e-commerce more broadly.

2. The first pieces of the puzzle – definitions and context

This chapter makes a case for considering data as a factor of production. It further sets the context for the discussion on digital goods, services, and related policy objectives within the WTO, by looking at WTO jurisprudence.

2.1.Data as a factor of production

Placing data in the trade paradigm begs the question as to how data can be qualified. Data flows puzzle academics and policymakers, even on the merely definitional level.27 The definition of data flows in RTAs is either absent or can be distilled from the definition of e-commerce, which

26 F Costa-Cabral and O Lynskey, ‘The Internal and External Constraints of Data Protection on Competition

Law in the EU’ (2015) Law, Society and Economy Working Papers 25/2015, 11.

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5 diverges and focuses on either goods, services or combinations thereof.28 While the definition is unsettled, this chapter takes an economic view on data as a factor of production, specifically one that, by its nature, flows easily across borders. Albeit not mutually exclusive, this leaves outside the scope of this research the perspective of fundamental rights, embodied by the EU, which links personal data to human integrity, thus considering that it should not be priced and reduced to ‘a mere commodity’.29

To begin with, factors of production represent inputs used to produce an output, be it a good or a service. According to classical economic theory, the factors of production encompass tangible assets, i.e. labour, capital, and land.30 Now, a fourth contender has appeared: data,31 although this supposition has not remained unchallenged. Data is described as ‘the raw material’ of the digital economy,32 drawing parallels with oil and sunlight.33 The parallel with oil has been questioned since data is inexhaustible, its value is not intrinsic but created,34 and more importantly, ‘data majors’ (i.e. Facebook, Google) would not trade it.35 These contestations, however, appear insufficient to rebut the idea of data as a factor of production. Even without comparing it to oil, data is based on digital information, and information itself is argued a factor of production.36 Additionally, new products and services are created and optimized using data.37 Data is monetized and companies, which are able to manage and leverage it, report a raise in revenues.38 While scholars have noted that users provide labour in the process of data capture,39 it is further contended that the commodification of social relations extends beyond

28 E.g. Arguably, data is captured in the definition of a ‘digital product’ in the CPTPP. The USMCA mentions

both goods and services in its e-commerce chapter.

29 European Data Protection Supervisor, ‘Opinion 4/2017 on the Proposal for a Directive on Certain Aspects

Concerning Contracts for the Supply of Digital Content’ (2017) 3, 6-7.

30 M Užík and JP Firnges, ‘Intangible Assets – the Fourth Production Factor’ (2017) BIFID 325. 31 ibid 325-329.

32 WTO, Communication from the African Group, ‘Work Programme on Electronic Commerce’ (20 July 2017)

JOB/GB/133 [1.9].

33 M Frank, P Roehrig and B Pring, ‘Your New Raw Materials: Data is Better Than Oil’ (2017) 36 Global

Business and Organizational Excellence 65–67.

34 B Marr, ‘Here's Why Data is Not the New Oil’ (Forbes.com, 2019)

<https://www.forbes.com/sites/bernardmarr/2018/03/05/heres-why-data-is-not-the-new-oil/#57ee21cd3aa9> accessed 5 July 2019.

35 A Martínez, ‘No, Data is not the New Oil’ (WIRED, 2019)

<https://www.wired.com/story/no-data-is-not-the-new-oil/> accessed 2 July 2019.

36 A Berczi, ‘Information as a Factor of Production’ (1981) 16 Business Economics 14-20. 37 McKinsey&Company, ‘Capturing Value from your Customer Data’ (2017) 1-4. 38 McKinsey&Company, ‘Fueling Growth through Data Monetization’ (2017) 3-4.

39 S Gürses and J van Hoboken, ‘Privacy after the Agile Turn’ in E Selinger, J Polonetsky and O Tene (eds), The

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6 labour to potentially all parts of social life.40 Thus, from an economic perspective, there are cogent reasons to argue data as a factor of production.

A country’s competitive advantage in production is inextricably linked to its ‘factor endowment’. This entails the local availability of resources, such as land, capital or technology.41 Thus, the theory of competitive advantage suggests that counties export goods or services that are produced by the factor that they have in relative abundance and vice versa.42 In terms of policy support, as international trade tends to harm scarce factors,43 countries’ openness to cross-border data flows is likely to be correlated to their data and digital infrastructure endowments, and more importantly, to their ability to employ them in the economy.44 Conjointly, one may consider factor mobility, or the movement of factors of production across industries and national borders, which is deemed to promote the efficient allocation of resources.45 This is particularly relevant for data, since it moves across multiple borders in a single instance. Specifically, perceived ‘trade imbalance’ between counties may lead to the creation of barriers to the mobility or flow of information, which could potentially be the case for localization requirements.46 With multinational companies established predominantly in developed countries, one may consider that there is an apparent imbalance between developed and developing countries.47 As data endowments are significantly uneven, a gap in the digitalization ensues, potentially affecting the ability of developing countries to integrate into the trade value chains of the Fourth Industrial Revolution.

2.2.The WTO context

Taking data as a factor of production, and noting the importance of digital infrastructures, it is apposite to review the WTO’s preparedness to accommodate data flows discussions. This section presents an overview of jurisprudence, while the last section deals with the negotiation pillar of the WTO, including the current initiative on e-commerce. As to adjudication, the WTO has barely yet dealt with the digital realm.

40 N Couldry and UA Mejias, ‘Data Colonialism: Rethinking Big Data’s Relation to the Contemporary Subject’

(2019) 20 Television & New Media 343.

