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That is why we must approach digital trade policy with thoughtfulness and wisdom so that we pursue growth that is inclusive, fair, sustainable, and advances the quality of life of human beings.
 
Trade policy sits at the intersection of domestic and foreign policy, so the policies we develop must be calibrated with our broader agenda.  But we have seen over time that trade policy becomes unsustainably fragile whenever it becomes detached from the issues facing ordinary working people. 
 
At USTR, we are putting workers at the center of our trade policy – and thinking about how our work will impact their day-to-day lives.  And second, we are creating durable trade policies that work in concert with our domestic economic and foreign policies.  This is key to building broad-based support for our work among all of our stakeholders – and creates the foundation required for steadfast U.S. leadership in the global economy.
 
What does this mean for digital trade?
 
It is important to recognize that there is no bright line separating digital trade from the digital economy – or the “traditional” economy for that matter.  Nearly every aspect of our economy has been digitized to some degree.  Our efforts to formulate and pursue digital trade policies should, therefore, begin with a high level of ambition to be holistic and inclusive.
 
Despite their expansiveness, there is not an agreed definition of “digital economy” or “digital trade.” 
 
But the general consensus seems to coalesce around the notion that the digital economy comprises economic activity generated by the marriage of an ever-greater, distributed computing power, and ever-faster transmission networks. 
 
This includes:

1. Infrastructure: fixed and mobile telecommunications networks, including 5G, and large-scale data centers;
2. Platforms: these are the services, based on cloud computing, that allow suppliers to interact with consumers and businesses globally; and
3. Applications: both tools that end-users need – for example, word-processing, inventory management, and accounting software, as well as direct-to-consumer products, such as e-books, videos, and games.

There are a few key topics that arise whenever we talk about the digital economy, including:

• A high degree of mobility, and how technology reduces the relevance of borders;
• Concerns about data, including privacy and security;
• How governments balance accountability, freedom, innovation, and growth;
• The concentration of power and how that affects the interests of small- and medium-sized businesses; and
• Energy and resource needs in the context of sustainability.
   

Around the world, we see different responses across governments to similar digital challenges.  Embedded in those responses are varying societal and political values, including authoritarian instincts that are deeply incompatible with our tenets and principles.
 
I mentioned earlier that USTR wants to develop durable trade policies.  But with technology and our digital economy constantly evolving, achieving durability requires us to prioritize flexible policies that can adapt to changing circumstances. 
 
We’ve seen what happens when trade agreements and trade policy become outdated and fail to address modern challenges.  By maintaining flexibility in our digital trade policies, we can ensure they remain resilient and long-lasting.
 
I also believe that our approach to digital trade policy must be grounded in how it affects our people and our workers.
 
We must remember that people and workers are wage earners, as well as consumers.  They are more than page views, clicks, and subjects of surveillance.  They are content creators, gig workers, innovators and inventors, and small business entrepreneurs.
 
This means they have rights that must be protected – both by government policy and through arrangements with other governments.
 
On the other side of the equation, we must also recognize that our technology companies are not just innovators and service providers.  They are also forces changing the nature of our lived experiences and our society.  It is not hyperbole to say that these companies have the power to affect the lives of people and the direction of our civilization’s development.
 
That power requires responsibility and accountability.  And these stakeholders have responsibilities in shaping the digital economy.
 
Cybersecurity is an illustration of this challenge.  Companies and individuals both benefit from digital technologies – but the data they store and process puts both them and their consumers at significant risk of attack by criminal and state actors, often from abroad. 
 
Companies may face a prisoner’s dilemma – will they invest in cybersecurity protection if their competitors gain a price advantage by not making that investment?  How can governments and businesses work together to address this pernicious threat? These goals are not just about national security, but global security.
 
While these are important ideas – corporate accountability in our tech sector, protecting the rights of consumers – we must acknowledge there is a trust gap and ask whether we have adequately designed digital trade rules to meet the needs of ordinary people. 
 
We must overcome the trust gap, particularly for workers and consumers – and recognize that the digital economy should also address sustainability concerns.
 
