Digital trade: US wants more policy space

Traditional trade agreements are about import tariffs, but modern trade agreements are deep integration agreements with rules that severely limit countries’s policy space. NGOs, among them the Vrijschrift Foundation, have often pointed out that trade and investment agreements create issues for data protection, algorithmic transparency, access to knowledge, and democracy. Unfortunately, trade agreements are negotiated behind closed doors; they are a package, no amendments allowed; after years of negotiation the political pressure to ratify is great. Crucial details may go unnoticed. Fundamentally, Margot Kaminski argued that trade is not the place for the EU to negotiate privacy.

Multinationals like rules to be the same everywhere, with minimal privacy and data protection, with strong copyright and patent protection, no taxes, no accountability. The U.S. trade representative’s office (USTR) seemed fully captured by the tech industry. Wendy Li:

USTR has effectively internalized technology industry interests into their own mission.

The EU’s Directorate-General Trade, responsible for EU policy on trade with countries beyond the EU’s borders, seems rather captured by the industry as well. With the Lisbon Treaty, the EU got more power to conclude trade agreements. Without ratification by member states, scrutiny is much less. One of the things that happened is, in my opinion, a power grab by DG Trade.

For instance, the Inside U.S. Trade article mentions source code. DG Trade has put in trade agreements a source code clause that creates an additional sui generis right that, next to copyright protection and trade secret law governments ought to respect, shields software source code from being interfered with by governments. Almost nobody paid attention. And now DG Trade tells EU lawmakers, you can only have limited regulatory oversight on artificial intelligence, because you have ratified trade agreements. ¹ (I proposed a solution.) Fundamentally, trade is not the place to change EU law.

In an opinion article on Lawfare, “China Gains as U.S. Abandons Digital Policy Negotiations”, Nigel Cory and Samm Sacks are not enthusiastic about the USTR’s decision. The word “China” appears 20 times in the article. The authors seem to try to taint the importance of domestic policy space, with remarks like:

The rationale articulated by the USTR—that the United States requires more space to address domestic policy issues—reveals a similarity with Beijing’s own vision for cyber sovereignty.

Cory and Sacks seem to not see a real benefit to policy space.

While policy space may sound appealing in principle, in practice countries like China have misused this concept in existing WTO agreements, such as on services trade, to enact restrictions that make its trade commitments—whether on data flows, digital goods and services, or other issues—essentially meaningless. (emphasis added)

The implication seems to be that we have to give up our policy space, lest China may abuse it. Offensive interests at the expense of defensive interests is not a good proposition for citizens. It is for multinationals, and oligarchs. ²

In my opinion, the authors misrepresent the relationship between international agreements and domestic laws:

More specifically, the European Union-United Kingdom Trade and Cooperation Agreement’s source code provisions did not stop the EU from enacting related provisions in its AI Act.

This is correct, but only part of the story. The agreement did not stop the EU, but as we saw above, it did limit the EU’s policy space. Moreover, international agreements make it possible to challenge national laws before international tribunals, which as single issue tribunals may be somewhat single minded. The General exceptions (article XIV) in the WTO General Agreement on Trade in Services (GATS) come with multiple conditions, limiting the strength of the safeguard. Enacting provisions in domestic laws are not the end of the story when international agreements are ratified. As USTR was rather captured, policy space for a digital trade rethink is a good idea.

Facebook’s role in elections and referendums shows that the use of personal data is not only a civil rights issue, but may compromise the integrity of our institutions.

I noted elsewhere that in 2012 the European Commission decided that New Zealand adequately protects personal data. As a result, in the case of New Zealand, the strength of the data flow commitment and of the exception to the commitment in the proposed trade agreement with New Zealand may not matter much, as long as New Zealand adequately protects data. But what will the future bring?

Moreover, the EU commission expressed its intention to use the sweeping commitment in that agreement and its exception, which has some potential limitations and weaknesses, also in free trade agreements with countries without adequate data protection. This seems imprudent. Sweeping data flow commitments in a WTO agreement would extend such commitments to countries without adequate data protection, that may even be hostile to our democracies. The sweeping data flow commitment in the proposed agreement with New Zealand is not a good idea in itself and should certainly not be a precedent in a WTO context.

The Biden administration wants policy space for digital trade rethink. May the EU wake up as well, and reign in DG Trade. In a volatile world, we have to be prudent.