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Democrats divided over Biden’s move on digital trade

Disagreements emerge on portability of customer data across borders, other issues

Rep. Jan Schakowsky, D-Ill., supports the move to withdraw from the trade provisions.
Rep. Jan Schakowsky, D-Ill., supports the move to withdraw from the trade provisions. (Tom Williams/CQ Roll Call file photo)

The Biden administration’s decision to withdraw U.S. support for digital trade provisions at the World Trade Organization and the Indo-Pacific Economic Framework, a move that has riled the tech industry, has congressional Democrats taking opposite sides over the issue.

In late October the Office of the U.S. Trade Representative informed the WTO that it was withdrawing its backing for e-commerce rules first proposed by the Trump administration in 2019.

Those provisions would require free cross-border data flows, allowing tech companies that collect data from users in one country to freely move it to another; prohibit localization restrictions that ensure such data is stored domestically; and disallow reviews by authorities of potentially harmful software source codes. The USTR also withdrew support for non-discriminatory treatment of digital products, meaning a country wouldn’t be able to give less favorable treatment to software, apps or other tech products designed or created in another country.

The trade representative suspended support for similar provisions in the IPEF trade negotiations between the U.S. and 13 Asia-Pacific countries including Australia, Japan, India and South Korea. 

A group of 12 Democratic lawmakers led by Sen. Elizabeth Warren, D-Mass., and Rep. Jan Schakowsky, D-Ill., in early November wrote to President Joe Biden praising the withdrawal, saying the provisions were championed by giant tech companies using “their lobbyists and money to hijack IPEF negotiations to impose binding rules branded as ‘digital trade.’” They said the provisions could foreclose potential enactment by Congress of federal data privacy policy, legislation to prevent harms by artificial intelligence systems, or adoption of antitrust measures.

But that’s far from a consensus among Democrats.

A bipartisan group of 32 lawmakers led by Sen. Ron Wyden, D-Ore., chair of the Senate Finance Committee, last week wrote to Biden that the USTR’s move would create a “policy vacuum” that would enable China and Russia to potentially dictate global rules on digital trade. The group includes the Democratic chairs of the Senate committees on Appropriations, Commerce, Foreign Relations, Environment and Public Works as well 15 Republican senators.

This fight over digital trade rules has been brewing for a while.

Warren, at an event organized by an advocacy group, Rethink Trade, in March, said the tech industry is trying to “rig the digital trade deals” to undermine U.S. legislation that could force companies to reveal software code behind harmful artificial intelligence programs or curb the industry’s freewheeling use of consumer data.

A digital trade provision in the U.S.-Mexico-Canada Agreement already prohibits authorities within those three countries from reviewing the source code for artificial intelligence programs. Tech companies have tried to include similar provisions in other trade deals, Warren said at that time.

Wyden and other lawmakers, however, argue in their letter that free data flow goes beyond consumer data, ranging from “manufacturers sharing product specifications, to airlines diagnosing problems mid-flight, to farmers leveraging precision agriculture to maximize crop yield.” Restrictions on such flow would unnecessarily hurt U.S. companies, they said. 

Preventing access to source codes was intended to counter China’s practice of “conditioning market access on the sharing of proprietary information belonging to U.S. innovators, creators, and start-ups,” Wyden and the other senators wrote. 

Lawmakers who support the USTR and the administration’s position say it was necessary to suspend negotiations on digital rules in multinational trade forums while Congress is debating domestic legislation on those topics. 

“I’m very concerned about the data flow provisions,” Schakowsky, the top Democrat on the House Energy and Commerce Subcommittee on Innovation, Data, and Commerce, said in an interview. “We are talking about 14 countries representing 40 percent of the global GDP … this is a really big deal.”

If free flow of data across national borders had been baked into the trade negotiations, tech companies would cite those provisions to move consumers’ data to other parts of the world and potentially escape scrutiny by U.S. and other national governments, she said. Congress is “working to protect consumers, private information, people’s data, and we don’t want to set the stage where [people’s] data can be transferred all over the world,” she said. 

Schakowsky said she’s pushing for federal data privacy legislation, similar to a bipartisan bill that was approved by the full House Energy and Commerce Committee last year but that didn’t receive a floor vote.

Tech companies also would have used the trade pacts to stymie potential U.S. antitrust measures by declaring a move by Congress to curtail large tech firms to be a trade barrier, Schakowsky said.

U.S. Trade Representative Katherine Tai is now consulting with Congress and developing a new set of proposals on digital trade. 

Tech industry pushes back

The tech industry, which is vowing to restore the withdrawn positions, says the trade pacts wouldn’t have tied Congress’ hands. 

“The provisions on cross border data and localization that the United States has supported for nearly two decades contain due-process safeguards that explicitly foresee the ability of any government to restrict data transfers where necessary,” said Joseph Whitlock, director of policy at BSA Software Alliance. “Those provisions, however, clarify that any restrictions on data transfers must not be discriminatory, and must not be grounded in a false pretense.” 

The BSA Software Alliance represents more than 40 firms including Cisco Systems Inc., Oracle Corp., and Microsoft Corp.

The prohibition on examining software source code, which emerged as early as the George W. Bush administration, was developed over concerns that some countries might force such inspections to “engineer back doors that could be used for cyber compromise purposes,” Whitlock said in an interview.  

“None of these provisions would impact upon the ability of the United States to enact new antitrust legislation to deal with challenges in the digital economy, relating to platforms, relating to app stores or relating to other topics,” he said. 

The group is advocating the provisions “be put back in the national interest,” and questions whether the USTR adequately consulted with Congress before withdrawing its support.  

A spokesperson for USTR, who spoke on condition of anonymity, said the agency followed “a rigorous consultation at every turn” with Congress on the IPEF negotiations, briefing them more than 70 times, and refuted the idea that lawmakers were not briefed about the WTO move. The agency initially briefed lawmakers in September “that we were weighing a revision to our position” and once again briefed them in October before announcing it at the WTO, the spokesperson said. 

The spokesperson pointed out that the agency can’t advance a consensus view on digital trade in international forums while Congress remains divided on the issue. 

Lori Wallach, director of the Rethink Trade program at the American Economic Liberties Project, said “unions, small businesses and consumer groups celebrate the Biden administration move to ensure our trade policy respects efforts underway by congressional Democrats and Republicans and federal agencies to create online privacy, data security, competition and AI policies to protect workers and consumers.” 

Tech companies are upset “because they hoped to evade such oversight by locking in extreme ‘digital trade’ terms to internationally pre-empt and shut down regulation here and around the world,” Wallach said in an email.

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