I've already made these points for the trade policy crowd, but I have now tried to make my pitch on a way forward for the Biden administration on international digital trade rules slightly more accessible (i.e., without so many blockquotes of international legal texts!). Below are some excerpts from a piece I just wrote for the Baker Institute entitled "Biden Should Reengage on International Digital Trade Rules." It starts this way:
In recent months, the Biden administration has made some people unhappy on international digital trade rules. Certain members of Congress and business groups are particularly upset. The Office of the United States Trade Representative (USTR), led by Katherine Tai, has been the main target of the criticism, thanks to its decision to step back from positions (including on data flows and nondiscrimination against digital products) long held by the U.S. government and reverse course in ongoing negotiations at the World Trade Organization (WTO). USTR took a similar approach to these issues in the Indo-Pacific Economic Framework (IPEF) talks.
Tai has offered some valid reasons for her approach, including that it is extremely difficult to negotiate international agreements when U.S. domestic policy in the area is unsettled. But if the administration wants to influence a conversation that will otherwise take place without the U.S., it should develop its positions and reengage with international negotiations. The state of the domestic regulatory debate may be unsettled, but there are ways of crafting international rules that provide flexibility for whatever domestic policy emerges.
The key compromise here -- which I'm hoping both sides can get behind -- is that to get an acceptable balance between obligations and exceptions on issues such as data flows, "arbitrary or unjustifiable discrimination" stays in but "necessity" is dropped:
Recent digital trade agreements have included broad obligations that prevent domestic restrictions on these data flows. But the political reality is that there will be some restrictions for various reasons, and the agreements tend to have exceptions that allow restrictions when they are based on legitimate public policy goals, such as protecting consumer privacy. The challenge is to calibrate the language of the exceptions so that they allow regulations that are genuinely about privacy, but cannot be used to justify measures that constitute disguised protectionism. The key to getting the right balance is to rely on language providing that the regulation must not constitute “arbitrary or unjustifiable discrimination between countries where like conditions prevail.”
Under this language, as long as a government avoids nationality-based discrimination in its regulations, and is not using regulation as a disguised means of protectionism, the regulation will be permitted under the agreement. By contrast, language that says any restrictions on data transfers must not be “greater than are necessary to achieve its objective” goes much further and leads to concerns about international rules overly constraining domestic regulation. It is these “necessity” tests that have been a main target of civil society critics at the GATT/WTO, and they should be avoided here.
I also suggest that we could delay the enforcement provisions:
An additional way to assuage concerns about international rules in this area is to provide a phase-in period for the rules to be subject to enforcement. Rather than having litigation be available right from the start, international agreements on digital trade could rely at first on a committee that meets regularly to discuss the domestic regulations being developed, through which governments can get a sense of how the international principles they establish might apply to real world regulations. An adjudication mechanism could take effect in a couple years, after governments gained a better sense of what they were signing on to.
And here's the conclusion:
It is understandable that the Biden administration is wary of this issue, as they have stakeholders, including members of Congress, who are pushing them not to agree to international rules that might constrain domestic regulation in any way. But the international discussions will take place regardless of whether the U.S. participates or not. Other governments are pushing ahead with rules, and they do not appear to feel constrained in adopting domestic regulations in this area. An approach involving exceptions language that learns from the GATT/WTO experience could reassure the Biden administration, as this would allow it to shape the international discussion while still maintaining the policy space for eventual domestic regulation of digital trade.
There's some recent reporting on these issues that makes it sound like the issue has gotten very contentious, so I'm not that hopeful here, but nevertheless I think a compromise along these lines might make sense.
