Digitrade Digest #24
Lobbying to develop China Trade Policy, China has a new Privacy Law, will US Kenya FTA discussion be prioritized?
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US
Businesses Push Biden to Develop China Trade Policy
kTimes: As a result, businesses are lobbying heavily for the tariffs to be removed, which would make it easier for them to rely on factories in China instead of making investments in the United States or elsewhere. And they want assurances that they can do business with a financially important market.
“There has been frustration for the business community at the lack of concrete China economic policy,” said Charles Freeman, the senior vice president for Asia at the U.S. Chamber of Commerce. “It’s not as if this crowd came in without any experience or any preconceived thinking about China.”
The future of the U.S. trade relationship with China is one of the biggest global economic questions confronting Mr. Biden and his advisers. China has thrown huge resources behind its economic ambitions and plans to dominate cutting-edge industries like artificial intelligence and robotics by providing government subsidies to Chinese firms and using other tactics, including espionage. While the Trump administration signed an initial trade deal with China that included purchase commitments for agricultural and other goods, the agreement failed to address a number of major concerns, including China’s state-owned enterprises and industrial subsidies.
During his White House bid, Mr. Biden assailed President Donald J. Trump over his trade war and promised to enlist allies to counter China over its trade practices. Since taking office, Mr. Biden has resolved a longstanding trade spat with the European Union and persuaded European officials to adopt a more assertive trade policy toward China this year. And he has pitched his infrastructure plan as a way to counter Beijing, saying it would “put us in a position to win the global competition with China in the upcoming years.”
But the administration has said little about whether it intends to restart economic talks and address outstanding issues, including tariffs. At times, officials have offered somewhat discordant views.
U.S. trade chief Tai tells Turkey countries must remove digital services taxes
Reuters: U.S. Trade Representative Katherine Tai told Turkey's trade minister it was critical that countries remove individual digital services taxes in connection with a broader multilateral agreement reached in talks led by the OECD, her office said.
Tai discussed digital services taxes, improving access for U.S. companies in Turkey and other issues with her Turkish counterpart, Mehmet Mus, during a virtual meeting on Wednesday, her office said in a statement released on Thursday.
"Ambassador Tai stated that the United States views as critical the removal of individual DSTs in connection with the Organization for Economic Co-operation and Development (OECD) and G20 processes" it said.
She expressed her view that negotiations in multilateral forums represent the best opportunity to resolve issues around digital services taxes.
Tai: U.S. ‘actively working’ with partners to establish digital trade rules
Insidetrade: The U.S. is “actively working” with other countries to establish digital trade rules and discussing how best to create new standards for digital economic activity, according to U.S. Trade Representative Katherine Tai.
The White House in recent months has been mulling a digital trade deal in the Indo-Pacific region as a way to counter China, though the administration has not publicly revealed its plans.
But Tai, in an interview published this week by Northwest Asian Weekly said the U.S. has been engaging “robustly” with trading partners in Europe and in the Asia-Pacific region.
“This is an area that we are actively working on with our partners to establish rules and have conversations that we need to establish mutually beneficial relationships and to figure out the best ways to create rules for our economic activity,” Tai said, according to the interview. Tai recently traveled to Washington State to meet with agriculture and farm stakeholders in an effort to “reconnect” with America and with economic constituents, as she said in the interview.
The COVID-19 pandemic has fueled the “digital nature” of the economy, Tai said, according to the report. The digital trade space, she said, has “implications for more than just our economic values but both our political and societal values.”
“It is an area that we have been engaging robustly with a lot of our trading partners in Europe and in Asia-Pacific,” she said, adding that the U.S. needs leadership and “new thinking” in the digital trade area.
The administration in recent months has discussed digital trade with several countries, according to readouts from USTR. In June, Tai discussed digital trade with Singapore Minister of Trade and Industry Gan Kim Yong. And in March, digital trade was on the agenda for Secretary of State Antony Blinken’s meeting with Japanese Foreign Affairs Minister Toshimitsu Motegi.
