At a CFR event last week, U.S. Trade Rep. Katherine Tai said some things about digital trade. Normally for these things, I provide a quote and then react to it afterwards, but the quotes here are so long that I'm going to put my thoughts up front. See below for the full quotes.
First, on the issue of whether foreign digital policies and regulations discriminate against U.S. tech companies, Tai has discussed this before. My sense is that she wants to craft any rules carefully so that they take into account intent in an appropriate way, and don't just catch any situation where there is a disparate impact ("we have to really be cognizant that measures that may look like they have a discriminatory effect may or may not be advanced with a discriminatory intent").
Second, I agree with her that this is an area where it would be best to sort out the domestic regulation first, and it may not make sense to have trade people taking the lead here (I feel this way about issues such as IP and labor too!). However, it's not clear how long it will take to sort out the domestic regulation, so we may have to move into international rules before we are totally ready. One way to mitigate the potential problems with doing this is to make sure we take into account previous experience with the GATT/WTO (e.g., the non-discrimination rules and exceptions there) so as to get the balance just right, and also perhaps don't make things subject to dispute settlement right away. (My specific suggestions in this regard on a few key provisions are here.)
Third, my understanding based on various conversations and reporting is that the Biden administration is struggling to formulate a position on the specific text for any international rules in this area. It would be nice if they could work this out internally and put something out there for public consumption, in the context of the WTO, the IPEF, or any other potential trade arrangement. Again, I have my suggestions, but there are a range of possibilities, and I think it would be helpful to have an official administration position to discuss and debate. I can imagine this will be a challenge to achieve though, and it remains to be seen whether they can make any progress.
Finally, just to offer a hot take on big tech platforms and potential regulation, my feeling is that a lot of the tech companies' practices are bad, but that many of the legislative and regulatory proposals out there will not help much and could even make things worse. That's not to say there should be no regulation in this area, but it's mostly up to us to build a better internet, either by (1) creating, if you know how, apps and websites that avoid the bad practices in common use today, or (2) as a consumer, by staying away from the bad places (as hard as that can be sometimes, especially when so many other people are there!).
And now here are the quotes:
Mike Froman:
... and that brings you to digital issues, data issues and things of that sort. For a long time, the US had a position around free flow of data across borders, not taxing digital products across borders. There's been a recent change in that, both at the WTO and in APEC. How much of this is concern that something might happen in the trade field that would constrain either the ability of Congress to legislate privacy or antitrust concerns regarding our large digital platforms? Or the antitrust authorities themselves, the Department of Justice, the FTC, from taking the actions that they want to take with regard to competitiveness? What does it mean, given the fact that the US economy is probably, certainly the leader in all things digital, what does it mean for us to move away from defending these principles that have been so core to what we've tried to do before?
Tai:
This is a great question. I really love it. And I just want to acknowledge that you have always been really a generous source of advice and guidance to me, from when I worked for you, when you were USTR over time. And we had a conversation during the transition in your previous job where you raised for me the importance of these digital trade issues. And it's obvious, this economy that we live in, and I know I'm looking at myself on a screen right here where you know, I'm being transmitted out to lots of people over the digital infrastructure. Our entire lives, and certainly our economy, have become a digital one, right? So what does that mean for trade? If the challenge for us in this time period in our collective history is to ensure that we are responsive and more reflective of reality, what does that mean for what we have called digital trade?
And so I'll just take this opportunity to tell a little bit of a story that I hope and think that will be relatable for so many people in the room and online. When we started on these digital provisions in our trade practice, I think that the first FTA that had a chapter that dealt with, started dealing with these issues, was Singapore. And we're about to celebrate 20 years of the Singapore FTA this year, so early 2000s that we're negotiating this. It's called the E-commerce chapter, and it's the E-commerce chapter in several iterations of FTAs going forward, right. And I think that that makes sense if you think about what the digital economy looked like in the early 2000s. It really was about e-commerce. I mean, Amazon was still a start up. It was still in early stages, where Amazon I think was still mostly selling books in the late 90s and early 2000s. So when we thought about that that way, and thought, how does that intersect with trade and the types of things that we negotiate, I think that we rightly, appropriately at the time, thought about e-commerce digital trade provisions as largely facilitative provisions. The flow of data was there and we wanted to safeguard the flow of data to facilitate traditional trade transactions -- the movement of goods across borders. The analogy to services we used also in digital, but we thought about it in fairly traditional terms as a trade facilitation modality.
