Last week, President Biden’s U.S. Trade Representative, Ambassador Tai, took a shellacking from U.S. Senators who oversee her office. The first was from her fellow Democrat, U.S. Senate Finance Chairman Ron Wyden (D-OR), who issued a statement saying he “blasted” her office. The next day, Senator Wyden was followed by nine of thirteen Senate Finance Republicans, who lent their signatures to a copy-pasta version of Wyden’s statement claiming they’d been “misled”. Both statements framed USTR as “abandoning our democratic allies” and “choosing to side with China”. But this the opposite of what is happening. It’s the Senators doing the misdirection.
Why are these Senators so worked up?
On Wednesday, Ambassador Tai announced that the United States would be dropping certain policy proposals from the WTO e-commerce negotiations.
Specifically, the U.S. would no longer be pursuing these two proposed rules:
- Location of Computing Facilities: Neither Party shall require a covered person to use or locate computing facilities in that Party’s territory as a condition for conducting business in that territory.
- Cross-Border Transfer of Information by Electronic Means: Neither Party shall prohibit or restrict the cross-border transfer of information, including personal information, by electronic means, if this activity is for the conduct of the business of a covered person.
These two rules have so far made it into USMCA’s new “Digital Trade” chapter, as well as the 2019 U.S.-Japan Digital Trade Agreement, which was passed alongside a U.S.-Japan tariff agreement. In both agreements, “covered person” means a human residing or a business operating in the country.
What are these rules about?
Many national governments are concerned about where their citizens’ data is being stored. They’d like it if their citizens’ data was stored domestically. But big internet companies don’t want to have to recreate their server infrastructure within the territory of all these governments. So they enlist USTR for help in banning other countries from doing so.
Why are the Senators saying we abandoned our allies and giving China a win?
This is a default talking point reflexively distributed by trade associations to their supporters on Capitol Hill vis-à-vis multilateral organizations like the WTO, United Nations, etc. The underlying presumption is that there are only two ‘big dogs’ pushing agendas in these global organizations – the U.S. and China – and thus, if the U.S. pivots away from a policy it is currently pushing, that must necessarily help China by creating an imaginary ‘vacuum’ in which China pushes its goals.
Why is this USA vs. China paradigm misguided?
It denies agency to every other sovereign nation. In fact, countries other than the United States and China have their own policy preferences.
What do our democratic allies want?
The Congressional Research Service (“CRS”) cautions that “[d]ifferences in U.S. and EU approaches to data privacy and protection have long been sticking points in U.S.-EU relations.”
In June 2019, the European Council stated in a ‘New Strategic Agenda‘ that “We need to ensure that Europe is digitally sovereign and obtains its fair share of the benefits of this development.” The CRS paper notes that “In July 2020, the Court of Justice of the European Union invalidated the most recent U.S.-EU commercial data transfer accord, the Privacy Shield Framework, which had been in force since 2016.”
Nonetheless, some argue that the European Commission’s digital trade policy is out of step with the European Council and other European policies.
In the WTO e-commerce negotiations, Canada issued the following statement:
Canada proposes that negotiations on e-commerce / digital trade at the WTO seek to address and reflect these areas that relate to consumer and privacy protection, which help to build confidence and trust. This is important to ensure that the benefits and opportunities of a future WTO agreement on digital trade are not only enjoyed by businesses, but also by consumers. [Emphasis added, from Canada’s May 8, 2019 communication]
CRS notes that “South Korea maintains localization requirements for payment gateway services’ data storage facilities.”
It seems fair to conclude that countries without their own large internet firms are more likely to prioritize digital sovereignty, up to and including data localization. If this is the case, then they will view the two U.S. proposed rules above as heavy-handed U.S. policy requests that should be ‘paid for’ by the U.S. in some manner. This is why it was ridiculous for the Senators to claim that Ambassador Tai was “abandoning” our allies, or that accommodating their policy preferences was a “win” for China.
How does the U.S. wind up ‘paying for’ other countries to accept rules they don’t want?
In the late 1960s and early 1970s, the United States gave up pursuing tariff reciprocity. Instead, the United States began to trade away non-reciprocal tariff access for other countries as a tool to win concessions for the benefit of large multinationals in policy areas unrelated to tariffs. For example, for Country X to agree to extended patent terms or a light touch on internet regulation, they will likely successfully barter for preferential tariff arrangements privileging their exports. For a deep dive on this topic, see our recent column on the U.S. Taiwan trade initiative, specifically Part I – How “Trade Agreements” Took Over Domestic Policy.