Earlier this month, Australian Minister for Trade, Tourism and Investment Dan Tehan said he had held “very good conversations” about a digital trade agreement with Tai as well as members of Congress during a trip to the U.S. Australia, Singapore, Japan, South Korea, Canada, New Zealand and Chile are all prime candidates for an agreement, Tehan said, adding that Australia’s digital economy agreement with Singapore could serve as a blueprint.
Many members of Congress and prominent U.S. industry associations have called for the U.S. to forge a digital trade agreement with allies, especially those in the Asia-Pacific region. Some see it as a step toward more engagement in the area in the wake of the Trump administration’s decision to end U.S. participation in the Trans-Pacific Partnership. A digital trade agreement between the U.S. and Japan and the digital trade provisions in the U.S.-Mexico-Canada Agreement have been named as possible blueprints for the U.S. should it engage in talks on a broader deal.
U.S. Chamber of Commerce Senior Vice President for International Policy John Murphy this week advocated for the U.S. to pursue a digital trade agreement because, he said, the country finds itself “at a moment of promise and peril on digital trade.”
"Export opportunities for U.S. small businesses and service industries are expanding rapidly, and the United States is well positioned to build on its formidable advantages in these areas,” he said in an essay published by the Chamber. “However, these opportunities are endangered by the spread of digital protectionism and the accumulation of discriminatory digital rules that often target American firms.”
Small American businesses and exporters stand to benefit from the digital revolution, Murphy wrote, contending that digital technologies offer new opportunities to overcome “longstanding hurdles facing small exporters.” The U.S. services sector would benefit as well, he said.
But as countries around the world erect barriers to trade in the form of data localization requirements and data flow restrictions, American workers and companies’ ability to tap overseas markets is increasingly uncertain, Murphy said.
“While these challenges are formidable, the Chamber and its members are convinced that the best defense against this trend is a good offense: The United States must act swiftly to strengthen international rules for digital trade,” Murphy said. "This should include rules to guarantee the ability to move data across international borders, prohibit forced localization of data, and bar customs duties on electronic transmissions, among other objectives.”
A host of countries in the Asia-Pacific region have expressed interest in a digital trade agreement, Murphy said. The “architecture” of such a deal should be open, he contended, leaving room for other countries from all around the world to join if they can adhere to the deal’s commitments.
The U.S. must be a leader on digital trade, Murphy said. “It is time for the United States to move forward on this important initiative,” he writes.
The Biden administration is mulling next steps on digital trade while it also conducts a sweeping review of its policies toward China. That includes a top-to-bottom review of trade policy at USTR. In the interview with Northwest Asian Weekly, Tai did not provide specifics on the review – expected to be completed in the fall – but said she feels “a serious sense of responsibility” to develop a strategic vision for the U.S.-China relationship.
Tai said has spent much time and energy on the review and is working “across the administration” to develop that vision.
“It’s to ensure that our strategy with respect to China is coordinated and ultimately effective in placing the American economy – our farmers, workers, businessmen, and fishermen on the strongest possible competitive footing as we can in the global economy – where we will be competing with China in the years to come,” she said.
The U.S. must “define” the challenge it faces with China, Tai added. “It is a very serious challenge,” she said, according to the report.
“We have to approach our problems and challenges and also the formulation of our solutions and strategies with coherence and sobriety,” she said, “because at the end of the day, we need to have very rational policies and a very clear vision in order to ensure that we can navigate our way to a really strong position while competing.”
Republican senators urge Tai to prioritize Kenya FTA negotiations
Insidetrade: Republican senators are pressing U.S. Trade Representative Katherine Tai to prioritize negotiations for a bilateral free trade agreement with Kenya, which they say would “build on” the African Growth and Opportunity Act and integration efforts underway on the continent.
