Digitrade Digest #31
G-7 agrees on digital trade principles, White House asks for broader trade coalition, USTR terminates digital service tax investigation against France, the United Kingdom, Austria, Spain and Italy.
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G-7
G-7 trade ministers agree on principles on data use, digital trade
WashigtonPost: The Group of Seven wealthy nations agreed on principles to govern cross-border data use and digital trade, Britain said, in what was described as a breakthrough that could liberalize hundreds of billions of dollars in international commerce.
Trade ministers from the G-7 reached the agreement at a meeting in London on Friday. The deal sets out a middle ground between the highly regulated data protection regimes used in European countries and the more open approach of the United States.
“We oppose digital protectionism and authoritarianism and today we have adopted the G7 Digital Trade Principles that will guide the G7’s approach to digital trade,” the communique published by Britain said.
Digital trade is broadly defined as trade in goods and services that is either enabled or delivered digitally, encompassing activities such as film and TV distribution and professional services.
But differing rules governing the use of customer data can create barriers, particularly for small and medium-size businesses for which compliance is complicated and costly.
Friday’s deal is a first step in reducing those barriers and could lead to a common rule book of digital trade.
The principles cover open digital markets; cross-border data flows; safeguards for workers, consumers and businesses; digital trading systems; and fair and inclusive global governance, the communique said.
G7 Trade Ministers' Digital Trade Principles
Department for International Trade and The Rt Hon Anne-Marie Trevelyan MP
The Digital Trade Principles agreed by the G7 countries at the G7 Trade Track on 22 October 2021
Open digital markets
We, the G7 Trade Ministers, are united in our support for open digital markets and in our opposition to digital protectionism and digital authoritarianism. Digital and telecommunications markets should be competitive, transparent, fair, and accessible to international trade and investment.
Digital trade – and international trade more generally – must be at the service of our people. It should be used to support jobs, raise living standards, and respond to the needs of workers, innovators, and consumers.
Digital trade should support entrepreneurialism and empower a full range of businesses to participate in the global economy, notably women entrepreneurs and micro, small, and medium-sized enterprises (MSMEs).
As the bedrock of a thriving and innovative digital economy, the internet must be open, free, and secure.
Electronic transmissions – including the transmitted content – should be free of customs duties, in accordance with the WTO Moratorium on Customs Duties on Electronic Transmissions. We support a permanent prohibition of such duties.
Data free flow with trust
To harness the opportunities of the digital economy and support the trade of goods and services, data should be able to flow freely across borders with trust, including the trust of individuals and businesses.
We are concerned about situations where data localisation requirements are being used for protectionist and discriminatory purposes, as well as to undermine open societies and democratic values, including freedom of expression.
We should address unjustified obstacles to cross-border data flows, while continuing to address privacy, data protection, the protection of intellectual property rights, and security.
Personal data must be protected by high enforceable standards, including when it is transferred across borders. We recognise the importance of enhancing cooperation on data governance and data protection and identifying opportunities to overcome differences. We will cooperate to explore commonalities in our regulatory approaches and promote interoperability between G7 members.
Non-personal data should benefit from protection, including all applicable protection as intellectual property, such as the protection of trade secrets.
Achieving consensus on common principles for trusted government access to personal data held by the private sector will help to provide transparency and legal certainty. It will support the transfer of data between jurisdictions by commercial entities and result in positive economic and social impacts. We support the OECD’s work on developing these principles, recognising the importance of legitimate access to protect citizens and safeguard national security.
Open government data can play an important role in digital trade. Where appropriate, public sector datasets should be published in anonymised, open, interoperable, and accessible forms.
Safeguards for workers, consumers, and businesses
Labour protections must be in place for workers who are directly engaged in or support digital trade, providing decent conditions of work.
Effective measures must be in place to ensure a high level of consumer protection when purchasing goods and services online.
Businesses must have a secure digital trading environment, with the highest standards of cybersecurity and resilience against illicit or malign activity.
To ensure that consumers and businesses can benefit from digital innovation, governments should maintain effective and balanced intellectual property frameworks, with protections for trade secrets.
Businesses should not be required or coerced to transfer technology or provide access to source code or encryption keys as a condition of market access. At the same time, governments must retain sufficient flexibility to pursue legitimate regulatory goals, including health and safety.
Digital trading systems
To cut red tape and enable more businesses to trade, governments and industry should drive forward the digitisation of trade-related documents. This includes through means of addressing legal, technical, and commercial barriers to the digitisation of paper processes.
Where governments use digital systems for processing imports, exports, and goods in transit, these should facilitate the flow of goods along the entirety of the supply chain.
