Vrijschrift response to EU trade consultation

Question 10: How can digital trade rules benefit EU businesses, including SMEs? How could the digital transition, within the EU but also in developing country trade partners, be supported by trade policy, in particular when it comes to key digital technologies and major developments (e.g. block chain, artificial intelligence, big data flows)?

Answer:

Algorithmic transparency

EU trade agreements should not undermine algorithmic transparency.

In order to have regulatory supervision, we need access to source code and algorithms. The Volkswagen emissions scandal has shown that devices can be programmed to be misleading. In addition, algorithms in decision making software can be biased. And Facebook’s role in elections and referendums shows that the use of personal data is not only a civil rights issue, but may compromise the integrity of our institutions. Besides regulatory supervision, researchers and civil society organisations may have a role in auditing software and automated decision-making systems for instance regarding discrimination.

Politicians call for algorithmic transparency and software audits. However, the EU-Japan trade agreement’s software code clause limits the possibilities to audit software and algorithms. Under the agreement’s article 8.73 the EU and Japan may not require the transfer of, or access to, source code of software owned by a person of the other Party. The article provides some exceptions, but they have a limited scope or are limited by strict conditions. The clause is in conflict with important policy objectives.

The EU should not allow software code clauses in trade agreements.

Question 11: What are the biggest barriers and opportunities for European businesses engaging in digital trade in third countries or for consumers when engaging in e-commerce? How important are the international transfers of data for EU business activity?

Answer:

Cross-border flows of data

Consumer trust is essential for the development of digital trade. Cross-border flows of data should not interfere with data protection and consumer trust.

Recent EU trade agreements are accompanied by a simultaneous finding of an adequate level of protection of personal data by both sides. Allowing cross-border data flows through an adequacy decision is, in principle, the correct way to approach this issue. However, some issues remain. First, the formulation “simultaneous finding of an adequate level” suggests a negotiated compromise in which fundamental rights may be traded against economic interests. It also remains to be seen whether the European Commission would really revoke the adequacy status if needed.

Second, EU trade agreements contain implicit and explicit commitments regarding cross-border flows of data. If the EU would not grant adequacy status, or withdraw it, these commitments would still stand. These commitments are accompanied by insufficient safeguards. ¹

The continued use of weak data protection safeguards is all the more disappointing as two years ago, in January 2018, the European Commission adopted a proposal for stronger safeguards to be used in trade agreements. Consumer and digital rights organisations supported these safeguards in principle. The Commission, however, never applied them. In order to properly protect the fundamental right to data protection in the context of trade agreements, the EU Commission should adopt the proposed better safeguards and actually use them.

Avoid overbroad formulations

As an example of an overbroad formulation, EU-Japan FTA article 8.70.4 reads:

“This Section applies to measures by a Party affecting trade by electronic means.”

The formulation includes any measure that affects trade by electronic means. It is extremely broad. This (new) formulation (not found in earlier EU-Canada trade agreement CETA) should be avoided as it may undermine important regulations.

Technological neutrality

In EU-Japan FTA article 8.70.3 the parties recognise the importance of the principle of technological neutrality in electronic commerce. While technological neutrality may be an important principle in lawmaking, this formulation in an FTA may result in commitments in older WTO treaties – such as the General Agreement on Trade in Services (GATS), with weak safeguards, written for just some limited services – to also cover new, more invasive services. For instance, a country may have committed hotel or tourism services to fall under the GATS. By committing to the technological neutrality principle, the country would also commit new versions of hotel or tourism services to fall under the GATS, like Airbnb, while the GATS’s (old) rules do not leave sufficient policy space to properly regulate these new more invasive services. ² This may have unforeseen consequences such as undermining domestic regulatory power. The earlier EU-Canada trade agreement CETA does not contain this formulation.

A lock in of a regulatory void

Jane Kelsey argues that trade agreements may cement the oligopoly that entities like Google, Amazon, Facebook and Apple (GAFA) have established in the absence of domestic regulation. ³ These companies seek, Kelsey argues, to lock in the regulatory void through binding international rules that prevent governments from regulating their operations, as the risks become more apparent.

Kelsey notes various issues: predatory practices to drive competitors out of business; lack of onshore presence for consumer complaints; regulatory evasion by defining itself as a computer rather than as more regulated service; tax avoidance; anti-competitive network effects; dynamic pricing depending on users’ profiles; gender, race, nationality and class profiling when displaying commercial, advertising and news information; manipulation of political and social views, for instance the Cambridge Analytica scandal; purportedly self-employed workers who are denied the protections of domestic labour laws; and more.

Societies have to avoid a lock in of a regulatory void.

Implications for developing countries

In February 2018, Dan Ciuriak (CIGI) argued that data is not treaty-ready and drew the conclusion that Canada, which has much at stake in claiming a role in the data-driven economy, should be cautious about entering into international commitments, the implications of which are as yet unclear.

This conclusion may be all the more true for developing countries. The EU should assess the consequences for developing countries.

As an example, the EU commission wants to tackle “protectionist practices” in third countries, an issue also known as banning localisation.

A ban on localisation may prevent developing countries from building up their own digital companies. A ban could “kick away the ladder”. Companies from developed countries would not only extract oil and gold from developing countries, but also data, and add value and pay taxes elsewhere (in so far taxes are paid at all). As exploited countries may hardly be able to protect democracy and fundamental rights, this is also a democracy and fundamental rights issue.

The EU could consider to add an exception for development to a ban on localisation.

Question 13: What other important topics not covered by the questions above should the Trade Policy Review address?

Answer:

Investment court, ISDS

A multilateral investment court would strengthen investments vis-à-vis democracy and fundamental rights. This undermines our values, ability to reform, and ability to respond to crises, including climate change.

We need a fundamentally more resilient society, with more agency. We have to rethink international rules that limit policy space, and not ratify trade agreements, like CETA, that do. Investor-to-state dispute settlement (ISDS) has to be removed. ⁴

Copyright and patents

In its trade policy, the EU must appreciate the importance of the limitations on and exceptions to intellectual property rights, and the importance of the public domain, and avoid disproportionately strong rights and enforcement. The EU should not export the highly controversial recent copyright reform in trade agreements. ⁵