Digital trade paper shows US using WTO as part of approach to China

A recent United States paper submitted to the World Trade Organization (WTO) is a notable step toward establishing rules to remove digital trade barriers. The paper is significant for identifying the objectives of an international agreement on digital trade.

However, it is also important because the paper constitutes a little-noticed approach to countering China’s digital trade barriers and demonstrates the administration’s willingness to use the WTO to establish trade rules.

{mosads}Last December, the United States and 76 other WTO members agreed at the Buenos Aires WTO Ministerial to start exploring WTO negotiations on trade-related aspects of e-commerce. Those WTO members are now beginning their work by identifying the objectives of such an agreement.

The U.S. paper is an important contribution because it comprehensively addresses the digital trade barriers faced by many companies.   

The U.S. notably asserts that an agreement should not just apply to the WTO’s limited definition of “e-commerce.” This definition only covers activities related to the electronic provision of goods and services, such as distribution, marketing and sales.

Instead, the U.S. says that the term “digital trade” should be used to cover all trade-related aspects of commerce by electronic means.

Based on this broader definition, the U.S. paper calls for rules protecting the free flow of information, including allowing cross-border data flows, preventing data localization and prohibiting web blocking.

The paper also advocates duty-free and non-discriminatory treatment of digital products, barring forced technology transfer, non-discriminatory cybersecurity requirements, facilitating internet services and allowing competitive telecom markets.

Finally, recognizing how digital trade particularly helps small and medium-sized exporters, the U.S. paper urges the adoption of reasonable “de minimis” exemption for customs duties and taxes so that small shipments move more quickly and smoothly across borders.

If ultimately incorporated into an agreement, these objectives would comprehensively address most digital trade barriers. Many of the top barriers often raised by information and technology companies, from restrictions on cross-border data flows to server localization requirements to discriminatory standards, would be limited or prohibited.

Therefore, the U.S. paper is a major step toward liberalizing digital trade and indicates that an effective WTO agreement on digital trade is very much possible. 

However, the paper is also notable outside of the context of shaping a WTO digital trade agreement. The U.S. Trade Representative’s recent Section 301 investigation of China’s technology transfer, intellectual property and innovation policies found that China imposes many of the same digital trade barriers that are covered by the U.S. paper’s objectives.

As a result, the paper and the United States’ work toward a WTO digital trade agreement effectively constitute a response to China’s barriers.

This is in addition to the formal actions announced by the president of considering increasing tariffs on Chinese goods, starting a WTO case against China’s discriminatory IP licensing practices and addressing concerns about China directing or facilitating investment in important U.S. industries or technologies.

Thus, while some focus solely on the proposed tariffs on Chinese goods, it is important to keep in mind that the administration is also essentially pursuing in parallel a multilateral solution to China’s discriminatory policies.

In a related manner, the U.S. paper is also notable because it represents a significant engagement by the administration in the WTO system. A common narrative by commentators is that the administration is agnostic at best or antagonistic at worse toward the WTO.

The U.S. paper, however, shows that this administration is willing to work within the WTO where it appears that it would be productive. Indeed, U.S. Trade Representative Robert Lighthizer remarked when the WTO initiative on digital trade was launched in December that, “Initiatives like this among like-minded countries offer a positive way forward for the WTO in the future.” 

The submission of a paper by the United States to the WTO is usually hardly a noteworthy occasion. However, in this case, it is a notable first step toward knocking down digital trade barriers and an indicator of the administration’s trade agenda. Both the tech community and the trade community at large should closely follow what happens next. 

Stephen J. Claeys focuses on issues relating to international trade as a partner at Wiley Rein LLP, which represents clients in regulatory, litigation and transactional matters. Claeys previously handled international trade issues in the White House, the House of Representatives Committee on Ways & Means and the Department of Commerce.