As the World Trade Organization’s (WTO’s) 13th biennial Ministerial conference approaches, many of the world’s eyes will be on the United States, seeking to discern the outlines of a coherent trade policy. They are likely to be disappointed. In the Biden Administration’s short time left to accomplish anything substantive in terms of new rules, a legacy of failed efforts weighs heavily: failure to advance trade rules in the signature regional forum, the Indo-Pacific Economic Framework (IPEF); and failure to advance digital rules among a plurilateral group of like-minded countries in the WTO, two modest initiatives that at least promised substantive outcomes. The result is a trade policy in disarray, tired slogans barely hiding the lack of an affirmative, outward-looking agenda.
For current U.S. trade policy, U.S. firms and their interests in foreign markets appear to be viewed more as a source of a problem than a vector of opportunity. Most puzzling, this is particularly evident in the area of digital trade, an area where U.S. capabilities and leadership have been unsurpassed, and where trade partners have eagerly sought our cooperation in crafting mutually beneficial rules—believing, as the United States once did, that a common framework, built on enforceable rules, enhanced opportunities for all. One would think that economic activity in the United States creating millions of high-quality jobs, world-class innovation, over six-hundred billion dollars in exports and 2.5 percent of the U.S. GDP would qualify for support. In the trade arena, it doesn’t. One would think that trade rules supporting the remarkable promise of AI would be a priority. But they are not.
Even renewing a 26 year-old political commitment not to impose customs duties on electronic transmissions, one of the few commercially-meaningful decisions WTO Ministers are slated to make next week, is now in jeopardy. Since the WTO is a consensus organization, the United States cannot be blamed for its failure, and to its credit, the United States recently voiced tentative support for its continuation. But if detractors like India, South Africa, and Indonesia succeed in killing it, one might conclude that they were emboldened by the sight of the leading architect of trade-liberalizing rules reverting to a single-minded domestic focus, and fearful of any action that could be portrayed as benefiting disfavored technology companies.
The United States once, like most countries, saw trade policy as a principled means of negotiating mutually beneficial export opportunities, but receding from foreign markets and protecting favored domestic industries now seems paramount.
Similarly, where U.S. trade officials once took seriously their mandate under the 1974 Trade Act to investigate barriers, negotiate their removal, and enforce against discriminatory measures, this now seems a quaint relic of the past. In fact, in some cases, it appears that rather than supporting key contributors to U.S, jobs, innovation and growth, the U.S. government is actually encouraging foreign governments to institute measures that put U.S. firms at a competitive disadvantage. As Ambassador Tai noted at a conversation on trade on February 12, “There is an important space that we need to leave for other countries and other partners to be regulating legitimately in the public interest and not to be protecting their own market, when looking at the biggest companies in the world that happen to be American companies.”
This statement might sound innocuous, but for the fact that for many countries, regulating in the public interest is precisely about shielding local firms from foreign competition, even when dressed up as antitrust, consumer protection, privacy, or security. These are all legitimate goals, reflecting important social values. In fact, the United States has pioneered integrating them into trade rules to promote trust in the digital economy. But they are also subject to abuse, and a core function of trade rules is the ability to query the bona fides of governmental action that undermines the ability of companies, big and small, to compete in foreign markets.
One oft-cited rationale for lack of an affirmative agenda is the need for the U.S. to engage in similar public interest legislation and regulation, unencumbered by constraining rules. In a moment of policy change and domestic debate, in this narrative, foreclosing domestic “policy space,” would be, in the phrase of the U.S. Trade Representative, “policy suicide.”
Thus, trade skeptics can point to efforts to craft legislation on privacy and artificial intelligence, enforce competition law more vigorously, or institute new export controls as legitimate reasons for stepping back from an affirmative trade agenda, particularly with respect to the digital economy. But such policy goals are not unique to the United States, and our trade partners have successfully managed to both legislate domestically and negotiate trade rules at the same time. In fact, there is no credible evidence that trade rules negotiated to date would conflict in any way with any legislative or regulatory proposals in these areas now under serious consideration—either because any restrictions contemplated are simply outside the scope of what trade rules cover, or because flexibility built into rules already accommodates regulatory needs.
One unexplained event in the saga of the U.S. trade retreat is the motivation behind the U.S.-orchestrated “pause” ten months ago in negotiations on digital trade rules in IPEF, apparently at the insistence of the DOJ and the FTC. One can presume that their opposition to specific proposals arose from a belief that these rules, based on ministerial-agreed goals that represented longstanding U.S. policy, impinged on their competition enforcement equities. How rules such as guardrails for data flows, prevention of discriminatory requirements to store and process data in specific jurisdictions, or rules preventing discriminatory treatment of digitally-delivered software, video, e-books etc.might have anything to do with competition enforcement is an enduring mystery.
In fact, such rules are, at heart, pro-competitive, as violations of them are typically implemented at the behest of local suppliers, looking to protect their market from foreign suppliers. Thus, several years ago Russia instituted a requirement that electronic devices had to pre-install Russian applications; China has long blocked digital versions of foreign games, books, newspapers and videos; and Indonesia and Vietnam at one point sought to mandate use of local cloud computing services. In all of these cases, the measures proposed or implemented were at the expense of U.S. suppliers.
One criticism of rules aimed at preventing discrimination is that they could be used to shield a company from legitimate competition enforcement action, as the target might claim that enforcement was somehow “discriminatory” – i.e. based on nationality, as opposed to a legitimate regulatory goal. But this argument fails on several counts.
