Look at your outer space - we need to set multilateral rules there too!

 Two articles this week on the need for international rules on managing Space caught my attention. Not strictly related to international economic law and policy, the need for multilateral rules on regulating activity in space seems a real challenge.

Activity in Space, whether for strategic, military or commercial purposes has increased manifold. More countries are participating in it including private actors. Though there are treaties that govern activity in outer space, they seem to be inadequate as well as limited in scope. Further, enforcement of rules and a lack of dispute settlement mechanisms are also a source of worry.

Syed Akbaruddin emphasizes on the enormous growth of the outer space industry and the need for a more concerted action on developing international rules. He calls for both domestic and international action.

The proposed involvement of private players and the creation of an autonomous body IN-SPACe (Indian National Space Promotion and Authorisation Centre) under the Department of Space for permitting and regulating activities of the private sector are welcome efforts. However, the space environment that India faces requires us to go beyond meeting technical milestones. We need a space legislation enabling coherence across technical, legal, commercial, diplomatic and defence goals. Our space vision also needs to address global governance, regulatory and arms control issues. As space opens up our space vision needs broadening too.

Molly Quell writes about the challenge of space debris and who has to bear the cost of this reality. She argues that the existing international legal landscape is not equipped to deal with the pressing issue of space debris and its consequences.

Most of what goes into space doesn’t come back. Nations aren’t required to remove their garbage from space and to do so voluntarily would cost a tremendous amount of money. So more than half of those 9,000 satellites remain, some as operational but more as decommissioned junk. As they crash into each other, they create more tiny bits of debris whizzing around the Earth.

The need for deliberating on an international legal framework is real. How will nations react to this need? How will they perceive their offensive and defensive interests? How will commercial players be involved? Will the large majority of economies be bystanders in rule setting? Should there be a binding dispute settlement mechanism like the WTO? As technology and developments in outer space gather steam at a quick pace will the legal landscape be able to cope?Will there be a difference in approach of the major players in what needs to be regulated at what cost? Will there be special and differential responsibility - since a few limited countries have been responsible for the debris? 

Kiran Vazhapully has an elaborate discussion on lunar mining and international law in this post in Opinio Juris. He raises the issue of equity and the rights of all stakeholders. The principles apply to outerspace too. There are space-faring nations and there are others.

Now that the US has started proactively pursuing its agenda through Artemis Accords, the future meetings of UNCOPUOS will witness elaborate deliberations on this matter. While fully agreeing with the ‘adaptive governance’ strategy endorsed by the Hague Working Group to draw the details, the development of a broad multilateral framework with clearly formulated objectives is the need of the hour. Democratic discussions at the UN hopefully will prompt States like the US to reposition their ideology, rethink the fundamental premises of negotiation and in turn, realign strategy while deliberating on a legal framework. Above all, in-principle acceptance of an equitable framework as the basis of any multilateral discussion would go a long way in assuaging the concerns of developing nations and temper fears of neocolonialism in the final frontier.

Will outer space and the lunar/Mars environments be the next stage of international tension? Will it lead to a multilateral framework or a "coalition of the willing" approach to international norm setting? Whether it is the WTO or elsewhere, the tensions remain the same. the subject matter changes!

Setting the rules on digital trade

The digital world economy is the fastest growing. Like other sectors, it has economies that contribute as producers, innovators, consumers and bystanders. International rules on digital trade  have been restricted to bilateral or plurilateral initiatives. An international consensus on the need for and content have eluded negotiators so far.

Anbound, a think tank, has pitched for being proactive in rulesetting in digital trade. Outlining the contours of what the digital trade economy has in store for the US, China, EU and India, it argues for a more proactive role for China to play in standard setting:

Like it or not, with the progress and popularization of digital technology, a highly digital world in on the horizon and we will face the problems of "digital survival", "digital development" and so on. Since there are insufficient rules in this new field, it is important to establish relevant rules. As a major emerging market, China needs to actively participate in the formulation of these rules in the digital era.

Final analysis conclusion:

The digital age has arrived, and China is an important participant in such an age where it needs to play an active role in the formulation of the rules of the game.

The digital economy is going to be the next battlefield. The signs of it are reflected in the digital services tax, issues of security around technology, data privacy as well as the need for global rules to address the new age economy. How economies will react to the calls and strains will determine how they stand to benefit from it.

 

Another FTA in the offing - Japan and UK this time.

News of another FTA trickling in - a Japan-UK FTA this time. Reports of the deal are found here, here and here. Considering general timelines for FTAs, some being negotiated for years if not decades, this is quite an achievement - limited deal or otherwise.

