Trade, Law and Development

Cite As: Juan Pablo Gómez Moreno,

International Trade and the Rise of Digital Borders
16(1) TRADE L. & DEV. 55 (2025)

INTERNATIONAL TRADE AND THE RISE OF DIGITAL

BORDERS

JUAN PABLO GÓMEZ MORENO*

With the advancement of the digital economy, the regulation of cross-border data
flows and other matters related to international trade in digital goods and
services has become a significant issue on the political agenda. The protection of
citizens’ data and national security and sovereignty are major concerns for many
countries, leading to the implementation of digital borders, such as data
localisation, content regulation, geo-blocking, cyber-security laws, and data
transfer restrictions, which pose significant challenges to international trade and
connectivity.

Policymakers and international organisations must consider a range of solutions

that take into account the complexities and nuances of the digital economy to
prevent this from happening. This includes developing a multilateral framework
that balances the interests of different stakeholders and updating existing trade
rules to promote transparency, predictability, and fair competition in the digital
economy. Such a framework requires significant international cooperation and
consensus-building, which may prove challenging given the current geopolitical
climate.

TABLE OF CONTENTS
1. INTRODUCTION
A. THE PREDOMINANCE OF DIGITAL TRADE TODAY
B. WHAT ARE DIGITAL BORDERS?
C. WHAT ARE THE POLICY REASONS BEHIND DIGITAL BORDERS?
I. CLAIMING STATE SOVEREIGNTY
II. PROTECTING CITIZENS’ RIGHTS
III. SAFEGUARDING NATIONAL SECURITY
III. THE IMPACT OF TRADE BARRIERS ON INTERNATIONAL TRADE AND GLOBAL
CONNECTIVITY

* Juan Pablo Gómez-Moreno is an expert consultant in international matters. He advises

sovereign states and companies in foreign policy and transnational disputes. He teaches at
Universidad de los Andes in Colombia. He can be contacted at
jp.gomez12[at]uniandes.edu.co.
56 Trade, Law and Development [Vol. 16: 55

A. SHIFT TOWARDS NATIONAL AND REGIONAL ALTERNATIVES

B. KNOWLEDGE ASYMMETRIES AND (UN)FAIR COMPETITION
C. CIRCUMVENTING EXISTING TRADE RULES
D. LIMITATIONS ON GLOBAL CONNECTIVITY
IV. THE ROLE OF EXISTING RULES
A. CHALLENGES
B. POTENTIAL SOLUTIONS
I. DIGITAL SOVEREIGNTY
II. PROMOTING CLEAR, TRANSPARENT STANDARDS
III. TACKLING TECHNICAL DISCRIMINATION
V. CONCLUSIONS

1. INTRODUCTION

The rapid development of the digital economy has placed the regulation of
international trade in digital goods and services at the forefront of the global political
agenda. The protection of citizens’ data and other types of privileged information,
including military, financial, or business-sensitive data, is a key concern for many
countries. However, the implementation of measures to safeguard such information
has led to the creation of digital borders, such as data localisation, content regulation,
geo-blocking, cyber-security laws, and data transfer restrictions. These measures
reflect states’ attempts to reclaim sovereignty over their regulatory domains and
safeguard national security. While these actions aim to address legitimate concerns,
they also raise questions about their implications for multilateralism and the free
flow of trade, including the potential emergence of digital protectionism and
discrimination against digital trade from third countries.

To fully grasp the significance of these developments, it is essential to understand

the terms “digital trade” and “e-commerce.” The WTO’s Work Programme on E-
Commerce defines e-commerce as “the production, distribution, marketing, sale or
delivery of goods or services by electronic means.”1 This definition is
comprehensive, encompassing various forms of digital trade, including cross-border
data flows. For the purposes of this research, this definition will be adopted.
Moreover, as noted by Kende & Sen, the terms “digital trade” and “e-commerce”
are often used interchangeably.2 While some scholarship distinguishes between the
two, this paper will treat them as synonymous, recognising that different regulators
may favor one term over the other to describe similar phenomena. This definitional
clarity establishes a foundation for analysing the regulation of digital trade within the

1 World Trade Organization, Work Programme on Electronic Commerce, WT/L/274, (Sept. 30,
1998).
2 Michael Kende & Nivedita Sen, Understanding Digital Trade and Data Flows, INTERNET

SOCIETY (2019).
Special Issue, 2024] The Rise of Digital Borders 57

broader context of international commerce. While some literature makes a

distinction between them, this article will disregard such a difference, considering
that regulators in different countries may prefer one expression over another to refer
to the same phenomenon.3

Against this backdrop, the regulation of digital trade and e-commerce must be
examined within a global narrative that increasingly prioritises national and regional
rules over multilateral approaches. By focusing on the growing phenomenon of
digital borders, this paper will explore their implications for global trade, national
sovereignty, and multilateralism, shedding light on the balance between protecting
legitimate state interests and preserving the principles of free and fair trade in the
digital age.

This article explores the rise of digital borders in the virtual sphere and their specific
implications in the context of international trade. It describes the formation of digital
borders and their impact on cross-border digital trade, considering the potential for
discrimination and trade barriers, including the negative effects of these policies on
actors lacking the resources to navigate complex market trade regulations, such as
developing countries and micro, small and medium-sized enterprises (MSMEs).
Further, the paper examines the role of international agreements and frameworks,
such as the World Trade Organisation (WTO) and its different agreements (Covered
Agreements), in addressing digital borders and promoting cross-border data flows.
This seeks to promote a debate on digital governance and a discussion on the
importance of striking a balance between protecting national security and reducing
barriers to international trade at a time when States are making strong territorial
claims.

This article is structured into four further parts. Part II provides an overview of the
importance of digital in today’s global economy, and the rise of digital borders,
including their concept, scope and rationale. Part III focuses on the effects of digital
borders on international trade and connectivity, exploring how they can exacerbate
existing competitive inequalities between market actors. Part IV examines the role
of existing WTO rules in addressing digital borders and promoting international
trade. Finally, the article offers some conclusions and key takeaways Importance of
digital trade and rise of digital borders

A. THE PREDOMINANCE OF DIGITAL TRADE TODAY

By 2020, digital trade accounted for approximately 64% of global service exports,

3Sherzod Shadikhodjaev, Technological Neutrality and Regulation of Digital Trade: How Far Can
We Go?, 32 EUR. J. INT’L L. 1221, 1221–1247 (2021).
58 Trade, Law and Development [Vol. 16: 55

with a total value of USD 676 billion.4 Digital trade has led to the emergence of new
products and services,5 playing a fundamental role in facilitating international
transactions and global interconnectedness. Consumers have benefited from a
streamlined form of trade, including the reduction of transaction costs in processes
like transportation and payment. Similarly, the effects of digital trade on the
elimination of boundaries have been significant. The suppression of geographical
limitations for producers to access new markets has allowed companies all over the
world to reach a larger base of customers.6 This has also had an impact on new
opportunities for innovation and entrepreneurship by providing a simpler platform
for digital startups and helping the faster dissemination of ideas, projects, and market
alternatives.7 Digital trade is also impacted by the development of specific forms of
technology and businesses. For instance, digital trade has been deeply influenced by
the internet.8 One prominent example is the rise of blockchain technology, which
enables secure and transparent transactions, facilitating cross-border trade by
reducing transaction costs and improving trust between parties.9 The development
of the internet has enhanced aspects of trade like an easier engagement with
customers, making online purchases, and catering goods and services to evolving
demands.
Another phenomenon that has been key to the development of digital trade and the
current economy is data processing. Data processing enables the efficient handling
and analysis of vast amounts of information, facilitating real-time decision-making
and personalised services in the digital marketplace. A critical aspect of this process
is the cross-border flow of data, which allows businesses to operate seamlessly across
international boundaries, accessing global markets and resources. However,
regulatory measures such as data localisation requirements can impede these flows,
potentially hindering the growth of digital trade. For instance, the Organisation for
Economic Co-operation and Development (OECD) notes that while cross-border
data flows underpin data sharing and promote digital trade, the challenge lies in
fostering a global digital environment that enables the movement of data across

4 U.N. Conference on Trade and Development, Trade Data for 2020 Confirm Growing Importance
of Digital Technologies during COVID-19 (Oct. 27, 2021).
5 Christopher Foster et al., Digital Control in Value Chains: Challenges of Connectivity for East

African Firms, 94(1) ECON. GEO. 68-86 (Dec. 18, 2017).

6 PETER WEILL & STEPHANIE WOERNER, What’s Your Digital Business Model?: Six

Questions to Help You Build The Next-Generation Enterprise (2018).

7 Id.
8 Susan Ariel Aaronson, The Digital Trade Imbalance and Its Implications for Internet Governance,

Global Commission on Internet Governance, 25 CHATHAM HOUSE (Feb. 2016).

9 Demirel, G, Ioannou, I., Blockchain and supply chain finance: a critical literature review at the

intersection of operations, finance and law, J. BANK FINANC TECHNOL (2022).

https://doi.org/10.1007/s42786-022-00040-1.
Special Issue, 2024] The Rise of Digital Borders 59

borders while ensuring adequate protection—a concept known as data free flow
with trust (DFFT).10

Authors have argued that cross-border flows of data have created more value for
the world economy than trade in goods.11 This reality is also reflected in several fields
such as the private and public sectors. In the modern corporate world, many
companies have acknowledged the financial value of data and appreciated it as an
essential asset of their business strategy. This is the case, for example, with
companies such as Facebook or Google, who have calculated their earnings in data
in billions of dollars per year.12 Authors have stated that “data are the lifeblood of
international trade in the digital age.”13 This shows the high-level significance of data
for firms and the level of protection it requires in their campaigns. The public sector
has also recognised the importance of data for promoting their interests. For
instance, data has become paramount in the measures adopted by political groups
and individuals in getting to know better the preferences of their potential electors.
Additionally, institutions from this sector such as regulatory agencies use data as a
valuable tool to understand the key parameters of a country, for example, the level
of income and rate of employment. This is fundamental in the design and
implementation of public policies, such as subsidies, welfare programs, tax
collection, etc.14

Data and technology benefit not only firms and governments but also society by
enabling global connectivity and access to information. The internet and social
media help individuals stay informed, reinforcing the concept of a global village
shaped by globalisation. Beyond practical uses, technology secures personal freedom
and facilitates access to fundamental rights, underscoring its societal value. For
individuals, technology is not only important due to its instrumental capacity but
also because it allows them to secure freedom.15

10 OECD, Cross-Border Data Flows, https://www.oecd.org/en/topics/cross-border-data-

flows.html.
11 James Manyika et al., Digital Globalization: The New Era of Global Flows, MCKINSEY DIGITAL

(Feb. 24, 2016), https://www.mckinsey.com/business-functions/mckinsey-digital/our-

insights/digital-globalization-the-new-era-of-global-flows.
12 Smith, M., Identity in a Digital World: A New Chapter in the Social Contract, WORLD ECON. F.

(Aug. 2018),
https://www3.weforum.org/docs/WEF_INSIGHT_REPORT_Digital%20Identity.pdf
13 Abendin, J. & Duan, J., Data Sovereignty and International Trade,24(1) J. INT’L ECON. L. 5, 1-

26 (2021) [hereinafter Abendin & Duan]

14 OECD, Tax Administration 2019: Comparative Information on OECD and Other Advanced and

Emerging Economies (2019).

