This brief outlines three activities that WTO members could undertake to facilitate digital trade: 

• Design an agreement on data for trade that sets clear guidelines for data exchange across borders 
• Establish a governance structure for digital trade that keeps rules updated 
• Create a community of practice that consolidates existing digital trade efforts 

Each of these activities must acknowledge the realities of the digital divide for trade facilitation, the features of which are detailed in the final section. 

Before considering the next steps in facilitating digital trade, it is important to establish the complexities in defining digital trade and the characteristics that differentiate it from traditional trade. 

Gaps in the Definition of Digital Trade 

It is essential that any approach to the global rule regime address the gaps in the definitions of digital trade terminology before diving into new activities. There are several imperfect definitions of digital trade in use today. One that has been referenced in WTO documents is that “all international trade that is digitally ordered and/or digitally delivered.” In practice, a broader definition is often employed: the intentional application of digital technologies at any stage of the trade process. 

From a technology perspective, both definitions are incomplete. They are rooted in the concept of physical trade, which assumes features about trade transactions that do not always hold true for today’s internet-based technologies. Four ways that digital transactions differ from other types of trade are described in detail below. 

Time

Digital trade operates on a different timescale from physical trade. Some internet-based technologies can execute atomic transactions where the contract is simultaneously executed and completed. The definitions of digital trade in use assume a sequential process of ordering and then delivering, which often does not align with the instantaneous nature of digital transactions. This discrepancy poses challenges for creating rules, such as the timing of taxation. A precedent for adjusting infrastructure to respond to increased settlement speeds can be found in the 2023 United States Securities and Exchange Commission (SEC) rule that shortened settlement cycles of most securities from two business days to one. The one-day settlement also allows some trades to be settled instantly. This change offers insights into how institutions and rules can be adapted to digital timelines.

Geography

Digital trade does not adhere to traditional notions of territoriality. There are some internet-based technologies that enable profit-making enterprises to exist digitally without a physical location. The lack of territoriality presents many problems. Can a group that exists only online bring a case to the WTO? What if, for example, an online group represents the citizens of a country that no longer exists? How would customs apply to a non-territory? These questions call for a deeper consideration of the concept of sovereignty that underpins trade rules. Many regulators have taken an approach to the digital economy that focuses on the on- and off-boarding points between the digital and traditional economies. This offers a potential model for the WTO that could consider regulating transactions via intermediaries. 

Essential characteristics

Internet-based technologies complicate the definition of an essential characteristic, which is an attribute that defines a product. Unlike tangible goods, digital products can carry intrinsic information about their processing. This can eliminate the need for third-party verification. This capability underscores a broader transition the WTO membership is managing at the moment: adapting to a global trading system increasingly dominated by digital trade while still accommodating advances in the trade of tangible goods. Since traders tend to forego the sometimes complicated origin and valuation calculations needed to access preferential tariffs, the potential for digital products to increase preferential tariff uptake is clear. The challenge will be to create rules that take advantage of digital products’ ability to validate compliance with authenticity and origin rules directly rather than requiring them to follow rules intended for tangible goods. 

Possession

The concept of possession in digital trade presents unique challenges. Traditional trade rules link possession to the physical act of controlling a product. This assumption does not hold when a product is digital, which complicates contracts. Significant progress has been made in jurisdictions like the United Kingdom, where rules about what it means to possess an intangible product, such as a token or a digital asset, have been redefined. Further consideration based on this progress is recommended. 

These four unique characteristics of digital trade underline the urgent need for new rules that address digital trade’s specific complexities and clearly define its terms. 

Creating a WTO Agreement on Data for Trade

The creation of a new WTO agreement on data—both that which is traded and that which facilitates trade—could be central to supporting digital trade. Expanding and solidifying rules in this area would enable members to simplify regulatory fragmentation and address the elevated security that dataflows require. It would also help members assess emerging trends well into the future. 

Any new data agreement should align with the extensive work that has already been done by WTO committees as well as regionally by member states. The primary objective of this agreement should be to harmonize the tangle of local, bilateral, regional, and sectoral rules that have proliferated in the absence of multilateral guidance. Establishing master data frameworks would not only integrate existing rules but set a baseline for the rules that are needed for digital trade to flourish. This would reduce trade costs and complexity.

The proposed agreement should address the two distinct functions of trade in data. The first is the process of trading data itself. The second is the movement of trade-related support data accompanying goods and services. It should draw from existing WTO work and regional trade agreements (RTAs), which have included digitally relevant trade rules since 1958. Following are suggestions for how to address these two elements. 

Trade of data

When data are traded across borders, ownership becomes complicated, especially as frontier technologies are more widely adopted. Any agreement on data should provide guidelines for defining ownership of data as a product. This will require an updated classification and measurement system. Close cooperation with other WTO partners will be essential. Looking at how past digital assets integrated, or failed to integrate, into capital markets can help identify the particular issues that need to be addressed. Such issues might include calculating the added value and determining the origin. 

Trade-related data

Trade-related data support trade but are not traded, which is similar to how goods with an intellectual property component function. When addressing trade-related data, the goal should be to establish a regulatory floor that ensures fairness, transparency, and reduced friction in dataflows. Any framework for digital trade rules should consider the three states in which data exists. 

1. Data in use: Data in use are actively processed by applications and include automated requests to buy products or real-time GPS tracking to ensure cargo ships do not make unscheduled stops. Regulatory concerns related to data in use focus on protecting it against unauthorized parties and safeguarding sensitive information. Artificial Intelligence (AI) could introduce challenges if it is used to process data that facilitate trade. Questions of jurisdiction over data in use across borders would benefit from clear regulatory guidelines. 
2. Data in transit: Data in transit actively move from one location to another. Examples of trade data in transit can be found in logistics coordination, such as when shipping details are sent to a fulfillment center in another country after an order is confirmed. Other examples include order placement and payment processing. Regulatory efforts should prioritize encryption and communication protocols. 
3. Data at rest: Data at rest are inactive and stored and could include details of executed trades, historical data, or client information, for example. Given the potential sensitivity of some trade-related data such as contracts, customer data, and payment details, rules should focus on protecting this stored data from breaches. 

To conclude, a WTO agreement on digital trade should strictly adhere to the specific trade implications of data. Many of these issues are already under review by various WTO negotiating groups. This work should inform future agreements’ issue coverage. 

Updating Governance for the Digital Economy 

Because digital trade is fundamentally different from traditional trade, a reassessment of existing governance is warranted to determine what is obsolete and what is lacking. A new digital trade agenda should feature updated governance structures that reflect this reassessment. 

A review of the General Agreement on Trade in Services (GATS), Trade Related Intellectual Property Rights (TRIPS), the Information Technology Agreement (ITA), and the Trade Facilitation Agreement (TFA) reveals several areas in need of improvement. These fall into three categories that should be the focus of legal reform:

1. Rules requiring paper: Several WTO agreements assume the use of paper. Even the term “publication” in these agreements does not explicitly include online publication. The TFA refers to “information or documents” without considering digital forms of this data. The TFA also focuses on streamlining paper processes instead of increasing automation. This should be remedied.
2. Insufficient digital trade coverage: Agreements like the ITA, which lists specific products, underrepresent digital products and services. TRIPS is another agreement that needs to be updated to cover the range of digital products being traded across borders, for example, non-fungible tokens (NFTs). Rules should also reflect that data need to be protected during processing. 
3. Non-acknowledgment of digital trade: Some agreements do not acknowledge digital trade at all. For instance, GATS covers certain data issues but fails to address newer developments like cloud computing and the free flow of data across borders. Another source of inadequate coverage relates to non-tariff barriers (NTBs), which strongly impact digital trade. Any rules regarding NTBs must include a consideration of digital trade. 

In addition to considering legal gaps, a new governance structure could extend the WTO’s influence over RTAs. The WTO already has an RTA governance mechanism through the notifications and review processes in GATT Article XXIV and GATS Article V. This RTA governance mechanism could be extended to establish a model law for RTAs or Digital Economy Partnership Agreements (DEPAs). Such a model law would serve as a standard to ensure consistent and equitable treatment of digital trade issues. 

Every member country is a part of at least one RTA, and RTA agreements have an important impact on the work of the WTO and international trade flows. However, no global governance structure currently guides countries in RTA negotiations. Members’ varying capacities for these negotiations can create unbalanced results. An RTA model law for digital economy agreements could draw on existing agreements like the DEPA as well as models emerging from current negotiations. The WTO is uniquely positioned to develop a model law that utilizes its notified agreements. 

Organizing a Digital Trade Community of Practice

The WTO should establish a thematic group on digital trade. While this may not be central to the immediate progress needed, such a group would mobilize resources and knowledge within the institution, facilitating the adoption of a digital trade vision. The primary objective of this thematic group would be to create a community that advances a multifaceted digital agenda and maintains coherence over time. This approach aligns with how other international institutions tackle cross-cutting issues like climate change and community-driven development. 

By establishing a thematic group, the WTO would highlight its commitment to transparent, inclusive trade and to economic development. Additionally, a thematic group could serve as a unifying hub for the various digital trade clauses dispersed among the existing WTO agreements. It could keep track of the agreements that are directly relevant to digital trade such as the ITA and the Joint Services Initiative (JSI) ecommerce work. A thematic group could pool intellectual resources in the attempt to create the necessary and neutral digital governance framework. 

The thematic group could consider the Bank for International Settlements (BIS) Innovation Hub as a model and include a center for relevant research and experimentation around digital economy issues. It could also function as a center for digital trade advocates, which could unlock additional private sector interest and funding. 

In short, establishing a digital trade theme within the WTO would advance a coherent digital trade agenda and create the environment of certainty needed to facilitate research, to experiment, and to attract private sector participation. 

Digital Divide Considerations 

With the correct set of tools, digital technologies can be used by anyone, anywhere, at any time. Digital trade thus has enormous potential to allow for technological leapfrogging, particularly for states where geography is a binding constraint to development. At the same time, the assistance needed to promote digital infrastructure requires a slightly different approach to trade facilitation and security.

It is important to note that developing economies have exhibited a different leadership dynamic in the digital space than in goods trade. Developing countries are operating at the frontier in several critical digital spaces. Central Bank Digital Currencies (CBDCs) are a prime example. Countries and regions with live circulating CBDCs are all developing economies, such as the Bahamas, China, the Eastern Caribbean Customs Union, Jamaica, and Nigeria. Notably, no advanced economy has yet achieved this. Additionally, countries such as El Salvador and (briefly) the Central African Republic have allowed bitcoin as legal tender. 