As we think about digital trade policy, we are asking big and consequential questions at USTR that will guide our approach, including:

• How do we ensure that our digital trade agenda supports our broader national security interests, for example with respect to physical infrastructure, cybersecurity, and reliable semiconductor supplies?
• How do we ensure our digital trade agenda works hand-in-hand with our other domestic and foreign policies, while maintaining flexibility for future challenges?
• How can we work with our allies on issues like artificial intelligence in a way that safeguards economic security for workers while protecting democracies against external threats?
• How can we balance the right of governments to regulate in the public interest, with the need for rules that guard against behavior that discriminates against American workers and businesses?

There are no easy answers to these questions.  But if our starting point is a desire to put people at the center for our policies – as it has been for our entire trade agenda since I was sworn in – then the outcomes we reach can be more inclusive and responsive to their needs.
 
The imagination of our artists and story tellers have often illustrated our hopes and anxieties about technology and where it will lead us.
 
Recently, I re-watched the Pixar film “WALL-E.”  It tells the story of a rusty robot named WALL-E who cleans up trash alone on an environmentally devastated and uninhabitable earth. He encounters a modern robot named EVA, sent from a faraway spaceship where humans have taken refuge.  Her mission is to look for signs of life on earth.
 
The movie features relevant themes about the threats our way of life poses to sustainability, the displacement of workers and future of work, and a struggle of wills between technology – in the form of robots and AI – and humanity. 
 
But it is ultimately a tremendously hopeful story about love, inclusiveness, and resilience. 
 
People are rightfully concerned about the future of technology and how it will impact their lives and livelihoods.  But there is a lot that we can and should do to address those anxieties, to guide the development of the digital transformation in a positive direction.
 
Governments and policymakers cannot lose sight of the needs of our people and our collective humanity.  And we therefore must approach our work on digital trade with thoughtfulness, deliberation, and care.
 
It is particularly important that our approach includes students, like the ones here today, because you represent the most technologically sophisticated generation in history.  And I suspect that you will be the ones with the most open and creative minds that we will need to address many of the policy questions that we face. 
 
The challenges around digital trade policy will not be solved overnight; it begins with conversations like this. 
 
So, let’s dive in.
 
Thank you.

To read the Ambassador’s full remarks, please click here.

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Although positively received by a wide range of countries which recognize the potential economic and social benefits of enabling a greater cross-border flow of data, it is not easy to introduce common legal frameworks to ensure DFFT. Countries often have varied domestic and regional legal frameworks due to different concepts of privacy or data security.

The G7 did put digital policy at the centre of its 2021 agenda, discussing broad digital and technology shifts from physical infrastructure such as 5G, future communication technologies, and technical standards to soft infrastructure, such as rule-making on data flow and internet safety principles. And one notable outcome was the establishment of the G7 Roadmap for Cooperation on Data Free Flow with Trust at the G7 Digital and Technology Ministers’ meeting in April 2021 – also endorsed by two of the G7’s guest countries South Korea and Australia.

But despite shared democratic values of open and competitive markets, strong safeguards for human rights, and fundamental freedoms, the G7 and its partners have different ideas on how best to approach DFFT, and so greater UK-EU-Japan policy coordination to overcome any inconsistencies in approach can play a key role.

UK using soft power

Brexit gave the UK an opportunity to refresh its approach to DFFT, having previously adhered to the European Union (EU) general data protection regulation (GDPR). The UK’s Integrated Review of Security, Defence, Development and Foreign Policy has since set out a number of priority actions, such as promotion of the international flow of data to enable secure, trusted, and interoperable exchange across borders.

The UK is clearly trying to use its ‘soft power’ by establishing regulatory influence – as well as including data flows in trade deals, it is making ‘adequacy decisions’ with priority countries deemed to have suitable and robust safeguards of data. The UK-Japan comprehensive economic partnership agreement (CEPA) – the UK’s first post-Brexit trade deal – includes bans on unjustified restrictions of cross-border electronic information transfers for business purposes, and on unjustified requirements to use or locate computing facilities in the countries in which business is conducted (this is known as ‘data localization’, a barrier to the free cross-border flow of data).

