The International Trade Journal

ISSN: (Print) (Online) Journal homepage: https://www.tandfonline.com/loi/uitj20

Digital Trade Issues in WTO Jurisprudence and the

USMCA

Bashar Malkawi

To cite this article: Bashar Malkawi (2021) Digital Trade Issues in WTO Jurisprudence and the
USMCA, The International Trade Journal, 35:1, 123-131, DOI: 10.1080/08853908.2020.1801536

To link to this article: https://doi.org/10.1080/08853908.2020.1801536

Published online: 12 Aug 2020.

Submit your article to this journal

Article views: 185

View related articles

View Crossmark data

Full Terms & Conditions of access and use can be found at

https://www.tandfonline.com/action/journalInformation?journalCode=uitj20
THE INTERNATIONAL TRADE JOURNAL
2021, VOL. 35, NO. 1, 123–131
https://doi.org/10.1080/08853908.2020.1801536

Digital Trade Issues in WTO Jurisprudence and the USMCA

Bashar Malkawi
Government of Dubai, Legal Affairs Department, H.H. Dubai Ruler Court, Dubai, United Arab Emirates

ABSTRACT KEYWORDS
The USMCA is a landmark trade agreement for the digital eco­ USMCA; digital trade; free
system that will create a strong foundation for the expansion of trade agreement; WTO;
trade, investment, and innovation. The USMCA sets a new glo­ international trade
bal high standard protecting the free flow of data beyond what
is covered in the WTO. The USMCA along with WTO standards
help in harnessing digital trade for prosperity by enabling free
access, a secure market, and low barriers to growth. However,
the USMCA is likely to become the model for future free trade
agreements between the U.S. and other countries.

I. Introduction
Digital trade offers economy-wide benefits. The advancement of technology
has aided international business. World Trade Organization (WTO) members
recognized the benefits digital trade offers and have developed a work program
to facilitate the development of digital trade. However, WTO efforts to facil­
itate digital trade have stalled, leading to a slower than anticipated progress.
The question this note addresses is how the WTO supports and deals with
digital trade. The note also addresses recent trade agreements, particularly the
United States-Mexico-Canada Agreement (USMCA). It was chosen because it
involves the largest economy in the world and the U.S. could use USMCA
provisions as a template for future trade agreements (Bieron and Ahmed 2012;
Ptashkina 2018).

II. WTO and digital trade

Digital trade developed after the creation of the WTO in 1994 (World Trade
Organization 1998). Nevertheless, there are several WTO agreements related
to digital trade. These WTO agreements include the General Agreement on
Trade in Services (GATS) and the Information Technology Agreement (ITA).
GATS is of particular significance to digital trade for several reasons. First,
communication services, which provide access to digital trade, fall under
GATS (McLarty 1998). Second, GATS covers many sectors and modes of

CONTACT Bashar Malkawi [email protected] Government of Dubai, Legal Affairs Department, H.H.
Dubai Ruler Court, Dubai, United Arab Emirates
© 2020 Taylor & Francis Group, LLC
124 B. MALKAWI

delivery, whether the mode is traditional or electronic. Indeed, it was deter­

mined that GATS was technologically neutral (WTO Panel Report 2004).
Third, the execution of an electronic transaction necessitates infrastructure
services (distribution, payment, etc.) whose liberalization equally falls under
GATS. In view of the acknowledged importance of telecommunication ser­
vices, access to public telecommunication networks was incorporated in
a separate telecommunication annex.
Each WTO member agreed to liberalize specific service sectors. These
commitments are included in schedules or lists of service commitments
(Zhang 2015). Many service sectors can be delivered physically and, more
importantly, electronically. Whenever unlimited market access commitments
are undertaken, every means of delivery including remote supply should be
allowed (WTO Appellate Body Report 2005).
WTO members agreed to the so-called Reference Paper. The Reference
Paper provides for rules that shall prevent anti-competitive behavior in the
telecommunications sector. The Reference Paper includes competition policy
principles to ensure access to public telecommunication networks. WTO
members considered that the Reference Paper might be applicable to digital
services where Internet access providers qualify as major suppliers of basic
telecommunications (WTO Council for Trade in Services 1999). The
European Union (EU) was of the opinion that the principles of the
Reference Paper are applicable to internet access and internet network services
(WTO Work Programme on Electronic Commerce 2000).
The Information Technology Agreement (ITA) is of particular significance
to digital trade. WTO members committed themselves to reduce their tariffs
on IT goods in four steps of 25% to reach a tariff-free policy by the year 2000
(Verrill, Jordan, and Brightbill 1998). This obligation pertains to a common
list of IT products covering a wide range of some 180 information technology
products in five major categories: computers and peripheral devices, semi­
conductors, printed circuit boards, telecommunications equipment (except
satellites), and software. By the year 2015, the ITA covered 95% of the existing
world trade in IT goods (World Trade Organization 2017). Thus, the ITA
brings advantages to a wide range of production activities.
Largely at the insistence of the U.S. at the WTO Ministerial Conference
in 1998, WTO members decided to develop a work program covering
digital trade (WTO Secretariat 1998). According to the WTO Work
Program on Electronic Commerce, digital trade is understood to mean
the production, distribution, marketing, sale, or delivery of goods and
services by electronic means. The WTO divides digital trade transactions
into three distinctive stages: the advertising and searching stage, the order­
ing and payment stage, and the delivery stage. Any or all of these stages may
be carried out electronically and may, therefore, be covered by the concept
of digital trade.
 INTERNATIONAL TRADE JOURNAL 125

