International “Digital Trade” Agreements: The Next Frontier
Apr 11, 2023
International trade agreements, typically negotiated in secret and without public deliberation, could prematurely deter or undercut ongoing efforts to regulate the tech industry.
Negotiations on a possible Indo-Pacific Economic Framework and trade talks with Latin American and other countries must preserve this policy space and set a more progressive baseline for digital policy.
Trade agreements include binding international rules that limit the parameters of how governments can regulate commercial firms. Because of the secrecy of the negotiations and their relative immunity to public political pressure, they have become a focus for intense tech industry lobbying for preferential treatment.
“Digital trade” is fast emerging as the next battleground where trade rules could function to prematurely deter or undercut ongoing regulatory efforts around data privacy, algorithmic accountability, and competition in the tech industry.
International trade law includes a sprawling body of legal agreements: binding multilateral rules applicable to all 164 member countries of the World Trade Organization (WTO), as well as bilateral or regional agreements between two or more countries that determine the rules of the road for how the cross-border exchange of products and services is regulated as well as how foreign firms and their services can be regulated by a host government.1Burcu Kilic and Renata Avila, “The Multilateral Trade System and the World Trade Organization (WTO): Lesson 101,” Public Citizen, n.d., accessed March 3, 2023. International trade agreements that extend beyond traditional matters, such as tariffs and quotas, are a relatively recent creation, having only become widespread at the end of the twentieth century, together with, and very much espoused by, the neoliberal order then emerging.2Quinn Slobodian, Globalists: The End of Empire and the Birth of Neoliberalism (Cambridge, MA: Harvard University Press, 2018).. Per this ideology, “free trade” and the removal of “barriers to trade” between countries will result in growing the “global pie,” making all parties better off3Harlan Grant Cohen, “What Is International Trade Law For?” American Journal of International Law 113, no. 2 (April 2019): 326–346. Under this account, protectionism of any kind, or policies that directly (or—crucially—indirectly) prioritize domestic workers or businesses, or disadvantage foreign ones, are misguided and eventually stifle growth and shrink both the domestic and global economy.4Benoît Coeuré, “The Consequences of Protectionism,” European Central Bank, April 6, 2018.
This consensus against protectionism is generally operationalized through the reduction of border barriers to trade, most prominently tariffs and quotas, and rules around nondiscrimination, such as the “national treatment” principle, which requires that countries do not treat commerce from other member countries less favorably that they treat their own.5“Principles of the Trading System,” World Trade Organization, accessed March 3, 2023. For example, the US may not subject Canadian products to stricter regulation than those that US products are subject to.6Timothy Meyer, “The Political Economy of WTO Exceptions,” Washington University Law Review 99, no. 4 (2022): 1299–1370. And, unlike many other bodies of international law, not following these rules has punitive consequences: Countries can be sued before the WTO, or under bilateral or regional deals’ dispute settlement systems, and sanctions can be imposed until nonconforming domestic policies are removed or changed.7Kilic and Avila, “The Multilateral Trade System and the World Trade Organization (WTO).” Some of these agreements also empower foreign investors to privately enforce the terms through a process called “investor-state dispute settlement,” which grants corporations the ability to sue governments before a panel of three private-sector lawyers picked by the parties. These lawyers can award the corporations unlimited sums to be paid by taxpayers, including for the loss of expected future profits and their decisions are not subject to appeal, see Jane Kelsey and Lori Wallach, “Investor-State” Disputes in Trade Pacts Threaten Fundamental Principles of National Judicial Systems,” Citizen, April 2012.
While traditional trade barriers included custom duties and tariffs, more recent trade agreements have strongly emphasized regulation as a potential trade barrier.8Burcu Kilic, Shaping the Future of Multilateralism—Digital Trade Rules: Big Tech’s End Run around Domestic Regulations (Washington, DC: Heinrich-Böll-Stiftung, 2021). Over the past few decades, international trade rules have been enforced (by suing countries before the WTO9“Whose WTO Is It, Anyway?” World Trade Organization, accessed March 3, 2023. or other trade and investment dispute settlement mechanisms) to resist and successfully defeat national regulation that pursues other non-trade-related policy goals like environmental conservation, public health or the promotion of green industries.10See Barbara Moens and Karl Mathiesen, “Trade Partners See Red over Europe’s Green Agenda,” Politico, January 16, 2023; and David Henderson, “Unlawful Trade Barrier Warning over Bottle Return Scheme,” BBC, February 8, 2023. In response to this shrinking space for governments to make policy in pursuit of national priorities, advocates for environmental justice, labor, and human rights11 Larry A. DiMatteo, Kiren Dosanjh, Paul L. Frantz, Peter Bowal, and Clyde Stoltenberg, “The Doha Declaration and Beyond: Giving a Voice to Non-Trade Concerns Within the WTO Trade Regime,”Vanderbilt Journal of Transnational Law 36, no. 1 (January 2003): 95–160., as well as countries from the Global South advocating for equitable development opportunities12See B.S. Chimni, “Third World Approaches to International Law: A Manifesto,” International Community Law Review 8, no. 1 (2006): 3–27., have fought for “exceptions” to these rules to create room for national-level regulatory moves. This has occurred even as the prevailing exception language and its interpretation led to the demonization of public interest policies, which are then scrutinized within the current trade regime for being protectionism in disguise or arbitrarily discriminatory.13Meyer, “The Political Economy of WTO Exceptions.”