These changes mark a huge step-up from the arrangements made under the earlier EU-Japan trade deal, but it remains to be seen how the UK will adopt DFFT frameworks with broader trade partners in Asia, including via the CPTPP.

The G7 Roadmap – which the UK will lead – aims to deliver tangible outcomes on digital policy while being mindful of harmonization with the efforts of other international forums such as the G20 and Organisation for Economic Co-operation and Development (OECD). But if the UK coordinates this harmonization effectively, expect the global formation of a DFFT area to expand dramatically.

Japan’s contribution to DFFT

Japan is another key leader of DFFT and it maintains a rigorous domestic personal data protection and privacy framework which the EU, with its own privacy protection regime considered the toughest in the world, recognizes as adequate to allow data sharing between the two parties.

Japan has also expanded its area of free data flow through trade agreements, incorporating similar provisions to those of the UK-Japan CEPA in the Japan-US digital trade agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The Regional Comprehensive Economic Partnership (RCEP) – the world’s largest free trade bloc of which Japan is a member – has also introduced frameworks for the free flow of data and a ban on data localization, but these frameworks are not as rigorous as those Japan has agreed elsewhere. Implementing parties may decide to ban data flow or enable data localization in exceptional circumstances that other parties are not allowed to dispute – this has generated concern over potential deviations from the original aims of the DFFT framework.

More broadly, there is also often ambiguity over what actually constitutes international standards and principles on data protection which can result in the implementation of slightly different legal frameworks between agreements. For Japan, the ability to set common frameworks with some flexibility has contributed to its engagement with a wider range of parties, including China, in the field of free data flow. But the development of truly common international standards on data protection remains imperative and the challenge of how best this can be advanced through discussion in the international arena continues.

Outside of trade deals, Japan participates in APEC Cross-Border Privacy Rules (CBPR), a government-backed data privacy certification which companies can join to demonstrate compliance with internationally-recognized data privacy protections. The CBPR System implements the APEC Privacy Frameworkendorsed by APEC Leaders in 2005 and updated in 2015.

EU’s rigorous GDPR protection

The EU has supported the UK in leading the G7 to a consensus on international rule-making regarding free flow of data. Using its rigorous GDPR, the EU has cautiously examined the legal frameworks of each of its trade partners and, where necessary, required additional reinforcements to ensure their laws reach a similar level.

So far the EU recognizes only 14 countries – including Japan – as providing adequate protections, although it is in the process of finalizing arrangements with South Korea and the UK. Although this approach secures the same level of protection as cross-border data flow, it takes a much longer path to realize the free flow of data.

The EU-US privacy shield adopted in July 2016 provides another path for transferring data between the two economies as it allows the free transfer of data to any companies certified in the US which adhere to the Privacy Shield Principles issued by US Department of Commerce. The advantage is this does not require reform to the entire legal system but is still able to maintain a level of privacy protection acceptable to the EU.

However, in its judgment of 16 July 2020 the European Court of Justice ruled the Privacy Shield invalid, underscoring the EU’s strict approach to personal data protection and the protection of individual rights. This has created barriers to data transfer between the EU and US which carry important consequences not only for trade but also for law enforcement and national security, and the US hopes to consult with the EU about this.

Despite differences in approach between the UK, EU, and Japan, they do share a common view that data can harness economic prosperity in a digital society. Ultimately the goal is to propose a set of packages to enable secure cross-border free flow of data, including considerations of how it can be regulated in practice across trade and other agreements.

It could be worth examining whether an APEC CBPR-type mechanism could be applicable to Europe. Although not an easy task – particularly given restrictions faced by the EU – increased UK-EU-Japan policy coordination could help identify a realistic balance between free data flow and privacy protection. Collectively, they are capable of creating innovative mechanisms to enable the world to realise DFFT much more quickly and securely.

Hiroki Sekine is visiting fellow with the Asia-Pacific Programme at Chatham House. He was director of the policy and strategy office for financial operations at JBIC from July 2016 until June 2019 and, most recently, senior advisor to the corporate planning department at the Japan Bank for International Cooperation (JBIC).

