Edited by Ingo Borchert and L. Alan Winters Addressing Impediments to Digital Trade Addressing Impediments to Digital Trade CEPR PRESS Centre for Economic Policy Research 33 Great Sutton Street London, EC1V 0DX UK Tel: +44 (0)20 7183 8801 Email: [email protected] Web: www.cepr.org ISBN: 978-1-912179-42-8 Copyright © CEPR Press, 2021. CEPR, which takes no institutional positions on economic policy matters, is delighted to provide a platform for an exchange of views on the topics covered in this eBook. The opinions expressed in the eBook are those of the authors and not those of CEPR, the Department for Digital, Culture, Media & Sport, the UKTPO or any of the institutions with which the authors are affiliated. Adressing Impediments to Digital Trade Edited by Ingo Borchert and L Alan Winters CENTRE FOR ECONOMIC POLICY RESEARCH (CEPR) The Centre for Economic Policy Research (CEPR) is a network of over 1,500 research economists based mostly in European universities. The Centre’s goal is twofold: to promote world-class research, and to get the policy-relevant results into the hands of key decision-makers. CEPR’s guiding principle is ‘Research excellence with policy relevance’. A registered charity since it was founded in 1983, CEPR is independent of all public and private interest groups. It takes no institutional stand on economic policy matters and its core funding comes from its Institutional Members and sales of publications. Because it draws on such a large network of researchers, its output reflects a broad spectrum of individual viewpoints as well as perspectives drawn from civil society. CEPR research may include views on policy, but the Trustees of the Centre do not give prior review to its publications. The opinions expressed in this report are those of the authors and not those of CEPR. Chair of the Board Sir Charlie Bean Founder and Honorary President Richard Portes President Beatrice Weder di Mauro Vice Presidents Maristella Botticini Ugo Panizza Philippe Martin Hélène Rey Chief Executive Officer Tessa Ogden UK TRADE POLICY OBSERVATORY (UKTPO) The UK Trade Policy Observatory, a partnership between the University of Sussex and the Royal Institute for International Affairs (commonly referred to as “Chatham House”), is an interdisciplinary independent expert group of researchers at the University of Sussex covering all aspects of trade. The UKPTO aims to bring objective and impartial analysis to trade policy debates and policymaking processes by: i. conducting independent original research on UK and global trade and trade policy; ii. providing impartial, evidence-based policy advice to stakeholders and policy makers; iii. providing influential commentary and new contributions to current debates; iv. offering training on trade and trade policy. The University of Sussex has the largest collection of academic expertise on the world trading system in the UK, with specialists on trade policy, trade law, trade politics and European law and economy. The team includes experts in economics, international relations, business and management and law. The Observatory is committed to engaging with a wide variety of stakeholders to ensure that the UK’s international trading environment is developed in a manner that benefits all – in Britain and beyond. Further details about the UKTPO and its publications are available online: https://blogs.sussex.ac.uk/uktpo/ Director Michael Gasiorek Founding Director L. Alan Winters Deputy Directors Ingo Borchert Emily Lydgate Contents Ministerial preface 1 The Rt Hon John Whittingdale OBE MP Introduction 3 Ingo Borchert and L. Alan Winters 1 Mapping policies affecting digital trade 19 Simon J. Evenett and Johannes Fritz 2 Mapping approaches to cross-border data flows 45 Javier López-González, Francesca Casalini and Taku Nemoto 3 An AI policy for the (near) future 73 Bryan Mercurio and Ron Yu 4 Source code disclosure: A primer for trade negotiators 105 Cosmina Dorobantu, Florian Ostmann and Christina Hitrova 5 The difficult past and troubled future of digital protectionism 141 Susan Ariel Aaronson 6 Governing cross-border data flows beyond trade agreements to support digital trade: Inspiration from international financial standards-setting bodies 169 Patrick Leblond 7 Rights in data, the public interest, and international trade law 195 Teresa Scassa 8 Asia-Pacific digital trade policy innovation 217 Stephanie Honey Ministerial preface 1 The UK Department for Digital, Culture, Media & Sport (DCMS) is delighted to have worked with the UK Trade Policy Observatory at the University of Sussex and the Centre for Economic Policy Research to host a Virtual Conference on “Addressing Impediments to Digital Trade”. Digital trade is essential to the UK economy. Experimental estimates indicate that over half of the UK’s services exports to the rest of the world in 2019 were digitally delivered. MINISTERIAL PREFACE PREFACE MINISTERIAL This trade relies on the free flow of data. Around the world, data flows in 2014 were 45 times larger than in 