Daniel Sepulveda: Reevaluating American Digital Trade Policy
The United States is in the process of reevaluating its approach to digital trade policy. After decades of bipartisan support for the open global internet and the free flow of data largely in venues outside of trade agreements, the issue has entered the trade space. Though e-commerce chapters in trade agreements have existed for some time, a heated debate has arisen from the American led effort to inject new language into the agreements since the US-Korea Free Trade Agreement that would meaningfully and further restrict states from taking steps to slow or block the free flow of data except for the implicit allowances in trade in general.
As a result of the potential repercussions of new binding obligations for domestic policy from digital trade agreements, the U.S. Trade Representative (USTR) is asking whether we should revisit, pursue, or engage in trade agreements that restrict the ability of participating states to:
Block or slow the free flow of data across borders;
Mandate that data collected in a jurisdiction stay in that jurisdiction, and/or;
Mandate that digital economy participants grant governments access to source code and algorithms as a precondition for market participation.
The USTR argues that the pace of change in technology and its potential for disruption require an active, strong policy response. Without dictating that response, the agency wants to ensure that trade agreements do not excessively restrict the ability of nation states to produce one.
In my view, acknowledging that there is no one-size-fits-all approach to this challenge, in the pursuit of bilateral and plurilateral digital trade agreements, the USTR should:
Modify Proposed Text to Trade Agreements: Propose text to trade agreements that encourage the free flow of data but explicitly allow exceptions for states to slow or block data flows, require some form of limited data localization, and require access to source code subject to intellectual property protection, for specific public interest and consumer protection purposes to the extent necessary.
For example, government access to source code and algorithms for artificial intelligence foundation models that due to computational power and capabilities present a potential threat to national security should be allowed. Blocking the transfer of personal data from the U.S. to hostile nation states may be necessary. And access to sensitive information that may be transferred out of our country to a hostile state may be required to be held domestically.
Adjust Grants for Exception to Level of Trust in Trading Partners: Exceptions to restrictions in agreements and the process for their adjudication for judging for necessity and should reflect the level of trust between the parties negotiating.
The More Participants the Broader the Exceptions: In the case of the pending World Trade Organization (WTO) discussions[1], exceptions to restrictions for the free flow of data and access to source code need to be broad and any proposed adjudication of violations subject to non-binding arbitration. That is because of the number of nations involved includes many unlikely to comply and as of today, the United States has little faith in the existing dispute resolution process.
Err on the Side of Open Commerce: But WTO agreements on electronic commerce should not remain silent on the questions of the free flow of data, data localization, and access to source code mandates because those provisions could send an important message to the world on the value of open digital markets and our desire to preserve them. To the greatest extent possible, trade agreements should promote open digital commerce.
Start Over with Trusted Partners: In the case of agreements with trusted partners like the US-Mexico-Canada Agreement (USMCA) and the Japan Digital Agreement, the existing exceptions to restrictions are excessively narrow and should be revisited, but they should remain as narrow as possible because those are allies and compatible economies, and we should pursue more agreements with additional likeminded partners. A Digital Trade Agreement for the Americas may be a good place to start that builds on the USMCA.
In revisiting the language in question at the WTO and reconsidering digital trade chapters in other agreements, the Biden Administration should consider the ramifications for policymaking at home. But it should also consider the implications of remaining silent on these issues for the continued support of internet freedom abroad, deferring as broadly as possible in favor of the free flow of data and non-discrimination principles.
We can preserve the necessary policy space for states to regulate technology companies while simultaneously fighting for as global and open a digital economy as possible.
With all the challenges the modern, global digital economy creates, it also fuels immense economic activity, improves the delivery of services and goods, and increases the productivity and capability of people at all economic levels to improve their lives. Where barriers to digital commerce are necessary to pursue a specific public interest, with allies we should be able to work out a negotiated resolution as we have on privacy law with the European Union. With adversaries or where we reach impasse on resolution, the WTO should serve as a venue for articulating an argument for why those barriers are unfair and should be lifted.