Trade and technology

Maintaining robust digital trade monitoring and enforcement: Recommendations for the Biden administration

Joseph Whitlock

Article Whitlock Maintaing A Robust Digital Trade Monitoring And Enforcement Agenda

Published 16 April 2024

The USTR's shift towards antitrade activisim, neglect of public engagement, and prioritization of political messaging over evidence-based policymaking undermine US trade priorities, pointing to a larger failure of Katherine Tai's tenure. The Biden administration must realign the USTR's focus to advance US economic and geopolitical interests, fulfill the office's obligations, and uphold US democratic values.

In many areas of US trade policy – from securing America’s cross-border information access to protecting US export interests in digitally-enabled agriculture, manufacturing, and services – the Office of the United States Trade Representative (USTR) has retreated from its statutorily mandated trade monitoring and enforcement role. The most recent evidence of this trend is seen in the March 29, 2024 release of the National Trade Estimate Report on Foreign Trade Barriers (NTE).¹

NTE reporting process

The 2024 NTE Report falls short of congressional mandates in section 181 of the Trade Act of 1974 to "identity and analyze" significant foreign trade barriers to: (1) "United States exports of goods and services (including agricultural commodities and property protected by [IP rights])…; (2) foreign direct investment by United States persons…; and (3) United States electronic commerce."²

Section 181 of the Trade Act also requires USTR to "make an estimate of the trade-distorting impact" of these barriers and to quantify the lost or foregone value of "additional of [US] goods and services, foreign direct investment, and electronic commerce … if each of such acts, policies, and practices of such country did not exist."

Unfortunately, the 2024 NTE Report breaks with longstanding US trade monitoring and enforcement practice, omitting discussion of many non-tariff trade barriers – from data localization mandates to cross-border data restrictions to local content requirements – that the statute requires USTR to identify, analyze, and quantify. For example, between 2023 and 2024, USTR reduced the country analyses of data localization mandates by over 70% (from 24 countries in 2023 to seven in 2024). USTR’s decreasing focus on data localization mandates and similar restrictions is all the more difficult to understand at a time when such restrictions are rapidly increasing.³

Inattention under Section 181 of the Trade Act to these and other digital trade barriers undermines efforts: (1) to secure future US cross-border access to data; (2) to preclude discrimination against the digital goods and services that Americans produce; and (3) to protect Americans from malicious cyberactivity and IP theft associated with adversary governmental mandates to transfer sensitive source code.

USTR’s rationalization of policy reversals does not withstand scrutiny

Katherine Tai, the Biden Administration cabinet member who leads USTR, has defended this surprising retreat from trade monitoring and enforcement with a range of arguments against trade liberalization and economic efficiency. For example, in respect of USTR’s tacit support for many foreign data localization mandates, USTR has implied that such mandates promote competition and help workers. Both suggestions are unsupported by evidence, as discussed below.

The USTR’s suggestion that data localization mandates promote competition is misplaced. First, there is no conflict between antitrust and legal norms that facilitate cross-border data transfers. Nothing in these norms impedes new antitrust legislation or enforcement. On the contrary, USTR’s surprise policy reversals have greatly distracted from competition concerns and US legislative proposals relating to gatekeeper platforms and the app economy. Second, data localization mandates have the most severe impacts on smaller firms, which do not wield the resources to develop in-country data centers that larger firms do. Third, allowing trading partners to arbitrarily mandate data localization and restrict data transfers will raise new barriers to entry and increase the power of incumbent firms and "foreign monopolies and firms that are state-owned [or] state sponsored"—contrary to the President’s Executive Order on Competition.⁴ Finally, allowing foreign governments to impose undue restrictions on US cross-border access to data from abroad will only amplify the market power of those that have developed massive data sets. USTR’s tacit support for data localization mandates will harm—not help—competition.

