Part II - Reconceptualizing World Trade Organization Law for the Artificial Intelligence Economy

5 Trade Rules for Industry 4.0 Why the Technical Barriers to Trade Agreement Matters Even More

Aik Hoe Lim *

I Industry 4.0: The Whole Is Greater Than the Sum of Its Parts

Aristotle is credited for having said “the whole is greater than the sum of its parts”.

Correctly or incorrectly attributed to Aristotle, those words have beguiled philosophers for many a century. If Aristotle did indeed say those words,¹ he probably did not have Industry 4.0 in mind.

Yet, his thoughts are rather prescient. They are prescient in the sense that the concept that “the whole is greater than the sum of its parts” underpins the notion of “emergence”, a key idea in the debate over what is consciousness and artificial intelligence (AI).² It is indeed a very good description of what we are witnessing with the convergence³ of AI, robotics, additive manufacturing (3D printing), blockchain and the Internet of Things (IoT) into digitally connected networks of production, communication and consumption. The effects of technological innovation are creating immense transformations in the way companies and countries organize production, trade goods, invest capital and develop new products and processes.

The third industrial revolution brought us the power of the microprocessor and the personal computer with the capacity to store, organize and retrieve vast amounts of data, and undertake cumbersome repetitive tasks in milliseconds. As each “disruptive technology”⁴ improved on the hardware and software of computing, the costs of PC ownership were rapidly brought down, giving households access to computing power previously only enjoyed by large institutions. By connecting individual computers together in the worldwide web, the Internet was created, and a new paradigm of communication and data became possible. And this continuing acceleration of technological deployment is now coupled with an equally rapid process of diminishing costs. Indeed, it has been estimated that “[b]efore 2050, the price of a computer with the computational power of everyone on the planet combined will be less than what you paid for your smartphone in 2018”.⁵

The fourth industrial revolution and Industry 4.0⁶ extends this march of technology as digital networks of hardware and software become more sophisticated and integrated. Fueled by data and algorithms, and aided by sensors, machines and computers can autonomously communicate with each other, and are increasingly doing tasks and taking decisions without human involvement.⁷

Take the modern car, which is fast resembling a computerized hub of sensors with wheels. Fully or semiautonomous vehicles collect, exchange and analyze data that is then used to take decisions that can be better or faster than the human brain: braking before a collision, shifting from two to four wheels or, in the ultimate case, driving itself. And the amount of data that can be collected is immense: it has been estimated that “a single car will generate about as much data as 3,000 people do in a similar period day”.⁸ All this data can in turn be fed back into the production process to design better hardware, software and algorithms.

The same model of data connectivity, convergence and advanced analytics is being applied to heavy machinery, health equipment, buildings, consumer devices, logistics, supply management and so forth. Customers on e-commerce platforms generate vast amounts of data, which AI can use to better anticipate consumer demand and behavior. A German online retailer that uses machine learning algorithms to predict what customers are going to buy has developed a system so reliable that it can predict with 90 percent accuracy what will be sold within the following thirty days.⁹

Industry 4.0 is rapidly demonstrating that the whole is indeed greater than the sum of its parts. And it is in ensuring that the “whole” does come together that the World Trade Organization (WTO) Agreement on Technical Barriers to Trade (TBT) has a key role to play.

The TBT Agreement addresses regulatory interventions that may affect trade in products. This will be the case for many Industry 4.0-related standards and regulations. The unparalleled speed and breadth of the current “revolution” unfolds every day with new digital products being invented ready to fulfill needs we did not even know we had. These developments invariably expose a “dark side” of new technology; of risks that we also did not know could even exist. You may have heard that “IoT toasters” may be misused and turned into “weapons of mass destruction”. Are such concerns far-fetched or legitimate? If they are legitimate, how should such concerns be regulated? Could governments be tempted to influence the evolving global governance framework through setting regulations that give their industry a first mover or competitive advantage?

The TBT Agreement, by promoting global regulatory coherence (harmonization via international standardization) and global regulatory cooperation (via good regulatory practices, equivalence and mutual recognition), will assume even greater importance as standards and regulations are developed for Industry 4.0. As the 2020 World Trade Report notes:

Cooperation on technical standards is also especially important when confronting novel regulatory challenges and risks, such as those related to “dual use technologies” (i.e. both for civil and defence purposes) or to the area of AI. Technical standards applying to dual-use technologies, for instance with respect to radio, telecommunication and network security, or autonomous vehicles and aircraft, are notified by WTO members under the TBT Agreement.¹⁰

More than ever, we will need to ensure that the interconnectivity and interoperability¹¹ required by Industry 4.0 are not hampered by discriminatory or unnecessarily divergent standards and regulations.

II How Will Industry 4.0 Impact Trade?

WTO’s 2018 World Trade Report¹² explored some of the most immediate changes that we can envisage for the near future and concluded that new technologies have the potential to profoundly transform: (1) the way we trade; (2) who trades; and (3) what is traded. Understanding how these technologies may impact world trade is essential to thinking about the role of trade rules in maximizing gains and minimizing friction.¹³

Firstly, on the way we trade, we have seen the impressive rise of e-commerce, which has reshaped what and how we purchase and consume. In 2016, the value of e-commerce transactions was estimated to be US$27.7 trillion, of which US$ 23.9 trillion was business-to-business e-commerce transactions.¹⁴ The convergence of physical and digital worlds will create new economic opportunities, many of which have not yet been conceived. McKinsey forecasts that the IoT will add between US$ 2.7 trillion and US$ 6.2 trillion in economic value annually through 2025 and improve manufacturing productivity by up to 5 percent. Cisco estimates that the IoT will have a global economic impact of US$ 14.4 trillion between 2013 and 2022.¹⁵

Secondly, advances in the way we trade will also reduce international trade costs.¹⁶ WTO projections predict that trade could grow yearly by 1.8–2 percentage points until 2030 as a result of falling trade costs, amounting to a cumulated growth of 31–34 percentage points over fifteen years. Gains are expected to come in several ways:¹⁷

• Cargo and transport logistics are optimized by the combination of vehicle telematics, robotization and AI. IoT¹⁸ sensors, for example, can reduce the costs of global trade by increasing the efficiency of transport and logistics. By being able to track in real time, fewer goods will be lost in transport. Companies will also be able to optimize routes to efficiently use shipping containers.¹⁹

• The automation of warehousing, trailer and container unloading and packing will add to time and cost savings. Combined with AI algorithms, the use of advanced robotics minimizes the cost of storage and speeds up distribution to final customers.²⁰

• It is not just transport and logistics that affect cross-border trade. Layers of procedures and customs regulations can add to costs. At the most basic, information and communications technologies (ICTs) can help reduce paperwork, streamline procedures and reduce the costs of crossing borders. In more advanced applications, AI is already being used to help businesses to continually monitor, analyze and comply with regulatory changes.²¹

• Harnessing blockchain’s decentralized, distributed digital ledger that is secured using various cryptographic techniques could help improve trust. Information, once added to a blockchain, is time-stamped and cannot be easily modified, making it easy to track attempted changes, and transactions are recorded, shared and verified on a peer-to-peer basis by anyone with the appropriate permissions. While much of its potential is yet to be fully realized, it is expected that this technology could help the trading community to better access information and gain trust in cross-border transactions, which would in turn reduce the cost of transactions.²²

Thirdly, the Internet and the reduction of trade costs has made trade more inclusive and reduced some of the challenges of size and geography. Services offered by online platforms have, for instance, facilitated the direct participation of micro, small and medium enterprises in export activities. The decline in information and transaction costs can help firms in developing countries that tend to face higher costs for obtaining information and guaranteeing transactions. The WTO estimates foresee that developing countries’ share in global trade could grow from 46 percent in 2015 to 57 percent by 2030.²³ Much depends on whether appropriate complementary policies are put in place and challenges related to technology diffusion and regulation are addressed.

Fourthly, the composition of what is traded may change. 3D printing – the key element of “additive manufacturing” – may paradoxically reduce trade in intermediate parts and components. This may mean further reductions in transport and logistics costs, and a consolidation of global value chains as 3D printing is used to locally manufacture complex or customized inputs. In time, this could lead to a shift toward more digital and localized supply chains with reduced need for a back room where inventories are stored.²⁴

IT has also allowed for the “digitalization” of certain goods, where physical products have been progressively replaced by digital equivalents. For example, the digital distribution of books, films and music has increasingly replaced physical transactions, a trend that is blurring the traditional boundary between trade in goods and trade in services. The importance of services in the composition of trade is expected to increase, with the share of services trade to grow from 21 percent to 25 percent by 2030. Trade in information technology products has tripled in the past two decades, reaching US$ 1.6 trillion in 2016.²⁵

Yet achieving the great promise of Industry 4.0 is neither guaranteed nor automatic. The great convergence promised by the IoT requires, not least, solutions to many technical and practical barriers. Different devices, software and siloed systems based on varying standards must be enabled to interconnect, interoperate and communicate securely. There are also significant numbers of different policy concerns – not only the obvious ones like human safety but also others like national security, cybersecurity, impacts on market concentration, privacy and the digital divide²⁶.

III How Can Trade and World Trade Organization Rules Help Shape the Future?

These are very important questions that have a trade rules dimension. It is also a vast canvas of issues. At the WTO, in terms of existing rules, “WTO agreements reached a quarter of a century ago proved to be remarkably forward-looking in providing a framework that helped to foster the development of an ICT-enabled economy in countries across all levels of development, while preserving policy space for countries to pursue different models of digital development.”²⁷

In terms of new rules, at the WTO, much of the discussion has been on what rules are needed to support e-commerce. While e-commerce is not “new” in the WTO, lately there have been very active discussions, particularly under the “Joint Statement Initiative on E-commerce”, currently involving some eighty-six WTO members.²⁸

Under those discussions, text-based proposals are being discussed under five broad themes: digital trade facilitation and logistics; access to Internet and data; business trust; capacity building and cooperation; and market access. In these discussions, one key consideration has been on how cross-border data flows are affected by diverse localization, privacy and security requirements. Analyses of existing WTO rules that have relevance for e-commerce have tended to focus on the General Agreement on Trade in Services (GATS).

E-commerce in services encompasses not only the end-to-end electronic delivery of services, such as Internet and other telecommunications, themselves a service supplied electronically, but also the many other services that can be transmitted in digitized form. There are also online distribution services, such as e-commerce web portals, through which goods or services are ordered electronically, even if subsequently delivered in physical form. Some services sectors are, in themselves, part of the infrastructure for e-commerce. These include telecommunications and distribution services; postal and delivery services; financial services; and transport and logistics. While the GATS is clearly an important instrument in respect of e-commerce, I would like to take a different tack and reflect on the “goods” angle.

Industry 4.0 “smart manufacturing” means that goods are affected and improved by services as much as services are affected and improved by goods. Indeed, for some, this may even challenge the very definitions of, and boundaries between, goods and services, which in turn may impact assessing ed which specific WTO disciplines apply to measures affecting Industry 4.0.²⁹ Besides the GATS, a plethora of other WTO disciplines may be at play here,³⁰ including the TBT Agreement but also, among others, the General Agreement on Tariffs and Trade (GATT), Sanitary and Phytosanitary (SPS) Agreement (food safety and animal plant health), Trade Facilitation Agreement (TFA) (facilitating customs procedures), Trade-Related Aspects of Intellectual Property Rights (TRIPS) (intellectual property)³¹ and Import Licensing Agreement.

For the purpose of my chapter here, I will focus on the WTO’s TBT Agreement. In doing so, I would like to reflect on some challenges and opportunities; in particular, on how the existing principles and disciplines in the TBT Agreement as well as practices and guidance developed by the WTO TBT Committee over the years are likely to be relevant for Industry 4.0.³²

A Coverage of Technical Barriers to Trade and Industry 4.0: Examples of Industry 4.0-Type Technical Barriers to Trade Notifications

Recent notifications of draft regulations to the TBT Committee show that Industry 4.0-related regulations are increasing in number and variety, and that members, by submitting such notifications, consider them as falling within the scope of the TBT Agreement. Novel technologies are being regulated for a variety of policy reasons and in different ways. Here are a few examples.

1 Internet of Things

In the last few years, there has been an increase in notified TBT measures dealing with IoT, concerned with their safety, interoperability, national security/cybersecurity, performance and quality.³³ The challenge is that the IoT is not a single product as such but rather the integrated system of products linked to each other. At the core of the IoT regulatory problem is the very fact that IoT devices are connected devices, and so even if a single device is compromised, this could risk cyber-intrusion for the whole network.

2 5G Technology

Recently notified TBT measures on 5G (fifth-generation cellular network) technology³⁴ – the essential technological backbone that will make IoT possible and ubiquitous – indicate different reasons why governments are intervening in this area, including “national security” and “interoperability”.

3 3D Printing

There have also been some recent notifications covering 3D printing machines/devices.³⁵ Interestingly, some of the objectives behind the notifications have less to do with the safety of the machines themselves and are more about potential illegal misuse (e.g. producing weapons).

4 Drones

There has been an increase of notified TBT measures dealing with drones (more specifically, small unmanned aerial vehicles) in the last few years.³⁶ Many of these notifications are concerned not only with risks for humans/consumers and interoperability problems, but also with national security risks. Again, the issue may not be the product safety of the drone itself but potential abuses leading to public safety and national security concerns (e.g. recent incidents at airports).

5 Autonomous Vehicles

Not surprisingly, we are also seeing an increase of notified TBT measures dealing with autonomous vehicles, mostly concerned with their safety and performance.³⁷ Much has been discussed on autonomous vehicles for private use, but there is a marked increase of use by industry as well.

B The Regulatory Challenge

Faced with the mindboggling rapidity and complexity of these transformations, governments struggle to react to them in a timely and coordinated fashion. Globally, this may generate a plethora of different regulations and technical standards across countries. This is a problem – in particular, when differences are unnecessary and ill founded – from the perspective not only of its trade impacts but also of consumers, industry and society in general.

TBT disciplines are unique in the way they put into practice the overarching goal of balancing the right to regulate and the avoidance of unnecessary technical barriers.³⁸ They are intended to impact members’ entire regulatory lifecycle preventively, reactively and self-correctively. Industry requires regulations that address market failures but do not stifle innovation and competitiveness.³⁹ The public requires regulation that fosters trust and confidence in products’ quality, performance and safety; and trading partners require regulations that are nondiscriminatory, not protectionist and not more trade restrictive than is necessary.

This characteristic of balancing between needs makes TBT particularly well suited to addressing regulatory challenges in these times of rapid and radical technological and societal changes.

C Transparency on Nascent Regulation

TBT obligations start early in the regulatory process. The TBT Agreement becomes relevant once the decision to regulate is taken by a member. When this happens, the Agreement subjects members to a series of disciplines aimed at preserving members’ policy space while ensuring that the regulation is the least trade-restrictive possible.

1 Early Notification of Draft Measures Helps Prevent Friction and Fosters Cooperation

Recognizing the tensions between trade and regulation, the TBT Agreement has important transparency obligations that apply throughout the regulatory lifecycle of a measure. Transparency is the key element of the “preventive” nature of TBT disciplines, which is particularly needed in times of rapid technological change. Unique in the WTO system, the TBT (and SPS) Agreement requires members to notify proposed measures (technical regulations and conformity assessment procedures) and to provide an opportunity for comment. This opens an opportunity for cooperation between regulators to gain valuable feedback toward better-quality regulations, seek clarification and avoid potential trade frictions.