UK's negotiating objectives are outlined here which include an ambitious FTA going beyond the EU-Japan FTA, opening up new opportunities for UK's MSMEs, high consumer standards, ambitious digital trade provisions (a la DEPA which I had blogged about here), export of professional services like banking, accounting and engineering services and automative exports amongst others.

However, one objective that stood out for me was with relation to health care:

The government has been clear that when we are negotiating trade agreements, the National Health Service (NHS) will not be on the table. The price the NHS pays for drugs will not be on the table. The services the NHS provides will not be on the table. The NHS is not, and never will be, for sale to the private sector, whether overseas or domestic.

Pretty clear and categorical on that front - no question about negotiating or liberalising on health services. Full stop. I guess when it comes to many other countries and their negotiating positions, the full stops are on many sectors and issues. That is the dynamics of international trade.

On investment, it included an objective of ensuring "UK investors in Japan continue to enjoy high standards of treatment." Well this must definitely mean some of the standards like Fair and Equitable Treatment and definitely the ISDS mechanism.

The UK has also seen these FTA negotiations as part of the larger geo-political landscape and the need to be part of rule-making in increasingly fragmented trade deals.

These bilateral negotiations will also be a logical stepping stone to joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). CPTPP is one of the world’s largest free trade areas, representing over 13% of global GDP in 2018, increasing to more than 16% if the UK were to join, and Japan is the largest trading partner out of all the CPTPP member nations, representing over 28% of total CPTPP trade.

Lastly what struck me was the 96 page UK strategic approach paper for these negotiations - all details, objectives, data in the public domain. Also indicates how data and evidence is the basis for trade negotiating positions. 

Will wait for more details on the text itself. The devil, in trade deals, is ultimately the text.

Getting business input to bolster trade negotiations

Dmitry Grouzobinski has brought out the importance of businesses and business inputs in trade negotiations in this piece. Often trade negotiations are conducted in a vacuum with minimal or no business inputs. In some cases, large influential and national champions do provide their inputs to ensure their interests are protected. It often transposes itself into negotiating positions. But what about smaller businesses? What about those who have no voice in large industrial bodies or associations. Developing country negotiators often have an issue of formulating a negotiating position because of a lack of information on what is in their country's national interest.

I was surprised to read about this problem existing for more well developed trading economies like Australia too. Dmitry opines:

A common myth is that trade negotiators begin each day with detailed marching orders from slick corporate lobbyists representing all the major multinationals. Frankly, that level of engagement would be a nice change.

The reality is that creating a pipeline of timely, candid and usable business input across the full spectrum of trade policy work has eluded governments.

Free trade agreement negotiations, being higher profile, are the easiest part of trade policy work on which to solicit business views, but results are still middling.

The Australia-UK FTA has, in half a year, received just 16 submissions. Other consultations did better, but even the 100 and 150 submissions received by EU and China negotiation consultations respectively can hardly be said to represent the sum total of potential views on such critical trading relationships.

Many a times countries negotiate complex trade agreements with a lack of understanding on how much impact those delas would have on their businesses. The quality of interaction with businesses when seeking inputs is sub-optimal and at times scarce. This has been a perennial problem with negotiation - and he makes the right point that both governments and businesses have to sit up and take stock.

Churning in international investment dispute settlement norm setting

Continuing on the issue of appeals in ISDS proceedings, Kluwer Arbitration Blog carried this recent piece on the trend of EU agreements incorporating clauses that include an appellate mechanism, akin to the Appellate Body of the WTO.

In this post, Daniel Avila II and Nicolas Borda outline the proposed EU-Mexico Free Trade Agreement proposal for an appellate mechanism for investment arbitration.

According to the Agreement in Principle, the “EU-Mexico agreement fully implements the new EU approach to investment protection and investment dispute resolution by fundamentally reforming the old-style ISDS system. It establishes a standing international investment court system composed of a Tribunal of First Instance and on an Appeal Tribunal.”

The proposal of an appellate mechanism is not novel. The UNCITRAL Working Group III was established in the fall of 2017 to “provide a useful model for possible reforms in the field of investor-State arbitration, in conjunction with interested organizations.” In its Thirty-eighth session, the UNCITRAL Working Group IIII provided a possible reform adding appellate and multilateral court mechanisms.

Commentators analyzing the strengths and weaknesses of the proposed appeal reform by UNCITRAL in international arbitration have argued that an appellate mechanism replaces “crucial parts of the system such as annulment mechanisms, enforcement and finality of awards.” On the other hand, commentators note, “Consistency in the application of substantive norms in BITs would contribute to the confidence in ISDS” and will serve as a check against legal error. Further, commentators have raised concerns of costs and time increasing by allowing appeals to go forward in international arbitration.

