There’s still time to reverse the US about-face on digital trade

The United States is a leader in the global digital economy and has long supported rules that underpin its foundations, including a free and open internet. Customers and firms around the world depend on this free flow to engage in commerce and usually don’t pay attention to the origin of a country when they shop online or download an app on their phones. 

Importantly, an open internet removes the impact that geography has on trade, by providing access to a global marketplace of goods, services and ideas, regardless of where an individual lives. 

However, over the years, a growing number of countries have enacted laws and regulations that disadvantage and discriminate against foreign firms and their digital products. The most popular way for countries to engage in digital protectionism is to restrict the free flow of data, which makes it much harder and more costly, if not impossible, for foreign firms and their products to enter a country’s digital market. 

This is one of the reasons why the United States has consistently pushed for the inclusion of enforceable digital trade rules in its trade agreements and at the World Trade Organization. However, the United States walked back its support on some of the major principles it helped develop and in doing so, made the future of digital trade and the open internet more uncertain than ever.

In 2019, 76 WTO members launched negotiations with the aim of developing global rules on digital trade. Up until that point, there were a variety of regional and country-specific approaches that were not always aligned, and members feared that this would lead to fragmentation in internet governance and make it challenging for those unable to navigate the varied landscape of digital trade rules to access economic opportunities. 

Today, 90 WTO members that represent 90 percent of global trade are participating in these negotiations, which they hope to conclude by the end of this year. While the United States is not leading the negotiations, many of the provisions come from existing U.S. trade agreements. Getting these negotiations across the finish line would therefore support both U.S. foreign and economic policy goals.

As WTO members geared up to advance discussions on international digital trade rules last week, the United States made a surprising announcement that it would no longer support provisions that would protect data flows and source code, prohibit data localization and ensure that digital products are not discriminated against. The reason for this about-face, according to one U.S. official, is to balance “the right to regulate in the public interest and the need to address anticompetitive behavior in the digital economy.” 

However, as the Progressive Policy Institute’s Ed Gresser points out, there is no evidence that U.S. support for these provisions “has conflicted in any way with public-interest legislation in the U.S. or elsewhere, or with regulation to protect privacy and security.” In fact, the gold-standard digital trade chapter in the United States-Mexico-Canada Agreement includes substantive exceptions designed to provide for such flexibility, and the administration has been vocal in championing the USMCA as a model trade agreement.

U.S. trading partners were caught off guard. So was the U.S. Congress. Senate Finance Committee Chairman Ron Wyden (D-Ore.) raised concerns about the decision being taken without consultation with Congress and without providing for an alternative policy. He called the action “a win for China” that “directly contradicts [USTR’s] mission as delegated by Congress.” 

Several Republicans also claimed that they were “misled” by the administration, and Reps. Suzan DelBene (D-Wash) and Darin LaHood (R-Ill.) also blasted “USTR’s decision to abandon important, longstanding and bipartisan U.S. digital trade priorities,” arguing that it would provide “more leverage for other foreign powers, including the Chinese Communist Party, to write the rules of the global digital economy.” They are all correct.

With information communications technology and digitally enabled services exports of over $720 billion, the United States has a strong economic interest in supporting digital free trade. A fast-growing market, the digital economy makes up 9 percent of total U.S. output and employs 8 million workers. High-standard digital trade rules are essential for U.S. strategic and geoeconomic interests as well. 

For example, China has argued for what it calls “digital sovereignty” in internet governance and rolled out significant internet regulations that restrict the free flow of data and content online (i.e., the Great Firewall) as well as using forced local data storage to enable surveillance of its own citizens and visitors to China. This approach is directly antithetical to U.S. democratic and market-oriented norms. Since China is part of the WTO negotiations, the U.S. stepping back from advancing high-standard rules makes it much easier for China to pursue its digital agenda unchallenged.

Time has not yet run out to reverse course. While WTO members aim to wrap up negotiations this year, they do not need to settle on the final text of the deal until the trade ministers meet for their major summit next February. The Biden administration has time to reassess its position, not least because there does not appear to be interagency consensus on the issue. In fact, the G7 Ministers’ Statement reaffirms key U.S. digital trade principles as if the announcement from USTR the week earlier did not happen. 

In the meantime, Congress can also take action to define U.S. negotiating objectives for these talks. Earlier this year, Congress passed a bill with broad bipartisan support to outline priorities and establish transparency mechanisms for U.S. trade talks with Taiwan. Congress should do the same here and call on USTR to advance the longstanding U.S. position on digital trade embedded in the USMCA, which passed with overwhelming bipartisan support.

In addition, Congress should write a similar bill for the Indo-Pacific Economic Framework, the Biden administration’s signature trade initiative, where the same digital trade rules are on the chopping block.

Absent strategic and principled pushback from Congress, the United States risks opening up its businesses — both big and small — to discriminatory measures, and unwinding decades of U.S. leadership in the digital economy.

Inu Manak is a fellow for trade policy at the Council on Foreign Relations.