In an Aug. 20 letter to Tai, seven Republican senators -- including Senate Finance Committee Ranking Member Mike Crapo (R-ID) and former Finance Committee Chairman Chuck Grassley (R-IA) -- said a U.S.-Kenya FTA would be “the appropriate next step in recognizing and strengthening relations, economic opportunities, and a security partnership between the United States and Kenya.” The letter was led by Sen. Jim Inhofe (R-OK) and also signed by Sens. Mike Rounds (R-SD), James Lankford (R-OK), John Boozman (R-AK) and Bill Hagerty (R-TN).
Kenya began negotiations on a bilateral free trade agreement with the U.S. during the Trump administration. The Biden administration has not yet said whether it will continue the talks.
The senators say the Biden administration has a “historic opportunity” to continue talks toward a deal, which they note would be the first FTA between the U.S. and a sub-Saharan African country.
They argue that a U.S.-Kenya FTA would build on AGOA, a two-decade old preferential trade agreement with sub-Saharan African countries that is due to expire in 2025. Trump administration USTR Robert Lighthizer had envisioned a deal with Kenya as a model for bilateral agreements with other countries on the continent, eventually obviating the need for AGOA.
“With over 35 eligible nations, this preference program has dramatically expanded economic opportunity across the continent while African nations develop stronger national institutions and market-based economies. A U.S.-Kenya FTA would continue the accomplishments of AGOA and offer greater predictability and security to both the U.S. and Kenya,” the senators wrote.
Assistant USTR for Africa Constance Hamilton last month said she hoped countries in Africa would “start thinking about a deeper, stronger bilateral relationship” with the U.S. that could grow beyond unilateral preferences. She added that such bilateral agreements were not necessarily “incompatible” with AGOA.
The senators in their letter to Tai also argue that a U.S.-Kenya deal would strengthen integration efforts underway on the continent.
The African Continental Free Trade Area (AfCFTA), an effort by the African Union to create a single market across the continent, went into effect earlier this year. It has been ratified by 38 of 55 African countries.
“The Secretary-General of AfCFTA, Wamkele Mene, is supportive of African nations pursuing bilateral FTAs with nations outside of Africa,” the senators wrote. “A U.S.-Kenya FTA would build on inter-African trade relationships and serve as a model for other FTAs with African nations.”
Tai in July committed to providing technical support to AfCFTA. In May she told lawmakers during a House Ways & Means Committee hearing that she wanted “to make sure that what we do with Kenya” will support the continental agreement and “will reinforce all of the things that Kenya is doing in Africa, not take away from that.”
Analysts have debated whether deals with individual countries or regional economic communities in Africa could conflict with efforts to grow intra-African trade, which is low relative to intercontinental trade in Asia or the EU, for example.
Cecilia Malmström, former European Union trade commissioner, said during a webinar on Wednesday that the continent’s size, heterogeneity and layers of regional economic communities and agreements between those communities with other trading partners, including the U.S., could pose challenges to integration efforts.
While the continental agreement can “coexist” with deals among the eight regional communities and trading partners like the U.S. and European Union, Malmström said, the landscape is potentially complicated by the fact that “some communities are more advanced than others -- which could be an advantage.” Malmström is a nonresident senior fellow at the Peterson Institute for International Economics, which sponsored the webinar.
Petina Gappah, principal legal adviser for the AfCFTA Office of the Secretary-General, agreed that disparity among regional communities could pose challenges and demand a kind of “balancing act” to avoid punishing regions that are more advanced while supporting integration.
“In principle, those that are more advanced should continue to integrate further, but of course that already creates problems … as you can imagine that we are now also trying to create a single market for all African countries,” Gappah said.
According to Sherman Robinson, a nonresident senior fellow at PIIE, a bilateral deal with Kenya likely would create, not divert, trade. Robinson spoke recently with Inside U.S. Trade about forthcoming research on Kenya’s potential FTAs, including one with the U.S, and their impacts on trade creation and diversion.
Robinson described Kenya as “protectionist” -- both by African and global standards -- and said efforts to liberalize trade would tend to depreciate its exchange rate. Trade liberalization efforts would boost imports, while a depreciated exchange rate would boost exports, outweighing any potential trade diversion, he said.
