The most significant new dimension of international trade in the 21st century is that so much of it is now digital. In the 20th century, trade was largely comprised of exchanges of physical goods. Today, trade links are increasingly digital and trade is now “increasingly defined by flows of data and information.” The McKinsey Global Institute reports that, since 1990, the global economy is 10 percent larger than it would have been without those data and information flows, which adds up to an increased economic output equivalent to $7.8 trillion. Moreover, “data flows account for $2.8 trillion of this effect, exerting a larger impact on growth than traditional goods flows.”57 About 12 percent of all goods traded internationally are purchased online, and about half of global trade in services is digital.58
What is more, digitalization is not only changing how we trade but is also changing who trades.59 One major effect of these digital changes is that international trade is no longer the province principally of multinational corporations. Digitalization makes it easy to connect with anyone, anywhere, with only a few clicks on a computer. In the digital economy, “artisans, entrepreneurs, app developers, freelancers, small businesses, and even individuals can participate directly on digital platforms with global reach.”60
One aim of Goal 9 of the United Nations Sustainable Development Goals for 2030 is to “foster innovation.”61 Toward this global end, the shift to a digital economy has increased economic growth by spurring technological innovations worldwide. In many sectors, these efficiencies and innovations have increased productivity, which is the key to generating economic growth.62 These digital “technological innovations have significantly reduced trade costs and transformed the way we communicate, consume, produce and trade.”63
The shift to a digital economy is especially important to developing countries, which continue to suffer “within and across countries” from a “digital divide.”64 Ninety percent of the people in the world without internet access are in developing countries. If new WTO rules that lower the barriers to digital trade are applied along with new measures that expand internet access in those countries, it would be of disproportionate benefit to developing countries.65
Essential to framing the trade rules required to help secure more innovation by supporting and speeding the shift to a digital economy is understanding that the source of the innovations flowing from the digital economy is the free flow of data — for “underpinning digital trade is the movement of data.”66 It is also necessary to recognize, when framing rules for digital trade, that, in the digital economy, the product is often the data itself.
In the new pandemic world, trade is becoming even more digital. Before the pandemic, 41 percent of interactions with customers by North American companies were digital; now 65 percent of customer interactions are digital. The Carlyle Group, a leading global private‐equity firm, notes that the pace of digitalization will continue to accelerate because “technology‐enabled adaptation has opened the door to more sweeping changes in business models and strategies … (and) tech‐enabled digital platforms tend to outperform the broader market.”67
There are no WTO rules written specifically for digital trade. Digital trade is not even defined in WTO rules. Even so, numerous rules that apply to non‐digital trade also apply by default to digital trade.68 Moreover, the WTO rules are technologically neutral, which means that merely because trade is conducted by means other than a physical transaction should not change WTO obligations.69 But the fact remains, WTO rules on goods trade date back to 1947, long before the information revolution, and WTO rules on services trade date back to 1994, when the internet was still an obscure novelty and “many of today’s digital technologies and applications did not yet exist.”70
Despite their technological neutrality, basic legal questions remain unanswered about the extent to which current WTO rules are relevant to digital trade. For example, is a product provided online a good or a service? The answer matters in part because the obligation to treat similar foreign products no less favorably than their domestic counterparts — the obligation of “national treatment” — applies automatically to trade in goods but not to trade in services. National treatment is required for services trade only when a WTO member has explicitly agreed to it.
Mindful of these and other limitations in the existing rules, WTO members have been trying to modernize the trade rules to deal with digital trade since 1998. They approved a temporary moratorium that year on the application of customs duties on electronic transactions, which has been renewed repeatedly.71 But they have not yet made this moratorium permanent, and they have accomplished little else since then toward addressing the commercial concerns of what has become an increasingly digital economy.
The rise of digital trade has created digital trade rivalry, which is most evident in the commercial relations between and among the United States, the European Union, and China. This rivalry reveals, in the new digital realm, the profound differences between those in the world who believe in open and closed societies, between those who favor free individual choices about how to live, what to do, and what to think, versus those who do not.
Despite these increasing geopolitical tensions, issues ripe for WTO resolution include: making the WTO moratorium on customs duties on digital products permanent; defining digital trade and basic terms for digital trade; authorizing electronic signatures to validate online transactions; authorizing cross‐border paperless trading; facilitating additional digital trade through electronic means; providing protections for e‐consumers equivalent to those for other consumers; and requiring the establishment of domestic legal and regulatory rules and frameworks for electronic commerce.
Yet, amid “widespread concerns … about the fracturing of the global economy into walled‐off and possibly warring data realms,” other digital trade issues appear far from resolution.72 Foremost among these unresolved issues is the question of the free flow of data, which is central to the debate about digital trade among the United States, the European Union, China, and other members of the WTO. But the free flow of data, which is essential to innovation, is also vulnerable to digital protectionism.
