PublishedJuly 17, 2014

Trade and the Internet: Where next for European trade policy?

As the European Union is changing its leadership, CCIA takes the opportunity to provide our thoughts on a forward-looking European trade strategy.

Over the past two decades, the Internet has been a crucial element in the empowerment of small businesses and consumers. By democratising access to markets, it helps businesses connect with buyers and drives consumer choice. By democratising access to information, it helps consumers make informed decisions and makes businesses more competitive. In fact, the Internet is transforming production and distribution across Europe, making the entire economy more efficient and competitive. According to the OECD, the Internet “could possibly even exceed” the enormously positive and transformative effects of previous ‘General Purpose Technologies’, like electricity and the printing press.

The Need to put Consumers and SMEs at the Centre

It’s time that trade negotiators take this new reality into account. Unlike previously, trade agreements today need to be built around the interests of consumers and SMEs. This includes a recognition of the vast opportunities the networked economy has created for them. The following is a list of issues that should rank high on any trade agenda:

1. Protect the Internet as a Platform for Trade

Despite the Internet’s central role for global trade, it is not awarded with any special protections under trade law. This makes it vulnerable to abuse. For this reason, we invite trade negotiators to promote the protection of the Internet as a platform for trade. A good start would be to explore how the network could be defined in trade terms.

2. Prevent that Internet Services are Turned into Censors

Internet intermediaries – access providers, websites, and online services – process vast amounts of data, mostly without knowledge of its content. If they were fully liable for the illegal content they process, much of the Internet as we know it would not exist. However, special interests are continuously trying to shift policing functions on to intermediaries. This would likely lead to private companies applying overly restrictive measures, which would limit the innovative potential of the Internet and undermine fundamental freedoms.

3. Legalize the Resale of Legitimate Products Internationally

The Internet has made it much simpler to buy and sell previously-owned products. The result is unprecedented consumer choice and a burgeoning market for small merchants specializing in niche products. However, some trademark owners intend to restrict how their products can be sold internationally. This is bad for consumers and bad for small businesses. If we want to win them for future trade deals, the negotiations do not only need to be more transparent, but they need to focus on issues that are directly relevant to them. By extending the EU principle of trademark exhaustion internationally, modern trade agreements could promote a thriving online marketplace for consumers and SMEs.

4. Simplify VAT and Customs Duty Regimes

The Internet, particularly eCommerce platforms, have reduced many of the barriers that prevented small businesses from engaging in international trade. However, some hurdles continue to exist. For small businesses shipping individual, low-value, goods navigating the domestic VAT and customs duty regimes can be cost prohibitive. Future trade agreement need to ensure they are simplified, which includes the international harmonization of customs threshold, the level below which goods are exempt from customs duties and paperwork.

5. Promote Consumer Protections Internationally

International eCommerce has been a remarkable success but some areas still trail the convenience and protections awarded to consumers at the domestic level. We encourage trade negotiators to explore opportunities and mechanisms to extend domestic safeguards and protections to international purchases. These initiatives would further promote the international trade of low-value goods.

6. Promote Cross-Border Data Flows While Respecting Rules on the Use of Personal Data

The networked economy depends on a simple premise: the fewer the obstacles to the free flow of information, the more gains can be extracted from it. This extends far beyond Internet services or eCommerce; it includes financial and telecommunications services and even small retailers. In principle, all data should be able flow freely and it is important that protections are not limited to specific sectors, e.g financial services, or certain types of data. Where exceptions are deemed necessary, only the most targeted and rules-based derogations should be possible. Unless we want to cut ourselves off from the world we need rules for data flows. These flows are happening so we need to find a framework for them, not ignore them.

7. Don’t Force Data to be Hosted Locally

Some have raised the idea of requiring companies to keep customers data and network infrastructure within a country’s borders in order to have access to the domestic market. Whatever the policy considerations behind these initiatives, they all lead to progressively compartmentalized markets, which undermine the Internet’s potential to promote trade and economic development. Even if such a policy could work for very large countries, it will result in services being withdrawn from small countries where service provision is not economical. In a knowledge economy, reducing the options for handling and processing knowledge is disastrous. Forward-looking trade agreements must put an end to this.

8. Prevent Discrimination in Access to Communications Networks

One of the key elements to a vibrant information economy is a competitive marketplace for communications services. However, despite existing agreements affirming the contrary, some countries let dominant providers exploit their market position to drive up prices and reduce competition. Future trade agreements need to ensure that these non-competitive practices can not be sustained as they distort competition to provide communications and IT services to the detriment of consumers and businesses of all sizes.

Lessons from ACTA: Why Trade Negotiators Should Drive the Conversation

When Chancellor Angela Merkel had a private meeting with President Obama in May on the crisis in Ukraine, their discussion was followed by a joint press conference, while their staff were tweeting the highlights of the meeting and following up with journalists. Of course, they did not just do that because the issue is of public concern and they believe in transparency. They also did it because it gives them an opportunity to guide the public conversation and prevent misconceptions. While much of the content of their discussion will remain private – in order to keep their political options intact at home and abroad – they want to keep the public informed as much as possible.

Compare that to the recent TTIP and TiSA negotiation rounds. There were no press conferences and no tweets, let alone an official outcome document by the parties involved. In fact, many of the interested parties didn’t even know where exactly the meetings took place. Some of that has to do with the traditional confidentiality surrounding trade negotiations. Delegations do not want to disclose internal information because it could limit their options in the future.

However, as recent examples like ACTA have made clear, there may be bigger issues at stake. Not only is it increasingly difficult to keep trade negotiations confidential, but the perceived lack of transparency adds fuel to the fire of those who see them primarily as private clubs serving an economic elite. The problem extends beyond that, however. When even ‘insiders’ like journalists and interest groups rely primarily on leaks and personal contacts, it is tempting to fill the void by making assumptions based on preconceived notions. This creates a public perception risk: once the claims are in the public domain, it is very hard to challenge them, even if they are entirely unfounded.

For example, recent reports on TiSA in Europe suggested that the agreement would force countries to privatize their public schools and water supplies. Of course, these rumors are unsubstantiated; no European country could do that without having to go through a democratic process. Nevertheless, these rumors spread; in part because there is no ‘public authority’ – no Chairman or central Secretariat – that provides context and demystifies the claims. Interest groups and journalists are left with their national trade ministries, many of whom have little interest or expertise in media work and public outreach.

Focus on the Very Real, Welfare-enhancing Effects of Trade

As a result of the current environment, large sections of the public see trade agreements as largely contrary to their interests. This puts the proponents of free trade in a defensive position and makes it hard to convince people of the very real, welfare-enhancing effects of trade agreements.

The situation is indeed unfortunate because in principle, everybody understands the value of a clear and fair set of global trade rules. By leveling the playing field, trade agreements can benefit  consumers and businesses of all sizes, creating markets where the best ideas, products and services have the opportunity to succeed.

The good news is that there are a number of things trade delegates can do to promote public trust without having to compromise their negotiating tactics. While it may be some time before we see trade negotiators publicly joke about their countries’ past mistakes, there are many ways to engage with the public on trade. It’s time to explore these or allow the new jewel in the crown of our trading system, the Internet, to be fragmented.

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