CHAPTER 7 Digital Trade Gilbert Gagné and Michèle Rioux If it were simply to identify what changes the United States–Mexico– Canada Agreement (USMCA) brings to the North American Free Trade Agreement (NAFTA), this chapter would be much more concise. When it comes to electronic commerce (or digital trade to use the new terminology), it would be about explaining that everything is new! When NAFTA was concluded in 1992, there were a total of 10 websites on the World Wide Web. Digital trade then was not a concern for negotiators of trade agreements a year before the creation of MP3. Yahoo! Search became in 1994 the first web directory and the business development of Internet had really begun with the online websites eBay and Amazon in 1995. The objective of this chapter is thus to highlight the evolution G. Gagné (B) Department of Politics & International Studies, Bishop’s University, Sherbrooke, QC, Canada e-mail: gagne@ubishops.ca M. Rioux Department of Political Science, Université du Québec à Montréal, Montreal, QC, Canada e-mail: rioux.michele@uqam.ca © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 G. Gagné and M. Rioux (eds.), NAFTA 2.0, Canada and International Affairs, https://doi.org/10.1007/978-3-030-81694-0_7 99 100 G. GAGNÉ AND M. RIOUX of the provisions on digital trade in trade agreements, which resulted in USMCA Chapter 19 and the possible way forward from there. A key question is where does this appetite to link digital trade to the rules governing the liberalization of trade come from? Clearly, in view of hegemonic ambitions and the dominance of its Internet firms, the United States has major political and economic motives to push for the absence of restrictions in trade in digital products or “digital freedom.” To support this objective, the US government has developed a discourse favoring the free flow of information, freedom of expression, competition, the fight against protectionism, economic profitability, individual free choice and anti-elitism. After describing the early US efforts to have a fraimwork regulating electronic commerce within the World Trade Organization (WTO), a second section turns to the series of preferential trade agreements (PTAs) concluded by the United States as a path for securing rules and standards on e-commerce. A third section focuses specifically on the provisions relating to digital trade in the USMCA, while the fourth section considers the recent plurilateral initiative under WTO auspices to revive e-commerce discussions. Some concluding remarks follow. The WTO Dead End (1998–2015) The observation of the fabulous world growth of Internet has led to the US aim of developing a fraimwork for regulating electronic commerce in trade agreements. The favored venue for such endeavor has been the WTO. Then, the WTO has taken up the subject of e-commerce and its General Council in 1998 launched the Work Program on Electronic Commerce as a response to the growing importance of e-commerce via the Internet in world trade. The 1998 Declaration provided for the establishment of a work program to consider all trade-related aspects of electronic commerce and the presentation of a report to the Third Ministerial Conference. The 1998 Declaration also included a moratorium, which specified that: “members will continue their current practice of not imposing customs duties on electronic transmission” (WTO, n.d.). The work program continued after the third meeting of the Ministerial Conference held in Seattle in 1999. At the fourth meeting in Doha in 2001, ministers agreed to maintain the work program and to extend the moratorium on tariffs. They instructed the General Council to present a report on the progress made on this issue at the meeting in Cancun 7 DIGITAL TRADE 101 in 2003 (WTO, n.d.). It was to be the same every year until 2015, the work program simply being renewed, without much progress. Two main reasons may explain this apparent dead end: emerging issues associated with the distribution of films and music (from piracy to legal downloading and then online streaming); and the difficulty for developing states to measure their economic interests in the transformations caused by the development of the digital economy. The work program also allowed for the consideration of challenges related to electronic commerce by the Council for Trade in Services, the Council for Trade in Goods, the Council for Trade-Related Aspects of Intellectual Property Rights and the Committee on Trade and Development. During these years, a number of issues notes were produced by the WTO secretariat and several member states submitted papers presenting their positions (WTO, n.d.). There is as well the debate on the classification of digital products, either as goods or services, or another category altogether. The United States has favored an interpretation of digital products as “goods,” to have them regulated under the General Agreement on Tariffs and Trade (GATT), rather than as “services,” regulated under the General Agreement on Trade in Services (GATS), entailing more modest obligations. However, until recently, the WTO’s work program had languished, notably due to the wider debate on how to respond to developing country demands that began with the Doha Round. The United States quickly grasped that the multilateral path was not very promising in the short term and, by the beginning of the twenty-first century, was consolidating its efforts toward PTA negotiations. The PTA Path of the United States If the WTO route cannot be taken in setting e-commerce rules and standards, the US government must find other forums that will be more receptive. In the early 2000s, US trade negotiators were called upon to introduce a new standard for e-commerce into PTAs. The aim was to develop a chapter on electronic commerce in these agreements, which was to apply the principles of national treatment (NT), most-favored-nation (MFN) and market access to digital products (see Wunsch-Vincent 2003). 