41 R Wilson, ‘The Factor Endowment’ in Trade and Investment in the Middle East (Palgrave Macmillan 1977)

1.

42 W Krist, Chapter on Trade Agreements and Economic Theory at

<https://www.wilsoncenter.org/chapter-3-trade-agreements-and-economic-theory> accessed on 20 May 2019.

43 ECIPE, ‘Cooperation in Europe’s Digital Economy: How do Countries Position Themselves?’ (2018) 3-4. 44 ibid 6.

45 TA Falade-Obalade, ‘Globalization and Factor Mobility’ (2012) Journal of Educational and Social Research,

393, 399-400.

46 Mueller and Grindal (n 6) 82. 47 Aaronson and LeBlond (n 19) 247.

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China – Publications and Audiovisual Products discusses several measures restricting trade in

certain reading materials, audio-visual products, and sound recordings. Most of the US’ claims concerned physical products – CDC, DVDs, with one exception – the electronic distribution of sound recordings via the internet. The related discussion concerns the interpretation of the terms ‘sound recording distribution services’ and ‘audiovisual services’ in China’s GATS Schedules of Commitment. Notably, the Appellate Body affirmed that the reference to audio-visual ‘products’ encompasses both physical and non-physical recordings, and may cover ‘both tangible and intangible goods, as well as services.’48 The Panel’s interpretation of China’s GATS Schedules is also pertinent. Schedules must reflect the common intentions of parties and be interpreted in accordance with the customary rules of interpretation.49 Looking at the negotiating history to interpret the scope of commitment, the Panel examined ‘the technical feasibility or commercial reality of a service at the time of a service commitment’.50 Accordingly, it observed that the electronic distribution of sound recordings was a commercial reality before China’s accession to the WTO in 2001. Due to the US not identifying a challengeable measure for films for theatrical release under the GATT, the dispute leaves open the question of whether audiovisual products in purely electronic form are subject to the GATT, albeit a conclusion similar to the above may be expected.51 Arguably, the case demonstrated that the medium used is of no relevance, which may, in turn, contributes to the blurring of the distinctions between goods and services for which data may be used.52 The second prominent case discussing the digital realm, US – Gambling, concerned the US’ prohibition of gambling and bettering services supplied online. The Panel, in its discussion of the US’ market access commitments, stated that mode 1 ‘encompasses all possible means of delivery’, including the Internet, as this was concordant with the principle of ‘technological neutrality’.53 This renders support for the understanding that the GATS is a technologically neutral agreement, specifically in sectors that are essentially dependent on digital supply.

48 WTO, China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and

Audiovisual Entertainment Products (2009) WT/DS363/AB/R [364].

49 Articles 31 and 32 VCLT; WTO, European Communities – Customs Classification of Certain Computer

Equipment (1998) WT/DS62/AB/R; WT/DS67/AB/R; WT/DS68/AB/R [84].

50 WTO, China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and

Audiovisual Entertainment Products (2009) WT/DS363/R [7.1237].

51 T Voon, ‘China – Publications and Audiovisual Products’ (2009) Georgetown University Law Center

Law&Economics Research Paper No. 1456542, 12.

52 M Wu, ‘Digital Trade-Related Provisions in Regional Trade Agreements: Existing Models and Lessons for

the Multilateral System’ (2017) ICTSD 4.

53 WTO, United States – Measures Affecting Cross-Border Supply of Gambling and Betting Services (2004)

WT/DS285/R [6.285], [6.287]. The finding was not contested on appeal: WTO, US – Gambling (2005) WT/DS285/AB/R [220], fn 262.

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8 Admittedly, data and data flow regulations have not been clearly considered in the WTO jurisprudence. Nevertheless, the blurring distinction between the outputs for which data can be used, along with the embracing of the digital and online commercial realities demonstrates a flexible attitude towards related issues. That said, the Appellate Body can be applauded for undertaking an evolutionary approach to interpretation. One may draw an analogy with the dynamic interpretation given to the term ‘exhaustible natural resources’ in the case of US –

Shrimp, employing a reading ‘in light of contemporary concerns of the community of

nations.’54

Lastly, the recent case of Brazil – Taxation further sheds light on contemporary issues related to digital goods or infrastructure.55 Brazil had introduced a local content and a local process and production requirement as a precondition for the granting of a tax advantage in the automotive sector, electronics and technology industries. The measures were found to violate the GATT and the SCM Agreement.56 The case is specifically interesting for the attempted justifications under Article XX GATT, based on Brazil’s objective to acquire technological know-how and to bridge the digital divide, defined by Brazil as the ‘gap between demographics and regions that have access to modern information and telecommunications technology and those that do not.’57 While this case concerns the physical products accessory to the delivery a good or service online, it demonstrates the WTO’s acknowledgement of the digital inclusion issue, discussed in this paper, along with the sensitivity of taxes on digital infrastructure goods. To conclude, countries’ data endowment depends on their technological infrastructure advance, with multinational companies in developed countries accumulating data as an asset. Hence, new divisions between countries might arise, based on their competitive advantage in data-driven sectors, 58 leading to possible barriers to trade that are to be discussed in the following chapter. Finally, the sparse WTO jurisprudence touching upon the digital economy may be considered a shy attempt to adapt to the new economic realities. The following chapter offers potential scenarios for disputes on an issue not yet adjudicated – that of data flow regulations.

54 WTO, United States – Import Prohibition of Certain Shrimp and Shrimp Products (1998) WT/DS58/AB/R

[128-131].

55 WTO, Brazil – Certain Measures Concerning Taxation and Charges (2017) WT/DS472/R, WT/497/R;

(2018) WT/DS472/AB/R; WT/497/AB/R.