15 LUCIANO FLORIDI, The Fourth Revolution: How the Infosphere is Reshaping Human

Reality (2014).
60 Trade, Law and Development [Vol. 16: 55

At the same time, digital means have become essential to access fundamental rights
and other similar protections. Education is a typical example of this. Most learning
platforms nowadays are open-access, and populations with limited access to the
internet face undue burdens in using them. The same applies to entrepreneurship
and the digital economy, where MSMEs may not access specific markets due to
constraints related to technology.16 For instance, in rural areas of the Global South,
micro-entrepreneurs often struggle to utilise e-commerce platforms effectively due
to limited digital infrastructure and lack of technical skills, hindering their ability to
reach wider markets. 17 Similarly, in Namibia, rural entrepreneurs face challenges in
adopting ICT-enabled services because of inadequate access to technology and
insufficient digital literacy, restricting their participation in the digital economy.18
Additionally, in the United Kingdom, SMEs encounter difficulties in adopting big
data and analytics due to limited resources and expertise, which can impede their
competitiveness in digitally advanced markets.19

This varies from basic inputs like the internet – which allows some companies to
offer their products to a wider audience – as well as more sophisticated forms of
technology.

B. WHAT ARE DIGITAL BORDERS?

There is little literature on the concept of digital borders. The idea has not been
proposed in the relevant literature and features related to it have not been discussed
yet. For the purposes of this paper, digital borders are simply understood as
measures enacted by States and resulting from their regulatory framework that have
the effect of limiting the free flow of information, including the trade of digital goods
and services. In the context of international trade, these measures would be typically
referred to as ‘barriers’ (to trade), not borders. However, this article uses this
language because, in the context of cross-border data flows, what they do is create
de facto borders between users.

16 U.N. Conference on Trade and Development, Technology and Innovation Report 2021: Catching
Technological Waves - Innovation with Equity, (2021).
17 From Digital Divide to Digital Justice in the Global South: Conceptualising Adverse Digital

Incorporation, ARXIV (2021), https://arxiv.org/abs/2108.09783.

18 An Exploration of Factors Influencing the Adoption of ICT Enabled Entrepreneurship Applications in

Namibian Rural Communities, ARXIV (2021), https://arxiv.org/abs/2108.09789.

19 Trends of Digitalization and Adoption of Big Data & Analytics Among UK SMEs: Analysis and

Lessons Drawn from a Case Study of 53 SMEs, ARXIV (2020),

https://arxiv.org/abs/2002.11623.
Special Issue, 2024] The Rise of Digital Borders 61

Digital borders are not good or bad in themselves. They just reflect a reality where
certain concerns lead to the establishment of obstacles to the free flow of
information. While this article largely questions the rise of digital borders and their
impact on a series of issues such as free trade and, most importantly, people’s access
to information and free data flows, it does not take the stance that the imposition of
digital borders is bad per se. On the contrary, as will be discussed in depth in the
closing Part of this work, an important consideration to reduce these barriers is
paying attention to the rationale behind them and offering States legitimate and
reasonable alternatives.

These measures can take many forms. Indeed, it is common nowadays to see
governments coming up with new and creative ways to raise digital borders. They
may relate to a variety of assets ranging from data to computer centres, servers, and
other forms of digital infrastructure. This makes it necessary to have clear definitions
of concepts related to said measures like algorithms and source codes. On the one
hand, algorithms refer to a set of instructions that must be followed by a program
to complete a task. On the other hand, source codes are written by programmers
and they each represent the language used in creating software.20 Some of these
source codes are only accessible to firms that developed them (proprietary codes),
and others are available to anyone (open access codes).21 Digital borders,
encompassing regulations that control the flow of digital information across national
boundaries, significantly impact the accessibility and transferability of source code.
Certain trade agreements include provisions that restrict member countries from
mandating the transfer of, or access to, proprietary source code as a condition for
market entry. These measures aim to protect intellectual property rights and prevent
forced technology transfers, thereby fostering innovation and safeguarding
competitive advantages.22 However, such restrictions can also impede regulatory
efforts that require access to source code for purposes like ensuring transparency,
security, and accountability in software applications. For instance, limitations on
accessing source code may hinder the ability of governments to audit algorithms for
biases or security vulnerabilities, potentially affecting public trust and safety.23
Some typical examples of digital borders that will be discussed in this article are the
following:

20 Amandeep Singh et. al., Open Source Software vs Proprietary Software, 114(18) INTL. J. COMPUT.
APPLICATION 26-31 (Mar. 2015).
21 Abendin & Duan, supra note 13, at 11.
22 Joshua Levine et al., Non-tariff Digital Trade Barriers, (Nov. 14, 2023)
https://www.americanactionforum.org/insight/non-tariff-digital-trade-barriers/.
23 Algorithms Off-limits? If digital trade law restricts access to source code of software, then accountability

will suffer, INST FOR INFO. L. (2022), https://www.ivir.nl/publications/algorithms-off-limits-

if-digital-trade-law-restricts-access-to-source-code-of-software-then-accountability-will-
suffer/.
62 Trade, Law and Development [Vol. 16: 55

1. Data localisation policies – Regulations that require certain types of data to be

stored and processed within the geographic boundaries of a particular
country or region. These policies mandate that data generated or collected
within the jurisdiction must be stored on local servers or data centers, rather
than being transferred or stored in other countries.24

2. Geographic restrictions on digital content – Limitations imposed on accessing or

distributing digital content based on the geographical location of the user
or the content itself. The most common form of geographic restriction is
content blocking or geo-blocking, which involves preventing users from
certain regions or countries from accessing specific digital content, such as
streaming services, online platforms, or e-commerce websites.25

3. Data-related regulations – Restrictions on the treatment of personal data,

including its transfer to foreign jurisdictions, encompassing data protection
standards, cybersecurity laws, and measures to prevent cyber threats such
as obligations on businesses and organisations regarding the collection,
storage, and processing of personal data.26

4. Content screening – Policies that restrict the availability or dissemination of

certain types of digital content, such as explicit or copyrighted materials.27
Some governments employ content filtering and censorship mechanisms to
control the availability of certain types of digital content, including blocking
access to websites, social media platforms, or specific content deemed
inappropriate.28

While digital borders in the form of data localisation policies, geographic restrictions
on digital content, data-related regulations, and content screening measures may be
motivated by legitimate concerns, they can have detrimental effects on international
trade, access to information, innovation, and fundamental rights. Data localisation
policies create barriers to the free flow of data across borders, hindering cross-
border data transfers and limiting the global reach of businesses.29 As a result,

24 Komaitis, K. The ‘wicked problem’ of data localisation, 2(3) J. CYBER POL’Y 355-365 (2017).
25 Ondrej Hamulak et al., ‘This Content is not Available in your Country’ A General Summary on
Geo-Blocking in and Outside the European Union 21(1) INTL. COMPAR. L. REV., 153-183 (2021).
26 CHRISTOPHER KUNER, TRANSBORDER DATA FLOWS AND DATA PRIVACY LAW (2013)

https://doi.org/10.1093/acprof:oso/9780199674619.001.0001.
27 Des Freedman et al. The impact of the Internet on media policy, regulation and copyright law, in THE

INTERNET AND THE MASS MEDIA 102-121 (Lucy Kung et al. eds. 2008).
28 Ververis, V. et al., Cross-Country comparison of Internet censorship: A literature review, 12(4) POL’Y

& INTERNET 450-473 (2020).

29 Potluri, S. R. et al., Effects of data localization on digital trade: An agent-based modeling

approach, 44(9) TELECOM M POL’Y (2020), https://doi.org/10.1016/j.telpol.2020.102022.

Special Issue, 2024] The Rise of Digital Borders 63

companies may face increased costs and complexities in complying with multiple
data storage requirements, leading to reduced efficiency and competitiveness.30
Moreover, data localisation can fragment the digital economy, impeding innovation,
collaboration, and the development of new technologies that rely on seamless data
exchange. These barriers can stifle economic opportunities, hinder market access,
and limit the potential for digital businesses to scale and expand globally.

Data localisation often requires companies to store or process data within a country’s
borders, creating silos that disrupt the free flow of information across jurisdictions.
This not only increases operational costs for businesses—particularly multinational
companies—but also limits their ability to leverage global data centers or cutting-
edge technologies that may be located abroad.31 It is important to note that data
localisation does not necessarily imply a blanket ban on transferring data outside
domestic territory. Instead, many regimes allow for conditional cross-border data
transfers, contingent upon compliance with specific safeguards, such as adequate
privacy protections, contractual obligations, or government approvals.32

Geographic restrictions on digital content, such as content blocking or geo-blocking,

can significantly limit access to information, services, and opportunities for
individuals and businesses in specific regions or countries. This form of digital
border creates a fragmented digital landscape, where users are denied access to
certain online platforms, streaming services, or e-commerce websites based on their
geographical location. Such restrictions undermine the principles of an open and
inclusive internet, inhibiting cross-border communication, cultural exchange, and
the free flow of knowledge.33 They can also perpetuate inequalities by denying
individuals in certain regions the benefits of digital content and impeding their ability
to participate fully in the global digital economy.34 Similarly, content screening
measures aimed at filtering or censoring specific types of digital content can have

30 Matthias Bauer et al., The costs of data localisation: Friendly fire on economic recovery, in ECIPE
OCCASIONAL PAPERS, EUR CTR FOR INT’L POL. ECON. (2014).
31 Mira Burri, The Regulation of Data Flows Through Trade Agreements, 48 GEO. J. INT’L L. 107,

125 (2017).
32 OECD, Exploring the Economic Impacts of Data Localisation, OECD Digital Economy Papers

No. 233, https://www.oecd.org/sti/ieconomy/Exploring-the-Economic-Impacts-of-Data-

Localisation.pdf.
33 Giuseppe Mazziotti, Is geo-blocking a real cause for concern in Europe?, 43 EUI LAW (2015).
34 GIOVANNI DE GREGORIO, Regulating Geo-Blocking Discriminatory Practices In The Digital Single

Market, in RESEARCH HANDBOOK ON EU MEDIA LAW AND POLICY 190 - 207 (Elda Brogi &
Pier L. Parcu eds., 2021).
64 Trade, Law and Development [Vol. 16: 55

profound implications for freedom of expression, access to information, and the

open exchange of ideas.35

Content screening measures, when implemented to protect legitimate interests such

as national security, often focus on restricting access to content that incites violence,
promotes terrorism, or poses cyber threats.36 For instance, governments may require
the removal of extremist propaganda or hate speech to safeguard public safety and
state stability. However, such measures must adhere to principles of legality,
necessity, and proportionality to ensure compliance with international human rights
standards.37 While narrowly tailored policies can effectively address security
concerns, overly broad or vague regulations risk suppressing dissent, stifling
freedom of expression, or limiting access to information under the pretext of
national security.38 Transparency and accountability in enforcing these measures are
essential to maintaining a balance between addressing legitimate threats and
protecting fundamental rights.39

Lastly, while data-related regulations, such as data protection standards and

cybersecurity laws, play a crucial role in safeguarding individuals’ privacy and
ensuring the security of digital transactions, they can impose significant compliance
burdens on businesses operating across borders.40 Inconsistent and divergent data
regulations across different jurisdictions can lead to a complex web of legal
requirements, making it challenging for companies to navigate and comply with
varying standards. This can increase compliance costs, hinder cross-border data
transfers, and limit the ability of businesses to leverage data for innovation and
growth. Moreover, overly restrictive data regulations may unintentionally impede the
sharing of valuable information for research, public health, and other societal
benefits, limiting the potential of data-driven initiatives to address global
challenges.41 For instance, during the COVID-19 pandemic, the rapid development
and distribution of vaccines relied heavily on the cross-border sharing of genomic

35 Virgílio Almeida et. al., The ecosystem of digital content governance, 25(3) IEEE INTERNET
COMPUTING, 13-17 (2021).
36 U.N. Office of the High Commissioner for Human Rights (OHCHR), Report on the Right

to Freedom of Opinion and Expression, A/HRC/23/40 (2013).

