PACER-Plus, MSGFTA3, and Joint Statement Initiative

MSGFTA3

The objectives of its E-commerce section are purely commercial. However, most of the e-commerce rules have more flexible language than found in developed country agreements and provide more policy space in the application of its core rules.

Regrettably, these flexibilities are negated by a trade in services provision that is designed to protect the freedom of the big tech operators.

MSG Parties willingness to adopt these rules creates a dangerous precedent that could make it more difficult for them to reject similar rules in agreements with developed countries that would have a much more significant impact.

One such example is the application of tariffs on imports of digital products. Currently in the WTO there is a moratorium on applying such tariffs that is renegotiated at each Ministerial, however it is becoming increasingly contested and controversial.

The US, Australia, New Zealand, Japan and some other developed countries have made that ban on applying tariffs on digital products permanent in their recent FTAs. The MSGFTA3 uses a less obvious route of designating digital products that are delivered across the border as services that are not subject to customs duties, yet the effect is the same.

This has revenue implications for all countries but especially developing countries with significant digital imports. In a recent UNCTAD study, Fiji is the only Pacific Island Country assessed however the study estimates, based on applied tariffs, that Fiji lost US$9 million tariff revenue as a result of the moratorium in 2020 and US$28 million in 2017-2020.

PACER-Plus

PACER Plus does not have a developed e-commerce chapter, perhaps because it pre-dates the conclusion of the TPPA text that both countries have since promoted. However, its rules on trade in services strongly reflect the interests of Australia and New Zealand and have similar implications for Pacific Island Countries as the MSGFTA3. The exceptionally broad commitments by the six Pacific WTO members included in the agreement far exceed their WTO commitments.

A brief explanation of trade in services is necessary to understand these implications. Trade in services chapters or sections in trade agreements apply to “measures” that “affect” the supply of a service. A “measure” includes a law, regulation, rule, procedure, decision, administrative action or practice and it just has to “affect” the supply or supplier of the service, not directly target it. A digital or digitalised service will usually be supplied from across the border (mode 1) or by a firm from one party that has established a commercial presence in another party (mode 3). Some relevant service sectors include computer and related services, telecommunications, cultural services, professional services like legal, tax, and accounting, and financial services.

A party to an agreement sets out in a schedule which of these services it commits to the two main rules: market access, which means not restricting the quantum of a service, including banning its supply, or requiring supply through a joint venture; and non-discrimination (national treatment) which means not giving preferences to local competitors or restricting foreign suppliers of a service.

There is a strong logical argument that this should only apply to services as they existed when governments made those commitments. Australia and New Zealand are among the countries that argue for the “technological neutrality” of commitments, meaning they apply even to services and technologies that were unforseeable when they were made.

Applied to computer and related services, for example, these rules could prevent laws or regulations that restrict data flows, require sharing of source code and algorithms, limit market dominance or market share, require employment of locals or transfer of technology, tax digital operators over a certain size or for specific activities, require cross-border suppliers to have a local presence, invest only through a joint venture, have a majority of directors or senior managers who are nationals, etc.

All fourteen Pacific Islands parties have promised not to restrict market access and not to give local preferences on the most important services for digital sovereignty: computer and related services, advertising services, air transport sales and computer reservation services, and many tourism, wholesale and retail distribution services. These commitments apply whether the services are provided by Internet from outside the country or, in most cases, through a commercial presence in the country. What is especially notable in these schedules is that negotiators were focused on protecting existing areas of sensitivity, such as local shops, hotels, tour operators, without foresight as to how digital service delivery might pose different threats.

Joint Statement Initiative on E-commerce

Both the Pacific E-Commerce Strategy and the Pacific Aid for Trade Strategy call on the Pacific’s WTO Members to participate in negotiations for a Joint Statement Initiative on Electronic Commerce (JSI). The JSI negotiation is neither multilateral in the WTO sense (the current 86 participants are just over half the WTO’s membership) nor under official WTO auspices.

There is no legitimate pathway for this new plurilateral agreement to be adopted in the WTO without consensus support of all WTO Members.

Both Strategy’s fail to acknowledge, let alone engage with, the concerns that have led half the WTO Members, including a majority of developing countries, to eschew these JSI negotiations. No Pacific Island Countries are participating. South Africa and India have led developing countries’ opposition to JSIs on two grounds: they would allow sub-groups of powerful WTO members to develop their own “global rules” and further marginalise the priorities of developing countries; and the rules being proposed would have a negative impact on the digital development options of the Global South.