Leadership in regional digital trade rulemaking is another area where developing economies have surged ahead. For example, the African Continental Free Trade Agreement (AfCFTA) has a protocol on digital trade. Such rules function as a roadmap for future digitization. The Association of Southeast Asian Nations has the Digital Masterplan 2025, which functions in the same way. 

Given that many emerging economies are already engaged in digital trade, trade facilitation assistance could focus on two key areas: improving financial infrastructure and protecting critical digital infrastructure once it has been built.

Digital trade infrastructure is typically developed through partnerships between the private and public sectors. However, without sufficiently deep capital markets, few developing economies have a vibrant venture-capital environment. Assistance aimed at promoting a domestic financial environment that encourages innovation and supports entrepreneurs will directly enhance the creation and quality of digital infrastructure. 

Equally important is the protection of critical digital infrastructure once it is in place. While support for capacity and infrastructure development has already begun through traditional donor channels, more targeted funding is needed. This funding could be directed toward cross-border simulations of cyberattacks to identify readiness gaps, participation in digital trade sandbox environments to test domestic response mechanisms, and hackathons to assess and improve trade platform resilience.

Conclusion 

Trade is in a period of flux. It is becoming more digital but also more volatile. To date, the need for structure has been met with regional and national rules. This presents the WTO membership with an unprecedented opportunity to consolidate the considerable work that has already been done by the membership into a multilateral rules structure. 

The one caveat is that digital trade, conducted through internet-based technologies, significantly differs from traditional forms of trade. As a result, conventional approaches to regulating trade are often inadequate for addressing digital trade. If the WTO is to remain the leading institution on this topic, it must explore new governance structures that are suited to the instant and non-territorial features of the digital space. By embracing the 1998 work program as a guiding principle, WTO members can create the environment for robust global digital regulation. 

Alisa DiCaprio is chief economist at the blockchain technology firm R3, where she covers trade, payments, central bank digital currencies, and digital assets. Her previous positions with the Asian Development Bank and the United Nations focused on expanding digital trade opportunities in emerging markets.

To read the policy brief as it was published on the Mercatus Center webpage, click here.

To read the full policy brief, click here.

The post A Vision for the WTO’s Global Digital Trade Rules appeared first on WITA.

With e-commerce reaching staggering heights, the narrative of digital trade is often celebrated for its exponential potential to elevate businesses, large and small, to global platforms, and for driving a services-led economic revolution. The $2.41 trillion digital economy underscores the critical role of data flows in international trade.

However, this very backbone of digital trade — the free flow of data — now carries with it an intrinsic risk, transforming every business into a potential node of vulnerability. The cyber theft of intellectual property and personal data is emerging not just as a commercial hazard but as an acute national security threat. The 2017 WannaCry ransomware attack, which paralyzed over 200,000 computers across 150 countries, and the NotPetya attack, which caused unprecedented disruption to supply chains and major businesses like Maersk, highlight the critical need for countries to strengthen their defenses.

Policy development in the digital trade domain is witnessing unprecedented complexity. The European Union’s General Data Protection Regulation (GDPR) marked a significant policy shift, setting new global standards for data protection and influencing digital trade practices worldwide. Similarly, India’s draft e-commerce policy and the United States’ proactive measures through the Cybersecurity and Infrastructure Security Agency (CISA) reflect diverse, national strategic approaches to navigating digital trade regulation and cybersecurity.

One of the most contentious issues in the realm of digital trade is data localization, which states that data on a nation’s citizens or residents should be collected, processed, and stored inside the nation’s boundaries. This requirement stipulates that the data should also be accessible to that country’s government, ostensibly for regulatory and security purposes.

Russia’s 2015 data localization mandate epitomizes the practice of data localization. It requires that Russian citizens’ personal data be stored domestically, pushing international firms to migrate their servers to comply or face sanctions. This move, paralleled by China’s Personal Information Protection Law, underscores a tightening grip over digital sovereignty, aiming to shield data from foreign espionage while asserting control over digital realms.

Similarly, India’s evolving policy reflects a balancing act between boosting local data processing and guarding against foreign surveillance and digital colonization, a concern echoed by Vietnam’s 2019 cybersecurity law. These laws have sparked international debate over their implications on global digital trade, raising alarms about heightened operational costs, the emergence of trade barriers, and the potential stifling of the digital economy’s growth.

Data localization policies, while aiming to safeguard data and enhance national security, risk undermining the trust foundational to digital trade. Such policies burden multinational corporations, especially tech companies, which rely on the global flow of data to drive innovation. Additionally, these policies may result in a fragmented approach to data storage and security, making it more challenging to maintain a unified cybersecurity defense.

Against this backdrop of regulatory challenges, the private sector emerges as a pivotal force in shaping the future of digital trade. Tech giants and startups alike prioritize growth and innovation, with companies like Amazon and Google revolutionizing global commerce through their platforms. However, their operations raise questions about data privacy, market dominance, and cybersecurity. The Apple vs. FBI conflict over iPhone encryption illustrates the tension between private-sector innovation and government security concerns, highlighting the complexities of balancing privacy with national security.

Responding to these complexities, the United States-Mexico-Canada Agreement (USMCA) introduced a digital trade chapter. By limiting member states’ capacity to enforce data localization, the USMCA proposes a model that aims to balance the economic benefits of free data flows with security concerns. However, it includes exceptions for legitimate public policy objectives, providing a flexible framework that can adapt to varying national security needs.

Nevertheless, the dynamic nature of technology and cybersecurity means that the agreement will need continuous updates to remain relevant. Moreover, its impact is inherently limited to North America and might not directly influence countries with different digital trade and security postures, such as China and the EU. The challenge lies not just in crafting regulations that can adapt to the rapid pace of technological change but also in achieving an international consensus that respects the diverse security and economic interests of different nations.

In response to these challenges, Japan has championed the notion of Data Free Flow with Trust (DFFT) on the international stage. DFFT aims to establish a set of common rules that enable the free flow of data across borders while ensuring robust privacy and security protections. One of its focus areas is making national data governance systems interoperable, rather than identical, recognizing that trust is a fundamental component of the digital economy.

Beyond DFFT, there are other international efforts aimed at harmonizing digital trade regulations while addressing security concerns. The World Trade Organization (WTO) continues to hold dialogues that seek to address issues related to digital trade. Similarly, the Digital Economy Partnership Agreement (DEPA) between Singapore, Chile, and New Zealand represents an attempt to develop a modern digital trade agreement that covers digital identity, data flows, and personal data protection, among other areas.

As digital trade becomes a pillar of the global economy, nations worldwide have adopted diverse policy approaches to secure their digital spaces while fostering economic growth. The national responses reflect a spectrum of strategies, from stringent data localization to liberalized data flow frameworks, each presenting unique challenges and trade-offs.

To strengthen our digital defenses, countries must come together around a common framework that goes beyond just national policies. This approach needs to be rooted in strong international cooperation, ensuring that data not only moves freely but also securely, adhering to international standards like those set by the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC). It’s about building a collective commitment to protect our digital infrastructures.

Additionally, the private sector’s critical role cannot be emphasized enough. Businesses must prioritize cybersecurity, integrating it thoroughly within their operations and leadership structures. This includes appointing seasoned executives such as Chief Information Security Officers (CISOs) to top roles and cultivating a cybersecurity-aware culture across all levels of the organization. This culture should empower employees to use advanced digital tools securely.

As we navigate the evolving landscape of digital trade, nations and corporations must strive for a balanced approach that respects both the economic potential and the security imperatives of our interconnected world. International cooperation and adherence to global standards are crucial in forging a unified strategy that protects against cyber threats while facilitating free data flows.

The private sector must prioritize cybersecurity, embedding it within their strategic and operational frameworks, and cultivating a culture of security awareness among all employees. Only through such a comprehensive and harmonized approach can we ensure that digital trade continues to be a driver of economic prosperity without compromising national security. This path requires ongoing vigilance, adaptability, and collaboration across borders to effectively meet the challenges posed by technological advancements and the global nature of cyber threats.

The post The Invisible Borders: Navigating Trade and Security in the Digital Age appeared first on WITA.

Global trade recovery remains fragile. Geopolitical tensions, spillover from regional conflicts, rising populism and protectionist policies are putting unprecedented pressure on globalisation.

The prospect of a complete breakdown in relations between the United States and China adds weight to any pessimism. Each day brings further threat — or the reality — of unilateral trade measures. While legitimate concerns may undergird these measures, such as climate considerations, the net effect is chipping away at governments’ faith in the global rules-based trading system. This is creating a vicious cycle of more barriers and more protectionism.

Global business priorities have not shifted since the WTO was founded 30 years ago. Cohesive, multilaterally agreed rules for international trade that provide certainty and predictability remain a fundamental demand from traders around the world.

The WTO, despite its flaws, has proven to be the single cohesive vehicle able to attract multilateral participation — from countries across the world at every stage of development — to address global trade challenges. The need for such an institution has grown with time. For example, effective multilateral dialogue at the WTO level is required to resolve the unintended consequences of novel environmental legislation, such as the EU’s carbon border adjustment mechanism and new rules on deforestation, particularly as they affect small businesses in developing countries.

Against growing threats to the system, the urgency of reforming the WTO grows each day. Its rulebook must be updated to meet the challenges and opportunities of the 21st century — its rules enforced and its agreements effectively monitored. Reform must be tackled consistently with an eye towards lowering trade barriers and upholding current commitments. And this must be done in cooperation with the private sector.

The alternative to holistic reform is almost too awful to contemplate. An April 2024 an International Chamber of Commerce (ICC)-commissioned study found that WTO dissolution would have dire consequences for developing economies, decimating their exports by 33 per cent and lowering GDP by 5.1 per cent by 2030.

In that scenario, the trade-led convergence that has enabled developing countries to grow their economies would disappear. This would also hit producers in advanced economies by reducing supplier access, exposing developed countries to increasing volatility and higher consumer prices.

Countries that do not enjoy elevated levels of integration into global supply chains would be further disadvantaged by any erosion of the multilateral trading system. Given the catalytic role of trade in job creation, the implications for global poverty reduction perspective would be profound.

In this age of digital innovation, the world has never been technically better placed to conduct trade more efficiently. Technology underpins all modern supply chains, including the internet of things, big data, machine learning and artificial intelligence. This shift to digital technology calls for the movement of data and information across borders, with all stakeholders depending on seamless and uninterrupted information flows across companies and countries.

To secure supply chain resilience and efficiency, governments must promote policy coherence and harmonised digital rules, increasing the urgency for robust WTO action. As a start, an agreement containing disciplines that will address digital trade barriers and facilitate digital trade must be reached and implemented at the WTO.

