Trade 2.0

Abstract

Where the last century saw the dismantling of barriers to trade in goods, the new century will see the dismantling of barriers to trade in services. Once theorized as nontradable, services now join goods in a global marketplace powered by advances in communications technology. Today, an engineer, accountant, or lawyer can supply her services across the globe without boarding a plane. Less well understood is that cyber-trade encompasses not just the services outsourced to Bangalore, but also the online services supplied by Silicon Valley to the world. Apple, eBay, and Yahoo too are exporters of information services, seeking to become middlemen to the world. Google now earns half of its income overseas. Almost sub rosa, the Internet has become a global trading platform rivaling any history has yet produced. But law developed over millennia for the paradigm of goods is unprepared for trade, version 2.0.

The pressure on law is clear: Antigua challenges U.S. rules barring online gambling; Brazil demands that Google identify hate speakers; an Alien Torts Statute suit charges Yahoo with abetting Chinese torture; and the United States challenges Chinese media restrictions on movie, music, and financial information services. Once we recognize the connections between these disputes, we can begin to form a general theory of cyber-trade. Ricardo’s theory of comparative advantage applies to all trade, whether in goods or in information. Economic theory thus counsels, and international treaties compel, the dismantling of barriers to cyber-trade. Yet, because of its remote nature, it is easy to assert consumer protection to bar online competition. I articulate a principle of technological neutrality to smoke out barriers hiding under this veneer. To flourish, cyber-trade will also require digital analogues to the physical infrastructure for services, from handshakes to courts.

The footloose nature of cyber-trade poses a more fundamental challenge - to law itself. Via the net, service providers can flout local law from afar. This race to the bottom arises from the exploitation of overly liberal regimes, lacking consumer and other protections. A second potential race to the bottom arises from overly repressive regimes, which require service providers to serve as auxiliaries of the authoritarian state. I offer principles to protect local control of global Internet trade without jeopardizing either human rights or the World-Wide nature of the Web.