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?

BITs, FDI and positions

Should India join the ICSID convention? Abhisar Vidyarthi writing in the Kluwer Arbitration Blog thinks so. He argues that the model BIT that India has now and is basing its new age BITs on is sufficient to balance investor-State rights and joining the ICSID convention will be a boost to foreign investment.

The Indian economy benefits significantly from incoming investments. As ICSID provides a transparent, reliable, and predictable legal framework for investor/investment protection, its membership will naturally enhance investor confidence and promote incoming investments. Therefore, the membership of ICSID will significantly add to India’s vast and emerging market and relatively cheap labour as factors attracting foreign investors to India. Incidentally, the benefits of membership of ICSID will also be reaped by Indian investors abroad as it will allow them to avail of the enhanced protection and special features of ICSID. Lastly, as India emerges as a political and economic superpower, it would be well-advised to re-consider its stance with regard to the ICSID regime. If India is able to renegotiate its investment treaties in line with the Model BIT, it will dilute the factors usually cited as reasons for India to refrain from joining ICSID Convention, thereby making its membership a viable option.

The analysis on the Model BIT and its incorporation makes interesting reading. It indictae sthat State's rights have been taken care off from the interpretative bias of previous arbitral tribunals. However, this would only be corroborated by future decisions under the new generation treaties.

However, is the causal relation between BITs, and consequently joining the ICSID convention and FDI growth established empirically? Also, what implications emerge when a country transforms itself from a capital importing regime to an exporting one? Should its investment treaty policy stance change?