JOINT STATEMENT ON ELECTRONIC COMMERCE INITIATIVE

PROPOSAL FOR THE EXPLORATORY WORK BY JAPAN

The following communication, dated 12 April 2018, is being circulated at the request of the delegation of Japan.1

 

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1  BACKGROUND

1.1.  The widespread nature of the Internet has enabled MSMEs to directly gain access to foreign markets in a faster and easier manner than in previous decades. Cross-border trade in services is also rapidly expanding and we have been witnessing the remarkably rapid growth of a number of MSMEs and start-ups in developing countries. In order not to deter MSMEs and developing countries from taking advantage of this new opportunity for growth, we should promote trade in goods and services, encourage cross-border flows, and improve market access conditions.

1.2.  The current WTO framework and schedules were developed before the technological evolution of the Internet and they may not take fully into account the implications of the latest technologies such as the Internet of Things (IoT) . In addition to information obtained from websites, a wide variety of data are being transmitted back and forth across national boundaries 24/7. It is therefore necessary to update the WTO obligations, disciplines and commitments in order to best respond to the realities of today’s economy.

2  VIEWPOINTS ON THE EXPLORATORY WORK

2.1.  As a number of Members stated during the first meeting, the main objective of this Exploratory Work is to bridge knowledge gaps in order to prepare for the future WTO negotiations on trade related aspects of e-commerce. In this regard, we propose two fundamental vantage points for conducting the Exploratory Work. The first is to make WTO obligations, disciplines and commitments more relevant to the digital economy. The second is that the future WTO negotiations in this field should enhance participation of MSMEs and developing countries in global value chains, and promote inclusive growth.

3  PROPOSED ELEMENTS OF FUTURE AGREEMENT ON E-COMMERCE AND/OR DIGITAL TRADE

3.1.  This section presents elements and ideas that Japan considers important for facilitating e-commerce and/or digital trade. The existence of varied and fragmented domestic rules and regulations potentially hinders consumers and businesses from enjoying the fruits of a wide range of cross-border e-commerce or digital trade. To avoid such fragmentation, it is necessary to build general and overarching international principles through discussion at the WTO and to take account of rules that already exist in the WTO and that have been introduced in the existing FTAs.

3.2.  We would like to mention that the elements and ideas provided below reflect only our primary interests and are not necessarily intended to show the whole universe of possible international trade rules on e-commerce. As a matter of course, we are ready to actively engage in discussion on other important elements. In particular, the development aspect of e-commerce is important since, for instance, the digital divide—typically due to inadequate telecommunications infrastructure—is surely an obstacle in unleashing developing countries’ potential in digital trade and/or e-commerce. We are looking forward to seeing effective proposals from both developed and developing Members and having active discussion in this area.

A. Regulatory Frameworks Facilitating E-Commerce/ Digital Trade

(a) Promoting Harmonization and Interoperability of Regulations

3.3.  In order to create an enabling environment for e-commerce and digital trade, a range of domestic regulatory frameworks related to e-commerce and digital trade need to be put in place. However, variations of such frameworks across countries could pose obstacles for cross-border businesses operators. The WTO has a role to play in promoting intergovernmental activities at the regional and international levels to achieve harmonization and complementarity among different frameworks, which is essential for facilitating cross-border e-commerce and/or digital trade.

(b) Access to Online Payment Solutions and Domestic Regulatory Frameworks for Enabling Global E-payments Environment

3.4.  Promotion of cross-border e-commerce and/or digital trade has been largely supported by e-payment systems such as credit cards, on-line payment facilities, and mobile wallets. New financial transaction mechanisms have also emerged alongside the expansion of e-commerce. Ensuring accessibility to various online payment solutions is necessary to further promote e-commerce and/or digital trade. However, risks for both consumers and businesses exist where regulations are not well adapted to new payment methods and oblige them to refrain from using online payment systems.

3.5.  With a view to effectively addressing the security risks of online payment solutions and improving the e-commerce business environment, government should introduce domestic regulations which ensure the reliability of online payment systems including regulations on online payment service providers. In doing so, it is important for regulators to provide clarity, yet allow for flexibility, so as to permit payment systems to adjust to the rapid advancement of technology and business models in this field.

B. Open and Fair Trading Environment

(a) Cross-border Transfer of Information by Electronic Means

3.6.  As business operations become more globalized, various types of data are being transferred across borders of both developing and developed countries. For instance, in the case of online services which provide remote maintenance and support services for infrastructure and machinery, data on operations and technical functions are transferred across borders.

3.7.  Therefore, limiting the international transfer of data through government policies would encumber cross-border business operations and hinder the sound development of digital businesses. Such limitations would also make it more difficult for MSMEs from both developing and developed countries to participate in global value chains. In order to ensure the predictability of the cross-border business environment, as well as to facilitate healthy growth of new digital industries and markets, the WTO should consider reaching agreement among Members on principles to ensure free flow of data. Any such agreement should allow the least trade restrictive measures that would fulfil legitimate public policy objectives, including personal data protection.

(b) Prohibition of Data Localization such as Using or Locating Computing Facilities

3.8.  As cross-border data transfer becomes an essential part of business practices. Companies take strategic decisions on the locations of computing facilities, taking into account the cost and efficiency of operations, while at the same time hedging various risks. In such contexts, mandatory requirements by a government to locate servers within its territory would discourage companies from entering into its market due to the increased cost and risk associated with such requirements. Therefore, it would be worth considering reaching an agreement among Members in the WTO in which, with the exception of cases to achieve a legitimate public policy objective, governments should not impose mandatory requirements on the location of servers, as such requirements pose critical barriers to entry into the market by foreign businesses.