To read the full commentary from Chatham House, please click here.

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Transatlantic Data Flows in  Disarray   

Transatlantic data flows  have been in disarray  since the European Court of Justice’s decision last July to invalidate the Privacy Shield. The Court’s ruling in the “Schrems  II”  case  centered on European concerns about U.S. government access to  personal information, not  on  U.S. consumer privacy protections. U.S. businesses have nonetheless found themselves in the middle of a dispute between the U.S. Government, whose  lawful surveillance  practices  keep Americans and Europeans safe from shared threats to our security, and European privacy regulators insistent on a fundamentalist reading of the Court’s ruling. The Biden Administration’s decision to appoint a seasoned privacy leader as  its  chief negotiator, together with a joint U.S.-EU statement in March that talks were “intensifying,” offered  hope that a successor agreement was in sight.   

Europe’s Privacy Regulators are Changing Facts on the Ground  

As negotiations  drag on, however, U.S. businesses are facing  the  very real  specter of  forced  data localization in Europe.  A ruling on May 14 by the Irish High Court against Facebook  means that the Irish Data Protection Commissioner may be one step closer to invalidating  the use of  standard contractual clauses, a legal tool used by 90 percent of companies to transfer data out of Europe.  Meanwhile,  smaller companies  are already seeing their access to the market disrupted. In April, Bavaria’s data protection authority ordered a German fashion magazine to discontinue using Mailchimp, because the Atlanta-based newsletter service transferred European email addresses to the United States. Weeks later, Portugal’s national statistics authority was ordered to immediately stop using Cloudflare, because the San Francisco company’s terms of service did not guarantee that it stored and processed European personal information  exclusively  in Europe.  

With vocal support of the European Parliament, the EU’s privacy regulators are embracing forced data localization.  Last year, the EU’s  caucus of privacy  enforcers, the European Data Protection Board, issued draft guidelines to implement the  Schrems  II decision. The Board went well beyond the Court’s ruling, proposing to  ban  companies in the EU from using U.S.-based cloud or software services and  entirely  cutting off U.S. services exporters’ access to commercially meaningful data. While the Board is currently bodog online casino finalizing  its  guidelines, privacy regulators are already citing them in  enforcement actions against U.S. companies.  Importantly, neither Chinese nor Russian companies, nor EU data transfers to these jurisdictions, face  this  kind  of  scrutiny.  No doubt China’s state-backed and heavily protected tech giants see  a business opportunity. For American businesses and the U.S. government, there are now legitimate and intensifying questions as to why European regulators seem more inclined to grant better treatment to Chinese and Russian tech companies than their U.S. counterparts. 

Protecting American Commercial Interests in Europe  

A new Privacy Shield will ward off the worst threats of data localization.  Absent a deal, however,  European regulators are changing facts on the  ground,  threatening to undermine U.S. economic interests—and transform Europe into a digital island.  In 2019, the U.S. exported more than $245 billion in digitally enabled services to Europe, double what it exported to the entire Asia-Pacific  region. This trade  supports  millions of good paying U.S. jobs  and is key to  U.S. competitiveness in the data-intensive industries of the future. Transatlantic data transfers  enable  an array of essential activities, including  multi-country clinical trials  for innovative medicines  such as COVID-19 vaccines, cybersecurity threat information sharing, and anti-fraud and anti-money laundering efforts.  

Supporting U.S. digital trade exports has long been a priority of  U.S. policymakers on both sides of the aisle.  Leaders  in Congress and across U.S. administrations have  pushed  back against discriminatory digital services taxes levied against U.S. companies  in Europe and beyond. The U.S. business community is eager to see  a revitalized transatlantic partnership. However, advancing a shared digital economy and trade agenda  will prove exceedingly  difficult if the U.S. is considered a singularly untrustworthy destination for EU personal information. In lieu of a swift conclusion to the Privacy Shield negotiations,  U.S. policymakers  may need to act to protect American commercial interests  in  Europe.   

