Trade Agreements to Promote Electronic Commerce III

A couple of times in the past three years, we have looked at the use of free trade agreements to promote the reform or harmonization of the law on electronic commerce. The first article considered the general question of how these agreements are negotiated and suggested that they may not be the best vehicle for reforming technical commercial law. The people at the negotiating meetings tend to be economists, not lawyers, and negotiations may involve trading off provisions that are not readily severable without damage to the principles of the remaining law. A stronger role is needed for commercial and technology law experts to ensure workable law reform.

The second article pursued the discussion through more recent agreements (CPATPP, USMCA and ABA model provisions).

There are, not surprisingly, arguments on both sides of the question whether this is a good use of trade agreements.

Trade obligations, while sometimes precise in their focus, seldom get to the stage of draft statutory provisions. That would be difficult, given the different legal and cultural traditions of the parties. However, that often means that the obligations are at such a high level as to be unhelpful in resolving the practical issues that arise in legislating

Consider the example of an ASEAN/Australian/NewZealand agreement of 2010, described in an analysis of such agreements published in 2017 by the Asian Development Bank. Chapter 10 of that agreement deals with electronic commerce. The provisions are straightforward and unobjectionable, but on the difficult question of harmonizing authentication systems, on which mutual recognition of electronic documents may depend, the Agreement says this:

  1. Each Party shall maintain, or adopt as soon as practicable, measures based on international norms for electronic authentication that:

a. permit participants in electronic transactions to determine the appropriate authentication technologies and implementation models for their electronic transactions;

b. do not limit the recognition of authentication technologies and implementation models; and

c. permit participants in electronic transactions to have the opportunity to prove that their electronic transactions comply with the Party’s domestic laws and regulations.

  1. The Parties shall, where possible, endeavour to work towards the mutual recognition of digital certificates and electronic signatures that are issued or recognised by governments based on internationally accepted standards.
  2. The Parties shall encourage the interoperability of digital certificates used by business.

“Endeavour to work towards…” “shall encourage the interoperability of certificates” – these provisions have no substance. They are aspirational, they state what the parties hope some day, somehow, to achieve. They are without doubt worthwhile goals, but the provisions do not help arrive at them.

Many of the e-commerce provisions of free trade agreements are similar, notably on the hard questions around authentication. So is it really worth the effort to include such provisions at all?

The other side of the question was supported by the Kommerskollegium, the National Board of Trade of Sweden, in 2012. It published a short book (27 pages) setting out practical difficulties its members experienced in electronic commerce.

The table of contents alone gives a dramatic idea of the challenges faced by e-business people, to say nothing of their lawyers and governments:

Barriers relating to Customs

    • Customs procedures are problematic when shipping large numbers of small consignments
    • Customs duties on returned goods
    • Corruption renders e-commerce difficult

Barriers relating to consumer and sales law, and consumer information

    • Differences in the right to cancel and return a purchase creates costs and administrative difficulties
    • Rules concerning consumer information and website content
    • Product labelling and requirements for registration with the authorities are burdensome

Payments and taxes

    • VAT regulations can be unclear or differ between digital and physical sales
    • Differences in the requirements for payment solutions create costs and administrative problems
    • Requirements to use handwritten contracts make the use of online solutions impossible
    • Double taxation

Intellectual property barriers

    • Businesses subject to intellectual property infringements
    • Rules on third-party liability differ and are sometimes unclear
    • Difficulties securing the rights to copyright-protected material
    • Lack of searchable information about intellectual property rights
    • Domain grabbing is becoming more and more common

Cross-border data transfer

State controls

    • Demand for local establishment in order to register local top-level domains
    • Internet censorship and governmental requirements for encryption solutions

Other barriers

    • Roaming charges raise the cost of e-commerce via mobile devices
    • Fraud
    • Impossible to obtain insurance
    • Product certification
    • Lack of standards impedes e-commerce
    • Rules of origin create the need for local warehouses
    • Rules affecting the launch of audio-visual content (“windowing”) hinder the development of e-commerce
    • Subsidies abroad distort international competition
    • “Transport roaming” makes transport more expensive

Unfortunately, the book does not set out many methods to remove these barriers. (It does admit that not all of them are legal issues, and some result from a misunderstanding of the actual law.)

The Board of Trade argued strongly (at page 26) that one way to resolve many of these issues was through trade agreements:

in a policy context, it is becoming less and less appropriate to treat e-commerce as a separate issue. If cross-border e-commerce is to reach its full potential, e-commerce issues need to become an integral part of the trade policy agenda and should not be managed separately, as is currently the case, for example, in free trade negotiations. Issues that have not previously been addressed by trade policy, but that are of great significance to businesses’ opportunities to trade internationally, such as cross-border data transfer and roaming charges, should be integrated into the trade policy agenda. If this does not happen, policies risk becoming outdated and out of tune with the reality of business in the digital economy.

The content of trade agreements since this book was published in 2012 suggests that the reasoning it reports has been persuasive. It has, as noted above, become the norm for such agreements to deal with e-commerce rules.

It may also be, however, that different elements of e-commerce legislation are better subjected to different processes of development. Some are more susceptible than others to being dealt with by closed-door negotiations and political trade-offs. It is the more political subjects that engage technical law less, that get dealt with specifically in trade agreements: data localization (requirements to establish computing facilities in every participating country), bans on specific customs charges on electronic equipment or on mandatory disclosure of source codes – where protecting national economic (such as tax limits or intellectual property) or social interests (such as privacy) outweigh technical legal concerns.

The validity of this point is arguably shown by the fact that the trade agreement provisions on the technical details of the commercial law on e-commerce have tended to defer to the products of the experts. Thus, the CPATPP says that members of that agreement are to enact the Model Law on Electronic Commerce or the UN Electronic Communications Convention, rather than opening those texts up for “improvement.” The US-Mexico-Canada Agreement does the same, though only for the Model Law, not the Convention.

Those of us who observe the law reform and the trade law processes should try to impress on the participants in those processes that their jobs do not necessarily overlap, and while they should talk to each other, they should perhaps also recognize the value of what the others do.


Addendum on Transparency

An important point about electronic commerce, both domestic and international, that cannot go entirely without saying is the need for transparency and honesty in the interactions among all the participants in the trading system. (The Swedish book just mentioned is very critical of fraud and bribery.) E-commerce in general depends on the presence of trust at many levels.

A number of opportunities present themselves in the trading process for money to change hands on a personal basis to help facilitate the movement of goods or to overcome technical or procedural barriers, or in the most serious cases, to make things happen that the law prohibits.

Among the benefits – economic and legal – to the spread of paperless trade are that it reduces the number of person-to-person dealings and creates an auditable record of transactions from one end of the commercial spectrum to the other. This is said to “promote regulatory compliance”, because steps are not so readily overlooked or left incomplete. It also leaves fewer parts of the flow of goods and money unobservable and thus subject to illicit activity. For these reasons the implementation of paperless processes in some countries is sometimes resisted or left incomplete: people have got used to their opportunities to line their pockets.

On the other hand, the Swedish book mentioned a moment ago complains that going electronic often increases the risk of fraud (page 7). One cannot please everybody.

An increasing number of businesses deemed e-commerce to be particularly sensitive to corruption, as it is often many small consignments that are shipped, which are ‘easier to misplace’, and e-traders often do not have the staff on site to be able to follow up any problems. The fact that the interpretation of what can be classified as corruption differs between countries is also a problem.

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