Single trade windows should be developed to streamline stakeholder interactions with border agencies. Governments should strive to develop these around common standards, with interoperability as a key goal, and in line with the best practice recommendations of the World Customs Organization.
Fair and inclusive global governance
Common rules for digital trade should be agreed and upheld at the World Trade Organization. These rules should benefit workers, consumers, and businesses in developing economies, as well as those in developed economies, while safeguarding each country’s right to regulate for legitimate public policy objectives.
To drive growth in an inclusive way, efforts should be intensified to tackle the digital divides between and within countries, taking account of the specific needs of low-income countries, notably the least developed countries.
The rules governing digital trade should be future-proofed and responsive to innovation and emerging technologies, so that workers, consumers, and businesses can harness their full potential. To assist this process, governments should review evidence and analysis, including from the OECD, where it can help to address rapid developments in digital trade.
International standards for information and communication technologies should be developed in a way that complies with the six principles of the WTO Technical Barriers to Trade Committee, namely transparency, openness, impartiality and consensus, effectiveness and relevance, coherence, and the development dimension. Such standards must continue to play an important role in supporting an open, free, and fair environment in the digital age.
G7 trade ministers tout digital trade principles, forced labor accord
InsideTrade: Meeting in London on Friday, G7 trade ministers agreed to oppose digital protectionist measures and pledged to hold accountable those countries that perpetuate forced labor, according to joint statements released by the United Kingdom.
U.S. Trade Representative Katherine Tai and her G7 counterparts agreed to a new set of digital trade principles in which they pledged to “harness the opportunities of the digital economy” and ensure that data “be able to flow freely across borders with trust.”
“We, the G7 Trade Ministers, are united in our support for open digital markets and in our opposition to digital protectionism and digital authoritarianism,” they said. “Digital and telecommunications markets should be competitive, transparent, fair, and accessible to international trade and investment.”
The trade ministers also expressed “concern” about the use of data localization requirements for “protectionist and discriminatory purposes, as well as to undermine open societies and democratic values, including freedom of expression.”
The officials said they planned to address “unjustified obstacles to cross-border data flows” while continuing to maintain privacy, data protection, intellectual property rights and security.
The adoption of the digital trade principles comes three months after the Information Technology and Innovation Foundation found in a report that the number of countries with regulatory barriers impeding the free flow of data across borders nearly doubled from 2017 to 2021.
Some analysts and business groups have sounded alarms about a rise in digital protectionist measures in Europe in particular. U.S. officials used the first U.S.-EU Trade and Technology Council meeting in Pittsburgh in September to raise concerns with proposed EU digital market legislation, including the Digital Services Act. EU officials have said they don’t plan to allow the U.S. to weigh in on EU regulatory rulemaking.
In a separate joint statement following the meeting, the G7 ministers also pledged to tackle human rights abuses, committing to work together to “protect individuals from forced labour, to ensure that global supply chains are free from the use of forced labour and those who perpetrate forced labour are held accountable.”
The officials pointed to trade policy as an important tool “to prevent, identify and eliminate forced labour in global supply chains,” according to the joint statement.
The forced labor outcome comes four months after President Biden and his G7 counterparts at a summit in the UK committed to removing forced labor “from all supply chains.” The G7 leaders, in a joint statement at the time, called out China by name for its alleged human rights abuses in the Xinjiang region. UK is the G7 President for 2021.
According to the State Department, Chinese internment camps in Xinjiang use thousands of detained Uyghur Muslims for forced labor in factories. The Biden administration has taken several actions in recent months to block products it alleges were produced with forced labor in the region, including silica-based products and tomatoes. It also has pushed for forced labor to be addressed in the World Trade Organization negotiations on fisheries subsidies.
The Oct. 22 G7 trade ministers’ joint statement does not mention China by name. Trade ministers instead called on “all countries, multilateral institutions and businesses” to uphold human rights and international labor standards and “to prevent forced labour, protect victims of forced labour and provide remedy to victims of forced labour.”
The G7 meeting in London also “strengthened” trade ministers’ “resolve” to tackle unfair trade practices that harm businesses and undermine the global trading system, the officials said in a joint communiqué.
“We stand shoulder to shoulder in our commitment to act against these threats and prevent those seeking unfair advantages from benefiting,” they wrote.
Officials “deepened” discussions on market-distorting practices and “the need to defend the integrity and sustainability of the rules-based multilateral trading system,” they said.
They pointed to "chronically low levels of compliance of some WTO members with regards to providing complete and timely notifications to meet their subsidy notification obligations.” The U.S. has long complained about China’s failure to adequately report new subsidies to the WTO.
