Should Big Tech Get to Write the Rules of the Digital Economy?

One reason that the idea of free trade has fallen out of fashion in recent years is the perception that trade agreements reflect the wishes of big American corporations, at everybody else’s expense.

U.S. officials fought for trade agreements that protect intellectual property — and drug companies got the chance to extend the life of patents, raising the price of medicine around the world. U.S. officials fought for investor protections — and mining companies got the right to sue for billions in “lost profit” if a country moved to protect its drinking water or the Amazon ecosystem. And for years, U.S. officials have fought for digital trade rules that allow data to move freely across national borders — sparking fears that the world’s most powerful tech companies would use those rules to stay ahead of competitors and shield themselves from regulations aimed at protecting consumers and privacy.

That’s why the Biden administration, which came into office promising to fight for trade agreements that better reflect the interests of ordinary people, has dropped its advocacy for tech-friendly digital trade rules that American officials have championed for more than a decade.

Last month, President Biden’s trade representative, Katherine Tai, notified the World Trade Organization that the American government no longer supports a proposal it once spearheaded that would have exported the American laissez-faire approach to tech. Had that proposal been adopted, it would have spared tech companies the headache of having to deal with many different domestic laws about how data must be handled, including rules mandating that it be stored or analyzed locally. It also would have largely shielded tech companies from regulations aimed at protecting citizens’ privacy and curbing monopolistic behavior.

The move to drop support for that digital trade agenda has been pilloried as disaster for American companies and a boon to China, which has a host of complicated restrictions on transferring data outside of China. “We have warned for years that either the United States would write the rules for digital trade or China would,” Senator Mike Crapo, a Republican from Idaho, lamented in a press statement. “Now, the Biden administration has decided to give China the pen.”

The truth is that Ms. Tai is taking the pen away from Facebook, Google and Amazon, who helped shape the previous policy, according to a research paper published earlier this year by Wendy Li, a doctoral candidate at the University of Wisconsin-Madison, who used to answer the phone and interact with lobbyists at the U.S. trade representative’s office. The paper includes redacted emails between Trump-era trade negotiators and lobbyists for Facebook, Google, Microsoft and Amazon, exchanging suggestions for the proposed text for the policy on digital trade in the United States-Mexico-Canada Agreement. “While they were previously ‘allergic to Washington,’ as one trade negotiator described, over the course of a decade, technology companies hired lobbyists and joined trade associations with the goal of proactively influencing international trade policy,” Ms. Li wrote in the Socio-Economic Review. .

That paper explains how U.S. trade officials came to champion a digital trade policy agenda that was nearly identical to what Google, Apple and Facebook wanted: No restrictions on the flow of data across borders. No forced disclosure of source codes or algorithms in the normal course of business. No laws that would curb monopolies or encourage more competition — a position that is often cloaked in clauses prohibiting discrimination against American companies. (Since so many of the monopolistic big tech players are American, rules targeting such behavior disproportionately fall on American companies, and can be portrayed as unfair barriers to trade.) This approach essentially takes the power to regulate data out of the hands of governments and gives it to technology firms, according to research by Henry Gao, a Singapore-based expert on international trade.

While some of this agenda is reasonable and good for the world — too much regulation stifles innovation — adopting this agenda wholesale would risk cementing the advantages that big American tech companies already enjoy and permanently distorting the market in their favor.

Many smaller tech companies complain that big players engage in monopolistic behavior that should be regulated. For instance, Google has been accused of privileging its own products in search results, while Apple has been accused of charging some developers exorbitant fees to be listed in its App Store. A group of smaller tech companies called the Coalition for App Fairness thanked Ms. Tai for dropping support for the so-called tech-friendly agenda at the World Trade Organization.

Still, Ms. Tai’s reversal stunned American allies and foreign business leaders and upended negotiations over digital trade rules in the Indo-Pacific Economic Framework, one of Mr. Biden’s signature initiatives in Asia.

“The term we would use is ‘gobsmacked,” John W.H. Denton, secretary general of the International Chamber of Commerce, told me. “We don’t understand what’s going on.”

The about-face was certainly abrupt: Japan, Singapore and Australia — who supported the previous U.S. position — were left on their own. It’s unfortunate that U.S. allies and even some American officials were taken by surprise. But it was the right call.

The previous American position at the World Trade Organization was a minority position. Only 34 percent of countries in the world have open data transfer policies like the United States, according to a 2021 World Bank working paper, while 57 percent have adopted policies like the European Union’s, which allow data to flow freely but leave room for laws that protect privacy and personal data. Nine percent of countries have restrictive data transfer policies, including Russia and China.

The United States now has an opportunity to hammer out a sensible global consensus that gives tech companies what they need — clarity, more universal rules, and relative freedom to move data across borders — without shielding them from the kinds of regulations that might be required to protect society and competition in the future.

As concern grows about the safety of A.I. and the power of Big Tech to freeze out competition, there are good reasons to think twice about pushing an agenda that might favor a handful of companies that have already amassed a mind-boggling amount of data and political influence.

If the Biden administration can shepherd a digital agreement that strikes the right balance, there’s a chance that they will also restore faith in free trade by showing that trade agreements don’t have to be written by the powerful at the expense of the weak.

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