Impediments to the free flow of data in the new digital economy increasingly take the form of data localization requirements. Some governments force companies to use domestic servers to store data and prohibit the transfer of data offshore. Other governments do not bar data transfer but do require that a copy of the data be stored domestically. These governments cite the need for personal data protection and for access to data for law enforcement as justifying these restrictions. Yet these restrictions can also function as the equivalent of domestic‐content requirements to benefit national firms, while discriminating against foreign firms.
In addition, some governments require companies to disclose their software source code for review as a condition of doing business in their territory. They justify this requirement as necessary to prevent the possibility that imported digital technologies will undermine personal privacy or threaten national security. This disclosure requirement can be tantamount to a mandate to turn over proprietary technology and other trade secrets in which companies have intellectual property rights.73
Frustrated by their continuing inability to negotiate rules on digital trade within the WTO, the United States, the European Union, and other countries — developed and developing alike — with a stake in the digital economy have ventured outside the WTO legal framework to agree on digital trade rules in regional and other preferential trade agreements. About half of WTO members are now parties to non‐WTO agreements that contain rules on digital trade.74 The digital provisions in some of these other agreements offer templates for crafting digital trade rules within the WTO.
Notable are the rules on digital trade in what is now named the Comprehensive and Progressive Agreement for Trans‐Pacific Partnership (CPTPP), which require participating countries to permit cross‐border data flows and include a general restriction on data localization. Exceptions to these requirements are limited to those that achieve legitimate public policy goals. In addition, the CPTPP prohibits forced transfer or disclosure of software source code.75 The recently revised North American Free Trade Agreement, now known in the United States as the United States‐Mexico‐Canada Agreement (USMCA), goes beyond the CPTPP in establishing rules for digital trade. A new chapter on digital trade in the USMCA is more precise than some of the CPTPP rules in broadening the scope of the protections for digital trade.76
In January 2019, 76 WTO members announced the commencement of “negotiations on trade‐related aspects of electronic commerce.”77 Although Trump’s priority has been the protection of traditional smokestack industries, his administration helped launch these negotiations on WTO digital trade rules. The European Union is also engaged in these negotiations, although China is not. These 76 countries have said that they seek the participation of as many members as possible, but they have not yet said whether their goal is a multilateral agreement among all WTO members or only a plurilateral agreement among a subset of WTO members.
During the COVID-19 pandemic, the usual difficulties of negotiating trade agreements have been vastly magnified. Virtual negotiations are much less conducive to making trade deals than are face‐to‐face discussions around a negotiating table. Yet there is hope for consensus on at least some of the issues of digital trade by the time of the ministerial conference in Kazakhstan. Once there is a consensus on the easier issues, there will be a basis for building on that consensus to confront the harder ones — and perhaps to bring China, at least in part, into the ambit of new WTO rules on digital trade.
An early consensus by these 76 WTO members on some of the digital issues can be found in the provisions on digital trade in the CPTPP, the USMCA, and other regional and preferential trade agreements. By one recent count, there are 69 regional trade agreements (RTAs) with either a chapter on electronic commerce or provisions on electronic commerce.78 In particular, an appealing model for moving forward in the WTO is the Digital Economy Partnership Agreement (DEPA), which was concluded during the midst of the pandemic in June 2020 by Chile, New Zealand, and Singapore.79 The three parties to DEPA are small countries that know well the economic value of freeing trade and shortening long distances.80
DEPA builds on some of what is already contained in the CPTPP, the USMCA, and other non‐WTO agreements on digital trade. For instance, DEPA is the first trade agreement to deal with digital identities, which are an important component of the digital economy.81 DEPA includes rules on financial technology and artificial intelligence that are not in the CPTPP, and it establishes programs to foster the inclusion of women and indigenous peoples in the digital economy.82 But what is most distinctive — and what is most conducive to emulation — about DEPA is its unique structure.
Chile, New Zealand, and Singapore have agreed to the DEPA in its entirety. The three countries have, however, structured their agreement to contain a dozen separate subject‐specific categories of different matters relating to digital trade. As other countries join, they can accept different levels of commitment in each of these different categories. WTO members could use this same modular approach in negotiating rules for digital trade. This would enable individual members of the WTO to agree to commitments in one or more categories but not in others. This would also enable WTO members to make different levels of commitments within each module.
A consensus on rules for digital trade is more likely to be reached with a flexible negotiating approach that permits WTO members to make some commitments without having to make, at the outset, all of the commitments that may be asked of them. And such a consensus is more likely to be reached, as well, with a flexible approach that permits WTO members to agree to different levels of commitments within different categories of digital trade.
With the benefit of such a flexible approach, the 76 members of the WTO that have agreed to negotiate rules on trade‐related electronic commerce may be able to conclude, by the time of the upcoming ministerial conference in Kazakhstan, an initial and partial WTO digital trade agreement that could ultimately become fully multilateral and fully responsive to the evolving needs of the new digital economy. Indeed, some material progress should be able to be made toward this goal even before the Kazakhstan conference.