Despite the fact that the WTO Work Program on Electronic Commerce
was set up in 1998, very little progress has been achieved. The most impor­
tant issue blocking progress on digital trade in the WTO agenda is the
question of categorization. WTO members differ on whether products
which were usually sold as goods due to their link to a physical carrier
and which can now be delivered online over the net (e.g., music or movies)
shall be treated as goods under the General Agreement on Tariffs and Trade
(GATT) or as services under GATS (Bergemann 2002). If goods delivered
online were considered goods, they would be subject to few trade restrictions
under GATT such as tariffs (Baker et al. 2001). On the other hand, if goods
delivered online were considered services, they would be subject to more
trade restrictions under GATS, such as market access barriers and discrimi­
natory domestic regulations. Until the classification debate is resolved, WTO
members decided not to impose tariffs on imported electronic
transmissions.
There were numerous WTO meetings producing views and proposals
which are reflected in the country statements or final reports (WTO
Committee on Trade and Development 1999). These meetings included an
informal exchange of viewpoints rather than the achievement of agreements.
Therefore, the classification debate issue continues to be unresolved (Ismail
2020). There have been no new digital trade-relevant actions at the WTO
until now.

WTO case law and digital trade

The first time the WTO addressed digital trade was its ruling on
U.S. restrictions on cross-border Internet gambling services. Antigua and
Barbuda initiated a dispute case against the U.S. claiming that U.S. Internet
gambling restrictions, restrictions by U.S. credit card companies on payments
to offshore gambling outlets, at both the federal and state levels violated the
U.S. commitments under GATS.
A WTO panel ruled that online gambling restrictions imposed by the U.S. at
the federal and state levels violated its market access commitments under sub-
sector 10.D (other recreational services) of its GATS schedule (WTO Appellate
Body Report 2005). Specifically, the WTO panel agreed with Antigua that
U.S. market access commitments under Section 10.D of its GATS schedule
covering “other recreational services” do include gambling services. The panel
rejected the U.S. claim that it never intended to allow the cross-border supply
of such services. The panel also maintained that the U.S. commitment to allow
unrestricted market access on recreational services applies to all means of
delivery, including the Internet. While the WTO panel agreed with the
U.S. that the U.S. ban on cross-border gambling services may be justified
under WTO rules to protect “public morals,” it found that the ban was applied
126 B. MALKAWI

in a discriminatory manner since the U.S. permits remote gambling wagers

through off-track betting under the 1978 Interstate Horseracing Act.
In China – Publications and Audiovisual Products, the WTO panel found
that the scope of China’s commitment in its GATS schedule on “Sound
recording distribution services” extends to sound recordings distributed in
non-physical form through technologies such as the Internet (WTO Panel
Report 2009). In deciding the case, the WTO panel relied on the principle of
progressive liberalization which contemplates that WTO Members undertake
specific commitments through successive rounds of multilateral negotiations
with a view to liberalizing their services markets incrementally (WTO
Appellate Body Report 2009). Thus, distribution covers both tangible and
intangible products.
Prior to the WTO panel’s findings in those disputes, neither the WTO panel
nor the Appellate Body had ever decided a digital trade case. The WTO’s
ruling would have important implications, notably in the relationship between
the WTO and digital trade. Now, under the WTO jurisprudence, digital trade
is covered under GATS.

