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From the way some governments are going about it you’d never believe we live in a world where cross-border trade is increasingly measured in trillions of gigabytes rather than tonnes of grain. Next week in Abu Dhabi, an unpromising World Trade Organization meeting of ministers will witness a familiar yet peculiar situation. A small gang of middle-income countries — India, despite its status as a global software giant, Indonesia and South Africa — are threatening to abrogate a 26-year international moratorium on charging border tariffs on digitally delivered services, which the deal quaintly terms “electronic transmissions”.
India and South Africa have threatened for years to end the moratorium. They have also threatened to block separate talks on digital trade among a subset of WTO countries, which also show the 1998 vintage of their origins with the antiquated title “electronic commerce”. Delhi and Pretoria are not even participating in the talks, which in any case are incremental rather than dramatic.
In reality, taxing products like video streaming services as they flow through the ether across a notional border seems wildly impractical. But the issue illustrates how the governance of global data and digital flows is far from fulfilling the liberal dreams of internet pioneers.
Digital rules are important not just because of trade in goods and services that consist of or rely on international flows of data. They also involve personal privacy, media disinformation, the accountability of tech giants and other issues of great societal importance. But just as with more traditional forms of trade, countries are erecting border barriers, maintaining intractable regulatory differences and holding the issue hostage to other disputes.
Of the countries menacing the electronic transmissions moratorium, Indonesia is the only one with serious immediate intent to try imposing border measures. Multinationals concerned about the proposals are hoping that Indonesia will focus instead on its value added tax on the consumption of digital goods and services — which it already levies on hundreds of companies including TikTok, Facebook, Disney and Alibaba. The IMF weighed in recently with helpful suggestions on raising VAT on digital products.
By contrast, India’s position is widely regarded as tactical. It has often threatened to end the moratorium to gain leverage in other WTO issues, such as its long-running campaign to subsidise its farmers in the name of building up buffer stocks of grain. The idea of holding a 21st-century industry hostage to a 19th-century one is bizarre, but there you have it. Previously, other countries have largely given India what it wanted for the sake of a quiet life. It’s not yet clear whether they will do so again next week.
Other countries, of course, also have idiosyncrasies that hamper the promotion of open digital trade framed by sensible regulation. Thanks to successive rulings of the European Court of Justice about privacy, Brussels is essentially blocked from making broad and binding commitments on allowing free international flows of data in trade deals.
Brussels has at least done a lot of thinking and regulating in the areas of personal data (the General Data Protection Regulation), competition and transparency in digital commerce (the Digital Markets Act and Digital Services Act) and most recently artificial intelligence. Those efforts, particularly GDPR, have partially served as a model elsewhere. But they are not perfect: the DMA in particular can credibly be accused of protectionism in effect if not provably in intent.
It does not help the cause of regulatory certainty that at a federal level, the US is far behind on writing rules on data protection and AI, meaning it is in a separate sphere of digital governance to the EU. Moreover, the Biden administration recently made a huge about-turn and reversed traditional US support for addressing international data flow in trade deals. There’s a respectable argument for its new position, but the US’s volte-face was so sudden it had to abandon its own negotiating position in the trade part of the Indo-Pacific Economic Framework (IPEF) talks with Asia-Pacific countries, which are now stalled indefinitely.
Meanwhile, China continues to enact increasingly invasive laws on personal data and espionage and conduct raids on multiple foreign companies. This atmosphere has led a number of multinationals to decouple their data storage and IT systems in China from the rest of the company.
To their credit, some smaller countries including New Zealand, Singapore and Chile, which have created a Digital Economy Partnership Agreement, are trying to design a system that balances free flows of data with protection of personal privacy. But their model has yet to get any big takers.
What happens with the moratorium on electronic transmissions next week is in the realm of political grandstanding, not rational decision-making. The degree of unpredictable and self-destructive policy in the area of digital and data trade is concerning. It may be asking the WTO processes too much to expect them to fix it. But until there is coherence and alignment in policy, the global market in data and digital services will remain uncertain and fragmented.
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