56 WTO, Agreement on Subsidies and Countervailing Measures [‘SCM Agreement’].

57 Brazil’s first written submissions: WTO, Brazil – Taxation (2017) WT/DS472/R, WT/497/R [7.544]. 58 Aaronson and LeBlond (n 19) 247.

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3. Data protection or data protectionism

This chapter analyses the conflict between data protection and the threat of data protectionism, underlying the regulation of data flows, which conceivably represents a new variant of a known dichotomy – that between free trade and protectionism. On first glance, the WTO seems to be facing an old question in a new context, namely, how the system can ensure the right to regulate in the name of the public interest and pursue legitimate objectives, while avoiding industry support amounting to protectionism.59 Indeed, for some time, non-trade value protection has been questioned for fear of disguised, prohibited protectionism.60

3.1.The spectre of protectionism: local storage requirements

Data governance refers to the rules regulating the collection, processing, storage, and use of data.61 The fact that data is captured, stored and interpreted by computers highlights its abstractness, while further rendering it more amenable to commercialization.62 The gathering, processing and storage methods thereby become a paramount consideration for regulation, since they may affect the regulatory approach chosen for ensuring data protection. For instance, from an economic perspective, principles of accountability governing data flows may focus on data controllers or collectors, limiting the restriction on cross-border data flows to the extent possible.63 That said, regulations mandating that user data, employed in a range of commercial activities, is stored within the respective national jurisdiction, i.e. localization laws, may hurt the interests of several industries.64 Consequently, companies may lobby WTO Members begin a dispute.

The commercial use of data makes ensuring a certain level of cross-border data flows a topical issue, which puts the localization of computer services in the spotlight. Localization and the accompanying requirements of data retention and processing can create a digital ‘hard border’ or new ‘border checkpoints’, where not only national security data but also ordinary citizens’ data is controlled.65 As opposed to the old type of information controls aiming to keep

59 C Kuner, ‘Data Nationalism and its Discontents’ (2015) 64 Emory Law Journal 2097.

60 See, inter alia, C Potter and J Burney, ‘Agricultural Malfunctionality in the WTO – legitimate non-trade

concern or disguised protectionism?’ (2002) 18 Journal of Rural Studies; R Baldwin and S Evenett (eds), The

Collapse of Global Trade, Murky Protectionism, and the Crisis (CEPR 2009).

61 ‘Whose Rules? The Quest for Digital Standards’ (Center for Strategic & International Studies, 2019)

<https://www.csis.org/analysis/whose-rules-quest-digital-standards> accessed 22 March 2019.

62 C Puschmann and J Burgess, ‘Metaphor of Big Data’ (2014) 8 International Journal of Communication

1691-1697.

63 S Yakovleva ‘Should Fundamental Rights to Privacy and Data Protection be a Part of the EU’s International

Trade ‘Deals’?’ (2018) 17(3) World Trade Review 484-485.

64 McKinsey Global Institute, ‘Big Data: The Next Frontier for Innovation, Competition and Productivity’

(2011) 2.

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10 information out of the country (e.g. copyright infringing material), localization laws keep data inside the country borders.66 As a result, data localization instigates fears concerning the emergence of the ‘Balkanization of the Internet’, understood as the fragmentation of the free and open global network into ‘various distinct, idiosyncratic ‘Internets’.67 As such, localization laws can constitute a measure with a distortive, restrictive effect on international commerce, as argued by Chander and Li, who studied multiple such laws.68 These restrictions may possibly further entail discrimination, and potentially run afoul the WTO principles of free trade.69 Notably, data localization comes to be defined as ‘one of the most significant contemporary trade barriers facing digitally enabled businesses.’70 Localization laws considerably raise costs for businesses operating transnationally.71 The rise in localization requirements can make transaction costs prohibitively high or lead to fragmentation in the operations of firms, which attempt to have global presence, as they would be forced to use separate data centers in each country.72 This, in turn, might limit interfirm competition, prevent technological innovation and the Internet’s ‘generativity’.73 The data generated from human activities daily can become so voluminous, varied, and rapidly generated as to be termed ‘big data’.74 Localization laws, which reduce the data sets that can be accessed, are considered especially problematic for big data analytics.75

Most of the academic debate on localization laws has thus far focused on trade in services, such as data processing services (search engines, or online purchasing services).76 Indeed, authors contend that claims are expected under GATS’ provisions on market access, national treatment and most-favoured-nation treatment.77 Further, challenges may arise under the Agreement on Technical Barriers to Trade (‘TBT’), which covers technical regulations, standards and

66 ibid.

67 E Fraser, ‘Data Localization and the Balkanization of the Internet’ (2016) 13 SCRIPTed 361-362. 68 Chander and Le (n 67).

69 ‘WTO | Understanding The WTO – Principles Of The Trading System’ (Wto.org)

<https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm> accessed 30 June 2019.

70 S Hodson, ‘Applying WTO and FTA Disciplines to Data Localization Measures’ (2018) World Trade Review

2.

71 European Centre for International Political Economy, ‘The Cost of Data Protectionism’ (Ecipe.org, 2018)

<https://ecipe.org/blog/the-cost-of-data-protectionism/> accessed 27 May 2019.

72 N Mishra, ‘Privacy, Cybersecurity, and GATS Article XIV: A New Frontier for Trade and Internet

Regulation?’ (2019) World Trade Review 5.

73 Aaronson, ‘At an Intersection of Cross Border Information Flows and Human Rights: TPP as a Case Study’

Institute for International Economic Policy Working Paper Series, The George Washington University 6.