Work is already going into accelerating the development of a globally harmonised, digitalised trade environment. The ICC Digital Standards Initiative is engaging the public sector to progress regulatory and institutional reform, and mobilising the private sector on standards harmonisation, adoption and capacity building.

Trade facilitation remains key to functioning supply chains. Delays at borders hinder cross-border trade at every level, both regional and international. Full implementation of the 2017 WTO Trade Facilitation Agreement — which has already increased trade by over US$230 billion — is more relevant than ever.

Low and middle-income countries have come a long way in fulfilling their trade facilitation agreement commitments, but many still require assistance to finish the job. A failure to connect developing economies to global markets threatens to cut them further adrift, stifling economic opportunity and reversing previous gains. Likewise, lack of implementation undermines supply chain optimisation in these countries, hindering competitiveness.

To support low and middle-income countries in this endeavour, the ICC co-leads the Global Alliance for Trade Facilitation with the World Economic Forum and the Center for International Private Enterprise. With the support of the governments of the United States, Germany and Canada, this entity uses the trade facilitation agreement to address obstacles to trade in an inclusive, sustainable way through public–private partnership. The alliance approach to meaningful trade facilitation initiatives involves buy-in and ongoing engagement from both government and business, from project inception through to post-completion, recognising a shared responsibility in promoting frictionless trade.

This spirit of public­–private cooperation must be brought to bear against today’s drift away from agreement and adherence to international rules and regulations. The WTO remains the best conduit for multilateral trade cooperation and future initiatives hinge on its reform and strengthening. Business as the real engine of economic growth and innovation needs to be engaged as a genuine partner — one that delivers on the concept of multi-stakeholder cooperation.

John WH Denton AO is Secretary General of the International Chamber of Commerce (ICC), Paris.

To read the full article as it was published by East Asia Forum, click here.

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The release of annual federal agency reports are rarely given significant airtime beyond some select circles. This year, however, the release of the Congressionally-mandated National Trade Estimate Report (NTE) by the Office of the United States Trade Representative (USTR) and its decision to remove broad sets of barriers—including many significant measures harming operations of U.S. digital exporters—has sparked debate about the overall merits of identifying and challenging unfair trade practices abroad.

The issue surrounds the report that, under the 1974 Trade Act, USTR is required to publish to identify and analyze “significant barriers to, or distortions of” U.S. goods and services exports globally and, when possible, estimate the distortive impact they have on U.S. commerce.  This report serves as a key part of USTR’s mandate from Congress to protect U.S. businesses from unfair treatment abroad.  By chronicling the obstacles to operations and the cross-border delivery of goods and services in key foreign markets, the report lays down a marker for laws, regulations, and other policies abroad that are of concern to the United States.  

Through this process, USTR signals to the countries in question that these policies are being monitored by the United States government, are seen as problematic, and that further investigation or action—including, where appropriate, formal dispute settlement— could be forthcoming.  This is a crucial piece of USTR’s job assessing the global landscape for U.S. firms, targeting unfair treatment of U.S. goods and services exports, and addressing these barriers.  Inclusion of a barrier in the NTE does not necessarily mean enforcement action is forthcoming from USTR, but it is an indication that a rule or regulation is hindering international trade and puts that country on notice.

The problem at the heart of this year’s NTE is that USTR has removed a sizable collection of barriers from last year’s report (466 pages’ worth) in this year’s edition (392 pages’ worth)—with a particular and concerning deprioritizing of barriers to digital trade.  This is in direct contradiction to USTR’s statutory obligation to “identify and analyze acts, policies, or practices of each foreign country which constitute significant barriers to, or distortions of… United States electronic commerce” through the NTE.  More recently, this move also runs contrary to the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 that directs USTR “to ensure that governments refrain from implementing trade-related measures that impede digital trade in goods and services, restrict cross-border data flows, or require local storage or processing of data.”  The recent trajectory of USTR also opposes the agency’s stated goal to “[d]efend U.S. interests in digital trade and digitally delivered services” that the agency outlined in its FY2025 budget request.  

In a previous article I covered the importance of digital trade to the U.S. economy—in 2022, digitally-deliverable services brought in $626 billion to the United States, with a $256 billion surplus in the sector.  Overall, the U.S. government estimates that in 2022, the digital economy brought in $2.6 trillion in value added, representing 10% of the U.S. GDP and supported 8.9 million jobs that generated $1.3 trillion in annual compensation.  Export strength in digital products and services also serves as a key foundation promoting U.S. competitiveness on the global stage.  

Further, restrictions to cross-border data flows, requirements to localize data, and obstacles to operate cloud services abroad all directly harm companies exporting goods and services across industries and of all sizes.  This is very much true for services providers, where 70 percent of U.S. services exports are made up of digitally-deliverable services and impacting sectors such as financial services and entertainment (where global markets have contributed to a boom in recent years).  However, companies in the goods world would also be hit by data localization mandates and cross-border data flow restrictions.  For example, automotive and pharmaceutical companies depend on data flows both to operate abroad as well as to conduct testing to ensure safety standards are met and strengthen their products.

USTR defended its decision to scale back inclusion of digital trade barriers by stating the agency is returning the report to “its stated statutory purpose” and that every government “has the sovereign right to govern in the public interest and to regulate for legitimate public policy reasons.”  

First, the claim that this reverts the report back to its “statutory purpose” is dubious—the 1974 Trade Act does not include any caveats in the section delineating the obligations for the NTE regarding whether a country behind any given barrier argues it is regulating in the public interest.

Second, and more importantly, the argument regarding what is suggested as justifiable discrimination is problematic and could have repercussions.  Of course, it is true that every country has the power and right to issue laws, rules, and regulations in the public interest—however, ceding such broad discretion regarding discriminatory or otherwise unfair practices in foreign markets undermines the very purpose of trade norms and rules—to voluntarily refrain from implementing policies that harm trade partners.  “Legitimate” is often in the eye of the beholder.  Governments generally adopt laws and regulations in the furtherance of what they would likely label as “legitimate public policy reasons,” even if those policies are harmful to imports from a specific or all other countries.  For governments enacting distortive industrial policy strategies, the discriminatory or harmful nature of the policy may actually be a central aspect of what the government sees as a legitimate public policy reason, whether that is to catalyze local production or boost employment in certain industries.  The removal of specific barriers from this report with the explanation implies that governments can pursue targeted or otherwise harmful policies for U.S. exports and claim it is in the public interest to be deemed justified and evade USTR scrutiny.  

More concerning in the near-term, the exclusion of such a broad swath of digital trade barriers with the suggestion that they are legitimate declares to these countries that they are justified in these actions and demonstrates to third-party countries that they are free to impose similar obstacles to U.S. digital products and services.  Of course, if the goal is to lay the foundation for protecting one’s own, newly-designed glass house, to shield it from attack by one’s trade partners, one might discern a certain logic. But, at least in the digital sphere, U.S.-proposed laws, regulations, or policies that would invite such challenges are absent, and thus declining to address foreign barriers only hurts U.S. interests, with no corresponding benefit.

The Barriers that USTR Removed Are Harmful to U.S. Economic Interests 

Looking closer at the barriers that were removed between the 2023 and 2024 reports, a broad trend that barriers to the cross-border delivery of digital products and services are now seen as reasonable becomes clear.  To the extent these laws, proposals, or regulations are now seen as acceptable by the United States, it can carry consequences for companies not only in these markets but others that may decide to adopt similar restrictive policies.  It is unclear why these barriers are now seen as justifiable by the U.S. government.  

Below are some of the most prominent trade barriers that appeared in the 2023 NTE and that clearly disadvantage U.S. firms that have since been dropped by USTR:

Online News

References to laws that require online services providers to make mandatory payments to news publishers for the presence of any news content, including hyperlinks, have been removed in this year’s NTE after being included in the last few iterations.  Specifically, Australia’s News Media Bargaining Code and Canada’s Online News Act, both of which exclusively target U.S. digital exports and pose threats to the online ecosystem writ large, are no longer listed as significant barriers to trade in the report, despite neither law changing in any meaningful way to alleviate concerns. 

European Union

References to the EU’s Digital Markets Act (DMA) have been removed from the report entirely.  The law is still highly experimental and disproportionately affects U.S. companies—the European Commission has designated six companies as so-called “gatekeepers” under the DMA, and five out of those six companies are from the United States, while the sixth is Chinese.  Meanwhile, this still-burgeoning concept of “gatekeeper” is being applied to industrial data markets through the DATA Act and is being considered for the online banking realm through the Payment Services Regulation, thereby restricting U.S. companies from these sectors.  As such, the threat of this law to U.S. exports, and massive compliance burden it entails is very much a live issue, but is no longer labeled a significant barrier through the NTE—suggesting free reign for the application of the “gatekeeper” label to spread to other sectors, shutting out U.S. companies, and empowering other governments to adopt regulations where the consequences are not yet known.  The DMA is clearly a barrier and in concert with the Digital Services Act would reportedly impose vast costs on U.S. businesses and smaller companies, but whether or not it is justified is not yet known—deleting it, therefore, is a premature stamp of approval on a policy for which the potential harms or benefits have not yet materialized.  The Digital Services Act has also been cut significantly from detailing the different obligations under the law for “Very Large Online Platforms” to instead solely focusing on the law’s impact on intellectual property rights such as copyrights and trademarks.

Elsewhere in the NTE, references to the EU’s AI Act and the DATA Act have been greatly diminished, restricted to narrow references to trade secrets and proprietary information.  As both develop, it is critical that the U.S. government remains wary of tiered oversight models whereby U.S. companies receive higher levels of scrutiny or punishment compared to those of European or third-party origin.  This is particularly visible for the DATA Act, which features prescriptive rules on when, where, and how companies should be able to access, process, and share non-personal and personal data with other companies and governments. The DATA Act would prohibit U.S. companies from becoming third parties to receive IoT data in Europe if designated as “gatekeepers;” create a separate regime for non-personal data, and in practice has the potential to also sweep in personal data, transferred internationally for cloud services providers subject to third party countries’ data access requests; and by potentially empowering national regulators to oversee aspects of the proposal, it would raise the possibility of duplicative enforcement throughout the 27 member states. Such regulation could leave U.S. companies at a distinct disadvantage compared to Europeans in a constantly innovating and growing IoT market—all of which is left out of this year’s NTE.

Indonesia  

This year, USTR removed references relating to:

1. barriers to building and maintaining submarine cables
2. digital taxation and duty reporting requirements
3. financial services regulations that require data localization for certain banking data
4. the Personal Data Protection Law No. 27, which was described by USTR in last year’s report as imposing “requirements for data collection, processing, and transfer, as well as criminal and administrative penalties for violations, and may restrict cross-border data flows.” 