Does Ambassador Tai have defenders?
Yes, notably U.S. Senator Elizabeth Warren (D-MA), another Senate Finance member.
The deep division within Senate Finance should alone have tempered Chairman Wyden’s condemnation.
No, Ambassador Tai didn’t “abandon our allies”
Last week, President Biden’s U.S. Trade Representative, Ambassador Tai, took a shellacking from U.S. Senators who oversee her office. The first was from her fellow Democrat, U.S. Senate Finance Chairman Ron Wyden (D-OR), who issued a statement saying he “blasted” her office. The next day, Senator Wyden was followed by nine of thirteen Senate Finance Republicans, who lent their signatures to a copy-pasta version of Wyden’s statement claiming they’d been “misled”. Both statements framed USTR as “abandoning our democratic allies” and “choosing to side with China”. But this the opposite of what is happening. It’s the Senators doing the misdirection.
Why are these Senators so worked up?
On Wednesday, Ambassador Tai announced that the United States would be dropping certain policy proposals from the WTO e-commerce negotiations.
Specifically, the U.S. would no longer be pursuing these two proposed rules:
These two rules have so far made it into USMCA’s new “Digital Trade” chapter, as well as the 2019 U.S.-Japan Digital Trade Agreement, which was passed alongside a U.S.-Japan tariff agreement. In both agreements, “covered person” means a human residing or a business operating in the country.
What are these rules about?
Many national governments are concerned about where their citizens’ data is being stored. They’d like it if their citizens’ data was stored domestically. But big internet companies don’t want to have to recreate their server infrastructure within the territory of all these governments. So they enlist USTR for help in banning other countries from doing so.
Why are the Senators saying we abandoned our allies and giving China a win?
This is a default talking point reflexively distributed by trade associations to their supporters on Capitol Hill vis-à-vis multilateral organizations like the WTO, United Nations, etc. The underlying presumption is that there are only two ‘big dogs’ pushing agendas in these global organizations – the U.S. and China – and thus, if the U.S. pivots away from a policy it is currently pushing, that must necessarily help China by creating an imaginary ‘vacuum’ in which China pushes its goals.
Why is this USA vs. China paradigm misguided?
It denies agency to every other sovereign nation. In fact, countries other than the United States and China have their own policy preferences.
What do our democratic allies want?
The Congressional Research Service (“CRS”) cautions that “[d]ifferences in U.S. and EU approaches to data privacy and protection have long been sticking points in U.S.-EU relations.”
In June 2019, the European Council stated in a ‘New Strategic Agenda‘ that “We need to ensure that Europe is digitally sovereign and obtains its fair share of the benefits of this development.” The CRS paper notes that “In July 2020, the Court of Justice of the European Union invalidated the most recent U.S.-EU commercial data transfer accord, the Privacy Shield Framework, which had been in force since 2016.”
Nonetheless, some argue that the European Commission’s digital trade policy is out of step with the European Council and other European policies.
In the WTO e-commerce negotiations, Canada issued the following statement:
CRS notes that “South Korea maintains localization requirements for payment gateway services’ data storage facilities.”
It seems fair to conclude that countries without their own large internet firms are more likely to prioritize digital sovereignty, up to and including data localization. If this is the case, then they will view the two U.S. proposed rules above as heavy-handed U.S. policy requests that should be ‘paid for’ by the U.S. in some manner. This is why it was ridiculous for the Senators to claim that Ambassador Tai was “abandoning” our allies, or that accommodating their policy preferences was a “win” for China.
How does the U.S. wind up ‘paying for’ other countries to accept rules they don’t want?
In the late 1960s and early 1970s, the United States gave up pursuing tariff reciprocity. Instead, the United States began to trade away non-reciprocal tariff access for other countries as a tool to win concessions for the benefit of large multinationals in policy areas unrelated to tariffs. For example, for Country X to agree to extended patent terms or a light touch on internet regulation, they will likely successfully barter for preferential tariff arrangements privileging their exports. For a deep dive on this topic, see our recent column on the U.S. Taiwan trade initiative, specifically Part I – How “Trade Agreements” Took Over Domestic Policy.
Does Ambassador Tai have defenders?
Yes, notably U.S. Senator Elizabeth Warren (D-MA), another Senate Finance member.
The deep division within Senate Finance should alone have tempered Chairman Wyden’s condemnation.
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