74 A Gandomi and M Haider, ‘Beyond the Hype: Big Data Concepts, Methods, and Analytics’ (2015) 35

International Journal of Informational Management 138.

75 Chander and Le (n 67) 730.

76 See Hodson (n 72) 1-29; Mitchell and Mishra (n 24), 1088-1095. 77 Hodson (n 72) 1-29.

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11 compliance assessment procedures.78 The Agreement on Customs Licensing and the Agreement on Import Licensing Procedure could be implicated as the automation of customs procedures entails the generation and use of data and may be applied in a way disfavouring foreign traders.79 As to the fundamental WTO obligation of national treatment, a parallel can be drawn between the data localization regulations and domestic content requirement policies. WTO jurisprudence has found the latter inconsistent with the national treatment standard.80 A local content requirement could be a requirement on the input used to deliver a good, as for example, to use only domestic steel in the building of bridges. This could, however, also entail a local process and production requirement, as the case Brazil-Taxation concerned a requirement that certain manufacturing processes are carried out in Brazil. The requirement to store data locally could similarly be construed as a requirement to use of local processes, thus raising concerns for protectionism.

As Kuner notes, localization requirements date back to the rise of international computer networks in the 1970s and 1980s.81 However, after Edward Snowden disclosed the US National Security Agency’s confidential files, countries set priority on data protection for privacy or security reasons. Thereby, some states enacted localization laws. An interesting example is the 2014 Russian Federal Law No. 242-FZ, which represents a localization requirement, though it does not explicitly prohibit cross-border data transfers.82 The Act aimed to amend previous personal data laws and introduced a requirement for operators to ensure that ‘databases located within the Russian territory’ are used for the collection, recording, storage, etc. data processing activities.83 The Ministry of Telecommunications and Mass Communications issued a guidance shortly after, in which it explained that, given the nature of the internet, the requirement applies to foreign operators without a physical presence in Russia, if they carry out an activity directed to the Russian territory.84 Thereafter, a Moscow court ruled that LinkedIn’s storing of data outside of Russia contravened the 2014 legislation, followed by internet service providers in

78 Wu (n 54) 1, 4. 79 ibid 4.

80 WTO, Canada – Certain Measures Affecting the Renewable Energy Generation Sector (2013)

WT/DS412/AB/R, WT/DS426/AB/R; India – Certain Measures Relating to Solar Cells and Solar Modules (2016) WT/DS456/AB/R; US – Certain Measures Relating to the Renewable Energy Sector (2019) WT/DS510/R (not yet adopted).

81 C Kuner (n 59) 2091.

82 I Mihaylova, ‘Can the Recently Enacted Data Localisation Requirements in the Russian Federation backfire?’

(2016) 50 Journal of World Trade 320.

83 Available at: https://pd.rkn.gov.ru/authority/p146/p191/.

84 ‘Processing and storage of personal data in the Russian Federation’ (Ministry of Digital Development and

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12 the country blocking LinkedIn.85 The decision may be rather controversial, since the ‘Localization law’ arguably lacks transparency86 and the court’s ruling effectively hinders the provision of a service.

Localization laws can be contentious and part of the e-commerce negotiation agendas. Thus, one of the common justifications invoked for these regulations, privacy, will be addressed next.

3.2.Reviving privacy: protecting data transfers?

The next question is whether limitation on data flows through localization measures can be justified. Although localization can backfire, justifications commonly offered for such measures include privacy protection, avoiding foreign surveillance, and facilitating domestic law enforcement.87 Focusing on privacy, Mark Zuckerberg’s sinister phrase ‘Privacy is dead’ hints at the risks for privacy in the digital world. To counter customers’ fears,88 governments introduce laws to protect personal data. Countries at different levels of economic development adopt privacy regulations, although, with widely differing scope and coverage.89

While the WTO embraces the protection of non-trade values through exceptions provisions, measures devised for such a purpose may be scrutinized for their conformity with WTO rules. Indeed, as discussed above, localization policies’ underlying assumptions have been subjected to criticism, as they are likely to cause protectionism cloaked under privacy concerns. Before the applicability of the WTO exceptions is analysed, other approaches to data flows, which do not involve localization are highlighted. The two – free flow of information, and flows conditioned on safeguards, i.e. adequacy decisions – are illustrated, using the US and the EU as respective examples. For decades, the EU and US’ privacy policies have significantly diverged due to their different starting points on privacy. The EU regards privacy as a constitutional freedom90 and a fundamental right, enshrined in its Charter of Fundamental Rights.91 Undoubtedly, for the EU, the regulation of privacy remains a non-negotiable

85 Roskomnadzor v. LinkedIn (2016) Moscow City Court. 86 Mihaylova (n 82) 320.

87 Chander and Le (n 67) 708. 88 McKinsey Global Institute (n 64) 1.

89 UNCTAD, ‘Data Protection Regulations and International Data Flows’ (2016) 8-10.

90 Consolidated Version of the Treaty on the Functioning of the European Union [2012] OJ C326/47, art 16. 91 Charter of Fundamental Rights of the European Union [2012] OJ C326/02, art 7.

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13 prerogative in negotiations on data transfers.92 Juxtaposed, the US understands privacy as a consumer right.93

US digital firms are wary of the impact on their businesses of countries’ restrictions on cross-border data flows.94 Thus, authors observe that the Trump administration is using a laissez-faire approach, which allows US firms to discriminate between service providers.95 This US approach may be contested from a competition law or human rights perspective. Big tech corporations’ lobbying efforts for deregulation can be supportive of free cross-border flow of data, yet detrimental to privacy. Still, the US approach seems unlikely to run afoul of WTO rules, since from an international economic law perspective, free flow of information is desirable.