37 Human Rights Committee, General Comment No. 34: Article 19 (Freedoms of Opinion and

Expression), U.N. Doc. CCPR/C/GC/34 ¶¶ 21-22 (2011).

38 DAVID KAYE, SPEECH POLICE: THE GLOBAL STRUGGLE TO GOVERN THE INTERNET 102

(2019).
39 U.N. Special Rapporteur on Freedom of Opinion and Expression, Report on Encryption,

Anonymity, and the Human Rights Framework, A/HRC/29/32 (2015).

40 Elizabeth Pollman, Tech, regulatory arbitrage, and limits, 20 EUR. BUS. ORG. L. REV. 567-590

(2019).
41 Willem G. van Panhuis et al., A systematic review of barriers to data sharing in public health. 14(1)

BMC PUB. HEALTH 1-9 (2014) p. 2.

Special Issue, 2024] The Rise of Digital Borders 65

data, clinical trial results, and epidemiological information.42 Data localisation

requirements or restrictions on international data flows could have delayed this
process, hindering the global collaboration needed to combat the pandemic
effectively.43 This example highlights the critical balance needed between
safeguarding privacy and national security and enabling the free flow of data to
support collective problem-solving on a global scale. Most of these considerations,
as well as their impact on international trade and how existing regulatory
mechanisms may be used to address them, will be considered in the following Parts
of this article.

C. WHAT ARE THE POLICY REASONS BEHIND DIGITAL BORDERS?

Regulatory authorities are facing significant challenges in keeping pace with the rapid
technological developments of the digital era. Consequently, the intricacies of
emerging technologies have resulted in regulatory gaps. For instance, some argue
that the WTO’s rules have not kept pace with the evolution of international digital
trade, meaning that stakeholders basing their policies in the framework of the
Covered Agreements have been left helpless.44
One notable example is the lack of comprehensive rules addressing data localisation
requirements and cross-border data flows. The WTO’s General Agreement on
Trade in Services (GATS) provides a framework for trade in services, but it does not
explicitly address the complexities of digital services, such as cloud computing or
data-driven platforms.45 Similarly, while the WTO’s moratorium on customs duties
for electronic transmissions has been in place since 1998, it has faced growing
criticism for being outdated, as it does not account for the economic realities of
modern digital trade, such as the classification of digital goods versus services.46
Moreover, disputes like the United States v. China case concerning technology transfer

42 World Health Organization, Genomic Sequencing of SARS-CoV-2: A Guide to Implementation

for Maximum Impact on Public Health (Jan. 8, 2021),
https://www.who.int/publications/i/item/9789240018440.
43 How Barriers to Cross-Border Data Flows Are Spreading Globally, What They Cost, and How to

Address Them, Information Technology and Innovation Foundation (2021),

https://itif.org/publications/2021/07/19/how-barriers-cross-border-data-flows-are-
spreading-globally-what-they-cost/.
44 Gary Clyde Hufbauer & Zhiyao (Lucy) Lu, The European Union’s Proposed Digital Services Tax:

A De Facto Tariff, PETERSON INST. INT’L ECON. POL’Y BRIEF (2018) [hereinafter Hufbauer
& Lu].
45 General Agreement on Trade in Services, Apr. 15, 1994, Marrakesh Agreement

Establishing the World Trade Organization, Annex 1B, 1869 U.N.T.S. 183.
46 WTO, Moratorium on Customs Duties on Electronic Transmissions,
https://www.iisd.org/articles/policy-analysis/wto-moratorium-customs-duties-electronic-
transmission.
66 Trade, Law and Development [Vol. 16: 55

have exposed gaps in the WTO’s ability to handle issues related to intellectual
property in the context of digital trade.47 These examples illustrate the challenges
stakeholders face when relying on outdated frameworks to navigate the rapidly
evolving digital economy.
Even though many times regulatory authorities have a limited understanding of
emerging technologies, they have witnessed their impact on society and the
economy. Sharing economies in key industries such as transportation and real estate
have caused business concerns for traditional groups, while the influence of data on
public opinion, including political purposes, has been recognised. Such a regulatory
gap has led governments to react with fear, resulting in the introduction of restrictive
policies on digital assets.

i. Claiming State sovereignty

Governments’ attitudes towards emerging technologies and the regulatory gap can
be largely attributed to a misconception of sovereignty. While retaining sovereignty
is the cornerstone of a State, many authorities think that emerging technologies pose
a risk to their sovereign rights as they move a significant number of things beyond
the State’s capacity of surveillance and control. However, this is not merely a
perception; evidence from existing literature demonstrates that emerging
technologies, such as blockchain, cloud computing, and cross-border data flows,
have indeed shifted significant matters beyond the traditional jurisdictional reach of
States.48 The misconception lies in equating the inability to control all aspects of
these technologies with a complete erosion of sovereignty, rather than recognising
the need for adaptive regulatory frameworks that balance sovereignty with the
realities of a globalised, technology-driven landscape. This misunderstanding
underscores the necessity for policymakers to reimagine sovereignty in the context
of digital governance to address regulatory gaps effectively.
For example, with the rise of digital assets and revolutionary technologies such as
crypto and digital banks, States have lost track of how money flows within their
economy, which poses difficulties for matters like collecting taxes. Beyond these tax-
related difficulties, digital assets also pose additional risks that demand urgent
attention. The rapid market disruptions characteristic of these assets highlight the
need for transparency and robust regulatory frameworks. The lack of uniform data
disclosure standards across platforms further complicates aggregate analysis, making
it difficult for regulators to develop comprehensive and enforceable policies.

47 Panel Report, China — Certain Measures Concerning the Protection of Intellectual Property Rights,
WTO Doc. WT/DS542/R.
48 Mira Burri, The Regulation of Data Flows Through Trade Agreements, 48 GEO. J. INT’L L. 107,

125 (2017); ANUPAM CHANDER, THE ELECTRONIC SILK ROAD: HOW THE WEB BINDS THE
WORLD TOGETHER IN COMMERCE 102 (2013) [hereinafter Anupam].
Special Issue, 2024] The Rise of Digital Borders 67

Moreover, the pseudonymous nature of many digital assets creates opportunities for
money laundering, terrorism financing, and tax evasion, raising serious concerns for
national security and financial stability. These risks underscore the critical
importance of establishing global standards and cooperative mechanisms to ensure
that digital assets contribute positively to economic development while minimising
potential harm.
This problem has been called by many names by different authors. For instance,
various relevant literature refers to the intangibility, extraterritoriality, and
exceptionality of data. As described by Kristen Eichensehr, “the problem is not that
data is located nowhere, but that it may be located anywhere, and at least parts of it may
be located nearly everywhere.”49 This is exemplified by precedents where multiple
authorities have made simultaneous jurisdictional claims on data-related matters. A
leading case in this regard was that of United States v. Microsoft, where a dispute
concerning a claim of the US government to obtain electronic communications
stored by the company on a server in Ireland made it to the Supreme Court of the
first State.50

Sovereignty has long been associated with the concept of territoriality, a key element
in determining and delimiting a State’s sovereign powers.51 Traditional legal
categories, mostly in areas like public international law, make it challenging to
reconcile digital trade and territoriality. The digitalisation of the economy represents
a risk to sovereignty as it threatens to dissolve the idea of territory. The question
then is: how is the State expected to exercise its jurisdiction over intangible assets?
This expectation of territoriality is evident in specific branches of the regulatory
arena, such as labour law. Labour law is highly regulated, and little is left to the free
will of employers. In many countries, labour rights cannot be negotiated freely
between employer and employee, as there are rights that cannot be waived, such as
the minimum wage. Similarly, the State expects to exercise significant control over
labour matters, such as the terms of employment of its nationals. However, emerging
technologies could make most of these pillars tremble, giving place to a need for
new and enhanced regulations.52 Alternative payment methods allow employers to
keep the terms of payment of their employees reserved. Additionally, outsourcing,
which represents a great problem for traditional employment terms, enables
companies to hire services from people in other jurisdictions, which poses challenges

49 Kristen E. Eichensehr, Data Extraterritoriality, 95 TEXAS L. REV.145 (2017).

50 Sharon Bradford Franklin, The Microsoft-Ireland Case: A Supreme Court Preface to the
Congressional Debate, LAWFARE (Feb. 22, 2018).
51 Allen Buchanan & Robert O. Keohane The legitimacy of global governance institutions, 20(4)

ETHICS & INT’L AFF., 405-437 (2006).

52 J. Berg, Protecting Workers in the Digital Age: Technology, Outsourcing, and the Growing

Precariousness of Work 41 COMP. LAB. L. & POL’Y J. 69 (2019).

68 Trade, Law and Development [Vol. 16: 55

for States regarding labour regulation.53 Changing from a context of high control to
uncertainty is problematic for traditional labour enforcement agencies.

Similarly, in the intellectual property (IP) arena, there are significant questions about
the territoriality of copyright. Rules are unclear regarding issues such as the
applicable law in cases where there is the use or sharing of information within several
jurisdictions. Governments advocating for data localisation requirements have used
sovereignty as a main argument, stating that storing their citizens’ data in servers
located outside their territory would hinder their sovereignty. For instance, under
Law No. 242-FZ, Russia requires all domestic and foreign companies to accumulate,
store, and process personal data of its citizens on servers physically located within
Russian borders.54

Sovereignty concerns are also visible in the field of digital taxes or the taxation of
digital goods and services. Therefore, sovereignty claims refer to a state’s assertion
of its authority to regulate and control matters within its jurisdiction, particularly
concerning issues like taxation, citizens’ rights, and national security.55 These claims
often overlap with broader concerns, as regulating multinational corporations and
safeguarding public interests are inherent aspects of sovereignty. For instance, the
2016 European Commission decision requiring Apple to pay €13 billion in back
taxes to Ireland illustrates how sovereignty claims can conflict with supranational
frameworks aimed at ensuring fair competition and transparency. Such cases
highlight the challenge of balancing national sovereignty claims with adherence to
international regulations in an interconnected global economy.56

The key problem here is that transactions in cyber-space make it difficult for a
regulatory agency or alike to trace the flow of funds between users, which could
promote tax evasion. While economic development should not burden the free flow
of data, there is a backdrop of scandals involving tax evasion by big tech companies
that is unsettling for regulatory agencies. The 2016 EU measure ordering Apple to
pay back taxes to Ireland is a clear example.57

ii. Protecting citizens’ rights

53 A. L. Kalleberg, Precarious Work, Insecure Workers: Employment Relations in Transition,

83 AM. SOCIO. REV. 22 (2018).
54 Michael Newton, Russian Data Localization Laws: Enriching “Security” & the Economy, HENRY

M. JACKSON SCH. OF INT’L STUD (Feb. 28, 2018).

55 Sovereignty Claim, COLLINS ENGLISH DICTIONARY,
https://www.collinsdictionary.com/dictionary/english-word/sovereignty-claim
56 European Commission, State aid: Ireland gave illegal tax benefits to Apple worth up to €13 billion,

(Aug 30, 2016) https://ec.europa.eu/commission/presscorner/detail/en/IP_16_2923.