Evangelos Razis is Director at the U.S. Chamber of Commerce’s Center for Global Regulatory Cooperation. He serves as policy lead for the U.S. Chamber’s work on digital trade and global data privacy and artificial intelligence.  

To read the full commentary, please click here.

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As President-elect Joe Biden prepares to take office, trade policy may be primed to recede to the background. The incoming administration isn’t likely to continue waging many of the trade conflicts Trump has initiated—especially the trade spats targeting our allies—but neither will the liberalization locomotive be back in full gear: Today, neither party is especially enthusiastic about negotiating sweeping new trade agreements. As a pair of popular trade policy podcasters put it, Biden is primed to “Make Trade Boring Again.” And overall, that might be a good thing.

But there is at least one area where the incoming Biden administration should launch new, ambitious negotiations: digital trade. Digital trade is about goods and services being bought, sold, and delivered electronically. It’s a U.S. cybersecurity company helping protect a Finnish company’s networks; it’s a Brazilian farmer getting real-time insights on weather conditions and agricultural markets from a Japanese data analytics company; it’s a factory on the shores of Lake Erie sending streams of data around the world so that artificial intelligence can identify maintenance issues before anything breaks down. The United States is the world’s leading exporter of services—more and more of which are delivered digitally—so the commercial value of an open, global internet and a fair, global market for such services should be obvious.

A forward-looking digital trade agreement would guarantee that all these services and more can compete internationally—and that the data upon which they depend can flow freely across borders. Successfully negotiating such an agreement with a large group of trading partners would be a boon to U.S. businesses and workers, and there is every reason to believe it would be a political winner on both sides of the aisle.

What is more, it would also advance the geostrategic interests of the United States. An agreement that helps ensure the global digital economy defaults toward free commerce, the free exchange of ideas, and the free flow of data will help the United States and its allies confront and compete with China. At home, the Chinese government has implemented a top-down, repressive model for controlling the internet. And it has used negotiations, influence, and raw power to advocate this model overseas—seeking to build a coalition of countries with separate, sovereign internets characterized by greater government control over information—in order to validate its domestic approach and enhance its global influence.

The campaign is working: Governments around the world have followed China’s lead by restricting the free flow of information, blocking online services, and fragmenting the internet along national boundaries. Earlier this year, Freedom House documented a 10^th consecutive year of decline in global “internet freedom,” and the U.S. trade representative cataloged an ever-growing list of barriers to digital trade. It is not enough for the United States to play defense against these efforts—the Biden administration should advance a proactive strategy to ensure an open, global internet with rules that are rooted in democratic values.

One of the most effective ways the Biden administration can pursue this goal is by negotiating enforceable rules and commitments on digital trade that bind together a large group of countries with shared values and common interests. A digital trade agreement should be built around rules that guarantee the free flow of data, prohibit data localization requirements, and ban unfair policies that discriminate against foreign digital products and services.

The fruits of a digital trade agreement wouldn’t just accrue to giant tech companies: Digital trade is fundamentally about the cross-border movement of data, and businesses big and small, across a wide range of sectors need to move data across borders to reach customers, operate efficiently, and compete globally. To help ensure they benefit, a digital trade agreement should also include commitments by governments to allow service suppliers to access foreign markets and compete on a level playing field. Establishing a large open market for service suppliers would help counteract the unfair advantages China provides its own firms.

Over the past three years, a growing group at the World Trade Organization has been negotiating on digital trade. Many countries have engaged in good faith, but the participation of China, Russia, and other authoritarian governments makes a useful outcome unlikely. China, for one, has used the negotiation to advocate its “internet sovereignty” and oppose meaningful rules on core issues. This negotiation has, however, highlighted broad interest in defining rules to govern digital trade, including among many countries that share the United States’ democratic values.

A digital trade negotiation should be open to any government that shares a genuine interest in a free, fair, global digital economy and a willingness to abide by enforceable, high-standard rules. This inclusiveness will help ensure that the agreement expands the bloc of countries committed to liberal digital governance, rather than ceding large swaths of the globe to China’s influence. The negotiation toward a “Trade in Services Agreement,” which stalled in 2016, could provide a useful foundation for negotiations and good starter list of countries that may be eager to engage.

