A Sleeping Giant: The Scope and Implications of New Zealand’s Obligations on Electronic Commerce and Digital Services

Digital technologies are transforming the world around us at a breathtaking pace, offering huge advantages to first movers and posing massive challenges for regulators and for countries seeking to catch up. That is why moves to constrain governments’ regulatory space through e-commerce or digital trade chapters of free trade agreements (FTAs), and now at the World Trade Organization (WTO), are becoming so controversial.

Electronic commerce, or digital trade, is the newest and most far-reaching of the 21st century ‘new issues’ in international trade negotiations. The ‘disciplines’ being developed extend far beyond any legitimate notions of trade. They seek to impose global rules on governance of the digital domain – perhaps the most complex, multi-dimensional and hence controversial subject confronting states and societies this century, alongside climate change.

Over the past decade, US FTAs have gradually expanded the definition and the rules on e-commerce, culminating in Chapter 14: Electronic Commerce of the Trans-Pacific Partnership Agreement (TPPA), which remained unchanged in the so-called Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) or TPPA-11. That chapter imposed unprecedented disciplines on broad matters of internet governance, secrecy of source codes and algorithms, offshore transfer and processing of data, spam, e-signatures for transactions, net neutrality and access to the internet, and public telecommunications networks. It was complemented by expansive chapters on trade in services, financial services and telecommunications.

The TPPA established a template for other negotiations, and informed the US proposal in July 2016 for e-commerce negotiations in the WTO. The US Mexico Canada FTA or NAFTA-II has further raised the bar – as with almost everything now emanating from the US on trade, with the end goal of countering China’s threat to US hegemony. This new digital trade regime is a sleeping giant, which will at worst prevent, and at least have a chilling effect on, moves by future governments to regulate the digital domain in the public interest.

These developments have major implications for New Zealand’s ability to regulate the digital domain. Prior to the TPPA, New Zealand had very few obligations on electronic commerce in its FTAs, and the rules that existed were genuinely trade-related and almost all unenforceable. Restrictions on the regulation of cross-border and technology-related services under the WTO’s General Agreement on Trade in Services (GATS) and cross-border services chapters in FTAs were more substantial, but little known. The TPPA’s e-commerce chapter escaped our scrutiny, because the text was never leaked. As a result, the New Zealand government has adopted far-reaching rules with no public debate and very limited understanding of its implications. Given this background, we should be deeply concerned that New Zealand has adopted the TPPA template as its standard position in future bilateral, regional and multilateral negotiations, and joined a breakaway group calling for negotiations in the WTO.

Free Trade Negotiations: Wrong Forum, Wrong Agenda, Wrong People

At a meta-level, the advent of this new ‘trade’ agenda has been heavily contested from within and outside the international trade regime and it is fast becoming up a major battleground in this turbulent arena. The resistance largely mirrors the objections that plunged the international investment regime into a crisis of legitimacy – development asymmetries, ideological closure, pro-corporate bias, industry capture, exclusion of affected interests from negotiations and disputes, and fetters on regulatory sovereignty, among others. But unlike foreign investment, the dynamic transformation of the digital domain is rapid, unpredictable and harmful in as-yet-unforeseen ways, making policy space all the more imperative. Compounding this, the main proponents of digital trade rules, especially the US, have blocked moves in other international institutions and multi-stakeholder forums to develop more balanced global rules or principles for regulating the Internet.

The push for ‘trade’ rules has divided developing countries and development-oriented international organisations. Proponents hail the potential for developing countries to leapfrog the development divide, conflating the potential benefits of digital technologies with the adoption of these proposed rules. Others warn that the proposed rules will entrench the power of first mover countries and companies, deepen the development asymmetry beyond the current digital divide and herald a new form of colonialism. These tensions are emerging in regional moves in Asia and Latin America to develop e-commerce strategies and associated rules.