The EU, while vocal about protectionism,96 employs a mechanism for privacy protection that further raises concerns for international trade law. The 1995 Data Protection Directive (DPD) first set the EU requirements for cross-border data transfers. As of May 2018, the General Data Protection Regulation (‘GDPR’) applies,97 which emerged as a contentious legislation owing to its stringent privacy protection. The GDPR involves costly compliance98 and extends the territorial scope of application of the EU data protection to include data controller and processors not established in the EU.99 Like the DPD, the GDPR’s adequacy mechanism does not require that servers are physically situated in the EU, but it does mandate that, for data transfers, an ‘essentially equivalent’100 level of data protection is ensured in the destination country.101 The Commission issues adequacy decisions when it deems that the destination systems’ data protection is equivalent.102 The EU-US Privacy Shield is one such decision. This mechanism is based on the understanding that since data moves easily across borders and

92 Council of the European Union, ‘The Negotiating Directives for the Doha Development Agenda Regarding

the Plurilateral Negotiations of Rules and Commitments on Electronic Commerce’ (2019) [11] <https://www.consilium.europa.eu/media/39505/st08993-ad01-en19.pdf> accessed 15 May 2019.

93 Aaronson and LeBlond (n 19) 256.

94 Aaronson and LeBlond (n 19) 255; SA Aaronson, ‘What Are We Talking About When We Talk About

Digital Protectionism?’ (2018) World Trade Review 8.

95 Aaronson and LeBlond (n 19) 257-258. 96 SA Aaronson (n 94) 9.

97 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection

of natural persons with regard to the processing of personal data and on the free movement of such data and repealing Directive 95/46/EC [2016] OJ 2016 L 119/1 [‘GDPR’].

98 Aaronson and LeBlond (n 19) 260; ECIPE ‘The Economic Importance of Getting Data Protection Right’

(2013) 7.

99 GDPR, art 3(2).

100 Case C-362/14 Maximillian Schrems v Data Protection Commissioner [2015] ECLI:EU:C:2015:650 [73]. 101 GDPR, art 45.

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14 compromising data may have systemic implications, data protection needs to ‘travel’ with it.103 Consequently, EU data protection laws result in extraterritorial application of EU data protection standards.104 The EU-type adequacy mechanisms may appear discriminatory or favouring domestic digital sectors, and adhering to contested, politically influenced standards.105 In fact, the Commission has issued adequacy decisions to only thirteen countries.106 Hence, as some localization laws, this approach is likely to be trade restrictive. As to the EU mechanism’s compatibility with international trade law, first, it is worth recalling that international trade obligations are hierarchically positioned between EU primary law and EU secondary law. Second, WTO Members may attempt to justify violations as discussed next. If localization requirements (or adequacy mechanisms) are found to violate the GATT or GATS, the respective agreement’s general exceptions allow for non-trade values to be considered as a justification. Localization measures can be argued as necessary to protect public morals or to secure compliance with WTO-consistent laws or regulations. Authors recognize the protection of privacy, commonly implying the protection of personal information,107 as a legitimate objective that should be accommodated for.108 Even though the exceptions in Article XX GATT and Article XIV GATS were not designed to consider the data economy and are sometimes deemed inapt to be used in this context,109 progressive interpretation is possible. The Panel in Mexico – Telecoms, dealing with telecommunication services, recognized the implications of changing regulatory and economic realities, including the rapid technological evolution, stating that, similarly to the GATT, ‘the interpretation and clarification of GATS provisions is likely to evolve over time’.110 While Members tend to accept the use of GATS exceptions in the digital context, including for the protection of ‘privacy and public morals and the prevention of fraud’,111 they also favour their narrow

103 ‘Data Protection’ (Your Europe - Business)

<https://europa.eu/youreurope/business/dealing-with-customers/data-protection/data-protection-gdpr/index_en.htm> accessed 6 July 2019.

104 C Kuner, ‘The Internet and the Global Reach of EU law’ (2017) LSE Law, Society and Economy Working

Papers 4/2017, 15.

105 Ibid 28; Mishra (n 72) 19.

106 ‘Adequacy Decisions’ (European Commission - European Commission)

<https://ec.europa.eu/info/law/law-topic/data-protection/international-dimension-data-protection/adequacy-decisions_en> accessed 8 July 2019.

107 Hodson (n 72) 2, fn 3. 108 Hodson (n 72) 3.

109 K Irion, S Yakovleva and M Bartl, ‘Trade and Privacy: Complicated Bedfellows? How to Achieve Data

Protection-proof Free Trade Agreements’ (2016) independent study commissioned by BEUC et al, Amsterdam,

Institute for Information Law (IViR) 36-39.

