After having negotiated international trade agreements over the past decade that have facilitated Big Tech to acquire almost monopoly-like grip on various segments of digital markets, the US has decided to make amends. In a significant move, which has sent shock-waves among trade officials and the digital industry all over the world, the US, on October 26, withdrew some of its long-standing proposals on certain digital issues at the negotiations involving some WTO members. What is the rationale behind this move, what factors made this possible and what could be its implications?

It is no secret that over the past decade, the US Big Tech has successfully lobbied its government to negotiate key provisions in international trade agreements that have facilitated the Big Tech to add to its already significant market power and have prevented governments from effectively regulating the digital sector. The now defunct Trans-Pacific Partnership Agreement and US-Mexico- Canada contain many such provisions.

In parallel, the US has been at the forefront in initiating and supporting trade negotiation among almost 90 members of the WTO for a comprehensive agreement on various aspects of digital trade and related activities. Commonly referred to as the Joint Statement Initiative (JSI) on digital issues, these negotiations are extremely controversial as these are being undertaken without the consent of the entire WTO membership.

By withdrawing its support from proposals on cross-border data flows, server localisation prohibition and source code disclosure, the US has clearly signalled that it requires policy space on these issues for regulating its Big Tech. The announcement at the JSI negotiations comes in the wake of alarm raised by some arms of the US government, including its Federal Trade Commission, and some lawmakers led by Senator Elizabeth Warren, on how trade rules could undermine the ability of the US government to discipline the alleged anti-competitive behaviour of its Big Tech.

Launched at the Buenos Aires Ministerial Conference of the WTO in December 2017, the JSI negotiations on digital issues now has the participation of almost 90 countries. Despite coming under intense pressure, many developing countries, including India and South Africa, have stayed out of these negotiations. If these two countries had joined these negotiations, then it is quite likely that the agreement on digital issues would have been finalised by now. This would have foreclosed the opportunity for the US government to take the recent strong action to prevent its Big Tech from using trade agreements to garner more market power.

Why have India, South Africa and many developing countries chosen to stay away from the JSI negotiations? Thanks to the untiring efforts of about a dozen individuals, these countries quickly realised the deep adverse implications of the complex provisions on digital issues in trade agreements, particularly from the perspective of the hands of the governments getting tied and not being able to effectively regulate big players in the digital arena. A special mention needs to be made of the role played by two Geneva-based inter-governmental organisations — the South Centre and the UNCTAD — in creating awareness about the consequences of the rules on digital trade issues.

Intense interaction

From January 2016 onwards, the South Centre provided a platform for intense interaction between experts and many developing countries. These interactions helped these countries in acquiring an understanding of the provisions on digital issues and their developmental implication. Turning to the stellar role played by UNCTAD, its Trade and Development Report of 2018 explained how the market dynamics in the digital arena diminish competition from small firms through acquisitions or exclusionary practices, and promote the ability of first-movers to grow and assimilate further market power.

Titled ‘Power, platforms and free trade delusion’, the UNCTAD report accurately diagnosed that the existing anti-trust laws and policies in many countries may be unsuited to the digital economy and recommended tighter regulation of digital platforms. This report soon became the ‘go to’ document for many government officials who wanted to understand the complexities of the digital economy and its interface with trade rules. At a time when many inter-governmental organisations were bending backwards and undertaking research that would have promoted the agenda of the Big Tech, we should be grateful to the authors of this UNCTAD report for being objective, bold and spot-on in their analysis.

What lies ahead? The US action could have multiple consequences. First, there is likely to be a domestic backlash within the US from the Big Tech, which would seek the reversal of the recent decision. Second, the reset in the US approach to some of the key digital issues is likely to compel many countries to rethink their own stance on these issues.

Third, Big Tech may seek to influence many developing countries to quickly finalise their FTAs with provisions on digital trade, before these countries emulate the US example. India needs to be wary of such attempts, particularly in the context of its ongoing FTA negotiations with the UK and the EU. It must not take commitments that would prevent the country from effectively regulating the Big Tech.

In conclusion, we need to appreciate the recent action of the US, which has accorded primacy to the larger public good of regulating Big Tech and not merely pushing the narrow commercial interests of a handful of its powerful economic operators. This episode also underscores the reality that sincere and persistent efforts of a handful of right-minded persons can go a long way in fundamentally altering the wrong direction in trade negotiations.

The writer is an expert on WTO and international trade. Views are personal