Climate change is a looming threat that includes rising sea levels, unpredictable storms, and the destruction of seaports.[1] Island nations are at risk of economic collapse since they rely on ports for almost all their trade.[2] When Hurricane Dorian struck the Bahamas in 2019, the severe storms damaged ports causing a loss of approximately $3.4 billion.[3] Additionally, natural hazards are the costliest for ports in the Philippines, Guinea-Bissau, Dominica, the Northern Mariana Islands, and Guam.[4] Ports have consistently created plans in fifty-year spans, but now, because of the changing environment, this must shift to short-term plans of ten or twenty years.[5]

Ports need to be reconstructed and modernized, but port authorities worry that port congestion will inhibit their ability to do so.[6] One way to circumvent this issue is to implement a streamlined process that minimizes human interaction and allows for ports to remain operational, even during pandemics and climate-related hazards.[7] The Indo-Pacific Economic Framework for Prosperity (IPEF), which includes a goal of building on the resiliency of seaports, could help relieve some of the pressure on coastal states with its inclusion of the digital economy.[8] This blog explores the relationship between the digital economy and global trade and how this relates to the increasing impacts of climate change.

Climate change is causing sea level rise from the melting of glaciers and ice sheets.[9] Warming seawater is also causing the ocean to expand in surface area.[10] Scientists predict that sea levels will rise approximately six inches over the next thirty years.[11] This may seem insignificant, but even a few inches of sea level rise will render old seaports across the world unusable.[12] Moreover, sea level rise for U.S. coastlines is greater than the global average because of other issues such as erosion, the collapse of coastal cliffs, and the pumping of groundwater and oil.[13]

Rising sea levels and unpredictable weather will not only impact people working at trade ports.[14] Most of the world will be affected.[15] Approximately 80 percent of products that are traded worldwide are loaded in seaports.[16] The coffee many people enjoy every morning is based on the efficiency of those seaports. Rice travels into U.S. seaports from Asia, along with Audi cars from Germany. Global supply chains must modernize into a system that prepares for the effects of climate change before it is too late. One strategy that may help alleviate some of climate change’s impacts on trade would be transitioning to digital trade internationally. The category of digital trade can encompass areas such as data localization, cross-border data flows, the expansion of e-commerce for smaller companies, or online piracy.[17]

The Organisation for Economic Co-operation and Development (OECD) explains, “there is no single recognised and accepted definition of digital trade,” but a widely acknowledged description of digital trade is the transactions of goods and services through digital means, which can be delivered digitally or physically and involves consumers, firms, and governments.[18] Inserting internet platforms into global trade means transactions are expanding past borders, which allows businesses to offer new goods or services to a larger range of clients.[19] This is utilized through online platforms and electronic payments.[20]

For example, if a U.S. citizen purchases a book from a store in Spain, the process of providing credit card and delivery information takes place online. Governmental agreements are what allow for this transfer of data, which is also called cross-border data flows. Private enterprises are then involved in the shipment of the book from Spain to the U.S. In short, the transaction between buyer and seller takes place online, the book is delivered physically, and this single purchase involves the consumer, governmental agreements, and private enterprise; this form of digital trade takes place every day. This process reduces the pressure put onto seaports because agreements take a paperless format, and trading vessels can be tracked across the globe, which results in the movement of goods becoming a faster practice.[21]

As of 2021, only 20 percent of the 4,900 ports around the world have established or plan to establish a digital network for their trade logistics.[22] If global supply chain practices were to be standardized, with different standards depending on the type of port, the system would become more efficient, and emissions would be reduced.[23] Minimizing the time necessary for trade also makes it possible to lower emissions because there is more control over transport and port-related emissions.[24] Congestion at ports can be improved with the digitization of trade if online formats monitor the coordination of cargo entering and leaving ports.[25] If congestion is relieved, traffic, along with the emissions associated with it, is better controlled and can be reduced.[26]

