Cracking the Digital Spaghetti Bowl: A Recipe for Streamlined Global Trade

Zhihan Tian November, 2023

Share with:

The rapid advancements in digital technology have ushered in a new era of global trade, providing even small and medium-sized businesses with the means to transcend international borders and seize the opportunities of cross-border commerce.[1] Concurrently, a growing number of member countries within the World Trade Organization (WTO) have integrated electronic commerce (e-commerce) provisions into their free trade agreements (FTAs). As of October 2023, over 20% of the 595 Regional Trade Agreements (RTAs) in force included such provisions[2], reflecting an upward trajectory since the comprehensive inclusion of a digital trade chapter in the United States-Mexico-Canada Agreement (USMCA) in 2020.[3] However, these RTAs often weave intricate webs of multiple and overlapping memberships, vividly illustrating the complexity commonly referred to as the “spaghetti bowl” phenomenon.[4] This complexity may disrupt “the seamless nature of a digital economy,” inadvertently hindering, rather than facilitating, the principles of free trade.[5] Therefore, this blog will explore two potential approaches to untangle the figurative spaghetti bowl and expand global trade integration.

 

Different Types of Pasta in the Bowl

Due to the differing perspective and policy stances among WTO members, various approaches adopted to regulate e-commerce have given rise to a fragmented landscape of rules, where some FTAs aspire to “deep integration” or “WTO plus” provisions, while others remain more reserved in their regulatory scope.[6] The USMCA stands as an example of a neoliberal trade approach, explicitly aimed at fostering free trade and opposing restrictions on the flow of data.[7] Notably, Article 19.11 of the USMCA leaves no room for ambiguity, as it explicitly prohibits any “prohibition or restriction of the cross-border transfer of information,” including personal data.[8] In contrast, the European Union follows a “public-interventionist” path, prioritizing the safeguarding of privacy and fundamental rights of its citizens above all else, sometimes even at the expense of unrestricted trade.[9] On the other hand, countries like Australia, Russia, and Vietnam have embraced a spectrum of strategies, ranging from imposing restrictions on data leaving the country to mandating domestic storage of personal information, or insisting on the localization of all data within their national borders.[10] This fragmentation of rules became evident when attempts to revamp the multilateral regulations regarding digital trade faced a setback during the 2017 WTO ministerial Conference in Buenos Aires, where member countries were unable to unify the previously submitted proposals on electronic commerce.[11]

 

The First Tap on the Spaghetti Bowl

While the adoption of FTAs like the USMCA represents a significant step forward, it falls short of offering a comprehensive framework for regulating global digital trade beyond a “patchwork.”[12] Four years have passed since 76 WTO members confirmed their commitment to “seek to achieve a high standard outcome that builds on existing WTO agreements and frameworks with the participation of as many WTO members as possible” in the Joint Statement on Electronic Commerce.[13] As the digital landscape continues to evolve, and new challenges emerge, it becomes increasingly clear that a more flexible and adaptable approach is required to address the complex issues of the digital age.

Many scholars highlight the necessity for a fresh WTO agreement on digital trade that encompasses a “clear, technologically neutral definition of digital products” and recognizes all dimensions of digital commerce.[14] While now may not be the optimal time with divergent policy stances and ideological differences between member nations ahead, initiating efforts to crack the spaghetti bowl is essential.[15]

 

Embracing the Principle Technological Neutrality in Digital Trade Regulation

To cope with the relentless development of e-commerce technology, rather than constantly adopting new trade agreements, it might be beneficial for WTO members to recognize the principle of technological neutrality. Previous instances, such as the US-Gambling and China-Audiovisual cases[16], saw WTO adjudicators hesitant to endorse this principle which aims to prevent favoritism or discrimination toward specific technologies for regulatory objectives.[17] It is also unlikely that all member countries will accept technological neutrality of the General Agreement on Trade in Services (GATS) as it might lead to granting market access for unforeseen digital services, potentially diverging from a member’s initial commitments.[18] However, a bifurcation that separates existing and future commitments presents an alternative approach. For ongoing disagreements concerning technological neutrality of the GATS regarding old commitments, WTO judicial procedures remain available for clarifying contentious treaty terms on a case by case basis.[19] As for ongoing commitments, members could initiate explicit acknowledgement of this principle.[20] The viability of this approach has been discussed by a non-paper submitted by Brazil in 2018.[21]

 

Crafting Agile and Adaptive Rules: Drawing from the DEPA’s Innovation

The integration of digital trade regulation into the global trade’s international legal framework is eventually an imperative step. The Digital Economic Partnership Agreement (“DEPA”) stands poised to guide this initial stride towards such an ambitious goal. Originally endorsed by Chile, New Zealand, and Singapore in October 2021, the DEPA signifies a paradigm shift in digital trade governance. It introduces pioneering strategies and collaborations aimed at addressing the fluid challenges stemming from digitalization while fostering interoperability between diverse regulatory frameworks.[22] The DEPA’s distinctive feature lies in its modular design, allowing countries to customize their participation based on individual circumstances and priorities. Offering a selection of 16 Modules spanning topics such as “Business and Trade Facilitation,” “Treatment of Digital Products and Related Issues” “Emerging Trends and Technologies,” and “Small and Medium Enterprises Cooperation,” the DEPA empowers prospective member countries to cherry-pick components that align best with their specific needs, integrating them into their own FTAs or leveraging them during WTO e-commerce negotiations.[23] Presently, the aspiration might center on major trading nations seeking the “greatest common divisor.” Nonetheless, this approach might pave the way for the “re-globalization” urged by the WTO in its 2023 annual report, expanding trade integration to “more economies, people, and issues.”[24]