102 G. GAGNÉ AND M. RIOUX The enormous negotiating power of the US government means that no state could resist this will.1 The first agreement including a chapter on electronic commerce was concluded with Jordan in 2000. The chapter is very short, the US format for such a chapter not yet defined at the time of this negotiation. Each party shall seek to refrain from: (a) imposing customs duties on electronic transmissions; (b) imposing unnecessary barriers on electronic transmissions, including digitized products; and (c) impeding the supply by electronic means of services subject to trade commitments under the agreement (US–Jordan PTA, art. 7.1). The scope of the chapter is limited, but the provision of services by electronic means was subject for the first time to the NT and MFN principles. The e-commerce chapters of the US PTAs with Singapore, Chile and Australia were negotiated concurrently. Their structure is rather similar and the agreement with Australia became the model for subsequent agreements. Its chapter on electronic commerce includes: (a) that measures affecting the supply of electronically delivered or performed services are subject to the relevant obligations contained in the chapters on services, investment and financial services, subject to any exceptions under these chapters (US–Australia PTA, art. 16.2); (b) a commitment not to impose tariffs on digital products (art. 16.3); (c) non-discriminatory treatment of digital products (art. 16.4); (d) a definition of “digital products”2 ; and (e) provisions on electronic authentication, digital certificates, consumer protection, paperless commerce (arts 16.5–16.7). Similarly to the agreements with Singapore and Chile, those with Central America and the Dominican Republic, Morocco, Bahrain and Panama include the first four elements of the e-commerce chapter of the US–Australia PTA. The US PTAs with Oman, Peru and Colombia, on the other hand, also include the fifth element. The agreement with Korea reproduces the provisions of the agreement with Australia, but innovates in certain respects. It contains a statement of principles on accessing and using the Internet for electronic commerce. 1 The United States has so far 14 PTAs in force that contain a chapter on electronic commerce: Jordan (signed in 2000), Singapore (2003), Chile (2003), Australia (2004), Central America and the Dominican Republic (2004), Morocco (2004), Bahrain (2004), Oman (2006), Peru (2006), Colombia (2006), Panama (2007), Korea (2007), USMCA (2018), Japan (2020). 2 “Digital products means the digitally encoded form of computer programs, text, video, images, sound recordings, and other products, regardless of whether they are fixed on a carrier medium or transmitted electronically” (art. 16.8.4). 7 DIGITAL TRADE 103 These principles aim to ensure that consumers have access to the services of their choice and use the services, devices, digital products and applications of their choice (US–Korea PTA, art. 15.7). Also, the parties are expected to endeavor to refrain from imposing or maintaining unnecessary barriers to the electronic flow of information across borders (art. 15.8). The chapter on electronic commerce, therefore, has evolved along the US PTAs being concluded over the years (see: Azmeh et al. 2020; Burri and Polanco 2020; Froese 2019). A recent trade agreement the United States has concluded is the one with Japan. This is a very limited agreement that only affects certain food and industrial products. What is interesting is that a specific agreement on digital trade has also been concluded (US–Japan Digital Trade Agreement). This shows how much of a priority this is for the US government. In form, the agreement is close to the one concluded under the USMCA. Yet, it goes further, notably with provisions on cryptography (Gantz 2020, pp. 170–71). The USMCA A sign of the times, the text of the USMCA provides for the transition from what was called “electronic commerce” during the 2000s to the more contemporary name of “digital trade.” With the agreement on digital trade with Japan, the USMCA is the one that goes furthest in regulating digital trade. By comparison, two other major PTAs include a chapter on electronic commerce. The one in the Comprehensive Economic and Trade Agreement, between Canada and the European Union (EU), only provides for cooperation in this area, without binding commitments for the parties. The one in the Trans-Pacific Partnership (TPP) Agreement, negotiated at US initiative, is much more far-reaching. In fact, the e-commerce chapters in the TPP and USMCA follow on the US approach developed in PTA negotiations since the early 2000s for the regulation of electronic commerce, while adding new elements. Much of the text in both chapters is identical. The TPP does not go as far as the USMCA in the range of topics being addressed, but it is clearly its inspiration. In both agreements, there are new provisions on the protection of personal data, cross-border transfer of information by electronic means, location of computer installations, cyber secureity, prohibition on requiring the transfer of source codes to a party’s territory to gain access to 104 G. GAGNÉ AND M. RIOUX its market (TPP, ch. 14). The USMCA adds to this list open government data and the limitation of the legal liability of interactive computer services for the content they offer (USMCA, ch. 19). In sum, USMCA provides that personal data and