110 WTO, Mexico – Measures Affecting Telecommunications Services (2004) WT/DS204/R [7.2].

111 WTO, Work Programme on Electronic Commerce, Progress Report to the General Council (27 July 1999)

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15 interpretation.112 These objectives are based on specific exceptions listed – the prevention of deceptive practices,113 and the protection of the privacy of individuals in relation to the processing and dissemination of personal data,114 although none have yet been raised. Alternatively, public morals could be invoked for privacy protection given that Members have ‘some scope to define and apply for themselves the concept of public morals according to their own systems and scales of values’.115 In any event, the measures must satisfy the requirements of the relevant subparagraphs and be not be more trade restrictive than necessary.116 The effectiveness of localization requirements for law enforcement might be questioned as the localization within one jurisdiction might not shield data and prevent the enforcement of foreign legislation through the main company’s seat of incorporation.117 Additionally, measures must satisfy the exception provisions’ chapeau and must not be applied to constitute a means of arbitrary or unjustifiable discrimination, or a disguised restriction on trade.118 Given the pluralism of the Internet, data transfers are widely subjected to overlapping regulatory regimes.119 Indeed, conflicts between international trade law and other regimes are possible. Adequacy mechanisms provide a good example. The GDPR contains a list of derogations in case of a lack of an adequacy decision, which applies, inter alia, to transfers ‘necessary for the conclusion or performance of a contract’ or ‘necessary for important reasons of public interest.’120 Accordingly, the EU assesses what derogations or limitations on privacy

protection are ‘strictly necessary’.121 Juxtaposed, the WTO’s necessity test determines whether restrictions on trade are justifiable. Further, the EU applies proportionality in a narrow sense (strictu sensu),122 while the WTO arguably focuses predominantly on whether a less trade restrictive measure is reasonably available.123 One may argue, however, that certain considerations provide for a middle ground. Firstly, in the WTO, the more vital the interest in

112 ibid.

113 Articles XX(d) GATT; XIV(c) GATS. 114 Article XIV(c) GATS.

115 WTO, European Communities – Measures Prohibiting the Importation and Marketing of Seal Products

(2014) WT/DS400/AB/R, WT/DS401/AB/R [5.199].

116 ibid. [5.169]; WTO, United States – Standards for Reformulated and Conventional Gasoline (1996)

WT/DS2/AB/R, 22.

117 Fraser (n 67) 365; See also 2018 US Clarifying Lawful Oversees Use of Data Act H.R. 4943.

118 WTO, United States – Standards for Reformulated and Conventional Gasoline (1996) WT/DS2/AB/R, 22. 119 Kuner (n 104) 4-7.

120 GDPR, art 49 c) and d).

121 Joined Cases Case C-293/12 and C-594/12 Digital Rights Ireland v Minister for Communications, Marine

and Natural Resources and Others and Kärntner Landesregierung and Others [2014] ECLI:EU:C:2014:238

[52].

122 Joined Cases C-203/15 and C-698/15, Tele2 Sverige AB v Post-och telestyrelsen and Secretary of State for

the Home Department v Tom Watson and Others [2016] ECLI:EU:C:2016:970 [94-96].

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16 question, the easier it is to accept as necessary the measure that protects it.124 Personal information may be construed broadly, yet privacy is considered of paramount importance.125 Secondly, an alternative, less trade restrictive, measure must achieve the Member’s desired level of (privacy) protection.126 In any case, should the Member’s measure be found inconsistent, while binding, the WTO’s Dispute Settlement Body decisions do not have direct effect in the EU’s legal order,127 as well as in other Members’ legal orders.128

In sum, the commercialization of data converts it into a crucial asset for trade. Localization laws threaten to erect new trade barriers, potentially blocking the transnational operations of businesses and creating protectionist support for domestic digitally intensive businesses to the detriment of foreign such suppliers. If localization laws indeed cause trade distortions, privacy concerns may serve as a justification for such measures. The same balance between potential restrictions on trade and privacy is conceivable for other data flow regulations, specifically adequacy mechanisms. Privacy regulations often have cultural and political underpinnings, which results in subjective views and highly diverse legislations.129 This regulatory divergence in the global supply chain causes companies to comply with different sets of standards, creating a burden for trade. Divergences in data flows regulations should be tackled. The fourth chapter proceeds on the presumption that the WTO is the appropriate forum for this and provides an analysis of its benefits and drawbacks.

4. Chapter III: Digital inclusion and digital exclusion: developing digital capacities

Data localization, previously discussed as a potentially protectionist agenda on part of the developed countries, can, moreover, be perceived as an opportunity for developing countries to foster their digital capacities. The specific economic results of such policies fall beyond the scope of this research, which focuses on the legal constructs and framework, within which international trade operates. The unequal levels of countries’ digital development can lead to digital exclusion or marginalization of developing countries in digital trade. This would have detrimental impact on their economies and is worth addressing.

124 ibid [162]. 125 Mishra (n 72) 14.

126 WTO, US – Gambling (2005) WT/DS285/AB/R [308].

127 Case C-377/02 Léon Van Parys NV v Belgisch Interventie-en Restitutiebureau [2005] EU:C:2005:121. 128 M Matsushita, T Schoenbaum, PC Mavroidis, M Hahn, ‘WTO Law and Domestic Law’ in The World Trade

Organization: Law, Practice, and Policy (3rd edn, The Oxford International Law Library) 46. 129 Hodson (n 72) 2; Casalini and González (n 17) 28.

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17 4.1.Digital exclusion?

This chapter is premised upon the conceptualization of data as a factor of production. Based on the theory of competitive advantage, developed states or their multinational companies130 exert dominance over digital trade, and turn into the ‘rule makers.’131 Conversely, for countries still coping with the previous industrial revolutions, the Fourth, digital one may bring insurmountable challenges, thus widening the gap between them and advanced economies.132 Some authors assign responsibility for Doha Round’s failure to developed WTO Members, which were unwilling to make sufficient concessions.133 This critique is largely directed at the constrained ‘policy space’ left to developing countries and LDC wishing to abide by WTO rules.134 Conversely, others opine that developing countries are granted the regulatory space needed to introduce policies that they deem dispositive for economic development.135 That said, the WTO negotiations on e-commerce should attempt to engage as many Members as possible. Section 4 of this paper considers the current state of negotiations within and without the WTO.