“Digital trade” or trade agreements that apply to technology-related products, services and firms are emerging as the next battleground where trade rules could function to deter or undercut global regulatory efforts pursuing privacy protection, algorithmic accountability, and competition objectives, among other things.14Kilic, Shaping the Future of Multilateralism. In the US, this risk is heightened in the current moment: with no federal regulation on data privacy, digital markets competition, and algorithmic accountability, but significant political momentum across these areas15See ACCESS Act of 2021, H.R. 3849, 117th Congress (2021–2022); American Innovation and Choice Online Act, S. 2992, 117th Congress (2021–2022); and Worker Rights: Workplace Technology Accountability Act, .B. 1651 (California Legislature, 2021–2022 Regular Session), January 13, 2022., any trade agreements signed by the US that further entrench and expand the privileges the tech industry enjoys could end up prematurely cutting off the opportunity to make such interventions.
The tech industry has been quick to recognize and exploit trade policy as a vehicle for regulatory influence. Negotiation of the Trans-Pacific Partnership (TPP) set the initial blueprint for the Big Tech policy agenda for digital trade.16See Kilic, Shaping the Future of Multilateralism; and Peter Baker, “Trump Abandons Trans-Pacific Partnership, Obama’s Signature Trade Deal,” New York Times, January 23, 2017. The TPP was a highly contested agreement between the US and 11 Pacific Rim countries.17Kevin Granville, “What Is TPP? Behind the Trade Deal That Died,” New York Times, January 23, 2017. It was the first trade agreement with a strong emphasis on digital trade. TPP negotiations started in 2008 and a deal was signed in early 2016) behind closed doors and with significant evidence of lobbying by Big Tech.18See Wendy Li, “Regulatory Capture’s Third Face of Power”, Socio-Economic Review, 2023, Vol. 00, 1-29,., foreclosing the possibility of any robust public input19Mark Wu, “US Should Not Negotiate Free Trade behind Closed Doors,” Financial Times, May 26, 2015. There was never a U.S. congressional majority in support of the deal. But in 2018 the other 11 countries suspended a few of the most extreme provisions and enacted it rebranded as the Comprehensive Progressive Trans-Pacific Partnership. The TPP chapter covering digital trade, which became public in 2016 shortly before signing, provided an initial blueprint for the Trump administration to provide further industry privileges in the 2019 US-Mexico-Canada Agreement (USMCA).20David A. Gantz, “The USMCA: Updating NAFTA by Drawing on the Trans-Pacific Partnership,” Baker Institute for Public Policy, February 21, 2020. This agenda reflects the standard policy positions advocated for by large tech companies in national debates, including limiting any restrictions on cross-border data flows, an absolute restriction on data localization (requirements that data be stored within the country) and locking in and exporting to other countries Section 230’s limits on online platform liability. Also included are strict protections against government access to source code. In USMCA this protection extends even to detailed descriptions of algorithms. The effect of this provision is to label many otherwise facially neutral policies as illegal trade barriers. While they apply to domestic and foreign firms equally, they may have a bigger impact on certain firms because they are larger, not because of their nationality.21Thomas Streinz, “Digital Megaregulation Uncontested? TPP’s Model for the Global Digital Economy,” Guarini Institute for Global Legal Studies: Global Law & Tech, August 13, 2019.