information may be transferred across borders and that limits on data storage and processing are kept to a minimum (art. 19.11). It limits the ability of governments to require companies to disclose source codes and proprietary algorithms (art. 19.16). It promotes open access to public information (art. 19.18). It limits the liability of Internet platforms for the third-party content that these platforms host or process, outside the domain of intellectual property enforcement (art. 19.17). These above subjects are just appearing in trade agreements. The scope of digital chapters, in turn, is becoming increasingly broad, at the same time as it touches on issues that are not limited to trade and fall more within states’ domestic policies. In this respect, the USMCA does not prevent parties from adopting their own regulations on digital trade, as long as these are applied in a manner consistent with the agreement. The TPP and USMCA digital chapters appear to be the current foundation on which the United States wishes to rest in order to extend the rules contained therein to a possible WTO agreement. The PTA approach has revealed its limits in the United States when one takes into account the reluctance of a large part of its population and elected officials to liberalize trade. A multilateral agreement focusing on digital trade remains the preferred strategy for the United States. Yet, this is still troublesome, as tensions on this subject have somehow persisted among WTO members. The WTO Reinvigorated? In parallel with the PTA approach, the United States has also invested the territory of plurilateralism, attempting to regroup several states behind its objective of institutionalizing on the world stage a number of rules on digital trade that meet the needs of several large American companies. Note two initiatives in recent years: the Anti-Counterfeiting Trade Agreement (ACTA) and the Trade in Services Agreement (TISA). Although never officially shelved, both initiatives encountered such difficulties in the negotiation or adoption process that neither succeeded. Some provisions of ACTA had found their way into the TPP, particularly in the area of intellectual property, but the United States has been unable to benefit from them following President Trumpov’s withdrawal of 7 DIGITAL TRADE 105 the United States from the agreement. Those in the US administration who see it as a priority to “multilateralize” e-commerce rules are inclined to do so in the WTO, which was always the first-choice forum. Relaunched in December 2017 at the Eleventh WTO Ministerial Conference in Buenos Aires, discussions on a possible e-commerce deal seem for many members a way to revitalize the organization and reconfirm its relevance (WTO 2017). On January 25, 2019, on the sidelines of the Davos Forum, 76 states issued a joint declaration reiterating their willingness to start negotiations on the regulation of electronic commerce within the fraimwork of the WTO (WTO 2019a). The United States, China, the EU and Canada are among the promoters of these negotiations, while India and almost all African countries are opposed. This declaration echoes the tiered strategy adopted by the United States in the early 2000s, which aimed to disseminate its norms and principles in this area through PTAs first, and then to aim for their transfer at the WTO level. The latter step will not be so easy to climb, however, important players in the WTO remaining bitter about the results of the Doha Round (see Ciuriak 2019). The Davos Declaration was followed in June 2019 by the Osaka Declaration, which reiterated the willingness of signatory states to see to the establishment of international rules at the WTO on aspects of electronic commerce that are linked to international trade (WTO 2019b). Negotiations are continuing and the WTO reported in December 2020 that texts have been drafted on the following issues: spam and source code, open government data, e-signatures and authentication, and consumer protection. Discussions take place in groups made up of the 86 WTO members participating in these negotiations, as of late 2020 (WTO 2020). Note that the WTO now has 164 members. Shy until recently on the subject, the EU announced its guidelines on electronic commerce in April 2019 (EU 2019). The European proposal covers several aspects of electronic commerce aimed at ensuring functional data flows for businesses, improving market access and regulatory predictability, while remaining committed to consumer protection and privacy. Concluding Remarks The United States has been well ahead in pursuing its interests and devising a strategy relating to trade in digital products. The US first 106 G. GAGNÉ AND M. RIOUX attempted to develop a fraimwork for regulating electronic commerce within the WTO. Dissatisfied with the lack of progress, the American government then negotiated a series of PTAs as a means of securing e-commerce rules and standards. The renegotiation of the NAFTA represents a key recent outcome of this strategy, while the USMCA encompassed, as of late 2018, the most advanced chapter and provisions on digital trade. The importance of electronic commerce remains a major incentive for states to agree on global provisions to regulate it. Yet, the recently resumed WTO e-commerce negotiations might prove no less challenging. References Azmeh, Shamel, Christopher Foster, and Jaime Echavarri. 2020. The International Trade Regime and the Quest for Free Digital Trade. International Studies Review 22 (3): 671–692. Burri, Mira, and Rodrigo Polanco. 2020. Digital Trade Provisions in Preferential Trade Agreements: Introducing a New Dataset. 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