57 Id.
Special Issue, 2024] The Rise of Digital Borders 69

On the other hand, there are arguments that highlight the importance of protecting
citizens’ rights. The use of data in digital transactions has become increasingly
important in the digital economy. With the rise of big data, companies are now able
to collect, store, and analyse vast amounts of data to gain insights into consumer
behaviour and preferences.58 This has raised concerns over privacy and consumer
rights as users are often unaware of how their data is collected and used.59
Regulators and civilians alike have been shocked by the reality of the business behind
data. In response, some countries have implemented strong data protection regimes
to prevent abuses by companies. For example, the European Union has
implemented the General Data Protection Regulation (GDPR) to protect the
privacy and personal data of its citizens. The GDPR establishes strict rules for the
collection, processing, and transfer of personal data, and imposes heavy fines on
companies that violate these rules. European countries have been harsh in the
implementation of these policies, fining Google a sum of EUR 50 million in 2018
for failing to disclose to users how their data was collected.60 However, despite these
efforts, the reality is that most users in other parts of the world remain unaware of
the true extent of data collection and processing, and the potential risks that come
with it.61 This is concerning as data analysis can reveal sensitive information about
individuals, such as their political affiliations or sexual orientation, which can then
be used to manipulate them through targeted marketing or even blackmail.62
Moreover, data breaches and cyber-attacks pose a serious threat to individual privacy
and corporate security. In recent years, there have been several high-profile data
breaches, such as the Equifax breach in 2017, which compromised the personal data
of millions of people. These breaches expose individuals to the risk of identity theft
and financial fraud, among others.

iii. Safeguarding national security

Lastly, digital borders are also said to be justified on grounds of national security.
Interestingly, discourses of safeguarding national security have been used by States

58 David Lyon, Surveillance, Snowden, and Big Data: Capacities, consequences, critique. 1(2) BIG DATA
& SOC’Y 1-13 (2014), https://doi.org/10.1177/2053951714541861.
59 Javier López González & Janos Ferencz, Digital trade and market openness, 217 OECD (2018),

http://dx.doi.org/10.1787/1bd89c9a-en.
60 Adam Satariano, Google Is Fined $57 Million under Europe’s Data Privacy Law, N.Y. TIMES (Jan.

21, 2019).
61 Nili Steinfeld, “I agree to the terms and conditions”: (How) do users read privacy policies online? An

eye-tracking experiment, 55(B) COMPUT. IN HUM. BEHAV. 992 –1000 (2016).

62 Nir Kshetri, Big data’s impact on privacy, security and consumer welfare 38(11), TELECOM M POL’Y

1134-1145.
70 Trade, Law and Development [Vol. 16: 55

to promote the protection of sensitive information such as secrets of State and

military data through trade-restrictive measures. The same happened with corporate
data, which was protected by most domestic and regional laws given the sensitivity
of information like trade secrets for market purposes.63
In many countries, there are now categories of specially protected data like
information about a person’s health, political thoughts or religious beliefs. However,
the internet and social media opened the possibility of sharing large amounts of
information about one or more persons without being able to filter this risk or enable
any protections. At the same time, digital platforms are designed to take that data,
store it, and analyse it for specific purposes like marketing.64
Against this backdrop, how are national security interests at stake? It is not
impossible that data treatment can put at risk the stability of an entire country. The
case of Cambridge Analytica unravelled this reality as it refers to a firm in charge of
managing data using and secretly keeping information of millions of Facebook users.
Following the scandal, media reported how thousands of profiles were used to
manipulate voters in elections in several countries like Malaysia, Kenya, and Brazil,
as well as the alleged Russian intervention in the 2016 US presidential election.65
Another case of interest in this regard is that of Wikileaks,66 which revealed sensitive
information about government surveillance and the protection of sensitive
information, leading to public outrage due to secret information on issues like the
wars in Iraq and Afghanistan.

III. THE IMPACT OF TRADE BARRIERS ON INTERNATIONAL TRADE AND

GLOBAL CONNECTIVITY

A. SHIFT TOWARDS NATIONAL AND REGIONAL ALTERNATIVES

To discuss the impact of trade barriers on international trade and connectivity, it is

important to consider the historical context of multilateral trade and its paradigm.
After World War II, international trade was characterised by free trade and the
absence of barriers to trade.67 Institutions resulting from global agendas like Bretton
Woods were rooted in the idea of promoting exchanges between countries
seamlessly, with trade barriers being the exception and not the rule. As recognised

63 Sanford J. Grossman & Oliver D. Hart, The costs and benefits of ownership: A theory of vertical
and lateral integration, 94(4) J. OF POL. ECON. 691-719 (1986).
64 VIKTOR MAYER-SCHONBERGER & KENNETH CUKIER, BIG DATA: A REVOLUTION THAT

WILL TRANSFORM HOW WE LIVE, WORK, AND THINK (2013).

65 Carole Cadwalladr, Fresh Cambridge Analytica Leak “Shows Global Manipulation Is out of

Control”, THE GUARDIAN (Jan. 4, 2020) https://www.theguardian.com/uk-

news/2020/jan/04/cambridge-analytica-data-leak-global-election-manipulation.
66 Lyon DThe Snowden leaks and the US empire, 8 INT’L J. OF COMMC’N 1728-1736 (2014).
67 Michael D. Bordo & Harold James, A Retrospective on the Bretton Woods System: Lessons for

International Monetary Reform 24(4) J. ECON. PERSP. (2010).

Special Issue, 2024] The Rise of Digital Borders 71

by the WTO’s Appellate Body (AB), one of the objectives of the system was to “put
an end to the fragmentation.”68
Many governments promoted the free exchange of goods and services. Big
economies, such as the UK and US, followed an open-frontier and neoliberal
policy.69 These key agendas set the stage for the globalisation of trade and the
emergence of multilateral institutions such as the WTO. But there were also shifts
in emerging markets and developing countries. Many Latin American countries
opened their borders and became a part of the multilateral community.70 One
notable example is the establishment of the Mercosur trade bloc in South America
in 1991, which brought together Argentina, Brazil, Paraguay, and Uruguay in a
commitment to free trade and economic integration.

However, in recent years, the pillars of this paradigm have been shaken by the
imposition of important trade barriers, creating de facto blockages to free and
multilateral trade. This shift towards nationalism has been accompanied by
discussions about the return to an economy focused on domestic industries and local
productivity.71 The fact that new developments in trade and the digitalisation of the
economy coincide with this trend towards nationalism is not something to be taken
lightly, as it has important implications for the regulation of digital trade. As such, it
is necessary to consider the effects of digital borders as part of this global trend
towards nationalism. The imposition of tariffs and other trade restrictions has
become a popular tool among some of the world’s largest economies, creating
significant tensions in the global trading system. For example, the US has imposed
tariffs on Chinese goods in an effort to reduce the trade deficit, while China has
responded with its retaliatory measures.72 The UK’s decision to leave the EU has
also raised concerns about the future of trade relations in the continent.73 At the
same time, many countries are rethinking their approach to international trade, with
some advocating for greater protectionism and a focus on supporting domestic
industries. This shift towards nationalism in trade policy has been identified as a

68 Appellate Body Report, Brazil —Measures Affecting Desiccated Coconut, WTO Doc.
WT/DS22/AB/R, ¶18 (adopted Feb. 21, 1997).
69 Manfred B. Steger & Ravi K. Roy, NEOLIBERALISM: A VERY SHORT INTRODUCTION (2nd

ed. 2017).
70 FREDERICK STIRTON WEAVER, LATIN AMERICA IN THE WORLD ECONOMY:

MERCANTILE COLONIALISM TO GLOBAL CAPITALISM (LATIN AMERICAN PERSPECTIVE)

(2006).
71 Maurice Obstfeld, Globalization and Nationalism: Retrospect and Prospect, 39(4) CONTEMP.

ECON POL’Y 675690 (2021).

72 Larisa Kapustina et al., China trade war: Causes and outcomes73 SHS WEB OF CONF. (2020).
73 David Blake, How bright are the prospects for UK trade and prosperity post-Brexit? 8(1) J. OF SELF-

GOVERNANCE MGMT ECON. 7-99 (2020).

72 Trade, Law and Development [Vol. 16: 55

global trend by trade theorists.74 The digitalisation of the economy has also had a
significant impact on the way trade is conducted, and the intersection of these two
trends creates new challenges in shaping digital trade. Additionally, trade experts
have also highlighted a separate, yet similar, trend towards regional alternatives
which is of particular popularity in matters of e-commerce.

An example of this is the US, where there are varying data protection rules across
different jurisdictions.75 Developed countries have promoted their own agendas
through plurilateral trade agreements, particularly on the free flow of data by
restricting measures such as national localisation requirements and government use
of data.76 This trend aligns with calls for plurilateralism as an alternative to the
WTO,77 which allows powerful WTO members to promote new rules from the
OECD and FTAs without requiring market access concessions.78 Notably, this
approach may reinforce the dominant position of tech giants who collect vast
amounts of data, potentially undermining consumer rights. There are additional
regional initiatives of interest in the regulation of the digital economy, such as the
Trans-Pacific Partnership (CTPP), which contains regulations that secure the free
flow of information and prevent policies on data localisation.79 An example is Article
14.11, which incorporates a specific restriction on the ability of governments to
restrain the cross-border flow of data. There is also a rule preventing the parties
from asking software companies for access to their source codes. Similar provisions
are in other regional agreements like the Trade in Services Agreement (TiSA).

B. KNOWLEDGE ASYMMETRIES AND (UN)FAIR COMPETITION

As discussed in the previous section, free trade has been the paradigm of
international trade for years. Trade, back then, was thought of as an exchange of
money for a specific catalogue of goods or services. Therefore, regulations
previously were mostly focused on tangible goods like semiconductors, agricultural
products and textiles. There is no doubt, however, that there have been important
developments in the way we think of objects that could be defined as goods or

74 Dani Rodrik, Populism and the economics of globalization, 1(1) J. INTL. BUS. POL’Y 12-33 (2018).
75 Carsten Rhod Gregersen, The US Is Leaving Data Privacy to the States and That’s a Problem,
BRINK: THE EDGE OF RISK (2019) https://www.brinknews.com/the-us-is-leaving-data-
privacy-to-the-states-and-thats-a-problem/.
76 Meriong Guo, A Comparative Study on Consumer Right to Privacy in E-Commerce 3(4) MOD.

ECON. 402–407 (2012) [hereinafter Guo].

77 Rudolf Adlung & Hamid Mamdouh, Plurilateral Trade Agreements: An Escape Route for the

WTO? 52(1) J. WORLD TRADE 85 (2018).