Trade rules, particularly the bedrock non-discrimination principle that is embedded in national treatment for goods and services have co-existed with competition law since at least 1947, when the General Agreement on Tariffs and Trade was established, and since 1994 with the General Agreement on Trade in Services (the GATS). The key manner in which competition enforcement is shielded from frivolous assertions of discrimination is the broad exception applicable to all goods or services regulation, that allow for actions “necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement” (e.g., Article XX d). Competition law falls squarely under that rubric.
The non-discrimination rule for digital products is closely modeled on the national treatment provision of that the GATT, and thus opposing it on the grounds that it could be used as an inappropriate defense is tantamount to rejecting 70 years of well-established precedent that has never resulted in a successful challenge of a legitimate competition enforcement action. Similarly, non-discrimination obligations already apply to service commitments made in the WTO and in FTAs, so a limited rule in IPEF or the JSI would have no effect on that established body of law, which, similarly, would have to be rewritten to achieve the assumed goals being sought.
And why would one do so? It would be foolhardy to preclude the ability to challenge an enforcement action that was simply pretextual, an effort to unreasonably target a foreign supplier whom a competitor, or its government, sought to undermine. Given the pressure many governments face in protecting local suppliers, the risk that competition law may be abused is hardly insignificant.
In any event, where enforcement action occurs in a foreign jurisdiction, a U.S. company’s assertion of discrimination will have little effect unless the U.S. government agrees to pursue the claim against the foreign government, since there is no private right of action under these trade rules. The question for the United States, accordingly, is whether it seeks “policy space” to disregard violative behavior on the part of its trade partners. That is a dubious goal, but also an unnecessary one: since any decision to challenge a foreign measure is entirely in the hands of the U.S. government, “policy space” in this situation is already unbounded.
On the other hand, if the U.S. authorities are seeking to enhance their freedom to pursue enforcement action in the United States against U.S. companies (their clear target, at least in the technology sector), trade rules are irrelevant, as they only constrain how we treat foreign firms, not our own. A U.S. company has no basis to invoke a trade rule to push back against perceived regulatory overreach in its own market.
The U.S. failure to embrace rules supporting data flows and constraining localization are even more puzzling. In recent remarks, the United States Trade Representative has suggested that the data flow rule was a legacy of the early internet, whose key purpose was to facilitate goods trade, and thus not “fit for purpose” in today’s digital economy. That characterization is a striking misunderstanding of history, and disregards the broad-based values embedded in freedom to move data, as an important check on authoritarian suppression of speech.
Trade rules addressing data flows actually preceded the internet, embedded in the original GATS (e.g., in the Understanding on Financial Services and the Annex on Telecommunications). This inclusion reflected a prescient understanding, articulated by the United States, that trade in services cannot occur without moving data cross-border. The Annex on Telecommunications focussed on the ability of telecommunications operators to restrict trade by constraining data flows, a bottleneck for all services that depended on telecommunications networks (i.e., the bulk of cross-border services trade). Similarly, the 1998 WTO moratorium on applying customs duties to electronic transmissions has nothing to do with goods trade: it reflects the fact that in addition to services, tangible products can now be digitized and traded, and thus this specific restriction on data (applying a tariff to it) would upend that burgeoning market, which quickly migrated to the internet.
Rules protecting data flows have also been criticized as simply furthering the power of large technology corporations. It is true that technology companies are beneficiaries of such rules, but given the breadth of suppliers dependent on such functions, seeking to deny benefits to one stakeholder at the expense of all others appears inordinately shortsighted–undermining virtually every sector’s core capability to conduct trade. And, it turns out, the one sector most dependent on the need to move data is not the technology sector, but the entertainment sector, whose films,TV series, and games are some of our greatest exports, and who exist in a robustly competitive market.
Finally, scope to institute privacy legislation is commonly cited as a reason we should not embrace data flow rules. This is an odd assertion on at least two counts. For one, the latest U.S trade agreements, USMCA, the U.S.-Japan Digital Trade Agreement, and before that the Trans-Pacific Partnership all (at U.S. instigation) included binding commitments to protect privacy–an explicit recognition that such goals are compatible with cross-border flows. Second, although the United States lacks omnibus privacy laws and efforts to rectify that deficiency are active and longstanding, most of our trade partners have such laws on the books; and yet those we negotiated with did not hesitate to embrace rules of data transfers. In fact, countries accepting such rules included Canada, New Zealand and Japan, all of whom were judged “adequate” in the EU’s eyes as having met the EU’s stringent privacy standards. Accordingly, if EU-standard privacy protections are compatible with strong data transfer rules, what risk would one posit, embedded in potential legislation, that would be incompatible with such rules? In fact, that proposition has already been stress-tested, since the stringent rules that already apply to health data, children’s data and financial data in the U.S. have coexisted with trade for years, with no evident conflict.
It is worth noting that a big part of the debate about privacy centers on the scope of data can be legitimately collected and commercialized. This is a valid and important debate, but it has nothing to do with cross-border data transfer rules. Such rules do not create a right of collection or commercialization, and strictures already in place, or which could be instituted in the future are outside the scope of what the rule does–allow for the transfer of data that has been legally obtained.
Rather than shy away from international rulemaking, the stronger argument is that we should be doing the opposite: given the global nature of policy challenges, development of international norms, accompanied with guardrails that allow commerce to flourish, will be a superior outcome than regulatory and economic autarky—avoiding a fragmented world that undermines both effective regulation and the innovation that is necessary to sustain any modern economy. Having common guardrails need not undermine regulatory autonomy. Trade rules do not affect whether one can regulate; they affect how – and their goal is not to prevent regulation but to ensure that market interventions do not inadvertently – or deliberately – foreclose legitimate trade and investment opportunities, and the broader interests of both the importing and exporting countries.