Timing is at the heart of TBT transparency: the notification must take place as early as possible when comments by any stakeholders (including from any other WTO member) can still be meaningfully considered, and possible changes made more easily.

The TBT transparency mechanism is a success story in the WTO.⁴⁰ Year on year, an increased number of draft measures are notified to the WTO, demonstrating members’ commitment to transparency. A total of 3,337 notifications were submitted in 2019, as compared to 3,000 in 2018. Harnessing the notification process can support a smoother implementation of Industry 4.0 regulations and avoid trade frictions.

2 Technical Barriers to Trade Committee Practices Create Needed Deliberative Spaces

The working practices of the TBT Committee reinforce this “preventive” nature of TBT transparency. When regulations are notified in draft form at early stages of their development, they can be discussed amongst all WTO members.

Over the years, the TBT Committee has been used by members to raise “specific trade concerns” (STCs) with respect to each other’s TBT measures. This practice, combined with the early notification of draft measures, facilitates regulatory dialogue, helps ensure that other views are taken into consideration and, in the best cases, creates opportunities for regulatory cooperation, which can in turn lead to improved and more effective regulations.⁴¹

Since all this takes place in the multilateral setting of the TBT Committee, it carries an additional “preventive” benefit; one especially important with respect to nascent regulations addressing challenges stemming from new and rapidly evolving technologies, including Industry 4.0. Concerns raised in the TBT Committee also serve as a bellwether on new regulatory trends and point to areas where early dialogue is required on evolving regulation. In fact, as far back as the early 2000s the Committee was already discussing concerns with Internet-related regulations.⁴²

3 Transparency Is Not a “One-Off” Obligation

But not everything can be addressed preventively. Regulations are based on issues, risks and techno-scientific knowledge available at the time of their development and adoption. Risks can change, sometimes rapidly and continuously so. Regulations may therefore need to change accordingly, and these changes may sometimes themselves constitute trade barriers.

The TBT Agreement contains disciplines aimed at situations when regulations need to evolve and adapt.⁴³ For instance, Article 2.3 of the Agreement states that measures may not be maintained if the circumstances or objectives giving rise to their adoption no longer exist or can be addressed in a less trade-restrictive manner.

In other words, if, upon reassessment, in light of new scientific (or other relevant) information, a perceived risk is deemed to be nonexistent, it may be necessary to review the measure.⁴⁴ For instance, the TBT Committee recommended that members submit “follow-up notifications” to track the progress of a measure through the regulatory lifecycle, and to provide new comment periods following substantial revisions. The Committee has also recommended that the availability of the final adopted text should be notified as a follow-up to the original notification.

In the ideal case, transparency by fostering regulatory cooperation can help avoid technical barriers to trade and improve the quality of the regulation. As governments start to regulate AI and other technologies driving Industry 4.0, it becomes even more important to utilize the tools provided by the TBT Agreement to shed more light on emerging national governance frameworks.

D Data and Dataflows: Is There a Technical Barriers to Trade Angle?

Despite competitive tensions, international cooperation is needed if Industry 4.0 is to succeed. AI needs to be able to access vast amounts of data. Volume matters because machine learning needs to be able to incorporate into future predictions as many past outcomes as possible.⁴⁵ Much of this data is obtained from both national and cross-border Internet activity and digital platforms. Businesses and governments are also important sources of data. The McKinsey Global Institute estimates that in 2014 global data flows were more valuable than trade in goods,⁴⁶ and PricewaterhouseCoopers predicts that by 2030, AI could raise global GDP by over $15 trillion.⁴⁷

Discussions on e-commerce at the WTO are illustrative of the challenges faced on the global governance of data and the implications for Industry 4.0. At the risk of missing out important nuances, views on the question of data appear to fall into three camps.

There are those who are generally opposed to data localization requirements and restrictions on cross-border data flows, unless such measures would fall under limited exceptions. There are others who, while in general opposing these restrictions, wish to reserve the right to adopt appropriate safeguards to protect personal data and privacy, including rules on the cross-border transfer of personal data. Finally, some appear to favor wide latitude to exercise cyberspace sovereignty in pursuit of public policy objectives.⁴⁸

While the TBT Agreement’s scope is on trade in goods and not on cross-border data flows per se, there are some important data-related considerations. With the IoT, products have embedded sensors that collect, transmit and exchange information in real time over a network regardless of their location. Since such sensors and the accompanying source code could be said to be a characteristic of the product, any technical regulation on source codes would probably be within the scope of the TBT Agreement.

Members in the TBT Committee have discussed around sixteen “specific trade concerns” related to a range of “cybersecurity measures”, covering ITC products and network equipment, vehicles, civil aviation, banking and insurance, amongst other sectors. Concerned members voiced issues about requirements that could discriminate against foreign technology and equipment, lack of clarity of the measures, inconsistency with international standards and best practices and the need for duplicative in-country testing of imported products.⁴⁹

The challenge is: how do we square the right to take measures necessary for the protection of essential security interests and not create unnecessary obstacles to international trade? Here, there are important principles and obligations in the TBT Agreement that are worth recalling, especially in terms of promoting good regulatory practices and regulatory cooperation, and the use of international standards.

E Role of International Standards in Support of Regulatory Alignment

International standards are critical for achieving the full potential of Industry 4.0, while avoiding unnecessary barriers to trade in these technologies.⁵⁰ Alignment of regulations for connected devices to international standards will facilitate trade by providing a common benchmark, enhancing competition and lowering prices for consumers.

The TBT Agreement is a driving force for harmonization and coordination at a global scale, through its provisions that strongly promote alignment of national regulations to international standards. The pivotal role of international standards to the attainment of the TBT Agreement’s principles and objectives is already reflected in various parts of its preamble. There, the Agreement “encourage[s] the development of international standards”, listing “important contributions” these documents can make to “improving efficiency of production and facilitating the conduct of international trade” and promoting “the transfer of technology from developed to developing countries”.⁵¹

1 Alignment with International Standards

More specifically, the Agreement:

1. (i) requires members to use relevant international standards as a basis for national regulations (except when the international standard would be ineffective or inappropriate to accomplish a member’s legitimate objective);

2. (ii) incentivizes members to fully harmonize measures with international standards (presuming TBT consistency); and

3. (iii) strongly encourages members to participate in the development of international standards.

Therefore, the TBT Agreement acts as a catalyst for alignment of national product regulations based on voluntary international standards set by specialized non-WTO bodies. In principle, the use of international standards by governments brings regulatory requirements and systems closer to one another, thereby reducing the prevalence of unnecessary differences.⁵²

2 No Definition of International Standards but Six Principles Instead

But there is a catch. The TBT Agreement does not contain a definition of international standards. Nor does it contain a list of recognized international standardizing bodies, as is the case under the SPS Agreement. This has created some debate and tension in the WTO, given the degree of uncertainty about the identification of the benchmark for alignment. But at the same time it has also given members flexibility.

In order to provide additional guidance, in 2000 the TBT Committee took a decision on the “Principles for the Development of International Standards, Guides and Recommendations, with Relation to Articles 2, 5 and Annex 3 of the TBT Agreement”.⁵³ This decision, commonly known as the “six principles”, encourages international standard-setting bodies to observe a set of principles and procedures when international standards, guides and recommendations are elaborated to ensure: (i) transparency; (ii) openness; (iii) impartiality and consensus; (iv) effectiveness and relevance; (v) coherence; and (vi) the development dimension.⁵⁴

International standards that are developed in line with these principles are more likely to be considered as “relevant international standards” for the purposes of the TBT Agreement. Adherence to these so-called six principles will continue to be vital for standardization with respect to Industry 4.0.⁵⁵

The process of international harmonization set out in the Agreement is not, however, a rigid one. It gives members space to deviate from international standards under certain conditions. The TBT Agreement gives members the leeway not to use international standards as a basis for a regulation if they would be “ineffective” or “inappropriate”. For instance, “fundamental climatic or geographic factors” or “fundamental technological problems” may sometimes render an existing international standard an unsuitable basis for properly addressing the objectives of a regulation a member intends to prepare and adopt.⁵⁶

3 An Incentive to Use International Standards

The Agreement also provides a strong incentive to use international standards. When technical regulations are “in accordance with” relevant international standards, they are “rebuttably presumed” not to create unnecessary obstacles to international trade (i.e. they are presumed not to be more trade-restrictive than necessary and thus consistent with Article 2.2). It provides a “safe haven” for measures conforming to international standards with the objective of “harmonizing” technical regulations, conformity assessment procedures (CAPs) and (national) standards “on as wide a basis as possible”.⁵⁷ The Agreement puts a particular emphasis on the fact that this goal can only be attained if the international standard-setting process is as inclusive and participative as possible, in particular by developing country members.⁵⁸ In other words, “Members shall play a full part, within the limits of their resources, in the preparation by appropriate international standardizing bodies of international standards, guides and recommendations relevant to technical regulations or conformity assessment procedures they adopted or are expected to adopt”.⁵⁹ This has been challenging for many developing countries and it could be even more so with rapidly developing standards for new technologies.⁶⁰

4 Voluntary vs. Mandatory: To What Extent Is This an Issue?

One concern that is frequently highlighted is the implications of being a voluntary national standard or a “mandatory” technical regulation. This is an important issue for Industry 4.0 as there are many actors out there developing standards that could potentially shape the sector. The disciplines on technical regulations arguably bite deeper, but it is worth recalling that there are also disciplines in the TBT Agreement on “voluntary” national standards. These disciplines, which are a combination of Article 4 and Annex 3 to the Agreement (the Code of Good Practice for the Preparation, Adoption and Applications of Standards – “Code of Good Practice”⁶¹), contain substantive provisions on discrimination, trade restrictiveness, use of international standards and so on, largely mirroring those for technical regulations.

The obligation works in a two-pronged manner: (i) members shall ensure that their central government standardizing bodies have to accept and comply with Annex 3 of the Code of Good Practice; and (ii) members shall take reasonable measures as may be available to them to ensure that their local (as well as regional) and nongovernmental standardizing bodies also comply and accept. So, while Annex 3 is open to acceptance by any standardizing body, which includes a “non-governmental body”, Article 4 creates an obligation on members to ensure that they do so. Since Article 14.4 on dispute settlement covers Article 4, this avenue could be pursued where a member considers that another member has not achieved satisfactory results.

A question that is different from whether there are disciplines on “voluntary” standards is what is to be understood by a “non-governmental body”. The definition of a nongovernmental body in the Agreement is illustrative. It defines it in the negative as a “body other than a central government body or a local government body, including a non-governmental body which has legal power to enforce a technical regulation”.⁶² What about other nongovernmental bodies; that is, those that do not have legal power? And what should be understood by “non-governmental”? These are issues for further consideration.

F Improving Coherence

Coherence in standards development is a major challenge for Industry 4.0. Entire batches of standards are being developed to underpin AI, the IoT, blockchain and autonomous systems (e.g. cars, trucks, trains, drones), to name just a few.⁶³ These standards will all need to “talk” to each other, and interoperability will be critical to ensure performance, privacy, safety, etc. Imagine one autonomous vehicle trying to avoid an accident with another autonomous vehicle. If the other vehicle is following a different standard, the vehicles will not be able to communicate, and this could inadvertently provoke a crash.⁶⁴ So, as this process unfolds, standards will be essential to keep the “parts” interoperable and contributing to the “whole”.

If, for example, two international bodies decide, independently and without talking to each other, to develop differing standards for addressing issues related to the safety of autonomous vehicles, they may well end up adopting two significantly different – or worse, conflicting – international standards addressing the same issue.  Trade will be very difficult, if not impossible, between countries that have not used the same international standard as a basis for their regulations.

The TBT Committee “six principles” highlight the importance of coherence,⁶⁵ in order to avoid duplication or overlap between the work of international standardizing bodies. Cooperation and coordination are essential. A lack of coherence is also a barrier to participation by developing countries in international standardization as their scarce resources cannot cover participation in duplicative processes.

Lock-in and path dependencies in standards for one technology can also quickly lead to fragmentation and duplication in standards for other technologies. This translates to higher trade costs and impediments to innovation. Forward-looking cooperation between standards development organizations and between regulators can help chart a path toward convergence.

G Good Regulatory Practice

Good regulatory practice (GRP) describes best practices and procedures developed by governments and organizations to improve the quality of regulation.⁶⁶ It must therefore also be an indispensable component of the Industry 4.0 regulatory process. A key feature of the fourth industrial revolution are technologies that straddle multiple sectors, jurisdictions and institutions. Regulation, on the other hand, tends to be organized along traditional sectoral lines. As new regulations are formulated, or existing ones redesigned, the impact on trade could be considerable. GRP provides governments with a toolkit of approaches and processes that can help them identify and address the trade impacts of their regulatory action.⁶⁷

Examples of GRP include internal coordination (whole-of-government approach), transparency and public consultations, and regulatory impact assessment. Much work has been done in this area, both at the WTO and elsewhere, including in the context of the Asia-Pacific Economic Cooperation (APEC), the Organisation for Economic Co-operation and Development (OECD) and the World Bank.⁶⁸ Application of GRP can help ensure the design of high-quality, cost-effective regulations that are consistent with the goal of open trade. Moreover, the wider dissemination of GRP can contribute to the establishment of a common, predictable framework for regulatory intervention, thereby facilitating international regulatory cooperation and harmonization.⁶⁹

The TBT Committee has recognized that “GRP can contribute to the improved and effective implementation of the substantive obligations under the TBT Agreement”.⁷⁰ GRP discussions in the TBT Committee have emphasized the transparency and accountability of regulatory processes.⁷¹ Strengthening transparency and accountability can help avoid unnecessarily trade-restrictive regulatory outcomes. Other areas of GRP considered by the TBT Committee include analysis and review of regulatory alternatives (including the option not to regulate) and the design of regulations, including the advantages of simple, responsive and flexible regulations. Members have also stressed that GRP is an important element of capacity-building initiatives⁷² and that preparing GRP guidelines could be particularly helpful for developing countries.⁷³

The TBT Agreement’s provisions on transparency and discussions on GRP are closely linked. For instance, “early notice”, notification, comments, publication and entry into force are all processes that should lead to better regulation. Incorporating the transparency processes of the TBT Agreement into the regulatory lifecycle of a specific measure is a powerful means of fostering GRP, which has transparency and consultation as one of its fundamental components.⁷⁴ At the same time, greater utilization of GRP could help contribute to avoiding unnecessary and unintentional regulatory barriers to trade.

H Regulatory Dialogue and Cooperation

Besides harmonization via international standard-setting processes, the TBT Agreement provides members with “sign-posts” to engage in other forms of cooperation through various mechanisms, such as “equivalence” or “arrangements for conformity assessment”.⁷⁵ These are additional mechanisms for encouraging the reduction of regulatory diversity and associated trade costs⁷⁶ – key challenges of Industry 4.0.

