Global digital trade negotiations: The outlook has dimmed but the US has options

First posted on: 

AEIdeas, 16 July 2019

In a symbol of the digital state of mind even among close US allies, a Financial Times columnist recently celebrated the prospects of a “Splinternet.” From a European perspective, he concluded: “[Online], fragmentation can be the best outcome if values and tastes fundamentally differ.” So much for an alliance of liberal democracies on rules for internet trade governance. The divisions are also painfully obvious in ongoing digital trade negotiations.

In turn, trade negotiations represent a subset of the larger emerging conflict over the future of the internet. There are two (and a half) competing worldviews. China is forcefully pushing its vision of an internet governed by rules of nationalism or “cyber sovereignty”, whereby the state controls all elements of the digital structure, including gateways of all information passing to its citizens (viz. the Great Firewall). In China’s case, the digital technology has also been used as a tool of repression, as evidenced by the Uighurs’ experience. The Chinese vision is supported by other authoritarian governments, Russia in particular, but also in part by some developing democratic governments such as India and South Africa, which eschew authoritarianism but are fearful of foreign dominance of their domestic policies.

Defending a more traditional view of a universal internet are the US and a number of other liberal democracies.  They support a multi-stakeholder system, in which governments play a limited regulatory role (privacy, consumer protection) but do not control other aspects of the internet for their own political or economic agendas. The free flow of information and data is the hallmark of this systemic vision.

In recent years, the EU — strongly influenced by local and Europe-wide privacy groups — has adopted what it holds is a “middle way”, which attempts to uphold free market policies while limiting the ability of internet companies to collect and analyse consumer data. Critics argue that the policy is tilted against commercial innovation. The EU position is symbolised — and actualized — by the 2018 General Data Protection Regulation (GDPR). The US currently has no comparable national legislation or regulations.

Digital trade negotiations are playing out on a number of levels.  In one of its most damaging strategic and economic moves, the Trump administration jettisoned the first US digital trade triumph in the 12-member Trans-Pacific Partnership trade pact.  That agreement housed the first formal set of liberal rules for internet trade governance, including mandates for the free flow of data, no data localisation strictures, and no forced use of local technology or services. Fortunately for the US, Japan took the lead in a ratification process that includes the other 11 members of the TPP; it is now in force.

But to its credit, the Trump administration has pursued digital trade rules in the US–Mexico–Canada Agreement (USMCA). The digital chapter in that agreement builds on the TPP language and adds more specific details in the areas of free data flows, data localization, digital services, safe harbour for copyright liability, customs facilitation, and workable privacy provisions. As Sen. Ron Wyden (D-OR), a frequent critic of the administration, has affirmed: “The digital obligations in the new NAFTA [USMCA] should become the model for future agreements”.

That brings us to the WTO, where the outcome is much more clouded. For some years, it has been clear that no full-scale trade round, such as the Tokyo and Uruguay Rounds of past decades, was possible. Increasingly, WTO members have turned to so-called plurilateral agreements under which a subset of WTO members attempt to negotiate advances in particular sectors or on particular issues.

Preliminary discussions began this year at the World Economic Forum’s meeting in Davos, and in the spring the WTO formally launched an e-commerce initiative. At this point, some 77 (of 164) WTO Members have signed up for the discussions that could lead to a plurilateral agreement down the road. China, after initially declining to enter the negotiations, later decided to join; India remains on the outside.

In preliminary position statements, the US has pushed for multilateral rules similar to those it has enshrined in the USMCA, with a heavy emphasis on free data flows, no forced tech transfer, no duties, and no data localisation. On the crucial privacy question, the US stressed the importance of maintaining the free flow of data and urged that “any restrictions on cross-border flows of personal information are necessary and proportionate to the risks presented”.

On the other hand, though the EU backed proposals against data localization, it strongly affirmed its stringent privacy regulations: “Nothing in the agreed disciplines and commitments shall affect the protection of personal data and privacy afforded by the Members’ respective safeguards”. The EU also intends to put forward proposals that would protect its audiovisual sector.

China is very much the outlier, and indeed, most likely entered into the negotiations for purely defensive purposes. While supporting some new technical rules and no duties on electronic transmissions, Beijing made clear that data flows “should be subject to the precondition of security . . . and every Members’ core interests”. In its statement on e-commerce, China emphasised the goal of “internet sovereignty” and reiterated its intention to invoke developing country status regarding whatever e-commerce rules the WTO established.

Given the unpredictable outcome of negotiations in disparate fora, here is a list of priorities for the US.

First, though the Trump administration has often trashed the WTO, it should give high priority to the WTO negotiations for new trade rules for the internet. It should press for early, though not rushed, decisions over the next year. But it should also be prepared to lead a “coalition of the willing” among those WTO members, viz. CTPP nations and South Korea, who might join in a more advanced plurilateral agreement.

Second, as the White House seems determined to continue a less efficient bilateral path for FTAs — Great Britain, Philippines, or Brazil as possibilities — it should demand that a USMCA level e-commerce chapter be included.

Third, the administration should take the lead in having Congress pass a national internet privacy law that would compete with the GDPR. Without such a national policy, the US is defaulting to the commercially damaging strictures of the EU unbalanced approach to privacy. This should be, and to some degree is, a bipartisan issue; but Congress has dawdled and gotten bogged down in ancillary issues such as federal versus states control, definitions of privacy, and new powers for the Federal Trade Commission. Time is running out, but the White House should still mount an effort to work with Congress toward compromises that will produce a bipartisan US stance before the rest of the world.

The “splinternet” may be looming, but the US should still resist this fracturing, first through the WTO negotiations, and if all else fails then leading a smaller group of like-minded countries in defence of an open, balanced set of digital trade rules.