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When a Negative is Positive: Updating International Trade Agreements for the 21st Century

· July 6, 2012

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The international trade world is a relatively esoteric place where minor rules and negotiating modalities lead to huge differences in outcomes.  Although the majority of the world’s citizens pay much closer attention to what goes on in their domestic capitals than they do to what goes on at the WTO, this is not reflective of the power that exists in Geneva.  The treaties negotiated on the shores of lake Geneva set the bounds for domestic legislation and govern the treatment of goods and services in the international marketplace.

Seemingly minor rules make big differences in outcomes when it comes to how countries agree to make their free trade commitments.  To slightly simplify international trade agreements, there are two basic ways in which countries make liberalizing concessions.  The first, as is the case for the General Agreement on Trade in Services (GATS) and the Information Technology Agreement (ITA) of the WTO, is called a positive list approach.  In this case, countries specifically list which products or services they agree to lower tariffs on (or decrease non-tariff barriers on).  The other approach, as contained in the General Agreement on Tariffs and Trade (GATT) treaty of the WTO, is called a negative list approach.  In this type of agreement, countries specifically list which products or services they will maintain trade barriers on.  If a product is not listed, no restrictions exist and the product is subject to be traded openly.

While these differences seem trivial, they are not — especially to Internet and high-tech companies. The main difference being that the positive list approach discriminates against new products and services, which are not protected under past commitments.  Due to the glacial pace at which the wheels of the international trade apparatus turn, it is not clear that new products enjoy the same status as products like telephones, fax machines and keyboards.  (The EU went so far as to contend that a cable box that has an internet connection built in is no longer a cable box and a printer that can also scan and fax is no longer a printer and, as a result, prior liberalizing commitments no longer apply. Thankfully they lost that case.)

The even more annoying aspect of the current structure of WTO agreements is that the two areas of trade that are covered by the backwards-looking positive list approach, the GATS and the ITA, cover two quickly evolving sectors (Internet services and information technology products and components).  Technological “convergence” and the development of hybrid services are continually blurring the line of what is and is not covered by prior commitments (Luckily, the WTO has indicated that it views traditional services delivered over the Internet as covered under prior GATS commitments [see page 324]).  For example, products currently not covered under the ITA include many consumer electronics devices, such as GPS controllers, gaming consoles and web cameras.  Problems also exist as computers, tablets and smartphones incorporate more functionalities that are not covered under the ITA, like expanded “media player” functionality–as the case of iPad classification in Sweden illustrates.

As talks begin on how to modernize agreements on both trade in services and the ITA, negotiators should commit to implementing a negative list approach so the international trade regime is not inherently biased against innovators and makers of cutting-edge products.  It is time to bring the international trade regime into the 21st century.

Digital Trade

Companies rely on clear, predictable rules that facilitate digital trade to export their products and services around the world. These rules include balancing the competing interests between encouraging investment and enabling information access; promoting the free flow of information online; and maintaining balanced intermediary liability regimes.