78 Jane Kelsey, The illegitimacy of joint statement initiatives and their systemic implications for the WTO,

25(1)J. INTL. ECON LAW5, 2-24 (2022).

79 Gary Clyde Hufbauer & Cathleen Cimino-Isaacs, How will TPP and TTIP Change the WTO

System? 18(3) J. INTL. ECON L. 679-696 (2015).

Special Issue, 2024] The Rise of Digital Borders 73

services. For instance, the introduction of IP supposed an important shift in this

model because it relates to many intangible assets. To that end, specific rules and
institutions dealing with it were created.
But nowadays we face an even more complex challenge. Digital trade questions even
the existence of a good and its classification. Janow and Mavroidis use the example
of 3D printing to show this problem. They say, “think of a US company engaging
in 3D for a client in Switzerland. Is a service being exported when recourse to 3D is
made, or a good being imported?”80 The same happens with other platforms like
Kindle, which once again blurs the line between goods and services as arguably there
is no clear-cut distinction between the e-books and the platform as such. This poses
significant challenges for traditional trade rules and institutions.

If there is no clear rule on whether we are dealing with a good or a service, then
which rules should relevant stakeholders apply to handle situations related
therewith? The Covered Agreements have a rather clear distinction between
instruments dealing with goods—as is the case of the General Agreement on Tariffs
and Trade (GATT)—and services—which are regulated in the General Agreement
on Trade in Services (GATS). This is precisely one of the reasons why, according
to standing research, current trade rules would not be equipped to deal with
digitalisation.81

Relevant literature and past case laws have also clarified how different some of the
rules are in each agreement, even if they share some similarities. In the end, this
reflects a problem of a regulatory nature because policymakers basing their decisions
in the framework of the Covered Agreements are left clueless when it comes to the
regulation of digital trade and related matters. In other words, States and institutions
interested in creating rules and regulations for international trade in digital markets
do not know how to address the complexities of the digital economy. Since the
failure of the Doha Round of multilateral negotiations, several stakeholders at the
WTO have been concerned about alternative routes to prevent trade barriers in
digital trade.82 Developing countries, for instance, have raised concerns about the
effects of the Moratorium imposed on electronic transactions in revenue collection
and want to better understand how this issue affects their economies.83 On the other
hand, the development of digital assets has created a disparity between countries

80 Merit E. Janow & Mavroidis PC, Digital Trade, E-Commerce, the WTO and Regional Frameworks
18 WORLD TRADE REV S1-S7 (2019).
81 Ismall, supra note 3, at 7.
82 Surendra Bhandari, The Doha Round Negotiations of the World Trade Organization: Free

or Managed Trade?, SSRN ELEC. J. 1-22 (2012).

83 General Council, Work programme on electronic commerce: The E-commerce

moratorium and implications for developing countries WTO Doc. WT/GC/W/774 (June
4, 2019).
74 Trade, Law and Development [Vol. 16: 55

with more developed digital economies and those with less developed ones, making
it more difficult for the latter to access markets. In consequence, measures to
incentivise digital borders create higher restrictions on market access for these less-
developed (LDCs) or developing countries. This presents a problem for fair
competition in international trade.

In addition, big tech firms have invested considerable resources in the development
of digital assets, such as source codes, which could be at risk if States require them
to be made transparent as a condition of operating in certain markets.84 Empirical
evidence has shown that these measures create borders in economic terms for
multinational firms in the Information and Communications (ICT) industry.85
Therefore, in economic terms by imposing additional compliance costs, limits
market access, and discourages investment. For instance, when governments
mandate the disclosure of source codes or algorithms, multinational firms in the
Information and Communications Technology (ICT) industry may face barriers to
entering or continuing operations in those jurisdictions.86 This not only increases
operational complexity but also raises concerns about intellectual property theft and
the risk of proprietary technology being exploited by competitors.For example, there
have been complaints in China regarding this issue.87 The transfer of source codes
has become a point of discussion between the US and the EU, with both agreeing
that it should not be a precondition to enter a market.88 The EU has proposed
criteria for identifying situations where the transfer of source codes may be
necessary, including as a remedy for competition law violations, protection of IP
rights, and security concerns.89 However, the trend towards digital assets has raised
concerns among developing countries that their traditional physical goods may be
discriminated against in favour of digital products. One of the issues that developing
countries face is the loss of revenue due to the transformation of physical goods into

84 Jonathan Haskel & Stian, Westlake, Capitalism without capital: The rise of the intangible
economy (2017).
85 Nigel Cory, Cross-Border Data Flows: Where Are the Barriers, and What Do They Cost?, INFO.

TECH. & INNOVATION FOUND (2017). https://itif.org/publications/2017/05/01/cross-

borderdata-flows-where-are-barriers-and-what-do-they-cost.
86 Chander supra note 48.
87 Deborah James, Anti-development Impacts of Tax-Related Provisions in Proposed Rules

on Digital Trade in the WTO, 62(1) SOC’Y INTL DEVELOP, 58-65 (2019).
88 Rachel Stelly, Countries Table Proposals, Talks Continue on WTO E-Commerce Rules, DISRUPTIVE

COMPETITION PROJECT (Aug. 23, 2019) http://www.project-disco.org/21st-century-

trade/082319-countries-table-proposals-talks-continue-on-wto-e-commerce-rules/.
89 World Trade Organization, Joint Statement on Electronic Commerce, EU Proposal for WTO

Disciplines and Commitments Relating to Electronic Commerce, Communication from the European
Union, WTO Doc. INF/ECOM/22 (Apr. 26, 2019).
Special Issue, 2024] The Rise of Digital Borders 75

digital assets.90 In 2019, Côte d’Ivoire submitted a text to the WTO highlighting the
importance of considering the unique challenges faced by low-income countries and
their market actors, mostly MSMEs, in digital trade discussions.91 Similarly, at the
WTO, several Members from LDCs and developing countries have already raised
questions on technicalities related to the regulation of digital trade. This creates
critical problems at the root of the negotiations, as lacking the knowledge needed to
address these discussions with a sufficient level of sophistication makes it difficult
for these countries to even enter the debate.92

Some authors have already discussed how the absence of a regulatory framework on
digital trade has given place to an anti-competitive market where some firms
dominate the business.93 This means that new companies face a de facto barrier in
entering the market, a limitation that typically crystallises for MSMEs from LDCs
and developing countries.94 The absence of a regulatory framework on digital trade
has allowed dominant firms to leverage their technological prowess, including
advanced tools, extensive data reserves, and integrated platforms, to establish de
facto barriers that prevent new entrants, particularly MSMEs from LDCs and
developing nations, from competing. This dynamic exacerbates economic
inequalities, as smaller firms with limited access to technology and funding struggle
to penetrate markets dominated by well-resourced competitors.95 These countries
also lack frameworks on issues such as electronic transactions, signatures, and
contracts, which exacerbates the technology gap and digital divide. Authors like
Roger Brownsword have studied the challenge that regulators face when dealing
with developing technologies and elaborated concepts like regulatory connection to
consider the question of how regulators get connected to these technologies and
how do they stay connected.96 Interestingly, this literature refers to the Collingridge
dilemma, which consists of the following, “regulators tend to find themselves in a
position such that either they do not know enough about the (immature) technology
to make an appropriate intervention or they know what regulatory intervention is

90 Marko Köthenbürger, Taxation of Digital Platforms, (Working Paper no. 41, Vol. 3, Jan. 2020)
https://doi.org/10.1093/oso/9780192855244.003.0009.
91 WTO, Joint Statement on Electronic Commerce - Communication from Côte d’Ivoire,

INF/ECOM/49 (Dec. 16, 2019).

92 Ismall, supra note 3 at 24.
93 Neeraj Rajan Sabitha, Trade Rules on Source Code- Deepening the Digital Inequities by Locking up

the Software Fortress (INDIAN INST. FOREIGN TRADE, Working Paper, 1–37, 2017).
94 Abendin & Duan, supra note 13, at 3.
95 United Nations Conference on Trade and Development (UNCTAD), Digital Trade and

Development Challenges in LDCs, UNCTAD Policy Brief No. 91 (2021),

https://unctad.org/system/files/official-document/presspb2021d10_en.pdf.
96 Roger Brownsword & Morag Goodwin M, LAW AND THE TECHNOLOGIES OF THE

TWENTY-FIRST CENTURY: TEXT AND MATERIALS (2018).

76 Trade, Law and Development [Vol. 16: 55

appropriate but they are no longer able to turn back the (now mature) technology.”97
As a result of this lack of knowledge and technical capacity, the reality is that the
multilateral framework results in a discriminatory trading system that perpetuates
asymmetrical power relationships between developed and non-developed
Members.98

C. CIRCUMVENTING EXISTING TRADE RULES

The rise of digital protectionism poses challenges to the existing trade rules and
multilateralism. The principle of free trade has been a fundamental pillar of world
trade, shaping the way organisations and trade rules operate. Therefore, any attempt
to erect digital trade barriers could potentially violate several trade instruments,
including the Covered Agreements. For instance, the imposition of digital trade
barriers may violate the national treatment obligation under Article III of the GATT
and the most-favoured-nation treatment obligation under Article I thereof. Digital
borders could also be contrary to the prohibition of quantitative restrictions under
Article XI of the GATT. This could lead to disputes and retaliation reflected in
trade-restrictive measures from affected countries.

Similarly, digital borders may also have implications for other types of instruments,
such as treaties on IP. Digital protectionism may violate the national treatment
obligation under Article 3 of the Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS). This Agreement is paramount in digital trade
discussions as digital assets may either be subject to IP rights on themselves—as
could be the case for software or networks—or implicate other forms of IP-
protected content like e-books.99 Therefore, provisions on IP drafted many years
before the expansion of current technology could fall short in dealing with the
intricacies of current digital assets and data-related transactions.

From the perspective of the GATS, scholars have shown that most of the topics of
high relevance to digital trade are within the scope of this agreement.100 However,
important concerns arise here. One of them is that current rules apply to a closed
list of sectors, which leaves a great deal of matters relevant to digital trade outside
the regulations. While some have proposed extending the application of the GATS
to additional matters—arguably,101 all forms of trade in services, without

97 Id, at 380.
98 Michael Trebilcock, Between theories of trade and development: the future of the world trading
system,16(1) J. WORLD INV. & TRADE 132, 122-140, (2015).
99 Id.
100 Ismall, supra note 3 at 5-6.
101 Rudolf Adlung & Hamid Mamdouh, Plurilateral Trade Agreements: An Escape Route for the

WTO? 52(1) J. WORLD TRADE 85-108 (2018).

Special Issue, 2024] The Rise of Digital Borders 77

distinction—there are convincing arguments on why this approach would be

unworkable in practice as the GATS was designed to be an agreement with a limited
scope and an opt-in corpus rather than an expansive approach.