That makes perfect sense. But if you fast forward to where we are today, in 2024, one of the things that you realize is that the flow of data, the decisions around where data needs to be stored, how it needs to be handled, takes on much, much different dimensions, because over this period of time, in fact in the digital economy, the data is no longer just about facilitating traditional types of transactions. The data has become the commodity in and of itself. The data is now what has value. And the ability to accumulate that data, and for vast amounts of data then to be combined with computing power to create things like generative AI and large language models, it starts to give you a sense, just as a normal trade negotiator, that there are much much bigger equities at stake than what we might be doing in our trade negotiations. It's not just about facilitating trade. It's actually appreciating that the questions that are called around how we regulate data, and how we regulate the companies that accumulate, harvest and trade in this data, is something that we need to resolve and advance before we can thoughtfully and responsibly engage in trade negotiations to figure out what the limits are in terms of what we should be doing and what the goals are, of what we should be doing with our trading partners.
And I think one other data point for all of you is on the digital side, I will just admit, I come out of a very traditional trade background, trade in goods. I cut my teeth at USTR, back when you were USTR, litigating a case on export restraints on raw materials, right. Those are the critical minerals and things that come out of the ground. This digital conversation is one where I am learning alongside everybody else and alongside all of our policymakers as well. As we peel back the onion in thinking about data, data is something that you are generating, I'm generating. When I have my Fitbit on I am generating data 24/7. That's data that I have created, that somebody else possesses, and someone else is monetizing and trading and manipulating, right. If you look at sort of the reality of data brokers, the people who grab this data that's all out there, and then sell it, including moving it across borders, I think what you will learn is sort of hair raising in terms of what underlies the digital economy and our digital existences and just thinking about what the rules should be for how that data is handled, who has rights to that data, and then the international components around trade and prosperity but also trade and national security.
Froman:
The only thing I'd say is that I think the issue of data has gone way beyond trade in goods for some time. Services, among other things, have been largely dependent on data. Now manufacturing also depends on data, 3 million lines of code in a car, things of that sort. And so how you make sure you deal with the legitimate concerns that you just raised about national security, the selling of data, personal data in particular, without actually diminishing the capacity of US companies and workers to be competitive in an increasingly digital economy.
Tai:
So this gives me an opportunity to talk about what we did at the WTO, which I think you know created a lot of furor and fireworks. For all of you who have been involved in trade negotiations, WTO negotiations, you know that it is traditionally a text based exercise, and that everybody goes in flexing their muscles, and so you're always going in and dialing your text to kind of the extreme, knowing that what comes out through the negotiations is going to be somewhere in the middle depending on where it's gonna land, if it can land.
With that said, what we did in, I think it was October of last year, was go to these three or four provisions -- one on data flows, one on data localization storage, and one on source code -- and say, the United States is -- and this is trade language, right? This is WTO lingo -- we are withdrawing our attributions. So in that text, where after every provision you have in parentheses all of the countries or WTO economies that have said, this is where we're putting our chips, we took the US out of the parentheses in those three provisions, and what we said at the time was, it is so that we can reconsider our positions on these three very important issues, and that we can come back with better considered, better informed and better related to current domestic and international debates positions, right.
So, in terms of what we've done, we've not actually taken anything away from anyone. This world is still operating the way it has always. We're always looking out for the equities of the American economy, our stakeholders, our companies and also our workers, and our small businesses, our entrepreneurs, our farmers, our ranchers, etc. But it is actually a very deliberate action that we have taken to allow for deliberative engagement on those issues that will reflect better where we are.
I will say this. If you look around the world and some of our closest trading partners, you begin to appreciate how our systems are different. And then that means that we have different superpowers that we bring to our engagements around the world. If you look at the Europeans, I think that despite being a very complex institution, that the European superpower, one of them, is regulation. That they are able to seize the attention of the rest of the world through their ability to coalesce 27 member states around regulations and extraterritorial regulatory reach.
