The true cost of USTR’s U-turn on data in the WTO e-commerce talks

The United States Trade Representative’s (USTR) October 25 withdrawal of US support for provisions promoting cross-border access to information in the World Trade Organization (WTO) e-commerce negotiations is a stunning policy U-turn that reverses core tenets of US foreign economic policy in place for nearly two decades. This action has the unfortunate effect of undermining US support at the WTO for Australia, Japan, Singapore, and other US allies, while also penalizing workers, consumers and businesses engaged in global e-commerce. The ramifications of the October 25 action likely exceed those of the ill-conceived US withdrawal from the Trans-Pacific Partnership.

1. What does the October 25 reversal mean for the economies of the United States and its allies?

The USTR’s withdrawal of support for trade rules that promote cross-border information access will produce significant economic costs for the United States and its US allies.

Restrictions on cross-border access to information and other digital trade barriers harm GDP (-0.7-1.7%); investment flows (-4%); productivity (4.5% loss); and small business (up to 80% higher trade costs). As the World Bank has noted, “restrictions on data flows have large negative consequences on the productivity of local companies using digital technologies and especially on trade in services.” These burdens are borne most heavily by developing and least developed economies. As the United Nations has stated, “regulatory fragmentation in the digital landscape…is most likely to adversely impact low-income countries, less well-off individuals, and marginalized communities the world over, as well as worsen structural discrimination against women. A future of exclusionary digital development must be avoided at all costs.”

Despite their heavy economic costs, cross-border data restrictiveness continues to increase. It is estimated that these restrictions increased by 600% between 2013 and 2019 in the Asia-Pacific, and increased at a rate five times higher in 2022 than in 2021.

Conversely, studies also show that removing cross-border data restrictions benefits workers, consumers, and enterprises across the economy. According to the World Bank, “studies show that countries would gain on average about 4.5 percent in productivity if they removed their restrictive data policies.” The Organisation for Economic Co-operation and Development has found that a 0.1 point reduction in a country’s level of digital services trade restrictiveness is associated with a 145% increase in overall exports.

2. What does the October 25 reversal mean for digital inclusion, worker and consumer welfare, and marketplace competition?

Cross-border access to information is necessary to promote digital transformation and digital inclusion for consumers, workers, and enterprises of all sizes, at every stage of the value chain, and across every sector, including the agriculture, automotive, clean energy, finance and insurance, healthcare and medical technology, logistics, media, pharmaceutical, and telecommunications sectors. Digital barriers to the exchange of connected goods and services including aircraft, vehicles, semiconductors, creative content, and financial and other services also hurt the workers who design, produce, and deliver them, and the consumers who purchase them. In the United States, 1 in 5 jobs (40 million jobs) is supported by international trade, a proportion that is even higher among many of America’s closest allies.

Small businesses across all sectors are particularly vulnerable to restrictions on the cross-border access to information. For example, in one recent study conducted across markets in the 12 member states of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), the TPP’s successor, roughly 70% of small businesses surveyed stated that the CPTPP’s rules on data transfers and data localization were somewhat or very beneficial to their ability to engage in online commerce. At the same time, 30% to 40% percent of small businesses surveyed said that fragmented and inconsistent digital policies and data localization barriers were top challenges.

USTR’s policy reversal closes the door on these pro-competition and pro-inclusion digital trade rules, while opening the door to anti-competitive and exclusionary digital policies.

3. What does the USTR reversal mean for the strategic interests of the United States and its allies?

The United States is strongest when it works with its allies. The United States and its allies worked for years to develop the pro-democracy, pro-inclusion, and pro-science trade rules on cross-border data at issue here. That collaborative effort brought together a coalition of like-minded Pacific Rim democracies, including Australia, Canada, Chile, Japan, Mexico, Peru, Singapore, South Korea, and New Zealand – economies that recognize the role of cross-border access to information in supporting the well-being of their consumers, workers, and enterprises.

The United States and its allies have understood that access to knowledge and information is integral to civic and economic freedoms, and particularly the protection of human rights. The Biden-Harris administration has consistently supported this view, as reflected in the Presidential Initiative for Democratic Renewal and the Declaration on the Future of the Internet, which reflect a shared commitment among 60 economies to work “to realize the benefits of data free flows with trust based on our shared values as like-minded, democratic, open and outward looking partners.”

In this respect, US and allied support for trade rules on cross-border access to information has served as a bulwark against a rising tide of digital authoritarianism, which has been associated with a dizzying array of new cross-border data restrictions and localization mandates affecting not only personal data, but also “important data,” deemed to include automotive, cultural, environmental, financial, geographic, health, business, statistical, and production process data, and information on scientific and technological achievements. Similar cross-border data restrictions apply to “core data”, which covers data relating to the “life of the national economy, people’s important livelihoods, [and] important public interests”, a second broad category of “critical infrastructure information”, and a third category called “key data.”

Fortunately, longstanding allied support for trade rules on cross-border access to information has helped slow the global spread of digital authoritarianism.

By closing the door on pro-democracy digital trade rules, USTR’s decision has opened the door to pro-authoritarian digital trade rules.

