Digital: Some Initial Thoughts on AfCFTA's Leaked Digital Trade Protocol

I had been holding off on posting anything on the leaked AfCFTA Digital Trade Protocol as I wasn’t clear it represented the actually final version. However, there are some notable elements worth highlighting (and I also saw Simon Lester’s recent comments), so I’ve jotted down some quick thoughts on a few of the provisions of interest.

First, on customs duties on electronic transmissions, the Protocol contains a square-bracketed provision that will depend upon an Annex on Rules of Origin that is still to be adopted:

[Article 5]

[Annex on Rules of Origin]

[State Parties shall adopt an Annex that sets out Rules of Origin for the determination of origin for African-owned enterprises, African digital platforms and African content. Further, the Annex shall define the scope of digital products covered by the Protocol, taking into account the objective to develop an AfCFTA Digital Market, trade in African products, promotion of African firms and use of African digital platforms.]

[Article 6]

[Customs Duties]

1. [A State Party shall not impose customs duties on digital products transmitted electronically originating from other State Parties, subject to the scope and origin criteria that shall be set out in the Annex of Rules of Origin, in accordance with Article 5 of this Protocol.]

2. For greater certainty, Paragraph 1 of this Article does not preclude a State Party from imposing internal taxes, fees or other charges on digital products transmitted electronically originating from other State Parties, provided that such taxes, fees or charges are imposed in a manner consistent with the Agreement.

Article 6 provides the clarification that some have been calling for in relation to the WTO’s moratorium by clearly specifying it applies in relation to “digital products” not just the electronic transmission the digital products travel through. It will also be very interesting to see what kinds of Rules of Origin AfCFTA’s Parties develop. Typically Rules of Origin set tests requiring certain levels of value-add in a Party for products to qualify for preferential tariff treatment. While previous customs duties on electronic transmissions rules (like CPTPP) do only apply to transmissions between Parties, they haven’t differentiated on where the content of the transmission originally came from. If the Rules of Origin for the AfCFTA rule are too complex/onerous that could significantly limit the value of the rule.

Next, the Protocol includes a provision on the non-discrimination of digital products:

Article 7

Non-Discrimination of Digital Products

1. A State Party shall accord no less favourable treatment to digital products created, produced, published, transmitted, contracted for, commissioned, or first made available on commercial terms in the territory of another State Party than it accords to like digital products created, produced, published, transmitted, contracted for, commissioned, or first made available on commercial terms in its territory or that of any other State Party.

2. A State Party shall accord no less favourable treatment to digital products from another State Party than it accords to like digital products from its territory, or that of any other State Party on the basis that the author, performer, producer, developer, distributor or owner of such products is a person of another State Party. This does not apply to subsidies, loans or grants provided by a State Party.

3. Nothing in this Protocol shall prevent a State Party from concluding or maintaining preferential trade arrangements with Third Parties, provided that such trade arrangements do not impede or frustrate the objectives of this Protocol, and that any advantage, concession or privilege granted to a Third Party under such arrangements is extended to other State Parties on a reciprocal basis.

Simon notes that it doesn’t appear that any general or security exceptions apply to the Protocol - so any discrimination for public policy reasons would need to be justified as part of an analysis of the obligation itself.

Paragraph 3 also sneaks in an MFN-esque obligation which appears to be broader than just “digital products” in the title of the article. While stating that the Protocol doesn’t prevent Parties from entering into other FTAs, it also requires any advantages given to third parties to be extended to AfCFTA Parties on a reciprocal basis.

The Protocol also contains cross-border data flow and data localisation provisions:

Article 20

Cross-Border Data Transfers

1. State Parties shall, subject to an Annex on Cross-Border Data Transfers, allow the cross-border transfer of data, including personal data, by electronic means, provided the activity is for the conduct of digital trade by a person of a State Party.

2. For greater certainty, a State Party may adopt or maintain measures inconsistent with Paragraph 1 to achieve a legitimate public policy objective or protect essential security interests, provided that the measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination, or a disguised restriction on digital trade, and do not impose restrictions on transfers of data greater than are required to achieve the objective.