The benefits from trade and factor endowment can be viewed as an opportunity for development. Development paths, according to Nurkse and Huff, consist of manufacturing for export, protection and import substitution policies, and developing services as an ‘engine of growth’.136 Singapore and South Korea serve as relevant examples of these paths. Singapore benefitted from geography and labour to manufacture for export, and further maintained temporarily an import substitution policy, while South Korea exemplifies the building of own technological base.137 In the Fourth Industrial Revolution, developing countries face the risk of being denied similar opportunities for advancement. A World Bank paper argues that ‘the main factors shaping comparative advantage in services trade are the availability of physical and human capital … [D]eveloping economies that are successful in accumulating capital have good prospects for exporting services.’138 For data, given the borderless nature of its transfers,

130 UNCTAD, Trade and Development Report (2018) 78-79. 131 Aaronson (n ) 271.

132 UBS White Paper for the World Economic Forum (n 3) 26.

133 Y Akyüz, W Milberg and R Wade, ‘Developing Countries and the Collapse of the Doha Round’ (2006) 49

Challenge 6-19.

134 ibid.

135 KP Gallagher, ‘Understanding Developing Country Resistance to The Doha Round’ (2007) 15 Review of

International Political Economy 67.

136 Huff, ‘Patterns in Economic Development of Singapore’ (1987) The Journal of Developing Areas 305-326. 137 ibid.

138 A Sapir and E Lutz, ‘Trade in Services: Economic Determinants and Development-Related Issues’ World

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18 geography matters little. Further, as opposed to the production of physical goods and services where cheap labour can create an economic advantage, in the digital industries, untrained human capital is detrimental. Development paths should be enabled, to allow economic growth to transform unskilled into skilled labour.139 Thus, for developing countries it is crucial to benefit from their data; otherwise, this factor of production can easily be exploited by other economies.

Developing countries seem aware of the implications of the asymmetry in data endowment and control. They highlight that this imbalance will impact their development path in the currently unravelling digital age, which creates far-reaching implications for trade.140 They identify the need for freedom to consider all policy options with a view to acquiring the capacity to use their data to their own economic advantage.141 Hence, developing countries oppose far-reaching WTO rules on e-commerce. Albeit the extent to which localization requirements assist in building digital capacities is contested,142 these arguably fall within the desired scope of regulatory freedom. In their communication to the Work Programme on Electronic Commerce, developing countries explicitly mention the use of data localization and technology transfer requirements among the industrial policy tools to ‘promote domestic digital firms and allow them to catch up with the leading multinational firms.’143 In introducing localization policies, India openly refers to the idea of digital sovereignty and the value in developing local digital capacities.144

For some time, the WTO has recognized the need to grant special flexibilities to developing Members to cure market imperfections and due to their lesser power in determining the ‘terms of trade.’145 The ‘infant industry’ argument is one of the qualifications to free trade that the WTO regime accepts. The infant-industry policies are established to protect vulnerable domestic industries from international competition until they mature through market entry barriers or domestic subsidies.146 The lack of infrastructure and other capacities to handle data could render the digital industries of developing countries ‘infant industries’, in need of

139 Huff, ‘Patterns in Economic Development of Singapore’ (1987) The Journal of Developing Areas 320. 140 WTO, Communication from the African Group (n 32) [1.8]-[1.11].

141 ibid.

142 European Centre for International Political Economy, ‘The Cost Of Data Protectionism’ (Ecipe.org, 2018)

<https://ecipe.org/blog/the-cost-of-data-protectionism/> accessed 27 May 2019.

143 WTO, Communication from the African Group (n 32) [1.7].

144 The Centre for Internet and Society, ‘The Localization Gambit’ (2019) 4, 24. 145 WTO, World Trade Report 2014, 191ff, at

<https://www.wto.org/english/res_e/booksp_e/world_trade_report14_e.pdf> accessed 20 April 2019.

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19 governmental support to remedy the asymmetries. Additional to not having the infrastructure, developing countries lack skilled labour.147 Further, investments directed at developed countries might cement the struggle of emerging economies. Control over data comfortably translates into power, with the BigTech companies becoming the new Big Oil. The oligopolies of multinational firms may further distort the conditions of competition, thus possibly justifying protectionist policies on part of the developing countries. Moreover, traditional industries may be disrupted putting developing countries at an even further disadvantage.148 Another concern is that developing countries may have suboptimal levels of data privacy protection. Customers from the other side of the world might be less likely to agree to a purchase or information sharing. Consequently, this bias could complicate the negotiations on rules on data transfers, further tilting the balance in favour of developed countries.

Conversely, while there is a point to be made for strengthening digital capacities, localization requirements could instead limit domestic industries by preventing them from internationalizing their business. To that effect, data localization requirements may lock industries, especially since data usage across the Internet is routed through the most efficient paths across the globe. Moreover, attention ought to be drawn to the conclusion of agreements covering data-related issues between a developed and a developing country, as well as among developing countries. Examples of the former are the EU’s FTA with Vietnam and Canada’s agreement with Ukraine; Vietnam and Ukraine both being developing countries.149 This suggests that at least some developing countries are engaged in the creation of an international regime for data governance. None least developed WTO Member, however, have yet ratified an agreement with an e-commerce chapter.150 Notably, developing countries might be influenced by developed countries to adhere to their regulatory approach to data.151 Developing countries with limited resources may further be coerced into adopting data protection standards similar to those of developed countries, which is argued to be the case of the EU.152

Hence, it is vital to ensure that developing countries participate in the making of rules and standards and do not end up as rule-takers. If they do not share in the decision-making, they

147 UBS White Paper for the World Economic Forum (n 3) 29. 148 ibid 3.

149 World Population Review, <http://worldpopulationreview.com/countries/third-world-countries/> Accessed

on 1 June 2019.

