In a stunning about-face, U.S. Trade Representative Katherine Tai announced at the end of October that the Biden administration is retreating from long-held U.S. policy preferences on digital trade. Now comes word that just yesterday, the Biden administration postponed digital trade talks under the Indo-Pacific Economic Framework.
Rather than open global markets to e-commerce, the U.S. has sided, Tai sided, with those who believe protectionism will result in more “policy space” in which to regulate Big Tech. In truth, this far-left flight of fancy will only hurt U.S. innovation and help the Chinese steal America’s intellectual property.
Until now, the U.S. has stood squarely against taxes on cross-border data flows, the requirement that data be stored in an export market (i.e., “data localization”) and demands that the source code of software be shared with an importing country.
In 2019, 76 countries set out to lower these barriers under an arrangement — called the Joint Statement Initiative on Electronic Commerce — at the World Trade Organization (WTO). This “coalition of the willing” now stands at 90 countries.
The stakes couldn’t be bigger. The Congressional Research Service says digital trade supports 7.7 million American jobs and accounts for 5 percent of U.S. gross domestic product. The Information Technology Industry Council adds that digital trade generates 55 percent of U.S. exports of traded services, amounting to nearly $1 trillion in sales annually.
However, as the council explained in comments for the 2023 National Trade Estimate Report, protectionist practices abound. One of the 34 countries singled out was China, which restricts foreign cloud computing services, for example, and often turns a blind eye to cross-border counterfeit crimes. Likewise, in its 2023 Special 301 Report, the U.S. flags China for forced technology transfer practices and a disregard for securing test data used in support of patents, among other challenges.
Given all this, you’d think the U.S. would hold the line on digital trade. But you’d be wrong.
Instead, Sen. Elizabeth Warren (D-Mass.) and her allies in Congress have Tai’s ear. Warren likes to argue that trade agreements help Big Tech get around U.S. laws. Specifically, she claims companies like Amazon can use digital trade provisions to “evade any domestic regulations that threaten their monopoly size and power,” simply by alleging they’re illegal under the WTO, for example. That’s why digital trade talks are now postponed under the Indo-Pacific Economic Framework.
Warren’s answer? Get rid of digital trade provisions to free up policy space to regulate Big Tech. This is a canard.
Digital trade rules already include exceptions to create policy space under specific circumstances, like national security. Under the Comprehensive and Economic Trans-Pacific Partnership, protections for source code don’t apply to critical infrastructure. Similarly, the digital trade chapter of the U.S.-Mexico-Canada Agreement includes a variety of exceptions, the proviso being that these shouldn’t result in measures that are “arbitrary or unjustifiable,” “a disguised restriction,” or overly trade restrictive.
Canada’s proposed text of the Joint Statement on Electronic Commerce, for example, gives judicial and other authorities access to source code in order to conduct regulatory reviews. It also applies to WTO exceptions, including on national security. As Ottawa explains, these exceptions offer the “appropriate policy flexibility to pursue legitimate domestic public policy objectives.”
In short, other countries are negotiating more than enough policy space for Warren to pursue “legitimate” aims.
Then there’s China. Sen. Ron Wyden (D-Ore.) blasted Tai’s retreat, calling it a “win for China, plain and simple.” Sen. Mike Crapo (R-Idaho) lamented that “we have warned for years the either the United States would write the rules for digital trade or China would. Now, the Biden administration has decided to give China the pen.”
It’s clear what China plans to do with this pen. Beijing has strong preference for narrowing the definition of digital trade and little interest in protecting personal data or source code. The U.S.’s 2023 Special 301 Report also raises concerns about China’s tolerance of online piracy and its disregard for the intellectual property included in many exports of traded services.
Tai’s retreat on digital trade will subsidize China’s theft of America’s intellectual property. There’s a bigger picture. The Biden administration, which supported the WTO’s waiver of patents on COVID vaccines and is considering expanding it, appears philosophically opposed to intellectual property. There’s no other explanation for why it has gone completely silent on global abuses of compulsory licenses more generally.
For U.S. owners of intellectual property who stayed quiet as the Biden administration helped pave the way for foreign governments to expropriate biopharmaceutical patents, this is the slippery slope.
It could, and just did, get worse. In 2021, Warren asked Tai whether it was time to “eliminate trade rules that drive up drug prices” to free up policy space to regulate Big Pharma. Sound familiar? It should, because this is the same twisted logic that has led the Biden administration to bail on digital trade under the Indo-Pacific Economic Framework.
When Congress took up the U.S.-Mexico-Canada Agreement, 90 percent of the House and Senate voted in favor of digital trade. With this statistic in mind, Tai’s moves are not a retreat. They’re a betrayal.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University, and a Global Fellow at the Wilson Center’s Wahba Institute for Strategic Competition. Follow him on X @marclbusch.