USTR Upends U.S. Negotiating Position on Cross-Border Data Flows

On October 29, 2023, the Office of the U.S. Trade Representative (USTR) withdrew United States support for U.S. digital trade negotiating objectives in a meeting of the Joint Statement Initiative (JSI) on Electronic Commerce at the World Trade Organization (WTO). These long-standing objectives include achieving international disciplines that protect cross-border data flows, prohibit data localization mandates, and safeguard U.S.-owned source code from forced disclosure to foreign governments. 

Set out in Trade Promotion Authority and negotiated most recently by the USTR in the United States-Japan Digital Trade Agreement, these objectives for digital trade were approved by Congress by (385–41) in the House and by (89–10) in the Senate in the United States-Mexico-Canada Agreement in 2019. The USTR had once touted these agreements as “most comprehensive and high-standard trade agreements addressing digital trade barriers ever negotiated,” and Congress agrees. Now, basic pillars in U.S. trade policy are being undone.

Q1: What are the fair-trade rules for e-commerce and digital trade under negotiation in the WTO?

A1: From the standpoint of safeguarding U.S. economic interests in the future, the Joint Initiative on E-Commerce is arguably the most important plurilateral negotiating group for the United States at the WTO. Over 80 member states are participating in the talks, including the European Union, China, Brazil, the United Kingdom, and Canada. The negotiations are led by close U.S. allies and trading partners—Japan, Australia, and Singapore—and cover a wide variety of cutting-edge issues fundamental to the smooth functioning of the global digital economy. Language in the draft text, while heavily bracketed, with options for provisions addressing difficult issues, nevertheless reflects the impact of effective U.S. leadership exercised in concert with like-minded allies.

Countries in the JSI have been relatively productive, hashing out language to address less controversial issues, such as harmonized rules for e-signatures, e-contracts, open government data, consumer protection, and unsolicited commercial messages. Despite the slow churn of trade negotiations, bringing along a majority of members of the WTO in a direction compatible with the eventual establishment of new rules for the digital economy marks important progress.

Areas where the United States is historically at loggerheads with Europe, such as data privacy and the definition of personal information, remain outstanding in the JSI negotiation, as they are in other U.S.-EU negotiations. Nevertheless, given the breadth of the JSI WTO negotiations and the profound variations in members’ interests, the totality of progress represented by the JSI text represents a strong win for the United States that now looks to be in jeopardy. U.S. negotiating capital, built up over years of forthright intentions and coalition building with allies in the WTO, has been diminished.

Q2: Where does the WTO stand in the fight to allow duties on exports sold over the internet?

A2: A big-ticket item, with formidable implications for U.S. exporters of digital products and services, is the question of extending the moratorium on duties on electronic transmissions—an issue that will be front and center (in standalone form) at the 13th ministerial being held February 24, 2024, in Abu Dhabi. The majority of JSI participants, including the United States, have favored making the current moratorium permanent. Countries more traditionally opposed to rules for open markets such as South Africa, India, and Indonesia, resist extending the moratorium. 

Q3: How have different stakeholders responded to the USTR’s decision to pull back?

A3: The progressive wing of the Democratic party backs the move. Senator Elizabeth Warren (D-MA), a Senate Finance Committee member, praised the USTR’s decision: “Big Tech lobbyists are trying to use trade deals to undermine the Biden administration’s efforts to promote competition, and it’s welcome news that [USTR] Ambassador Tai is rejecting that effort at the WTO. . . . We need to make clear that digital rules favoring Big Tech monopolies are a non-starter for the U.S. in any trade agreement, including IPEF.” Progressives have contended that United States’ technology champions are using U.S. trade agreements to bend domestic and international digital commerce rules in their favor. Progressives will need to say more about what they mean here.