USTR did include a regulation (​​MOF Regulation No. 190/PMK.04/2022) that imposes obligations for customs declarations within 30 days of receiving payment for the importing of digital products (which could sweep in potentially all software downloads).  However, the NTE language has been significantly adjusted: last year its focus was on “cybersecurity, privacy, and data protection concerns,” noting the impact on small-and-medium sized enterprises, and potentially undermining the moratorium on customs duties on electronic transmissions at the World Trade Organization; this year the harms are most glossed over, to a much more scaled-back “paperwork retention requirement that is undefined and uncertain.”

Japan

This year’s NTE removed reference to the Act on Improving Transparency and Fairness of Digital Platforms and the two reports on “competition for mobile operating systems and for voice assistants and wearables, with the eventual goal of possible regulation under the Transparency Act” published by the Digital Market Competition Headquarters.  Similar to the concerns regarding the DMA, the fact that USTR has removed this barrier at such a nascent stage of the regulation signals a lack of U.S. concern regarding the experimental regulatory proposals suggested in these reports, which include forcing digital platforms to share data with third parties and to provide third parties access to analytics (such as click-and-query search data); restrictions on platforms using data across services; and harming intellectual property by imposing obligatory sharing of trade secrets and copyright.

Turkey

This year’s NTE has removed reference to the 2016 Law on the Protection of Personal Data, which was previously described by USTR in last year’s report by explaining that “[r]estrictions on the flow of data have a significant effect on the conditions for the cross-border supply of numerous services and for enabling the functionality embedded in smart devices.” Circular 2019/12—a data localization measure—and the Law on Regulation of E-Commerce (Law No. 6563) were also excluded in this year’s report after inclusion last year. 

Vietnam

Although USTR included the highly-problematic Law on Cybersecurity as a barrier, it downplayed a data localization measure issued under the law—Decree 53—in this year’s report after including a lengthy explanation of the data localization hurdles last year.  Last year, USTR noted that the Decree required all domestic companies, including subsidiaries of foreign investors, to “store a copy of Vietnamese user data on servers located within Vietnam and establish a physical office in Vietnam that would be under the jurisdiction of Vietnamese law enforcement. If international firms, that do business in Vietnam are found to be in violation of the Law on Cybersecurity, then Vietnam’s Ministry of Public Security (MPS) could force the firms to localize their data as well, following a 12-month notification period.”  This year, the report focused more on “uncertainty around the scope of specific requirements for businesses as they apply broadly to domestic and foreign enterprises that provide services on telecommunications networks or the Internet, or that provide other value-added services in cyberspace in Vietnam.”

The Positive Aspects of this Year’s NTE Report: The Issues Included by USTR

Despite all of the above, it is important to note that USTR did include several barriers to digital exports in this year’s report.  This reflects commendable, continued work in important areas including problematic policies on cloud services providers, online streaming requirements and obligatory funding mechanisms, and network usage fees, among other specific data localization and cross-border data flow restrictions.  The following measures were included in USTR’s 2024 NTE report:

• Australia’s online streaming funding obligations.
• Canada’s online content funding obligations through the Online Streaming Act and Digital Services Taxes.
• The European Union’s EU Cybersecurity Certification Scheme for Cloud Services (EUCS), network usage fees, and Digital Services Taxes.
• Indonesia’s GR 71/2019 which requires “private sector electronic system operators (ESOs) to facilitate supervision by government agencies, including by granting access to electronic systems and data for monitoring and law enforcement purposes.”  Also included, with adjusted language as previously mentioned, was Regulation No. 190/PMK.04/2022 on mandatory digital product customs declaration.
• Korea’s network usage fees, restrictions on the export of geospatial data, and barriers to the public secret market for cloud services providers posed by the Cloud Security Assurance Program (CSAP).  However, although the original CSAP regime was included by USTR in this year’s report, the 2023 amendments to the program that have since meant that no foreign supplier has been able to provide service under the program were not included.
• Vietnam’s online content proposals for over-the-top radio and television in Decree 71; the Revised Telecom Law; the Law on Cybersecurity and Decree 53 with adjusted language as previously discussed; strict online content restrictions implicating free speech and online services providers’ ability to operate in Decree 72; and the Personal Data Protection Decree (Decree 13/2023/ND-CP).

The Scaling Back of Digital Trade Language in the National Trade Estimate Report is Part of a Continuing and Concerning Trend

This move to trim the NTE of barriers in the digital space does not come in a vacuum.  In the past year, USTR has significantly receded from defending U.S. interests in the digital trade space.  In October, USTR announced that the United States was withdrawing support for key digital trade rules at the World Trade Organization’s Joint Statement Initiative on E-Commerce (JSI) to ensure that participating countries’ firms receive reasonable treatment with respect to cross-border data flows, data localization, and the protection of companies’ source code.  Then, in November, it emerged that the United States rescinded those same digital trade rules at the Indo-Pacific Economic Framework (IPEF).  

The United States is alone in this regard when compared to its allies in the region that are also members of the IPEF initiative that the United States itself was central to generating with the goal of “restoring U.S. economic leadership in the region and presenting Indo-Pacific countries an alternative to China’s approach to these critical issues,” as Secretary of Commerce Gina Raimondo told reporters at the launch of the framework.  IPEF members are themselves seeking strong digital trade rules with partners.  For example, Kevin Rudd, Australian Ambassador to the U.S., told an audience in July when discussing IPEF: “Some say in the case of digital trade that it only benefits big corporations. We in Australia don’t see it this way.”  Additionally, Singapore has signed Digital Economy Agreements with several other fellow IPEF members (New Zealand, Australia, and South Korea) with strong provisions since 2020.  Japan has been a leader in digital trade, including in partnership with the United States by striking a Digital Trade Agreement in 2019.

The United States has abdicated leadership in this realm with the argument that it must provide “policy space” for domestic and foreign legislators and regulators “examining their approaches to data and source code, and the impact of trade rules in these areas.”  Jonathan McHale has detailed why such arguments are flawed and should not result in abandoning digital trade rules on the international stage.  Countries have been free to regulate in the public interest since the onset of trade rules through the General Agreement on Tariffs and Trade—so long as those rules do not discriminate against a supplier or producer from a specific country through thresholds or other means.  This remains true today, and despite hundreds of trade agreements globally, governments have continued to legislate and regulate.

To read the full article as it appears on the Disruptive Competition Project’s website, click here.

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This deficiency arises because the government members of the World Trade Organization (WTO), the global trade rule body, have struggled to reach consensus on new trade rules since 1995, coinciding with the public emergence of the World Wide Web.

This digital void poses an escalating challenge. In the absence of global rules to structure consistent regulations and laws for the digital economy, governments are independently addressing issues, resulting in a rising level of fragmentation that proves increasingly difficult for businesses to navigate.

While the WTO governments have acknowledged the issue, their attempt to address it dates back to 1998 when they initiated a work program to discuss what was then termed electronic commerce. The group established one important rule, prohibiting WTO members from imposing customs duties or tariffs on electronic transmissions. Although this rule was initially put in place for a two-year period, it requires renewal every time trade ministers convene. The most recent ministerial conference (MC13) in Abu Dhabi at the end of February saw the moratorium on customs tariffs renewed, potentially for the last time, with an expiration date set for 2026.

Despite the lack of clarity surrounding the term “electronic transmissions,” it is expansive enough to cover many digital trade activities, including cross-border delivery of software subscriptions, entertainment streaming, digital payments, and online education. The intentionally vague language adopted in 1998 aimed to allow internet-enabled transactions to continue across borders without tariff impediments.

In the decades since, digital trade has burgeoned with applications that were inconceivable in the 1990s. Despite the absence of customs forms or potential tariffs for cross-border activities, if the moratorium expires, WTO members could demand customs paperwork and impose tariffs or duties on each transmission.

While some argue that WTO members wishing to impose tariffs on digital trade may face practical challenges, such as the inability of customs departments worldwide to track and trace online transactions, the moratorium’s expiration may still lead to attempts to collect duties, especially from larger firms engaged in significant cross-border activities. Although the difficulty in collecting customs tariffs might not be a sufficient barrier, the costs of collection will likely outweigh tariff amounts, particularly for transactions bundled into larger payments like subscriptions or professional service fees, or for those delivered for free.

It is crucial to note that the moratorium exclusively applies to customs tariffs. Governments can already levy other forms of taxes on digital transactions.

The WTO rule book, crafted primarily before the internet’s pivotal role in cross-border trade, contains few rules directly applicable to the digital economy. Many internet-delivered services are covered by commitments made for postal mail or fax delivery across borders.  A few updated rules for intellectual property apply to digital trade. Governments have adapted commitments originally intended for offline use to fit online trade situations, but this is undeniably a suboptimal approach to managing the digital economy.

Despite agreeing at MC13 to “reinvigorate” the original work program on electronic commerce, 90 WTO members have spent several years negotiating new e-commerce rules under the “Joint Statement Initiative” (JSI). Expectations for significant conclusions at the ministerial level were unmet due to substantial gaps among JSI members on sensitive issues such as cross-border data flows, data localisation, source code protections, overall agreement scope, and permitted exceptions. Consequently, members opted not to advance any JSI activities for consideration at the ministerial meeting. Even if JSI members reach an agreement, it remains unclear how these rules will be incorporated into the global rule book.

The global business community has fervently called for an extension of the moratorium, emphasising the need for consistent efforts to prompt WTO members to agree on global digital rules that better suit the 21st century.

Dr. Deborah Elms is Head of Trade Policy at the Hinrich Foundation in Singapore. Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

To read the full Expert Opinion as it appears on the Tech for Good Institute’s website, click here.

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MC13 To Start the Year, Moratorium Once Again Up for Renewal

The 13th World Trade Organization Ministerial is quickly approaching, taking place February 26-29 in Abu Dhabi. The outcomes and issues discussed are likely to set the stage for the rest of the year.

With respect to digital issues, announcements are expected on the Joint Statement Initiative on E-Commerce. At the end of last year, co-conveners announced consensus text on the following areas: online consumer protection; electronic signatures and authentication; unsolicited commercial electronic messages (spam); open government data; electronic contracts; transparency; paperless trading; cybersecurity; open internet access; electronic transaction frameworks; electronic invoicing; and “single windows.” The intent is to conclude these negotiations by early 2024. With the U.S. withdrawal of support for key rules, however, the final framework will be significantly less impactful than hoped for. Absent any valid alternatives to text on data flows, localization, and source code protection, it is unclear whether parties to the exercise will succeed in delivery of a comprehensive and strong final agreement in the next year. To the extent that alternatives emerge that represent a significant weakening of proposed rules, the JSI could verge on being affirmatively unhelpful–legitimizing trade partners’ discretion to impose unjustified or discriminatory restrictions of digital service suppliers.