150 Haiti’s ratification of the EU-CARIFORUM EPA, which includes an e-commerce chapter, is currently

pending. In: Wu (n 54).

151 Aaronson and LeBlond (n 19) 247. 152 Kuner (n 104) 34.

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20 are unlikely to be able to enforce the rules after. Conjointly, developing countries have a strong interest in forging digital inclusion and preventing the widening of the digital divide.

4.2.Digital inclusion

The development of digital capacities is tied to the problem of digital inclusion. The ensuing question concerns the reasons digital inclusion should be part of the efforts to liberalize digital trade. The metaphor ‘bridging the digital divide’, in simple terms, expresses the idea that there is a gap in and between societies in the access to digital progress, which must be eliminated.153 Indeed, the current WTO Doha Round is strongly focused on developing countries, identifying inclusiveness as a leading goal.154

Social inclusion has gained international attention, as evidenced by the 2030 Agenda for Sustainable Development (SDGs), which incorporates in target 9 the aim to ‘significantly increase access to information and communications technology and strive to provide universal and affordable access to the Internet in least-developed countries by 2020.’155 The SDGs report proposes how trade rules can help in the attainment of this goal – by eliminating restrictions on access to communication and payment systems, ‘by allowing the market entry and operation of digital platforms and other cross-border services, by ensuring the interoperability of trade networks and by fostering the development of regulatory frameworks.’156 The Panel in Brazil

– Taxation acknowledged the significance of the Millennium Goals (MDGs), the predecessor

of the SDGs, for the WTO, by asserting that their importance ‘should not be understated.’157 Additionally, the need to bridge the digital divide and foster social inclusion was accepted as a public moral objective that may be legitimately pursued in the Brazilian society. The measure in this case was struck down as more trade restrictive than necessary; nevertheless, the Panel underscored that the digital divide is an ‘internationally recognised issue confronting developing countries.’158

Evidently, the WTO is conscious of its role in supporting digital inclusion and ensuring that Members cooperate to achieve this global mission. As part of the solutions to the digital divide, developed countries can provide direct technical assistance to developing countries. Additionally, from an institutional perspective in the WTO, the Committee on Trade and

153 WTO, World Trade Report 2018, 7, 177, at

<https://www.wto.org/english/res_e/publications_e/world_trade_report18_e.pdf> accessed 7 April 2019.

154 WTO, Ministerial Declaration (20 November 2001) ET/MIN(01)/DEC/1 [2].

155 Transforming Our World: 2030 Agenda for Sustainable Development (21 October 2015) A/RES/70/1, 52. 156 ibid.

157 WTO, Brazil – Taxation, WT/DS472/R; WT/DS497/R [7.591]-[7.592]. 158 ibid [7.565].

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21 Development can oversee trade-related capacity-building initiatives.159 Importantly, a comprehensive and inclusive approach should seek regulatory cooperation to ensure a harmonized legal framework, along with the involvement of different stakeholders – inter alia, governments, the private sector and civil society.160 Bridging the digital divide between societies, linked to the development of digital industries in developing countries, would grant economies an equal opportunity for overall development.

To conclude, this chapter argues that Members should attempt to advance digital inclusion and prevent the data economy governance from giving rise to digital colonialism161 and thus a new division within the WTO. The WTO has already recognized the importance of digital inclusion as an objective to be achieved by a Member, and it remains to be seen how this goal is to be pursued at the multilateral level in the current e-commerce negotiations. Notably, in this ongoing e-commerce initiative, WTO Members express their commitment to inclusiveness, highlighting the special position of developing countries and LDCs, as well as of micro, small and medium-sized enterprises.162 Arguably, ensuring inclusiveness and flexibility of the new rules would contribute to remedying developing countries’ inability to utilize data assets and the shortcomings in the associated infrastructure. The next chapter studies the choice of an appropriate forum for international trade rules on data transfers.

5. Solving the question of negotiations and dispute resolution

States’ diverging interests result in significant heterogeneity in the regulation of cross-border data flows. Arguably, regulatory divergence can be a natural ‘healthy’ phenomenon explained by states’ sovereignty and the differences in cultural, political and other values that dominate their societies.163 Nevertheless, as this paper observes, this divergence is a sensitive issue in the context of digital trade, which traverses boundaries instantly. The question then arises as to how the plethora of laws can be dealt with.

5.1.Choosing the forum: Bilateral, plurilateral, multilateral?

The WTO has established itself as the main trade regulatory framework and the main venue for settling trade disputes, while regional trade agreements represent an alternative arrangement of trade relations. Pursuant to Articles XXIV GATT and V GATS, WTO Members can form

159 WTO, World Trade Report 2014 (n 145) 204-206.

160 ‘The Role of E-Governance in Bridging the Digital Divide | UN Chronicle’ (Unchronicle.un.org, 2011)

<https://unchronicle.un.org/article/role-e-governance-bridging-digital-divide> accessed 1 June 2019.

161 Couldry and Mejias (n 40) 336ff.

162 WTO, Joint Statement on Electronic Commerce (25 January 2019) WT/L/1056.

163 V Heiskanen, ‘The Regulatory Philosophy of International Trade Law’ (2004) 38(1) Journal of World Trade

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