III. The digital trade provisions in the USMCA

The USMCA free trade agreement (FTA) explicitly includes provisions con­
cerning digital trade (USMCA 2020, Chapter 19 Digital Trade). The digital
trade provisions in Article 19.4.2 of the USMCA – which resemble the
language in the Trans-Pacific Partnership (TPP) – apply to goods and services
traded over the medium of the Internet. The USMCA provides illustrative
examples of digitized products such as electronically traded software, books,
and music.
The entire purpose of the USMCA is to lower barriers to trade in all
sectors, including digital trade; therefore, the U.S., Mexico, and Canada were
in the position with digital trade to never even establish a tariff which would
later need to be lowered and eliminated (USMCA 2020, Article 19.3). The
FTA creates a duty-free cyberspace. The USMCA requires parties not to
impose customs duties on electronic transmissions. This language is based
on the U.S. Internet Tax Freedom Act of 1998. The customs duties standstill
in the USMCA is not indefinite or permanent. The parties to the agreement
are merely obliged to continue the customs duties standstill until further
notice.
The continuing of the no-duty policy under the USMCA may result in
a negative economic impact because Mexico, for example, would not collect
from digital transactions as it does from other transactions that actually result
in the payment of tariffs. The other economic implication for a no-duty policy
under the trade agreement is that it could lead to trade-diversion because of
the preferential treatment of a particular mode of delivery over other modes.
 INTERNATIONAL TRADE JOURNAL 127

The USMCA language is limited to tariffs but not domestic taxes, whether
direct or indirect.
The USMCA also requires that the parties do not establish unnecessary
barriers on electronic transmissions (USMCA 2020, Articles 19.2, 19.5). The
term “unnecessary” is not clearly understandable. In addition, the standard
“unnecessary barriers” is subjective since each party will determine what
a necessary or unnecessary barrier is. An example of an unnecessary barrier
could be applying trade restrictive technology mandates and not using open
and market-driven standards. Applying trade restrictive technology mandates
could inhibit the growth of digital trade.
The USMCA is concerned with the delivery of services electronically. As
such, the USMCA not only covers trade in goods electronically but also trade
in services. For instance, a supplier in the U.S. could deliver financial services,
engineering plans, or legal services to a client in Mexico through the Internet.
However, in this instance, it is unclear how the mode of the delivery could be
classified, whether it is virtual cross-border supply or consumption abroad.
The USMCA does not require harmonization of digital trade laws and
regulations of the U.S., Mexico, and Canada. The absence of such harmoniza­
tion could pose problems for trading in products electronically when countries
have different levels of laws and regulations. However, since the nature of the
Internet and digital trade is global, then an international approach is needed
for regulating digital trade.
The USMCA contains several principles that deal with technological neu­
trality, i.e., ensuring that basic trade concepts of nondiscrimination, national
treatment, and most-favored-nation status apply to digital trade, and regula­
tory forbearance, i.e., avoiding government action that would restrict trade.
The USMCA also covers the validity of electronic signatures (USMCA 2020,
Article 19.6).
The USMCA provides that no country is allowed to give less favorable
treatment to digital products “created, produced, published, contracted for,
commissioned or first made available on commercial terms in the territory of
another party, or to digital products of which the author, performer, producer,
developer or owner is a person of another party” (USMCA 2020, Article 9.4.1).
Also, the USMCA allows the parties to provide subsidies or grants to its own
residents and businesses, including “government-supported loans, guarantees
and insurance” (USMCA 2020, Article 19.4.2). These USMCA provisions give
the parties some policy space whereby they can favor their domestic cultural
industries. Indeed, this is the intent of these articles.
The USMCA, in Article 19.7, has a requirement to maintain anti-spam rules
and online consumer protection laws. Although these requirements seem to
lack any specificity, when read in conjunction with Article 21.4 (Consumer
Protection), which applies to digital trade and referred to in Article 19.7, they
provide comprehensive protection. Article 21.4 of the USMCA imposes
128 B. MALKAWI

