Going Trans-Pacific: Part II

Last month I provided an introduction to the Trans-Pacific Partnership Trade Agreement (TPP), and explained how beneficial this trade agreement is for Canada, given that we have a relatively small country, economically speaking. And with respect to tech and software companies, such as Shopify, Hootsuite or Constellation Software, the TPP contains specific provisions that will assist these businesses in selling their products and services abroad in countries that adhere to the TPP.

One important way the TPP does this is through chapter 14 of the agreement, on electronic commerce. Essentially, the e-commerce provisions foster openness in trade in digital products across borders, while preserving government’s prerogative to legislate regulation impacting cross-border digital trade, so long as the legislation does so without discriminating against foreign businesses, and is the bare minimum to achieve the permissible objective.

No Electronic Customs Duties

More and more trade is being done by the delivery of digital products, typically transmitted over the Internet. Canadian software and content companies, for example, are increasingly making their software, images and other data available to customers by Internet download, rather than by a disc through snail mail or courier. The TPP recognizes this new reality and prohibits member countries from imposing customs duties on these digitally conveyed products. Equally, a member country cannot favour the digital products produced by business enterprises in its own country over those developed by a company located in another member country.

Avoiding this sort of discrimination (sometimes referred to as “most favoured nations” treatment) is the meat and potatoes of trade agreements and chapter 14 of the TPP applies the concept to e-commerce. But, it should be noted, this does not prevent governments from taxing particular activities or formulating regulation. When it does, however, a government cannot do so in a way that favours its own nationals (individuals and companies) over those of another member country.

So, when Desire to Learn (or another Canadian software company) wants to do business in Vietnam, say, it will not be met by a tax, or some other measure, that unfairly prefers a local Vietnamese entity. Equally, however, that discipline will apply to the Canadian government, thereby levelling the playing field when a Vietnamese software company competes against DTL in Canada. That’s the essence of free trade.

Rational Data Centre Locations

Suppose there’s a Canadian software company offering a software and data hosting service. It makes its product available over the “cloud” as a “software as a service,” with its data centre located in Canada. Vietnamese customers (to continue with that example) would merely access the Canadian software over the Internet; in effect, the Canadian software company doesn’t have to have a data centre in Vietnam.

The TPP encourages this sort of rationalization of computing resources by prohibiting a member country from passing legislation that would restrict such open cross-border data flow, subject to a couple of important exceptions. That is, a government can deviate from this open-border approach, but only if it does so to achieve a legitimate public policy objective that, in turn, doesn’t unfairly discriminate against foreign interests (there’s that core non-discrimination principle at work again), and the deviating provision is as minimal as possible under the circumstances (i.e., a government cannot purport to block all trans-border data flows when a narrow restriction will meet the particular non-discriminatory objective).

There is another important exception. The e-commerce chapter of the TPP doesn’t bind governments in terms of the data they hold, or the data held on their behalf. Thus, if a member country decides that certain data held by, or collected on behalf of, the government must be stored in that country, then that is allowed under the TPP. I should add, however, that governments hopefully will exercise this discretion only rarely, after very careful study, because in my experience acting for certain public entities, such a decision typically results in material extra cost to the public entity – and ultimately its citizens – for what are generally dubious benefits.

Facilitating E-Commerce

If a Canadian software company wants to enter into an electronic contract with a customer in Vancouver, it has the comfort that BC law will not deny the enforceability of the contract’s e-signature just because it is in electronic form. However, currently, Canadian companies have no such assurance when dealing with a counterparty in a TPP member country that does not have similar e-signature legislation.

Therefore, it is extremely useful that the TPP requires all member countries to implement an e-commerce law based on the United Nations UNCITRAL Model Law of Electronic Commerce of 1996 (or the more recent one passed by the United Nations in 2005). As it happens, the Canadian federal government and all the provinces and territories of Canada have already done this, so there’s nothing specific for us to do in terms of our e-commerce statutes. But the TPP requires the other member countries that haven’t yet done this to do so. This will help facilitate Canadian companies doing business electronically with customers in those countries.

Equally, the TPP requires member countries to implement rules to accommodate paperless trading, again ensuring that modern, best practices are adopted so companies and other organizations can trade more effectively across borders. This is the sort of measure that doesn’t receive much attention in the press, but that serves to act as an important driver of the frictionless commerce objective we all look for in order to increase trade between member states.

Helping Consumers, Too

The negotiators of the TPP understood well that e-commerce at the individual level – getting people to buy and sell goods and services online – requires them to have trust in the rules surrounding those transactions. Accordingly, the TPP’s chapter 14 requires member countries to implement appropriate consumer-protection legislation. In a similar vein, the TPP mandates member countries to enact reasonable privacy-protection laws. Finally, the TPP calls on signatories to combat SPAM by implementing anti-SPAM legislation.

On all these consumer protection fronts, the TPP calls for action at a relatively high level, leaving it up to member countries to decide the precise parameters of their respective laws. Thus, unfortunately, there will not be perfect harmonization among the different national legal regimes. Nevertheless, by and large, the TPP will foster trust in online commerce, especially among individuals using the Internet to shop and conduct commerce, and this is very welcome indeed.

Now, in Canada, we actually don’t have a lot of work to do to implement the TPP in these e‑commerce consumer-protection areas because, for the most part, over the past 10 to 15 years, we have updated our laws to include coverage in these three vital areas. So, for Canada, the main benefit of the TPP is that the countries of South East Asia will be adopting rules commensurate with those already in place in Canada (and the provinces) on these matters. This is a very important net gain for businesses and consumers in Canada.

Only a Trade Agreement

Some Canadian critics of the TPP say that the agreement doesn’t go far enough — for example, by requiring all member countries to adopt the particular form of legislation on these consumer-protection issues found in Canada.

This criticism is misplaced. We must always remember, when judging the TPP, that is it a trade agreement; it is not an international privacy law convention; neither is it a model law for anti-SPAM legislation. And on that last point, thank goodness the TPP did not mandate a member country to adopt the Canadian CASL anti-SPAM law, because what we have in Canada is now widely recognized to be a sub-optimal legal regime — there is so much that is wrong with the Canadian anti-spam law. It would actually be a great ancillary benefit of the TPP if Canada repealed CASL in favour of a law more even-handed, such as something modeled on the US Can-Spam Act.

Equally, Canada does privacy protection one way, and the Americans do it another way. The TPP does not dictate which way a member country should do it; it simply requires each member country to have a privacy law regime that provides reasonable protection. So the criticism of certain Canadian commentators who are adverse to the TPP misses the point — it’s a trade treaty, not an attempt to harmonize the world’s privacy law. Would it be ideal if the whole world could agree on a regime for privacy and anti-SPAM and other online consumer protection measures? Sure it would. But it’s also unrealistic to see that happening in the foreseeable future.

Therefore, when those of us who support the TPP encourage the new Liberal government to ratify it, we are saying the following: “The search for perfection should not block the achievement of the good.”