The IPEF may be an effective mechanism to move trade onto a digital format, which gives island nations time to modernize their seaports into structures that can withstand the impacts of climate change.[27] The IPEF, led by the U.S., is an open, collaborative agreement supporting a more resilient system of global trade and supply chains.[28] It presents a framework to counter China’s interest in the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).[29] It may be a political strategy, but it hopes to build a connected, resilient, clean, and fair economy.[30] The countries that have signed onto the IPEF are Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, the United States, and Viet Nam.[31]

The IPEF creates four different goals, also called “Pillars,” that explain the steps in attaining an inclusive trade system.[32] This soft law framework will maintain U.S. involvement if the terms continue evolving and their funding remains flexible.[33] The IPEF should not be classified as a free trade agreement, a plan for tariff reductions, or a security pact.[34] The IPEF is a partnership representing 40 percent of the global GDP and represents the global economy’s recovery from COVID-19 and a desire to move towards a resilient and sustainable future.[35]

Pillar I of the IPEF is the section on trade.[36] This segment encourages trade commitments that revolve around a system of investments, economic growth, and the protection of workers.[37] First, it recognizes that labor rights will be protected by existing international law, and workers will be involved in the global trade’s inclusion of the digital economy.[38] This part also pushes for the protection of the world’s biodiversity and investments in clean technologies.[39] Moreover, it emphasizes cooperation and a guarantee to assist in the facilitation of the IPEF’s goals.[40]

Pillar II is the agreement on supply chains.[41] Pillar II adds measures of resiliency, transparency, and cooperation to the existing model of the World Trade Organization (WTO).[42] It also supports the modernization of suppliers, managing information intake, working with private parties to improve digital infrastructure, and the maintenance of border links.[43] A factor that contributes to this addition in the IPEF is that the Indo-Pacific region’s internet users are expected to grow to 3.1 billion by 2023.[44]

Next, Pillar III is an important provision that speaks on lowering emissions and investing in cleaner technology so net zero economies can be an achievable goal.[45] This pillar also recognizes that investing in developing states and their abilities to establish sustainable and resilient infrastructure is crucial, because, as explained before, island nations and low-income coastal states heavily depend on maritime trade to support their economies.[46] They are extremely vulnerable to the effects of climate change, and their inability to repair older port infrastructure creates a moral obligation for wealthier states, such as the U.S., to address this crisis.[47]

Lastly, Pillar IV establishes standards for creating a fair system that benefits every state’s economy.[48] For example, this section states, “We intend to pursue provisions and initiatives that deepen cooperation and collaboration among our respective authorities, including by regularly sharing information among IPEF Partners on implementation progress toward our shared goals.”[49] Specifically, the pillar hopes to implement anti-corruption and tax strategies to improve the flow of commerce and trade.[50]

Further, it is imperative that rules are created, whether regionally or internationally, to accommodate the growing opportunities in the digital economy. This plan can only be successful if it balances the digitization of trade with other areas of policy, including infrastructure, competition, taxation, consumer protection, and data governance because each policy’s execution is dependent on the performance of the others.[51] Using digital technology has improved the process of shipping and made ports more resilient, but there are concerns.[52]

A cyberattack could interrupt trade operations and inflict economic damage on those involved in the supply chain.[53] Yet, a possible solution to cyberattack threats is to integrate transport actors into the digital system.[54] Joseph Hiney, the chairman of Ireland’s Drogheda Port Company, explains, “When ports provide infrastructure and services for vessels, the harbour is responsible of potential risks. This responsibility cannot be outsourced. It should be the same with digital risk management.”[55] In other words, the workers at ports must deal with infrastructure damage or physical hazards, but they should also have the skills and abilities to handle the potential dangers concerning online platforms.

