Last week, Bloomberg reported that the Biden administration was considering the negotiation of a digital trade agreement with countries in the Indo-Pacific as a way to "check China’s influence in the region" (Canada, Chile, Japan, Malaysia, Australia, New Zealand, and Singapore have been mentioned in this regard). This rationale has similarities to the Trans Pacific Partnership, which was sometimes presented as a way to counter China. But would a digital trade agreement do much in relation to China's power? Would such an agreement be politically possible in the United States right now? And how would China respond? This post discusses these questions briefly.
Unanswered questions about digital trade agreements
Digital trade agreements and digital chapters in trade agreements have proliferated in recent years. In the United States, the USMCA digital trade chapter and the U.S.-Japan digital trade agreement are the most recent and cutting edge ones. The CPTPP digital trade chapter also constitutes a detailed agreement in this area, as does the Digital Economic Partnership Agreement (DEPA) and the Singapore-Australia Digital Economy Agreement. And a global negotiation on these issues is currently taking place at the WTO.
These agreements include general principles, such as non-discrimination, that govern and constrain domestic regulation in this area, along with exceptions for various public policy goals. They also impose affirmative requirements to regulate in certain areas, such as the protection of personal information.
At this point, however, the economic value and impact of such agreements has not been clearly demonstrated. In particular, it is not clear to what extent they influence domestic policy. Do governments actually commit to changes as a result of signing these agreements? Or do the agreements simply reflect existing policy? To date, there is no evidence of the operation of these agreements that could help answer these questions. Have governments raised specific trade concerns in meetings under these agreements? Are committees established under these agreements discussing these issues? Is there litigation related to digital trade rules? There is virtually no information available on any of this.
In addition, there is a lack of clarity on what the existing rules mean. Both the obligations and exceptions are vague and untested. Until some actual domestic laws and regulations are challenged or examined under these rules as part of the operation of a trade agreement, we will not have much sense of what the parties have agreed to.
U.S. willingness to negotiate new digital trade rules
With regard to the political possibilities in the United States, the advantages of focusing on digital trade are clear. Because it does not involve imports of goods manufactured in midwestern swing states, a trade agreement of this sort avoids triggering concerns about lost jobs in politically important regions of the country. On the other hand, some NGOs have been critical of these digital trade rules, as they are deemed too favorable to big tech companies and insufficiently supportive of consumer concerns, so there will be pushback from the progressive left if the Biden administration tries to negotiate here. There have been reports of divides within the Biden administration on how to proceed here.
One advantage from a political perspective is that because such an agreement can be crafted in a way that does not require any changes in U.S. law, the generally accepted view is that Congressional approval would not be required for a standalone digital trade deal. This simplifies the effort considerably.
While Congress would not need to approve such a deal, having Congress on board would be helpful, and there are at least some members of Congress who would support such an approach. On July 14, the House Foreign Affairs Committee passed legislation entitled “Ensuring American Global Leadership and Engagement Act,” which specifically calls for the negotiation of such an agreement.
In doing so, the legislation first notes the problematic role China plays in this area: "the People’s Republic of China is operating under and advancing a set of digital rules that are contrary to United States values and interests, and those of United States allies and partners." Thus, the legislation clearly sees this agreement as part of a response to China's influence.
The legislation then notes the "patchwork" of existing rules, some of which are being pushed by countries other than the United States, and argues that a regional deal led by the United States would be of great value:
a regional deal on digital governance and trade would allow the United States to unite a group of like-minded economies around common standards and norms, including the principles of openness, inclusiveness, fairness, transparency, and the free flow of data with trust, that are increasingly vital for the global economy;
such an agreement would facilitate the creation of common rules and standards that govern cross-border data flows, the protection of privacy, and cybersecurity at a time of growing digital vulnerabilities for individuals, businesses, and institutions around the world;
It concludes by calling for the following negotiations on digital trade:
the United States Trade Representative, in consultation with the Coordinator for Cyber Diplomacy at the Department of State should negotiate bilateral and plurilateral agreements or arrangements relating to digital trade with the like-minded countries in the Indo-Pacific region, the European Union, the member countries of the Five Eyes intelligence-sharing alliance, and other partners and allies, as appropriate.
The full text of this provision is at the bottom of this post.
China’s response
The Chinese government's public reaction to the media reports, not surprisingly, has been very negative. An editorial in the government-run China Daily complained that: "To exclude China from the deal lays bare its true purpose, which is to act as a fig leaf to cover up Washington's intention to check China's influence in the region." And in response to a question from Bloomberg about the reports of a U.S.-led digital trade deal, foreign ministry spokesperson Zhao Lijian said: "If what you said is true, the US act to build walls and counterbalance others in the region under the pretext of rule-setting violates the laws of the economy and the shared aspiration of countries in the region. This fully exposes its plot to gang up against China and contain its development and obstruct the common development of countries in the region. It is doomed to fail."
Conclusions
At this early stage, it can be difficult to evaluate the prospects for such a digital trade agreement. There are clearly people in Washington who are interested in pursuing it, and are promoting the idea in the public debate. But there will be pushback as well, both within and outside of the United States.
In terms of the benefits of such a deal, there may be symbolic value in standing on a stage and demonstrating unity on an issue involving principles of democratic governance. But the impact on actual domestic policies in this area is unclear.
With regard to China's reaction, despite its public comments, China no doubt recognizes the difficulties of such negotiations and that digital trade agreements may not have the same economic impact on Chinese companies that an agreement involving trade liberalization in goods and services among the parties would. Thus, its recent protests may be overstating the actual degree of concern, although it may of course be worried about any arrangement that looks like an alliance against it in the region.
Ensuring American Global Leadership and Engagement Act
...
SEC. 126. DIGITAL TRADE AGREEMENTS.
It is the sense of Congress that—
(1) as the COVID–19 pandemic accelerated our dependence on digital tools, international rules around digital governance and trade have remained largely piecemeal;
(2) the People’s Republic of China is operating under and advancing a set of digital rules that are contrary to United States values and interests, and those of United States allies and partners;
(3) a patchwork of plurilateral, trilateral, and bilateral digital trade agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the Singapore-Australia Digital Trade Agreement, and the Singapore-New Zealand-Chile Digital Economy Partnership Agreement have emerged, creating a set of rules that the United States should be driving;
(4) the United States has already underscored the need for such agreements by signing the U.S.-Japan Digital Trade Agreement in October 2019 and including a robust digital trade or e-commerce chapter in the USMCA;
(5) a regional deal on digital governance and trade would allow the United States to unite a group of like-minded economies around common standards and norms, including the principles of openness, inclusiveness, fairness, transparency, and the free flow of data with trust, that are increasingly vital for the global economy;
(6) such an agreement would facilitate the creation of common rules and standards that govern cross-border data flows, the protection of privacy, and cybersecurity at a time of growing digital vulnerabilities for individuals, businesses, and institutions around the world;
(7) such an agreement would facilitate the participation of SMEs in the global economy through trade facilitation measures, including e-marketing, e-invoicing and e-payment; and
(8) the United States Trade Representative, in consultation with the Coordinator for Cyber Diplomacy at the Department of State should negotiate bilateral and plurilateral agreements or arrangements relating to digital trade with the like-minded countries in the Indo-Pacific region, the European Union, the member countries of the Five Eyes intelligence-sharing alliance, and other partners and allies, as appropriate.