There are additional WTO instruments of great importance to this matter. The
Agreement on Technical Barriers to Trade (TBT) could deal with standards
applicable to electronic products such as regulations on encryption.102 For example,
some authors have explored how entry-level requirements related to digital assets
should be treated as de facto technical barriers to trade.103 Notably, as discussed
before, these requirements are already applied by some countries as a prerequisite
for accessing the local market or practising specific actions such as technology
transfers or the use of domestic technology.104 These concerns have already been put
on the table by many countries in many official fora. At the General Council of the
WTO, Japan suggested several concerns on administrative due process for
government intervention in data treatment.105 This refers to matters such as
disclosure of customer data by businesses, release of government and trade secrets,
as well as administrative measures forcing actors to disclose source codes and
algorithms. However, there are significant issues with the implementation of current
regulatory concerns on digital trade in existing trade instruments. For instance,
scholars have already argued that it would not be possible to implement solutions
developed outside the Covered Agreements in the instruments of the WTO like the
GATS.106

D. LIMITATIONS ON GLOBAL CONNECTIVITY

Digital trade has the potential to increase global connectivity and enhance the
exchange of information and access to the digital economy. However, there is a risk
that the benefits of digital trade will not be equitably distributed, leaving marginalised
communities without access to the goods and services that are already available to

102 Ismall, supra note 3 at 6.

103 Hufbauer & Lu, supra note 44.
104 Bernard M. Hoekman et al., Transfer of Technology to Developing Countries: Unilateral

and Multilateral Policy Options, World Bank (2004),

https://openknowledge.worldbank.org/entities/publication/defb7c52-921f-5f2a-90c2-
d0de681b8be6.
105 World Trade Organization, WTO Doc. JOB/GC/177 (Feb. 25, 2019); World Trade

Organization, WTO Doc. JOB/GC/180 (Apr. 24, 2019).

https://www.wto.org/english/res_e/booksp_e/wtr20_e/wtr20_e.pdf.
106 Hamid Mamdouh, Plurilateral Negotiations and Outcomes in the WTO (KING & SPALDING,

Apr. 16, 2021), https://fmg-geneva.org/7-plurilateral-negotiations-and-outcomes-in-the-

wto/.
78 Trade, Law and Development [Vol. 16: 55

more sophisticated actors.107 This could lead to a scenario where connectivity is

enhanced, but access remains limited for those who lack the basic inputs to obtain
goods and services.
This is not a minor issue, as policies related to digital trade are closely linked to
broader agendas around access to culture, education, and knowledge. While
liberalising trade may benefit market competitors and the tech industry, it may not
do much for under-resourced populations. For example, in the case of LDCs and
developing countries, digital borders may exacerbate existing inequalities and widen
the gap between those who have access to digital goods and services and those who
do not.

Scholars have pointed out that the basic existing e-commerce framework has been
driven by the US tech industry.108 This highlights the need for LDCs and developing
countries to have a greater say in the development of digital trade policies and
regulations. It is important to consider the unique challenges faced by low-income
countries and their market actors, mostly MSMEs, when designing regulations for
digital trade. This includes addressing issues like the technology gap, lack of
frameworks for electronic transactions, and anti-competitive market practices that
disadvantage new companies.

The potential benefits of digital trade should be balanced with the need to ensure
equitable distribution of those benefits. Policymakers must be cognisant of the
potential for digital trade to create or reinforce existing inequalities and should work
to develop policies that address these challenges. By doing so, we can ensure that
digital trade is a force for positive change, rather than a source of further division
and inequity.

IV. THE ROLE OF EXISTING RULES

Various rules and institutions exist to deal with international trade, not limited to the
WTO and its Covered Agreements. However, for the purpose of this article, the
discussion will be limited to such instruments, which could be a stepping stone for
future research aiming to expand the scope of the analysis. The Covered Agreements
contain some principles and rules to deal with digital trade in a multilateral economy.
To a certain extent, they could provide a regulatory response to the current gap
between the knowledge and practice of regulators and that of additional tech-related
stakeholders like civil society and corporations. However, the implementation of this

107 K. V. Bhanu Murthy et al., Digital economy in a global perspective: is there a digital divide?,13(1)
TRANSNAT’L CORP. REV. 1-15 (2021).
108 Jane Kelsey, Recalibrating New Zealand’s Trade Law Strategy in Turbulent Times, in INT’L LAW

IN AOTEAROA N. Z. 455 (Anna Hood & An Hertogen eds., 2021) [hereinafter Kelsey].
Special Issue, 2024] The Rise of Digital Borders 79

alternative faces significant challenges endemic to the organisation, that must be

considered and tackled.

A. CHALLENGES

The issue of e-commerce was introduced to the WTO agenda at the Ministerial
Conference in 1998.109 At that time, a Declaration was issued imposing a
Moratorium that specified that Members would not enforce customs duties on
electronic transmissions. It is also of fundamental importance that WTO
stakeholders put digital trade as a key component of the regulatory agenda. Issues
around IP pertaining to e-commerce have been discussed in several meetings of the
TRIPS Council as a miscellaneous issue under “any other business.”110 For instance,
between 1998 and 2003, the TRIPS Council discussed issues such as IP in the digital
trade sphere and concluded that further study was necessary due to their
complexity.111

However, over 20 years later, no consensus has been reached on the most
contentious issues.112 A challenge that WTO regulations face in this regard is the fact
that developed and non-developed countries are divided regarding the rules on these
matters.113 As reported by the relevant literature, States have converged on non-
contentious issues like electronic signatures and users’ protection from fraud but
remain divided on the key problems.114 On issues such as data localisation
requirements, the situation is radically different, and Members have been unable to
find a middle ground on aspects that trigger strong opposition. Authors like Ido
show that this is reflected in the fact that, despite the acknowledgement of the
importance of issues such as IP in the context of e-commerce, the TRIPS Council
was not actively discussing them by 2019.115 While there are countries that defend
removing digital barriers as a policy matter, states like Japan adopt the stronger
position of preventing any form of trade with countries that impose such types of
restrictions.

109 Mark Wu, Digital Trade-Related Provisions in Regional Trade Agreements: Existing Models and
Lessons for the Multilateral Trade System, (INT’L CENTRE FOR TRADE AND SUSTAINABLE DEV.,
Working Paper, 2017), http://www.rtaexchange.org/ [hereinafter Wu].
110 Victor Ido, Intellectual Property and Electronic Commerce: Proposals in the WTO and

Policy Implications for Developing Countries, 62 POL’Y BRIEF 1 (2019).

111 Id.
112 Katya Garcia-Israel & Julien Grollier, Electronic commerce joint statement: Issues in the negotiations

phase, CUTS INT’L (2019), http://www.cuts-geneva.org/pdf/1906-Note-RRN-E-

Commerce%20Joint%20Statement2.pdf.
113 Wu, supra note 109.
114 Abendin & Duan, supra note 13 at 1.
115 Id, at 2.
80 Trade, Law and Development [Vol. 16: 55

A critical problem, then, is the lack of consensus that ends up leading to the search
for national and regional, rather than multilateral, regulations. Some authors have
already argued that one of the main benefits of regionalism is solving the gridlock of
consensus-driven regulations at the WTO.116 This means that frustrated by the
multilateral system and its lack of progress given the strict rules in place to amend
the Covered Agreements, Members have turned to regional agreements and
domestic policies to solve urgent needs more efficiently.117 As argued by Powell and
Low, “because of the collective decision-making process of the WTO, negotiation
processes can be cumbersome, especially in new areas such as services and
information technology products.”118

Experience has shown that regulatory tools like the Covered Agreements and other
initiatives and instruments developed at the heart of the WTO are often destined to
fail if they are unable to adapt to changing conditions. For example, the blockage of
the WTO’s AB due to disagreements among Members led to a legitimacy crisis that
took the organisation some time to address.119 To address these issues, some
countries proposed creating a parallel arbitral tribunal to decide disputes related to
digital trade, which is again a form of solution outside the original framework of a
multilateral rules-based trading system.120

Besides, it is clear that digitalisation calls for a review of all trade instruments in the
context of digital trade, this is, (re)thinking traditional rules to the unique features of
digital technologies. While a specific agreement for this purpose reflects an interest
of the Members to incorporate this issue in the agenda, many countries have
discussed the importance of including an e-commerce agenda that encompasses all
relevant WTO disciplines.121 Therefore, the question remains: how can the Covered
Agreements be adapted to make workable a comprehensive regulation of digital
trade? This is a complex issue that will require significant attention and effort from
policymakers and stakeholders alike. Right now, however, processes like the

116 Sungjoon Cho, Defragmenting World Trade, 27 NW. J. IR’L L. & BUS. 39, 41 (2006).
117 Peter Sutherland et al., The Future of the WTO: Addressing Institutional Challenges in the New
Millennium: Report by the consultative board, WTO 19 (2004),
https://www.wto.org/english/thewto_e/10anniv_e/future_wto_e.pdf.
118 Stephen J. Powell & Trisha Low, Is the WTO Quietly Fading Away: The New Regionalism and

Global Trade Rules 9 GEO. JL & PUB. POL’Y, 261 (2011),

http://scholarship.law.ufl.edu/facultypub/382.
119 Rubens Ricupero, WTO in Crisis: Déjà Vu All Over Again or Terminal Agony?, in THE WTO

DISPUTE SETTLEMENT MECHANISM: A DEVELOPING COUNTRY PERSPECTIVE, 17-23 (

Alberto do Amaral Junior et. al. eds. 2019).
120 Olga Starshinova, Is the MPIA a Solution to the WTO Appellate Body Crisis?, 55(5) J. WORLD

TRADE (2021).
121 World Trade Organization, WTO Doc. JOB/GC/174.
Special Issue, 2024] The Rise of Digital Borders 81

negotiation Rounds and the text of the Covered Agreement suggest that this is far
from being a viable solution as reforming these rules has been extremely difficult.

B. POTENTIAL SOLUTIONS

i. Digital sovereignty

At the outset, legal education is necessary to address the challenges of digital trade.
Many regulatory authorities view digital trade as a threat to their regulatory capacity,
but a transformative discourse could contribute to making it a powerful tool to
improve good governance within a state.122 This can include a variety of data-driven
policies and measures favourable to the dissemination and free access of citizens to
digital trade platforms like streamlining administrative processes, fostering the
development of new businesses, and leveraging statistical data to design better social
and economic programs. For instance, sharing economies have been seen by most
States as big problems to their sovereignty as they make asset concealment easier
and prevent certain forms of surveillance. However, studies suggest that if the State
were able to bring these economic actors to the table and regulate digital economies
properly, it would actually increase its ability to raise public funds.123 Similarly, other
literature has reviewed in great detail the problem of internet fragmentation, which
relates to the possibility that a technology designed to operate beyond borders and
to facilitate connectivity worldwide, ends up being broken by national policies and
regulatory mechanisms that impose barriers on this framework.124

In order to change these views, concepts like territoriality must be deconstructed.

