I did a couple posts recently on proposed exceptions language in the WTO e-commerce negotiations. My point there was to raise the issue of exceptions that are written in a way that could interfere with non-discriminatory measures that are designed to achieve legitimate public policies. "Necessary," in my view, may be applied too strictly, and we should draft the exceptions with more flexibility in mind.
But before you get to the exceptions, the obligations themselves can also be written in a way that interferes with non-discriminatory public policy measures. One way they can do this is by using the wrong approach to determining whether the measure at issue has a detrimental impact -- or disparate impact or discriminatory effect, if you prefer -- on foreign products. Looking at a few examples from completed digital trade chapters/agreements and the WTO e-commerce consolidated text, it appears that a long-standing problem from GATT/WTO non-discrimination jurisprudence has popped up: When you are determining whether discrimination exists, should you consider the treatment of an individual foreign product in comparison with an individual like domestic product, or should you compare the treatment of the entire group of imported products to the entire group of like domestic products?
To illustrate this in the context of digital trade, imagine a hypothetical world where there are ten search engines, with five Canadian ones and five American ones. Canada then passes a law which adversely affects -- in a de facto way, without targeting nationality explicitly -- one of the American search engines and one of the Canadian search engines. Common sense would tell you that this law does not have a detrimental impact on the basis of nationality, as the number of adversely affected products is equal between the two countries. For each country, four products are not adversely affected, while one is adversely affected. However, there is a strain of thinking that says the adverse treatment of any individual foreign product under a measure is enough to count as discrimination. I think this strain of thinking is wrong (for the reasons set out here), but it's still out there and won't seem to completely disappear. No matter how many times it is rejected by panels and the Appellate Body, governments still raise it in their arguments now and then. And as we will see below, it looks like it may have been given new life in the context of digital trade.
Let's start off by looking at a couple recent agreements where the U.S. has been the driving force. First, here is the non-discrimination language in the U.S.-Japan Digital Trade Agreement:
Article 8
Non-Discriminatory Treatment of Digital Products
1. Neither Party shall accord less favorable treatment to a digital product created, produced, published, contracted for, commissioned, or first made available on commercial terms in the territory of the other Party, or to a digital product of which the author, performer, producer, developer, or owner is a person of the other Party, than it accords to other like digital products.
Similar language exists in the USMCA digital trade chapter:
Article 19.4: Non-Discriminatory Treatment of Digital Products
1. No Party shall accord less favorable treatment to a digital product created, produced, published, contracted for, commissioned, or first made available on commercial terms in the territory of another Party, or to a digital product of which the author, performer, producer, developer, or owner is a person of another Party, than it accords to other like digital products.
What these provisions have in common is a reference to "a digital product ... in the territory of [the other/another] Party." I don't know what the drafters had in mind, but the use of the singular "a digital product" here could be taken to mean that you don't need to look at the entire group of imported products. Rather, the treatment of any single imported product is enough to make a determination on whether there is a violation. Thus, even if, on the whole, the measures treat imported and like domestic products equally, a violation could be found based on the treatment of one particular imported product. Taking the hypothetical example from above, if the one adversely affected American search engine is treated worse than one individual Canadian search engine, a violation could be found. In other words, even if the measure has the same overall impact on the whole range of Canadian and American like products, a violation could be found by comparing individual American and Canadian products. And if you take this approach to its logical extreme, even if most Canadian products get the bad treatment, and most American products get the good treatment, a violation could be found as long as one individual American product gets worse treatment than one individual Canadian product. That, in my view, doesn't make much sense.
Now let's turn to some non-U.S. agreements. Here is the CPTPP:
Article 14.4: Non-Discriminatory Treatment of Digital Products
1. No Party shall accord less favourable treatment to digital products created, produced, published, contracted for, commissioned or first made available on commercial terms in the territory of another Party, or to digital products of which the author, performer, producer, developer or owner is a person of another Party, than it accords to other like digital products
And here's the language from the Digital Economic Partnership Agreement (DEPA):
Article 3.3: Non-Discriminatory Treatment of Digital Products
The Parties affirm their level of commitments relating to non-discriminatory treatment of digital products, in particular, but not exclusively:
1. No Party shall accord less favourable treatment to digital products created, produced, published, contracted for, commissioned or first made available on commercial terms in the territory of another Party, or to digital products of which the author, performer, producer, developer or owner is a person of another Party, than it accords to other like digital products.
For these two agreements, the text refers to "digital products," in the plural. Arguably, then, the non-discrimination standard under these agreements would require an examination of the treatment of the entire group of imported digital products as compared to the entire group of like domestic products. Thus, under this approach, the hypothetical Canadian law would clearly not constitute a violation.
Interestingly, the version of the TPP that the U.S. helped draft uses "digital products," which means the USMCA/US-Japan text appears to reflect a recent change in U.S. policy. And to further pinpoint that change, the original pre-legal scrub version of the USMCA released on September 30, 2018 also uses "digital products," but then in the scrubbed version that was signed on November 30, 2018, the language changes to "a digital product." How exactly did the USMCA legal scrub lead to the new language? Was someone scrubbing for clarity, or scrubbing for a change in the scope of the provision?
(Also worth noting is that the older KORUS FTA seems to offer a very different U.S. approach to this issue in its e-commerce chapter).
Any other bilateral and regional trade agreements to look at? Those are the main ones I found with provisions of this type, but let me know if I've missed any with a different approach. (The RCEP doesn't seem to have a non-discrimination provision in its digital trade chapter.)
Turning to the WTO, the non-discrimination provision of the leaked consolidated text looks like this:
B.1. Non-discrimination and liability
(1) Non-discriminatory treatment of digital products...
2. No [Party/Member] shall accord less favourable treatment to a digital product created, produced, published, contracted for, commissioned or first made available on commercial terms in the territory of another [Party/Member], or to a digital product of which the author, performer, producer, developer or owner is a person of another [Party/Member], than that it accords to other like digital products. [For greater certainty, to the extent that a digital product of a [non-Party/non-Member] is a "like digital product", it will qualify as an "other like digital product" for the purposes of this paragraph.]
Paragraph 2:
• Based on text proposals by JP, US and UA.
What we see here looks pretty similar to the U.S. agreements, which is not surprising given the proposals from which the language was apparently drawn.
As I've written recently, I support the efforts to craft digital trade rules, although I'm skeptical they will have much impact any time soon. But as I suggested in my posts on the exceptions in the WTO E-commerce talks, we should think carefully about the impact of the specific language being put forward. To some extent, you can correct for problematic language later through the jurisprudence, but it would be better to get it right in the original drafting. Digital trade is an area where there could be a big impact on domestic regulation. For those worried about policy space and regulatory autonomy, problems can be avoided if we deal with potential concerns now in the context of core provisions such as those on non-discrimination and exceptions. With non-discrimination, the focus on individual products is a real problem because it means that discrimination may be found to exist in circumstances where common sense would tell you that the measure has been equally applied. That would constitute excessive interference in domestic policy-making, and lead to the same complaints about inappropriate limits on policy space that we have seen over the years in the trade in goods and trade in services contexts.