Likewise, the USTR is wrong to suggest that data localization benefits workers. In fact, the digital trade barriers that the USTR has chosen to disregard in the 2024 NTE Report are particularly harmful to the 32.5 million US small businesses that account for 99.9% of all US businesses, 48% of all US workers (61.2 million workers), 90% of all US business openings (exceeding 9 million new jobs each year), and 95% of all US exporting enterprises.⁵ The USTR’s neglect of digital trade barriers in the 2024 NTE Report also means less US government attention on the impact of such barriers on US job growth in sectors that depend on cross-border data and digital trade. This includes:

The 67% of new US science, technology, engineering, and mathematics (STEM) jobs that are in computing and software⁶; and
The nearly 16 million workers employed in software jobs in the United States, and the over 1 million new software positions remaining open to applicants.

Simply put, when other governments erect barriers to US digitally enabled exports — such as aircraft, vehicles, semiconductors, creative content, and financial and other services — they hurt workers that design, produce, and deliver them. Allowing other governments to force US companies to localize operations abroad costs jobs at home⁷ and undermines the US tax base.⁸

Finally, in tacitly supporting data localization mandates, the USTR also fails to account for the importance of data transfers to many other policy objectives of the United States and its allies,⁹ including policy objectives relating to the protection of cybersecurity,¹⁰ economic development,¹¹ environmental sustainability,¹² innovation/intellectual property,¹³ privacy/personal data protection,¹⁴ regulatory compliance,¹⁵ and small business promotion.¹⁶ The ability to transfer data across transnational digital networks is also critical to many governmental functions in the United States and abroad, including in relation to agriculture,¹⁷ clean energy,¹⁸ finance,¹⁹ and health²⁰ ²¹. Scientific and technological progress require the exchange of information and ideas across borders²²: As the World Trade Organization (WTO) has stated, "for data to flourish as an input to innovation, it benefits from flowing as freely as possible, given necessary privacy protection policies."²³

Given the overwhelming evidence of the harmful effects of data localization mandates and similar restrictions – as reaffirmed by economic development experts at the United Nations, World Bank, WTO, and Organisation for Economic Co-operation and Development²⁴ – it is difficult to comprehend how the USTR could have gotten so off-track. The conflict between the effects of USTR’s actions and its stated objectives is indicative of a policy development process that is neither factually nor legally rigorous.

USTR’s policy reversals under 2024 NTE are part of larger failure at monitoring and enforcement

The treatment of data localization mandates in the 2024 NTE Report – which represents just one of many policy reversals in that report – is part of a larger pattern of inadequate monitoring and enforcement under the Trade Act. For example, the USTR:

Stated that the US agricultural trade deficit "should not be a cause for alarm"²⁵;
Expressed a willingness to turn a blind eye to foreign trade barriers even if it "look[s] like they have a discriminatory effect"²⁶;
Opposes efforts in the WTO to protect Americans from foreign digital trade discrimination or to secure America’s cross-border access to information. The stated rationale is to afford other "countries … policy space" to do as they wish.²⁷
Asserted that it would be "massive malpractice" or "policy suicide" for the United States to commit in trade agreements to core norms of due process that are already based in US law.²⁸
Suggested – incorrectly – that strong digital trade rules that benefit the entire economy favor only a "very small number of extremely powerful and dominant companies."²⁹

The USTR’s trade policy is increasingly unpopular. While anti-trade activists have loudly applauded,³⁰ the USTR’s actions have engendered criticism from nearly 100 Senators and House representatives;³¹ sparked congressional inquiries re small business impacts³² and competition;³³ and raised alarms among academics;³⁴ civil society;³⁵ think-tanks;³⁶ human rights³⁷ and civil rights groups;³⁸ strategic,³⁹ cybersecurity⁴⁰ and national security experts;⁴¹ small businesses;⁴² individual enterprises;⁴³ economy-wide⁴⁴ and sectoral associations;⁴⁵ CEOs;⁴⁶ and some 50 business groups⁴⁷ that represent thousands of companies and millions of workers across the country. This reaction is hardly surprising given that 40 million American jobs are supported by international trade.⁴⁸