Interesting developments in the international investmentment norm setting space - while Cabada rejects ISDS for Canadian investors and Canada as a respondent in USMCA, the EU model proposes permanent arbitrators at the panel stage and an appellate mechanism. Where all this will converge is yet to be seen. However, the churning in the investment norm setting arena is evident with modifications to treaty obligations, new model BITs, co-operation and mediation instead of dispute resoluton, State to State arbitration instead of ISDS and then finally an appellate mechanism.

States have a lot to choose from unlike in the heydays of BITs which were more templates to be signed on. How States choose their obligations and practises would reflect what they consider important and relevant for their interests in the context of a negotiation. Whether these efforts would lead to a multilateralization and standardisation of practises is not known - the UNCITRAL Working group is working on certain aspects of ISDS reform. 

This decade would definitely have a lot in store for international investment law enthusiasts.

Proposals for reform - to appeal or not is the question?!

News of proposals to reform the WTO from the USTR made headlines today here, here and here. In brief, the proposals covered 5 reform points including rationalising tariffs so that baseline tariffs apply to all members with minimal exceptions, eschew non-regional free trade agreements, end special and differential treatment to large and advanced economies, create new rules to address State led capitalism of China and ending the Appellate Body with a single dispute settlement level at the panel stage. These views are not new and will have to be considered at the WTO when dust settles down after the next DG's selection.

Just a thought on a single stage dispute settlement process and the debate in the ISDS context. 

In international investment arbitration today, there is a single stage ad-hoc arbitral tribunal that decides the disputes arising out of international investment agreements. The criticism has been that this leads to inconsistency in jurisprudence by ad hoc tribunals and there is a need for an appellate mechanism, on the lines of the WTO's Appellate Body, to steady the ship. The EU has also proposed a multilateral investment court. It is also part of the UNCITRAL reform discussions. In the international trade dispute settlement mechanism, there already exists an Appellate Body (or atleast did exist a while ago), but there are calls to revert to a single stage, panel mechanism. 

Two narratives from two different experiences in international economic law and policy streams - trade and investment. While one sees the appellate mechanism as a bane to the system which has exceeded its limits, the other sees it as a panacea for the ills of the ad hoc, inconsistent panel system that has far exceeded its limits in treaty interpretation.

Does this speak to the fact that treaty interpretation itself has pitfalls of interpretative imagination beyond the words of the treaty - be it the panel stage or Appellate Body. As long as there is a body interpreting a treaty and adjudicating on a set of facts, one will perforce have to live with the reality of unexpected outcomes of judicial creativity!

A decade of blogging

It has been a decade of blogging for me with the first blogpost here in 2010. Inspired by my dear friend and star's blog Urbanomics, (but nowhere near its level of conceptualisation, clarity and class), this space has seen ups and downs.

Hope to keep at it - international economic law and policy never seems to have a dull moment!

Standard setting in engineering - Our standard please!

 When one talks about international trade agreements, one is normally accustomed to think in terms of tariffs, rules on intellectual property, ecommerce and customs facilitation. What about technical standards? The Technical Barriers to Trade Agreement covers the issue of standards in international trade and ensures that standards are not trade restrictive and discriminatory. However, who sets these standards? International standard setting bodies come into the fray. However, who plays a role in these international standard setting bodies? 

An interesting piece coming from engineers in UK on standard setting emphasizes the importance of setting standards internationally, playing a role in it and ensuring trade agreements protect one's own standards instead of adopting the trading partners standards. 

On how settings technical standards in the engineering field are important for the UK:

Standards underpin the daily work of British engineers. From technical drawings to quality management, a huge array of standards enable the engineering industry to deliver world class projects safely and efficiently. These standards ensure that the process is as smooth as possible for British companies, allow consumers to know that their safety and security has been prioritised and can support regulation.

The UK achieves this through the work of the national standards body, BSI. We bring together expert stakeholders – over 13,000 of them – to put forward their views in our specialist committees across all sectors. With all UK stakeholders represented, we create a national body of knowledge in a collection of standards that is coherent and non-conflicting. 

On how UK standards, become the international standard and is thus a facilitator for more exports:

 The UK, through BSI, is already one of the most influential members of the international standards community. We participate in more ISO committees than any other country. Many of the world’s best known international standards started as British Standards, in areas such as quality management, asset management and building information modelling.

On how standard setting is important for trade deals he piece opines:

BSI works closely with the government to support trade deals that maximise the opportunities from the strategic use of international standards. We encourage the government to make the best use of our expertise and that of our committee members, and have proposed the creation of a cross-cutting advisory group that looks at the risks and opportunities from ‘technical barriers to trade’ issues that may go unnoticed without expert input.