Equivalence refers to an arrangement in which members recognize that, although each other’s product specifications and rules are different, they achieve the same result. When this happens, they can decide to accept the rules of the trading partner as “equivalent”.⁷⁷

This facilitates trade by allowing firms to produce according to domestic requirements and still directly access foreign markets without having to meet another set of requirements. It does not require regulations to be changed from the preferred domestic policy. The way that members choose to cooperate through equivalence agreements may vary depending on trade flows, their respective levels of protection, the costs of demonstrating achievement of the appropriate level of protection in light of risk and the possibility of unilateral or mutual recognition of equivalence.⁷⁸

The TBT Agreement sets out a framework for members to reach “equivalence agreements” on their TBT-related technical regulations.⁷⁹ The Agreement does this not by requiring but by encouraging members to “give positive consideration to accepting as equivalent technical regulations of other Members, even if these regulations differ from their own, provided they are satisfied that these regulations adequately fulfil the objectives of their own regulations”.⁸⁰

I Facilitating Acceptance of Conformity Assessment Results

Divergent systems that trading partners use to verify conformity to applicable standards and regulations can create impediments to trade.⁸¹ Around half of specific trade concerns raised at the TBT Committee over the last ten years have been on CAP. Duplication of testing and certification (due to nonrecognition of results) is a frequent source of trade friction. It is likely that conformity assessment will become even more complex with Industry 4.0.⁸² Developing countries face particular challenges in the digital age, as systems and laboratories are not always available or as effective as they could be.⁸³

The TBT Agreement, of course, requires members to ensure that their CAPs, among other obligations, do not create unnecessary obstacles to international trade.⁸⁴ But the way to achieve this result is far from obvious.

Governments greatly prize their freedom to regulate as a sovereign right and they have a responsibility to do so. No government wants to be told by another government (let alone an international organization) how to protect their security interests, consumers or the environment, or what tests or certificates to accept and from whom, or what results to follow. They may be unwilling to accept a test report or certificate from a foreign body that they do not know or may not trust.

Moreover, limited development of National Quality Infrastructure (e.g. standardization, metrology, accreditation, conformity assessment procedures), supporting laws and policy frameworks in some economies may limit options available to regulators when choosing their conformity assessment procedures.⁸⁵

This can make it difficult to strike the balance between, on the one hand, the strictness of the procedures put in place to assess conformity to a given regulation’s objectives, and, on the other, the risks that “nonconformity” with those objectives would create.⁸⁶ This challenge is not unique to Industry 4.0-related products, but achieving the appropriate balance may be particularly difficult for new technologies for which the risks are still not fully understood. Here, the TBT Agreement encourages the use of several tools to build trust and confidence.

These include recognition of conformity assessment results and the use of international and regional systems for conformity assessment. The TBT Agreement encourages members to recognize the results of CAP of other members, recognizing that this needs to be built upon cooperation between them, including in respect of the adequate and enduring technical competence of the relevant conformity assessment bodies in the exporting member.⁸⁷ The Agreement provides a basis for cooperation, stating that prior consultations might be needed to arrive at a mutually satisfactory understanding on recognition.⁸⁸

The TBT Agreement mentions accreditation as one means to build trust and confidence in the technical competence of foreign bodies providing CAP results.⁸⁹ It also encourages members to allow foreign conformity assessment bodies to participate in their national conformity assessment procedures on a national treatment and most-favored-nation basis.⁹⁰ The potential of accreditation to lower the costs of conformity assessment by eliminating the need for duplicative tests and certifications is not reached automatically: regulators have to be willing to rely on accreditation within their conformity assessment schemes.

Further, the TBT Agreement encourages members to enter into negotiations to conclude agreements on mutual recognition (MRAs) of the results of each other’s conformity assessment procedures.⁹¹ MRAs are one regulatory cooperation mechanism that allows parties to recognize specific results (e.g. test reports or certificates) in specific sectors.⁹² While little is known about the actual implementation and functioning of MRAs, they can require significant time and costs to negotiate and maintain.⁹³ MRAs have been most successful in specific sectors like electrical and electronic products (e.g. the Association of Southeast Asian Nations MRA).

The TBT Agreement requires members, wherever practicable, to formulate and adopt, as well as participate as members of, international systems for conformity assessment.⁹⁴ This can help to strengthen regional and international regulatory cooperation between members in the area of CAP.⁹⁵

These types of international and regional systems have grown in importance since the entry into force of the TBT Agreement in 1995. In the TBT Committee, members have discussed a range of systems based on arrangements between accreditation and conformity assessment bodies, including those operated by the International Laboratory Accreditation Cooperation, the International Accreditation Forum and the International Electrotechnical Commission (e.g. the IECEE CB scheme⁹⁶), as well as other organizations. In the TBT Committee, members have discussed how to increase regulators’ reliance on these types of systems to facilitate trade.⁹⁷

IV Concluding Remarks

There is much in the TBT toolkit of disciplines, decisions, recommendations and practices that can be used to support Industry 4.0 by avoiding unnecessary regulatory diversity and reducing trade costs. Yet the converging and multidisciplinary nature of Industry 4.0, as well as the fast pace of technological changes associated with it, might mean that simply emphasizing better application of WTO rules by each member may not be enough.

Industry 4.0 instead requires broad, concerted, cooperative regulatory discussions; it also requires these discussions to be flexible, as well as both preventive (focus on drafts) and forward looking (detecting trends, constant updating, revisions, etc.), so as to minimize unnecessary barriers to trade. The WTO TBT Agreement and Committee practice could be used to support cooperation. But there are also issues that will need further consideration:

• Transparency is key, particularly given TBT transparency’s unique preventive and self-corrective nature. How can these be better used and harnessed so as to shed more light on Industry 4.0-related regulation?

• International standardization is also key for Industry 4.0 regulatory processes. But sometimes full harmonization is not possible, or even desirable (e.g. difficult to harmonize nontechnical, societal issues like morality, religion and privacy, now also forming the basis of Industry 4.0 regulations on both goods and services). WTO will not be the place to set standards, but the TBT decision on six principles can help guide such development. However, we also need to recognize that international standardization will have difficulty in harmonizing cases where there are widely divergent underlying values and approaches. What can be done in the absence of international standards?

• This brings into focus other tools such as regulatory cooperation and good regulatory practices. Industry 4.0 regulation is dynamic and ever-evolving: there is a pressing need to establish a constant dialogue for better identifying what the convergences and differences in Industry 4.0 are and to discuss how to deal with some of them. How can we ensure coherence, avoid measures that are unnecessary and cope with those that are necessary?

• Some Industry 4.0 issues have already been raised at the TBT Committee through the notification and specific trade concerns process. Should and can more be done in terms of Industry 4.0 issues? This is a matter for further deliberation by WTO members. Some issues might lend themselves more to horizontal approaches (decisions and recommendations) as well as vertically (in terms of how best to improve the STC process – a topic already under consideration in discussions on WTO reform).

• There is also the question of the cross-cutting nature of the challenge of convergence. Apart from the TBT Committee, Industry 4.0-related issues are surfacing either in whole or in part in different bodies and processes in the WTO (e.g. TRIPS Council; Joint Statement on E-Commerce; E-commerce Work Program; the GATS). How do we ensure coherence in approaches and avoid fragmentation in the discussion?

There are undoubtedly many more issues, many of which have already been raised in this book. In the future, AI will have written and possibly delivered this address. And it will undoubtedly have done a better job. And, very possibly, AI will also have negotiated the trade agreements that are needed to help it flourish. Until then, we will have to rely on the one thing that has helped us as humans, with all our limitations, to survive and thrive – our ability, despite all the dissonance on trade, to develop instruments for large-scale, vast networks of cooperation.

6 Autonomous Vehicle Standards under the Technical Barriers to Trade Agreement Disrupting the Boundaries?

Shin-yi Peng

I Introduction

Following the highlight of the World Trade Organization’s (WTO’s) 2018 World Trade Report regarding how artificial intelligence (AI) can be used to “increase efficiency in the production of goods and services,”¹ former WTO Director-General Roberto Azevêdo, in his official capacity, claimed that technologies such as the Internet of Things (IoT), AI, and connected and autonomous vehicles (CAVs) have the potential to profoundly transform “the way we trade, who trades and what is traded.”² This chapter focuses on CAVs as a case study to explore the question of how to modernize the Technical Barriers to Trade (TBT) Agreement in the age of AI.

Cars have been driving themselves in science fiction films and TV shows for decades. If you’ve ever dreamed of owning a car like KITT of Knight Rider,³ your dream is about to come true. Fitted with cameras, sensors, and communication systems, CAVs are able to learn from each other and to see, hear, think, and make decisions just like human drivers do.⁴ Driving automation can refer to a broad range of vehicle technologies and uses.⁵ A general concept of CAVs, as defined in policy papers, is “vehicles that are capable of driving themselves without being controlled or monitored by an individual for at least part of a journey.”⁶ CAVs have been described by governmental agencies as “a combination of sensors, controllers and onboard computers, along with sophisticated software, allowing the vehicle to control at least some driving functions, instead of a human driver.”⁷ Overall, a CAV can be seen as “a combination of various IoT devices with the capability to communicate with its surrounding physical and digital environment.”⁸ Depending on the features incorporated, the concept ranges from technologies that assist human drivers to vehicles that drive themselves with no human control or intervention.⁹ The McKinsey Global Institute Report predicts that the automotive industry will be one of the most technologically progressive industries in incorporating AI into design and manufacturing processes.¹⁰ As the brain of CAVs, AI is becoming an absolute necessity to ensure that CAVs function safely. More specifically, deep learning technology, a technique used to implement machine learning, will play a central role in the CAV market.¹¹

This study relies on the technical report issued by the Society of Automotive Engineers International (SAE) as the foundation for analysis.¹² With the goal of providing common terminologies to describe the respective roles of human drivers at different levels of automation, the classification of “SAE levels” has been widely used by policymakers as an analytical tool to identify the respective policy considerations of automated driving systems.¹³ To illustrate, the SAE has divided the system into six levels, ranging from “no automation,” where the human driver performs all of the driving tasks (level 0), to “full automation” (level 5), where human intervention is not required. A key transition takes place when the functions of monitoring the driving environment shift from the human driver (level 2) to conditional automation, where automated driving systems perform all aspects of the driving tasks but the human driver is expected to respond when necessary (from level 3 upward).¹⁴

Major automotive companies have claimed that they will deliver full “level 5” CAVs by 2021,¹⁵ when there will be no need for a steering wheel, accelerator, or brakes, and the vehicle will be able to drive itself with no human input or intervention. Moving toward the 2021 new world, Ford, for example, announced its intention to deliver highly autonomous vehicles for ridesharing (level 4) in advance, featuring CAVs without a steering wheel and gas and brake pedals for use in commercial mobility services, such as ridesharing within geo-fenced areas.¹⁶ In yet another example, BMW and Mercedes-Benz have joined forces, committing autonomous technicians to the goal of accelerating the timeline to release level 3 CAVs.¹⁷ In fact, the installation rate of AI-based systems for new vehicles is rapidly increasing. The growth of the adoption rate is expected to rise by 109 percent in 2025, compared to 8 percent in 2015.¹⁸ According to Gartner, more than 250 million cars will soon be connected to each other (V2V), and to the infrastructure around them, through vehicle-to-everything (V2X) communication systems.¹⁹ Research firm IHS Markit also predicts that China alone will sell an estimated 14.5 million autonomous cars by 2040.²⁰ It should also be noted that CAVs, by their very nature, are heavily reliant on data. At present, telecom operators across several countries are preparing to launch 5G networks,²¹ which will be instrumental in spurring further developments, including scale, in CAVs.

The large-scale use of driving automation systems may have significant implications and create a range of legal issues. CAVs bring new opportunities, challenges, and risks. The more AI technologies challenge the existing automotive industry, the greater the demand for new business models and regulatory frameworks tailored to their adoption. Governments all around the world are considering the potential disruptive impacts of CAVs.²² The current debates surrounding standards/interoperability, privacy/security, intellectual property/ethics, product liability/legal compliance risk management, integrity/trust, and business model/market strategies indicate that forward-thinking vision toward the AI age is more necessary than ever. Indeed, if the full potential of CAVs is to be realized, the necessary infrastructure and policies must be in place.²³

In the context of international economic law, the impact of AI/CAVs on the regimes of both trade in goods and trade in services is gradually emerging. Domestic regulations will serve as major determinants of how AI-based goods or services will be traded. Relevant regulations, if overreaching or overly restrictive, may constitute behind-the-border trade barriers. More specifically, products that incorporate AI will require the development of a range of new standards. CAVs, under this movement, are facilitating the standardization process. This chapter uses the case of CAV standards as a window to explore how this “disruptive innovation” may alter the boundaries of international trade agreements.²⁴ Amid the transition to a driverless future, the transformative nature of disruptive innovation renders the interpretation and application of trade rules challenging. The author argues that disruptive technologies have a greater fundamental and structural impact on the existing trade regime.

II Connected and Autonomous Vehicle (Re)Classification

A Data-Driven Business Models

The automotive industry is in transition where business model changes are concerned.²⁵ “Traditional” automotive manufacturers are now transforming into a new mobility ecosystem – from a mass-produced goods-sale business into highly customized data-based service suppliers.²⁶ In order to address changing consumer demand, the automotive industry is becoming less and less industrial and, simultaneously, increasingly intent on services, especially the operation and maintenance of vehicles.²⁷ Moving toward data-driven business models, AI further shatters the boundaries between the physical and the remaining components of the CAV.²⁸

At the same time, another significant transformation in the automotive industry is the use of CAVs to supply Mobility as a Service (MaaS) solutions. Vehicle manufacturers will play an important role in MaaS services.²⁹ On the one hand, the transportation environment will be increasingly dominated by car-sharing, ride-hailing, and related services. In this context, being driven by CAVs will represent the essential nature of future transportation, and automotive firms will supply car-sharing and ad hoc use applications to drive up utilization rates. On the other hand, revenues generated by MaaS may become the core source of shareholder value creation when traditional car sales decline.³⁰ To summarize, the data-driven economy enabled by CAVs will displace vehicle ownership with MaaS, leading to a new transport system landscape.³¹

In light of these changes, business models for CAVs will become increasingly complex. Considering the trends toward MaaS, the typical business model will be based on a function that combines tangible vehicles and intangible services. Automotive firms will offer services to adjust existing functionalities and update software to increase the automated capabilities of a vehicle. Because the economic value of CAVs relies on their use value, throughout their operational life, tangible vehicles and intangible services must be combined to jointly fulfill customers’ needs.³² In this respect, it is fair to say that the higher the level of automated driving systems, the more service-oriented the automotive industry. Despite this reality, most CAVs, especially levels 1–4 of driving automation, fall in between traditional “goods” and “services.”

B Integrated Technical Features

CAV systems are highly integrated, both internally and externally. In terms of internal integration, a CAV may contain several driving automation features that have individual, narrow-use specifications, but which together may provide advanced automated driving functions. Technically speaking, a combination of automation features means that an aggregate level of safety is necessary for CAVs. In other words, part-based standards, for example steering wheels, no longer make any sense.³³ CAVs should be regulated at the system level to ensure the overall safety of the entire driving system. Only an aggregate “measure of safety” can cope with the challenges of “cumulative” automation features and therefore adequately protect CAV safety.³⁴ The “target” of safety regulation, therefore, should be gradually shifted from “auto parts” (goods) to integrated CAVs (overlapping boundaries of goods and services).

In terms of external integration, vehicles are rapidly transforming into “connected devices.” Under the technological trends of V2X, a CAV is merely one component of the entire transport ecosystem. Depending on the level of automation, a CAV may be able to communicate with its occupants, other vehicles, road users, the surrounding transportation physical infrastructure, and all other Internet-based devices and applications. Indeed, in the extreme, in the age of AI, the world we are living in can be described as a convergence of all “IoT devices.” CAVs will always be data-driven – by digitally connecting to one another and their surroundings. By interacting with the external physical and digital environment through V2X communications, CAVs are literally “components” of a holistic transport landscape.³⁵ This complex transport ecosystem requires a regulatory framework that considers security convergence, namely the combination of physical security and cybersecurity.

