As we have described in our blog series, the complex challenge of forced localization requires thoughtful, tailored solutions at both the domestic and international levels. ITI and our partners DIGITALEUROPE and JEITA—in Brussels and Tokyo, respectively—have consistently presented a united, international industry front against forced localization measures.
As such, this final blog in our series outlines four ideas on how international agreements and arrangements can help eliminate forced localization measures around the world. These include: 1) Enforcing existing international rules; 2) Ratifying and Implementing new negotiated agreements; 3) Multilateralizing rules in existing agreements; and 4) Using interoperable international arrangements where both governments and companies participate to address legitimate public policy concerns without resorting to forced localization:
- Enforcing Existing Rules. Governments tend to adhere to the rules they agree upon with their trading partners. Cases of blatant disregard for the rules may result in being on the losing end of a lawsuit at the World Trade Organization (WTO). For example, we already discussed WTO disciplines on using local content requirements (LCRs). When the United States challenged India over LCRs for solar arrays, it won on every count in both the initial dispute and the appeal.
That doesn’t mean that every LCR in the world will see its day in court at the WTO: Indonesia’s LCR for 4G LTE devices and modems has yet to be challenged. Perhaps due to this lack of challenge, Indonesia recently announced it is increasing the amount of local content required for this measure, from 40% to 70%. This is an unfortunate development that deserves more attention.
Some have argued that there are existing rules in the WTO that prohibit data localization requirements, in particular in the Telecommunications Annex to the General Agreements on Trade in Services (GATS). Article XIV of the GATS also contains an exception on privacy and data protection. It is, therefore, no mystery that many governments seeking to restrict data flows for protectionist reasons cover their measures in the cloak of privacy and data protection (GATS Article XIV(c)(ii)), or for that matter public morals or the public order (GATS Article XIV(a)), or animal or plant life or health (GATS Article XIV(b)).
Given the sensitivity with which governments treat issues of data protection and privacy, it is also no mystery that governments concerned with these measures have not initiated dispute settlement cases at the WTO in response. That said, the international community has agreed to be bound by both the rules and the exceptions in the GATS, and we should therefore rigorously enforce those rules in the context of localization measures.
We fully support discussions among WTO members on how to enforce the existing rules and whether we might need new rules to address the kinds of forced localization measures we have outlined in our blog series. Thankfully, more innovative governments, such as the United States, Japan, and the ten other parties to the Trans-Pacific Partnership (TPP) Agreement, are creating new rules outside the WTO that are addressing the problem.
- Ratifying and Implementing New Negotiated Agreements. Ratification and implementation of the TPP agreement would go a long way in pushing back against the global forced localization phenomenon. For example, it expressly prohibits restrictions on data flows and data localization requirements, while providing narrowly tailored exceptions for governments to pursue legitimate public policy objectives without creating disguised restrictions on trade and investment.
To date, no other trade agreement has matched the TPP's high standards on these issues. But if any do, ratification and implementation would be just as important. The Trade in Services Agreement (TiSA) and the Transatlantic Trade and Investment Partnership (T-TIP) are the next best opportunities for like-minded governments to build on the norms of the TPP.
- Multilateralizing the TPP’s Provisions on Forced Localization. In an ideal world, the TPP's implementation would open a path to establishing its norms at the multilateral level at the WTO, but, given the diversity of interests in the WTO membership, we do not live in that world.
However, new discussions on digital trade and expanding the E-Commerce Work Program could be a promising avenue for making the TPP norms multilateral. The WTO established this initiative in 1998 to provide a forum for discussing the opportunities and challenges associated with trading through electronic means. The WTO at the time also agreed to impose a moratorium on the imposition customs duties on electronic transmission, i.e. data flows, which it now renews every two years. The WTO has not updated this initiative since its inception.
This year, many WTO members, including the United States, Japan, Korea, the European Union (EU), Canada, Singapore, and Brazil, have submitted concept papers on what the WTO should do. These papers appear to be pre-negotiation markers that define the possible scope of what issues a negotiation would address. Many of the issues referenced in these papers overlap with the TPP norms: data flows, data localization requirements, privacy, cybersecurity, requirements to transfer or provide access to source code, low-value goods shipments from small- and medium-enterprises (SMEs), internet infrastructure, access to payments, online security, e-signatures and authentication, prohibiting the forced transfer of technology, and making the moratorium mentioned above legally binding and permanent. We hope that these discussions could also address the other types of forced localization measures we have outlined in our blogs, such as local presence requirements, which the TPP also expressly prohibits.
These discussions will not bear fruit immediately. They will require significant information sharing in Geneva and in a wide array of capitals on the importance of data flows and digital technologies to the global economy, local economies, small businesses, consumers, governments, innovation, research, and development. Given the high number of sessions at the 2016 Public Forum dedicated to e-commerce and digital trade, there seems to be a growing interest and appreciation for this.
- Establishing interoperable international arrangements where both governments and companies participate. Trade agreements are great tools to address the problems we have identified, but other tools outside of the trade context may also be necessary. Laws and regulations on privacy, cybersecurity, and law enforcement access to data may all differ from one country to another. That does not mean they should stand in isolation. It is possible to create international arrangements that lay on top of existing laws and regulations that allow both governments and private enterprise to cooperate with one another and collectively address these challenges.
In other words, interoperable, international arrangements are practical necessities in addressing problems that are by their very nature global and cut across jurisdictions. As we pointed out in another blog, the Asia-Pacific Economic Cooperation (APEC) forum’s Cross-Border Privacy Rules (CBPRs) are one great example of this model. We identified Mutual Legal Assistance Treaties (MLATs) and the UK-U.S. data sharing agreement as other examples of international arrangements that could help governments avoid using data localization requirements for national security purposes.
As governments and other stakeholders work together to address shared challenges concerning forced localization, ITI advocates their consideration of such interoperable, international arrangements. When both sets of actors buy into the same set of objectives and processes, they build trust and confidence and demonstrate to their constituents that they are solving the problem. No government on its own, nor any one firm, can roll back all forced localization measures around the world, but with creative approaches where cooperation is an embedded principle, the likelihood that the trend begins to reverse can only increase.
Forced Localization Blog Series Table of Contents:
- What is Forced Localization?
- Local Content Requirements
- Local Presence Requirements
- Local Standards and Conformity Assessment
- Data Localization Explained
- The Costs of Data Localization
- Development and Data Localization
- Privacy Protection and Data Localization
- Cybersecurity and Data Localization
- Law Enforcement Access to Information and Data Localization
- Using Trade Agreements and other Multilateral Approaches to Address Forced Localization