However, if the US pushes for a similar approach to standards that it agreed with Canada and Mexico, the UK government could be required to call up in regulation US standards in place of British Standards. US standards have no systematic input from British businesses or consumers in areas vital to our engineering industry. Recognising US standards in support of regulatory conformity in the UK in place of or as an alternative to British Standards would create complexity and cost for industry and undermine UK influence in international standards-making. 

And finally what are the costs for UK businesses for adopting a different standard:

However, to fully grasp the global trading opportunities we see before us, government must retain the UK’s regulatory autonomy supported by a coherent set of national standards. To do otherwise would put UK engineering companies, wider industry and consumers at a severe disadvantage. Let’s accept where we have different systems for using standards with regulation and focus on the future. 

Very interesting thought coming out from the business stakeholders who actually do business post the trade agreement. It signifies how important it is to be rule setters in standard setting rather than rule receivers to protect one's business interests. Well, for developing economies, one of the main issues is that they have been rule receivers in almost all fields of international trade norm setting, not just standards.Therefore, it is not just tariffs, ecommerce rules, subsidies that one has to watch out for - standard setting is the next great frontier!

Data driven economies, conflicts and international trade regulation

Data, as everyone now knows, is the new oil or gold! We are in a data driven-economy and many international developments are flowing from the growth and conflict this data-driven economy brings. 

The recent debates and developments on the digital services tax (against global technology giants - the data controllers), anti-competitive practices by technology giants as well as the tension over 5G networks point to the fact that data, its control and access is going to be the next battlefield in international economic and political diplomacy.

Dan Ciuriak, has written a brilliant piece titled "Economic Rents and the Contours of Conflict in the Data-driven Economy" on the nature and future of this data driven economy. Theorising on the historical growth of the causes of conflict from land, to mercantilist trade, to oil to intellectual property, he opines that a data-driven economy is the next battleground for both internal and external conflicts. Sharing of the economic rents flowing from the data-driven economy will determine future conflicts and that fact that the large technology players are concentrated in a few economies would be a cause for concern. 

He also suggests that the WTO could be a forum where the new rules on data to avoid future conflicts should be written. He has opined that the negotiations on the digital services tax too should be n the WTO. That would be an aspiration considering the present state of negotiations. Further, OECD is already engaged in such negotiations. That would involve a grand bargain since economies that are not strong players in the data economy apart from being consumers would seek a quid pro quo. What could that be - a reduction in industrial and agricultural subsidies? May be the trends of norm setting in plurilateral and bilateral trade agreements on digital trade could have some lessons - but they do not cover digital services tax for sure, for now!

An interesting point that Dan has made is the dichotomy in the various branches of government vis a vis big technology companies in the US - on the one hand being protected against the global barrage of digital services tax while internally being questioned hard for anti-competitive practises. An example of institutional independence amongst various domestic actors? He captures it well here:

In the consumer- and society-facing aspects of the data-driven economy, China evolved separately from the rest of the world behind its Great Firewall. Accordingly, the main contest for rents in these areas boils down to the United States, which hosts global champions that capture the vast bulk of the market, versus the rest of the world, which captures little. Interestingly, whereas domestically US populist politics align against the technology giants, internationally, US interests align with them. This makes for particularly challenging governance issues for the United States and likely militates against an international accord being reached. Moreover, China is not in this picture.

The paper itself is an enriching historical account of how international economic conquest and conflict were shaped and how data fits into that narrative. An enjoyable read. 

The need for an ISDS Moratorium - Not at all fair!

I had blogged about the demands of a moratorium on ISDS during the Covid pandemic here and here.The critics of the ISDS and Investment Agreements argued that the pandemic was the right time to have a temporary moratorium so that the regulatory space of States to address the challenges of the crisis is not mitigated, amongst other things by a regulatory chill.

Prabhash Ranjan disagrees. Arguing in the Opinio Juris here, he is of the view that this proposal assumes many things - that States always act in good faith, States will always lose an ISDS claim and that the aspect of regulatory chill is over-rated.

A fundamental flaw with the proposal to have an immediate moratorium on ISDS claims is that it postulates that States are innocuous actors who shall not abuse their regulatory powers to the detriment of foreign investors. This assumption flies in the face of the growing literature on how the Covid-19 pandemic is being used to propel authoritarianism with would-be autocrats using it as an excuse to amass greater power and control. While some governments have handled the pandemic by acting within the constraints of the law, some have acted like autocratic opportunists by spurring narrow nationalism, creating a surveillance State as Yuval Noah Harari warns us. In a situation such as this, the apprehension that populist and nationalist governments shall misuse their regulatory powers to impair the legally protected rights of foreign investors under international law cannot be ruled out.

