Digitrade Digest #47
Australia's role in Biden's economic plan, digital trade to be a sticky point in US senate discussion and more
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Australia
Australia to play ‘essential role’ in Biden’s Asia economic plan
Financial Review: Australia will play an “essential role” in Washington’s new economic plan for the region, which will cover digital trade, green technology and critical minerals supply, says Deputy US Trade Representative Sarah Bianchi, who is visiting Canberra and Sydney this week.
Ms Bianchi, who served as an adviser in the Obama administration and took office in October, is the most senior of US President Joe Biden’s economic team to visit Australia.
She is here to discuss the Indo-Pacific Economic Framework, a long-awaited strategy to boost US engagement and counter China’s growing influence in the region. But critics say the plan is a poor substitute for Washington returning to the regional free trade pact, the Trans-Pacific Partnership.
“We want to make it clear that the United States is an active partner in this region,” Ms Bianchi told The Australian Financial Review in Sydney before heading to Canberra for talks with Trade Minister Dan Tehan on Wednesday. “We have a lot of economic ties, a lot of allies. What we’re seeking to do is have a high-ambition, high-standards framework that strengthens these relationships.”
She said the plan would be released in “coming weeks” and Russia’s invasion of Ukraine would not divert attention away from the initiative.
“I think we’re intent on moving forward,” she said. “This is a really important issue as well and we need to be able to focus on all these things simultaneously.
“We’re trying to do something in the coming weeks that would at least be an initial agreement with a set of countries that would state our commitment to try and move forward.”
Ms Bianchi said the Biden administration was focused on addressing China’s economic coercion in the region after Beijing introduced tariffs on key Australian exports, including wine, wheat and barley when the diplomatic relationship deteriorated.
‘Half-hearted approach’
There has been speculation about which countries Washington’s Indo-Pacific Economic Framework would cover and whether it would be limited to US treaty allies such as Japan, South Korea, Australia and New Zealand, and close partners like Singapore.
However, Ms Bianchi said membership would be broader than that.
“We’re going to try and make it inclusive and try and seek some of the developing countries as well, but we’ll have to see how all the pieces come together.”
Asked whether the plan could include Taiwan, she said the US was still finalising the list of countries.
Dwindling economic influence
Some trade analysts are sceptical about the new framework, given little progress has been made since Mr Biden announced it at the East Asia Summit in October last year.
Susannah Patton, a research fellow at the Lowy Institute, described the US effort as a “half-hearted approach”.
Noting that the framework will not require congressional approval, or include new market access commitments, she wrote in the Financial Review that “all signs point to a low level of ambition from the Biden administration, reflecting the lack of political support in Washington for new trade agreements”.
The US has struggled to maintain its economic influence in the region ever since former president Barack Obama failed in 2016 to secure congressional approval for the TPP, which at the time was a free trade pact involving the US and 11 other countries. The following year, the Trump administration withdrew from the TPP and Mr Biden made an election promise not to rejoin the agreement, which has since morphed into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, led by Japan and Australia.
The lack of US involvement risks making Washington a less important economic partner in the region at a time when China’s influence is growing. Over the past 10 years, the US has been the largest source of foreign investment flows to the Indo-Pacific, but Beijing is catching up. The value of China’s trade with the region is now well over twice that of the United States.
In a bid to end an increasingly nasty trade war in 2020, China and the US signed the so-called “phase one” agreement, under which Beijing pledged to increase purchases of US goods, energy and services by $US200 billion.
However, Ms Bianchi, who is now looking after that agreement, said China is “not living up to its purchase commitments”. She also suggested the Biden administration is planning to do more to address China’s economic coercion in the region.
“It’s frustrating. It’s been a long process,” she said.
“The phase one agreement also doesn’t get to some of the issues that this administration is really concerned about. It doesn’t get to some of the economic coercion issues. It doesn’t get to some of the non-market practices.
“I think what you’ll see from the Biden administration is not only trying to hold China accountable on the phase one deal, but also to move into some of the other areas that are quite frankly just as big, if not a bigger, concern.”
China
Shenzhen shutdown threatens tech supply chains
Politico: The Chinese government’s decision to impose a Covid-related lockdown on Shenzhen, a city of 17.5 million people in southern China, will likely have a disruptive impact on the global supply of high-end software and crucial tech components.
Roger Entner, the founder and lead analyst at telecom consulting group Recon Analytics, called Shenzhen “the premier tech center [in China], both from an R&D and manufacturing perspective.”
“Of all the cities in China that shouldn’t be shut down, this was the one,” Entner said.
— Global reverberations: Both the Chinese and global tech ecosystems are heavily reliant on Shenzhen, which Beijing — operating on its strict “zero tolerance” policy for Covid-19 cases — shut down on Sunday after 60 new cases were reported in the city. Shenzhen is the headquarters of many top Chinese companies, including internet giant Tencent and telecom company Huawei. It’s also the home of major R&D and manufacturing facilities for companies like South Korean titan Samsung, German tech company Siemens, American hard-drive producer Western Digital and Taiwan’s Foxconn, which makes iPhones and other consumer electronics for Apple.