Despite this reality, security risks are particularly complex for CAVs, because they operate across both the physical and the digital world.³⁶ Compared to conventional vehicles, risks to a CAV involve threats related to the integrated environment. When communicating with other vehicles and infrastructure, CAVs become a channel for attack and an opportunity for hackers. Hackers can target the CAV itself, the servers supporting it, or the external systems that communicate with the CAV. It is also technologically possible for attackers to seize control of an entire fleet of CAVs by breaching the infrastructure.³⁷ In this context, the internal and external integration of CAVs may lead to complex security concerns. There is a need not only for “device” security but also for entire ecosystem security, with a strategic approach to threats. Regulators must ensure that CAVs are safe, both mechanically and in terms of protection from cyber attacks.³⁸

C Technical Barriers to Trade Agreement or General Agreement on Trade in Services?

Considering their business models and technical features, CAV-related safety standards may disrupt the scope of coverage of the TBT Agreement. Are CAVs goods or services?³⁹ Classification determines whether and to what extent the TBT Agreement rules are applicable. When “goods” and “services” converge as a package in the CAV market, the same is true for relevant safety standards.⁴⁰ The integrated CAV system, under which services are embedded with the physical body of the CAVs, is disrupting the traditional boundaries of trade regimes in terms of standards.

It should be noted that WTO case law generally supports the existence of a “boundary” between trade in goods and trade in services.⁴¹ The Appellate Body has repeatedly stressed that whether a specific measure is scrutinized under the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS), or both is a matter that can only be determined on a case-by-case basis.⁴² Here, the Singapore Standard Council, for example, has issued a Technical Reference related to an enhanced cybersecurity framework for CAVs.⁴³ The Technical Reference, among other things, requires CAV developers to provide comprehensive documentation for a security-by-design review, to conduct cybersecurity assessment, and to comply with “cybersecurity principles” throughout the full lifecycle of CAVs, including design, development, operations, maintenance, and decommissioning.⁴⁴ The purpose of this Technical Reference is to provide rules to govern the cybersecurity assessment framework of CAVs on public roads. Toward that end, drawing from best practices in the industry, the Technical Reference provides standards. These standards apply to “a cyber-physical vehicle system,” which includes embedded control systems and “a coupling between the computational elements and physical elements.”⁴⁵ In this particular instance, is the standard under Singapore’s Technical Reference for Autonomous Vehicles a measure of goods or services?⁴⁶

Figure 6.1 demonstrates the evolution of CAV standards.⁴⁷ At the core of the issue is whether the regulations under the emergence of a new ecosystem of mobility should be subject to the TBT Agreement. Based on the factors delineated earlier regarding the transformation of the auto industry, the MaaS, the cumulative automation features of integrated CAVs, and the complex security concerns involved, the classification or reclassification of CAVs – in the context of the SAE’s six levels (levels 0–5) – will prove an interesting case. At one extreme, level 0 (no automation, human driver), representing conventional, “personally owned” vehicles,⁴⁸ should be classified as goods and thus fall within the lower-left quadrant. At the other extreme, level 5 (full automation, “passengers only”),⁴⁹ representing shared CAVs, should be classified as services and thus fall within the upper-right quadrant. The remaining levels of CAVs (levels 1–4) comprise both goods and services under this four-quadrant analytical framework. During this time of transitional human–vehicle cooperation, CAV measures govern “trade in goods” but also affect “trade in services.”

Figure 6.1 (Re)classification of connected and autonomous vehicle standards

As shown in Figure 6.1, as CAVs evolve from level 0 to level 5, more and more domestic regulations will be subject to GATS. That said, CAV standards are arguably a “technical standard” within the meaning of Article VI:4.⁵⁰ The requirements in GATS Article VI:5, including “reasonable” and “not more burdensome than necessary,” should be further explored in relation to high-level CAV standards.⁵¹ However, the GATS contains too few trade rules to handle level 5 CAVs.⁵² More importantly, in the interim, regarding levels 1–4, how should CAV standards be reclassified? The obligations under the TBT are far more substantial than those under the GATS. The danger of legal unpredictability may be imminent. To conclude, automation systems are “disruptive” in the way that they challenge existing governance frameworks and disrupt the boundaries of the TBT Agreement.

III Connected and Autonomous Vehicle Co-Governance

A Industry-Driven Standardization Process

One noteworthy angle in the ongoing process of CAV standardization is the industry-led approach. Such a regulatory scheme emphasizes market incentives rather than top-down regulation.⁵³ Government agencies consider themselves to be in partnership with developers in pursuit of the safe and rapid deployment of CAVs. One outstanding example is the subtitle of the US National Highway Traffic Safety Administration (NHTSA) guidelines: “Accelerating the Next Revolution in Roadway Safety.”⁵⁴ By stressing its role as a facilitator in the exchange of information among CAV stakeholders, the US government does not play an exclusively dominant role in shaping the standards of automation systems.

This privatization of governance is attributable, in part, to governments’ lack of requisite technical expertise, as well as the flexibility necessary to address ever more complex regulatory tasks.⁵⁵ One of the potential legal hurdles that might slow the deployment of CAVs is bureaucracy, which often moves much more slowly than technological changes. Relevant agencies are aware that CAV development is taking place in a remarkably complex and dynamic technological environment, and that governments are currently in no position to provide mandatory performance standards for these emerging technologies.⁵⁶ Indeed, the development of CAV standards requires timely action. The scheme under which the private sector leads the standardization process has proven to be a more effective approach.

Procedurally and practically, the concept of “co-governance” has increasingly been advocated.⁵⁷ The CAV ecosystem comprises a variety of interconnected stakeholders, including the automotive industry and software businesses.⁵⁸ Governments must govern alongside private and civic sectors in a more inclusive, collaborative, and dynamic manner to drive cross-industry discussion. Through a relatively inclusive and transparent process,⁵⁹ governmental agencies participate on an equal footing with stakeholders.⁶⁰ In a world in which technological development is firmly in the control of industry, “regulated” parties should be treated as committed partners.⁶¹ The collaborative approach may prove perfectly sensible.

B Voluntary Standards

An empirical survey reveals that in most jurisdictions, CAV standards go by many names, including “guidance,” “guidelines,” “recommendations,” “informal standards,” “best practices,” and “codes of conduct.”⁶² These informal regulatory mechanisms, which in general are created to be “morally” or “politically” binding, can be considered to fall under the broad umbrella of “soft law.”⁶³ This demonstrates how CAVs have been “regulated” in the loosest sense of the term.

Empirical studies also demonstrate that more and more jurisdictions aim to minimize mandatory governmental regulation and favor voluntary, industry-led, nonbinding standards to enhance CAV safety.⁶⁴ In the UK, for example, the Automated and Electric Vehicles Act 2018 received Royal Assent on 19 July 2018.⁶⁵ The UK’s Law Commission completed its first round of consultation in February 2019, which focused on regulatory frameworks, namely how to ensure safety when using CAVs, and how current road rules should be adapted for AI.⁶⁶ The primary considerations identified in the consultation paper identify areas in which there may be ambiguity in the law, as well as potentially necessary reforms. Stakeholders have actively responded to the key questions raised in the consultation paper, including, among other items, how to allocate civil and criminal responsibility when control is shared between the automated driving system and a human user, impacts on other road users, and protection from risks.⁶⁷ More importantly, the government has already published a “Code of Practice” to provide “guidance” for CAV testing. Although, by the very nature of the code, compliance is voluntary, it nevertheless sets out “principles” and details “recommendations” that the government believes should be followed to minimize potential risks and maintain safety.⁶⁸

On the other side of the Atlantic, the US NHTSA and the US Department of Transportation (DOT) jointly issued the Federal Automated Vehicles Policy in September 2016.⁶⁹ The Policy was designed to “set forth a proactive approach to providing safety assurance and facilitating innovation.”⁷⁰ The NHTSA issued “Automated Driving Systems: A Vision for Safety 2.0” (Guidance 2.0) in September 2017,⁷¹ which, based on the comments of key stakeholders (e.g., the automotive industry) as they considered “best practices,” offers a “flexible, nonregulatory approach” to CAV safety.⁷² In October 2018, the DOT released “Preparing for the Future of Transportation: Automated Vehicles 3.0” (Guidance 3.0), which again serves as “voluntary guidance” and “is intended to be flexible.”⁷³ As advanced by some commentators, the NHTSA’s CAV guidelines are indeed “an exuberant celebration of volunteerism.”⁷⁴

In Asia, one striking case is China’s CAV roadmap. Following the “New Generation Artificial Intelligence Development Plan,” issued by the State Council in 2019, the Ministry of Industry and Information Technology announced a Three-Year Plan for Promoting Development of a New Generation of the Artificial Intelligence Industry (MIIT), implemented to detail action plans for the development of driver assistance systems, vehicle intelligence algorithms, and automotive smart chips.⁷⁵ Further, the MIIT has published “communication guidelines,” which cover ninety-two standards, with a focus on CAV technology.⁷⁶ The government also announced that more than thirty key standards that are critical to autonomous driving systems will be introduced in the coming years.⁷⁷ China’s approach to CAV development is systematic. Following China’s top-down standardization process, the government continues to take primary responsibility in terms of standardization development. However, in the case of CAVs, the government has been working closely with the CAV industry, including the China Industry Innovation Alliance for the Intelligent and Connected Vehicles, to ensure the “relevance and flexibility” of standards.⁷⁸ The alliance, together with other industry associations, has been commissioned by the MIIT to develop a common set of “protocols” for CAVs.⁷⁹

To summarize, most countries maintain CAV safety policies while emphasizing the voluntary nature of standards and safety assessments.⁸⁰ Governments tend to refrain from mandating CAV-specific design features and performance standards. In addition, relevant authorities are inclined to offer nonregulatory approaches to CAV safety. CAV developers may “consider” the guidance as they develop, test, and deploy CAVs on public roadways. They are also “encouraged” to submit a “safety self-assessment,” describing their treatment of each guideline.⁸¹ This chapter is not the place to provide a detailed analysis of whether existing approaches can meet CAV safety needs. However, a few general comments bear emphasis. To some extent, the voluntary approach seems realistic. Standards of a soft law nature offer advantages over traditional command-and-control regulation because they provide greater flexibility and adaptability and lower compliance and administrative costs, directly address industry-specific and consumer issues, and adapt to the rapidly changing political landscape.⁸²

C Technical Barriers to Trade Agreement: In or Out?

The proliferation of “soft” safety standards in the CAV industry reveals a pattern of self-regulation. In 2018, the SAE formed a committee of stakeholders, took the lead, and published the CAV safety “principles.”⁸³ In 2019, industry leaders across the CAV technologies also published “Safety First for Automated Driving,” a nonbinding framework for the development, testing, and validation of safe CAVs.⁸⁴ The distinguishing feature of these standards is their legally nonbinding nature, which strongly correlates to the self-regulation of nonstate actors. Indeed, they were literally drawn up by the private entity that is to be regulated.⁸⁵

This ongoing shift to voluntary co-governance raises an important question: Under what conditions can the complaining party invoke the dispute settlement system against nonbinding CAV standards that have developed by the private entities?⁸⁶ In Figure 6.2, the vertical axis represents the relative level of governmental involvement in the standardization process, while the horizontal axis represents the relative degree of the binding effects of the standards. At the crux of the matter is this: the emerging CAV standards have implications for the boundaries of the TBT Agreement. First, the fact that the CAV standardization process may lack sufficient governmental involvement raises the question of whether the TBT Agreement will apply. Second, these CAV standards may fall outside the definition of “technical regulation” in the TBT Agreement. As clearly argued by Lim in Chapter 5 of this book, the first issue is more important than the second, because although the TBT disciplines on technical regulations are relatively deeper, voluntary standards are still subject to Article 4 and Annex 3 of the Agreement.⁸⁷ Nevertheless, as shown in Figure 6.2, the transformative nature of disruptive innovation renders the interpretation and application of TBT rules challenging.

Figure 6.2 Co-governance of connected and autonomous vehicle standards

To illustrate, the WTO provides a dispute settlement mechanism whereby a member considers that its benefits under the covered agreements are being impaired by “measures” taken by another member.⁸⁸ In this context, any act or omission “attributable” to a WTO member can serve as a “measure” of that member for purposes of dispute settlement proceedings.⁸⁹ “A complainant must clearly establish that the alleged measure is attributable to the responding Member.”⁹⁰ The decisive factor here is “the degree of governmental involvement.”⁹¹ WTO case law indicates that “private actions” may fall within the scope of the TBT Agreement if the support provided by a government is sufficient to become a “governmental act.”⁹² Considering the approaches taken by WTO panels and the Appellate Body in past disputes,⁹³ the conduct of the private body may come under WTO disciplines if there is a demonstrable link between the government and such “conduct.”⁹⁴ To summarize, a nexus must exist between the responding member and the “measure” – regardless of whether it is an act or an omission.⁹⁵

At the core of the question is whether the standards published by a nongovernmental body at the request of the government, or with some degree of government support, can be viewed as a measure of a member government.⁹⁶ Is there an adequate connection between a private entity’s self-regulation and government action? To what extent should a tribunal impose the responsibility of WTO members with regard to industry standards? The emergence of the self-regulating, collaborative approach for CAV standard-setting therefore leads to the question of how the TBT Agreement should respond to the trend of public–private convergence in the standardization process.⁹⁷ As shown in Figure 6.2, the CAV case study demonstrates that the co-governance model, in which governments “more or less” “work together” with stakeholders of the CAV ecosystem, arguably falls into the middle-lower portion of the “Governmental Involvement” axis.

Furthermore, even if sufficient governmental involvement can be found in the CAV standard-setting process, the next question is whether these “standards” can constitute “technical regulation” within the meaning of the TBT Agreement, therefore allowing a set of deeper trade disciplines to apply.⁹⁸ In past WTO cases, the panels and the Appellate Body elaborated on the term “mandatory,” indicating that it includes “binding as well as obligatory, compulsory, not discretionary,” or “required by law or mandate; compulsory.”⁹⁹ However, as clarified in several disputes, “the mandatory character of the measure may result from a combined effect of various measures or actions attributable to the Member in question.”¹⁰⁰ In other words, a “voluntary and non-mandatory” measure may become “mandatory” as a result of “some other governmental action” or “some other action attributable to the Member concerned.”¹⁰¹ As shown in Figure 6.2, the industry-driven, voluntary standards of CAVs may be determined to fall outside the definition of “technical standards” under the TBT Agreement because of its private and soft nature, unless compliance with the standards becomes de facto mandatory because of “some other action attributable to the Member concerned.”