Other members of Congress from both sides of the aisle have expressed opposition. Senator Ron Wyden (D-OR), Chairman of the Senate Finance Committee, said that the USTR’s decision contradicted the agency’s mandate from Congress and amounted to a “win for China” as it left a negotiating power vacuum that the People’s Republic of China can now fill. Senate Finance Committee Republicans, led by ranking member Mike Crapo (R-ID), stated the USTR “not only failed to consult with Congress before reversing its policy on free data flows, but misled it.” House Ways and Means chairman Jason Smith (R-MO) agreed, adding that “there is absolutely nothing in the Biden Administration’s decision that will benefit American workers.” A National Security Council press gaggle also seemed to reveal interagency disagreement on the USTR’s decision.

Business representatives have been harshly critical of the Biden administration’s decision. The U.S. Chamber of Commerce argued that pulling the United States’ support for data flows will harm both U.S. workers and national competitiveness by unduly burdening technology companies. The chamber emphasized that the digital trade revolution has benefited U.S. businesses “of all sizes and sectors,” and that current digital trade rules stand against a growing trend of worldwide digital protectionism and have inspired landmark U.S. trade deals such as the USMCA and the U.S.-Japan Digital Trade Agreement. Former trade negotiators now working in the technology industry have outlined the potential diplomatic fallout from the Biden administration’s decision, as the U.S. government “now finds itself at odds with allies including the European Union, Japan, the Republic of Korea, Canada, Mexico, Australia and Singapore.”

Q4: How did USTR reach its decision on the pullback?

A4: When USTR made the decision to upend the WTO JSI negotiations, there were no indications that any other agencies with legal authority over trade policy (except perhaps the Justice Department) were consulted. The USTR told Capitol Hill leaders that it was removing its support for the WTO digital trade proposals in order to “provide enough policy space” for debate in the United States. “The United States will withdraw our proposal on non-discriminatory treatment of digital products,” a USTR official said. “It is essential that our approach to digital trade policy is grounded in how it affects our people, both as workers and consumers. We also must ensure that our policy takes into account these regulatory objectives, balancing the right to regulate in the public interest and the need to address anticompetitive behavior in the digital economy.” The fact that a complete turnaround in economically significant trade policy negotiating objectives was executed by a lower-level USTR official in Geneva is not standard procedure.

Curiously, three days later, on October 29, 2023, at the G7 Trade Ministers meeting in Osaka-Sakai, the United States agreed to strong language in support of free data flows: “We reiterate our commitment to the G7 Digital Trade Principles, our support for open digital markets and our opposition to digital protectionism. . . . We recognize the significance of the WTO JSI on E-Commerce negotiations in international rule-making. We are committed to working towards substantial conclusion by the end of 2023. . . . We recognize that unjustified data localization measures have a negative impact on cross-border data flows, by increasing data management costs for businesses, particularly Micro, Small and Medium-Sized Enterprises (MSMEs) and heightening cybersecurity risks.” However, the administration may be turning away from other digital trade negotiations. In a letter to President Biden signed by Senate Finance Committee member Elizabeth Warren (D-MA), Senate Commerce Committee member Amy Klobuchar (D-MN) and others praise the administration for “suspending negotiations on aspects of the Indo-Pacific Economic Framework (IPEF) digital text, that can be used to frustrate privacy, [artificial intelligence], civil rights and liberties, anti-monopoly, gig worker and other digital safeguards that Congress and the administration seek.” To date the USTR has not made a formal statement with regard to digital provisions in the IPEF, although there have been rumors in the press over the last several months that the Biden administration pause digital trade negotiations in IPEF. 

Speaking at the Aspen Security Forum on December 7, Ambassador Tai discussed the reasoning behind her position in the WTO. Her decision to withdraw support for key digital trade provisions, she said, was taken in order not to get ahead of the debate regarding more regulation for technology companies and that innovations in artificial intelligence had been a wake-up call for her.

Conclusion  

The United States is a world leader in digital trade and e-commerce, not only because of digital champions such as Microsoft, Apple, Google, and Amazon. Many MSMEs vault to success by connecting directly with enthusiastic customers in foreign markets. The USTR’s decision to effectively side with foreign governments, companies and NGO groups seeking to encumber the digital lane to economic growth with regulatory “policy space,” is a setback for U.S. economic interests. 

Meredith Broadbent is a senior adviser (non-resident) with the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.