Firmly opposing the call for any moratorium, alleging that this could lead to authoritarian tendencies and the junking of the rule of law by States, he avers that ISDS and IIAs, with modifications is an essential feature of the rule of law regime.

Notwithstanding all the imperfections, the IIL regime and the ISDS mechanism are part of the legal infrastructure of the global economy. They act as useful restraints on the capricious use of State power vis-à-vis foreign investors and serve an important purpose of holding States accountable under international law for their international investment relations, thus enforcing the international rule of law principles. This role of the IIL regime and the ISDS mechanism is very important in the times of Covid-19 when we see creeping authoritarianism in many countries.    

 Well, the die hard critics and supporters both use the rule of law to augment their positions. While the critics argue that ISDS is a fundamental departure from the rule of law wherein foreign investors are favoured vis a vis domestic businesses as well as arbitral appointments are against the principle of the independence of the judiciary, the proponents of ISDS argue that the system protects the international rule of law by checking arbitrary, non-transparent and malafide exercise of State power.

No easy answers to this conundrum with a range of alternatives from outright rejection to incremental reform being equally strong narratives in the debate.

Let the debate continue.

This time for Africa - A US-Kenya FTA a harbinger for change?

(Courtesy gtreview.com)

News of a trade deal between the United States and Kenya, the first sub-Saharan nation that the US is negotiating with, has been doing the rounds for a while. The first one with Africa by the United States was with Morocco. News of the trade deal is found here, here, here and here.

The US objectives for the FTA are clear and are here. The negotiating objectives are clear. Kenya's objectives and mandates are not spelled out in the public domain.The China factor in motivating this negotiation is another looming question.

Will it be a gold standard FTA? Will it be an agreement that all other African and developing countries will benchmark when they negotiate, if at all, with the United States?

Anabel Gonzalez predicts that this FTA could be a template for future FTAs for Africa here. She argues that it should be a deep, trend setting FTA much beyond the USMCA:

First, recent US trade deals are not suitable models for Kenya. The drivers for a US-Kenya trade accord are not the same, so the right framework needs to be found. The US-China and US-Japan deals are very limited in scope, with neither reciprocal access to the US market nor binding enforcement mechanisms. The United States-Mexico-Canada Agreement (USMCA) includes some positive novel provisions, such as those on digital trade, but its protectionist approach toward rules of origin and intrusive plant-level labour and environmental inspections could restrict the pact’s potential and increase litigation and uncertainty.

Africa’s friends in the US Congress should push away from the USMCA model in favour of more “traditional” US FTAs. The kind of rules negotiated in the Trans-Pacific Partnership, with the type of commitments made by Vietnam in that negotiation, are worth exploring. A deep FTA would cover trade in goods and services, investment, intellectual property, and government procurement; secure access to each party’s markets with appropriate tariff phase out periods; include rules-based dispute settlement mechanisms; be of indefinite duration; and avoid unnecessary constraints. If for political reasons, a short-term deal is favoured, it should be crafted in a way not to impede a better agreement later. Capacity-building measures should accompany the trade accord.

On the criticality and the future repercussions of the US-Kenya trade agreement for other aspirants, the Centre for Strategic and International Studies opines:

While Kenya and the United States both wanted a bilateral negotiation, they are also aware of the larger repercussions of the United States using this agreement as a model for the future. The priorities and compromises Kenya could make would have significant implications on future deals. Though no details have emerged thus far of what will be included, the second U.S.-Kenya Trade and Investment Working Group meeting in November gave some indication as they discussed “services, digital trade, intellectual property, agriculture, environment, customs and trade facilitation, technical barriers to trade, labor, and state-owned enterprises.” Of these nine areas, the three topics that will be watched most closely are the agreement’s handling of labor, the environment, and customs and trade facilitation.

A CRS report outlines the difficulties that the negotiation may face in the near future considering the varied development paradigms, aspirations and domestic compulsions in both economies:

The significant economic development disparities between the two countries suggest possible differences in negotiating priorities. A key challenge will likely be to establish a framework for the talks that can achieve the ambitious level of commitments Congress directs the Administration to seek in FTAs.At the same time,such a framework must remain politically and economically viable in Kenya amidst domestic pressure to maintain protections for import-sensitive or nascent industries. Potentially contentious topics include the timing and extent of tariff liberalization including on agricultural goods;rules on intellectual property rights, investment, and data flows; and the level of labor and environmental protections.The Trump Administration describes the talks as an opportunity to develop a “model” FTA, but has not specified what changes from past practice this may entail. U.S. FTA talks with the South African Customs Union, which were suspended in 2006 in part due to divergent views over scope, highlight the importance of establishing clear parameters for the negotiations at the outset. 