That said, CAV standardization is indeed an interesting case study in the determination of “de facto mandatory.”¹⁰² In terms of administrative actions, CAV safety guidance, although industry-led and nonbinding, may become a core requirement for “duty of safety” and may also have important evidentiary value in regulatory investigations. The UK’s CAV consultation paper, for example, indicates that “there is a rebuttable presumption that a product is safe if it conforms to voluntary standards published by the Commission.”¹⁰³ In terms of judicial litigation, depending on the level of automation, courts need legal standards to determine liability when CAVs crash. More specifically, for levels 1–4, in which humans and CAVs are codrivers, determining “cause” during the transition to a driverless future will become increasingly complex in lawsuits related to negligence or product liability. Did the CAV properly alert the human driver?¹⁰⁴ Should the CAV have been designed to automatically reduce vehicle speed on a snowy road? Or should the system prevent driving altogether?¹⁰⁵ In a negligence or product liability lawsuit involving CAVs, the key issues will be whether the design of the CAV is defective in nature. This will inevitably lead to an inquiry into the “standard of care” that is imposed on CAVs, or the definition of a “design defect” for CAVs.¹⁰⁶ How do manufacturers address “reasonable care” when designing the automated driving system? What safety standards should apply to CAVs?¹⁰⁷

In practice, the industry-led voluntary standards provide a baseline for judges in the evaluation of appropriate levels and evidence of CAV safety prior to deployment,¹⁰⁸ which may become a strong incentive for CAV manufacturers to comply with “guidance,” “best practice,” or “codes of conduct,” thereby demonstrating a commitment to meeting expert safety expectations.¹⁰⁹ More specifically, compliance with industry standards can provide convincing evidence regarding whether there is a defect.¹¹⁰ CAV manufacturers may be able to partially mitigate the legal risk by demonstrating conformity to industry safety standards. At the same time, judges may resort to industry standards when evaluating the duty of safety in tort cases.¹¹¹ In brief, self-regulation is being afforded legal status through complementary evidence.¹¹² As a result, private soft law is no longer merely a self-imposed corporate obligation. It can also constitute a source of law in court proceedings.

To conclude, compliance with CAV standards may become de facto mandatory, which somehow blurs the line between mandatary/voluntary standards. The key question, however, remains: Is the TBT Agreement capable of addressing de facto mandatory “self-regulation”? To what extent should a WTO tribunal assume the responsibility of members with regard to CAV safety standards that are prepared and published by a private entity? How should the TBT Agreement respond to the trend of private standardization processes in which the government involvement per se is often minimum, if not nominal? Evidently, the development of disruptive innovation inherently involves changes in governance frameworks and calls for new governance approaches that break the boundaries of existing trade disciplines.

IV Concluding Remarks

CAVs will have far-reaching implications across numerous areas of policy-making.¹¹³ To fully realize the benefits of CAVs, a vast array of legal issues must be addressed, corresponding to the developmental phases of CAVs.¹¹⁴ This chapter reviewed legal issues related to CAVs in the context of international trade law, with a view toward offering a critical assessment of the two systematic issues – the goods/services boundaries and the public/private sector boundaries. Looking to the future, regulations governing CAVs will become increasingly complex, as the level of systemic automation evolves into levels 3–5. Domestic standards and conformity assessment procedures may become potential technical barriers to CAV trade.¹¹⁵ The TBT regime must be modernized to reflect current standardization trends, and to safeguard its important role in global economic governance in the twenty-first century.

7 Convergence, Complexity and Uncertainty Artificial Intelligence and Intellectual Property Protection

Bryan Mercurio and Ronald Yu *

I Introduction

Artificial intelligence (AI) is integral to many systems we use today – from the recommendation engines on entertainment platforms to facial recognition software on mobile phones to systems driving progress on the future of autonomous vehicles. What was once thought of as science fiction – an AI creating copyrightable content, registerable designs or potentially patentable inventions – or even creating non-existent but realistic-looking persons¹ – has morphed into reality.²

AI is also changing the nature of the process of buying goods and services on e-commerce platforms in a way that has important implications for commerce and market competition. For example, AI assistants, search engines, customer service bots and online marketplaces play an important role in shaping the consumer decision-making process. The manner in which a consumer interacts with the online marketplace through AI may result in the presentation of only a limited number of brands to a consumer or other alterations to the way that consumers view and make product selections.³

Presently, a non-human cannot in most jurisdictions be named as an inventor for something it invented or enjoy copyright rights for the creation of works. With this background, it is not difficult to see how AI sits uneasily in the construct of the intellectual property (IP) system. The question of AI and IP is both contemporary and pressing. In fact, the issue has been deemed so important and urgent that the World Intellectual Property Office (WIPO) held a “Conversation on IP and AI” event in September 2019, followed by a public consultation in which it received over 250 submissions, a consultation paper,⁴ an event in February 2020 on “Copyright in the Age of Artificial Intelligence”⁵ and a second “Conversation on IP and AI” in July 2020.

Some of the urgency behind this activity lies in the fragmentation of norms stemming from a lack of international guidance. The matter is made even more urgent by the notoriety surrounding the recent rejection of the granting of patents by patent offices in the USA, UK and Europe to an AI named DABUS (which stands for “Device autonomously bootstrapping uniform sensibility”), who the owner claims invented “food container” and a “device and method for attracting enhanced attention” autonomously without any form of human intervention.⁶

The time is thus ripe to address the profound role the IP system has in AI, not only because it can protect but also serve to block access to key AI technologies (for example, by patent holders preventing others from using patented technologies). This chapter first defines the concept before evaluating the state of play in regards to AI and patents, trade secrets and copyright. In so doing, the chapter raises substantive issues relating to AI which challenge the norms and standards of the IP system. Next, the chapter evaluates issues concerning IP in the data used by an AI system. Finally, the chapter briefly touches on the profound question of the purpose of IP, and the consequences of AI as an IP holder.

II Difficult to Devise and Define

Before even thinking of how to address issues relating to AI and IP, it is necessary to understand some of the more esoteric aspects of IP and how these could affect policy decisions regarding AI inventions. In order to do so, however, it is necessary to first agree on certain definitions. This was likely one of the first set of challenges that WIPO encountered when launching its consultation. Defining AI for legal purposes is not straightforward, given the wide range of ideas and opinions as to what constitutes “AI”. To avoid any lengthy debates, this chapter will simply adopt the definitions WIPO used in its consultation paper:

• AI is a discipline of computer science that is aimed at developing machines and systems that can carry out tasks considered to require human intelligence, with limited or no human intervention. AI generally equates to “narrow AI” which is techniques and applications programmed to perform individual tasks. Machine learning and deep learning are two subsets of AI.⁷

• “AI-generated” and “generated autonomously by AI” are terms that are used interchangeably and refer to the generation of an output by AI without human intervention. This is to be distinguished from “AI-assisted” outputs that are generated with material human intervention and/or direction.⁸

While these definitions are sufficient for our purposes, it should be noted that defining what constitutes an AI-generated invention or creation is far more difficult than it appears at first glance, given both the wide continuum between AI that was created autonomously⁹ and with some human input (which itself may have been augmented, for example with artificial creativity augmentation¹⁰ or other AI). The full set of arguments as to what is or is not an AI-generated invention is beyond the scope of this chapter,¹¹ but suffice to say that the definition of AI is perhaps not completely finalized and static.

III Artificial Intelligence as an Intellectual Property Holder

With AI defined, we can now proceed to examine the questions of:

• whether AI-generated inventions, creations or designs can be granted IP protection;

• how such inventions, creations and designs should be treated in legislation or by governmental agencies; and

• whether the law should require that a human being be named as an inventor or author or whether it should permit an AI application to be named as the inventor (which naturally raises the question of whether an AI could have legal personhood).

Of course, a large part of the problem here is that current laws never envisaged a situation where AI systems could create and invent on their own, with a minimal nexus with a human being. In such a circumstance, a human could not technically be listed as author or inventor. Yet current laws in most jurisdictions also prevent the AI from being named an author or inventor, and thus AI inventions are left in a lacuna without legal protection, which returns us to the question of whether AI-generated content, inventions and the like warrant IP protection. If AI inventions and creations are allowed IP protection, should there be new systems of examination (for patents) or protection (for copyright) for such works? Finally, if AI inventions and creations are denied IP protection, would this incentivize organizations and individuals to conceal the involvement of AI, and if AI were involved, how could it even be detected? On top of these, there are questions specifically related to patents, trade secrets and copyrights which will be addressed in subsections A to D.¹²

A Patents and Trade Secrets

At first glance, obtaining patent protection for an AI-generated invention appears straightforward; such an invention would be patentable if it meets the definition as set out by Article 27.1 of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement and domestic legislation:

patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application … and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced.

Thus, in order to qualify for protection, an invention must meet the following conditions:

• novelty – meaning it is not part of the state of the art (as defined by the relevant patent law);

• inventiveness (or non-obviousness); and

• utility (or industrial applicability) – which means, among other things, that it is capable of actually working in the real world (e.g. an invisibility cloak, similar to what one might see in Star Trek or Harry Potter, would not meet this test).

These conditions distinguish an invention from a mere discovery of, say, a naturally occurring phenomenon or equation.¹³ Thus, discovering that a wave coming from the earth’s core that interferes with satellite broadcasts is useful, but not patentable, whereas inventing a device which filters the interference would be a patentable invention.

Inventiveness (and novelty) are judged from the standard of a person skilled in the art (i.e. the “skilled person”) standard.¹⁴ The skilled person is a legal fiction of a person who knows everything about a particular field yet is not creative or imaginative. While the standard of the skilled person differs across jurisdictions,¹⁵ Laddie, J. discussed the nature of the skilled (but non-inventive) person in the art in the case of Pfizer Ltd.’s patent:

This is not a real person. He is a legal creation. He is supposed to offer an objective test …. He is deemed to have looked at and read publicly available documents and to know of public uses in the prior art. He understands all languages and dialects. He never misses the obvious nor stumbles on the inventive. He has no private idiosyncratic preferences or dislikes. He never thinks laterally. He differs from all real people in one or more of these characteristics. A real worker in the field may never look at the piece of prior art – for example he may never look at the contents of a particular public library – or he may be put off because it is in a language he does not know. But the notional addressee is taken to have done so.¹⁶

AI potentially challenges the standard of inventiveness in three ways. First, many AI systems work by sifting through vast amounts of data to find patterns, which some liken to the process of discovery, which is problematic as it is generally accepted that utilizing something that already exists in nature is a “discovery”, and therefore not patentable.¹⁷ Second, as an AI has far greater capacity to analyse vast amounts of data trained with specific data from designated fields of art than any human, such an AI not only will more easily find inventions obvious but, if taken to its logical extreme, it could not only become a skilled person but might also find all inventions obvious.¹⁸ Third, as AI is increasingly employed in research and development (R&D), there is the potential to raise the standard of inventiveness of developers and those skilled in the art. What these potential issues mean is that in order to accommodate AI, there may have to be a re-think of the inventiveness standard – this will be difficult and lead to many unintended consequences. For example, raising the bar for inventiveness would ensure information and discoveries are not locked away but may make it harder for ordinary human inventors to acquire a patent.¹⁹

In addition to the three standards of patentability, a patent application must also provide for sufficient disclosure of the invention to enable a skilled person to reproduce the invention.²⁰ This is in keeping with the patent system’s other goal to promote social and technical advancement and increase public welfare through the disclosure of inventions to the public for the benefit of the public at large. AI-related issues pose a significant challenge to the system in this regard – simply stated, what does one need to disclose when dealing with an AI-generated invention? The answer is not as simple as one might think given that the outcomes of an AI invention might change depending on the input data and/or the algorithms.²¹ Additional questions involve unique complexities and will lead to divergences of opinion, such as: must algorithms used by the AI be disclosed as part of a patent application by an AI? Should data used by the AI also be disclosed as well, and if so, how much data? Does the human expertise used to select and curate the data and train the algorithm be disclosed, and if so, to what extent? Requiring strict standards which demand inventors to supply greater detail and precise information may mean inventors simply bypass the patent system in favour of maintaining the invention as a trade secret. This in turn may not be to society’s benefit. In short, the difficulties with enablement/disclosure should not be underestimated given the potential size of the data sets involved.²²

Finally, the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement allows (but does not require) members to create exceptions to patentability, such as inventions “necessary to protect ordre public or morality, including to protect human, animal or plant life or health or to avoid serious prejudice to the environment”,²³ and diagnostic, therapeutic and surgical methods for the treatment of humans or animals as well as plants and animals other than micro-organisms, and essentially biological processes for the production of plants or animals other than non-biological and microbiological processes.²⁴ While these lines may appear straightforward, the reality is not quite so simple and distinctions can be blurred.²⁵

Compounding the issue is the fact that exceptions from patentability are defined at the regional and national level. In regard to AI, this raises issues involving software and business methods. These forms of invention are excluded from patentability in some nations, meaning that software or computer program-related inventions may be patentable in one jurisdiction but not in another.²⁶ The result of disunity could be more forum shopping whereby organizations, inventors or creators actively seek jurisdictions whose laws are more favourably disposed to protecting their inventions or creations, in this case created or generated by AI. Moreover, this connects to the issue of broader societal benefits resulting from inventions; if AI applications or algorithms are excluded from patentability, developers and organizations would essentially have no choice but to keep such AI as a trade secret, thereby undermining the goal of the patent system to disseminate technical knowledge.

To date, applications for patent protection when the inventor is named as an AI system have been rejected. For instance, the UK Intellectual Property Office (UKIPO), European Patent Office (EPO) and US Patent and Trademark Office (USPTO) all recently denied applications for patents that named an AI, called DABUS, as the inventor in December 2019, January 2020 and April 2020, respectively. These applications, for a warning light and food container, were made on behalf of Stephen Thaler, CEO of Imagination Engines, by the Artificial Inventor Project.²⁷ In rejecting the application, the UKIPO hearing officer decided that the UK Patents Act 1977 requires an invention by a natural person.²⁸ The EPO likewise rejected the applications on procedural grounds as an application for a European patent must designate an inventor and “state the family name, given names and full address of the inventor”. In so holding, the EPO found this requirement was consistent with a “clear legislative understanding that the inventor is a natural person” and consistent with EPO and national decisions.²⁹ Similarly, the USPTO held that the US patent statutes preclude interpretation of “inventor” to cover machines because “the plain reading” of words such as “whoever”, “himself”, “herself” and “individual”, as well as the requirement that an inventor executes an oath, is as a “person”. The USPTO also cited US case law which holds that inventors cannot be states or corporations.³⁰

This leaves trade secrets as the more likely avenue for protection of AI inventions. Trade secrets protect information that is secret, of commercial value, imparted in a situation of confidentiality and subject to reasonable efforts to protect its secrecy. In some ways, trade secrets better suit the companies which develop AI as such inventions do not require registration and can last indefinitely, provided they are kept secret.³¹ Moreover, given the fast pace of development and difficulty in reverse engineering AI systems, companies are in fact increasingly relying on trade secrets to protect investments and developments in AI. AI companies also rely on trade secrets to protect their valuable algorithms given their inability to acquire patent protection for algorithms and reluctance to disclose the algorithm in a patent application,³² and because copyright law protects expression and not the underlying idea behind an algorithm, effectively rendering copyright unsuitable for protecting the functional aspects of algorithms.³³

While one cannot register a trade secret – doing so would itself alert others to its presence and provide for public disclosure – there are systems in place to prove the existence of a trade secret without disclosing the secret. An example of this is WIPO Proof, which provides tamper-proof evidence of the existence of a trade secret by providing a data- and time-stamped digital fingerprint of a digital file containing the trade secret and a repository of these fingerprints (which WIPO refers to as tokens).³⁴

B Copyright

The TRIPS Agreement (Article 9.2) states that copyright attaches to original works which are “expressions and not to ideas, procedures, methods of operation or mathematical concepts as such.” In the context of software, this makes clear that expressions are protected, whereas the underlying ideas in the software or computer programs – that is, the AI algorithms and other processes – would not be eligible for protection.