Paul Triolo, the technology policy and China lead at consulting firm Albright Stonebridge Group, said the output of these companies’ factories “could be partially or wholly curtailed” by the citywide shutdown, with the impact “rippling through supply chains.”
— Timing is crucial: In response to earlier disruptions caused by the pandemic, most global tech companies have built some added flexibility into their supply chains. But Entner said the global flow of both advanced components and finished consumer electronics could be significantly disrupted in the coming weeks and months — especially if the shutdown drags on. He noted neighboring Hong Kong has struggled for months to rein in rising Covid cases, and said China’s lackluster vaccination effort leaves Shenzhen vulnerable to repeat outbreaks.
“The moment this goes into a month or longer, things get hairy,” Entner said.
— Broader decoupling concerns: The news of the Shenzhen shutdown came the same day the Washington Post reported the Russian government is asking China for help in circumventing strict U.S.-led sanctions, including on advanced tech components. Any effort by Beijing to assist Moscow will likely be met with U.S. sanctions against China — and coupled with the threat of rolling pandemic-related shutdowns, that could significantly accelerate efforts by U.S. and other foreign tech companies to relocate.
US
FIGHT BREWING OVER DIGITAL TRADE IN COMPETITIVENESS CONFERENCE
Politico: Lawmakers are soon set to square off over competitiveness bills passed by the House and Senate — and digital trade is almost certain to be a key sticking point, with tech-friendly trade provisions found in the Senate bill unlikely to be met with enthusiasm by House leaders.
The burgeoning conflict comes in the midst of a broader debate over how foreign governments should treat American tech companies, with the Biden administration taking flak from progressives for defending U.S. companies against antitrust proposals and other regulatory efforts now under discussion in Europe — even as some U.S. lawmakers consider similar reforms. And House leadership is worried that delays due to disagreement over digital trade provisions could make it much harder for lawmakers to reach consensus on other elements of the bill.
— Tech industry weighs in: Tech trade group BSA | The Software Alliance is sending a letter this morning to House and Senate leadership to lay out their priorities for an impending conference reconciling the Senate’s U.S. Innovation and Competition Act (S. 1260) with the House’s America COMPETES Act (H.R. 4521). The group asks congressional leadership to preserve a provision that would boost the U.S. Trade Representative’s ability to confront developing countries over alleged barriers to digital trade, such as censorship, data localization requirements or a lack of privacy protections.
BSA also urged passage of a separate provision that would support the Biden administration’s effort to promote an Indo-Pacific Economic Framework by providing “clear congressional guidance” on how negotiations over digital trade should proceed.
— Between the lines: Both the Chinese government and the European Union are currently engaged in efforts often characterized by the broader tech industry as barriers to digital trade. Beijing is routinely accused of censoring U.S. tech platforms, and the EU is now pursuing tough new competition and consumer protection rules under the still-developing Digital Markets Act and the Digital Services Act, measures the industry claims unfairly target U.S. companies.
— Chambers at odds: Sens. Ron Wyden (D-Ore.) and Mike Crapo (R-Idaho) inserted the digital trade provisions into the Senate’s competitiveness bill ahead of its passage last June as part of a broader trade title included ahead of the bill's passage last June. Senate leadership worried the provisions could upset lawmakers in the House but ultimately acquiesced, and progressive tech groups pushed back at the time against the effort to include them.
The House notably did not include similar digital trade provisions in its own competitiveness bill, which it passed in early February. And there’s widespread expectation across industry and advocacy groups that progressive House members will attempt to strip those provisions out of the Senate bill in conference.
A senior Democratic aide, who requested anonymity to describe sensitive and ongoing discussions, said any inclusion or exclusion of trade-related provisions in the House bill was “carefully crafted to have the votes to be able to pass the House.” The aide added that any trade measures negotiated in conference “will have to thread the same needle to become law.”
— Progressives gear up: Left-of-center tech groups will likely keep pressing lawmakers to oppose many of the digital trade provisions in the Senate bill. Lori Wallach, the director of the Rethink Trade program at the American Economic Liberties Project, said the bill is “weighed down with controversial Big Tech giveaways” and would characterize many of the digital regulations and antitrust efforts now being pursued by Congress and U.S. agencies as “illegal trade barriers.”
The provisions would also mean “annual USTR reviews of other countries’ digital governance policies,” said Wallach. She added that the “public interest safeguards” now being pursued by EU regulators would come under especially heavy scrutiny for allegedly targeting U.S. tech companies.
The Digitrade Digest is a weekly publication of the Digital Rights Program at Public Citizen.