He noted, however, that until AfCFTA countries implement a single customs union, differences in tariffs across the continent could lead to complicated rules of origin.
Such complications, according to veteran trade analyst and negotiator Stephen Lande, are one reason the U.S. should consider postponing negotiations with Kenya.
Lande is the president of Manchester Trade, a trade policy and investment advisory firm, and has worked with governments and businesses in Africa on trade issues. He served as assistant USTR and a negotiator for the U.S. on trade agreements in Asia, the Middle East and the Caribbean in the 1970s and 1980s.
Lande argues that a U.S.-Kenya FTA overall would be antithetical to integration efforts because it could provide preferences to the U.S. over African countries.
For instance, if the U.S. strikes a deal before AfCFTA countries implement a common external tariff, U.S. companies likely would target the African country with the lowest tariff. Once a good entered the African Union, it could move within AfCFTA tariff-free even if those countries have higher external duties, which Lande said would disrupt the free flow of trade.
If the U.S. were to go ahead with negotiations with Kenya, Lande said, it should “limit” its request to ensure consistency with AfCFTA -- meaning, he said, that the U.S. should not ask for a faster tariff reduction schedule than what is laid out in AfCFTA; that U.S. exporters should not be granted “more advantage” in Africa than what is available to African countries under AfCFTA; and that measures in non-tariff areas, such as investment, are not so “strict” as to prevent Kenya from participating in the continental deal.
Lande said he hopes the U.S. will focus on supporting the continental agreement and expressed optimism about Tai’s plans to hold a “U.S.-Africa trade ministerial” later this year.
Tai in July said the ministerial would be focused on how to “build” on AGOA. She did not refer to it as an “AGOA Forum” -- an annual meeting held in accordance with AGOA -- but Assistant USTR for Africa Constance Hamilton during the same event suggested the ministerial would take the place of the annual forum.
Lande said he hopes the new name is meaningful and that the summit will include not just AGOA beneficiaries but other countries on the continent as well. Ideally, he said, the ministerial should address not just the preference program but “the whole panoply of U.S.-African relations.”
China
Privacy Law Will Help China Flex Muscles on Digital Trade
WSJ: The Personal Information Protection Law, or PIPL, unveiled Friday imposes rules on how companies can use Chinese citizens’ data and the conditions firms must meet to share information with computer servers or business partners outside the country. That could have a significant impact on international data flows as more countries erect digital trade barriers to protect citizens’ privacy or national security, privacy and legal experts say.
“[Chinese lawmakers] make it no secret that they intend to be a player in this space,” said Omer Tene, chief knowledge officer at the International Association of Privacy Professionals.
The PIPL’s framework is generally similar to that of the European Union’s General Data Protection Regulation, privacy experts say. Both require firms to justify their data collection and provide consumers the right to access or delete their information.
But the Chinese law’s approach to how companies transfer data internationally is more restrictive than the GDPR in certain ways, said David Hale, a shareholder at law firm Brownstein Hyatt Farber Schreck LLP.
“I would be looking at what types of export approval I need to get if I am processing information outside of China,” said Mr. Hale, the former chief privacy officer of brokerage TD Ameritrade.
Tech firms such as Microsoft Corp. and Apple Inc. in recent years increasingly have stored customer data inside China as the Chinese market expanded and the government began unveiling a web of data-security rules. The new privacy statute could push more firms to follow suit after it comes into force on Nov. 1, Mr. Hale said.
Companies that wish to transfer information internationally will have to use state-approved contracts, receive certification of data practices by a state-approved body or undergo a security review by Chinese cyber regulators, said Barbara Li, head of corporate at the Rui Bai Law Firm in Beijing.
Firms deemed to be “critical information infrastructure operators,” along with businesses that handle large amounts of user data, generally are required to store data inside China, Ms. Li said. The GDPR has no such explicit data-localization requirements, which privacy experts say aim to prevent foreign surveillance and allow local authorities greater access to data.
The Digitrade Digest is a weekly publication of the Digital Rights Program at Public Citizen.