Originality (which is different from the novelty standard in patent law which requires that the invention not be part of the prior art) – the aspect of a created or invented work that makes it new or novel, and thereby distinguishes it from reproductions, clones, forgeries or derivative works³⁵ – remains a basic prerequisite in copyright law.³⁶ The question in regards to our inquiry is whether an AI-generated work can be regarded as original. The Berne Convention references “authors”,³⁷ which may not be determinative but perhaps lends itself to the conclusion that there must be a human involved in the process. Indeed, courts in several countries have interpreted originality as requiring a fairly significant degree of human ingenuity. For instance, in the famous case of Naruto v. Slater, the 9th Circuit Court in the USA held that “[t]o qualify as a work of ‘authorship’ a work must be created by a human being”.³⁸ In that case, it was not enough for a photographer to place cameras in strategic locations and tempt the animals to pick up the camera and take pictures. Likewise, in Acohs Pty Ltd v. Ucorp Pty Ltd the Full Federal Court of Australia found that data sheets created by a computer program (a simple data-collecting mechanism) were not subject to copyright because there was not a sufficiently involved human author.³⁹

These judgments indicate that copyright over computer programs and software will generally vest with whoever created the source code of that software. Likewise, content generated by “AI-like” software which performs functions based on programmed rules but without exhibiting true intelligence or originality, for example a “smart-home” device that can dim lights or check the weather forecast on command, would likely remain the copyright of the author of the program’s code or the person making the input. The same would likely apply for programs used as part of an artistic or technical process but which are ultimately controlled by human choices.

That being the case, while the creator of the AI program would retain copyright over original source code, that individual may have no rights to original work created by the software that they did not envision or program. Thus, for instance, while the source code of an AI program designed to create original music or generate business recommendations would be subject to copyright, the decisions and work generated by that AI may not be copyrightable if there is not a sufficient level of human input. The more distant the human involvement from the ultimate original work (as the AI continues to evolve), the less likely it would be that copyright would attach to the individual.

Whereas the US Copyright Office and others apply a “human authorship policy” that prohibits copyright protection of works that are not generated by a human author,⁴⁰ not all jurisdictions concur with this interpretation. For instance, UK law acknowledges the possibility that works could be “computer-generated”⁴¹ and provides that the author of a computer-generated work is deemed to be the person “by whom the arrangements necessary for the creation of the work are undertaken”.⁴² Interestingly, China may also be heading towards protection for AI as a court decision in Guangzhou in January 2020 awarded RMB1500 in damages for infringing a financial article written by Tencent’s robot Dreamwriter without authorization: “the article’s form of expression conforms to the requirements of written work and the content showed the selection, analysis and judgment of relevant stock market information and data … the article’s structure was reasonable, the logic was clear and it had a certain originality”.⁴³ What remains unclear in jurisdictions which hold that AI-generated work can enjoy copyright protection is, among other things, whether such protection extends to other related copyright rights such as sound recordings, broadcasts, performances or adaptations. This is an important question, but as of yet undecided and untested.

Yet another interesting question is whether copyright law ought to be used to regulate deep fakes – the generation of simulated likenesses of persons and their attributes, such as their appearance or voice.⁴⁴ Deep fakes raise complicated copyright questions such as whether deep fakes created by information that may be copyright protected should benefit from copyright, and if they should, to whom the copyright in the deep fake should belong; and whether the person whose likenesses and performances are used in the deep fake ought to receive compensation, and if so, how this could be done.

More fundamentally, other questions involving the term of protection and liability of the copyright owner will also need to be addressed. In terms of the former, many copyright laws provide specific periods of time during which the work and the rights arising thereof are legally protected that are usually determined in reference to the lifetime of the work’s author, and exceptionally the work’s first publication or transmission. The life of the author cannot be used when AI is the author, given the theoretically indefinite lifespan of the system,⁴⁵ but consensus has not yet emerged on the appropriate length of protection. In regards to liability, unlike an original work written by a person, some AI systems store their information in a form that cannot easily be read by humans or reverse engineered. Given this, it may be impossible to discover why a system made a particular decision or produced a particular output. In such cases, liability will likely attach to the person or entity that controls or directs the actions of the AI. This is difficult, however, and may not always be apparent where one party has created the AI and another has decided what data to put into it or what questions to ask it. In the interim, the practical reality is that business entities will need to ensure that there are contractual indemnities in place for any actions of the AI that infringe copyright work.⁴⁶

C Intellectual Property in the Data

A thorough discussion of AI and IP cannot ignore the important issue of data, as there may be IP in the data and there certainly is IP in the systems that manage and handle data. Developers rely on vast troves of data in the initial training of AI systems as well as for personalization, product improvement or localization (i.e. adapting AI systems to work in a variety of different local conditions). Considerable resources must be spent finding suitable training data, correcting training errors or ensuring the data has not been corrupted (for example, by a cyberattack).

Yet IP protections for data are limited save for some sui generis legislation and the limited protection offered by copyright law for databases as collections.⁴⁷ In the USA, for example, databases may be protected by copyright law not as such but as compilations which are defined as a “collection and assembling of preexisting materials or of data that are selected in such a way that the resulting work as a whole constitutes an original work of authorship”.⁴⁸ Such protection is of limited value, however, as the US Supreme Court held that a compilation of facts is copyrightable only if the selection or arrangement “possesses at least some minimal degree of creativity”.⁴⁹ Pre-existing materials or data included in the database therefore may be protected by copyright, or may be unprotectable facts or ideas.⁵⁰ In contrast, Europe grants copyright protection to databases which, as such, by reason of the selection or arrangement of their contents, constitute the “author’s own intellectual creation”. However, additional sui generis protection afforded under the Database Directive⁵¹ is granted to reward the substantial investment of the database maker in creating the database and prevent free-riding on somebody else’s investment in creating the database, and exists in parallel to the copyright protection on the structure of the database.⁵²

That there is weak IP protection for data and no system of property rights raises numerous questions regarding the equity of current setups among AI companies that take freely provided data from individuals, then use this data to create products that those same individuals are charged to use.⁵³ This situation is analogous to the one lesser-developed countries experienced decades ago when they complained that developed countries had appropriated their traditional knowledge (TK)⁵⁴ without adequate compensation, thereby exacerbating the wealth gap between developed and developing countries.⁵⁵ TK does not enjoy IP protection, though sui generis legislation in some countries does grant protection. But unlike the international north–south divide that characterized the TK debates decades ago, the current debate on remuneration to data providers is both international and intra-national (though the challenge now could be characterized as a struggle between the tech giants who have both the data and the technological infrastructure and those companies who do not possess such assets).

Granting property rights in the data raises a host of challenging issues, which are raised but not analysed here, including adequate compensation for use, restriction on use (and whether prevention of data transfer without compensation falls afoul of obligations undertaken in free trade agreements) and whether and the extent to which property rights in data hinder innovation. Another IP-related aspect to data worth considering is that there is IP in the form of know-how (or other trade secrets) in the use of data for AI. Because of the growing liability concerns and other issues associated with faulty AI systems,⁵⁶ organizations employing AI systems will need to become more careful about the implementations of such systems, and will need to ensure the quality of the data used to train and update such systems to ensure that the data is appropriate for the task at hand, that it was not tampered with and that it is accurate (the last point is a problem given that the sources of data companies rely upon for, say, digital marketing may be suspect).⁵⁷ Thus there is IP in the curation of data – to ensure the data has been validated, is appropriate for the purpose at hand and has not been tampered with – as well as IP in the creation of AI applications and deployment of AI technologies (that may be protected by IP rights or block their use by others’ IP rights). The importance of these IP-related data issues will only grow in relevance, yet current levels of protection are limited and it is uncertain whether greater levels of protection would lead to clearer outcomes or enhanced levels of innovation.

D The Profound Question

IP refers to creations of the mind⁵⁸ used in commerce, and the IP system is designed to encourage creation and invention and reward creators and inventors through IP rights. As per Stephen Thaler’s claim that an AI is capable of autonomously creating a patentable invention (DABUS) without any human intervention, the most fundamental question which requires resolution is whether AI’s lack of corporeal existence is sufficient to deny it IP rights. This conundrum forces us to confront a related question – is the IP system, which until now has been intimately associated with the human creative and inventive spirit with its respect and reward for the encouragement of human innovation and creativity – more about advancing creative and technological progress or upholding human rights?

Dr Francis Gurry, immediate past Director General of WIPO, noted that “intellectual property is key to economic development”,⁵⁹ and studies have shown that IP rights benefit developing as well as developed nations.⁶⁰ There have always been developmental and commercial aspects to IP, even with the fundamental objective of the patent system being to encourage investment of human and financial resources and risk taking in generating inventions that may positively contribute to the welfare of a society, promote creations, distinguish the origin of goods and services and prevent consumer confusion.⁶¹ Even national constitutions promote IP; for example, the American Constitution’s Patent and Copyright Clause states that “[The Congress shall have power] to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries”;⁶² AI could undoubtedly increase the pace of innovation and creation.

There is potential benefit to the signalling value of protecting the IP of AI-generated creations and inventions, including that jurisdictions which permit the registration of IP rights to an AI for its inventions or creations would be seen as pro-innovation and perhaps attract more development, investment and employment opportunities. Likewise, a lack of IP protection for AI-generated inventions might discourage companies from investing in AI technologies and prevent breakthroughs in important areas like drug discovery.⁶³

What is certain is that a lack of protection will lead to greater use of trade secrets, which could serve to further retard innovation and knowledge dissemination. While limiting the use of trade secrecy could potentially mitigate this potential problem, attempts to do so could violate obligations undertaken in free trade agreements⁶⁴ and would definitely meet fierce resistance by tech giants and other AI companies dependent on the protection of confidential algorithms and other information for business pursuits. Moreover, countries considering weakening trade secrecy laws would do well to remember India’s past attempt to emasculate trade secrecy – when India attempted to force Coca-Cola to release its secret recipe under its Foreign Exchange Regulation Act of 1973, Coca-Cola refused and simply left the country.⁶⁵

But the question remains unanswered whether prioritizing innovation and creation over people is fair or wise. As AI continues to increase in sophistication, society may be unwilling to sacrifice individual rights at the altar of innovation. Industry promises to protect the rights of marginalized groups and individuals, but such promises often ultimately ring hollow as history has shown that such self-regulation can be woefully inadequate at protecting people, particularly those in marginalized communities who are frequently targeted by manipulation campaigns.⁶⁶ Furthermore, in times of global economic crisis the priority may be coping with the significant socio-economic challenges brought about by the COVID-19 health crisis.⁶⁷

In sum, there are countless legal, technical and policy arguments for and against ownership of IP by an AI in the areas of patents, copyrights, design rights and trade secrets, as well as questions regarding property rights in the data or whether to establish a sui generis system for original content, and posing one question in one area can generate many others elsewhere. At one level, there is no practical need to let an AI become an IP holder. After all, one could simply name a human in an application the way some companies designate their chief engineer in patent applications, even though the actual inventors were other employees; or it has been suggested that the system could treat AI as we would treat a pet, arguing that pets have intelligence and a certain level of autonomy but not legal personhood. Similarly, the AI operator legitimately controls, confines and possesses the AI during conception and thus ownership of the AI invention should be held by the AI operator, their employer (work-of-hire) or successor.⁶⁸ While the latter approach allows for easy identification of the origin of the invention and a true entity entitled to the exclusive right, it does not suffer from problems of wrongful credibility (i.e. truthfully showing the involvement of an AI, and avoiding divisive discussions of legal personhood⁶⁹). This model, however, may not work or may seem unfair where human intervention is minimal.

The final challenge to address is how the question of IP rights affects business investment. Some have claimed that the USA’s more permissive software patenting regime than Europe is a primary reason why more software development took place in America.⁷⁰ This may be overblown, as the USA did not see an outflow of investment, innovation or talent following the effective raising of standards after the US Supreme Court’s decision in Alice Corp. v. CLS Bank International, where the court avoided giving a clear definition of the expression “software patent” and held that “merely requiring generic computer implementation fails to transform [an] abstract idea into a patent-eligible invention”.⁷¹ Similarly, the 2018 report on the impact of the Database Directive⁷² made no mention of any great new flows of technological investment into the European Union as a result of the Directive.

IV Conclusion

How the IP system deals with AI is far more complicated and involved than it might initially appear because there are many difficult matters that are at once esoteric and, in some cases, profoundly consequential, plus a mixture of technical, legal, data-related, social and societal issues to juggle. Even the question of how to deal with disclosure in a patent application involving an AI-generated invention is complex – and that is only one of many such problems. AI and IP bring together many technological, legal, data and societal policy questions in a complex, messy convergence that is not easy to untangle. In short, AI makes for an uneasy fit with the existing structures and norms of the IP regime. Thus, developers of AI would be well advised to secure the benefits of their investment and mitigate IP risks associated with AI by contract. Developers would be well advised to select an appropriate jurisdiction for the development of AI, contractually define such matters as the ownership of IP and inventions akin to IP, and assign and break down all foreseeable risks created by AI via insurance clauses or other mechanisms.

8 Are Digital Trade Disputes “Trade Disputes”?

Yuka Fukunaga

I Introduction

Since the issuance of a joint statement in January 2019, eighty-six World Trade Organization (WTO) members have confirmed their intention to commence WTO negotiations on trade-related aspects of electronic commerce. Additionally, several have submitted concept papers and text proposals, and many more have engaged in exploratory discussions on a wide range of issues surrounding electronic commerce. In December 2020, the consolidated negotiating text was circulated to the participating members. There is a growing expectation that a new Agreement on Trade-Related Aspects of Electronic Commerce (TREC Agreement) that will be either multilateral or plurilateral in nature will be adopted in the not-so-distant future.¹

One key question that has been left out in the process of negotiating the TREC Agreement is how disputes concerning electronic commerce should be settled. The assumption may be that the rules and procedures of the WTO Dispute Settlement Understanding (DSU) apply to disputes under the TREC Agreement.² However, the validity of this assumption is questionable, because disputes arising under the proposed TREC Agreement would differ from conventional trade disputes, as discussed in this chapter. As a result, special or additional dispute settlement procedures must be developed to properly settle disputes under the TREC Agreement.

This chapter highlights key differences between conventional trade disputes and their digital counterparts and proposes special or additional dispute settlement rules and procedures that may be incorporated in the TREC Agreement. For the sake of convenience, this chapter uses the term “digital trade disputes” to represent disputes that would likely arise under the TREC Agreement. It does not seek to define the term “digital trade,” which may include not only trade in digital products but also digitally enabled trade in goods and services.³ Nor does it discuss substantive rules to be included in the TREC Agreement.⁴ Instead, this chapter infers the nature of digital trade disputes arising under the TREC Agreement by examining rules on digital trade provided in recently concluded regional trade agreements (RTAs); that is, the United States-Mexico-Canada Agreement (USMCA), the Trans-Pacific Partnership (TPP) Agreement, as incorporated in the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) Agreement, and the Japan-European Union Economic Partnership Agreement (JEEPA).⁵ This chapter argues that differences in the nature of conventional trade rules under the WTO agreements and digital trade rules under the TREC Agreement,⁶ as well as their underlying techno-social discrepancies, will result in differences in the nature of disputes arising under these rules.

More specifically, this chapter examines two key differences between conventional trade disputes and digital trade disputes. The first difference is the significant diversity of stakeholders in digital vis-à-vis conventional trade disputes. A conventional trade dispute is typically brought by an exporting WTO member against an importing WTO member when businesses of the former complain about trade practices of the latter. While a digital trade dispute may arise under similar situations, it often takes more diverse forms involving various stakeholders. For example, a business entity may challenge a domestic regulation of its own government, or consumers may raise concerns with an Internet giant over data privacy issues. This chapter argues that these various stakeholders should be allowed to participate in digital trade dispute settlement mechanisms made available under the TREC Agreement.