There is a parallel, escalating conflict in civil society between internet governance and digital rights groups, on one hand, and the powerful US tech industry lobby and its allies on the other. Since the late 2000s, the Big Tech has worked through overlapping industry organisations to press a raft of demands, culminating in the adoption of the ‘digital 2 dozen’ principles by the US Trade Representative – whose Deputy had spent 23 years as the head of the Software Alliance in the US. Those principles are codified in the TPPA. These industry lobbyists have privileged access to the otherwise undemocratic and secretive trade negotiating arena.

Digital rights groups object that purported ‘trade’ rules involve matters of Internet governance that should not be made in a closed trade forum that is biased towards industry. They want a new UN based global mechanism, for example that reflects the Tunis Agenda for the Information Society of enhanced cooperation and enabling governments to carry out their roles and responsibilities. In similar vein, the Trans-Atlantic Consumer Alliance, led by Consumers International, insists any international discussion on digital trade must be transparent, open and inclusive; put consumer interests at the centre; and recognise that topics such as cybersecurity, internet of things, artificial intelligence, net neutrality and data protection do not belong in trade agreements. The international trade union movement and non-government organisations warn that global e-commerce rules developed by transnational corporations for their own benefit will greatly amplify threats to economic sovereignty, and disempower government to regulate digital technology to protect workers.

These challenges are overlaid by rising geo-political and strategic tensions. Escalating tensions between the US and China for hegemonic ascendancy is being played out in both the digital and trade arenas. Despite the focus on inter-state tension, the oligopoly of the private tech giants poses an equally momentous foreign policy and national security challenge. Practices of cyber-warfare, abuses of data and technology, and covert political interference, increasingly involve the collaboration of tech giants, foreign states and private actors.

Turning the spotlight back on the WTO

Having being eclipsed by mega-regional negotiations for the last decade, the WTO has re-emerged as a focal point where meta-tensions are playing out. Electronic commerce appeared as a ‘trade’ issue on the agenda of the WTO in 1998, where a Work Programme was established to explore the issues – not to conduct negotiations – across the Councils on Trade in Goods, Services and Intellectual Property and the Committee on Trade and Development. Electronic commerce was defined narrowly as the ‘production, distribution, marketing, sale or delivery of goods and services by electronic means’. A decade later that Work Programme was pretty moribund.

In 2016 the US led a number of countries in a quest to launch negotiations on e-commerce at the 11th WTO ministerial meeting in December 2017. When they failed, a breakaway minority of 70 Members (including all EU Member States) announced they would begin work towards negotiations, and met several times in 2018. At the World Economic Forum in Davos in January this year, a similar grouping confirmed their intention to negotiate electronic commerce in the WTO. New Zealand, the US, the EU and China are all part of this group. China’s belated participation is expected to import the geopolitical and strategic tensions into the e-commerce talks, diluting the Members’ goal of a ‘high standard’ agreement. Although there is pressure in the US to exclude China, any claim to operate within the WTO means all Members must be able to participate. The EU has its own tensions between the unfettered cross border data flows and the newly minted General Data Protection Regulation (GDPR).

The African Group, the Least Developed Countries and India, who blocked the launch of negotiations in 2017, have challenged the legality of unmandated plurilateral negotiations and warn that the adoption of a plurilateral deal requires consensus. E-commerce is only one of several subjects on which breakaway groups, including New Zealand, have committed to plurilateral negotiations, despite being refused a consensual mandate. Pushing the adoption of new rules on any one of them will compound the internal fracturing of the WTO – something that New Zealand is supposedly working to resolve.

Paradigm Capture

Pursuing digital governance within a free trade paradigm means the resulting rules will embody the ideology of market liberalisation that privileges commercial interests; be framed by historically-derived institutional arrangements and relationships, the imperatives of trade negotiations and negotiators and practices of secrecy and exclusion; and use prescribed legal forms and concepts that are defined by trade jurisprudence through extra-territorial enforcement mechanisms.