Another key issue will be the renewal of the moratorium on imposing customs duties for electronic commerce, which has been renewed at every Ministerial since 2000. The prohibition on customs duties has been critical to the development of global digital trade, benefiting a wide range of MSMEs around the world. However, countries like India, South Africa, and Indonesia continued to oppose its renewal. Failure to renew this year will have significant implications for the millions of firms dependent on trading in software, games, video and other digitized products, while doing little to solve concerns on revenue. International institutions have looked at the risk of ending the moratorium, and identifying preferable alternatives to customs duties on electronic transmissions:

• OECD: “Failure to renew the Moratorium would result in greater policy uncertainty and less trade, and tariffs on electronic transmissions would reduce domestic competitiveness. Adverse effects would be most pronounced for low-income countries and smaller firms. Overall, evidence demonstrates that there is a strong case for the Moratorium to be renewed.”
• WTO: “Tariffs on electronic transmissions might also impact competitiveness and participation of firms in trade, especially MSMEs and women owned traders.”
  World Bank: “Considering the incidence of tariffs, consumer welfare, implications for export competitiveness, and the option to capture revenues through economically neutral value added taxes, the benefits of the moratorium may well outweigh the costs incurred. Moreover, the application of reciprocal tariffs could make the application of tariffs on electronic transmissions fiscally counterproductive.”
• IMF: “The World Trade Organization (WTO) moratorium on customs duties on electronic transmission can help to effectively channel developing countries’ tax reform efforts in a more efficient direction.”

A sign of success at MC13 will be the renewal of the moratorium, and commitments to continue work on achieving a high-standing agreement within the framework of the JSI.

U.S. Retreat on Digital Trade Casts Unwelcome Shadow

Three years into the Biden Administration’s new strategy of “Worker-Centered Trade,” stakeholders are still left puzzled on what that means for U.S. trade engagement. While the U.S. hosted many conventions and summits with trade partners in 2023, issuing relatively vague progress updates, concrete deliverables were unfortunately lacking.

The Indo-Pacific Economic Framework (IPEF) has yet to deliver on its initial promise at its launch (with the exception perhaps of the Commerce Department-led IPEF Supply Chain Agreement). Little was announced at the San Francisco Summit last November, where final outcomes were long expected. The IPEF Trade Pillar seems to have hit a standstill. Last minute demands from Congressional leaders not to announce anything on trade appear to have been successful, leaving future engagement highly uncertain.

While the USTR tabled text on the digital chapter in early 2023, the U.S. position is now unknown (which necessitated the move at the WTO) in comparison to the digital trade chapter in the U.S. Mexico Canada Agreement. More worrisome is that the change in position was reportedly at the behest of political leadership of the DOJ/FTC absent Congressional consultation based on unclear justifications linking domestic antitrust enforcement with international trade rules U.S. trading partners would be subject to.

And the U.S. new (or nonexistent) digital trade policy introduces uncertainty on upcoming workstreams. With USMCA’s inclusion of a “sunset” provision, negotiations are forthcoming. Will the U.S. seek a reversal in its prior support for the strong rules in the digital trade chapter? Such a move would prove quite controversial, with USTR only having negotiated the text mere years ago, based on strong bipartisan support from Congress.

Likely Trade Irritants in 2024

Outside the trade negotiation context, market access barriers continue to foster conflict for digitally-enabled services.

Digital services taxes (DSTs) are likely to once again take the spotlight. Despite the OECD agreement reached in 2021, and positive announcements of significant progress on the international framework to improve fairness in global taxation, some countries are once again pursuing unilateral DSTs. Canada announced it still intends to move forward with a DST this year, despite the warning of the U.S. government and Canada’s signature to the OECD agreement.

Other trade irritants include discriminatory on cloud computing restrictions that disadvantage foreign cloud providers in certain markets. Korea continues its practice of effectively shutting out U.S. firms from the domestic procurement market. The European Union is finalizing its consideration of the EU-wide certification scheme drawing from France’s SecNum Cloud approach. As drafted, the EUCS would disadvantage U.S. cloud services from participating in the EU market. Engagement in the U.S.-EU Trade & Technology Council is an important venue to address any discriminatory measures that undermine transatlantic cooperation in the ICT sector. The TTC is expected to meet following delays at the end of this month.

Countries’ approaches to regulating digital platforms will also pose trade conflicts to the extent the application of these rules are narrowly targeted to U.S. firms, excluding domestic competitors absent clear justifications. Engagement with foreign regulators will be critical to ensure that any ex-ante regulations provide fair and adequate guidance to covered entities that limit unintended consequences. A focus on the EU, where a panoply of requirements will begin to take effect this year, will be important–both for how access to the EU market is affected, and for defining a model other countries may seek to emulate.

Work to Continue on Trusted Methods for Data Flows

However, it is not all doom and gloom. International support for actualizing “Data Free Flow with Trust” (DFFT) is encouraging. DFFT was an initiative of Japan under its G20 Presidency, and subsequent G20 workstreams continue to support its development. The concept of (DFFT) aims to promote the free flow of data while ensuring trust in privacy, security, and intellectual property rights.Over the past year, there has been increasted discussions and support to operationalize DFFT, complementing and working with institutional partners like the OECD. Relatedly, Japan and the EU amended their bilateral FTA to include meaningful provisions aimed at promoting data flows and preventing data localization.

With positive initiatives like these gaining support, one can hope that the end of 2024 closes out on a more hopeful note for digital trade, and the economic benefits it brings to consumers across the globe, than the last.

To read the full article as it appears on the Disruptive Competition Project, click here.

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As artificial intelligence continues to reshape industries and transform the global economy, trade policy must evolve to keep pace and ensure equitable growth for all nations.” This is how Chat GPT, the viral artificial intelligence (AI) chatbot sensation that has dominated the media since late 2022, suggests starting an article about AI and trade.

Already back in 2018, McKinsey predicted AI would contribute USD 13 trillion to the global economy by 2030. Today, with news outlets increasingly reporting on AI and major tech giants such as Google, Microsoft, and Baidu all rushing to release their own chatbots, the policy relevance of AI for international trade is a contemporary reality.

At the intersection of trade policy and AI, the traditional view is that policy must get out of technology’s way. AI in this conception brings unbridled productivity if only trade barriers can be stemmed as the technology spreads from developed economies to the Global South. Under this view, also shared by the Organisation for Economic Co-operation and Development, policy recommendations include further liberalization of information and communication technology goods trade; lowering barriers to digital services trade; facilitating mode 4 delivery of services (presence of natural persons); and harmonizing data flow regulation. These policy recommendations would doubtlessly help the proliferation of AI technology in international trade, but they do not tell the whole story.

Policy Gaps in International Trade Regulation

Beyond merely providing an additional impetus to liberalize international trade, AI presents several policy gaps that current rules cannot address.

The rise of AI brings a familiar problem in the form of the goods–services distinction, which has proven difficult in the case of digital goods, for example. Although World Trade Organization (WTO) case law has shed some light on how to determine if a product is a good or a service, the WTO’s work program on electronic commerce—which was meant to settle the question more conclusively—is still being negotiated after 25 years. As AI is incorporated into more goods (think self-driving cars and AI robotics), it will become increasingly important to establish universal rules to determine whether General Agreement on Tariffs and Trade or General Agreement on Trade in Services (GATS) commitments dictate. The current patchwork that has emerged in the form of free trade agreements creates a fragmented landscape that is likely to boost the cost of trade.

Where AI can clearly be considered a service, other issues emerge. GATS market access commitments for certain professions including accounting, legal services, or medical services are often tied to certification requirements or legal personhood. This poses problems for AI systems such as legal tool Harvey or even Chat GPT (which recently passed the bar exam). Can such systems be said to have received education and training such that they are covered by GATS commitments? Similarly, where GATS commitments are based on legal personhood, does this exclude AI systems? Would this also be the case in a situation where a form of electronic or digital personhood is adopted for AI systems, as has been suggested in the European context?

Another GATS-related problem concerns the four modes of delivery: cross border, consumption abroad, commercial presence, and the presence of natural persons. These modes are ill-adapted to products that have AI embedded in them, like self-driving cars, smartphones, or medical devices. Such products create a market access issue for services trade, which, according to the GATS, is not supposed to be subject to tariffs. However, services that are embedded into goods are liable to tariffication because the value of the services is included in the cost of the final product for which a tariff is levied. Software bought online and delivered through mode 1 is not tariffed, for instance, yet the same software, when installed on an imported computer, will effectively be tariffed, given that the customs value of the computer includes the value of the software. This has led some to call for the addition of a 5th mode of services delivery, meant to capture the services content embodied in goods exports. In 2009, the European Union’s estimated mode 5 services exports amounted to EUR 300 billion. A 2017 study, meanwhile, suggested that multilateral liberalization of mode 5 trade could increase world trade by EUR 500 billion. Though some attempts have been made to include mode 5 facilitation in bilateral agreements, this has not been attempted at the WTO.

Lastly comes the issue of intellectual property. AI is producing graphics, poetry, and even music—all of which are the legal purview of intellectual property rights (IPR). In the context of international trade, it is the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) that sets minimum standards for the protection and enforcement of IPR. Unfortunately, the TRIPS agreement does not define how to deal with AI-generated works, and individual members have taken different approaches in their domestic legislation, ranging from full protection of AI-generated works to a requirement of human creativity that effectively leaves such works unprotected. This patchwork is likely to become increasingly unsatisfactory as the share of intellectual property—both copyright and patents—generated by AI and traded across borders continues to rise.

A Job for the WTO?

As the only organization with a near-global mandate to regulate trade, the WTO seems like the logical place to forge agreements to deal with these policy gaps. The goods–services distinction, GATS professional certification issues, mode 5 services delivery, and IPR issues all situate themselves comfortably within one or several WTO committees and working groups. So, too, do the more traditional issues of ICT tariffs, services liberalization, and data regulation. Legislating at the WTO prevents international fragmentation and provides a rules-based system that stands in opposition to the might-makes-right approach that preceded the organization’s creation.

