The US turn is reshaping the geopolitics of digital trade. What does this mean for the UK?
Published 5 December 2023
Over the past few weeks, one of the most dramatic turns in trade policy has occurred in the US. The country announced that it was withdrawing its position on digital trade at the World Trade Organization (WTO) to allow for stronger regulation. This was followed by a similar turn in the negotiations for the Indo-Pacific Economic Framework initiative (IPEF).
The US had long advocated for a laissez-faire approach to digital trade, removing or limiting any digital trade barrier represented by public interventions on privacy, regulation of data flows and access to digital technologies. Now, the US Government suddenly wants “policy space” to be able to regulate Silicon Valley and rein in anticompetitive behaviour by large tech firms. Controlling potentially harmful developments of artificial intelligence – particularly Generative AI - cybersecurity, and the monopolistic power of large platforms requires public policies that may impact digital trade.
The reaction from the US private sector was swift and negative, with stern warnings that the US relies on “harnessing data” and digital trade policies to maintain its global leadership in tech. In contrast, the reaction of American civil society organisations has been broadly supportive.
Factors influencing the policy change
Strong domestic civil society advocacy in the US may have played a part in these policy changes. For years, critics of the dominant low-regulation approach to digital trade have mainly taken an internationalist stance, looking at the impacts of these policies on the digital developments of lower- and middle-income countries, or privacy laws in Europe. Instead, the recent wave of advocacy led by Rethink Trade - hosted by the American Economic Liberties Project - has focused on the domestic implications for the US and enlisted the support of lawmakers in Congress. For example, their report on AI and digital trade placed source code restrictions against the Biden administration’s proposals for an AI Bill of Rights.
A broader front against digital trade rules has emerged. This includes some actors from the digital industry critical of platform power, such as the Coalition for App Fairness, which enlists many SMEs, Spotify and Epic Games. Respected technology think tanks, such as AI Now, joined the fray, declaring that digital trade disciplines could “prematurely deter or undercut ongoing regulatory efforts around data privacy, algorithmic accountability, and competition in the tech industry.” Consumer groups and technology advocates also warned of the risks of digital trade restrictions from access to source code to the “right to repair” digital technology to avoid unnecessary obsolescence.
Clearly, these changes are not just the result of activism. The WTO negotiations have been stuck for years on the complex issues of source code and cross-border data flows. Concerns about data privacy and platform power have been growing for the past ten years and have developed into a consensus over the need to regulate the tech sector. The EU led these efforts while being accused of discriminating against US firms, from the General Data Protection Regulation (GDPR) to the Digital Markets Act, but we are now seeing the US Federal Trade Commission taking Google to court over manipulation of the search sector, in the main antitrust case in decades. Amazon is also in the dock over abusing their position to maintain a monopoly.
Concerns over artificial intelligence have given a new impetus to digital regulation. The time when US digital trade policy could simply align with the interests of its digital giants and ignore concerns from the public, civil society and start-ups seems to be over. Yet, the new willingness to align trade and domestic regulation is opening some rifts in Washington, particularly with the national security establishment. Bipartisan alignment of economic and security concerns over China’s access to cutting-edge digital technologies is central to US digital trade policy. Simmering conflicts between security hawks and proponents of pragmatic approaches to China may now re-emerge.
The global impact of US digital policy change
Although these US policy changes have received little attention in Europe, they are prompting a wider rethink, including among the Asia-Pacific countries leading the WTO joint initiative on e-commerce and the Indo-Pacific Economic Framework initiative (IPEF). Diplomats from Japan, Australia and Singapore have recently been stressing the need for balance and compromise, apparently to no avail.
The practical effects of the new US position are yet to be fully assessed, but we think that the scenarios where this policy change triggers an avalanche of protectionism seem far-fetched. The first reason is that countries typically seen as leading digital protectionism may be softening their positions. China is considering lower authorisation requirements for data exports to promote economic growth, while India did a U-turn on data localisation in their Data Protection Law.
Secondly, the US has not changed its broad support for data flows and opposition to forced data localisation, in line with the EU. Neither has it softened its claims that some countries like China abuse access requirements to source code to steal patents and other Intellectual Property Rights.
Opening regulatory space within digital trade could mean precisely setting up parameters on how data flows may be protected from undue interference. Governments may define how to legitimately monitor technology to ensure it is not harmful while avoiding being accused of property rights breaches. The underlying need to create global rules for a connected world and the global digital economy has not disappeared.
The impact of the changes to the UK
The new US position on digital trade puts the UK in a difficult position. Traditionally, the UK has preferred light-touch regulation of digital technologies, diverging from new EU digital regulations after Brexit. Supporting digital trade fits within this rationale. Joining the Cross Border Privacy Rules and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership while reforming the UK GDPR, are part of this shift away from the EU regulatory framework.
Those moves could now be less useful, including for the long-held aspirations of a US-UK digital trade deal - if the US moves closer to the EU on digital regulations. The value of a British Atlantic bridge between conflicting US and EU approaches to platform power, data privacy and AI regulation would be diminished. Realigning with the EU might even become the most logical path for the UK.
The changes in US digital trade policy – with the explicit recognition of the concerns of unions and consumers - are big news from the perspective of inclusive trade policy making. This stands in stark contrast to the often-criticised lack of stakeholder participation in the UK.