The TPP set a dangerous precedent: the tech industry now looks to trade agreements as an arena where they can lobby to establish policy positions globally, bypassing public scrutiny, before these issues are democratically deliberated in national contexts. A March 2023 analysis by Rethink Trade pointed to a long list of ways in which the TPP and USMCA provisions directly contradict emerging policy positioning that has been subsequently put forth by the Biden administration.22Daniel Rangel and Lori Wallach, “International Preemption by “Trade” Agreement: Big Tech’s Ploy to Undermine Privacy, AI Accountability, and Anti-Monopoly Policies”, Rethink Trade, March 15, 2023. This acts as a potential deterrent against renewed efforts by the US (or any signatory) government to regulate the tech industry: in order to pass such policies, which might clash with existing or forthcoming trade agreements, they would have to justify why these don’t violate international obligations or fall under stated exceptions.
Looking ahead, Katherine Tai, the US Trade Representative (USTR) under the Biden administration, has suggested that the US will now take a different approach to trade from the one pursued under the TPP and USMCA.23See Claude Barfield, “US Indo-Pacific Policy Prioritises Security over Economics,” East Asia Forum, February 10, 2023; and “US Trade Representative Tai hints at new Asian economic framework – NHK,” Reuters, November 18, 2021. In fact, she has repeatedly advocated for a trade agenda that centers consumer and worker interests24Jeanna Smialek, “Ambassador Tai Outlined Biden’s Goal of Worker-Focused Trade Policy,” New York Times, June 10, 2021., signaling an opportunity to reconceptualize trade agreements as a vehicle for setting a higher progressive baseline in favor of greater policy protections, and not just as an anti-regulation tool for industry. All eyes are on the upcoming Indo-Pacific Economic Framework (IPEF), a trade agreement between the US and 13 countries in the Asian Pacific region (widely heralded as a US attempt to counter Chinese influence in the region25 See “Indo-Pacific Economic Framework Holds Value, but It’s Unclear If It Will Counter China’s Influence Says Senior Economist David Dapice,” Ash Center, Harvard Kennedy School, n.d., accessed March 3, 2023; Enda Curran and Michelle Jamrisko, “Understanding IPEF and How It Counters China’s Clout,” Bloomberg, May 23, 2022; and Andrew Haffner, “Biden Launches Economic Framework Aimed at Countering China,” Al Jazeera, May 23, 2022.) as a site where this new orientation could play out.26Public Citizen, “IPEF Launch Suggests Departure from TPP but Also Raises Red Flags,” press release, May 23, 2022.
While the text of the IPEF is still not public, progressive trade groups have helpfully identified potentially problematic digital trade issues that are likely to come up including prohibitions on government oversight of data flows for privacy or data security purposes and government regulation of where data can be processed or stored, overly expansive nondiscrimination terms as well as expansive and absolute source code and algorithmic secrecy guarantees that could limit government AI oversight.
Nondiscrimination prohibitions in trade agreements should not be used to protect US Big Tech companies from competition regulation abroad. Such provisions must be crafted to leave policy space for laws aimed at enhancing competition, even where they might disproportionately impact US Big Tech firms.
The TPP and USMCA have a broadly worded “nondiscrimination” requirement that could be interpreted as restricting member countries from enacting policy that, while neutral on its face, effectively has a greater impact on firms from a particular country. In the context of antitrust or other pro-competition regulation, this could mean therefore that competition regulation that disproportionately impacts US Big Tech companies (because of their size, scale, and data advantages) could be seen as violating the nondiscrimination diktat of the trade agreement.
This risk is not hypothetical. We’ve already seen Apple and Google wield this argument in the context of South Korea’s 2021 law targeting anticompetitive app store policies, on the grounds that it has a discriminatory effect because of its disparate impact on U.S. firms.27David McCabe and Jin Yu Young, “Apple and Google’s Fight in Seoul Tests Biden in Washington,” New York Times, August 23, 2021. Rethink Trade also published a report that reveals a pattern of this kind of corporate lobbying using broad “nondiscrimination” arguments to undermine other countries’ competition regulation.28Daniel Rangel, Taylor Buck, Erik Peinert, and Lori Wallach, “‘Digital Trade’ Doublespeak: Big Tech’s Hijack of Trade Lingo to Attack Anti-Monopoly and Competition Policies,” Rethink Trade, November 2022. Other non-Big Tech companies in the industry are also chiming in: in a recent letter to the USTR titled “Don’t Let Big Tech Manipulate Trade Policy to Kill Competition,” the Coalition on App Fairness, whose larger members include Spotify and Epic Games, urged the USTR not to follow the USMCA/TPP approach and ensure that the IPEF does not “provides a basis for US Big Tech monopolies to attack legitimate anti-monopoly policies in other countries as ‘illegal trade barriers.’”29Rick VanMeter to Katherine Tai and Gina Raimondo, January 11, 2023. These efforts all point to the wave of competition-focused regulation being proposed in the US, along with the Biden administration’s declaration not to “tolerate domestic monopolies” as further reason not to entrench contradictory positions in global trade fora.