The suitability of the WTO must be considered in light of certain limitations, however. Chief among them is the pacing problem, a well-known phenomenon wherein technological innovation progresses too quickly for regulation to keep up. This issue is not unique to the WTO; it also exists in domestic legislative contexts. Even so, the fact that the WTO’s Joint Statement Initiative on e-commerce is finalizing texts on electronic signatures and spam in a world where AI, cryptocurrencies, non-fungible tokens, and blockchain technologies remain virtually unregulated illustrates the risk of relying exclusively on the WTO to legislate.

Secondly, the lack of universality regarding normative approaches to AI regulation also inhibits a multilateral solution. Indeed, AI regulation is intrinsically linked to questions of privacy, morality, and property that differ across cultures. Even markets with similar levels of development, such as the European Union and the United States, have taken radically different approaches to privacy and free speech (think the General Data Protection Regulation). This is all without considering the divergent national interest with regard to trade liberalization. Rich countries, which dominate the AI market, want to liberalize trade as much as possible. The calculus for poorer countries, where tariffs remain an important source of government budgets, looks starkly different.

These limitations notwithstanding, it appears unadvisable to let AI regulation develop exclusively in national or regional contexts. The policy issues detailed above require solutions, and multilateral solutions are preferable from a trade standpoint.

In the absence of hard law provisions, which have largely remained elusive in the WTO, the organization can still play an active role in this area. Soft law, informal rules, and norms can still be introduced in the WTO—as they have been for years—without relying on hard law. This would allow states to experiment with AI regulation in line with their economic, social, and moral objectives. Soft law approaches have proven successful in other international policy-making areas, and in the context of the WTO, could act either as a sort of greasing mechanism for the growing number of AI-impacting free trade agreements or, more ambitiously, as a halfway house, building toward hard law commitments in the future.

Timing is of the essence. With policy already lagging behind technology and the use of AI set to increase drastically in the real economy, some sort of international coordination is necessary. At a time when WTO reform is front and centre in the minds of many trade diplomats, an innovative approach to tackle the policy issues raised by AI could be an illustrative case in point of the organization’s continued value.

Whether or not states come together to regulate AI, it is clear that this technology is set to transform industries and trade patterns. Much like trade generally, AI will generate great economic growth but also painful labour market disruptions. Faced with the risk of worsening the digital divide by remaining inactive, policy-makers should make sure whatever solutions they arrive at contribute to creating a more sustainable and inclusive global economy.

Pascal Krummenacher is a trade policy professional and a former project officer at the World Trade Organization.

To read the full policy analysis, please click here.

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These questions took center stage during a session titled, ‘The Trade System is Changing: Can It Deliver for the Future?’ held at this year’s World Trade Organization’s (WTO) Public Forum. The event, which took place on 27 September, both in person and online, was co-organized by the International Institute for Sustainable Development (IISD), the International Chamber of Commerce (ICC), and CUTS International, Geneva.

Moderator Alice Tipping, Lead for Sustainable Trade, IISD, set the stage for the conversation, outlining how the past several years have already seen a sea change in both the substance and practice of trade policy. Two examples of how the substance is changing are the discussions underway among over 80 WTO members on potential rules for digital trade, along with efforts among other WTO member groups to look at where the trading system can contribute to tackling environmental challenges such as climate change or plastic pollution.

Currently, the WTO’s rules on digital economy issues are limited. There has long been in place a moratorium on customs duties on electronic transmissions, which normally must be renewed every two years at the Organization’s ministerial conferences, and there is a work programme on e-commerce that dates back to 1998. However, the moratorium has been dogged with repeated questions over whether it should be scrapped, made permanent, or continue to be renewed on a roughly biennial basis. Discussions under the work programme have also been limited and, in some WTO bodies, infrequent. In 2017, however, a large group of WTO members launched a “joint initiative” towards negotiating binding rules on digital trade, which has advanced significantly in the years since.

While the WTO’s Committee on Trade and Environment (CTE) is an important forum for environmental issues, and multilateral negotiations on select environmental agenda items have taken place in parallel since 2001, there is a growing appetite among WTO members to have a space for more targeted work on select issues. To complement the conversations underway in the CTE, following extensive preparatory work, different WTO member groups launched ministerial statements for three “joint initiatives” – on trade and environmental sustainability, plastic pollution and environmentally sustainable plastics trade, and fossil fuel subsidy reform.

However, the practice of launching joint initiatives is controversial in Geneva circles, given that some WTO members worry that such processes could detract attention from the existing issues on the multilateral agenda that already have agreed mandates. While some of these joint initiatives envision the negotiation of new rules, others have involved sharing experiences, best practices, and ideas for cooperation. These joint initiatives involve a subset of the WTO membership.

“This is not an easy discussion,” said Tipping, noting the tension around the emergence of joint initiatives. This is why, however, “it’s important to think and to talk about what these changes might mean for international cooperation on trade policy in the coming years – both the opportunities that they present, but also the challenges that might be there that we need to acknowledge and address.”

The digital economy: eyes on process, emphasis on capacity building

The Public Forum session began with a deep dive into the digital economy and the role of the trading system, especially in light of the rapid changes seen in the digital landscape over the past few years due to the COVID-19 pandemic. With 87 WTO members now looking to clinch a binding deal on e-commerce rules next year, speakers weighed what the substance and the process of these negotiations should entail, and what implications this would have for developing country members and smaller businesses located in those economies.

Digital trade has great potential in helping address societal and environmental goals “when treated well,” said Kumar Iyer, Director General, Economics, Science, and Technology, Foreign, Commonwealth, and Development Office (FCDO), UK, but it can also hamper achieving those objectives when handled poorly. The question is “how to maximize the advantages and minimize the risks,” especially in such a vital area.

“These are not challenges that can wait. They will overtake us,” he said, explaining that existing rules could risk becoming obsolete, along with putting the WTO’s relevance into question. Bad practices in the digital sphere could also become increasingly commonplace unless WTO members find paths forward to answer the challenges and opportunities being posed by an increasingly digital economy.

Similarly, Ute John, Chair of Trade and Investment Commission, ICC, and who also works at the Mercedes Benz Group, noted that new barriers in digital trade could pose risks to companies and sectors, urging WTO members to make the moratorium on customs duties on electronic transmissions permanent. A car, for example, is now “a computer on wheels,” John noted, meaning that the scope of what an electronic transmission covers is becoming “increasingly intensive,” and introducing such customs duties could have far-reaching ramifications.

“The pandemic has accelerated the digital transition, and this affects all companies, irrespective of size, sector, or region,” John told the audience. The e-commerce negotiations currently underway among a group of WTO members should involve an “ambitious agreement” that includes data governance, such as data flows and cyber privacy. With momentum in the talks picking up, a deal at the WTO’s next ministerial conference (MC13) could be in sight, John said.

Negotiating new rules in this area, however, will be challenging for governments, especially given that this is a negotiation that is not a traditional exercise on market access, noted Ambassador Pimchanok Pitfield of Thailand, who represents the Southeast Asian nation at the WTO. This is a negotiation that involves regulatory issues and regulatory convergence, but “at the same time, compliance costs are high, especially for developing countries, so we need to take that into account.”

John also argued for the value of capacity building, noting it would benefit many companies that are part of the ICC and that are based in developing countries. This support would be important for these companies to take part in the conversation and benefit from the changes underway in the digital economy.

Capacity building would also be key for governments, the audience heard. “These are new issues” and therefore not all delegations will have the technical expertise they need, said Pitfield. “Because these are different rules, they require different skills to negotiate,” Tipping concurred, noting a new report from the TradeExperettes network that named capacity building one of the recommended “quick wins” that WTO members should consider on digital trade.

Ambassador George Mina of Australia reminded participants that the digital economy, while long a part of our daily lives, is still a comparatively nascent area in international rule making. “We have a long way to go on digital trade,” said Mina, noting that the moratorium on customs duties on electronic transmissions remains the only specific rule at the WTO on e-commerce, though some existing rules in areas such as services trade may intersect with the digital economy. The joint initiative on electronic commerce provides a platform that WTO members can build from, he said.

Trade and environment: tackling existential threats

The other major substantive theme of the session was the role of trade cooperation in tackling pressing environmental challenges, especially the climate crisis.

“Climate change is the single biggest threat facing all of our nations. It is existential in nature,” said Iyer, pointing to recent examples of flooding in Pakistan, droughts in Europe, and hurricanes in the Caribbean as cases where communities are feeling the impacts of the climate crisis in their daily lives. These extreme weather events also affect the poorest the hardest. “It is imperative for us to find solutions here. Trade is not the only lever, but it is absolutely a part of the solution set,” he said.

Examples of where the trading system could help, Iyer noted, would be a “coordinated approach to carbon leakage” and liberalizing trade in environmental goods and services, noting that the trading system will not always be “the answer to all of our targets” and should not be treated as such.

While the trading system can help in tackling threats such as climate change, it can also be a hindrance to those same objectives if not handled carefully. “We can’t let the trading system be the way that you can evade” commitments made in the UN climate talks or other international forums, said Iyer. Initiatives such as the trade and environmental sustainability structured discussions (TESSD) underway among a large group of WTO members can be a source of excellent work in this vein, he urged.

John concurred, referring also to the informal dialogue on plastic pollution and environmentally sustainable trade (IDP) underway by another group of WTO members, which has some overlapping membership with the TESSD initiative. These informal initiatives, Tipping indicated, are a space where governments are “sharing best practices on how trade can contribute,” and while some may lead to negotiations, that is not their sole purpose and may not be the ultimate outcome.

One of the big challenges, however, is the current narrative around environmental protection. Pitfield, recounting the evolution of trade and environment issues since the 1992 Rio Earth Summit, indicated that one of the big problems has been in making the benefits of these policymaking efforts evident. “It is easier if you can demonstrate the benefits of why you have to negotiate on the digital economy. The benefits are more tangible.”

Today, as extreme weather events make the impact of climate change increasingly apparent, that conversation is beginning to show real progress. But that does not mean that the road ahead will be easy. For instance, while Thailand is an advanced economy and has taken important policy steps like establishing a carbon credit market, it cannot necessarily keep the pace of larger economies like the EU. The narrative here, unlike the digital economy, can easily become negative. For example, there are concerns that the changes in economic policy laws and frameworks needed to tackle the climate crisis are “difficult, burdensome, and high cost.”

“I think we need to find a new way to present these issues,” said Pitfield, highlighting the importance of multilateral cooperation for the environment, as well as that of capacity building and access to technologies, though this does not have to entail no-cost technology transfer. It also means acknowledging that while some terms, such as the circular economy, have become common parlance in policy circles, these issues may not be as clear-cut to small and medium-sized enterprises (SMEs) in smaller economies, she said.