If you look at our system, it is, you could call it a superpower, our superpower is not regulating, and in the area of technology, especially where technology is creating this digital existence, it is an area where we know that we have to take steps forward and whether it's through the competition enforcement, whether it's through legislating on privacy, on the responsibility of stakeholders in the world of technology, how technology interacts with our democratic institutions, that it is actually really, really important for us to be connected as USTR to the rest of the conversation within the administration, in Congress, and beyond to ensure that what we're doing at the WTO (1) makes sense, (2) is consistent and coherent with everything else that we're doing, and (3) ultimately is constructive to bringing about a world that respects freedoms, that yes, that promotes economic vitality, but also isn't blind to the implications of what we're doing on all these other aspects of the interaction of government and the economy.
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Itai Greenberg:
... I was ... formerly the lead international tax official at Treasury in the first couple of years of this administration. I thought you made insightful points about how data has value and there are companies that are harvesting this data and that we need to figure out how we're going to regulate data accumulation as a result. But that same language, exact language is often used by some of our trading partners as a justification for tax based rules that are limited in application to a very small list of companies, companies that meet very high national and global revenue thresholds for example. That ring fencing approach ends up defining a small group of companies that are exclusively, or almost exclusively, US headquartered. And I wonder what you'd say about that? Do we continue to have a non-discrimination concern? Could you say a little more about how you think the data value conversation should move forward multilaterally, bringing together the trade stuff and the tax stuff?
Tai:
... So, yes, non-discrimination is one of the pillars on which our multilateral trading system is based. And so that is something that we are always going to be looking at. The other piece of the puzzle though is, when you look at -- and so, we're talking about data and technology -- when you look at the big tech players, they are almost all quote "our companies," right? And I think that there is an important space that we need to leave for other countries and other partners to be regulating legitimately in the public interest and not to be protecting their own market, when looking at the biggest companies in the world that happen to be American companies.
Side note, a question that I've been asking, and I think that my tax colleagues are important to answering this question, what is an American company? If you talk about being headquartered here in the US, are they all headquartered here, if we're talking about the companies that I think we're talking about? Because from a tax perspective, and again, I'm not a tax person ... how many of our big tech companies are actually, for tax purposes, headquartered in other places, and actually paying taxes there as opposed to paying taxes here? So if that's the definition of an American company, I'll have to ask you and others how many of these American companies are actually really American companies and how does that inform the discrimination conversation.
But what I do really want to enforce is that we are looking at this issue of data and value. We have so many unanswered questions. And ... this is a little bit aside from the question you've asked, but I think I have a bit of a segue here. I'm often asked if what we did in terms of withdrawing attributions and reserving the space to come back to the WTO with updated US positions in the WTO conversation is a somehow, some kind of a surrender to other approaches to the digital economy, in particular, if it's a surrender to the Chinese approach to digital regulation and control. This gives me an opportunity to say this, which is, from everything that we know with respect to data flows in China, that the PRC's approach is one that is really informed by control, especially by the government, and possession. So that what we see in terms of how the worldwide digital economy works, we know that the PRC is going to be looking for a lot of room to restrict data flows, to have the government tell companies where data can flow, where it can reside, that it must be localized within their borders. And what we know is data flows into China, it doesn't flow back out, and that all of that data, eventually, will either be in the possession of or be accessible to the state.
And we know that when we look at that model, it really doesn't reflect our values. And that that is not what we want. And I think that we have actually a lot of consistency with many of our trading partners that that's not the system that we want.
On the flip side, when we take a look at ourselves and where we are right now, what I would observe is we have a system that has very little regulation. In fact, I've been told by my friends on the hill, whichever part of the political spectrum they might sit on, that an American has no privacy rights to their data here in the United States. And that just doesn't feel right. And that's something that they are trying to do something about.
But that in our system, all of the data that is created by all of us is captured and accessed by, not the state, but a small set of extremely powerful, extremely rich companies. And that suggests to me that we're way on the other side of the spectrum where a lot of our closest partners are looking at us, and in fact even our own policymakers are looking at where we are, and saying that isn't the right balance either. That what we need to do is figure out, from a tax perspective, but also more broadly from a regulatory perspective, what is the place, where is the United States, what is our approach? And that's not to say that trade doesn't have a place in this conversation. But what I would suggest is that if we're only leading this conversation using trade and trade negotiations, that is very much the tail wagging the dog, that there are much, much bigger issues for our policy decision making and debate to resolve and address first. And it's not all about the trade rules.