In an effort to “reinforce the fundamental principles of transparency,” the G7 trade ministers contended that WTO members should adopt a transparency and notification proposal in the General Council. The U.S. in July submitted a proposal aimed at enhancing members’ compliance with transparency obligations.
“We all endorse this proposal and will encourage the wider WTO membership to support it,” the G7 ministers said.
While in London, Tai held talks on the sidelines of the G7 meeting with UK Secretary of State for International Trade Anne-Marie Trevelyan, Germany Minister for Economic Affairs and Energy Peter Altmaier and France Minister Delegate for Foreign Trade and Economic Attractiveness Franck Riester, according to USTR.
US
White House adviser: Tech coalitions must be broad, not limited to leaders
InsideTrade: Multilateral coalitions of countries focused on addressing pressing technology issues must have open-door policies to maximize participation even among those not considered leaders in the technology space, a senior White House policy adviser said on Wednesday.
“Our approach to technology should be with an open door both in existing coalitions and ones that may not be formed,” Lindsay Gorman, an adviser in the White House’s Office of Science and Technology Policy, said during a webinar hosted by the Brookings Institution.
The Biden administration has emphasized working with like-minded coalitions to deal with issues in the technology space as well as to counter China. The two thrusts are not mutually exclusive, though -- emerging technology issues often are framed as areas of competition between democratic and authoritarian societies.
Marietje Schaake, the international policy director at Stanford University’s Cyber Policy Center and a former member of the European Parliament, said the global “systems competition” should compel the formations of coalitions that are as broad as possible.
“We have to understand that there is a systems competition,” she said during the webinar. “There’s also an effort to win over countries globally into these coalitions as they take shape, roughly speaking authoritarian or democratic, and so the door needs to be open.”
Schaake singled out former Soviet states -- “countries that are 100 percent democratic but not really frontrunners when it comes to technology.”
Gorman agreed. “I think there really is room for a broad, multi-stakeholder and local look at this that is inclusive and that does bring in all segments of society and all segments of the globe, even the countries that we might not naturally think of as the sort of first-movers in particular areas,” she said.
She cited the U.S.-EU Trade and Technology Council as well as work done via the Quad, a security coalition that includes the U.S., India, Australia and Japan, as examples of the Biden administration’s efforts to work with allies to address technology issues.
The U.S. and EU in September issued broad principles for cooperation in several areas, many of which made clear references to China even though the statement did not mention the strategic rival by name. White House National Security Adviser Jake Sullivan in March announced that the Quad would launch an emerging technology working group aimed at setting standards for 5G, artificial intelligence and other technologies as well as to deal with supply chain issues.
The TTC and Quad are the types of groups that could be successful, according to Brookings senior fellow Tanvi Madan, because as “semi-institutionalized” structures they are less likely to produce “one-off” results.
But Madan argued that coalitions also should include countries that are not purely democratic. “Then there’s the question of where do you bring those partners who are not kind of democratic, including for example Vietnam? We want to take them along,” Madan said.
The U.S. also would ensure more participation in technological coalitions if it did not try to force countries to choose between democracy and authoritarianism, Madan contended.
“These coalitions will also make it more likely that we’ll be able to attract others to join because a lot of other countries don’t want to get into this democracy versus authoritarianism,” she continued. “So if they see a big techno-democracy, they’ll say ‘Well, we don’t want to choose between,’ because they’ll see it as a choice between either the U.S. and China or the U.S. and Russia. So I think they’ll be less willing to work on these issues with these groupings.”
Schaake cautioned that coalitions based on short-term outcomes ultimately could lead to disputes among democratic countries. “I really worry that ad hoc coalitions that are built around shared technology or an opportunity of a short period of time can at the end of the day fragment democratic countries,” she said, citing microchips as an example.
The TTC includes a working group on semiconductors, and the joint statement issued after the council’s inaugural meeting in September laid out joint principles for how the two could work together on supply chain issues in the sector.
The U.S., however, should be wary of trying to establish groups that are too broad to enable consensus, Madan said. Coalitions with various makeups could allow countries to react more quickly to technology issues they want addressed in the short term, she said.
“There is a concern that because there are differences amongst democracies on some of these issues, if you wait for consensus to build on them … you’ll actually end up in gridlock,” Madan said. For instance, any dialogue with India that includes discussions on data localization is sure to end in gridlock, she said. Similarly, the U.S. and the EU would struggle to find agreement on data privacy issues, she added.