While a digital trade negotiation would avoid some of the trickiest areas in trade, such as agriculture and intellectual property, the intersection between cross-border data flows and data privacy has proven contentious in previous negotiations, such as the discontinued Transatlantic Trade and Investment Partnership negotiations between the United States and European Union. But that is no reason to avoid the issue. In fact, negotiators should aim to go further than past agreements and set standards for the protection of consumers and their personal data. Ensuring effective and compatible data privacy regimes in participating countries would help assuage concerns about the free flow of information among them. Passing a federal data privacy law would make it much easier for the United States to negotiate data protection standards and help establish a democratic model for digital privacy.

Rules to govern the global digital economy will be written in the coming years. Who writes them—and whether they favor an open, global digital economy or one that is top-down and closed—will have an outsize impact on power and politics in the 21^st century. The Biden administration shouldn’t wait to begin negotiating toward an open digital future.

Sam duPont is the deputy director of GMF Digital at the German Marshall Fund of the United States. He previously served as director for digital trade at the Office of the United States Trade Representative.

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Enforcement of the antitrust statutes is an important tool for the protection of competitive markets. Yet, it is a blunt instrument unable to reach many nuanced competition and consumer protection issues created by the digital economy. It is inherently uncertain in outcome, reliably lengthy in process, and an after-the-fact response rather than a broad-based set of rules.

Without a doubt, Big Tech has delivered wonderous new capabilities. However, the “move fast and break things” mantra of Silicon Valley has meant that digital companies move fast and make their own rules. Antitrust statutes reflect a time when markets were relatively stable because technology was relatively stable. Today, the rapid pace of digital technology means companies can move rapidly to advantage themselves by exploiting consumers and eliminating potential competition.

Regulation, done with agility, can be an important refinement to the blunt force of the antitrust laws while being able to protect competition and consumers alike. It is not enough, however, to re-task industrial era federal agencies to oversee the digital giants. These agencies are full of dedicated professionals, but they operate on precedents and procedures built for another era when technology and innovation moved at a slower pace. In place of such industrial era muscle memory, we need a purpose-built federal agency with digital DNA.

Congress has traditionally created new expert agencies to oversee new technology platforms. Whether the Interstate Commerce Commission (railroads), Federal Communications Commission (broadcasting), Federal Aviation Administration (air transport), Consumer Financial Protection Bureau (finance), or any other of the alphabet agencies, the precedent is clear: new technologies require specialized oversight. In our report, “New Digital Realities; New Oversight Solutions” we conclude such regulation in the digital era warrants creation of a Digital Platform Agency to establish public interest expectations that promote fair market practices while being agile enough to deal with the rapid pace of digital technology.

Such an agency should be governed by a new congressionally established digital policy built on three pillars:

• Risk management rather than micromanagement: rigid industrial era utility-style regulation is incompatible with today’s rapid pace of technological change. Regulation should be based on risk-targeted remedies focused on market outcomes.
• Restoration of common law principles: for hundreds of years common law has required those providing services to anticipate and mitigate harmful effects (a “duty of care”), as well as  providing access to essential services (a “duty to deal”). Oversight of Big Tech need do nothing more than reinstate such expectations.
• Agile regulation: in lieu of top-down dictates, the new agency should be the forum to involve the industry in developing enforceable behavioral standards similar to fire and building codes. Such codes introduce innovation-promoting agility to the oversight process while protecting consumers and competition

The existing agencies of government are based on statutes and structures that reflect the relatively stable markets and relatively stable technology of the late industrial era. These policies and procedures, however, have been ambushed by the digital future.

The solution to the public interest challenges posed by Big Tech is to embrace its differences and enable subject matter experts to substitute the public interest for corporate interests. While antitrust enforcement is important, the companies can no longer be permitted to make their own rules. It is time for purpose-built federal oversight of the dominant force in our lives and our economy.

Tom Wheeler is a visiting fellow of Government Studies at the Center for Technology Innovation. 

To read the original blog post, click here. 

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