several obligations on the parties including: adopting national consumer

protection laws, whether civil or criminal, that determine fraudulent and
deceptive commercial activities, requiring enforcement of these laws, coordi­
nation between the concerned countries, exchange of consumer complaints,
and other enforcement information.
The USMCA covers personal information protection requirements
(USMCA 2020, Article 19.8). The USMCA calls for a legal framework to
protect the personal information of users of digital trade, but buried in
a footnote is an acknowledgment that merely enforcing voluntary undertak­
ings of enterprises related to privacy is sufficient to meet the obligation. The
USMCA information protection requirements do not establish a mandatory
minimum of protection.
Paperless trade did not escape the attention of USMCA negotiators as it
helps in facilitating trade (USMCA 2020, Article 19.9). Each party endeavors
to accept a trade administration document submitted electronically as the legal
equivalent of the paper version of that document. Although the language used
is not strong as it refers to “endeavors,” it is still important to include it to
ensure faster movements of goods and services across borders.
The USMCA includes targeted provisions on computer facilities (USMCA
2020, Article 19.12). The purpose of such a provision is to prevent maintaining
control over information processing and storage in a country. Thus, parties to
the USMCA would not make it a condition for conducting business that
a company from a trading partner must use or locate a computing facility in
their country. The USMCA does not provide for public policy objectives which
may lead a party to require the physical presence of computing facilities in
certain circumstances.
The USMCA recognizes that there are different legal approaches to protect­
ing personal information, including comprehensive privacy, personal infor­
mation, or personal data protection laws; sector-specific laws covering privacy;
or laws that provide for the enforcement of voluntary private sector under­
takings. The U.S., Canada, and Mexico agreed to promote compatibility and
exchange information on their respective mechanisms. The USMCA specifi­
cally identifies the APEC Cross-Border Privacy Rules System as a valid
mechanism to facilitate cross-border information transfers while protecting
personal information (USMCA 2020, Article 19.4).
The USMCA includes provisions to break down data localization laws,
which require that certain kinds of data remain within a country’s borders.
The USMCA bans restrictions on data transfers across borders (USMCA
2020, Article 19.11). However, this ban is not a blanket ban as any USMCA
party can adopt “a measure . . . necessary to achieve a legitimate public
policy objective.” In other words, a party could restrict a data transfer on
public policy grounds. However, according to Article 19.11.2, there are
strings attached whereby the measure in question should not be applied
 INTERNATIONAL TRADE JOURNAL 129

in a manner which would constitute a means of arbitrary unjustifiable

discrimination or a disguised restriction on trade and does not impose
restrictions on transfers of information greater than are necessary to
achieve the objective. The conditions of Article 19.11.2 of the USMCA
resembles GATT Article XX. Thus, GATT jurisprudence in this area can
serve as excellent guidance on the meaning of terms such as “arbitrary
unjustifiable discrimination” or “disguised restriction on trade.” In contrast
with Article 19.11 of the USMCA, the EU demands limits on data transfers
(Bu-Pasha 2017). The European model of data protection uses data transfer
restrictions as a way to ensure that the information enjoys adequate legal
protections.
The USMCA prevents countries from requiring the disclosure of source
code (USMCA 2020, Article 19.16). In addition, the USMCA goes further to
bar governments from requiring the disclosure of “algorithms” expressed in
that source code unless that disclosure was required by a regulatory body for
a specific investigation, inspection, examination enforcement action, or
proceeding.
The USMCA provides protection for Internet service providers modeled on
the Digital Millennium Copyright Act (Asp 2018). The USMCA protects
Internet service providers for copyright liability for the actions of their users.
Internet platforms are not held civilly – nor criminally – liable for the actions
of their users. However, there is no language in the USMCA that requires
a balanced approach to copyright which might have further empowered user
rights.
The USMCA protects open government data provided in machine readable
format (USMCA 2020, Article 19.18). The language used regarding open
government data is not mandatory but rather best endeavors.

IV. Conclusion
The Internet offers substantial opportunities to companies. The world has
witnessed an explosion in digital trade in the past few years, with online
shopping now doubling annually. Although the WTO did not contain explicit
articles covering digital trade, it was seen that the WTO is well-fitted to
advance digital trade because of the WTO principles of nondiscrimination,
transparency, and market openness.
The USMCA was thought of as a breakthrough in the sense that it included
an explicit chapter concerning digital trade. A closer examination of the
USMCA on digital trade revealed that the parties invented some specific
rules needed for digital trade. For most of the digital trade provisions in the
USMCA, the approach of the parties was based on the simple premise that
digital trade is trade, that it is only the form by which the commercial
transaction is performed which may be new, and not its substance; thus, the
130 B. MALKAWI

parties relied on existing treaties or domestic laws. Thus, the USMCA does not
require many legal changes to domestic laws.
There is a host of digital trade issues that need to be addressed in future trade
agreements. Among them are new technologies such as block chain and the
classification of the content of certain electronic transmissions. Future trade
agreements should cover the issue of “likeness” of e-goods, development-related
issues, fiscal and revenue implications of digital trade, the relationship and
possible substitution effects between digital trade and traditional forms of
commerce, and whether the dispute settlement mechanism covers digital trade
in a way similar to any other provision in free trade agreements. By expanding
and developing rules for digital trade, parties to the USMCA can take maximum
advantage of the vast opportunities that the technological revolution offers.