Rep. Bera: Congress might take ‘lead’ on regional digital trade pact
InsideTrade: Congress might have to take a lead role in pushing for a regional digital trade agreement in the Indo-Pacific, House Foreign Affairs Asia and the Pacific subcommittee Chair Ami Bera (D-CA) tells Inside U.S. Trade, citing ongoing committee efforts to gather data on a potential deal and move the administration to take action.
The White House in recent months has been considering a digital trade agreement in the Asia-Pacific. Inside U.S. Trade reported in September that the administration was in the early stages of its consideration of such an agreement, making general contact with countries in the region and seeking input from some in the business community.
In a recent op-ed in The Diplomat, Bera and Asia Society Policy Institute Vice President Wendy Cutler contended that a digital trade deal would be a meaningful way for the U.S. to expand economic opportunity and to develop policies that benefit the country and its like-minded partners.
Bipartisan congressional interest could spur the administration to action, said Bera, who is also the vice chair of the House Committee on Science, Space and Technology, in an interview with Inside U.S. Trade.
“I think there's ample opportunity,” he said. “I think that it may be that Congress leads on this and that it will continue to push that effort.”
Congress is likely to get behind a digital trade deal, he said. “I think if we can demonstrate -- whether that's 20 Democrats, 20 Republicans, 40 Democrats, 40 Republicans -- that we would like to see a trade deal move forward, maybe that gives the administration some cover to work with Congress on this,” he said.
Bera -- who also serves as the vice chair for outreach for the New Democrat Coalition, which says it is composed of 95 “forward-thinking Democrats who are committed to pro-economic growth, pro-innovation, and fiscally responsible policies” -- said he is leading some efforts to gather data about a potential regional digital trade agreement and that he hopes to send a letter signed by his colleagues to the administration on the topic before the end of the year.
“My sense is if we can show from a congressional perspective that there’s some momentum in a bipartisan way, that members of Congress would be supportive of this, that that perhaps allows the administration to move more quickly,” he said.
Bera said he hopes the Biden administration eventually will consider joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The Trump administration withdrew the U.S. from CPTPP’s predecessor, the Trans-Pacific Partnership, in 2017. China and Taiwan both applied to join CPTPP in September, which motivated several lawmakers to re-up their calls for the U.S. to consider joining CPTPP as a way to counter Beijing.
China’s application might create “momentum” for Congress, Bera said.
“I think we should start a conversation about getting back into CPTPP,” he said. “I think there are a number of folks in both parties that probably regret that we didn't get that deal across the finish line in 2016.” TPP was a high priority for the Obama administration, but after many Democrats opposed it and some key Republicans withheld support, the administration did not submit the deal to Congress.
The Biden administration has said CPTPP would need reforms -- with labor and environmental groups at the table -- before it would consider joining. White House Secretary Jen Psaki left the door open for the U.S. to consider renegotiating the agreement in the wake of China’s bid, but noted that the administration was not ready to do so.
Joining CPTPP likely is “too high a hurdle” for the administration right now, Bera said. But a digital trade deal, on the other hand, is “gettable,” he contended, pointing to remarks administration officials have made on the topic.
U.S. Trade Representative Katherine Tai in August said digital trade was an area in which the U.S. was “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.”
Business groups also have been pushing for engagement. In a letter to Tai last month, more than a dozen industry groups, including the U.S. Chamber of Commerce, the Semiconductor Industry Association and the Information Technology Industry Council, urged the Biden administration to develop digital trade rules with “trusted partners” in the Indo-Pacific region.
The U.S. should ensure countries that “understand” free markets, intellectual property and data privacy are the ones writing the rules in the region, Bera said. “If we're not at the table, then somebody else is going to write some of those rules and they may not be favorable to our companies, our small businesses and others,” he said.
Many countries in the Indo-Pacific region, including Singapore, Australia and New Zealand, as well as some Southeast Asian countries, would “prefer to play by high” U.S. economic and trade standards, Bera said. These countries, he said, have concerns about some of China’s “economic coercive measures.”
Bera touted a bill he and Rep. Ann Wagner (MO), a Republican member of the Foreign Affairs Asia, the Pacific, Central Asia and nonproliferation subcommittee, recently introduced. It would direct the Biden administration to set up an interagency task force to gather information about China’s “economic coercion” practices as well as U.S. responses to these actions. Congress is “watching” China’s actions, Bera said.
The White House is considering the regional digital trade deal as a way to counter China, Bloomberg reported in July. Bera said countering China wasn’t the “motivating factor” for a deal, but contended that if the U.S. were to set the rules on digital trade, it could force China to “comply” with those standards or “be out of a trade deal.”
