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The TPP’s Electronic Commerce Chapter: Strategic, Political, and Legal Implications

by David Fidler
November 9, 2015

TPP e-commerce chapter Net Politics Cyber CFR A worker gathers items for delivery from the warehouse floor at Amazon's distribution center in Phoenix, Arizona November 22, 2013. (Ralph D. Freso /Reuters)

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Release of the text of the Trans-Pacific Partnership agreement (TPP) has launched the “tale of two treaties” saga so familiar when new trade and investment agreements appear—it is the best of treaties, it is the worst of treaties. Praise for and criticism of the TPP’s chapter on e-commerce form part of this saga, and the gap in rhetoric calls for scrutiny of the legal text in light of the chapter’s strategic goals and the political challenges it faces.

The TPP’s strategic objectives include advancing trade and investment liberalization and counterbalancing China’s growing influence. The e-commerce chapter supports these objectives. With WTO negotiations stalled, the TPP provides a way to catalyze liberalization among countries representing forty percent of the global economy, which creates e-commerce opportunities, with expanding digital commerce generating new trade and investment possibilities. The chapter facilitates this dynamic because it will apply on an unprecedented geographic and economic scale. Strategic concerns with China include competition on global e-commerce. The e-commerce chapter is designed to preserve an open, global Internet and can be a model for future agreements.

These objectives inform the politics surrounding e-commerce. By facilitating liberalization, critics argue the TPP privileges private over public interests, subordinates privacy to profits, and constricts policy space for welfare-enhancing regulation through substantive and dispute settlement rules that favor companies. Counterbalancing China does not require diluting privacy or empowering corporations at the expense of regulatory sovereignty. These critiques fuel the political debates that will determine whether countries ratify the TPP.

Whether international agreements achieve their strategic objectives in politically palatable ways depends, in large part, on what they require countries to do. The TPP’s e-commerce chapter contains four types of provisions. First, the chapter supports liberalization by requiring non-discriminatory treatment, prohibiting customs duties for electronic transmissions, restricting various barriers to e-commerce, prohibiting requirements to use local computing facilities, and facilitating cross-border transfers of information.

Second, the chapter balances liberalization with protection of other interests and values. It requires parties to adopt laws for electronic transactions, online consumer protection, and personal information protection. The chapter provides exceptions to liberalization obligations for measures implementing legitimate public policy objectives. Third, the chapter addresses e-commerce’s intersections with other cyber policy concerns. It requires parties to regulate spam e-mail, recognizes the benefits of consumer access to the Internet for e-commerce (net neutrality), and acknowledges cybersecurity’s importance. Fourth, disputes are subject to the TPP’s state-to-state and investor-state dispute settlement (ISDS) procedures.

These provisions generate different legal effects. Some provisions create binding obligations, such as the mandate for non-discriminatory treatment of digital products. Other provisions are binding but less demanding, including those stating that parties “shall endeavour” to undertake specific actions. Still other provisions establish no binding obligations, such as those where parties simply recognize issues or agree they should or may behave in certain ways. Determining the meaning of binding obligations, and exceptions thereto, requires applying the complex jurisprudence on trade and investment treaties. The deeper analysis goes into the law, the harder it becomes to make sweeping statements about the chapter’s potential political and strategic importance.

Controversies with trade and investment treaties often arise when liberalization obligations (e.g., market access) purportedly clash with public interest regulations (e.g., on health). Opponents of the e-commerce chapter argue the obligation on cross-border transfers of information could override privacy laws and permit corporations to challenge such laws under ISDS. For either of these things to happen would require challenges to privacy regulations to navigate numerous legal requirements and tests frequently interpreted and applied in ways not hostile to public interest regulation. In addition, challenges would unfold against the chapter’s requirement that each party adopt privacy laws that should be informed by principles developed by international bodies, which could include UN human rights treaties and mechanisms.

A corporation challenging privacy laws under ISDS could not base its claim on the e-commerce chapter’s obligations on cross-border transfers of information. Instead, it would have to argue, for example, that privacy laws violated non-discrimination duties, failed to provide the minimum standard of treatment required by customary international law, or constituted an illegal expropriation—none of which seem likely given how privacy laws function. The investment chapter also provides that non-discriminatory regulations protecting legitimate public welfare objectives, which would include privacy, are not expropriations, except in rare circumstances.

The treaty text, informed by the web of existing jurisprudence, does not ensure the e-commerce chapter will always operate with trade and investment objectives in political harmony with public interest regulations. Nor do the legal complexities assure that the e-commerce chapter will deliver the promised strategic benefits for the United States. But, with the text now in hand, the political viability and strategic consequences of “the most ambitious trade policy ever designed for the Internet and electronic commerce” have become pressing legal responsibilities of the digital age.

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