Another concern is that consumers are anxious about the application of consumer protection laws in the context of global trade.[56] In addition, businesses are worried about the process of verifying the legitimacy of parties overseas.[57] The IPEF addresses both trepidations. First, Pillar I states that the agreement hopes to adopt or maintain “competition and consumer protection laws to ensure open, fair, transparent, and competitive markets, including digital markets, and cooperating on competition and consumer protection enforcement and policy issues,” which addresses the need for consistent consumer protection policies and enforcement.[58] To speak on the former point, Pillar II recognizes “that transparency throughout our supply chains in critical sectors can improve visibility into risks and also promote respect for environmental, social, and corporate governance.”[59] This transparency will increase trust in the system and relieve worries associated with international transactions since businesses will be involved in the IPEF.[60]

In conclusion, using regional agreements like the IPEF along with other international soft law, such as the United Nations Conference on Trade and Development’s TrainForTrade[61] port management program or the United Nations Commission on International Trade Law’s Model Law on Electronic Transferable Records[62] (if ratified by more countries), will make it easier for states to reduce emissions because it will create a network of public, private, and international entities working towards efficient port management. Efficient port management then allows for islands and coastal states to build on their ports’ infrastructure, which is necessary to prepare for rising sea levels. Developed nations also have an obligation under this agreement to invest in these states’ sustainable trade practices, which lessens the burden that climate change places on the Global South. Therefore, the IPEF, through its focus on the digital economy, is the type of solution that is needed for issues involving climate change and seaport resiliency.

Author: Mariah Bowman, Acquisitions Editor, Pace Environmental Law Review

[1] Industry Leaders Highlight Urgent Need to Build Port Resilience, UNCTAD (June 15, 2022), https://unctad.org/news/industry-leaders-highlight-urgent-need-build-port-resilience [hereinafter UNCTAD].

[2] Id.

[3] Id.; see Kimberly M. S. Cartier, Seaports Could Lose $67 Billion Yearly From Disasters, United Nations Disaster Risk Reduction (Feb. 2, 2023), https://www.preventionweb.net/news/seaports-could-lose-67-billion-yearly-disasters.

[4] Cartier, supra note 3.

[5] Id.

[6] Id.

[7] Id.

[8] See Press Release, U.S. Embassy Jakarta, United States Participating in Second IPEF Negotiating Round in Indonesia (Mar. 14, 2023), https://id.usembassy.gov/united-states-participating-in-second-ipef-negotiating-round-in-indonesia/ [hereinafter U.S. Embassy].

[9] Rebecca Lindsey, Climate Change: Global Sea Level, Climate.gov (Apr. 19, 2022), https://www.climate.gov/news-features/understanding-climate/climate-change-global-sea-level.

[10] Id.

[11] How Rising Sea Levels can Impact Port Resiliency – and Your Morning Coffee, Stantec (Apr. 7, 2021), https://www.stantec.com/en/ideas/content/blog/2021/how-rising-sea-levels-can-impact-port-resiliency-and-your-morning-coffee.

[12] Id.

[13] Lindsey, supra note 9.

[14] UNCTAD, supra note 1.

[15] Id.

[16] Id.

[17] Alex Lawson, US Opens New Trade Forum as Questions Swirl Over Scope, LAW360 (May 23, 2022, 6:24 PM), https://www.law360.com/articles/1495766?scroll=1&related=1.

[18] Digital Trade, Organisation for Economic Co-operation and Development, https://www.oecd.org/trade/topics/digital-trade/ (last visited Mar. 31, 2023).

[19] Advantages of Digit. Immersion in Int’l Trade, Brigard Urrutia (Aug. 29, 2022), https://bu.com.co/en/insights/noticias/advantages-digital-immersion-international-trade [hereinafter Brigard Urrutia].

[20] Id.

[21] Id.

[22] Sam Chambers, 80% of Ports Missing Out on the Benefits of Digitalisation, Creating Last Mile Risks, Splash247.com (Feb. 2, 2021), https://splash247.com/80-of-ports-missing-out-on-the-benefits-of-digitalisation-creating-last-mile-risks/.

