Breaking Down the U.S. Reversal on Digital Trade
In a departure from long-standing U.S. policy on digital trade, the Office of the U.S. Trade Representative recently announced it was pulling back its support for certain e-commerce proposals at the World Trade Organization (WTO) in order to preserve domestic policy space for digital trade regulation. Advocates of the move view these digital trade rules as barriers to regulating the domestic technology industry. Opponents fear the move marks an abandonment of U.S. leadership on setting the rules of the road for digital trade.
Considering the outpouring of reactions from lawmakers and business leaders, Lot Sixteen breaks down the Administration’s decision and what to watch for in the coming months.
Digital Trade = Trade
In today’s world, the digital economy is synonymous with the economy, as commerce is more and more often conducted with the touch of a button. U.S. companies are widely recognized as being leading digital innovators, making the country home to some of the most successful companies in the world that have fueled the nation’s digital transition. Further, a report by the U.S. Chamber of Commerce finds that digital trade touches all sectors of the economy – not just traditional technology companies – allowing the whole economy to prosper. And like all aspects of the economy, the digital economy must be governed by a set of rules to continue driving benefits worldwide.
That’s why a group of economies at the WTO decided to launch the Joint Initiative on E-commerce in December 2017, which aims to establish guiding principles to facilitate and reduce barriers to global digital trade. These negotiations have been ongoing and strive to set rules on areas such as market access, cross-border data flows, nondiscriminatory treatment of digital products, and intellectual property protection, among other areas. The United States, home to a flourishing and innovative digital economy, was right to take a seat at the table and champion global digital rules that will continue this trend.
Changing Course
The U.S. has been a participant in these negotiations since their inception and offered proposals based on provisions found in two existing U.S. agreements – the U.S.-Japan Digital Trade Agreement and the U.S.-Mexico-Canada Agreement. Both were hailed as some of the highest standard digital trade deals in the world and were widely thought to be the model for the U.S. position moving forward. However, the Biden administration has been formulating a different policy stance on digital trade regulation, and at the October 2023 WTO meetings on e-commerce, formally withdrew proposals on data flows, data localization, protection of source code, and treatment of digital products.
The U.S. stated that it is removing support for these provisions in order to preserve domestic “policy space” and allow “debates to unfold” on the impact of various digital trade rules. These considerations include addressing “anticompetitive behavior in the digital economy” – code for targeting competition concerns with large technology companies.
The U.S. digital trade proposals were among the most contentious in the e-commerce talks, and it was far from certain whether they would have been included in any final agreement, making the U.S. move more of a signaling action than a substantive one. And USTR maintains that it still supports the work of the e-commerce negotiations and will remain a member of the talks.
Moreover, despite the trade headlines and public backlash, the move did not come as a complete surprise. For over a year, stakeholders have been pressing USTR to include high-standard digital trade provisions in the trade pillar of the Indo-Pacific Economic Framework (IPEF) to no avail. The WTO announcement all but dashed any hope that remained among stakeholders and trading partners of achieving a robust digital chapter in IPEF.
Meanwhile, the three leaders of the WTO e-commerce negotiations – Australia, Singapore and Japan – are pushing to conclude the negotiations by the end of the year, which would lock in a win for the upcoming WTO Ministerial Conference in February. The co-conveners recognize that the talks will not produce as ambitious an outcome as they would have liked, but they also want to acknowledge the progress on an array of digital provisions the 90+ country participants have made.
Clashing Reactions
On USTR’s side is Senator Elizabeth Warren (D-MA) and progressive advocacy groups. Senator Warren has been leading the charge on the issue in Congress, urging the Administration to rethink its digital trade rules and how they may disproportionately benefit large technology companies and hamstring the government’s ability to regulate the digital economy in the public interest. She, Rep. Jan Schakowsky (D-IL), and other lawmakers sent a letter to the Administration applauding the WTO decision and urging President Biden to go further in replacing “problematic ‘digital trade’ provisions with new language that ensures U.S. regulatory agencies and Congress can counter Big Tech abuses.”
The country's leading business groups reject the claim that U.S. digital trade policy interferes with the Administration’s ability to regulate, arguing that the reason the U.S. hasn’t regulated in these areas is due to a lack of consensus, especially in Congress. Further, they assert that high-standard digital trade rules protect U.S. interests and workers from a rising tide of harmful trade barriers that have cropped up across the globe.
Senate Finance Committee Chairman Ron Wyden (D-OR) and Ways and Means Committee Chairman Jason Smith (R-MO), along with several other lawmakers, blasted the decision in a flurry of statements lamenting the abandonment of U.S. leadership on digital trade and the potential for China to fill the void on the global stage. Wyden’s and Smith’s announcements also expressed frustration over the agency’s level of consultation with Congress on the matter, an issue that has been burgeoning over the last several years.
Bottom Line
It’s vital that the U.S. lead at the standard-setting table in order to get the rules right for U.S. businesses, consumers and workers. At risk is a proliferation of global digital regulations, many of which discriminate against the very firms that made the U.S. a leader in the tech sector and hurt small businesses looking to capitalize on the benefits of digital tools. What’s next for U.S. digital trade policy is murky, but what’s clear is that the rest of the world is marching on.