E-commerce proponents follow the standard rationale for trade liberalisation, promising increased economic growth without empirical evidence of how the rules would contribute to (or fetter) economic development, let alone of what kind. Market and commercial interests inform New Zealand’s negotiating mandates; for example, the consultation document on e-commerce for the Trade in Services Agreement (TiSA) invited submitters only to identify barriers, restrictions, burdens, and risks from an industry perspective.

The presumption of trade liberalisation militates against the protection of policy space to re-regulate in a more restrictive way. Negotiating mandates consistently set New Zealand’s current policy and regulatory settings as the red line, despite the fact that regulators are playing perpetual catch-up in rapidly changing and highly technical areas of digital policy. That mandate then fell victim to demands to show flexibility.

Negotiating dynamics reflect the structure of formal institutions or informal negotiating blocs that have their own power relationships, as well as negotiating histories. Even if trade ministers, officials and negotiators were sufficiently aware of the implications of these new rules for the government’s ability to regulate the digital domain in the future, the parameters and competing priorities of trade negotiations cannot ensure they are given sufficient weight. Precedent-setting texts form the basis for negotiations, and limit the scope for variation. The e-commerce chapter is one of many, with defensive interests subject to trade-offs. New Zealand’s pre-occupation with market access for primacy products inevitably takes primacy over a seemingly benign but poorly understood e-commerce chapter.

Trade negotiators can only operate within the mandate agreed at a political level on the advice of senior trade officials. Their inclination, training and professional obligations are to bring negotiations to a successful conclusion through compromises and trade-offs, subject to the real politik of the parties to deal. Negotiators themselves are often stuck in chapter silos where they are not privy to or do not analyse the cross-cutting implications of different chapters, or have an oversight function to ensure legal consistency and coherence across the entire text without questioning the mandate. Turnover of officials and conducting parallel negotiations adds to incoherence and the erosion of institutional knowledge.

Domestic institutional relationships reflect the hierarchy of the Ministry of Foreign Affairs and Trade (MFAT) and like-minded economic ministries, notably the Ministry for Business, Innovation and Employment, over others. Ministries whose mandates require primacy to other policy objectives have to accommodate themselves to the trade liberalisation paradigm. Sectoral or subject ministries, such as Te Puni Kokiri (TPK) or culture and heritage, and outside agencies, such as the Privacy Commission or Commerce Commission, are at particular disadvantage, suffering from a knowledge deficit on trade concepts and language, as well as being bit players in broader negotiations. The secrecy of trade negotiations precludes inputs from and access to expertise from outsiders, which can reduce the risk of poor understanding and test the advice provided by and to officials.

Proposed negotiating texts are necessarily couched in trade concepts and legal terminology, however inappropriate that may be to the matters at hand. Regulations that favour competing public policy priorities, other economic, social, cultural or considerations, or constitutional, indigenous, human rights and international treaty obligations are conceived of negatively as ‘barriers’ to be removed or minimised. Safeguards, exceptions and other defences follow formulaic and contingent language, such as being ‘necessary’, pursuing ‘legitimate public policy objectives’, not being ‘arbitrary or unjustifiable discrimination’ or ‘disguised barriers to trade’, whose meaning is filtered through a liberalisation lens. Rare carveouts are narrower than they appear on their face.

Acquiescence and exclusion

How these factors framed the government’s acquiescence to new e-commerce rules, principally in the TPPA, can be seen through the examples of privacy, legal accountability, and Maori data sovereignty. This analysis relies on heavily redacted documents released under the Official Information Act (OIA) by MFAT and less censored responses from the Privacy Commission.

Whoever controls data controls the digital sphere. Big Tech demands unrestricted rights to hold data in whatever country and subject to whatever laws they choose. So the e-commerce text says governments cannot prevent the transfer of data offshore, described negatively as removing ‘data localisation’ barriers. Protection of privacy is just one of many issues this rule raises, and it was subject of the most engagement, mainly with the Privacy Commission. Significantly MFAT did not disclose memoranda from the Privacy Commissioner expressing concerns over the proposed rule. Privacy Commission documents also show discrepancies between their bland public reassurances about the final text and private reservations about what was being agreed.