  1. See Andreas Lendle, Marcelo Olarreaga, Simon Schropp & Pierre-Louis Vézina, There Goes Gravity: eBay and the Death of Distances, 126 The Econ. J. 406, 406-441 (2016). ↑

  2. WTO OMC, REGIONAL TRADE AGREEMENTS DATABASE, https://rtais.wto.org/UI/charts.aspx (last visited Nov. 5, 2023). ↑

  3. U.S. Trade Representatives, The United States-Mexico-Canada Agreement Fact Sheet (Digital Trade), https://ustr.gov/sites/default/files/files/Press/fs/USMCA/USMCA-Digital_Trade.pdf (last visited Nov. 4, 2023). ↑

  4. See Jagdish Bhagwati, U.S. Trade Policy: The Infatuation with Free Trade Agreements, in THE DANGEROUS DRIFT TO PREFERENTIAL TRADE AGREEMENTS 1, 2-3 (Jagdish Bhagwati & Anne O. Krueger eds., 1995).

    The “spaghetti bowl” metaphor is employed to depict a complex system where intersecting bilateral trade agreements give rise to a convoluted web of constrains and regulations, often hindering instead of facilitating free trade. ↑

  5. Andrew D. Mitchell & Neha Mishra, Data at the Docks: Modernizing International Trade Law for the Digital Economy, 20 Vand. J. Ent. & Tech. L. 1078, 1107 (2018). ↑

  6. Mitchell & Mishra, supra note 5, at 1090. ↑

  7. Leslie L. Rossman & Joshua S. Hanan, Trump’s Promise to Make America Manufacture Again: USMCA and the Rhetoric of Neoliberal Exception, Nat’l Commc’n Ass’n Commc’n Currents (Feb. 19, 2019), https://www.natcom.org/communication-currents/trump%E2%80%99s-promise-make-america-manufacture-again-usmca-and-rhetoric-neoliberal (last visited Nov. 4, 2023). ↑

  8. United States-Mexico-Canada Agreement, art.19.11, Jul. 1, 2020, ↑

  9. See Sebastian Heidebrecht, From Market Liberalism to Public Intervention: Digital Sovereignty and Changing European Union Digital Single Market Governance, early view J. of Common Market Studies n/a (2023). ↑

  10. Anupam Chander & Uyên P. Lê, Data Nationalism, 64 Emory L. J. 677, 708-713 (2015). ↑

  11. Luc Cohen & David Lawder, Some WTO Members to Push for E-Commerce Rules as Broader Deal Fails, https://www.reuters.com/article/us-trade-wto-digital/some-wto-members-to-push-for-e-commerce-rules-as-broader-deal-fails-idUSKBN1E72YV/ (last visited Nov.18, 2023). ↑

  12. Wentong Zheng, The Digital Challenge to International Trade Law, 52 N.Y.U. J. Int’l L. & Pol. 539, 559 (2020). ↑

  13. Joint Statement on Electronic Commerce, Jan. 25 2019, WT/L/1056. ↑

  14. Mitchell & Mishra, supra note 5, at 1127. ↑

  15. Zheng, supra note 12, at 562. ↑

  16. United Nations Econ. and Soc. Commission for Asia and the Pac., Explanatory Note

    to the Framework Agreement on Facilitation of Cross-Border Paperless Trade in Asia and the Pacific, https://www.unescap.org/sites/default/files/Revised%20Explanatory%20Note_Post%202nd%20IISG%20Version_0.pdf (last visited Nov.19, 2023). ↑

  17. See Panel Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services (US-Gambling), WT/DS285/R (10 November 2004); Appellate Body Report, US – Gambling, WT/DS285/AB/R (20 April 2005). See also Panel Report, China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products (China-Audiovisuals), WT/DS363/R (12 August 2009); Appellate Body Report, China-Audiovisuals, WT/DS363/AB/R (19 January 2010). ↑

  18. Sherzod Shadikhodjaev, Technological Neutrality and Regulation of Digital Trade: How Far Can We Go? 32 The European J. of Int’l L. 1221, 1243. ↑

  19. Id, at 1244. ↑

  20. Id, at 1245. ↑

  21. See WTO General Council, Exploratory Work on Electronic Commerce, Doc. JOB/GC/176, 12 April 2018, para. 4.4. ↑

  22. See Mira Burri, Special Issue: International Law and Digitalization: The Impact of Digitalization on Global Trade Law, 24 German L. J. 551 (2023). ↑

  23. New Zealand Foreign Aff. & Trade, Digital Economy Partnership Agreement (DEPA), https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-in-force/digital-economy-partnership-agreement-depa/ (last visited Nov. 5, 2023). ↑

  24. World Trade Organization, World Trade Report 2023: Re-Globalization for a Secure, Inclusive, and Sustainable Future, PUBLICATIONS (2023), https://www.wto.org/english/res_e/booksp_e/wtr23_e/wtr23_e.pdf (last visited Nov. 5, 2023). ↑