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Digital trade

Digital trade is undergoing a revolution. Are we prepared for it?

Published 01 November 2022

The manner in which we address digital trade policy challenges will pose an enormous test for the global economy and its resilience. From the rapid adoption of artificial intelligence to the precarious question of digital sovereignty, this interview with the Association of Foreign Press Correspondents featuring Hinrich Foundation contributor Neha Mishra offers valuable insights on the intersection between cross-border regulations and the booming digital economy.

Digital trade has become ubiquitous over the last decade and will only become more prominent in the years to come as it transcends frontiers. Put simply, digital trade is defined as commerce enabled by electronic means—typically by telecommunications and information and communications technology (ICT) companies —covering trade of goods, services, intellectual property, and even data. Digital trade affects all aspects of the global economy, which will undergo significant developments as societies integrate artificial intelligence (AI) into their planning.

According to Dr. Neha Mishra, an Assistant Professor at the Geneva Graduate Institute who has written extensively about digital trade regulation and e-commerce, particularly in the context of international trade law and policy, there are significant challenges for nations ahead as AI revolutionizes the way the world conducts business. Additionally, the question of how countries require data to be stored within their borders requires significant attention, making the robustness of cybersecurity infrastructure a necessity in our increasingly digital world.

Dr. Mishra’s responses offer valuable insight for foreign journalists curious about the intersection between international law and digital trade policy. It is evident the world is not entirely prepared for what’s to come because “there is no clear estimate of how the digital economy is growing or the magnitude of policy risks in the digital space”. The manner in which we address transnational policy challenges, and build global and domestic frameworks in the digital space will pose an enormous test for the global economy and its resilience.

You have written about artificial intelligence as digital trade's latest frontier. Are trade regulations and AI more or less intertwined and if so how?

In my recent article with Hinrich Foundation, I have highlighted various aspects at the interface of AI and trade law. Some of the key contentious areas include the divergence of services and goods disciplines in international trade law; classifications of AI services in the services classification schedule; trade secret protection under TRIPS and other recent FTAs; restrictions on forced disclosure of source code and algorithms; applications of exceptions in trade agreements to protect policy space for domestic regulation. Besides, some recent digital economy agreements also highlight the importance of international regulatory cooperation on AI and emerging digital technologies.

Expectedly, most international trade agreements were not conceived to address AI-driven trade. Therefore, the main question that often arises in applying trade disciplines in the AI context is whether existing trade rules interface with AI regulation. The recent DEAs containing provisions on AI ethics, regulatory cooperation etc. are still best efforts provisions and do not create any legally binding disciplines. The provisions on source code disclosure in several recent FTAs provide an important test case for the interface of AI and trade law.

How has AI "failed to deliver the best results" for companies and society at large?

This is a much broader question and the characterization of the debate is often contextual. For instance, AI has generated many benefits for different sections of society, in research, medicine, supply chain management, and so on. We cannot discount these benefits. At the same time, there are genuine problems around regulating the use of AI technologies (e.g. privacy concerns or algorithmic bias). Civil society has called out regulators in various jurisdictions for the indiscriminate use of AI and for violating basic human rights. Similarly, various examples exist of discriminatory use of AI by private sector. At a more ground level, there could be questions around whether certain companies have the resources or competence to integrate AI into their functioning and to what end. It all depends on whose perspective you are considering while examining the issue.

What are data localization laws and how do they harm trade growth in a digital world? In what ways has the response from governments and technology companies failed to account for this harm?

Data localization laws can be broadly understood as laws that require data to be stored within the borders of the country. Sometimes this can extend to processing requirements (data should be processed locally) or routing requirements (to route data locally - no transit abroad). Several experts have pointed out the economic harms of data localization and its technological inefficiency. There are also inherent security risks of data localization, for instance, data stored in a country with a weak cybersecurity environment can be much less secure. Further, there remain concerns regarding human rights implications, i.e. when data localization facilitates surveillance. Governments sometimes impose data localization laws to facilitate enforcement e.g. taking action against a company that has breached local laws is much easier if the company has a domestic presence.

Some governments also consider national security concerns and apply data localization to specific categories of data. The current trend seems to be towards adopting data localization laws to find a solution to multiple problems of digital trust: privacy, cybersecurity, and unfair competition in the digital marketplace. A more careful cost-benefit analysis is necessary in this regard.

Why would it be more beneficial for countries to integrate their digital economies into the global supply chain? What are the drawbacks to pursuing an independent domestic digital economy?

This is a very fundamental question on whether one sees free trade as beneficial or not. And it would be hard to answer it in the abstract. Generally speaking, for several small developing countries developing an independent domestic digital economy may be tough for practical reasons e.g. small size of the market, available resources, and infrastructure, regulatory gaps, etc. Further, although there is some skepticism around how much SMEs in small developing countries can integrate into the global economy, the economic evidence has been mixed regarding the benefits of the global digital economy for small companies.

One must also consider the costs for consumers within the country if countries start developing completely autarchic digital economies. For instance, it could affect the quality or cost of services. Finally, the supply chain in the digital sector has been very global in the past, although recently countries seem to be pushing in the other direction, e.g. through subsidies to semiconductors and other industries, friend shoring, etc. It is unclear what the long-term impact could be, especially for the developing world on the brink of a digital transformation.

How have organizations like the WTO been slow to respond to the integration of digital commerce into trading agreements?

This is a huge question and hard to answer in a few lines. One of the key problems is applying WTO rules designed for a different era to digital trade today. This opens room for debate and legal uncertainty. This is aggravated by the fact that disciplines in some WTO agreements are incomplete (e.g. GATS) and were meant to be detailed later on, which never happened. The geopolitical shift (US-China tech war, for instance) also affects the ability of trade bodies to respond to digital trade issues. One can see this divergence in Joint Initiative on Ecommerce discussions on some critical issues. Yet, some countries remain optimistic that the Joint Initiative may be an answer to WTO’s weakening role in digital trade.

Why has international law lagged in its response to digital trade regulation and e-commerce?

In simple words, it is the eternal cat and mouse game between technology and digital regulation (whether it be domestic or international law). At the international level, the complexity is magnified due to the difficulty of getting consensus among countries with diverse regulatory approaches and ideological stances on various aspects of internet and digital regulation.

What would you say are the biggest challenges facing data privacy and cybersecurity in the coming years?

It would be hard for me to single out challenges. Both these issues are seen differently in different parts of the world (in other words, there is no universal understanding of privacy or cybersecurity). Thus, we see that both these issues are addressed through diverse regulatory approaches across countries and are constantly under challenge by new technological developments. I think at the foundation, this is a problem of digital trust. The biggest challenge for any global forum is to generate and then sustain trust among countries that may not always be like-minded.


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Neha Mishra

Neha Mishra is an Assistant Professor at Geneva Graduate Institute. She was previously a lecturer at the Australian National University College of Law and a postdoctoral fellow at the Centre for International Law, National University of Singapore.

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