The Rise of Artificial Intelligence, Big Data, and the Next Generation of International Rules Governing Cross-border Data Flows and Digital Trade—part I

• Publication year: 2024
• Citation: Vol. 1 No. 2

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Frank J. Schweitzer, Ian Saccomanno, and Naoto Nelson Saika ^*

In this two-part article, the authors discuss the proliferation of barriers to cross-border data flows and the current global legal architecture that governs the digital economy, including current World Trade Organization and trade agreement disciplines applicable to such barriers. This article also addresses new digital trade initiatives and concludes with an outlook regarding ongoing U.S. efforts to negotiate new agreements that aim to strike an appropriate balance between facilitating digital trade and international data flows and preserving the space of governments to regulate in the public interest.

This two-part article is divided into eight sections. This first part contains the first four sections.

The first section provides an introduction and overview of the international rules relevant to cross-border data flows. The second section briefly addresses the emergence of artificial intelligence (AI) as an area reliant on massive datasets that underscores the importance of data flow obligations for inclusion in future trade agreements. The third section identifies various government measures that impede cross-border data flows. The fourth section reviews World Trade Organization (WTO) rules relevant to digital trade and data flows, including the E-Commerce Joint Statement Initiative.

Part II, which will appear in the next issue of The Global Trade Law Journal, will contain the fifth, sixth, and seventh sections. The fifth section discusses current trade agreement disciplines relevant to data flows, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the United States-Mexico-Canada Agreement (USMCA). The sixth section considers new trade initiatives, including the Indo-Pacific

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Economic Framework (IPEF), the U.S.-Taiwan Initiative, the EU's Digital Trade Agreements and implications of the EU's data privacy laws, new digital trade agreements in the Asia-Pacific, and emerging work in other international fora. The seventh section analyzes the U.S. political dynamic, the implications of the lack of U.S. trade promotion authority, and the outlook for pending negotiations. Finally, eighth section contains key takeaways.

Introduction and Overview

Developing International Rules for Cross-Border Data Flows and Digital Trade

Cross-border data flows are integral to the modern economy, enabling communications, financial transactions, access to a vast array of services, efficient manufacturing, medical research, and so much more. Cross-border data flows are even more important now with the rapid growth of new AI applications, which depend on massive amounts of data. International trade rules governing the digital economy have advanced significantly in recent years, facilitating this foundational feature of modern trade and innovation. Agreements like the USMCA, the CPTPP, and the recent emergence of digital-specific trade agreements reflect early efforts by major economies to establish comprehensive trade rules to address barriers to cross-border data flows and trade in digital goods and services.

Enabling and facilitating open data flows between participating parties is likely to remain a core objective of future trade arrangements, but achieving meaningful outcomes could prove difficult. While Western economies have been generally guided by the principle of Data Free Flow with Trust (DFFT), which aims to foster openness in cross-border data transfers between participating nations, there is increasing pressure to balance this with other policy objectives, including privacy concerns, national security considerations, and industrial policy. A wide and diverse range of stakeholders have competing and sometimes overlapping interests related to the collection, storage, analysis, processing, and movement of data. There is no guarantee that new rules will mirror those that came before.

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The trade environment has changed considerably in the years since the early digital trade disciplines were negotiated. New trade initiatives will be influenced by major shifts in U.S. domestic politics, rising geopolitical tensions, an emerging bipartisan focus on U.S.-China relations, supply chain disruptions, and technology advances, including the meteoric rise of AI and accompanying concerns about AI safety. These change agents affect international investment, business strategies, trade flows, and the regulatory calculus for balancing policy objectives and security concerns against the removal of barriers that disrupt commerce and stifle innovation. These debates could slow the development of trade disciplines or even lead to a further bifurcation or fragmentation of the global digital economy. A recent change in U.S. digital trade policy is a prominent example. The United States withdrew its support for proposals at the WTO concerning the negotiation of rules to preserve cross-border data flows, discipline data localization requirements, and prohibit forced transfers of source code, in a striking departure from its traditional leadership on these issues and its position as a major supporter of DFFT.

This article discusses the proliferation of barriers to cross-border data flows and the current global legal architecture that governs the digital economy, including current WTO and trade agreement disciplines applicable to such barriers. This article also addresses new digital trade initiatives and concludes with an outlook regarding ongoing U.S. efforts to negotiate new agreements that aim to strike an appropriate balance between facilitating digital trade and international data flows and preserving the space of governments to regulate in the public interest.

Emergence of Trade Policy for AI

Artificial Intelligence and Its Reliance on Massive Datasets Underscores the Importance of Data Flow Obligations in Trade Agreements and Raises New Questions for Regulators

AI has increasingly attracted political attention in 2023 following high-profile advances in the field, ¹ highlighting both the nascent state of the regulatory environment in which it is evolving ² and the significant role AI may play in future negotiations over

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digital trade and cross-border data flows. ³ AI requires processing massive volumes of data for training and to produce useful insights, reinforcing the relevance of the rules for managing cross-border data transfers. ⁴ AI also relies heavily on other data-intensive cross-border activities that are subject to digital trade rules, including cloud computing services and data collection from the Internet of Things (IoT). Beyond its need for data and digital services, AI development depends on the use of hardware, such as the most advanced semiconductors, which have also been subject to recent trade policy measures. ⁵

Trade agreements that provide for data flows enable the access to information that AI developers need to facilitate the development of the technology and the advancements that will flow from AI. Restrictions on cross-border data transfers could slow AI development by limiting access to training data and important commercial services. Beyond the foundational level of accessing training data, open cross-border data flows also enable access to commercial services and foreign talent. Cloud computing services, for example, provide an important resource for training models and opens the industry to smaller companies that may not have the resources to invest in building their own hardware.

At the same time, the lack of a sufficient regulatory framework raises concerns that are emerging alongside the rapid growth of AI, like the weaponization of AI, misinformation, surveillance, bias, and intellectual property protection. These risks are prompting regulators to look more carefully at how the sector uses data. As regulators consider how developers manufacture, acquire, or use advanced semiconductors, gather data, develop algorithms, and own or utilize the output, any targeted new rules could also have more general implications for cross-border data flows. That wider regulatory system for AI is still under development, as can be seen in the AI Act ⁶ emerging in the European Union and the Voluntary AI Commitments ⁷ recently unveiled in the United States. Managing the tension between openness and risk management in an already globalized industry will present challenges for regulators, ⁸ and international coordination is only just beginning. ⁹ The input and participation of the private sector, and particularly the key technology companies at the center of the AI revolution, will be critical to the creation, operation, and maintenance of emerging international legal frameworks governing cross-border data flows.

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Barriers to Cross-Border Data Flows

Various Government Measures Around the World Increasingly Target Cross-Border Data Flows, Creating New Obstacles to Trade and Competition in the Age of Digital Commerce

The digital economy, which is comprised of both digital goods and digital services, has grown rapidly in recent years. In the United States alone, digital value-added output increased from $1.3 trillion in 2010 to $2.6 trillion in 2022, with digital services such as e-commerce, cloud services, telecommunications, and internet and data services accounting for nearly two-thirds of this total. ¹⁰ International trade in the digital economy has grown at a similar speed. ¹¹ U.S. two-way trade in information and communication technology (ICT) services grew from $90 billion in 2010 to $156 billion in 2022. ¹² Cross-border data flows have played a critical role in enabling this growth, and data volumes have increased exponentially during the same time period. ¹³ Companies continue to increase their reliance on technologies like AI and machine learning, which require access to massive amounts of data. Seamless cross-border access to data will help spur continued economic...