The Year in Review: Major Setbacks for Digital Trade in 2016

What a difference one year makes. When 2015 ended, prospects for digital trade looked good. In bilateral, regional, and multilateral contexts, initiatives were advancing that were, in part, designed to increase opportunities for digital commerce and strengthen rules for it. The European Union launched its Digital Single Market strategy and was negotiating the Trans-Atlantic Trade and Investment Partnership (TTIP) agreement with the United States. In addition to TTIP, the United States concluded the Trans-Pacific Partnership (TPP) agreement with eleven countries, and was negotiating the Trade in Services Agreement (TISA) with over twenty nations and the European Union.

As 2016 ended, these initiatives were damaged, in danger of failure, or dead. The Brexit referendum began the United Kingdom’s departure from the European Union and the single European market. With all major U.S. presidential candidates opposing it, the TPP agreement was in trouble before Donald Trump won. President-elect Trump confirmed the United States would not join, effectively killing one of the most important trade initiatives of the twenty-first century. The TTIP agreement’s chances suffered from opposition within the EU, the decision of the United Kingdom—a TTIP supporter—to exit the bloc, and the anti-trade policies of president-elect Trump. TISA negotiators cancelled the December 2016 meeting where they once expected to finalize the agreement, with doubts swirling whether negotiations would be revived given Trump’s hostility to trade agreements.

The forces that produced these outcomes go beyond criticisms of the digital trade aspects of these initiatives. The Brexit vote and the anti-trade zeitgeist of the U.S. election revealed widespread anger with cornerstones of British and American international economic engagement—liberalization of trade and investment through treaties as a strategic commitment of the UK and U.S. governments. The dimmed prospects for digital trade are collateral damage from a populist upheaval against economic interdependence and globalization.

Prior to this upheaval, digital technologies helped catalyze interdependence and globalization, even when treaties lagged behind how digital devices and networks transformed the global movement of goods, services, capital, and information. The impact of digital technologies on commerce produced concerns about privacy, cybersecurity, abuse of market power by tech companies, and sovereignty. Despite these concerns, governments around the world supported liberalization of digital trade and worked to promote this objective in trade and investment agreements. The Digital Single Market, TTIP, TPP, and TISA represented, in different contexts, strategies to advance digital commerce’s deeper integration into international economic law.

Brexit, the death of TPP, the demise of TTIP, and doubts about TISA do not portend the imminent collapse of digital trade. After all, digital commerce expanded much faster than countries addressed it in trade and investment agreements in the post-Cold War era. However, what happened in 2016 takes away the support these initiatives gave to advancing and protecting digital trade in global economic governance. The absence of this support might allow countervailing forces, including requirements for data localization and national cybersecurity measures, to produce increasing restrictions on digital trade. Existing trade and investment agreements, such as the WTO’s General Agreement on Trade in Services, might prove inadequate in managing disputes over new restraints on digital commerce.

In addition, new trade and investment agreements might not have provisions for digital trade that achieve what the initiatives discussed above aimed to accomplish. For example, the chapter on electronic commerce in the Comprehensive Economic and Trade Agreement concluded by the European Union and Canada in 2016 comes nowhere close to what Canada accepted in the TPP agreement and what the European Union seeks in the Digital Single Market.

In 2017, indicators of where digital trade is headed will emerge from four sources. First, the Trump administration’s implementation of its trade policies will signal how it plans to promote U.S. digital commerce. Second, the European Union will pursue the Digital Single Market without British participation, and this initiative, in combination with EU privacy law, will affect digital commerce between the European Union and its trading partners. Without TTIP, the European Union has fewer incentives to moderate its regulation of U.S. tech companies, and the Trump administration will lack leverage to bargain on their behalf. The TPP’s death also means the European Union does not have to worry about whether that agreement would have created market pressures on how it regulated digital commerce in the single market.

Third, as Brexit moves forward, the UK government will seek to conclude trade and investment agreements with the European Union, the United States, and other countries. What the United Kingdom negotiates will be important in understanding how nations are thinking about liberalizing and protecting digital trade. Finally, how China promotes its Regional Comprehensive Economic Partnership to fill the void left by the TPP’s demise bears watching for its impact on digital commerce in Asia.