While the narrative around environmental issues is complex, the advances seen at the international level on cooperation in trade policy for environmental protection are showing promise, panelists noted. “There is something very positive emerging here in Geneva” on trade and environment, confirmed Mina. Thirty years ago, “Geneva was the capital for trade negotiations globally.” “Today, I would say it is a key capital for trade negotiations and a key capital for trade policy and what trade policy can bring to broader global goals,” he said.

“Cooperation doesn’t necessarily mean jumping into rule making […] and we aren’t just jumping into rule-making,” Mina emphasized. An important area where trade policy can help is addressing environmentally harmful subsidies, Mina said. This would be “one of the most urgent things we can do to help the climate” and achieve the objective of net-zero emissions.

More broadly, Mina affirmed, policymakers must across the board ensure that in times of conflict and crisis, they “keep power out of international economic relations” and keep their focus instead on cooperation on imperatives such as food security, the digital economy, and the environment.

“The fact of cooperation needs to be treated as a precious thing in a world where multilateral regimes are under enormous pressure,” said Mina. “This cooperation needs to be fostered, and governments need to be open to different avenues for achieving that.”

Crucial in this international cooperation is talking not just to like-minded governments but also to the “un-likeminded,” said Pitfield. “Cooperation will start if you open your mind as well” and are willing to engage and exchange ideas, even when a given government is not ready to become an active participant in a particular initiative or negotiation.

The importance of speaking not just with those who agree, but with those who hold different views, was reiterated by fellow panelists, as well as event organizers. Rashid Kaukab, Executive Director, CUTS International, Geneva, flagged that transparency in these processes is crucial to have meaningful engagement by all those affected, as is capacity building. “Can we get out of our comfort modes and talk to the un-likeminded?” he asked. It is worth a try, cautiously and thoughtfully, especially when we are no longer “in a static world.”

Moving ahead in groups: considering systemic and development implications

During the question-and-answer session, some participants referred to the tension inherent in pursuing new rules in areas such as e-commerce among groups of WTO members, while many crucial issues on the existing multilateral agenda for negotiations have long struggled to advance.

For instance, Buddhi Prasad Upadhyaya, Counsellor and Deputy Permanent Representative (Commerce), Permanent Mission of Nepal in Geneva, reminded the audience about how the conclusion of the Uruguay Round in 1994, which set up the WTO, left some gaps to be addressed during negotiations further down the line, such as on agriculture.

“If we only focus on a few areas for developing new rules, by ignoring other aspects [of rules where urgent gaps exist] and also without taking into account the capacity constraints of some members, how can we ensure that the WTO will deliver in an equitable and just manner?” he asked.

Others asked about the systemic implications of subsets of the WTO’s membership moving ahead to craft rules and hold conversations on certain issue areas that do not currently have multilaterally agreed mandates, and doing so without the consensus of the full membership.

“Would you accept…that there is real, genuine, legitimate concern about the systemic consequences for the WTO of groups of members going off and embarking on negotiations that are basically ‘well let’s just do it and work out the legalities later,’ when there are pressing outstanding issues” that are extremely important, asked Jane Kelsey, Emeritus Professor, University of Auckland’s Faculty of Law.

Kelsey further noted that the 1998 work programme on e-commerce does not mandate negotiations and goes beyond the moratorium on customs duties on electronic transmissions. She also flagged that the WTO’s Marrakesh Agreement refers to how members should go about adopting new rules and amending existing rules, and to the need for consensus from the Organization’s full membership.

At the same time, “it is important for all countries here to have the opportunity to do agenda setting,” from the smallest economies through to the medium-sized ones and beyond, Mina noted. “We’re not going to do that if we require absolute consensus at the start of any idea that is ultimately going to form the basis of a rule-making project,” he said, warning that this approach could have “systemic consequences of its own” in “completely stopping rule-making.”

“I completely agree with the comment from Nepal about the gap that was left over in the Uruguay Round on agriculture and the urgent need for us to get back to the table on that subject,” he added.

Under the WTO’s services rules, negotiating bilaterally and plurilaterally is foreseen and common, Pitfield added, referring to her own experiences as a services negotiator. This has bearings also on the services-related conversations involving digital trade. Furthermore, “I also want to distinguish between the discussion on the process and the outcome. The outcome, in the WTO, should be, in principle, MFN,” said Pitfield, referring to the principle of most-favored-nation treatment under the Organization’s rules.

Sofia Baliño is Senior Manager of Communications and Engagement at IISD.

To read the original policy brief, please click here.

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To re-launch the USSC Debate Papers series, the United States Studies Centre invited Wendy Cutler, Vice President at the Asia Society Policy Institute and a veteran USTR trade negotiator, and Daniel M. Price, Managing Director at Rock Creek Global Advisors and a former senior White House official responsible for international trade and investment in the George W. Bush administration, to discuss the Biden administration’s first major trade-related effort in the Indo-Pacific.

SO FAR, THE GLASS IS HALF FULL

The Indo-Pacific Economic Framework (IPEF) is a substantive, forward-looking initiative that focuses on some of the most pressing issues facing regional governments and their citizens, including unprecedented supply chain disruptions, severe climate change impacts, and a growing digital divide. While trade is an important feature of the initiative, its agenda rightly goes beyond what is found in traditional trade agreements. As National Security Advisor Jake Sullivan recently said, “IPEF is a 21st-century economic arrangement designed to tackle 21st-century economic challenges.” IPEF is expected to serve as a platform for establishing common norms and standards among participants on these emerging matters while furthering cooperation and capacity-building efforts.

IPEF is an important vehicle for enhanced US economic engagement and leadership in the dynamic and innovative Indo-Pacific region. Since the Trump administration’s exit from the Trans-Pacific Partnership (TPP) in 2017, US economic initiatives in the Indo-Pacific have been sporadic at best, leaving US regional relationships largely defined by security ties. While the security leg is unquestionably important, our partners have been clear: without a strong economic pillar, US engagement will be incomplete and will drive our partners closer to China for trade, investment and supply chain connectivity. The wide and diverse participation of 13 regional partners in IPEF is a testament to the fact that these countries want the United States back in the region engaged in the economic arena.

Our regional partners have not slowed down while Washington has been largely missing in action on the trade front. Across the Indo-Pacific region, we have witnessed a steady march of new trade agreements that do not include the United States. As a result, Washington has ceded the development of new rules, standards and norms to others, while being denied the market access benefits directed to others. IPEF puts the United States back in the mix, opening new opportunities for the United States to help shape the rules and gain further access to the growing and innovative Indo-Pacific markets while serving as an important counterweight to Chinese regional economic integration efforts.

IPEF is designed to pave the way for outcomes in any of the four pillars to be realised relatively quickly. Many, if not all of the IPEF results may not need US congressional approval, which history has shown can take several years. Furthermore, IPEF will likely facilitate “early harvest” outcomes — narrower agreements that can be implemented as soon as they are agreed upon, rather than waiting for all elements of a comprehensive agreement to come together. This becomes all the more important given how fast complex economic issues, like supply chain resiliency and digital trade, are evolving in all corners of the world in real-time.

Furthermore, IPEF is not necessarily the end of the story. If successful and impactful, it can be a stepping stone to even stronger regional economic integration efforts among the United States and the IPEF partners. This could even extend to US tariff cuts, which the recent USTR IPEF Federal Register notice makes clear are off the table “at this time.” It’s undeniable that for certain IPEF partners, tariff reductions would help unlock their willingness to embrace other issues of importance to the United States. IPEF is expected to offer other benefits and incentives that go a long way in alleviating tariff concerns.

Thirteen regional partners have confirmed that IPEF is a solid, serious and relevant initiative by joining, and the door remains open for others. That said, IPEF, like any initiative, has its shortcomings. Many observers are quick to compare it to a comprehensive trade agreement, particularly TPP’s successor, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and conclude it doesn’t meet the mark given that IPEF currently entails no tariff reduction, little if any enforceability, and questionable endurance. However, a more appropriate way to evaluate IPEF is the alternative: Are the United States and the region better off with no US-led economic engagement platform in the Indo-Pacific region versus an initiative that may not go far enough, at least initially? Of course not. The time is ripe for the United States to step up its economic engagement in the region and work with others to produce meaningful IPEF outcomes that matter for their citizens, workers and businesses.

Wendy Cutler is Vice President at the Asia Society Policy Institute (ASPI). She spent nearly three decades as a diplomat and trade negotiator in the Office of the US Trade Representative.

SO FAR, THE GLASS IS HALF EMPTY

When President Biden took office, his team pledged to pursue a foreign policy “for the middle class” and a “worker-centric” trade policy. Seventeen months later, they have yet to translate these slogans into an affirmative international agenda with concrete outcomes. US allies and partners increasingly fear that these slogans provide not a “prism” for US policy but a “prison” that is paralysing US engagement.

Summit and leaders’ statements hailing shared democratic values cannot substitute negotiating real trade, investment and supply chain agreements that provide shared benefits and restore US leadership. Nowhere is this shortfall more palpable or dangerous than the Indo-Pacific. The United States must urgently move to deepen economic linkages and erase doubts about its long-term commitment to the region, which is vital to US economic and strategic interests.

The most obvious approach — advocated by Australia, Japan, Singapore, New Zealand, and others — would be for the United States to rejoin the Trans-Pacific Partnership (TPP) while seeking to renegotiate, update, or strengthen certain elements, including rules on the environment, digital trade and critical supply chains. Regrettably, the Biden administration has rejected this course, unwilling to take on either the far-left or the Trumpian-right.

Instead, the United States has proposed the Indo-Pacific Economic Framework (IPEF), an initiative thus far only vaguely defined by soundbites, a launch statement outlining four notional “pillars,” and a leaked “scoping paper” on a trade pillar that dare not speak of trade.

As it currently stands, IPEF is simply not enough. A broad and general framework will do little for America’s middle class, workers, or strategic interests.

What can the United States do to make IPEF meaningful and attractive? Here are four suggestions:

On trade

Put traditional market access on the table to enable IPEF to achieve its objectives of strengthening supply chains and decarbonising our economies.

Promote trade in manufactured and agricultural products by requiring product standards to be non-discriminatory, based on scientific evidence and consistent with agreed international norms.

Include ambitious digital provisions that can drive growth and innovation, create jobs in manufacturing, agriculture, and services, and promote “upskilling,” while maintaining regulatory flexibility to address the challenges of the rapidly evolving digital economy.

On supply chains

IPEF countries are already party to trade agreements (including the Regional Comprehensive Economic Partnership Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership) designed to promote regional trade platforms. Without new market access from the United States on offer, it will be difficult to shift supply chains away from dominant markets like China. The North American supply chain works so well because components and finished products move duty-free according to comparative advantage.

