US Trade: USTR Tai's comments at the Aspen Security Forum 2023 - digital trade, IPEF and more
As I recently posted on X, USTR Katherine Tai’s “fireside chat” at the Aspen Security Forum is worth a listen. I’ve extracted a rough transcript of her most interesting comments below for those following IPEF, digital trade negotiations and US trade policy more generally.
On the US’s recent change of heart on data and source code rules:
This is my opportunity to explain … that what we did this fall at the WTO was not to reverse a position, was not to change a position, but to withdraw our attributions. …withdraw our indicated support for three or four proposals in the ongoing WTO negotiations on an e-commerce agreement…
What we did was to take a look look at what our positions were and to assess whether or not they still align with the domestic debate … domestic regulatory environment for these issues. … And on a couple of those proposals - ones that deal really specifically with data (data flows, data localization and also on source code) - in these three areas what I saw was that the debate that we are having here at home… has shifted significantly since we put those proposals forward in 2019. As a result we needed to withdraw our attributions to create the space for us to come up with new positions and a new orientation for engaging with the other 90 countries that are negotiating this.
While it is true what happened in Geneva was technically a ‘withdrawal’ of a position (which US Ambassador Pagan has seemed to suggest was done to match IPEF developments…), it’s not clear how this wasn’t also a reversal and change in US policy. The US negotiated data flow and localisation rules in TPP-days, included them in USMCA, and also in the US-Japan Digital Trade Agreement (and it remains bound by the USMCA and DTA). To not continue to support them would seem to be a reversal on this earlier policy approach.
On what motivated the ‘withdrawal’:
We here in the United States don't have a very robust, and this is an understatement, we don't have a very robust regulatory system for the technology and economy environment. We're struggling with that every day because in the last almost 30 years…so much has changed …and the fact that we don't have rules for a lot of this is starting to come home to roost… We're starting to realize that the implications of a regulatory system that started in the 90s and hasn't evolved very far is creating disconnects with the the implications of this technology advancement.
I'll give you one very specific example that I think may resonate with a lot of people because it's a large part of the conversation in so many ways. The unveiling of ChatGPT4 in the spring I think was a wakeup moment for all of us that wow there is a lot of innovation that's going on in our economy. … What is AI built on? It's built on massive amounts of data… You have to have access not just to those massive amounts of data you have to have access to incredibly powerful computing processes… Who has access to that kind of data and that kind of computing power? A very small number of extremely powerful and dominant companies that are almost all if not all American. That's why our posture on the rules that apply to data flows, data localization and source code is so important.
At the core of each of these proposals in these negotiations is the question that we have to answer around the balance of authority between the private sector and the companies and the government and our regulatory authorities. Who gets to decide or control how freely the data can flow and when it can be restricted? Where it needs to be stored and when access is required to disclose source code? I think that those issues are very much consequential not just for trade and economics but for our entire society. The crosscutting nature of these issues means that if we're going to lead using trade rules at a time when there is no consensus but massive amounts of debate and questioning then I, as USTR, am committing massive malpractice and probably committing policy suicide by getting out ahead of all of the other conversations and decisions that we need to make as a country.
Here Tai is (rightly) emphasising - as she has done previously - that the lack of domestic policy is hampering the US’s ability to formulate and prosecute a coherent trade policy.
Her highlighting of corporate power is also interesting and in line with the concerns raised by other opposed to the data rules. Of course, it might be noted that the rules that were likely to come out of the E-Commerce Joint Initiative or IPEF would have provided extremely broad policy space for governments (based on the broad range of participants in the negotiations, and also the RCEP rules which were likely the highest outcome that was feasible).
Realistically, the Joint Initiative ‘rules’ would have been closer to norms against restrictions on data transfers and would have allowed restrictions on the basis of the barest of justifications. I agree with Simon Lester that these provisions aren’t perfect and the exceptions, in particular, could be thought through further (the use of the General Exceptions chapeau language and a necessity test should be reconsidered). But I think we shouldn’t exaggerate the actual level of their restrictiveness on government policy - particularly in relation to data flows and localisation.
On trade and security issues:
…I don't think I should be driving that national security piece …I think that past USTRs haven't had to say it because our domestic situation was different and the global geopolitical situation was different, but I spend so much of my time thinking about democracy. We are a political democracy but I as USTR spend a lot of my time thinking about how we can democratize economic opportunity - here at home in America and how we can do that with our partners, so that they can do the same thing at home. I think that that's a really important part in terms of USTR and treating data as a national security controlled substance. I understand why that has relevance, but I think that we also have to understand the criticality of data to…our regular economic vibrancy.
Tai’s linking of security, democracy and data here is a bit ambiguous. It almost sounds like she is opposing the national security narrative around data on one side with the economic argument on the other. But I’m not sure that is her intention. It also sounds like “democratising economic opportunity” abroad might be code for exporting US labour and environmental standards, while I’m sure many US partners would appreciate more ‘democratic’ opportunities to access the US market.