4. What does the October 25 reversal mean for the Biden-Harris administration’s priorities?

Cross-border access to information and data transfers are important to many governmental policy objectives. Conversely, restrictive cross-border polices hurt developing countries and small businesses; impede financial equity and inclusion; undermine national security and cybersecurity; threaten human rights; slow science and innovation; and impair various health and safety, environmental, and other regulatory compliance priorities.

For many years, the United States made support for cross-border data transfers and access to information a pillar of US government policy. With the October 25 action, the landscape has now changed – not just for USTR, but also for many other departments and agencies whose work and goals are prejudiced by its October 25 action.

The October 25 action creates new challenges for:

• US international relations, given that the October 25 action isolates the United States from its allies and produces an avoidable and unnecessary appearance of USTR alignment with China’s WTO negotiating positions – positions intended to shield China’s digitally authoritarian policies from WTO scrutiny. Indeed, China has for years opposed the very same digital trade disciplines that USTR abandoned on October 25, disciplines that the United States had drafted, in part, specifically to counteract the rise of digital authoritarianism.
• The White House’s commitment to pursue “high-standard rules of the road in the digital economy, including standards on cross-border data flows and data localization” and similar calls in the Declaration for the Future of the Internet. It also works at cross purposes with the US-EU Data Privacy Framework and the Global Cross-Border Privacy Rules Forum, both of which are designed to promote trusted cross-border data transfers.
• The 2023 National Security Strategy and the 2023 National Cybersecurity Strategy, which recognize that cybersecurity depends on real-time cross-border access to cyberthreat indicators to identify risks and divert threats. The National Security Strategy calls on the United States “to promote the free flow of data and ideas with trust, while protecting our security, privacy, and human rights, and enhancing our competitiveness.”

How was it that the USTR was able to take such a consequential action seemingly at odds with so many US governmental priorities?

It appears that there was a breakdown in USTR internal controls. Given the importance of cross-border data and trade policy to the US economy, Congress had legislated safeguards to avoid precisely this sort of outcome. These statutory safeguards aim to ensure that the USTR consults adequately with the public and all parts of the government before undertaking the sort of major policy shift that occurred here. USTR is obligated to consult with the public, Congress, other Executive Branch agencies, and the 50 US states, territories, and possessions.

In this case, USTR did not consult the public at all. It also did not – according to both Democratic and Republican lawmakers – adequately consult with Congress. Nor did it – according to Administration officials – even consult with senior policymakers with shared responsibility over international data policy matters, who first learned of USTR’s action “in the press.” The swift reaction from all quarters and from across the political spectrum strongly suggests a legally and procedurally defective process.

5. What does the October 25 reversal mean for the development and regulation of artificial intelligence?

The October 25 action will have consequences for the Biden-Harris administration Executive Order on AI – the realization of which depends on having stable and predictable international rules on cross-border access to data from around the world. This includes health data, climate and emissions data, agricultural and meteorological data, and other data needed – in the words of US Secretaries Antony Blinken and Gina Raimondo – to address “some of the world’s biggest challenges, from curing cancer to mitigating the effects of climate change to solving global food insecurity.” Cross-border access to larger data sets also aids the exchange of incident data for high-risk AI systems, improves AI functionality, and supports testing for bias, safety, and resiliency. USTR’s action vitiates a foundational premise of the Executive Order – reliable US and allied cross-border access to data to advance innovation and to evaluate, understand, and mitigate AI-related risks.

Data lies at the core of the AI Executive Order. Impediments to US and allied cross-border access to data would frustrate the administration’s aims to “catalyze AI research” in relation to agriculture, climate, health, or the economy. Such impediments will also undermine the ability to evaluate AI systems would undermine its ability ensure that AI is “safe and secure”. When such impediments result in AI data sets that are too small, it also impedes efforts to “test, understand, and mitigate risks” and to develop effective safeguards against “societal harms such as fraud, discrimination, bias, and disinformation,” as well those relating to the workplace, competition, and security.

6. The path ahead

Cross-border access to information is critical to advancing the shared public policy goals of the United States and its allies. Their interests are harmed when discriminatory or unnecessary barriers are erected against reliable cross-border access to information. The October 25 action makes it easier for others to impose similar barriers, depriving the United States and its partners of operational predictability and legal certainty.

The costs and risks for the United States are considerable. In fact, USTR’s fundamental error here offers an object lesson in the sort of wide-ranging damage that can result when organizations allow themselves to become unduly isolated from external sources of knowledge, ideas, and information. Extrapolating that object lesson to an entire economy – or a grouping of allied economies – illustrates how much is at stake here: Without rules that protect our cross-border access to information, we face real dangers from knowledge deficits that compromise our ability to make informed decisions and develop effective, evidence-based responses to urgent economic, environmental, health, safety, and security challenges.

The Biden-Harris administration should not allow USTR to repeat the negotiating errors it committed at the WTO. In the Indo-Pacific Economic Framework (IPEF), the Americas Partnership for Economic Prosperity (APEP), and trade negotiations with other economies, the United States must do everything possible to reengage with its allies so as to promote the cross-border exchange of information, protect democracy and human rights, safeguard its alliances, and address tomorrow’s challenges.

[Joseph Whitlock is the Executive Director of the Global Data Alliance. The views expressed herein are those of the author and do not necessarily represent the views of the Alliance.]

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