This does not mean destroying them completely as they remain fundamental to
understanding the applicability of a State’s sovereignty. However, rules of private
international law like the ‘personal statute’ demonstrate that the application of laws
outside a State’s territory is possible and preserves sovereignty. This refers back to
what ancient Romans knew as ius gentium and allows, for instance, maintaining
sovereign powers over someone’s marital status based on their nationality, not their
location.125 The territory is still present here, as a national of a State is typically
someone born within its borders. But it does not mean that it is incompatible with
digital trade and cyberspace. A State can very well remain sovereign over someone
in respect of an act committed against that individual overseas or even in an

122 Fernando Filgueiras & Virgilio Almeida, Governance for the Digital World: Neither More
State nor More Market (1st ed., 2021).
123 Bernard Hoekman, Digital Trade: Opportunities and Challenges, UN-OHRLLS (2022).
124 Milton Mueller, Will the Internet Fragment?: Sovereignty, Globalization and Cyberspace

(2017).
125 Jeremy Waldron, Foreign Law and the Modern Ius Gentium, 119(1) HARVARD L. REV., 129-

147 (2005).
82 Trade, Law and Development [Vol. 16: 55

intangible arena.126 For example, a State can exercise jurisdiction over someone who
engages in cybercrime against its citizens or over its own nationals when they are
outside the State’s borders. Another feasible alternative is rethinking the concept of
territoriality. Some authors have argued against data exceptionalism arguing that,
“despite the wizardry and wonder of modern technological advances […] cloud-
based data resides on servers–essentially large hard drives—and wherever those
servers sit, they are subject to territorial assertions of jurisdiction.”127

All of these policies and ideas for reform are based on a larger concept of digital
governance, which appeals to capacity-building and technical training rather than
digital borders and trade-restrictive measures. However, digital sovereignty must be
differentiated from other concepts under a similar disguise like ‘internet sovereignty.’
This concept is defended by countries like China but, unlike the proposal of digital
governance developed in this paper, it poses a significant risk to fundamental rights,
according to many scholars on free connectivity.128 Specifically, under internet
sovereignty, States have the power to surveil the internet and other digital spaces to
supervise ‘irregular’ activity. This is not limited to surveillance activities and may
extend to forms of active censorship. Some literature has already differentiated
between homonymous yet different concepts relating to sovereignty in a digital
space. Taking the example of Buzan et al., these authors have explained the
difference between the securitisation move, understood as the act of saying that
something is under threat—as it happens, for instance, in the case of national
security speeches to promote restrictive measures on digital trade—and the
successful achievement of securitisation as such, which relates to the inter-subjective
acceptance by all relevant stakeholders of the urgency of said threat—as it could be
the case of legitimate reasons behind cybersecurity and data protection policies.129

Other authors have differentiated between weak and strong forms of digital data
sovereignty. According to them, “weak data sovereignty […] refers to private sector-
led data protection initiatives with an emphasis on the digital-rights aspects of data
sovereignty, whereas strong data sovereignty favours a state-led approach with an
emphasis on safeguarding national security.”130 Nonetheless, this should not mean
using the speech of national security or a similar discourse to cover up protectionist

126 Mireille Hildebrandt, Extraterritorial jurisdiction to enforce in cyberspace? Bodin, Schmitt, Grotius
in cyberspace, 63(2) UNIV OF TORONTO L. J. 196-224 (2013).
127 Andrew Keane Woods, Against Data Exceptionalism, 68(4) STAN. L. REV., 729 (2016).
128 Min Jiang, Authoritarian Informationalism: China’s Approach to Internet Sovereignty, 30(2) SAIS

REV. OF INT’L AFF. 71-89 (2010).

129 BARRY BUZAN ET AL., SECURITY: A NEW FRAMEWORK FOR ANALYSIS (1997).
130 Dana Polatin-Reuben & Joss Wright, An Internet with BRICS Characteristics: Data Sovereignty

and the Balkanisation of the Internet, USENIX,

https://www.usenix.org/conference/foci14/workshop-program/presentation/polatin-
reuben.
Special Issue, 2024] The Rise of Digital Borders 83

measures or policies seeking to disrupt data privacy rights. An interesting example is

a joint resolution issued by Germany and Brazil in 2013 which addressed data
sovereignty as a human rights issue and focused on the problem of violation of
privacy rights due to mass surveillance by authorities.131 Lastly, building digital
sovereignty also means striking a balance between the concerns of States and the
free flow of data. The fact that many regulatory measures in the digital economy are
based on fear and ignorance does not imply that all of them are flawed and
unjustified. An important issue then is how to deal with concerns related to real
threats. For instance, the exchange of sensitive data in protected industries like
financial services is an issue that should be treated with some degree of deference
prima facie. These segments of the economy pose a particular concern to national
security and the protection of consumers as they are vulnerable to several forms of
cybercrime.

ii. Promoting clear, transparent standards

A salient issue of WTO’s role in this matter has been the absence of fundamental
concepts, which reflects a problem of vagueness in the language of the relevant
instruments that results in inoperative rules and disempowered Members. Despite
this issue having been discussed at the WTO in no less than six conferences,
Members have been unable to narrow down key points on the comprehensive
regulation of e-commerce and other matters related to digital trade. For instance,
there is no consensus regarding definitions and scope of basic words. Another
problem is the lack of clarity on the best approach to the problem and whether it is
preferable to create new rules or review existing provisions. Moreover, there are also
issues of ambiguity in the use of certain concepts of the Covered Agreements – as
well as those in potential new rules – in the context of digital trade. As a matter of
interpretation, for instance, there has been a debate on the use of ‘best endeavour’
clauses versus mandatory language. Notably, this is already an important issue as
there is existing jurisprudence within the WTO on the interpretation and scope of
provisions with mandatory language as ‘shall’.132 Eliminating ambiguity in certain
language also rises as a priority. Concepts like internet ‘sovereignty’ put undue power
in the hands of Members, making it difficult to identify, assess and control domestic
trade policies creating digital borders.

The other large problem is determining how to balance the need of Members to have
some degree of regulatory space in digital matters and the imposition of protectionist
measures. This issue is not new to the WTO, whose decision-making bodies are

131G.A. Res. 68/167, The right to privacy in a digital age (Dec. 18, 2013).
Sharif Bhuiyan, Mandatory and Discretionary Legislation: the Continued Relevance of the
132

Distinction under the WTO, 5(3) J. OF INT’L ECON. L. 571 (2002).

84 Trade, Law and Development [Vol. 16: 55

familiar with the task of assessing whether certain policies were adopted for a
legitimate purpose or not. China is a leading example of sovereign concerns on data-
related regulations.133 For instance, it requires that operators of certain information
infrastructure must store data locally under Article 37 of its Cybersecurity Law, and
data to be transmitted internationally must pass through a security assessment
administered by domestic authorities.134 Additionally, the government supports
alternative providers of similar services like Baidu and WeChat, which raises
discussions on trade discrimination as some tech operators are secluded from the
market while others may offer their services free from any trade restrictive
measures.135

Again, under the purview of free trade in the Covered Agreements, these measures
should only be allowed for legitimate regulatory purposes. But the problem then is
the question of what can be considered a legitimate regulatory purpose. Interestingly,
some Members have sought clarification or examples on the scope of legitimate
objectives that can be pursued through these trade barriers.136 However, making
such a clarification would be contrary to the standing practice of the WTO. This
would de facto create a distinction between other types of trade barriers and the ones
related to digital trade. There is no clear principle for why they should be
differentiated. This is important because it enhances transparency and provides a
greater extent of predictability in terms of what can or cannot be pursued through
these restrictions, potentially reducing their use. Countries like Argentina and Brazil
have put forward important considerations on the possibility of, for example,
developing new exceptions for the digital environment.137

Proportionality is a key concept in achieving such a goal, and existing instruments and
standards in trade law already refer to a similar concept. The necessity test in
provisions of the Covered Agreements, such as Article XX of the GATT, covers the
general exceptions and has been interpreted as referring to a weighing and balancing
test when assessing a measure.138 Following previous decisions of the WTO’s

133 Aimin Qi et al., Assessing China’s Cybersecurity Law, 34 COMPUT. L. & SEC. REV. 1342 (2018),
https://linkinghub.elsevier.com/retrieve/pii/S026736491830315.
134 People’s Republic of China, Law on Cybersecurity (promulgated by the Standing Comm.

Nat’l People’s Cong., Nov. 7, 2016), http://www.xinhuanet.com//politics/2016-

11/07/c_1119867015.htm.
135 Christina Maags, The Limitations of the Great Firewall of China, FAIR OBSERVER (2019),

https://www.fairobserver.com/region/asia_pacific/great-firewall-china-censorship-
chinese-news-today-vpn-china-38018/.
136 World Trade Organization, WTO Doc. JOB/GC/182.
137 World Trade Organization, WTO Doc. JOB/GC/200/Rev.1 (Dec. 5, 2019).
138 Csongor István Nagy, Clash of trade and national public interest in WTO law: the illusion

of ‘weighing and balancing’ and the theory of reservation, 23(1) J. OF INTL. ECON. L., 143-
163 (2020).
Special Issue, 2024] The Rise of Digital Borders 85

decision-making bodies, necessity can be determined on a case-by-case basis and

considering several factors. There are, however, powerful precedents that are very
useful for this purpose. For example, the WTO accepts bans on spirits in certain
countries based on religious beliefs, even when they are clearly trade restrictive and
contrary to the Covered Agreements.

However, the situation is more complex when it comes to public morals, as

illustrated by the debate over free internet access. China, for instance, considers it
legitimate to regulate the internet domestically by taking actions such as filtering or
removing content of a ‘sensitive’ nature.139 In addressing issues such as data
protection and national security, balancing these competing interests becomes
critical. An example of this imbalance is the case of local requirements for data
treatment or data localisation standards. The Japanese law on data protection
provides a useful point of reference for protecting data, as it is based on four
principles that reflect proportionality:

1. Restrictions on data collection – According to which, for instance, consumers

must be informed that their data is being collected.

2. Preventing the taking of undue advantage from collected data – Which limits the scope
of use of the data and sets forth that it should only be used for the purposes
it was collected.

3. Securing personal participation of data owners – This allows data owners to adopt
measures such as modifying the data that is stored by a firm; and

4. Proper management of data – Which prevents situations such as data theft,

alteration or undue circulation.140

Similarly, Article 5 of the GDPR includes “Principles relating to the processing of

personal data.” This provision has similar language to the Japanese regulations,
including the rule that data shall be “collected for specified, explicit and legitimate
purposes and not further processed in a manner that is incompatible with those
purposes.”141 Besides, it adds that further processing of data may take place as long
as it is made for achieving purposes “in the public interest, scientific or historical
research purposes or statistical purposes.”142 This incorporates an important

139 Feng Yang& Milton L. Mueller, Internet governance in China : A content analysis, 7(4) CHINESE
J. OF COMMC’N 446-465 (2014).
140 Guo, supra note 76.
141 GDPR, Art. 5(b).
142 Id.
86 Trade, Law and Development [Vol. 16: 55

consideration for a rules based system like the one of the Covered Agreements as it
includes explicitly the concept of public interest.

A precedent that can be relevant in addressing issues related to public morals is the
US Gambling case, which allowed US states to regulate online gambling within their
borders while prohibiting gambling from outside their borders. In this case, the US
had implemented a ban on online gambling services in order to protect public morals
and public order. Antigua and Barbuda challenged the ban at the WTO arguing that
it was a violation of US obligations under the GATS. The US, on the other hand,
argued that the ban was justified under the general exception clause of Article XX
of the GATS, which allows WTO Members to take measures to protect public
morals or maintain public order.

