Digital: USTR Tai on Digital Trade at the Ways & Means and Finance Committees
United States Trade Representative Katherine Tai faced two grillings last week. The first was at the House Ways and Means Committee, and the second was at the Senate Finance Committee. Simon Lester has some posts at his International Economic Law and Policy Blog that are worth a read on her comments on about getting rid of ISDS, trade trade agreements “pitting Americans against Americans”, and WTO complaints against China.
This post takes a look at some of her comments on digital trade, where the focus was on last year’s pullback by the US on certain data rules.
“Outdated” digital trade rules
First, USTR Tai repeatedly emphasised that the US’s previous approach to digital trade policy was “outdated”, “stuck in time”, and based on the premise that data was just a “facilitator of traditional trade transactions”. Now, she said, we realise that “data has become the commodity itself”:
[Ways and Means, 1:30:00] … The digital trade provisions that you've referenced go to data flows, data localization and source code as well. They were developed as part of a trade policy that's really rooted in our recognition and our understanding 20 years ago that data is just about facilitating traditional trade transactions. What we have discovered today…data is not just something that facilitates traditional trade. Data is the commodity and the thing that has value in and of itself. Data is what is fuelling technological advancements. … fundamentally here in the US Congress the debates around what is the relationship between Americans and their data, what kind of rights do they have, what kind of rights to security do they have, and it's precisely because of this evolution in understanding what is at stake that we have indicated that these trade policies - that treat data in a very straightforward way and an outdated way - have to be updated to reflect the much, much more complex issues related to Americans’ privacy rights, their intellectual property rights, and also their security and our collective national security.
There is an element to truth to this - i.e. we need to make sure that digital trade rules remain appropriate and aren’t out of sync with both where the technology is and where the policy discussion is. However, I’m not sure its fair to say that negotiators of these rules haven’t thought about the changing importance of data over the last twenty years. Indeed, the recognition of data’s value is part of what has been driving the continued inclusion of these rules. There has also been a clear evolution of the data rules and active discussion of how they should be adapted for different contexts (CPTPP is not RCEP which is not the JSI E-Commerce, etc).
I’d also add that if the aim is to get these rules “updated”, that would probably be best served by the US engaging in the discussions and negotiations taking place with actual proposals for improvement.
WTO Moratorium on Customs Duties on Electronic Transmissions
Second, on the e-commerce moratorium at the WTO, USTR Tai said:
[Ways and Means, 2:35:00] The e-commerce moratorium was created in 1998. I talked a little bit earlier about how the US trade policy approach to data issues really began in 2000… On the e-commerce moratorium there's a there's a similar stuck in time element. It was developed at a time when we talked about electronic transmissions because the relevant transmission was about fax transmission. …
What developed was a norm - a promise of WTO members to each other - to say we weren't going to try and impose duties on those transmissions, even though to this day we are not really sure how you would impose a duty on a transmission that you can't see or touch. But as it is, it is now 2024, almost 26 years later. Just the reality we are living in is so far advanced.
I would just say, we have extended the e-commerce moratorium for another two years. … for those WTO Members that do not want to renew the moratorium I think we need to really challenge them to articulate what is it that they are trying to accomplish and how does it relate to the moratorium, because I'm not sure that it does.
But there is actually an evolution in ... policy debate, policy development at the WTO that is stuck in time that is reflected in this particular effort. This is one of the areas of WTO reform that we are very committed to ... [interrupted]
These comments start relatively negative - continuing the “stuck in time” theme; transition to suggesting opponents of the moratorium need to justify their position; and end suggesting the moratorium is “one of the areas” of WTO reform the US is committed to. To me, this sounded like a lukewarm defence of the moratorium, with some ambiguity regarding whether USTR thinks it is worth defending.1
Why the US changed its position on the data rules
Third, on the motivation behind the US no longer supporting previous rules on cross-border data flows, data localisation and source code protections, we got some further detail on the concerns around “policy space” that led to the changed position:
[Ways and Means, 3:00:00] … The challenge is that today it is primarily because of all of the developments in Congress that we've been following, bills that have passed out of the Congress - like the Data Brokers Bill that came out 414 to zero - in this Congress in a time where those numbers really speak volumes. With respect to the Tik Tok legislation that also moved through the House very, very swiftly and with a strong voice. Those are animated by concern around the rights of Americans with respect to their data, their really sensitive data and where it's going to go, including whether or not it ends up in places like China for surveillance purposes or other purposes that are against their interests.
… It is precisely because we are absolutely concerned with US national security, the security of Americans’ privacy rights, the security of their data, that we changed our position on these digital trade provisions [on data flows, data localization, and source code].