3. In accordance with Paragraph I, the Annex on Cross-Border Data Transfers shall, among others, set out legitimate public policy objectives, how data may be used, restrictions on sharing of data to third parties, including data protection regulations and restrictions that may be applied by regulators.

Article 22

Location of Computing Facilities

1. State Parties shall not require a person of another State Party to use or locate computing facilities in their territories as a condition for conducting digital trade in that territory.

2. For greater certainty, a State Party may adopt or maintain measures inconsistent with Paragraph 1 to achieve a legitimate public policy objective or protect essential security interests provided that the measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on digital trade, and do not impose restrictions on the use or location of computing facilities greater than are required to achieve the objective.

3. State Parties shall encourage and support the establishment and use of computing facilities within State Parties to promote the development of local digital infrastructure and access in line with the objectives of this Protocol.

Again - no general or security exceptions seem to apply so the legitimate public policy objective (LPPO) and essential security carve-outs in paragraph 2 will be doing most of the work to justify any discriminatory measures. Is the use of “for greater certainty…” to introduce these paragraphs a deliberate attempt to suggest there is always a broader underlying right/exception to regulate for LPPOs (see also Article 4 of the Protocol which explicitly sets out a right to regulate as well)?

The Protocol also has a clause on its relationship to AfCFTA and its other Protocols, which brought to mind the recent IELP Blog post on the same issue in the context of the E-Commerce Joint Initiative:

Article 44

Relationship between this Protocol and other Protocols of the AfCFTA

1. This Protocol, as an integral part of the Agreement, shall not derogate from or modify the rights and obligations of the State Parties under the other Protocols to the Agreement.

2. In the event of any conflict or inconsistency between this Protocol and any other Protocol to the Agreement in relation to matters specifically governed by the other Protocol, the provisions of the other Protocol shall prevail to the extent of the conflict or inconsistency.

My initial reaction is it would be strange for the Parties to deliberately intend to render most of the substance of their negotiations inoperative by literally limiting their scope only to existing rights/obligations under the rest of AfCFTA (and the same for the E-Commerce Joint Initiative).

But there is also some history in limiting the scope of certain digital trade obligations by reference to scheduled services/investment commitments. CPTPP carves out all scheduled services/investment non-conforming measures from the scope of the data flow and non-discriminatory treatment provisions (see Article 14.2(6)). RCEP takes the same approach but adopts it to accommodate its positive list services commitments by also carving-out non-scheduled sectors (Article 12.3(4)). Similar carve-outs haven’t been used in other agreements such as USMCA.

I expect that when first agreeing to these ‘new rules’ governments are wary of unintended consequences and taking on unexpected commitments - particularly in the world of market access. As such, these carve-outs and relationship clauses give them reassurance on that front (and also limits the due diligence they need to carry out in terms of current non-compliance - nothing will slow down a negotiation like a market access/reservation negotiation). Of course these clauses also highlight that existing services/investment commitments already contain substantive ‘digital trade rules’ in the form of non-discriminatory requirements.

Lastly, some smaller points of interest:

1. Dispute settlement applies to the Protocol (Article 45);

2. But Parties are given a five year period to ensure they are in compliance (Article 48(4)) - presumably this will also allow the relevant Annexes to be developed, informed by the experience of the Parties implementing the rules;

3. Unlike CPTPP, DEPA and others, there doesn’t appear to be a carve-out for financial services; and

4. The source code provision’s built-in exceptions are similar to USMCA with an additional clarification regarding open-source licenses (interesting that the paragraph 2 exception refers to algorithms - which are part of the substantive obligation in USMCA but aren’t included in paragraph of the Protocol’s source code article):

   

Also, as an aside - I’d note that contrary to claims that digital trade rules are primarily a ‘developed country’/‘Big Tech’ interest or that implementation would be “challenging”, the AfCFTA Digital Trade Protocol suggests that (at least in Africa) developing country governments also see the value of digital trade rules and are ready to start implementing them.