The second difference arises from the unique nature of the balance between trade and non-trade values. Under conventional trade rules, exceptions – such as Article XX of the General Agreement on Tariffs and Trade (GATT) – are incorporated to ensure a balance between WTO members’ obligations to not restrict trade and right to regulate in order to achieve legitimate non-trade policy objectives. Therefore, WTO members are entitled to adopt otherwise inconsistent measures for legitimate policy objectives, such as the protection of human life and health or the preservation of the environment, and subsequently applied in accordance with certain conditions. Meanwhile, under the TREC Agreement, the protection of certain non-trade values, such as privacy protection, may be regarded as among the principal objectives of the Agreement and would therefore be fashioned as an obligation rather than an exception. In other words, a contracting party to the Agreement would be required to take trade-restrictive measures to protect non-trade values. Thus, a balance between the obligation to promote digital trade and the obligation to restrict it to protect non-trade values would need to be struck under the TREC Agreement. This chapter argues that the unique nature of the balance between trade and non-trade values under the TREC Agreement would require different weighing and balancing exercises between trade and non-trade values in digital trade dispute settlements.

With these differences in mind, this chapter then considers appropriate dispute settlement mechanisms to resolve digital trade disputes. More specifically, it discusses what special or additional dispute settlement rules and procedures should be incorporated into the TREC Agreement to fill those gaps in the existing DSU with regard to the handling of digital trade disputes.

II Digital Trade Disputes under the Existing World Trade Organization Dispute Settlement Procedures

Before exploring the key differences between conventional trade disputes and digital trade disputes, this section briefly reviews whether existing WTO dispute settlement procedures can properly resolve digital trade disputes in accordance with the existing rules of the WTO.

Although the Internet was almost non-existent when the WTO agreements were drafted, some of the WTO rules are applicable to digital trade, and disputes may arise regarding whether certain measures to restrict digital trade are inconsistent with these rules.⁷ For example, a WTO member may claim that another WTO member’s restrictions to cross-border transfers of personal data are inconsistent with its market access and national treatment commitments under the General Agreement on Trade in Services (GATS). In response, the respondent member may argue that even if they are inconsistent with its commitments, its measures are justified under paragraph (a) or (c) of Article XIV of GATS.⁸

Some issues related to the consistency and justifiability of digital trade measures under the GATS have been raised in US – Gambling. In this case, the panel and the Appellate Body first reviewed whether the United States’ total prohibition of the cross-border supply of gambling and betting services was inconsistent with its obligations under Article XVI:1 and Article XVI:2(a) and (c) of the GATS. Having found the United States in violation of these obligations, they next examined whether the measure was justified under Article XIV(a) or (c) of the GATS. The Appellate Body found that although the challenged measures were “necessary to protect public morals or to maintain public order” relevant to paragraph (a) of Article XIV, they were not justified, because they did not meet the conditions under the chapeau of Article XIV.⁹

The findings in US – Gambling appear to suggest that some digital trade disputes can be handled under the existing rules and exceptions in the relevant dispute settlement procedures, although there may be difficulties in applying the conventional trade rules to digital trade disputes.¹⁰ In some respects, the conventional trade rules simplify the settlement of a digital trade dispute involving the protection of other legitimate objectives into a matter involving the balance between members’ rights to liberalize trade and members’ rights to regulate non-trade issues. The mandate for panels and the Appellate Body is to determine, by the weighing and balancing of relevant factors, the counterpoise, where relevant legitimate objectives are protected without overly interfering with trade.¹¹

However, digital trade disputes will likely raise far more complicated matters of balance involving multiple stakeholders with diverse policy objectives, especially if the TREC Agreement seeks to provide comprehensive rules on digital trade governance, as do recently concluded RTAs. The diversity of stakeholders and the complexity of the balance between trade and non-trade values under the TREC Agreement would render the mandates of panels and the Appellate Body extremely difficult, if not impossible.

III Stakeholders

In both conventional trade in goods and services and in digital trade, the direct economic beneficiaries are private parties, such as businesses and consumers. However, their legal status will likely differ under conventional trade rules in the WTO agreements versus digital trade rules in the proposed TREC Agreement.

Under conventional WTO rules, the primary stakeholders are the member governments, in the sense that these rules principally establish the rights and obligations of the members. Violations of the rules result in disputes between member governments, and such disputes can be properly settled through inter-governmental WTO dispute settlement procedures.

Under the TREC Agreement, rules pertaining to the rights and obligations of private entities would be equally important as those of the governments of the contracting parties, as established in this section. As a result, disputes under the TREC Agreement would arise between various stakeholders, and their settlement would require the involvement not only of governments, but also private entities. The special or additional rules and procedures under the WTO agreements designed to resolve multi-stakeholder disputes provide useful guidance as to how digital trade disputes should be settled.

The following subsections A to B contrast stakeholders in conventional trade disputes arising under the WTO agreements with stakeholders in digital trade disputes arising under the TREC Agreement.

A Stakeholders in Conventional Trade

1 Trade in Goods

The WTO agreements primarily establish the rights and obligations of the members. For example, the Marrakesh Agreement Establishing the World Trade Organization (Marrakesh Agreement) states that the WTO provides “the common institutional framework for the conduct of trade relations among its Members” (emphasis added).¹² The central role of the members is also signified by the shared recognition that the WTO agreements reflect the balance of benefits among WTO members. The primary stakeholders under the WTO agreements are the members – more specifically, the governments of the members, in the sense that they are the subject of the WTO rules.

The stakeholders in the WTO agreements become clearer when the addressee of specific rules is examined. For example, GATT Articles I and III prohibit a discriminatory measure against a certain product of a member rather than a certain product of an individual exporter or producer. A less favourable treatment of a certain product or item offered by a specific individual exporter from a member does not necessarily constitute a violation of the non-discrimination principles, unless it amounts to discrimination towards a product from that member.¹³ This is because the WTO agreements protect the rights of the members rather than the rights of individual exporters or producers. It follows that WTO disputes arise between member governments and are properly settled through inter-governmental dispute settlement procedures.

Some disputes under certain WTO rules may arise between private parties and WTO member governments. More specifically, disputes under the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-Dumping Agreement) may arise between exporters or foreign producers and the government of an importing member conducting anti-dumping investigations and imposing anti-dumping measures, because the interests of the former are directly affected by these investigations and measures.

The rules of the Anti-Dumping Agreement provide for the obligations of the relevant authorities of WTO members that are in charge of conducting anti-dumping investigations and imposing anti-dumping measures, and they are expected to ultimately protect the interests of exporters and foreign producers from abusive anti-dumping investigations and measures. Moreover, some rules of the Anti-Dumping Agreement, such as Article 6, explicitly require the authorities of the members to ensure that the procedural rights of private parties are properly protected. Thus, the stakeholders in the Anti-Dumping Agreement include not only the governments of members, but also private parties that may be subject to anti-dumping investigations and measures.

Given that the interests and procedural rights of exporters and foreign producers are protected under the Anti-Dumping Agreement, violations of the Agreement can provoke disputes between members conducting anti-dumping investigations and imposing anti-dumping measures and exporters or foreign producers that are subject to such investigations and measures. The governments of these exporters or producers may bring such a dispute to the WTO for dispute settlement on their behalf. Conversely, governments may choose not to do so if their interests do not coincide with the interests of the WTO. In order to allow exporters and foreign producers to directly challenge anti-dumping investigations and measures of WTO members on their own, additional dispute settlement procedures are stipulated in the Anti-Dumping Agreement, which is revisited in Section V.

2 Trade in Services

Although the GATS generally shares the features of the GATT in that the primary stakeholders are the governments of members, it takes a different approach from the GATT with regard to the position of private entities. More specifically, some rules under the GATS, such as Article VIII:1 and Article IX:1, provide for discipline regarding the conduct of service suppliers, albeit indirectly, through domestic laws and regulations of WTO members.

These provisions are incorporated into the GATS based on the recognition that the anti-competitive practices of service suppliers could restrict trade in services. This does not mean that the anti-competitive practices of producers of goods could not restrict trade in goods. On the contrary, the anti-competitive practices of producers of goods could also be trade restrictive and, for this reason, it would be appropriate to incorporate regulations on anti-competitive practices related to trade in goods as well.¹⁴ Nevertheless, it is undeniable that certain service sectors are more susceptible to monopolization and other anti-competitive practices than the goods sectors. Therefore, the inclusion of competition regulations is needed more in the GATS than in WTO agreements on trade in goods. As a panel once suggested,¹⁵ trade barriers in trade in services, especially those related to basic infrastructure, include not only governmental measures, but also anti-competitive practices of service suppliers. Although these provisions do not directly impose legal obligations on service suppliers, they demonstrate the possibility that the anti-competitive practices of service suppliers may nullify or impair the benefits of WTO members under the GATS and trigger a dispute under the GATS. As discussed in Section V, the GATS provides a special dispute settlement mechanism to address such disputes.

3 Intellectual Property Rights

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) has a distinctive feature in that it is closely connected with the rights of private entities. While the title of the Agreement is carefully drafted to focus on the trade-limited aspects of intellectual property rights, its rules are primarily concerned with the protection of intellectual property rights owned by private entities.¹⁶ Although the TRIPS Agreement may not explicitly confer legal rights to private parties under WTO law, it requires their intellectual property rights to be protected through the domestic law and policy of WTO members, as implied in Article 1.1 of the TRIPS Agreement. In the TRIPS Agreement, private entities, as stakeholders, are as important as WTO members.

Disputes under the TRIPS Agreement may arise when a WTO member adopts or maintains a measure that is inconsistent with the TRIPS Agreement, thereby nullifying or impairing the interests of another member. Such disputes may be handled through the inter-governmental WTO dispute settlement process. However, disputes may more often arise between private parties under the domestic intellectual property law, which incorporates the rules under the TRIPS Agreement. In fact, the number of WTO disputes concerning the TRIPS Agreement is very limited compared to the number of domestic disputes involving domestic intellectual property law. In order to enable private entities to settle these domestic disputes and enforce their intellectual property rights, the TRIPS Agreement requires WTO members to maintain appropriate judicial and administrative procedures within their territories, as is revisited in Section V. Given the importance of private entities as stakeholders, these procedures are essential as a supplement to the inter-governmental dispute settlement procedures.

B Stakeholders in Digital Trade

The TREC Agreement that is under negotiation would provide for the rights and obligations of contracting parties similar to those digital trade rules under recent RTAs, which serve as important references. For example, Article 19.3.1 of the USMCA prohibits contracting parties from imposing customs duties on digital trade, and Article 19.4.1 of the USMCA requires contracting parties to accord no less favourable treatment to a digital product created by another party or by a person of another party.¹⁷ In addition, some digital trade rules under the USMCA, such as Articles 19.5.1 and 19.7.2, require the contracting parties to adopt or maintain certain laws on digital trade within their territories.¹⁸ Under Article 8.74 of the JEEPA, contracting parties are required to ensure that all the measures of general application affecting electronic commerce are administered in a reasonable, objective, and impartial manner.

However, many rules under the proposed TREC Agreement would also concern the rights and obligations of private entities, at least indirectly. First, the protection of the interests of consumers would be a central element in the TREC Agreement, as the existing regional trade rules on digital trade suggest. For example, Article 19.2.1 of the USMCA recognizes the importance of a framework to promote consumer confidence in digital trade. More specifically, Article 19.7.1 of the USMCA explicitly emphasizes the importance of adopting and maintaining transparent and effective measures to protect consumers from fraudulent or deceptive commercial activities.¹⁹ Similarly, Article 19.8.1 of the USMCA recognizes the economic and social benefits of protecting the personal information of users of digital trade, as well as the contribution this makes to enhancing consumer confidence in digital trade.²⁰

Second, the conduct of enterprises and other private entities would be indirectly subject to rules under the TREC Agreement through the domestic laws of the contracting parties, since such conduct could undermine the interests of consumers protected under the TREC Agreement. For example, Article 19.7.2 of the USMCA requires contracting parties to adopt or maintain consumer protection laws to proscribe fraudulent and deceptive commercial activities that cause harm or potential harm to consumers engaged in online commercial activities.²¹ Similarly, Article 19.8.2 of the USMCA requires contracting parties to adopt or maintain a legal framework that provides for the protection of personal information of the users of digital trade.²² Most notably, Article 19.13 of the USMCA requires contracting parties to not only adopt or maintain measures regarding certain unsolicited commercial electronic communications sent to an electronic mail address, but also to provide recourse in its law against suppliers of unsolicited commercial electronic communications that do not comply with any measure adopted or maintained pursuant to this obligation.²³ Thus, consumers would be able to seek recourse against an enterprise in domestic procedures by claiming that its conduct violates the relevant domestic law incorporating rules under the TREC Agreement.

Third, enterprises and other private entities would also be beneficiaries whose interests must be protected under the TREC Agreement. For example, provisions such as Article 19.5 of the USMCA, concerning the domestic electronic transactions framework, and Article 19.6 of the USMCA, concerning electronic authentication and electronic signatures, are intended to facilitate business activities in digital trade.²⁴ In addition, provisions prohibiting the contracting parties from requiring localization of computing facilities,²⁵ or the transfer of, or access to, source codes,²⁶ are inserted to address one of the most urgent concerns of enterprises.

These features of the rules under the proposed TREC Agreement would characterize the nature of disputes arising under the Agreement in two ways. First, while disputes may arise between contracting parties under certain circumstances, a greater number of disputes would likely arise between a consumer and an enterprise, or between an enterprise and the government. For example, a consumer may claim that certain practices of an enterprise inappropriately use his or her personal information. Alternatively, an enterprise may claim that a regulation of the government unduly restricts its business activities in digital trade. Second, disputes would more often arise under domestic law rather than directly under the TREC Agreement. The TREC Agreement would presume that many of its rules are to be incorporated into the domestic laws of the contracting parties. It would be reasonable for consumers and enterprises to refer first to a relevant domestic law to determine if their benefits are legally protected under said domestic law. These characteristics must be considered when constructing dispute settlement mechanisms for digital trade disputes.

IV Protection of Non-Trade Values

In accordance with the objectives and purpose under the preamble of the GATT and the Marrakesh Agreement, trade benefits need to be balanced against other non-trade values, such as the environment and human rights. To strike a proper balance, the WTO agreements provide for several exceptions to trade rules. A similar balance would be required under digital trade rules in the TREC Agreement in order to allow contracting parties to protect their legitimate objectives; however, different weighing and balancing exercises would be required because of the unique nature of conventional trade rules and digital trade rules. The following subsections A to B examine the nature of balance between trade and non-trade values under the WTO agreements, and also under the proposed TREC Agreement.

