The U.S. is stepping away from World Trade Organization (WTO) objectives long-sought for by Big Tech. Countries around the world are increasingly legislating requirements requiring that their citizens’ data be stored domestically. Big tech understandably doesn’t want to rebuild its server network in every country and has been enlisting USTR for years to push that agenda.
On Wednesday, the USTR, led by Amb. Katherine Tai, told WTO members that are party to the joint initiative on digital trade that the U.S. was no longer supporting the unpopular proposal. Despite the revolving door between Big Tech and former government employees, the USTR seems to have done them no favors on this one.
USTR spokesman Sam Michel said the U.S. was not the only country that was not happy with the ways things were going for data storage and source code rules in the digital economy, an economic sector the U.S. clearly dominates within the West. Only China is comparable. “In order to provide enough space for those debates to unfold, the United States has removed itself from support for proposals that might prejudice or hinder domestic policy considerations,” Michel said.
Michael Stumo, CEO of CPA, said, “I am happy to see that Ambassador Tai has decided to stop pushing this narrow, idiosyncratic, unpopular proposal all alone up a hill just because Amazon and Microsoft want it and think they can use their market power and political influence to get it despite the lack of national interest. Trade policy should be about our national interest in balancing trade, investing domestically, and re-shoring goods production.”
The USTR move aligns with the Biden administration’s desire to strengthen regulation of large technology firms and the direction of digital trade negotiations in the U.S.-led Indo-Pacific Economic Framework for Prosperity group of Asian countries, Reuters reported. It also aligns with Tai’s general efforts to prevent trade agreements from globalizing non-trade rules that would restrict the ability of the U.S. to implement industrial and other policies in the future.
While some referred to Wednesday’s decision as a “surprise move” by Tai and the Biden administration, few if any WTO countries supported the proposal.
What if Data was Localized?
Big Tech’s goal – led primarily by the big cloud service providers that will store all that data from e-commerce transactions – has been to have a WTO agreement that would prohibit governments from saying servers holding their citizens’ data must be kept within their borders (aka “data localization” in trade diplomacy lingo). For instance, it would be of interest to Amazon’s cloud computing company, AWS, to store European data at data centers housed in the U.S., rather than within the European Union, or even within individual European countries.
For example, Germany has said that data is sensitive, and if U.S. cloud service providers build a data center there, they must enter into a joint venture with a German partner (like Deutsche Telekom) and keep German data local rather than shifting it to other countries. This would cost these companies money because they would, in theory, need data centers all over the world if data was localized, or “sovereign”.
“The problem with granting U.S. cloud providers complete freedom to move data out of foreign countries, and into the US is that the foreign countries will always ask for something in return,” said CPA chief economist Jeff Ferry. “They are right to do so and their ask would be to export more to the US. This will cost more jobs than data globalization could ever create in the US. If you look at Amazon, VMware, and Microsoft, in particular, they make unique software and they will still be able to sell billions of dollars of that software to foreign cloud operators and data centers, so they really have nothing to complain about.”
The important role of data flows in all economic activity and the fast-growing digital economy have created new types of trade barriers and policy questions, in addition to creating new areas in which countries can negotiate and set rules, a Congressional Research Service paper noted in March. Barriers to digital trade can directly affect e-commerce (e.g., limitations on cross-border credit card payments) or have broader implications (e.g., data privacy).
Although the Trump-era proposal was only a proposal and not written in stone, Tai and the USTR are on the receiving end of slings and arrows for vacating it.
“USTR’s decision to walk away from the negotiating table in Geneva is a win for China, plain and simple,” said Senate Finance Committee chairman Ron Wyden (D-OR). “In addition to abandoning our democratic allies in these negotiations, USTR is leaving a vacuum that China—an active participant in these negotiations–will be more than pleased to fill.”
Worth noting, no other country shared U.S. goals on this matter. Over the last few years of WTO e-commerce negotiations, the U.S., Europe, and Canada, all staunch allies, have not seen eye to eye on global data policy. Tai’s move has them popping champagne in Brussels.
Wyden seemed to make a threat to the USTR over the decision in a statement on Wednesday, saying “The USTR’s unilateral decision…directly contradicts its mission as delegated by Congress. It may be time to reconsider the degree of that delegation going forward.”
Wyden has always been in favor of the WTO, lambasting Trump’s approach even though the proposal that Tai shelved Wednesday was a Trump administration’s proposal. Since 2020, Wyden has held steadfast to his argument that digital trade rules were imperative, the WTO needed to be the place where it all happened, and the U.S. needed to lead on it or China would.
Trade Rules Changing, WTO Sidelined Again
There are those who see it differently.
Sen. Elizabeth Warren (D-MA), also on the Finance Committee, applauded Tai’s move and said that the White House should not be in the business of conducting trade policy that speaks to a global tech company’s wish list.
In a 33-page report published in May by Warren’s team titled Big Tech’s Big Con, she said “Big Tech is working to undermine the Biden trade and competition agenda and instead push trade negotiators to pre-empt domestic and international regulatory efforts, hiring dozens of former government officials and lobbyists to gain insider access to U.S. trade officials and influence trade negotiations.” She is dead set against U.S. data being stored overseas, among other matters pertinent to the digital trade debate.
As far as Big Tech companies are concerned, they should realize like the rest of American business that their interests in other countries are best served through bilateral discussions, not multilateral in Geneva where a hundred different members have a hundred different viewpoints.
Moreover, Big Tech’s e-commerce goals in the WTO were likely never realistic, given that Europe has nothing to offer the U.S. in terms of competition. Europe was going to see itself as running a potato sack race against American sprinters; the best they could do on this matter was to tie the sprinters’ shoelaces together.
As it is, only the U.S. and China have what one would refer to as Big Tech. The U.S. has no real allies in this space.
Big Tech understandably doesn’t want to have to re-create server infrastructure in every country in the world. So they went to USTR to try to get that requirement banned at the WTO. Just because a policy is helpful for America’s biggest tech companies, that doesn’t mean it’s a benefit for Americans. Americans probably overwhelmingly want their data kept State-side. Tai’s decision helpfully goes against the grain of trade policy since 1934, where the interests of our biggest multinationals were all that mattered to USTR.