There is a pressing need for governments to cooperate on digital trade to harness the digital transformation and support the economic recovery from the COVID-19 pandemic. While no globally recognized definition of digital trade exists, the OECD reports ‘a growing consensus that it encompasses digitally-enabled transactions of trade in goods and services that can either be digitally or physically delivered’. The term ‘digital trade’ is often used interchangeably with ‘e-commerce’, but some governments and international organizations regard the latter as a more limited concept. The absence of a shared definition, the related difficulties around measurement and the lack of relevant statistics have made the topic of ‘digital trade’ something of a moving target. This in turn creates challenges for international cooperation on its governance.
There is a pressing need for governments to cooperate on digital trade to harness the digital transformation and support the economic recovery from the COVID-19 pandemic.
The digital economy accounts for 9 per cent of GDP in the US and 6 per cent of GDP in the EU. Moreover, the share of digitally deliverable services (as a percentage of total services exports) has increased sharply during the COVID-19 pandemic. As the digital transformation accelerates, it will be essential for the US, EU and UK to resolve their disagreements on broader trade issues if the full potential of transatlantic digital trade is to be realized. The current transatlantic trade rapprochement – including steps to resolve the long-standing row over subsidies to Boeing and Airbus, the suspension of steel and aluminium trade disputes between the US and the EU, and the multilateral agreement concerning digital services taxes – makes progress on the digital trade agenda more likely.
A number of additional potential drivers of enhanced cooperation relate to managing geopolitical risks and addressing policy challenges around data governance. One such driver arises from concerns over China’s vision of digital trade. China’s domestic digital services market is underpinned by strict data localization policies and restrictions on cross-border data flows. Increasingly, China’s domestic prerogatives are reflected in its approach to digital trade globally. Chinese participation in the Regional Comprehensive Economic Partnership (RCEP) agreement, and its requests to join both the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Digital Economy Partnership Agreement (DEPA) between Chile, New Zealand and Singapore, indicate that the country is set on shaping digital trade provisions beyond its national borders. Meanwhile, the US and the EU remain on the sidelines of important trade agreements, while the UK is seeking accession to the CPTPP. To advance digital trade governance, the US, EU and UK will need to push for progress on digital trade rules at the global level, rather than just at the bilateral and regional levels. Efforts to promote regulatory cooperation will also be required.
Digital trade is closely linked to data governance strategies. Currently the issue of cross-border data flows is a sticking point between the US and the EU, particularly in light of the European Court of Justice’s judgment in Data Protection Commissioner vs Facebook Ireland and Maximillian Schrems (Schrems II) of July 2020. This judgment invalidated the arrangement, known as the EU-US Privacy Shield, between the US Department of Commerce and the European Commission to enable transatlantic exchanges of personal data for commercial purposes. Ongoing conversations within the US about privacy standards, a shared cross-Atlantic commitment to the free flow of data in a trust-enabled context, and pragmatic thought leadership are all needed if progress is to be achieved in the push for greater interoperability and mutually agreed approaches to privacy, data protection, intellectual property and security. EU and US officials are meeting regularly, and negotiations for a new deal on transatlantic data flows intensified at the political and technical level in 2021.
Data governance also involves governments responding to data-driven transformations, enacting adequate local regulation and ensuring responsible use of data. Some see the UK as a leader in comprehensive data governance. With its new status outside the EU, the UK is in the process of devising its own new law on data protection and is keen to promote greater trust in data. The UK’s Future Tech Forum in November 2021 provided an opportunity to assemble representatives from like-minded governments and conduct multi-stakeholder consultations with actors from the private sector, civil society and academia. Discussions covered a range of issues around digital technology governance, including trust in data.
Against this background, substantive opportunities are emerging for the US, EU and UK to collaborate on strengthening governance frameworks for digital trade. These opportunities can be summarized as follows:
1. Identify and promote principles based on shared values and agendas
The US, EU and UK share a vision for global trade distinct from that of China. Efforts to ensure interoperability in digital trade, and existing alignment on the need to champion technology innovation and digital trade to raise living standards, offer potentially fertile ground for trilateral (and plurilateral) cooperation. In October 2021, the UK successfully leveraged its G7 presidency to transform preliminary agreements into a roadmap for digital trade governance, through the adoption of the Digital Trade Principles. G7 members expressed their support for the principle of ‘data free flow with trust’, their opposition to digital protectionism, and their commitment to addressing the tax challenges associated with digitization. The agreement outlined the G7’s approach to digital trade, but further efforts by transatlantic and like-minded partners will be required to put the principles into action.
2. Demonstrate joint leadership at the global level
The US, EU and UK can help advance e-commerce negotiations at the WTO. More than 85 WTO members are participating in plurilateral negotiations on e-commerce. They have already reached preliminary consensus on relatively straightforward areas such as spam provisions, digital signatures and online consumer protection. Transatlantic leadership in the WTO has the potential to unlock current stalemates on more complex issues such as cross-border data flows and personal data protections. While the resolution of US–EU differences around data and privacy will likely have to occur bilaterally, this could – if successful – enable WTO conversations to move forward in areas of greater contention.
The US, EU and UK can also help to push for the WTO moratorium on customs duties on electronic transmissions to be made permanent. Moving away from digital protectionist approaches will require the transatlantic partners to build value propositions – such as those put forth by the OECD – that clearly outline how economic gains from digital trade surpass the potential tax revenues from customs duties on electronic transmissions. The US, EU and UK also need to engage partners beyond the ‘nucleus’ of like-minded countries (cooperation could involve India, for instance, which opposes the ongoing initiatives at the WTO). Finally, recent progress at the OECD and G20 on advancing international agreements on digital taxation offers a way not only to avoid the proliferation of unilateral digital services taxes, but also to reduce the risk of trade disputes.
3. Boost landmark bilateral and regional agreements to shape trade provisions
While the search for global solutions faces challenges, bilateral and regional agreements are reshaping the landscape for digital trade governance. Even though the US pulled out of the CPTPP, the country had a major role in shaping the agreement’s advanced digital trade rules and standards. Similar provisions have been enshrined in the recent United States–Mexico–Canada Agreement.
The UK has identified digital trade as a priority, and is taking steps to realize its ambitions on this front. The digital trade and data provisions in the 2020 United Kingdom–Japan Comprehensive Economic Partnership Agreement are modelled on those of the CPTPP, and depart from the EU’s approach to cross-border data flows and data localization. In addition, the UK is seeking – as mentioned – to join the CPTPP. UK membership could help broaden the geographical scope of the agreement beyond the Asia-Pacific region, and strengthen the digital trade provisions that currently exist as part of the UK’s bilateral arrangements with some CPTPP members. Moreover, in December 2021 the UK and Singapore announced an agreement in principle on a Digital Economy Agreement (DEA) covering digital trade rules and collaboration on broader aspects of the digital economy.
The UK–Singapore DEA builds on the DEPA that Singapore agreed with Chile and New Zealand in 2020. The DEPA has been hailed as a landmark agreement on digital trade – not only in terms of its provisions, but also in terms of its approach to increasing trust and fostering cooperation by allowing other countries to integrate modules from it into their own trade agreements. The EU is also in the process of negotiating trade agreements and expanding its network of digital partnerships with Indo-Pacific countries.
In short, the US, EU and UK can work individually and collectively with other digitally progressive countries to build on the latest generation of trade and digital economy agreements. This would support closer alignment on digital trade rules and standards, and the establishment of more up-to-date models for innovation and digital trade governance.