Three recommendations for the Biden administration

The current trajectory is not sustainable. Going forward, the Biden Administration should consider reforms in the following areas:

Protect the United States from digital and other measures with discriminatory effect. Section 181 of the Trade Act requires USTR to address foreign trade barriers that impact US products, services, and electronic commerce. Whether a foreign trade barrier is motivated by discriminatory intent is a relevant consideration. However, it is not the only consideration. To protect American enterprises and workers, USTR should also examine the actual effect of such measures on the economic interests of American enterprises and workers, as required by US trade agreements and by various other US trade laws, such as Sections 182, 301, and 503 of the Trade Act.
- Recommendation: Comprehensively assess USTR’s compliance with its statutory obligations to defend US interests from trade discrimination; ensure a course correction.
Examine relevant evidence. Section 181 of the Trade Act requires USTR to "identify and analyze" trade barriers and "estimate" and quantify their impacts.

The 2024 NTE Report fails to meet this standard. Indeed, in arguing that it no longer needs to attend to digital trade barriers, the USTR has repeated and relied on factually or legally inaccurate statements, necessitating the issuance of public corrections to forestall damage to US interests.⁴⁹ For example, the USTR’s inaccurate statements that the US legal system affords no privacy protections⁵⁰ belie the basics of US federal and state privacy law and threaten US interests in ongoing litigation over the US-EU Data Privacy Framework⁵¹ and in other contexts.⁵²
- Recommendation: Develop a process to ensure that the USTR’s statements and actions are based on accurate information and substantial evidence.
Consult with Congress and the public. Section 181 of the Trade Act mandates that the USTR "shall keep the [Senate Finance and House Ways & Means] committees ... informed with respect to trade policy priorities for the purposes of expanding market opportunities, [and] shall also consult periodically with, and take into account the views of, the committees ... to address the foreign trade barriers identified in the report." See also Section 242 of the Trade Expansion Act of 1962, which stresses that USTR "shall take into account the advice of the congressional advisers and private sector advisory committees."

Broadly speaking, the USTR has afforded Congress, the public, and affected US companies and workers little – if any – prior notice of its sudden policy shifts,⁵³ reinforcing the impression of an institutional disregard for Congress’ role in trade policy. It is not an unreasonable criticism that this USTR has sought to align the agency– on issue after issue – with antitrade groups. The USTR’s narrow approach has unnecessarily alienated many of the Biden Administration’s allies in Congress and the private sector. It is an unforced error – and at this juncture – a potentially costly one.
- Recommendation: Ensure that USTR’s public and congressional consultation processes are robust and aligned with legal requirements.

Conclusion

The United States’ trade monitoring and enforcement priorities – and its trade policy priorities more broadly – are jeopardized by the USTR’s push for ever greater alignment with antitrade activists; a relative lack of engagement with Congress and the public; and a de-prioritization of legally rigorous, evidence-based trade policymaking in favor of political sloganeering. In short, a penchant for politicking over substantive policy has created unnecessary controversy, overshadowing the agency’s other accomplishments and broadly hollowing out support for the Administration at a critical juncture.

We urge the Biden Administration to increase its oversight over USTR and to ensure that it acts in a manner that advances US economic and geopolitical interests; that duly respects the prerogatives of Congress and other US government agencies; that is consistent with USTR’s statutory obligations; and that is representative of American democratic values of governmental transparency, accountability, and responsiveness.

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Author

Joseph Whitlock

Joseph Whitlock serves as Executive Director of the Global Data Alliance. He also serves as Director, Policy at BSA | The Software Alliance.

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Maintaining robust digital trade monitoring and enforcement: Recommendations for the Biden administration

Joseph Whitlock

NTE reporting process

USTR’s rationalization of policy reversals does not withstand scrutiny

USTR’s policy reversals under 2024 NTE are part of larger failure at monitoring and enforcement

Three recommendations for the Biden administration

Conclusion

Joseph Whitlock

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