Promoting Trade in Digital Goods and Services with Russia
Tomorrow morning the U.S. Senate Finance committee will markup a bill to permanently normalize trade relations (“PNTR”) with the Russian Federation and Moldova, following the Russian parliament’s vote earlier this month to enter into the World Trade Organization.
One aspect of the proposed mark-up that merits attention is that it would require the USTR to report on barriers to digital trade in Russia. The bill achieves this by amending an existing international review process – the Trade Act of 1974’s so-called “Special 301” review – to also identify “laws, policies, or practices” that “deny fair and equitable treatment to U.S. digital trade.”
The elevation of trade in digital goods and services in this manner is significant. Given the current dominance of U.S. firms in the Internet marketplace, the lack of adequate liberalization in Internet trade disproportionately impairs U.S. economic interests. (This isn’t to say that there isn’t any Internet innovation going on in Russia, however; quite the contrary.)
This step comes at a time when the Russian government will soon begin blacklisting websites determined by Russian government agencies to contain harmful information – which could include U.S.-based services trying to break into the Russian marketplace. In addition to the obvious human rights problems inherent in government restrictions on access to information, blacklists for websites that fail to meet vague domestic content standards are often used as grounds for indiscriminately protecting domestic companies from foreign competitors. (For example, China has targeted American services under its local content laws while leaving untouched Chinese competitors with similar “objectionable” content.) In this manner, Internet restrictions may serve as pseudo-protectionist measures intended to favor local businesses – including businesses that may be more pliant when it comes to vindicating agendas involving information control.
Internet services have provided an important information alternative to state-run television in Russia, and have served as a platform for recent political activism. Because of examples like this around the world, less democratic governments frequently fear the Internet because new communications services can disrupt existing mechanisms for information control, not unlike how they disrupt established hierarchies in the marketplace.
These information-control activities can have significant trade-distorting effects, particularly in powerful emerging economies like Brazil and Russia, which economists have identified as having particularly strong growth potential. In fact, developing markets with an authoritarian streak, such as Russia and China, are ripe markets for exports by U.S. Internet startups.
Ultimately, eliminating trade barriers to digital goods and services exports makes good economic policy. It may well be essential to achieving the Obama Administration’s goal of doubling exports in five years, and it makes sense for the U.S. technology industry, which is finding that many growth opportunities now lie in markets abroad. For these reasons, this relatively short provision in tomorrow’s markup may have very important consequences for promoting U.S. trade in digital goods and services in the future.