YJIL Symposium – Response to Professor Chander

Mark Wu

First, thanks to the Yale Journal of International Law (YJIL) for the opportunity to comment on Professor Anupam Chander’s most recent article, Trade 2.0, in the latest issue of YJIL, and to Opinio Juris for hosting this symposium.

Chander highlights an important transformation in global trade. For centuries, the desire of a producer to expand overseas required a substantial commitment of capital and resources. The information revolution of the past decades has shrunk these costs drastically. This is especially true of the growing trade in services. While capital barriers have shrunk dramatically, however, legal and regulatory barriers have not. Some of these barriers are imposed by companies hosting these services; others are imposed by governments in the jurisdiction where the consumers of these services reside. Trade 2.0 raises provocative questions about whether the current international legal infrastructure is positioned to address these barriers. No doubt the World Trade Organization (WTO) has been “behind the curve” in dismantling protectionist barriers to the growing internet-based services trade. While the WTO has set up a work programme, little has been achieved.

Trade 2.0 identifies a series of principles to govern this emerging trade. I am sympathetic to the ideals which Chander seeks to foster — freeing and expanding trade, respecting local differences in norms, promoting harmonization, and preventing a race to the oppressive bottom. The questions that I raise below, therefore, exhibit my pessimism over whether these ideals can be readily balanced through a multilateral framework. The realist in me is doubtful that this important project of creating a global governance architecture for the next phase of international trade will be as successful as its predecessor (i.e., that for conventional trade in goods). The idealist in me hopes to be persuaded otherwise.

Why do I think this project will be so difficult? The obvious answer is the lack of political leadership. Differences persist between the U.S. and E.U., and neither of these two major trading powers has been willing to exert transformative leadership on this issue. (For an account of how U.S. and E.U. internal constraints and differences have prevented leadership from emerging in GATS negotiations on digital services, see Sacha Wunsch-Vincent’s book The WTO, the Internet, and Trade in Digital Prodcuts). Yet, increased political leadership will be required if a principled, coherent framework for cyber-trade is to evolve. The Appellate Body alone cannot craft such a framework through jurisprudential decisions. Beyond the problem of the political leadership void, let me offer four others:

First, Article XIV of the General Agreement on Trade in Services (GATS) poses an important hurdle to the provision of online analogues to offline services, even if the principle of technological neutrality were fully implemented. Article XIV permits WTO members to deviate from its GATS obligations for public morality, public order, health, deceptive or fraudulent practices, data privacy and confidentiality, or safety purposes. In United States – Gambling, the WTO clarified that an Article XIV exception cannot be a “disguised restriction” and may not be enacted in the face of a “reasonably available alternative.” Despite this ruling, many regulations that favor domestic off-line service providers can continue to be justified through Article XIV – especially where licensing is concerned. Licensing can be justified as necessary for health purposes (e.g., medical services), safety purposes (e.g., engineering services) or public order purposes (e.g., legal services). And licensing does not violate technological neutrality principles – as the restriction applies equally to online and offline providers. True, harmonization and dematerialization may help, but past experience in the offline realm has shown that cross-border harmonization of licensing requirements is difficult. Even in the United States, states cannot agree on a harmonized set of license requirements for services as diverse as law, medicine, nursing, and architecture.

So long as licensing and other requirements can be justified as being “necessary,” GATS Article XIV is likely to allow states to enact licensing regulations favoring domestic offline service providers at the expense of foreign online service providers. I find it difficult to believe that a WTO panel will one day rule that an Article XIV-based licensing requirement is illegal because an Indian (or even a Canadian or British) medical license is a “reasonable alternative” to an American (or even a Chinese) license. Even if this may be true, a panel will be reluctant to state so; such a ruling is likely to trigger an anti-WTO backlash that the WTO is seeking to usurp national standards and weaken consumer protection. While some may praise Article XIV as an important safeguard for helping states assert local norms and shield against a race to the bottom, we should recognize that it also poses obstacles in the way of a truly globalized market for online services.

Second, the process of implementing principles for “freeing trade” will itself cause a dynamic feedback effect on the scope of services governed under the auspices of the GATS. WTO members’ services schedules were not negotiated necessarily with the expectation that the principles of technological neutrality and dematerialization will be applied. If these principles are enacted, this action may trigger two potential responses. First, some WTO members may exercise their GATS Article XXI right to opt-out of past commitments. Second, even if they do not, WTO members may slow down the pace of services liberalization in light of the increased cost. Neither development is positive, even if the principles triggering the responses are. I am curious to hear more from Chander about the extent to which he expects this negative feedback effect to result from the adoption of his principles for “freeing trade.” If the effect is expected to be minimal, why is this the case? If not, then is a “stronger” set of free trade principles applied to a narrower scope of services better than a “weaker” set of principles applied to a broader scope? Finally, shouldn’t we be advocating for a switch from a “positives” list to a “negatives” list approach to help guard against such a dynamic feedback effect?

Third, developing countries may present an additional barrier to the adoption of these principles. The Doha Round is still (at least in name) a development-oriented round; if developing countries are unhappy with the eventual package, they will be reluctant to endorse any principles allowing for greater liberalization of services. To be clear, I am not speaking of India, the Philippines, Estonia, or even Ghana — countries which because of their lower labor costs, language skills, and/or pockets of human capital are well-positioned to benefit from the online services revolution. Nor am I speaking of small states, such as Antigua or Barbados, that can attempt to carve out a niche. Instead, I am asking about states such as Togo, Pakistan, Haiti, and Burkina Faso – with a relatively weak services infrastructure. Glocalization is not particularly reassuring for these states if the most likely outcome of increased services liberalization is domination of service sectors by foreign providers. Instead, many might prefer to delay any further progress on GATS principles. What’s in it for them? Or more precisely, what’s in it for their governments? How do we persuade them to buy into these principles? Or must we be prepared to give greater concessions in non-services negotiations (e.g., agriculture, subsidies) in exchange for their support? If the latter is the case, then again, I question whether the leading trade powers have the political will to craft such concessions, even if the overall impact from this trade-off benefits them in the long-run.

Finally, I sound a word of caution about our ability to guard against a race to the bottom. The promotion of a corporate consciousness of “doing no evil” is worthy, and mass mobilization of netizens can be a powerful force in the digital age. But there are limits. We cannot expect that such mobilization will always occur or that corporations will necessarily have an incentive to self-monitor. Nor is what is “evil” always clear. Is providing online services to enable security monitoring in Chinese cities “evil” because it assists a government that was not democratically chosen? Or might it be “good” (or “neutral”) if it leads to a lowering of public crime? What if such monitoring enjoys support in public opinion polls? Finally, while the U.S. and E.U. are right to test the limits of GATS obligations through WTO litigation, we should not expect such litigation will lead to a weakening of state-imposed controls in China or elsewhere. If faced with a negative ruling, China may well choose to comply by modifying its GATS obligations through Article XXI (and paying the requisite compensation) rather than dismantle such controls, given the importance of the controls to the state. In other words, preventing a race to the bottom may well be the hardest objective of those that Chander’s principles seek to balance.

Nevertheless, while the obstacles may be significant, the project itself is worthwhile. Trade 2.0 represents an important addition to a conversation that we should be having about what new principles we want to incorporate to the global regime governing trade as the nature of that trade changes. Kudos to Chander for getting the conversation started. We may not all necessarily agree with the five principles that he espouses in his article. But let’s hope that more policymakers, academics, corporations, and most importantly, the affected individual consumers and future service providers, join in this conversation and begin to offer additional alternatives of their own.