In its decision, the Appellate Body (AB) of the WTO agreed that the US ban on
online gambling constituted a violation of US obligations under the GATS. The AB
found that the US had failed to demonstrate that its measures were necessary to
protect public morals or maintain public order, as required under Article XX of the
GATS. The AB concluded that the US had acted inconsistently with its GATS
obligations by imposing a discriminatory ban on the supply of online gambling
services from foreign operators while allowing domestic operators to provide such
services.143

This precedent illustrates the importance of finding a balance between regulating

certain activities while ensuring that international trade is not unnecessarily
restricted. Also, this case is of the utmost importance to assess proportionality and
‘necessity’, as the AB found that the US measure was inconsistent because it allowed
some forms of gambling while prohibiting others.144 Similarly, WTO decision
making bodies have condemned in the past other measures that are inconsistent,
protecting trade liberalisation by inquiring into the real aims and effects of these
regulations.145

Existing rules on transparency under the Covered Agreements, such as the

notification obligations under the TBT Agreement, could be used to address digital
trade barriers. However, there may be a need to adjust or interpret existing rules to
account for the unique features of digital trade. Developing and enforcing new
regulations could be challenging and may result in duplication and fragmentation of
the regulatory landscape.

143 Appellate Body Report, United States — Measures Affecting the Cross Border Supply of Gambling
and Betting Services, WTO Doc. WT/DS285/AB/R (adopted Apr. 20, 2005).
144 Id.
145 Appellate Body Report, United States — Standards for Reformulated and Conventional Gasoline,

WTO Doc. WT/DS2/AB/R (adopted May 20, 1996).

Special Issue, 2024] The Rise of Digital Borders 87

iii. Tackling technical discrimination

The differential treatment of LDCs and developing countries has been recognised
in international law for a long time, including in the WTO’s Enabling Clause. The
Enabling Clause allows developed countries to provide trade preferences to
developing countries, without violating the most-favoured nation principle, under
certain conditions.146 However, in practice, this provision has been used sparingly.
Literature has found that “although 86.5% of all regional trade agreements in force
involve one or more developing countries as members, and nearly half of all RTAs
in force involve only developing countries, the Enabling Clause has been invoked as
legal cover for only 15.4% of all RTAs in force.”147 Similar provisions may be found
in additional Covered Agreements.

The idea behind differential treatment (S&DT) is that developing countries face
structural disadvantages that hinder their ability to compete on an equal footing with
developed countries in the global economy.148 The mechanisms provided for by
these provisions have been helpful in promoting development and addressing trade
imbalances. However, there have been difficulties in applying these provisions,
particularly in determining which countries are eligible for S&DT and to what
extent.149 Further, S&DT in the context of digital trade is special and raises new and
complex challenges that do not have a clear precedent that policymakers and other
stakeholders may rely on. Differences in this scenario are related to sophisticated
forms of technology rather than any form of trade in goods and services. While they
may be similar to traditional trade measures in aspects like bureaucratic capacity and
technical requirements, technical differences in the digital arena require expert
knowledge to be understood and dealt with properly.

In any event, the reality is that, since the 1998 WTO Declaration on e-commerce
issues, Members have recognised that measures relating to digital trade must
consider the ‘economic, financial, and development needs of developing countries.’
However, it is unclear how this plays a role in practice. In the context of digital trade
discussions, some Members – unsurprisingly including LDCs and developing

146 Amrita Narlikar, Fairness in international trade negotiations: Developing countries in the
GATT and WTO, 29(8) WORLD ECON. 1005-1029 (2006).
147 Won Mog Choi & Yong – Shik Lee, Facilitating Preferential Trade Agreements between

Developed and Developing Countries: A Case for Enabling the Enabling Clause, 21 MINN.
J. INT’L L. 1 (2012).
148 Paola Conconi, & Carlo Perroni, Special and differential treatment of developing countries in the

WTO, 14(1) WORLD TRADE REV. 67-86 (2015).

149 Bernard Hoekman, Operationalizing the concept of policy space in the WTO: beyond special and

differential treatment 8(2) J. OF INT’L. ECON. L., 405-424 (2005).

88 Trade, Law and Development [Vol. 16: 55

countries – have already raised multiple questions for General Meetings about the
application of S&DT and how it can be implemented effectively in the digital
economy. Responses, however, are lacking both from the organisation and from
other countries.

Given the rapidly changing nature of digital technologies and the growing
importance of digital trade, it is important to find ways to ensure that LDCs and
developing countries are not left behind and can benefit from the opportunities
offered by digital trade. But current alternatives—largely supported by developed
countries—are going in the opposite direction. In the case of Joint Statement
Initiatives (JSIs), there is an interesting intersection of open regionalism and
technical discrimination. JSIs are negotiating tools initiated by some WTO Members
who seek to advance discussions on certain trade-related issues without adhering to
the rule of consensus decision-making applicable in WTO negotiations. Put in terms
of Prof. Jane Kelsey, who had studied the development of JSIs on e-commerce,
these instruments are contrary to the WTO’s principles of multilateralism, Member-
driven consensus, decision-making and S&DT. Additional research has pointed out
that JSIs are at odds with the application of any form of S&DT as new rules are
drawing practices from the OECD and FTAs of developed countries, shaping the
framework of digital trade based on rules that they already have but which are not
attuned to the situation of developing countries.150 At the same time, it is important
to consider what is the stance of LDCs and developing countries in this regard? This
question has a simple answer: they are also against such initiatives. Some developing
Members, like India and South Africa, have already questioned the legitimacy of JSIs
on similar grounds as those discussed by the literature.151

It is important to carefully consider the implementation of any regulatory agenda

and its potential effects on LDCs and developing countries. Proposals from
developed countries could have significant negative implications for other sovereign
States. For example, if source codes are protected by patents, this could
disincentivise new companies from entering these markets, as they would face
additional costs to acquire licenses. Such a measure could also prevent local software
developers in developing countries from using source codes subject to licenses and
developing their own products. Therefore, while it is important to protect IP, there
should also be consideration of the potential impact on the development and growth
of digital industries in LDCs and developing countries. National entities at LDCs
and developing countries also need to improve their knowledge of issues such as
cybersecurity. Technical assistance and cooperation are critical aspects in this regard.
States can share their expertise on technical matters such as encryption and network
security. Business firms, on the other hand, are more interested in sharing

150 Kelsey, supra note 78, at 8.

151 Id. 2-24.
Special Issue, 2024] The Rise of Digital Borders 89

information on best practices and industry standards. By collaborating with each

other, national entities can enhance their cybersecurity capabilities and ensure the
security of their digital infrastructures. This is particularly important for said
countries, which often lack the resources and expertise to deal with sophisticated
cyber threats.152 Technical assistance and cooperation can help bridge this gap and
promote a more secure and inclusive digital economy.

Research has identified some of the greatest advantages of e-commerce to be

reducing costs and barriers of entry into markets and offering MSMEs better
competitive opportunities against larger counterparts.153 These objectives align with
the cornerstones of the rules-based trading system and should ideally be promoted
through the rules and mechanisms provided in the Covered Agreements. This
implies that the organisation has a responsibility to pursue such harmonisation.
Furthermore, the fact that digital trade is being hindered while trade rules fail to
address these issues raises serious concerns about the legitimacy of the WTO from
a development perspective, especially considering that LDCs and developing
countries have been marginalised in trade rule discussions for years.154

V. CONCLUSIONS

As discussed in the previous sections, the development of a digitalised global

economy has created important regulatory challenges to States. This has led to the
implementation of digital borders on the basis of fears like the loss of national
sovereignty, surveillance, and regulatory powers, which are measures that create
restrictions on the free flow of information. But digital borders pose a significant
challenge to international trade and connectivity, limiting the freedom of users and
creating a risk of States using pretexts like protecting consumers and safeguarding
national security to advance protectionist measures that could strongly hinder free
competition in technology.

In order to address these challenges, policymakers and international organisations

must consider a range of solutions that consider the complexities and nuances of the
digital economy. One potential solution is to develop a multilateral framework that
addresses the unique challenges of digital trade. This framework should be designed
to balance the interests of different stakeholders, including governments,

152 Ellada Gamreklidze, Cyber security in developing countries, a digital divide issue: The case of Georgia,
20(2) J. OF INT’L COMMC’N 200-217 (2014).
153 Debating the Future of E-Commerce and Digital Trade in Buenos Aires, 21(40) BRIDGES

NEGOTIATION BRIEFING 14-19 (2017),

https://www.tralac.org/images/Resources/MC11/bridges-negotiation-briefing-an-ictsd-
guide-to-the-buenos-aires-ministerial-december-2017.pdf.
154 Kelsey, supra note 78, at 6.
90 Trade, Law and Development [Vol. 16: 55

corporations, civil society, and consumers. However, these discussions have been
on the table for decades without a comprehensive or effective instrument being
released at leading fora like the WTO. On the contrary, today countries are shifting
towards national and regional alternatives like regulating digital trade domestically,
in FTAs or through JSIs.

Another possible solution to the problem at hand is to strengthen and update

existing international trade agreements, such as the different Covered Agreements.
This would involve developing new provisions that specifically address digital trade
and removing existing provisions that may hinder the growth of the digital economy.
For example, the GATS could be updated to include new commitments on cross-
border data flows, while the TRIPS could be amended to provide greater clarity and
protection for digital IP. Aside from modifying existing rules or creating new ones,
another option is to use existing practice to promote interpretations that are fit for
digital trade’s unique features. This includes developing clear and transparent
standards on digital sovereignty through resources like past case law on necessity
and proportionality.

In any event, the WTO and its community have a major problem figuring out how
to work out these rules with plurilateralism. As identified by Sauvé, there is a
problem in negotiating plurilateral agreements within a framework that commands
a multilateral instrument.155 These solutions should also aim to promote
transparency, predictability, and fair competition in the digital economy. However,
developing such a framework will require significant international cooperation and
consensus-building, which may prove challenging given the current geopolitical
climate. An effective change would therefore require surpassing the current status
of debates on digital trade, where lack of consensus and conflicting regulatory
agendas have become the rule.

Deconstructing concepts like territoriality can help change the perception of digital
trade as a threat to regulatory capacity and make it a tool for good governance. These
ideas, rooted in traditional concepts of other fields of law, should be reconsidered
in light of today’s economy and social relations. For instance, governments could
promote the development of good governance practices in anything related to digital
trade and the flow of data. This would help enhance a healthy form of digital
sovereignty, avoiding problems of trade-restrictive and poorly justified regulatory
policies.

155EUR. UNION COMMITTEE ON INT’L TRADE, Workshop: The Plurilateral Agreement on Services,
9 (Mar. 26, 2013),
https://www.europarl.europa.eu/RegData/etudes/workshop/join/2013/433722/EXPO-
INTA_AT%282013%29433722_EN.pdf.
Special Issue, 2024] The Rise of Digital Borders 91

Additionally, it is important to address the broader issues of economic inequality and

exclusion that underlie many of the challenges of digital trade. This requires a
commitment to inclusive growth and development, as well as policies that support
access to digital infrastructure and technology for marginalised communities. By
ensuring that the benefits of digital trade are shared more equitably, policymakers
can help to reduce the negative effects of digital borders and promote greater
international connectivity.

While there is no one-size-fits-all solution to the challenges of digital trade, and a

range of approaches will need to be considered in order to address the complex
issues involved, the solutions outlined in this article represent some possible avenues
for policymakers and international organisations to explore in their efforts to
promote fair, transparent, and inclusive digital trade.