Much of the impact of the nondiscrimination provision will be determined by its precise wording. In the South Korea app store case, Apple and Google’s complaint to the US government wasn’t a credible legal threat given that the Korea-US trade agreement (KORUS) did not have the TPP/USMCA-style of nondiscrimination clause and so the argument remained conceptual. This only underscores the importance of ensuring carefully tailored language that avoids the pitfalls of the TPP in IPEF and other future agreements.30Rethink Trade’s submission on IPEF (forthcoming; on file with author). Rethink Trade draws on the language in KORUS to propose a variation that preserves space for such pro-competition policy, by clarifying that a country will not be in violation “merely because” it results in differential effects on a particular country’s products and instead must have the “objective or predominant intent to afford protection.”31Ibid.
Expansive and absolute-secrecy guarantees for source code and algorithms in trade agreements could undermine the direction of algorithmic accountability policy in the US and globally where there is a general movement towards mandating more proactive and continuous monitoring of AI systems.
Expansive and absolute-secrecy guarantees for source code and algorithms are another key feature of the industry-backed USMCA/TPP approach. These provisions are justified as preventing the forced transfer of software trade secrets as a condition for market access (a concern animated primarily by Chinese actions in the past)32 Keith Bradsher, “How China Obtains American Trade Secrets,” New York Times, January 15, 2020., but the broadly worded protections effectively risk preventing government oversight over algorithms wholesale, and especially so when they involve proactive monitoring and are not in response to a specific court order.
This contradicts the direction of algorithmic accountability policy globally (including multiple proposals in the US), which is moving toward more proactive and continuous monitoring of AI systems, especially in sensitive or high-risk domains.33See PACT Act, S. 797, 117th Congress (2021–2022); Worker Rights: Workplace Technology Accountability Act, A.B. 1651, California Legislature (2021–2022); European Commission, “Proposal for a Directive of the European Parliament and of the Council on Improving Working Conditions in Platform Work,” December 9, 2021; Algorithmic Accountability Act of 2022, H.R. 6580, 117th Congress (2021–2022); European Commission, “The Digital Services Act Package,” n.d., accessed March 3, 2023; and Worker Rights: Workplace Technology Accountability Act, A.B. 1651. Several organizations have pointed out that the USMCA definition of “algorithm” is broad enough to restrict the sharing of even mere descriptions of algorithms with regulators, a key part of algorithmic transparency proposals such as AI registries.34Duncan McCann, “e-Commerce: Free Trade Agreements, Digital Chapters and the impact on Labour”, ITUC, 2019. This could have impacts across a range of proposals, such as regulatory evaluations of AI (including those addressing worker surveillance), anticompetitive self-preferencing, and bias and discrimination. In their recent testimony, the AFL-CIO, a consortium of American labor unions, argued that any USMCA-style source code/algorithm secrecy provision would operate to “prevent the protection of workers from the excesses of algorithmic management.”35Hearing on “Opportunities and Challenges for Trade Policy in the Digital Economy,” Before the Subcommittee on International Trade, Customs, and Global Competitiveness, US Senate Finance Committee, 117th Congress, Second Session (November 30, 2022) (Statement of Patrick Woodhall, Policy & Research Director, AFL-CIO Technology Institute).
Looking forward to IPEF, this issue remains a consistent lobbying priority for the tech industry. In February 2022, the US Chamber of Commerce flagged that a top priority for industry in relation to digital trade was that “companies should not be forced to transfer their technology, including proprietary algorithms, to competitors or governments.”36U.S. Chamber of Commerce, “U.S. Chamber Digital Trade Priorities,” n.d., accessed March 3, 2023. A broadly worded protection for source code and algorithms risks seriously undermining efforts around algorithmic accountability both in the US and abroad, and must be prevented.
Beyond these defensive approaches, there is also potential for the IPEF and forthcoming trade policy to set a more progressive baseline on these issues.
The aspiration toward a more proactive stance is somewhat constrained by the fact that, despite growing momentum, the US lacks enforceable federal policy on issues like privacy, surveillance, digital markets competition, and algorithmic accountability. In the absence of a clear regulatory benchmark, US negotiators do not have direction with respect to a US baseline standard to be promoted in trade pacts. That said, even nonbinding language that highlights the need for global consensus in favor of clear limits on commercial and worker surveillance, algorithmic accountability, and competition regulation would represent a major departure from the TPP/USMCA model—one that opens up the possibility of trade law as a vehicle for pushing forward (rather than against) tech accountability.