On IPEF:
The Indo-Pacific Economic Framework is the Biden administration's economic engagement framework and program for our partnership with our friends in the Indo-Pacific…. We're very much applying lessons that we've learned from the past seven or eight years. So, first trade is a pillar, but it is not the only pillar. In addition to trade, we also have a pillar on supply chains, one on decarbonisation and infrastructure climate financing, and the last one on tax and anti-corruption (but I like to think of it as good governance). When you take them all together, we feel that this is a more comprehensive economic engagement than just a trade negotiation.
It's also designed to be responsive to the challenges that all of us (all 14 countries…) are grappling with today. And those are economically with respect to our resilience, with respect to our sustainability and with respect to the inclusivity of the economic outcomes that we are having at home.
Within the trade pillar we've made very, very clear - this is not a traditional Free Trade Agreement. This is not the TPP. There are things that we did in the TPP that we are not doing in the trade pillar. For example, tariff negotiations we're not doing them largely because right now in terms of aggressive tariff liberalization, it is my view that we don't have a program for doing a tariff program right now that will serve the purpose of resilience and more resilient supply chain. So, we're not doing that. But everything that we have scoped into pillar one - the trade pillar - has had to answer yes to one or more of the following questions: does this topic and issue area, does this suite of rules, promote more resilience, more sustainability or more inclusivity. …There are about 10 different issue areas within the trade pillar. We've made significant progress to achieving consensus in about five … of them. Regardless of what we were planning to do or celebrate at APEC in November of this year, we have a very full 2024 negotiation agenda, we will continue with that. We are committed to continuing with it and we have partners who have told us that they are excited and committed to continue negotiating with us through next year.
…the lessons that we've learned from the past let's say seven years on trade mean that we can't ever ignore the domestic political consequences of what we're doing in trade. So in terms of looking at next year it will be a particularly political year, but the issue of trade is inherently political. …when you are a part of the domestic economic policy team, how what you do impacts ordinary Americans at their kitchen table is always relevant. And so I think from my perspective next year for us we will be sensitive to the scale, but not the nature of the year. I think that for everything that we are doing, we stand 100% behind the responsibility that we have brought to how we've scoped and designed the negotiations.
I’m not yet persuaded by the attempts to contrast IPEF with traditional trade agreements on the basis that it is “more comprehensive” and covers things like supply chain, green economy, and anti-corruption issues. IPEF might be doing some very good things, but I’m not sure we are seeing much that couldn’t be done under the auspices of existing FTAs.
Tai’s repetition of resilience, sustainability and inclusivity (RSI) - including for IPEF’s Trade Pillar - also sets a clear narrative for what USTR wants to use to sell the agreement. It’s also clearly different to the usual focus on economic outcomes and reducing barriers to trade that drive trade negotiations. Although I’m skeptical whether in practice the negotiators are just focused on RSI and would expect to see a lot of the same rules in the Trade Pillar that we’ve seen in other agreements - i.e. provisions to “fuel economic activities and generate investments”.
On enforcement:
…We take the enforcement agenda extremely seriously. …a couple aspects of this I want to highlight. One is with respect to the USMCA, which is the renewed NAFTA. …it's really a very, very interesting articulation of the basis for a modern new US trade policy. One of the most important aspects of the USMCA, in terms of what it does that the NAFTA didn't do, it has much stronger labor and environmental standards. It has stronger enforcement mechanisms, and it has, in particular, a labor specific enforcement mechanism that we call the rapid response mechanism. This is a mechanism that allows the United States and Mexico to work together and pierce the veil of state-to-state interaction to focus on specific facilities within Mexico that are not respecting Mexico's laws on labor. …we have activated this this mechanism I think the current count is sixteen times - fourteen times at the behest of petitioners, twice on our own initiative. And in every one of those cases that we have seen through to the end we have won rights; we have won real benefits for workers in Mexico.
Why this matters: democracy and the democratization of economic opportunity. When Mexican workers have the ability, as they should under their own law, to advocate for themselves for better working conditions and higher wages, we are evening the playing field for American workers. And I think it is not an accident that right now about 90% of the cases that we have brought have been in the auto sector.
But the most significant part of this, which I want more people to know about, is what we are doing in the USMCA is relevant to everybody who is interested in trade because we have flipped the narrative - the strong criticism - of US trade policy on its head. For the first time ever, we are offering workers a mechanism for their own advocacy and empowerment through a trade agreement. Without this trade agreement they wouldn't have this mechanism and I think that this is one of the cornerstones of what we call the worker centered trade policy, which is to drive a trade policy that more Americans feel like is going to champion their interests.
On the other hand, we're also doing a lot for our farmers, as we always have. And within the USMCA context…I'll say that we've taken very seriously our corn producers’ concerns around the Mexican decree that will impact our trading relationship. And we initiated a dispute settlement case in the middle of this year, and we are litigating it out right now.
Of course - IPEF famously doesn’t yet have anything close to enforceable rules in the sense described here, and labour would seem to be the big sticking point in particular.