… Not changing our approach is what was going to put at risk all the work that you are doing here to assert the rights of Americans to their data. At the moment Americans have little to no privacy rights with respect to their data, that is something that I know that the Congress is working to change. Unless we change our approach to digital trade, unless we expand the stakeholder set to go beyond just our biggest companies, we close out the opportunity for those values to be reflected in how we approach these issues.
[Finance, 1:00:00] … The issue is who can have access to that data, and also where does the data come from? It comes from ordinary Americans. It comes from you, it comes from me, it comes from your constituents, it comes from our kids. … As a trade matter, we feel very strongly that our provisions in our trade negotiations should reflect the debates that are happening here and the legislative efforts you are all making.
[Finance, 2:26:00] … If you look at the provisions that are in question relating to data flows and data localization, let's just start right there. They're really really, they're good signaling language around free flows of data and prohibitions on data localization.
The challenge is that, you know, it's kind of defining where the companies and the private sector can have free reign, and it really cabins governmental action, regulatory action, into the confines of some exceptions. One of the serious concerns we have in at USTR, it's because we're also we're trade negotiators, we're also the trade litigators. We bring cases. We also have to defend. That those exceptions make us extremely nervous given the kinds of debate up here, which are asserting the interest of Americans into this framework, which is not reflected in the proposals.
Others have previously noted that a big problem for USTR on digital issues has been the lack of domestic policy clarity on digital issues and Big Tech more generally, and this is evident here.
At the same time, it’s not clear that any of the policies she mentioned couldn’t be implemented in a way that complies with the data rules (or using the various exceptions that usually apply). Not to mention the various other models for these rules that provide even clearer policy space (and other suggestions that have been made to manage sensitivities).2 USTR Tai’s comments emphasise defensive sensitivities around the scope of exceptions - which makes sense as these rules move from specific bilateral contexts to, for example, plurilateral agreements. However, as the next section shows - it’s disappointing that after three years there’s no proposal from the US on how this shift could be accommodated.
USTR’s achievements on digital trade
Finally, and related to the last point, does the USTR have a positive vision and agenda for digital trade?
[Ways and Means, 4:06:00] … but with respect to these digital provisions they don't take into account the interests of Americans …We will absolutely, we are absolutely interested in advancing new more modernized proposals that give Congress the space to actually …[interrupted].
[Finance Committee, 2:26:00] Sen Young: were they [security agencies] supportive of this decision to scale back US advocacy for open digital trade rules?
USTR Tai: So I'm I'm gonna quibble with you on your characterization of what we did because, I certainly don't see it as scaling back. I see it as upgrading and, advancing our conversation about, what digital trade means.
On this I’d just say I’m sure there are many who would love to see any new proposals from the US on digital trade rules. And, it’s hard to see dropping three of those rules without proposing anything to replace them as an “upgrade” or “advance”.
[Finance Committee, 2:26:00] Sen Young: So what success can you point to that you have had in persuading your counterparties, to adopt rules and to accept those rules in strengthening our digital trade ties and thus, giving influence to the United States of America in this digital economy of the present, but especially of the future?
Tai: Well, an important part of negotiations is also, talking and listening. And in, our negotiations with Europeans through the Trade and Technology Council, certainly with, the Japanese in the bilateral and other formations that we have, including in the Indo Pacific and those partners. What we see is that all of our friends and allies are all in the process of struggling with the same types of questions we are having today around privacy, around where you set the limits for who can do what with people's data. And so the progress that we are making is in advancing towards more updated proposals. And you're right, our proposals might not be the same as the Europeans, but we're all facing the same challenges.
Sen Young: … We don't have any outcomes yet. I understand that can be the case. Talking and listening has been the outcome. I know that sometimes I would regard that as part of the process before you get an outcome. We're almost at the end of the administration. You've been years in office and I would hope that we would have had an outcome. It's not always realistic. I think that's a fair way to end it.
And this exchange highlights the real issue with USTR’s approach to digital trade. Rethinking and innovating on the rules is a good thing and there are valid domestic policy/political considerations that the USTR can’t get ahead of. However, after three years the USTR is yet to clearly articulate an alternative vision for what modernised digital trade rules should look like. It’s most substantive step has instead been to undermine support for three core data rules. Further, contrary to USTR Tai’s suggestion that other countries are “struggling” with the same questions as the US, the rest of the world is continuing to move ahead (see, e.g., AfCFTA’s Digital Trade Protocol or ASEAN’s Digital Economic Framework Agreement). It’s a missed opportunity for the US not to be more actively shaping and supporting this work.
For those interested in digging into USTR Tai’s comments more, I’ve extracted the key points from automated transcripts in the following documents:
For those interested in some archival history on the moratorium, see my previous post.
Some would also question whether Americans “have little to no privacy rights”.