Brookings has identified the digital services tax issues as one of the irritants in the negotiations:

Taxes on data. Few countries have advanced as quickly in the use of mobile-based financial services and digital transformation as Kenya. In an effort to derive more revenue from digital transactions, the government recently imposed two taxes: A 1.5 percent digital services tax, which will take effect on January 1, 2021 and an earlier withholding tax charged on “marketing, sales promotion and advertising services provided by non-resident persons.” American technology companies find these taxes discriminatory. In fact, last month, the U.S. announced tariffs on some French goods in retaliation for France’s unilateral digital services tax targeting American companies. While this matter has not been directly linked to the trade talks, it remains to be seen how the U.S. might approach this issue in the negotiations. How will efforts to resolve this matter in the OECD factor into discussions between the parties?

One would have to watch the outcomes very closely to understand the impacts for Africa as well as the developing world. would it be a gold standard agreement or a tempered down version? Would it be an incremental stage  agreement addressing the hot issues of agriculture, digital trade, digital services tax, intellectual property and labour in the second stage? The issue of dairy products flooding the Kenyan market are already beginning to be raised. These are some of the sensitive issues that the negotiations would have to address on the way.

Let the negotiations begin!

Modernizing the WTO

James Bacchus on how a trade policy should look like is found in this detailed CATO piece. 

Modernising the WTO is one of its key points:

Since the conclusion of the WTO treaty, much has happened to transform world trade and the world economy. Although the WTO rules were written in the 20th century, most are still fit for the 21st century. But no small number of trade rules need updating and, in many aspects of contemporary commerce, new rules are very much needed. Democrats should support the negotiation of new and better WTO rules on digital trade, services trade, and intellectual property, all of which are areas of vast importance to American workers and businesses. New rules are needed to facilitate investment and to ensure free and fair competition. Better disciplines are required for trade‐​distorting subsidies, including new rules forbidding the favoring by WTO members of their state‐​owned enterprises. New rules also are needed to provide protections against forced transfers of technology, while encouraging the lawful spread to poorer developing countries of the new technologies they urgently need to confront environmental, health, and other global challenges. Rules are also needed to address product standards, technical regulations, and the proliferation of other non‐​tariff barriers that are increasingly substituted for tariffs and that pose protectionist obstacles to trade.

New norm setting is a goal that is frequently put forth when people speak about the WTO being reformed. 21st reform for 21st century issues. 

Artificial Intelligence, FinTech and competition policy - new standards, new goals

Continuing from my previous post on the DEPA module based trade agreement between Chile, New Zealand and Singapore, I tried to explore what is the additionality that this arrangement provides.

In Module 8, titled Emerging Trends and Technologies, of the DEPA, FinTech, Artificial Intelligence (AI), impact of digital economy on government procurement and competition policy for the digital economy are the new areas that are touched upon. They are mostly "soft law" in nature with co-operation and capacity building as the focus.

Why a specific provision on Fintech one would wonder? The growing importance of the industry and the extent of impact it could have on the economy, is why it thrusts its way into a free trade agreement. The FinTech provisions engage private business to co-operate and explore possibilities of collaboration. 

The provisions on AI encourage the parties to aim for an " adoption of an ethical and governance frameworks that support the trusted, safe and responsible use of AI technologies (AI Governance Frameworks)." Is this the beginning of international norm setting for AI? Will national frameworks converge on this count? 

Singapore already has a national governance framework for AI as discussed in this WEF post. This report from McKinsey outlines the potential of AI to the growth of the world economy. The EU guidelines on a trustworthy AI is found here. Are we going to see a multilateralisation on these guidelines and what impact would they have on competitive advantages for firms in the AI sector across geographies.

And finally Module 8 has the elephant in the room - competition policy for the digital economy. A major tussle is on between competition regulators across the globe and large technology companies. How anti-competitive are their policies? Article 8.4 states, inter alia,

1. Recognising that the Parties can benefit by sharing their experiences in enforcing competition law and in developing and implementing competition policies to address the challenges that arise from the digital economy, the Parties shall consider undertaking mutually agreed technical cooperation activities, including: 

(a) exchanging information and experiences on development of competition policies in the digital markets; 

(b) sharing best practices on promotion of competition in digital markets; and 

(c) providing advice or training, including through the exchange of officials, to assist a Party to build necessary capacities to strengthen competition policy development and competition law enforcement in the digital markets.