A privacy official’s early observations clearly illustrate the paradigm conflict, asking why private business should have special treatment on data, and remarking that if privacy protections are weak, data transfer rules should be too. Those paradigmatic objections became subsumed within the ideological parameters and political realities of the TPPA negotiation. With the US initially opposing any privacy protections, the final compromise converged on a weak privacy exception: countries must have a privacy law, but with no minimum threshold.

The data transfer rule can be breached for ‘legitimate’ public policy purposes, but those terms are defined by trade jurisprudence – and the government’s measure must impose the least burden on the tech industry, with a footnote indicating that means a scheme for voluntary compliance the corporation has agreed to. If that defence fails, the government can resort to an even weaker general exception which is subject to a multi-tiered set of conditions. Significantly, Australia inserted a last-minute side letter that says any change to privacy provisions in future US FTAs will also apply to Australia. Officials advice to the relevant New Zealand ministers, presumably on whether to attempt to secure a similar side-letter, was fully redacted.

A second example involves a ban on requiring disclosure of source code (extended in NAFTA II to algorithms). This effectively disarms governments from being able to check source codes for cybersecurity, the safety of software in smart products, and the accuracy of risk assessments for insurance or employment. No access to source codes will also serious fetter the ability to investigate or take legal action arising from anti-competitive practices, human rights violations, or fraud (eg. the Volkswagon emissions scandal). There is an exception for ‘essential infrastructure’, which was deliberately undefined, but arguably does not cover most of the above. Japan tabled this requirement for secrecy of source codes late in the negotiations and its implications appear to have barely been assessed before it was accepted by negotiators and Ministers. The documents show no evidence of consultations with affected entities, such as the Commerce Commission, Consumer New Zealand, the unions or the Human Rights Commission.

The third illustration involves the implications for Māori and te Tiriti o Waitangi. Data is at the core of mātauranga Māori. Personal data is imbued with whakapapa and has an inherent mana. Data is the vehicle through which Māori culture is depicted, transmitted, manipulated and commercialised. In all these senses, data is considered a taonga, protected by Te Tiriti, governed by tino rangatiratanga, and subject to responsibilities on Māori as kaitiaki and corresponding obligations and responsibilities on the Crown.

MFAT apparently assumed that e-commerce raised no Treaty issues. There is no evidence of consultation with TPK, iwi or the claimants in the Waitangi Tribunal claim on traditional knowledge (Wai 262) or on the TPPA (Wai 2522). The ministry’s assumption perpetuates a deeply flawed process that was strongly criticised in both claims. Even if Tiriti issues has been identified, MFAT would likely have concluded that the Treaty of Waitangi exception applied, despite its limited application to measures that give ‘more favourable treatment’ to Māori and additional restrictions. The matter of data sovereignty will be a key issue in the Stage 2 of the Wai 2522 claim later in 2019.

Euthenising the sleeping giant

It is clear from this summary of a much longer analysis that New Zealand urgently needs to liberate the rules governing the digital domain from the trade rubric and the grip of the trade bureaucracy, and conduct an open, informed debate about what values, priorities and interests should inform our approach as the technology, its impacts and hopefully our understanding and that of our government expands over time.

The entry into force of the TPPA-11 has partly pre-empted our ability to do this, and the current government to apply the promised ‘inclusive and progressive’ approach to New Zealand’s strategy to rules on e-commerce. But open, informed debate can still play a critical role in regional and multilateral developments. That requires New Zealand to adopt a moratorium on further negotiations on e-commerce, even when they are part of a broader negotiation – as it has promised on investor-state dispute settlement, but is yet to deliver. Unless we make that commitment now, the government and our trade negotiators risk leading the country down a cul-de-sac from which there are very limited options for regulatory exit, and which will have serious, as yet unforeseen, consequences in the future.