If a goal of IPEF is to build resilient supply chains for critical goods — such as semiconductors or electric vehicle batteries — the agreement must provide meaningful incentives to produce those goods (and their related services) in IPEF countries. As a start, the parties could agree on both favourable tariff treatment and common standards for such goods that facilitate trade within IPEF, and of products and services that meet those standards.

Without such incentives, companies will take advantage of the preferential access provided by existing free trade agreements that do not include the United States, thus excluding US-based companies and workers. If the Biden administration is serious about wanting to help US workers and boost competitiveness, we need to be part of the supply chains in the world’s fastest-growing regional economy.

On investment

Commerce Secretary Raimondo recently observed that IPEF may lead to additional US investment in the region. IPEF partners would certainly welcome that. But to make it happen, IPEF must include specific commitments that attract investment.

For example, IPEF should incorporate enforceable investment protections that address key challenges of discrimination, arbitrary treatment, forced tech transfer, and intellectual property theft.

The United States could also mobilise private capital by committing to increase public financing of clean tech and the energy transition, and by developing new public-private partnerships.

In the end, private sector investment in clean infrastructure and technologies will be driven less by the promise of public funds and more by the prospect of market access and improved domestic investment regimes.

Get moving

After months of talks, even our closest allies are now impatient for a clearer vision and more tangible US economic engagement. The Biden administration should swiftly put meat on the bones of its initiative to maximise its economic and strategic value for the United States and its partners.

The recent adoption by the US Congress of the CHIPS and Science Act, together with R&D and energy provisions of the Inflation Reduction Act, marks a beginning for domestic renewal of the US industrial and technology base. What is needed now is an international economic agenda that is no less ambitious. IPEF, as presently articulated, falls short. But it is not too late for the Biden administration to break free of its own rhetorical prison.

Daniel Price is Managing Director at Rock Creek Global Advisors and formerly served as international economic advisor and “sherpa” to President George W. Bush.

To read the full post, please click here.

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Action and progress, especially on managing transatlantic data flows, will be key to removing this skepticism. While not formally part of the TTC agenda, it’ll still be judged on the outcome of negotiations for a new Privacy Shield agreement. Negotiations are focusing on how to remedy one of the principal defects identified by the Court of Justice of the European Union (CJEU)—a lack of independent oversight and redress in the U.S. system for Europeans who suspect the National Security Agency surveilled them. The outcome will likely be administrative (not legislative)—a non-executive U.S. agency such as the Privacy and Civil Liberties Oversight Board acting in combination with the Foreign Intelligence Surveillance Court (similar to U.S. administrative law judges). A key question is whether this solution is permanent enough (and thus defendable in the CJEU). U.S. officials telling firms to stay in Privacy Shield is hopefully a sign that a deal is almost done.

Beyond Privacy Shield, the TTC is working on a host of other technology and data issues. TTC WG5 on data governance and technology platforms “is tasked to exchange information on our respective approaches to data governance and technology platform governance, seeking consistency and interoperability where feasible.” Shared concerns include illegal and harmful content and their algorithmic amplification. Other issues are platform transparency, responsibility, and policies relating to sharing data with researchers and disinformation, product safety, and counterfeit products. It also notes an intention to share information on existing and future regulatory approaches and points to a shared interest in voluntary and multi-stakeholder initiatives on these issues. Data and digital issues also cut across other working groups and issues.

The numerous references in the joint statement that both sides “should respect the different legal systems in both jurisdictions” should dispel any expectation that the United States would simply accept EU regulations and base discussions on data privacy, AI, and platform regulation around them. It would not be in the U.S. interest to harmonize regulations with the EU, nor is it necessary. There is no reason why there should not be different U.S. and EU regimes for most digital issues, as long as they are broadly aligned. Regulations don’t need to be carbon copies to have a broadly similar effect. After all, Europe and the United States are unlikely to agree on a privacy framework or how to regulate AI. This is not to say that the two sides should not work toward common principles and regulations, but they should not expect to achieve complete convergence.

As to data governance, the two sides could explore (once a successor to Privacy Shield is enacted) the development of other data transfer mechanisms under GDPR, such as codes of conduct and certification schemes. These would provide a broader, flexible set of legal tools for firms from different sectors to manage data reasonably and responsibly under GDPR. Europe has been considering potential codes of conduct for the market research, health research, and clinical research services sectors. EU and U.S. stakeholders could work together to develop these. This would be based on the premise that Europe would not create “European data spaces” that U.S. researchers couldn’t access. One specific idea is a certification or research framework for health and genomic data sharing for EU and U.S. researchers. COVID provided the lesson that discriminatory research access and restrictions on health data transfers are bad for public health.

Anti-trust and competition regulation is likely to be an exceptionally touchy issue given European regulators targeting U.S. firms. Europe is not only looking to use traditional anti-trust and competition policies, but also new approaches to regulating big platforms (the so called “gatekeepers”). This new approach is essentially a shift from ex-post judicial enforcement of antitrust rules to ex-ante regulatory rules. The EC’s Digital Markets Act (DMA) therefore illustrates a “precautionary antitrust.” The DMA and, to a lower extent, the Digital Services Act (DSA) outline a new set of competition policies that seek to reduce the power of big platforms. However, the prospect for alterations of the DMA or the DSA as part of transatlantic discussions is unlikely since Vice-President Vestager made clear that both are outside the scope of discussions. This begs the questions as per the effectiveness and the remit of the TTC’s discussions with respect to the regulation of online platforms.

One potential outcome is the proposed U.S.-EU Joint Technology Competition Policy Dialogue, which would focus on approaches to competition policy and enforcement. In line with this, Commissioner Reynders wants to be able to share information with the U.S. Federal Trade Commission, Justice Department, and Consumer Financial Protection Bureau about how those agencies can use the tools at their disposal to better protect consumers online. He also proposed restarting negotiations to update the EU-US agreement to cooperate on consumer protection.

On AI, the joint statement acknowledged the United States and EC’s roles as founding members of the Global Partnership on AI (GPAI)—a multi-stakeholder group launched by the G7 to focus on the responsible development of trustworthy AI—and that both sides agreed “to develop a mutual understanding on the principles underlining trustworthy and responsible AI.” They committed to ensuring a policy environment that supports the deployment of trustworthy AI systems, cooperating across borders and sectors on responsible AI, and facilitating public and private investment in R&D to support trustworthy AI.

The TTC acknowledged that both sides have agreed that “policy and regulatory measures should be based on, and proportionate to, the risks posed by the different uses of AI.” However, each side has a very different approach to achieving that goal. The EU has proposed legislation, the AI Act, which would subject high-risk uses of AI to certain (onerous) requirements, whereas the United States has proposed a voluntary risk management framework to guide the development and use of AI systems. As long as the EU does not attempt to impose their restrictive AI Act regulations on U.S. companies doing business in the U.S., such a divergent regulatory framework should not be problematic. However, the two sides could find specific issues to work together on such as sectoral areas for AI cooperation, including in autonomous vehicles, financial trading, etc.

As to cooperation on platform issues, a significant potential area for collaboration is the issue of providing greater access for researchers to access platform data. But a key barrier to overcome is the legitimate concerns from platforms (particularly social media) that want to make sure they aren’t violating any laws (especially privacy) in sharing data. They also want to make sure researchers adhere to the terms of any access agreement. So there’s an opportunity for the United States and EU to work with industry to develop a code of practice around research access to platform data (around various issues, including online fraud, etc.).

There is also an opportunity for pragmatic cooperation on platform policies to counter counterfeit products sold online. “Know your business customer” policy is central to preventing bad actors from operating under a cloak of anonymity. But the key issue is how best to identify them. The EC is considering several proposals. It’d be great if these were added to the Digital Services Act (DSA). The United States is considering minimum requirements for online platforms in the SHOP SAFE Act and INFORM Consumers Act. Given the alignment of timing and interest, ideally, rather than have the DSA set up one set of rules and the United States pursue a different set, the two sides could harmonize rules based on industry best practices.

TTC principals stressed the need for transparency and stakeholder engagement. The Department of Commerce, State Department, USTR, and European Commission have launched websites and public consultations on the TTC. It’s incumbent upon those that want the TTC to succeed to engage and put forward helpful research and pragmatic proposals. For example, a U.S.-EU quantum computing agreement. The United States has recently concluded agreements with Japan and the United Kingdom on quantum computing policy, which contrasts with early proposals in Europe to preclude such cooperation with the United States. Another idea is for both sides to explicitly exclude U.S. and EU investments into defense technology from their respective foreign investment review processes (as proposed by the National Security Commission on AI). This would support greater cooperation on AI for defense-related purposes. Another idea is to expand the TTC’s work on AI measurement. For example, the two sides could develop shared, representative datasets of faces to serve as a more reliable resource for organizations developing facial recognition technology. The final idea is for the two sides to work together on pre-standardization cooperation on new and emerging technologies. Such cooperation (already used for advanced materials and nanotechnology) brings respective agencies together early to develop standardized terminology, reference materials, and testing and measurement protocols for new materials (physical, chemical, material, electronics etc.)

Europe and the United States have more in common than they tend to admit—even when it involves contentious issues—and their shared values stand in stark contrast to those of authoritarian digital powers such as China and Russia. It’s essential EU and U.S. policymakers realize the enormous economic and innovation stakes involved as they consider the next steps for the TTC. The Information Technology and Innovation Foundation’s report “How to Build Back Better the Transatlantic Data Relationship” details what’s at stake. Weakening transatlantic digital engagement and cooperation will accelerate the fragmenting of the global digital economy as it’d reflect a fundamental fracture between two key players. Such a scenario would hurt Europe and the United States by a lot more than what’s directly at stake in the transatlantic digital relationship. To avert this costly scenario, both sides need to focus on delivering concrete results in 2022. In doing so, they would set the foundation for broader cooperation on digital and technology issues at the United Nations, G7, World Trade Organization, and elsewhere. 

Nigel Cory is an associate director covering trade policy at the Information Technology and Innovation Foundation. He focuses on cross-border data flows, data governance, intellectual property, and how they each relate to digital trade and the broader digital economy. Cory has provided in-person testimony and written submissions and has published reports and op-eds relating to these issues in the United States, the European Union, Australia, China, India, and New Zealand, among other countries and regions, and he has completed research projects for international bodies such as the Asia Pacific Economic Cooperation and the World Trade Organization. 

To read the full commentary from the Information Technology and Innovation Foundation, please click here.

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