Disclosure statement
The views and opinions expressed in this article are those of theauthor and do not reflect the
official policy or position of any agencyof the government. The author made this article in his
own personalcapacity. All errors and omissions are his own.

References
Asp, Emily M. 2018. “Section 512 of the Digital Millennium Copyright Act: User Experience
and User Frustration.” Iowa Law Review 103 (3):751–782.
Baker, Stewart A., Peter Lichtenbaum, Maury D. Shenk, and Matthew S. Yeo. 2001.
“E-Products and the WTO.” International Lawyer 35 (1):5–21.
Bergemann, Kristi L. 2002. “A Digital Free Trade Zone and Necessarily-Regulated
Self-Governance for Electronic Commerce: The World Trade Organization, International
Law, and Classical Liberalism in Cyberspace.” Marshall Journal of Computer and
Information Law 20 (4):595–630.
Bieron, Brina, and Usman Ahmed. 2012. “Regulating E-commerce through International
Policy: Understanding the International Trade Law Issues of E-commerce.” Journal of
World Trade 46 (3):454–570.
Bu-Pasha, Shakila. 2017. “Cross-Border Issues under EU Data Protection Law with Regards to
Personal Data Protection.” Information and Communication Technology Law 26
(3):213–228. doi:10.1080/13600834.2017.1330740.
Ismail, Yasmin. 2020. “E-Commerce in the World Trade Organization: History and Latest
Developments in the Negotiations under the Joint Statement.” The International Institute
for Sustainable Development. Accessed July 21, 2020. https://www.iisd.org/sites/default/
files/publications/e-commerce-world-trade-organization-.pdf.
McLarty, Taunya L. 1998. “Liberalized Telecommunications Trade in the WTO: Implications
for Universal Service Policy.” Federal Communications Law Journal 51 (1):1–56.
Ptashkina, Maria. 2018. “E-Commerce and Trade in the Digital Trade Age.” RTA Exchange.
Accessed July 22, 2020. https://e15initiative.org/wp-content/uploads/2015/09/rta_
exchange_-_ptashkina_-_facilitation_2.0_-_e-commerce_-_ptashkina_0.pdf.
 INTERNATIONAL TRADE JOURNAL 131

The U.S.-Mexico-Canada Trade Agreement (USMCA). 2020. “USMCA.” Accessed July 22,
2020. https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/Text/19_Digital_
Trade.pdf.
Verrill, Jr., Charles, Peter S. Jordan, and Timothy C. Brightbill. 1998. “International Trade.”
International Lawyer 32 (2):319–336.
World Trade Organization. 1998. “Study from WTO Secretariat highlights potential trade
gains from electronic commerce.” World Trade Organization. Accessed July 21, 2020. http://
www.wto.org/english/newse/pres98e/pr96e.htm.
World Trade Organization. 2017. “20 Years of the Information Technology Agreement.”
World Trade Organization. Accessed July 22, 2020. https://www.wto.org/english/res_e/
booksp_e/ita20years_2017_chap2_e.pdf.
WTO Appellate Body Report. 2005. “US – Gambling.” WT/DS285/AB/R, World Trade
Organization, Geneva.
WTO Appellate Body Report. 2009. “China - Measures Affecting Trading Rights and
Distribution Services for Certain Publications and Audiovisual Entertainment Products.”
AB-2009-3, World Trade Organization, Geneva.
WTO Committee on Trade and Development. 1999. “Seminar on Electronic Commerce and
Development.” WT/COMTD/18, World Trade Organization, Geneva.
WTO Council for Trade in Services. 1999. “Work Programme on Electronic Commerce –
Progress Report to the General Council.” S/L/74, 27, World Trade Organization, Geneva.
WTO Panel Report. 2004. “US – Gambling.” WT/DS285/R, World Trade Organization,
Geneva.
WTO Panel Report. 2009. China - Measures Affecting Trading Rights and Distribution Services
for Certain Publications and Audiovisual Entertainment Products. Geneva: World Trade
Organization.
WTO Secretariat. 1998. “Development Implications of Electronic Commerce.” WT/COMTD/
w/51, World Trade Organization, Geneva.
WTO Work Programme on Electronic Commerce. 2000. “Communication from the European
Communities and Their Member States.” S/C/W/183, World Trade Organization, Geneva.
Zhang, Ruosi. 2015. Covered or Not Covered: That Is the Question - Services Classification and
Its Implications for Specific Commitments under the GATS. Geneva: World Trade
Organization.