Though subject to dispute settlement, these are best endeavour, co-operation based provisions to enhance understanding. An incremental approach to more hard law approaches later in the day. Could there be a universal competition law framework for the digital economy in the future?

The DEPA does explore new frontiers, in an incremental way. How much of co-operation the DEPA spurs and how rules will emerge from that interface is what needs ro be watched in the coming years.

Another gold standard in digital trade? DEPA, modules and regionalism

 More on digital trade, economy and agreements.

I had blogged about the "gold standard" DEA between Australia and Singapore in this blog. I seemed to have missed another one - a Digital Economy Partnership Agreement (DEPA) between Chile, New Zealand and Singapore.

The new DEPA text is here. It covers areas that are now familiar in digital trade agreements - data transmission, treatment of digital products, cross border data exchange, e-invoicing.

4 initials comments:

1. Modular approach - As Giridharan Ramasubramanian has brought out in this piece in the East Asia Forum, this agreement has a modular approach that is unique to trade agreements.So there could be a pick and choose between modules - an incrementalism that if often missing in holistic trade agreements.

A modular design is made up of building blocks within a building block, resembling a multi-level complex adaptive system. Traditionally, individual free trade agreements (FTAs) are often seen as incrementally contributing to the complex trade institutional architecture. They are often considered in totality even if only part of the language is incorporated in subsequent agreements. In a modular agreement, each individual module acts as a detachable component that could be used elsewhere.

This modular structure provides countries with more options. They could join the agreement in its entirety. Alternatively, they could incorporate specific modules either within their domestic policy settings or in different trade negotiations. Countries working on digital economy legislation at a national level may find modular templates helpful in drafting their language. Similarly, DEPA has the potential to shape ideas and norms in multilateral processes such as the World Trade Organization (WTO) Joint Statement on Electronic Commerce Initiative with the inclusion of content from specific modules.

2. The real gold standard - Some provisions seem to be more ambitious or go beyond earlier agreements that are considered to be the gold standard. Provisions on digital identities, artificial intelligence and financial technologies are apparently fresh off the block. The earlier piece states:

These modules could also be incorporated into current and future FTAs such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the EU–Japan Economic Partnership Agreement and the United States–Mexico–Canada Agreement. For example, a comparison of the language of DEPA and the electronic commerce chapter of the CPTPP shows that key emerging issues related to digital identities, financial technology and artificial intelligence are missing in the current CPTPP but covered in DEPA. If negotiators of the CPTPP and other living agreements look to the specific modules of DEPA for future inspiration, this will diffuse the content of DEPA at a faster pace, accelerating its influence over international digital rule-making. 

3. Scope of dispute settlement - Module 14 of the DEPA covers dispute settlement. A look at Annex 14-A indicates that some very important provisions are outside the scope of dispute settlement - basically unenforceable through the legal mechanism. 

Annex 14-A states:

Module 14 (Dispute Settlement), including Annex 14-B (Mediation Mechanism) and Annex 14-C (Arbitration Mechanism), shall not apply to: 

(a) Article 3.3 (Non-Discriminatory Treatment of Digital Products); 

(b) Article 3.4 (Information and Communication Technology Products that Use Cryptography); 

(c) Article 4.3 (Cross-Border Transfer of Information by Electronic Means); and 

(d) Article 4.4 (Location of Computing Facilities). 

Those are pretty important provisions to be left out of the dispute settlement framework. May be incrementalism in enforcement of rights too?

 4. Regional tinge - Most of the new trade agreements on digital trade are emanating from the Indo-Pacific region. A new regionalism to digital trade?

Australia-Singapore DEA - Another digital trade rule-making gold standard?

The need for rules on ecommerce and digital trade, its extent and scope have been a subject matter of heated multilateral discussions at the WTO. However, like many other subjects of negotiations, it hasn't made headway at the multilateral forum. The fora for ambitious rules on digital trade have been the plurilaterals and bilateral free trade agreements. The CP-TPP is said to have one of the most ambitious chapters of liberalising digital trade. The recent US-Japan Digital Trade Agreement is also an example of digital trade rules gaining ascendency.

In the midst of these "gold standard" developments, news of a Australia Singapore Digital Trade Agreement which pushes the envelope further is coming in. Australia and its largest ASEAN trading partner have signed a digital trade agreement covering digital trade, data localisation, e-invoicing which,when ratified, will replace the ecommerce chapter in the Australia Singapore Free Trade Agreement. 

This is a fact sheet about the agreement gives a gist and the agreement is here. It is called the Digital Economy Agreement (DEA).

