Trade Policy at Work

Data Flows, Data Localisation, Source Code: Issues, Regulations and Trade Agreements

This study explores a few of the complex regulatory concepts that have emerged within the domain of E-Commerce in recent times to enhance their understanding and highlights different ways in which some countries have dealt with the issues in their national policies and trade agreements. It also aims to provide a brief summary of the pros and cons of the available policy options.

Advancements in digital technology have revolutionised economic activity in the 21st century. E-Commerce has emerged as an important medium of domestic and international trade. While these developments present several opportunities, harnessing the technologies for economic development pose new legal and regulatory challenges for countries in their trade and industrial policies.

Current patterns of digital trade are heavily skewed in favour of advanced countries. This is due to their superior digital infrastructure and capabilities compared to the rest of the world, pointing to a ‘digital divide’. Effective domestic policies may be required to address this in order to reap the dividends of the latest digital developments.

The subject of E-Commerce has received attention during various international discussions, including those at the WTO. Issues related to regulatory policies on data and technology have proved particularly complex and controversial. Such debates address the regulation of data flows, data localisation, sharing of source-codes and similar policies on digital technology.

The emerging importance of data in modern times resembles that of oil in the 20th century, symbolising its power as an economic resource, and its ability to define political economy relationships. Control over data, thus, presents a key issue. Some countries use data localisation policies and other regulations on data flows to develop their own digital industry. Those with already developed industries see such regulations as restrictions on trade and constraints to the full realisation of free trade.

Similarly, the issue of sharing source code has attracted much attention. Source code, algorithms, and encryption techniques embody the technology driving digital innovation. They are seen as vital for the development of modern industries. Some countries demand disclosure of source code along with other technology and performance requirements in their national policies. Countries already possessing such technological prowess see these policies as restrictive for trade and investment.

Attempts have been made to bring these issues into trade agreements. At the WTO, some countries have recently been discussing them with a view to framing new rules. A few countries have already incorporated such provisions in Regional Trade Agreements (RTAs). These provisions seek to restrict – in varying degrees and exceptions – countries from using policies on data localisation or source code disclosure.

The issues are complex and there is no one-size- fits-all solution. Similar debates on conventional trade have taken place before and still continue, albeit with mixed results. The real test for developing countries would be how they balance the necessity of domestic policies for digital industrialisation against the demand for international trade discussions and negotiations.