[23] Francois-Xavier Delenclos et al., To Get Smart, Ports Go Digital, Boston Consulting Group (Apr. 11, 2018), https://www.bcg.com/publications/2018/to-get-smart-ports-go-digital.

[24] Matthew P. Goodman & William Alan Reinsch, Filling In the Indo-Pac. Econ. Framework, CSIS: Ctr. for Strategic & Int’l Stud. (Jan. 26, 2022), https://www.csis.org/analysis/filling-indo-pacific-economic-framework.

[25] Delenclos, supra note 23.

[26] Id.

[27] Press Release, Off. of the U.S. Trade Rep., The Indo-Pac. Econ. Framework for Prosperity: Biden-Harris Administration’s Negotiating Goals for the Connected Econ. (Trade) Pillar (Sept. 23, 2022), https://ustr.gov/about-us/policy-offices/press-office/press-releases/2022/september/indo-pacific-economic-framework-prosperity-biden-harris-administrations-negotiating-goals-connected [hereinafter U.S. Trade Rep.].

[28] Id.

[29] Su-Lin Tan, The Indo-Pac. Econ. Framework: What it is – and Why it Matters, CNBC (May 25, 2022, 10:05 AM), https://www.cnbc.com/2022/05/26/ipef-what-is-the-indo-pacific-framework-whos-in-it-why-it-matters.html.

[30] Id.

[31] Id.

[32] U.S. Trade Rep., supra note 27.

[33] Id.

[34] Id.

[35] Id.

[36] Ministerial Statement for Pillar I of the Indo-Pac. Econ. Framework for Prosperity, https://ustr.gov/sites/default/files/2022-09/IPEF%20Pillar%201%20Ministerial%20Text%20(Trade%20Pillar)_FOR%20PUBLIC%20RELEASE%20(1).pdf [hereinafter Pillar I].

[37] Id.

[38] Id.

[39] Id.

[40] Id.

[41] Ministerial Statement for Pillar II of the Indo-Pac. Econ. Framework for Prosperity, https://www.commerce.gov/sites/default/files/2022-09/Pillar-II-Ministerial-Statement.pdf [hereinafter Pillar II].

[42] Id.

[43] Id.

[44] Id.

[45] Ministerial Statement for Pillar III of the Indo-Pac. Econ. Framework for Prosperity, https://www.commerce.gov/sites/default/files/2022-09/Pillar-III-Ministerial-Statement.pdf [hereinafter Pillar III].

[46] Id.; Cartier, supra note 3.

[47] Cartier, supra note 3.

[48] Ministerial Statement for Pillar IV of the Indo-Pac. Econ. Framework for Prosperity, https://www.commerce.gov/sites/default/files/2022-09/Pillar-IV-Ministerial-Statement.pdf [hereinafter Pillar IV].

[49] Id.

[50] Id.

[51] Goodman & Reinsch, supra note 24.

[52] UNCTAD, supra note 1.

[53] Id.

[54] Id.

[55] Id.

[56] What is ‘the Digital Economy’ and ‘Digital Trade’?, N.Z. Foreign Affs. & Trade, https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-in-force/digital-economy-partnership-agreement-depa/what-is-the-digital-economy-and-digital-trade/ (last visited Mar. 31, 2023).

[57] Id.

[58] Pillar I, supra note 36.

[59] Pillar II, supra note 41.

[60] Id.

[61] See TRAINFORTRADE, https://tft.unctad.org (last visited Feb. 19, 2023) (“[T]he programme creates port networks bringing together public, private and international entities. The aim is to share knowledge and expertise between port operators and strengthen talent management and human resources development in port communities.”).

[62] See UNCITRAL Model Law on Electronic Transferable Records (2017), https://uncitral.un.org/en/texts/ecommerce/modellaw/electronic_transferable_records (last visited Feb. 19, 2023) (“The MLETR builds on the principles of non-discrimination against the use of electronic means, functional equivalence and technology neutrality underpinning all UNCITRAL texts on electronic commerce.”).