(c) Open Networks/A Free and Open Internet

3.9.  For the online business environment to be fair and competitive, access to services on the Internet by consumers and provision of services on the Internet by suppliers—both domestically and cross-border—should be ensured. Unilateral and arbitrary interference by a government to certain websites and internet services would result in serious losses for and burdens being imposed on both consumers and service suppliers in the country concerned. Where relevant GATS commitments exist, such measures may already contravene market access and national treatment undertakings. However, given the nature of positive list approach under GATS which covers only sectors (and subsectors) in each Member's schedule, governments should agree, in general, not to impose unjustifiable restrictions on access to any particular websites or services and supply of any particular services both domestically and cross-border, with few reasonable exceptions. This fundamental principle should form part of any international framework on e-commerce negotiated in the WTO.

(d) Due Process in Government Access to Privacy/Industry data

3.10.  Unpredictable and unclear due process of government intervention in cyberspace poses costs and obstacles for business operators. It is reported that several companies refrain from expanding their businesses into foreign markets due to uncertainty and unpredictability of the requirements by governments on the disclosure of the information which they consider critically important to protecting customer data and trade secrets. This implies that such requirements would restrict the range of options for services that consumers could potentially harness. Therefore, unclear due process of government intervention is damaging not only to business interest but also to consumer benefits. In order to ensure predictability of the online business environment, Members should agree in the WTO to set clear administrative due processes for government intervention. These processes should include, but not be limited to, publication of relevant laws and regulations and introduction of procedures for motions of objection.

(e) Utilization of Public Data (Open Data)

3.11.  With the aim of contributing to further promotion of e-commerce or digital trade, data gathered by governments, such as statistical information, data on public transport and data on disaster prevention can be open and accessible to the public. By making such data available to both domestic and foreign companies, the governments could enhance opportunities for promoting innovation. In the case that access to such data is only allowed to domestic companies, this would effectively take the form of a national treatment barrier for foreign companies to enter into the concerned market. Therefore, the data which are gathered by governments should be open and widely accessible on a non-discriminatory basis. It would be worth considering reaching such an agreement in the WTO.

(f) Liberalization Commitments/Improving Market Access Commitments in E-commerce or Digital Trade Related Services

3.12.  Improving market access and national treatment commitments in ICT-service industries that serve as the infrastructure of the digital economy (e.g. telecommunications, computer services) is fundamental for the development of digital trade. Such commitments can boost domestic and foreign investment in those industries and encourage competition resulting in a business environment that is more predictable and favorable to electronic commerce. The commitments will also help address the challenges of the digital divide and provide enhanced opportunities for other enabling digital infrastructure services (e.g. online retail, relevant financial services, delivery and logistics services) as well as digitally enabled services (e.g. professional services, all business services, education services) . Commitments on these latter services may also provide added benefits for enhancing the digital trade of economies who undertake bindings. Such efforts would modernize WTO schedules so as to bring them more in line with commitments achieved in RTAs in recent years.

C. Protection of Intellectual Property

(a) Prohibition of Disclosure of Important Information such as Trade Secrets including Source Codes and Proprietary Algorithms

3.13.  Software programs are embedded in all kinds of products ranging from IT products to manufacturing products, including automobiles. These are a source of competitiveness of companies in the modern economy. However, the disclosure of the source codes and algorithms used in such programs is required in some countries at the time of import of goods or services concerned, and the establishment of facilities. Risk of leakage of trade secrets by such disclosure is a critical concern for companies and discourages and even blocks companies from exporting their products to such countries who impose these requirements. As such, the requirement on disclosure of source codes and algorithms is effectively a trade barrier, and therefore should not be imposed by governments, with the exception of cases to achieve legitimate public policy objectives. Such disclosure should not be a condition for the import, distribution, sale, or use of related products including digitally encoded products in a Member's territory. This should be discussed and agreed in the WTO.

(b) Prohibition of Use of Particular Technology including Encryption Technology

3.14.  In the field of e-commerce or digital trade, new technologies and services are developed progressively and rapidly. Against such a background, the mandatory introduction of particular technologies including encryption technology by a government would impede development of new technologies and business opportunities and also hamper market entry of foreign companies after forced application of particular technologies effectively acts as a technical barrier. Additionally, in the case that businesses are obliged to use particular encryption technologies, potential deterioration of the level of security is a legitimate concern. Therefore, governments should not impose any mandatory requirement on the use of particular technologies including encryption, with the exception of cases to achieve legitimate public policy objectives. This principle should also be agreed in the WTO.

(c) Prohibition of Improper Access to Trade Secrets by Governments

3.15.  In order to ensure protection of Intellectual Property Rights and trade secrets in cyberspace, a government should make an international commitment to adhere to due process when accessing intellectual property or trade secrets of private entities, both within and outside its own territory.

D. Enhanced Transparency

(a) Obligation to Report Regulations Related to E-commerce or Digital Trade

3.16.  One of the major challenges for MSMEs in expanding their operations to foreign markets is the lack of accessibility to foreign countries’ information on domestic regulations, procedural due process, decree and official interpretation associated with e-commerce and/or digital trade. Especially under the current circumstance where such domestic regulations and procedural due process have developed rapidly due to the rapid development of new technology such as VPN, it is difficult for MSMEs to obtain up-to-date information.

3.17.  To address this situation, the WTO Members should report the laws and regulations, and also procedural due process if possible, in force as well as their amendments related to e-commerce.

3.18.  The scope of this reporting includes, but is not limited to, the following elements:

a.  Laws and regulations on e-commerce and/or digital trade including electronic signatures and authentications, electronic contracts, consumer protection, and e-payments.

b.  Laws and regulations related to data including privacy data protection, data localization requirements, and regulation on cross-border data flow.

3.19.  The Members would make the information available, so that it is accessible to all, through the WTO website.

 

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1 This communication is being circulated for transparency purpose.