Bera offered the digital chapter of the U.S.-Mexico-Canada agreement as well as the U.S.-Japan digital trade deal struck in 2019 as models for a regional deal. Also, he suggested, members could take a “modular approach” to the agreement. Analysts have suggested that such an approach could allow countries that can’t initially meet all of the agreement’s standards to sign up for parts of it, postponing more difficult areas until the countries are ready.
In his role as subcommittee chair, Bera said he’s held discussions with representatives of several Indo-Pacific countries -- including Singapore and New Zealand -- that have expressed interest in a deal. Tai has held conversations on the topic with counterparts from Australia as well as Singapore in recent months.
Most recently, Bera said he held “robust conversations” on digital trade with Australian Prime Minister Scott Morrison, who visited Capitol Hill in September. The appetite for an agreement among Indo-Pacific countries is there, Bera said.
“The region wants us there,” he said. “They want us engaged, and they want us engaged in a long-term way."
U.S. reaches deal with France, others, agrees to end tax probes
InsideTrade: The U.S. on Thursday agreed to terminate its Section 301 investigations into digital services taxes imposed by France, the United Kingdom, Austria, Spain and Italy after reaching a deal on a transitional tax arrangement that will take effect until a new international framework negotiated by the Organization for Economic Cooperation and Development is implemented.
Members of the OECD’s Inclusive Framework earlier this month announced they had agreed on the principles of the new structure and issued a moratorium on new digital services taxes. The terms of how and when existing digital services taxes would be lifted were not included. The OECD deal has two parts -- Pillar One and Pillar Two. The first allows countries to tax companies doing business in their jurisdiction without a physical presence. The second would implement a minimum global business tax rate.
Under the deal announced Thursday, the five European countries will maintain their digital services taxes until Pillar One is implemented. However, if the amount that companies pay to those countries exceed what they would have owed had Pillar One been in place, the companies will be credited with the overage when taxes are calculated in future years.
“In general, Austria, France, Italy, Spain and the United Kingdom had preferred for withdrawal of Unilateral Measures to be contingent on implementation of Pillar 1, while the United States had preferred withdrawal of Unilateral Measures immediately as of October 8, 2021, the date political agreement with respect to Pillar 1 was reached,” the six countries said in a joint statement.
In addition, the Office of the U.S. Trade Representative will terminate its investigations into the countries’ taxes, as well as plans to impose tariffs. USTR in January announced its investigations under Section 301 of the Trade Act of 1974 had shown that digital services taxes imposed by Austria, Italy, Spain and the UK -- as well as India and Turkey -- were discriminatory against U.S. companies. USTR had made a similar finding in a Section 301 investigation into France’s digital services tax that concluded in December 2019. In each case, USTR suspended the implementation of proposed tariffs.
India and Turkey were not part of the deal announced Thursday.
“We reached our agreement on DSTs in conjunction with the historic OECD global agreement that will help end the race to the bottom over multinational corporate taxation by leveling the corporate tax playing field,” U.S. Trade Representative Katherine Tai said in a statement. “In coordination with Treasury, we will work together with these governments to ensure implementation of the agreement and rollback of existing DSTs when Pillar 1 enters into effect.”
“This compromise represents a pragmatic solution that helps ensure that the named countries can focus their collective efforts on the successful implementation of the OECD/G20 Inclusive Framework’s historic agreement on a new multilateral tax regime, and allows for the termination of trade measures adopted in response to Digital Services Taxes,” the countries said in a joint press release.
A company’s credit will be determined based on how much it will owe in the first year Pillar One is implemented. That amount will be prorated to fit the length of the interim period. The interim period begins on Jan. 1, 2022 and ends on either Dec. 31, 2023, or when Pillar One is implemented, whichever is earlier.
For instance, if the interim period extends for the full two years and a company is determined to owe 20 million euros under Pillar one in 2024, its amount owed in the interim period will be 40 million euros. The company would later be credited for any amount it paid in digital services taxes during the interim period that exceeded 40 million euros. If the credit exceeds the amount the company owes in taxes in 2024, the remainder will be carried over to subsequent years.
OECD negotiators have not agreed on an effective date for Pillar One. The U.S. Senate would have to ratify any deal akin to the one outlined in the Pillar One principles because their implementation will require changes to U.S. tax treaties. The prospect of Senate ratification is iffy; the chamber has not been agreeable to previous multilateral tax treaties. Ratification would require a two-thirds majority and some Republicans have already criticized the OECD deal.
The Digitrade Digest is a weekly publication of the Digital Rights Program at Public Citizen.