The Internet, Cross-Border Data Flows and International Trade

Joshua P. Meltzer

The Internet is becoming a key platform for commerce that is increasingly happening between buyers and sellers located in different countries, thereby driving international trade. Additionally, as the Internet enables cross-border data flows this is also underpinning global economic integration and international trade. For instance, cross-border data flows are now intrinsic to commerce, from Internet-based communications like email and platforms such as eBay and Facebook that bring buyers and sellers together, from the financial transaction to purchase the product in other countries to the downloading of the goods and services.

Despite the growing significance of the Internet for international trade, governments are restricting the Internet in ways that reduce the ability of businesses and entrepreneurs to use the Internet as a place for international commerce and limits the access of consumers to goods and services. Some of these restrictions are being used to achieve legitimate goals such as preventing cybercrime or restricting access to morally offensive content, but may be applied more broadly than necessary to achieve those objectives. In other cases, Internet restrictions are targeting foreign businesses and the sale of goods and services online in order to benefit local ones. Such Internet restrictions are discriminatory and harm international trade.

In this paper I discuss the importance of the Internet and cross-border data flows for international trade. I propose steps that governments should take to apply existing international trade rules and norms and identify where new trade rules are requires to further support the Internet and cross-border data flows as drivers of international commerce and trade.

Building on the international trade law developments I describe in the paper, the following outlines the key challenges that remain and proposes ways trade policy and law could address them:

  • Develop binding commitments with exceptions: trade rules should establish cross-border data flows as a mandatory legal norm while providing sufficient policy space for governments to restrict data flows where necessary to achieve other legitimate policy goals. Such restrictions should also be designed and applied in a non-discriminatory, least trade restrictive and transparent manner.
  • Intra-Country Data Flows: commitments on cross-border data flows should include a commitment to also not restrict intra-country data flows. There is no commercially sound reason for rules on cross-border data flows to not also apply to their movement within a country. And once data is allowed across-borders, many of the reasons for government restrictions on intra-country data flows diminish if not entirely disappear.
  • International standards: global industry standards and interoperability criteria will underpin growth in cross-border data flows, such as the ability of users to access and use digital content across devices. Governments should commit to developing international standards with the aim of underpinning technology development that is consistent with Internet operability.
  • Location of Data Centers: requiring data center to be located domestically undermines the cost-effectiveness of cloud-based computing services where so-called location independence is important. Under KORUS the parties have addressed this issue for the financial sector by agreeing to allow financial institutions to transfer data across their borders for data processing. Governments should commit to similar rules for all cloud-based computing services.
  • Rules on transparency: Internet restrictions on cross-border data flows are often implemented in an arbitrary and non-transparent manner. Some FTAs have sophisticated rules requiring transparency and due process, but this is yet the norm. Moreover, Internet restrictions on cross-border data flows raise specific issues that require additional commitments in the following areas:
    • A designated contact point in the government agency responsible for restrictions on cross-border information flows.
    • Provision of advanced notice of any proposed measures affecting cross-border data flows, including the reasons for the proposed restriction.
    • Opportunities for interested parties such as businesses or individuals to present their views on the proposed restriction and a requirement for written and reasoned responses.
    • Opportunities for administrative review of Internet restrictions.
  • Develop Norms on Cross-Border Data Flow: governments should also prioritize developing norms of conduct amongst governments with respect to the Internet. In addition to the role of binding trade rules here, governments should develop principles governing access to and use of the Internet. For example, the US and Japan have agreed to Internet principles that emphasize the preservation of an open and interoperable Internet and a balanced approach to issues such as privacy and intellectual property rights so as not to impede the cross-border flow of information.
  • Address the digital divide: For businesses in developing countries, non-tariff costs such as inadequate logistics and transportation services have a significant impact on the costs of exporting. As noted, increasing Internet access in developing countries can reduce costs of exporting by up to 65 percent. Assisting developing countries better integrate into the global trading system should therefore include increasing Internet access and the provision of cheaper mobile devices to access the Internet.