2005. The value of data flows has overtaken the value of global trade in physical goods. The UK has now successfully negotiated new digital chapters in free trade agreements with Japan and the EU. The UK–EU Trade and Cooperation Agreement goes further on digital provisions than any other EU trade deal, by including provisions such as a permanent ban on data localisation, and a commitment on Open Government Data. These deals have set a high bar. But digital trade doesn’t stand still. Technology is constantly evolving – making trade easier, quicker and cheaper, and making it possible to trade things that couldn’t be traded before. Trade agreements have to keep pace with the opportunities and challenges these changes create. They have to guard against new opportunities for protectionism. They have to recognise and remove new forms of trade barriers. And they have to support governments to tackle new problems like fake news and online harms. We now want our next generation of digital trade agreements to go beyond existing precedent in order to keep pace with technology and meet these challenges head-on. But negotiating trade deals is only one part of the puzzle. We also want to ensure that businesses and consumers are able to take advantage of the new opportunities these deals create. To do that, we need to keep track of market conditions around the world – tackling barriers wherever we find them – and we need to ensure that our domestic legal and regulatory framework is fully supportive of new technology. This eBook summarises the discussions held at the conference, helping us to shape our thinking on these issues. Engaging with experts in this space can have a real impact on shaping our trading relationships. By engaging with academia, we hope to build on our existing discussions with industry stakeholders to develop further our thinking on digital trade. I hope that the conference, and this accompanying eBook, will be the first of many such engagements with academia as we are eager to maintain a long-term dialogue with digital trade thought leaders. The Rt Hon John Whittingdale OBE MP 2 Minister of State for Media and Data ADDRESSING IMPEDIMENTS TO DIGITAL TRADE ADDRESSING DIGITAL IMPEDIMENTS TO Introduction 3 Ingo Borchert and L. Alan Winters1 University of Sussex and UK Trade Policy Observatory; University of Sussex, UK Trade Policy Observatory and CEPR Digital technology – digitisation – is changing the world, gradually at first and now, following the Covid-19 pandemic, in a great rush. It is transforming social norms, social structures, politics, the arts, how and where we work, how firms interact with each BORCHERT AND WINTERS other, productivity, indeed almost anything you can think of. These transformations are mandating major changes in behaviour and are promoting what were once relatively straightforward trade-offs to the top of our priorities. For example, how does one reconcile privacy with maintaining a large social circle? And what should be the relative weights INTRODUCTION | placed on privacy and the ease of doing business? Few societies, if any, have managed to achieve consensus on these issues and even if they had, the technical complexity of implementing its conclusions would be considerable because digital activity touches on so many separate aspects of policy. Thus, no government has been entirely comfortable with policymaking in this area. In addition, digitisation has had another consequence. Because data flows more or less costlessly across borders and because data is arguably valuable, we can all potentially become exporters and importers. And more often than not, individuals are engaged in this exchange of data via digital services without payment, in a process that has been dubbed ‘third-party funded digital barter’ (Snower and Twomey 2020). Since every country has a national regime defining digital rights and responsibilities (even if it is null by default), every digitally active individual essentially becomes a ‘multinational’ because he or she is dealing simultaneously with multiple jurisdictions. Thus the distinction between national policy and international trade policy has been blurred. As Tim Wu observed (quoted in Aaronson 2019), “almost by accident, the [world trading system] has put itself in an oversight position for most of the national laws and practices that regulate the Internet” (Wu 2006: 263–264). For example, an essentially internal policy, the EU’s May 2018 implementation of the General Data Protection Regulation (GDPR) led to changes that required 500 million people to accede to new terms of trade in their data, and companies to change their policies worldwide, affecting a further four billion individuals. 1 The views expressed in this Introduction are those of the authors A MULTIPOLAR WORLD THAT IS DRIFTING APART The major Western players in this space – the US and the EU – have very different philosophies towards data and digital activity and are keen to establish their respective 4 approaches as global standards.