A Non-Trade Values in Conventional Trade

1 Trade in Goods and Services

The WTO agreements provide for several exceptions to rules on trade in goods. Most importantly, GATT Article XX provides for general exceptions for obligations, which balance trade benefits against the protection of public morals,²⁷ the protection of human, animal, or plant life or health,²⁸ and the conservation of exhaustible natural resources,²⁹ among others. In this regard, the Appellate Body has stated that GATT Article XX “affirm[s] the right of Members to pursue various regulatory objectives identified in the paragraphs of these provisions”³⁰ and “embodies the recognition on the part of WTO Members of the need to maintain a balance of rights and obligations.”³¹

A similar balance is struck between the rights of members to take advantage of trade liberalization in services and the rights of members to regulate in order to pursue legitimate policy objectives. The preamble of the GATS explicitly recognizes that liberalization of trade in services shall be “aimed at promoting the interests of all participants on a mutually advantageous basis and at securing an overall balance of rights and obligations, while giving due respect to national policy objectives.”³² The Appellate Body finds that the GATS shall be interpreted “in consonance with the balance of rights and obligations that is expressly recognized in the preamble of the GATS”³³ and Article XIV “affirm[s] the right of Members to pursue various regulatory objectives identified in the paragraphs of these provisions.”³⁴

2 Intellectual Property Rights

It is worth noting that exceptions in the TRIPS Agreement take a different approach from trade in goods and services. Instead of providing general exceptions, the TRIPS Agreement provides for conditions, limitations, and exceptions for each category of intellectual property. For example, with respect to copyrights, Article 13 of the TRIPS Agreement provides that “Members shall confine limitations or exceptions to exclusive rights to certain special cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the right holder.” Article 30 allows members to “provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.” Additionally, Article 31 provides that “other use” without authorization of the right holder may be allowed under certain conditions.

Disputes may arise between WTO members concerning these limitations and exceptions under the TRIPS Agreement. For example, a WTO member may claim that a limitation to a certain intellectual property right imposed by another WTO member to protect legitimate non-economic interests excessively limits the right of intellectual property right holders of their nationality and thereby nullifies or impairs its own benefits under the TRIPS Agreement. Panels and the Appellate Body can settle such disputes by weighing and balancing the rights and obligations, as they do in disputes involving Article XX of the GATT.

However, disputes concerning limitations and exceptions are also likely to arise between private parties. For example, an intellectual property right holder may claim that the use of its intellectual property by a user without permission infringes upon its right, while the user may in turn contend that its use is justified as a legitimate exception. The settlement of such disputes requires consideration of the balance of interests between private parties rather than members, and the WTO dispute settlement procedures may not be an appropriate forum for such disputes for the following reasons. First, while the TRIPS Agreement requires WTO members to confine limitations and exceptions to certain prescribed circumstances, it does not specify what limitations and exceptions should be justified. It is left to each WTO member to decide the appropriate balance between the interests of right holders and the interests of right users within the limits of the TRIPS Agreement, and to reflect such a balance in its domestic law. Second, panels and the Appellate Body are not well suited to engage in the weighing and balancing of various private interests and judge what should be the appropriate balance within the territories of WTO members. Such judgement should be left to the domestic authorities of members that are closer to the local community. Thus, as stated in Section V, it is reasonable that disputes concerning intellectual property rights protected by the TRIPS Agreement are primarily settled through domestic tribunals.

B Non-Trade Values in Digital Trade

The TREC Agreement under negotiation would provide exceptions similar to Article XX of the GATT and Article XIV of the GATS, with a view towards protecting non-economic interests. In fact, digital trade rules under recently concluded RTAs provide GATT Article XX-type exceptions. For example, Article 19.11 of the USMCA provides that while no party shall prohibit or restrict the cross-border transfer of information, a party is not prevented from adopting or maintaining a measure that is inconsistent with the obligation but “necessary to achieve a legitimate public policy objective, provided that the measure is not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on trade; and does not impose restrictions on transfers of information greater than are necessary to achieve the objective.”³⁵ Disputes arising out of these exceptions may be settled in a manner similar to the settlement of disputes involving Article XX of the GATT, through the weighing and balancing of the right of a contracting party to invoke an exception and the substantive rights of the other contracting parties protected by the proposed TREC Agreement.

However, digital trade rules under RTAs suggest that balance between trade benefits and non-trade values would also need to be sought in different circumstances under the proposed TREC Agreement. First, a measure justified as an exception under the TREC Agreement would impact the interests of a specific private entity rather than the interests of another party. For example, Article 19.16.2 of the USMCA provides that a regulatory body or judicial authority of a party is not precluded from requiring a person of another party to preserve and make available a source code of software or an algorithm expressed in that source code to the regulatory body under certain circumstances, while Article 19.16.1 generally prohibits the parties from requiring the transfer of, or access to, such source code or algorithm as a condition of the import, distribution, sale, or use of that software.³⁶ Specific circumstances under which disclosure of a source code is required would be provided in the domestic law of each contracting party. Disputes involving this exception would require the weighing and balancing of the public policy objectives of a contracting party invoking the exception against the economic interests of a private person who is required to make available its source code, which may not be properly undertaken through the WTO’s inter-governmental dispute settlement procedures.

Second, in some cases, the proposed TREC Agreement would provide obligations, rather than exceptions, to take certain measures to achieve legitimate non-economic objectives. For example, Article 19.7.2 of the USMCA requires contracting parties to adopt or maintain consumer protection laws to proscribe fraudulent and deceptive commercial activities that cause harm or potential harm to consumers engaged in online commercial activities.³⁷ Similarly, Article 19.8.2 of the USMCA requires contracting parties to adopt or maintain a legal framework that provides for the protection of personal information of the users of digital trade.³⁸ Additionally, Article 19.13 of the USMCA requires each party to adopt or maintain measures to limit unsolicited commercial electronic communications.³⁹ These provisions require, rather than allow, contracting parties to restrict digital trade to achieve legitimate non-trade objectives.⁴⁰ It is questionable at best to assume that disputes involving such obligations can be properly regarded as “trade” disputes, and that non-trade policies can be properly examined by panels and the Appellate Body.

V Dispute Settlement

A Conventional Trade Disputes

1 Trade in Goods and Services

The WTO dispute settlement mechanism primarily seeks to redress the loss of benefits suffered by WTO members, the primary stakeholders under the covered agreements. WTO dispute settlement procedures are structured in a manner consistent with this objective. For example, participation in the WTO dispute settlement proceedings is almost⁴¹ exclusively reserved to member governments. According to Article XXIII:1 of the GATT, a WTO member government may bring a dispute to the WTO dispute settlement mechanism if it considers that its benefit under the WTO agreements is being nullified or impaired as a result of violations of the agreements. Moreover, remedies are granted to the complaining member government to the extent necessary to redress the nullification or impairment of its benefits. In accordance with Article 22.4 of the DSU, the level of the suspension of concessions in the case of non-implementation of a DSB recommendation is assessed by considering the level of the nullification or impairment of benefits suffered by the complaining member.

At the same time, special or additional dispute settlement procedures are also provided in the WTO agreements to complement the WTO inter-governmental dispute settlement procedures in order to settle certain disputes directly involving private parties. For example, Article 13 of the Anti-Dumping Agreement requires each member to maintain judicial, arbitral, or administrative tribunals or procedures for the purpose of the prompt review of administrative actions relating to final determinations and reviews of determinations. While anti-dumping disputes may be brought by member governments, on behalf of their exporters and producers, before the inter-governmental WTO dispute settlement procedures in accordance with Article 17 of the Anti-Dumping Agreement, anti-dumping disputes may also be brought before the domestic procedures maintained pursuant to Article 13 by exporters and producers on their own. In fact, many anti-dumping disputes are addressed in domestic proceedings between a private entity targeted by an anti-dumping measure and a member government seeking to impose said measure. The domestic procedures are made available to private entities in light of the fact that they are most directly impacted by anti-dumping investigations and measures, which means that they are de facto principal stakeholders.

The GATS provides for a special mechanism to settle disputes that are triggered by the conduct of service suppliers. More specifically, Article VIII:3 of the GATS authorizes the Council for Trade in Services to request a member establishing, maintaining, or authorizing a monopoly supplier of a service which is allegedly acting in a manner inconsistent with that member’s obligations under the GATS to provide specific information concerning relevant operations at the request of another member. Moreover, Article IX:2 of the GATS provides that a “Member shall, at the request of any other Member, enter into consultations with a view to eliminating” business practices of service suppliers that may restrain competition and thereby restrict trade in services, and that it “accord full and sympathetic consideration to such a request and shall cooperate through the supply of publicly available non-confidential information of relevance to the matter in question.” It “shall also provide other information available to the requesting Member, subject to its domestic law and to the conclusion of satisfactory agreement concerning the safeguarding of its confidentiality by the requesting Member.” These provisions provide WTO members with a special mechanism by which to settle disputes provoked by the conduct of service suppliers rather than that of governments, in view of the fact that the conduct of service suppliers can restrict trade in services.

The special or additional procedures under the Anti-Dumping Agreement and the GATS provide useful guidance as to how digital trade disputes should be settled, as identified in the next subsection.

2 Intellectual Property Rights

Disputes involving the TRIPS Agreement may also be brought before the procedures laid out in the DSU, although the number of TRIPS disputes settled under the DSU is extremely limited. Rather, the domestic procedures within the territories of members play a central role in the implementation of the TRIPS Agreement, because disputes concerning the TRIPS Agreement often involve conflicts of interest between owners and users of intellectual property rights.

Part III of the TRIPS Agreement provides for the extensive obligations of WTO members to ensure that enforcement procedures are available under their domestic law to permit effective action against any act of infringement of intellectual property rights covered by the TRIPS Agreement. These provisions demonstrate a similarity to the Anti-Dumping Agreement, in that private entities are entitled to seek recourse to domestic procedures if their benefits, which are indirectly protected under the WTO agreements, are harmed. The enforcement procedures under the TRIPS Agreement are different from those under the Anti-Dumping Agreement, in that the former covers not only disputes between a private entity and the government, but also disputes between private entities, while the latter deals with disputes brought by a private entity against the government. It should also be noted that domestic tribunals are often better suited to make decisions regarding what limitations and conditions on intellectual property rights are justified, based on an analysis of weighing and balancing, than international tribunals. This is because domestic tribunals possess greater knowledge of the different interests of owners and users within the jurisdiction in question.

B Digital Trade Disputes

The previous subsections have pointed out that digital trade rules in the proposed TREC Agreement will likely differ from conventional trade rules in the WTO agreements in terms of the diversity of stakeholders and the nature of the balance between trade and non-trade values. These differences suggest that disputes arising from the TREC Agreement may take unique forms when compared with conventional trade disputes. More specifically, digital trade disputes can take six different forms, depending on the nature of the involved parties.

First, disputes may arise between contracting parties to the proposed TREC Agreement. Some provisions of the TREC Agreement may provide for the rights and obligations of the contracting parties, and violations of these provisions may trigger disputes between parties. For example, if a contracting party imposes a customs duty on digital trade in violation of the TREC Agreement, another contracting party whose digital product is subject to the duty may bring a dispute against the party imposing the duty. Alternatively, a contracting party may claim that a restriction to cross-border flows of personal data imposed by another contracting party is a violation of the Agreement, while the latter party may claim that the restriction is justified as an exception to achieve its legitimate public policy objective.⁴²

Second, digital trade disputes may also be brought by a business enterprise of a contracting party against another contracting party. Some of the provisions under the proposed TREC Agreement may require contracting parties to protect the interests of enterprises engaged in digital trade. If a contracting party fails to take appropriate measures to do so, it may face a claim by an enterprise, arguing that the contracting party has violated requirements under the TREC Agreement. For example, an enterprise of a contracting party may claim that it is forced to transfer its source code to the government of another contracting party, contrary to obligations under the TREC Agreement. This type of dispute may also arise between an enterprise of a contracting party and its own government.

Third, the government of a contracting party may claim that an enterprise of another contracting party has engaged in unfair digital trade practices. For example, a contracting party may consider that an enterprise from another contracting party is abusing the personal data of its consumers and is therefore violating the obligations of its domestic law, incorporating rules of the proposed TREC Agreement. It could handle the matter pursuant to its own domestic law, but it may also seek to consult with the government of the other contracting party on the matter.

Fourth, digital trade disputes may be disputed between enterprises of different contracting parties if the conduct of an enterprise of a contracting party undermines the digital trade activities of the enterprises of another contracting party. Although many of these disputes between enterprises are commercial in nature, they may involve issues related to the interpretation and application of the proposed TREC Agreement.

Fifth, digital trade disputes may also be brought by a consumer of a contracting party against its own government. As discussed earlier, the proposed TREC Agreement requires contracting parties to protect consumer interests, such as privacy, through domestic laws and regulations. A consumer may claim that his or her government’s failure to do so constitutes a violation of the TREC Agreement.

Sixth, and finally, digital trade disputes may be brought by a consumer of a contracting party against an enterprise of another contracting party when the former considers that the conduct of the latter violates its interests, as indirectly protected under the TREC Agreement. In such cases, the consumer may seek to obtain remedy from the enterprise.

What would be the appropriate form of dispute settlement for such digital trade disputes arising under the TREC Agreement? The first category of disputes is similar to conventional trade disputes and could therefore be dealt with under general trade dispute settlement procedures. The TREC Agreement should provide that the rules and procedures under the DSU shall apply to disputes arising under the Agreement. Nonetheless, some special or additional rules would be needed in order to allow the contracting parties some flexibility in the implementation of the Agreement in light of the novel and evolving nature of digital trade. For example, both developing and developed parties should be given grace periods, during which a contracting party would refrain from using the dispute settlement mechanism. The use of enforcement measures, such as suspension of concessions, should be restricted.

The second category of disputes is similar to certain disputes under the Anti-Dumping Agreement. As in the case of disputes under the Anti-Dumping Agreement, this type of dispute would be best dealt with through the domestic procedures of a contracting party taking measures at issue. To effectively address this category of disputes, the TREC Agreement should require the contracting parties to establish and maintain domestic procedures that are accessible to enterprises. This type of dispute would be principally reviewed under domestic laws and regulations that have incorporated the rules under the TREC Agreement. The TREC Agreement could explicitly require domestic tribunals to apply domestic laws and regulations, in accordance with the TREC Agreement.

The third category of disputes shares some features with certain disputes under the GATS, in that the disputes are triggered by the conduct of private entities. It would be useful for the TREC Agreement to provide consultation procedures, by which the government of a contracting party can request consultations with the government of another contracting party regarding the enterprises of the latter party. The complaining party may also seek to apply its domestic law to a foreign enterprise allegedly engaged in trade-restrictive practices. A cooperative mechanism would be desirable to avoid the excessive extraterritorial application of domestic law.

The fourth category of disputes may be better dealt with outside the framework of the TREC Agreement in light of its commercial nature. Existing judicial and non-judicial procedures employed to handle commercial disputes could also be used to address this category of disputes.

It is essential that the proposed TREC Agreement would be capable of properly settling the fifth and sixth categories of disputes, given the importance of the protection of consumer interests. Principally, these types of disputes should be dealt with through domestic procedures because they are easily accessible to consumers. Domestic procedures are also desirable because domestic courts and tribunals are better suited, when compared with international mechanisms, to make decisions regarding how to weigh and balance the different interests of consumers and enterprises within the jurisdiction of a contracting party. To ensure that domestic procedures function as an effective dispute settlement mechanism for consumers, the TREC Agreement should require contracting parties to not only establish and maintain domestic procedures that are accessible to consumers, but also ensure that domestic laws and regulations are applied in accordance with the TREC Agreement.

VI Conclusion

Are digital trade disputes “trade disputes”? This chapter argued that digital trade disputes will differ from conventional trade disputes, particularly in terms of stakeholders and the balance between trade and non-trade values, reflecting the unique nature of digital trade rules. Effective dispute settlement mechanisms are essential to the successful enforcement of digital trade rules. WTO negotiations on trade-related aspects of electronic commerce should address not only the issue of substantive digital trade rules, but also that of special or additional dispute settlement rules and procedures required to resolve digital trade disputes.