On Taiwan and trade:
The negotiation we're having with Taiwan right now - and I'll just highlight here every trade negotiation we're doing right now has an element of innovation that's baked into it, and this is because we're trying to be responsive to the data and the feedback that we are receiving from the world economy. There are so many changes that are going on simultaneously that I - not met even our smartest economists, even my colleague Janet Yellen who is a legend in macroeconomics, no one can explain exactly what's happening or predict exactly what's going to happen next. So, from a trade policy perspective … we have been very disciplined in trying to say let us bring a trade program to each one of our partners that's tailored to that partner, that's tailored to their interest and our interest in the partnership. That's also tailored to the challenges and the dynamics that we are navigating together in the global economy.
With Taiwan what that's meant is that we have been negotiating agreements. The first agreement that we have with Taiwan is one that covers I think five issue areas. It's trade facilitation, it's small medium enterprises, good regulatory practices, and I'll have to look at my notes for the other two but we've got a core group of five disciplines. We signed that agreement - Congress in a fit of enthusiasm (even though they weren't legally required to) took a vote on it to show their support for what we are doing here - and on the basis of that support we are negotiating another set of disciplines right as we speak. We've been making excellent progress and we will continue to look at building out those agreements. To have an arrangement with the Taiwan economy that is fit for the times and the times are very challenging. So this is one of our accomplishments that we are particularly proud of and committed to.
Nice to see Tai take the opportunity to put a positive spin on the US Congress’ vote on the Taiwan deal and also remind everyone that USTR doesn’t want to be legally required to run all of these negotiations by Congress.
On what is a free trade agreement?
[Question: So you don't rule out a free trade agreement…] Let me back up to what do you mean by a Free Trade Agreement. Do you mean the traditional kind of US approach to a very comprehensive, maximally liberalizing, aggressively liberalizing agreement? We're not doing that with anybody right now. It's actually insensitive to the dynamics in the global economy and the US economy right now to push on with that program. [That] may have been fit for the 80s and the 90s, maybe was starting to show its age in the 2000s and 2010s. It's 2023 we need new policies. There's innovation going on all around us when we were negotiating those agreements. I don't know AI wasn't even a thing that we talked about right, …certainly we hadn't experienced the pandemic supply chain discombobulation and disconnect. The fragilities, the geopolitical tensions … we've always had them, but they were different and at a different scale, with different partners. So, in all [these] ways, as much as we embrace innovation instinctively as Americans, and certainly in our economy, we need to be embracing innovation in our trade policy and that's what we're doing. And that's why when you say FTA, sure if by FTA you mean are we innovating trade agreements and are we doing trade aggressively, but in new ways, yes. When you say FTA if you mean the old-style trade agreements that we used to do, then no.
I wholeheartedly agree on the need for new policies and approaches, and indeed more innovation in trade policy. I think the struggle is governments are yet to articulate what this means in concrete terms, while business still see many barriers to trade that remain unresolved. While committees may be necessary first steps to work out what to do on many emerging issues, at some point hopefully we actually see more substantive outcomes.
On trade, climate change and being hampered by a lack of domestic US policy:
Trade has to be part of the [climate change] solution. Why aren't we there yet? I would say you're talking to the wrong person. That question needs to go to the US Congress …who writes the tax policy. It's not that we have no role…but we each have our respective roles as prescribed by our founding document which is the US Constitution. With respect to tax policy that is absolutely the jurisdiction of the United States Congress. We have to have that congressional legislative revenue outlook and consensus or at least a basis before I can do anything appreciably meaningful in trade. That is true for climate, it is also true for digital.
On the Global Arrangement on Sustainable Steel and Aluminum (GASSA) and the EU’s CBAM:
What are we doing with respect to trade and climate? The most important thing that we have been doing - another of our innovative trade initiatives - has been the negotiation of a Global Steel and Aluminum Arrangement with Europe. So, we have had section 232 Global tariffs on our steel and aluminum imports. The Biden administration's perspective is with respect to global overcapacity and global market distortions in steel and aluminum that is a fact that we have to contend with. We have to be able to be a steel producer in the global economy, including for national security reasons but also for basic economic reasons. But we shouldn't be taking that on alone. The distortions that are happening in the global marketplace are happening to our partners too. So, we join forces with the Europeans to say let's figure out how we can liberalize and normalize trade between us on steel and aluminum, but work together to defend our economies against unfair trade and unfair production and create incentives for cleaner trade and cleaner production.
It also is helpful that the Europeans have put forward and are rolling out a carbon border adjustment mechanism that covers five or six sectors, very carbon intensive industrial sectors that include steel and aluminum. … And we are committed in the Biden Administration on behalf of the United States to staying at the table and working on this issue [GASSA] with Europe because it is so important, and it is foundationally important to creating a template for what we might do more broadly.
Overall, I think Tai’s comments are useful insights into USTR’s thinking and approach to trade policy. They also show again that her focus is on far more than the traditional economic, trade and investment objectives associated with trade policy. There were lots of mentions of resilience, sustainability, and inclusion, and geopolitics is obviously an important factor. Of course, it remains to be seen if this shift can really deliver for these issues, for example in settings such as IPEF, particularly if the usual carrot of market access is no longer on the table.