The Australian government website states:

The DEA will upgrade the digital trade arrangements between Australia and Singapore under the Comprehensive and Progressive Agreement on the Trans-Pacific Partnership and the Singapore-Australia Free Trade Agreement – which are already among some of the most ambitious globally. For example, it: delivers more robust rules that ensure businesses, including in the financial sector, can transfer data across borders and will not be required to build or use data storage centres in either jurisdiction; improves protections for source code; establishes new commitments on compatible e-invoicing and e-payment frameworks; and delivers new benchmarks for improving safety and consumer experiences online.

One would now have to do a comparative "commitments" chart of the CP-TPP, US-Japan digital agreement and the DEA to see how far commitments go, what are the exceptions and what is subject to dispute settlement. How "more robust" are the rules than earlier agreements is a subject matter of debate. A definitive field for research as well as for eager trade negotiators!

For the moment, one more trade agreement on ecommerce is on the table for multilateralisation. Is this the beginning of the gradual shaping of plurilateral and multilateral framework on ecommerce?Or is it just limited to a small set of countries reiterating set standards amongst themselves?

A public opinion survey on the WTO?

Public opinion about trade policy, WTO and international trade negotiations is rather limited for a variety of reasons. For one, the impact of trade deals as well as international agreements do not seem to impact domestic lives and matters. It is seen as something far and distant left to policy makers and trade experts. While this is true of the non-trading population, it is also prevalent in many business communities.

In this context, what people think about the WTO, about leadership in trade policy and the like is an interesting exercise. This was what exactly the tradevistas did with a survey of Americans asking them questions about US role in trade, walking out of the WTO and the like. SOme of the responses were interesting but not that surprising. The survey was done in July 2020.

A new poll by TradeVistas, conducted by Lincoln Park Strategies, finds that while a plurality of Americans support leaving the WTO, most Americans either oppose the idea or are unsure what to think. Our poll also finds that while Americans overwhelmingly want the United States to be “the leader of the global economy,” most Americans don’t see membership in the WTO as critical to that goal. These responses imply that most Americans are relatively unaware of the WTO’s role, and that the benefits of U.S. participation are far from obvious to the general public. The results also imply that any momentum for U.S. withdrawal largely reflects the work of a motivated minority, versus a groundswell of public will.

The results are shown in this infographic for easy reading here:

Looks pretty balanced out there. Then again 1000 respondents and issues of sampling discounted, it is a pretty high awareness about WTO issues. The results and reactions will significantly vary across countries. Public consciousness of the WTO or international trade issues will generally be extensively pervasive when a critical issue for the domestic economy is being debated or negotiated or decided at the multilateral fora. It can capture public imagination and influence local policy choices. However, generally, issues of international trade and investment, though intricately connected to the domestic context, don't receive enough traction domestically.

Interpreting a treaty - Who has the last word?

The debate on inconsistent interpretation of investment agreements by arbitral tribunals has been one of the critiques of the international investment regime. Further, the overtly expansive and innovative interpretations of treaty provisions by arbitral tribunals is also perceived to question the legitimacy of the system. The constant tension between what treaty parties intended and what the arbitral tribunals actually interpreted the provisions to be is a continuing theme in investment arbitration discussions. It also is a reflection of the battle between judicial autonomy and diplomatic preserve.

The debate is more recently reflected in the form of how State parties can jointly interpret treaties. Seung-Woon Lee has this very exhaustive piece in the Kluwer Arbitration blog on joint treaty interpretations by State parties to control treaty interpretation and has studied recent treaty texts to show the diversity as well as innovation in structure and intent. It also points towards the diversity investment treaty language can have to serve State party intents.

On whether joint interpretative notes are binding or not, the author notes:

Moreover, as pointed out by the CJEU, the independence of a tribunal is an important factor to consider. If a joint interpretation could bind a tribunal in a pending case, this could compromise the tribunal’s ability to adjudicate a dispute between the parties. By agreeing to ISDS in IAs, Contracting States confer to a tribunal the power to resolve disputes between foreign investors and States. ISDS tribunals have a duty to determine a case, interpret a treaty and apply it. Upon making this determination, a tribunal should independently and impartially make its decision. If a joint interpretation becomes binding on a tribunal in a pending case, the tribunal arguably will not be able to independently decide on the proper interpretation of a treaty and apply it to a pending case.

However, aren't arbitral tribunals creatures of the investment agreement between the parties? Aren't their powers and duties dependent on the treaty provisions? Does the arbitral tribunal have an independent power to interpret provisions irrespective of how State parties intended to be? After all treaties bind parties to the agreement to certain standards of obligations. Those obligations are decided by the parties themselves - joint interpretative provisions are a form of that control. When broad treaty language can be interpreted widely by tribunals citing parties intention to leave it open for interpretation, why should the converse not be true?