WTO members launch E-commerce talks

Trade correspondent L.C. reports:

The World Trade Organization (WTO) has been battered with troubles in the past two years, but it just had a rare taste of success. Fifty WTO members – nearly half its membership –agreed to launch talks for a plurilateral agreement on e-commerce/digital trade. The agreement came at a January 25 meeting of trade ministers on the sidelines of the World Economic Forum in Davos, Switzerland.

Although the US and EU have been strongly promoting an e-commerce deal for some time, Japan, Australia, and Singapore were seen as leading the initiative in Davos. Japan will also likely use its leadership of the Group of Twenty (G20) this year to promote it.

China’s participation had been in question up to the last day, but its representative did finally show up to sign the joint statement that emerged from the meeting. Evidently China had to keep up its pretense of being a world champion of free trade. Russia’s participation was also a surprise, since it, like China, exercises heavy government control over the Internet and online transactions. The US signed, even though it didn’t have high-level representation in Davos. India and Indonesia did not sign. (Both countries significantly restrict their domestic Internet and digital transactions.)

E-commerce and rules for cross-border data flows have been issues at the WTO for years. Digital trade is not well covered by WTO rules, which haven’t been substantially updated after being set almost 25 years ago. Other major new issues that have become pressing include the need to

• restrict state-owned enterprises;
• stop theft of intellectual property, including cyber-theft;
• remove restrictions on high-tech agricultural products, such as GMO foods;
• curb domestic subsidies leading to market-distorting overcapacity; and
• end subsidies of fisheries that are depleting world fish stocks.

China is the major obstacle to resolving most of these issues.

The US and China presently dominate e-commerce globally. E-commerce has already emerged as an important issue in bilateral/regional free trade agreements. It was included in the Trans-Pacific Partnership (TPP) and the US-Mexico-Canada trade agreement (USMCA). The US Trade Representative’s office also includes it as an objective for upcoming trade talks with Japan, the EU, and the UK. Actively pursuing a wide-ranging e-commerce agreement could bring the Trump Administration back from its blanket hostility toward the WTO.

The US has multiple goals for e-commerce. They include: the free flow of data over borders, no tariffs on digital products (e.g., entertainment and software transmitted over the Internet), no forced disclosure of source code or proprietary algorithms, limited liability for online platforms, non-localization (that is, companies shouldn’t be forced to have a local presence to conduct online transactions with citizens of a country), no discrimination against foreign digital products, cyber-security, recognition of digital contracts and signatures, limitations on censorship while allowing for protection of public morals, and privacy protection but not with rules that hinder cross-border transactions.

The US private sector is extremely interested in removing barriers to e-commerce. This is important not only to Internet platforms like Amazon, which issued a statement welcoming the Davos developments; financial services companies that exchange information and undertake transactions over the Internet; and traditional companies that now export services as well as goods online.

But once formal talks begin, they are likely to be difficult. Washington and Brussels have a shaky “Privacy Shield” agreement in place, but the Europeans remain critical of US implementation and the privacy issue could arise again. The biggest clashes, however, will be with China. State interference in Chinese online activity is pervasive. There are no indications that the Xi Jinping government is contemplating moving away from censorship toward privacy protection; giving up discrimination in favor of its own e-commerce platforms; or curbing online piracy. Accordingly, Beijing wants a watered-down WTO agreement and will likely push for differentiation of obligations, with “developing countries” being held to softer commitments.

Competing bills regarding president’s trade authority introduced

Two opposing bills focused on presidential trade authority were introduced this week in Congress. The US Reciprocal Trade Act would give the president broad new authority to impose tariffs, whereas the Global Trade Accountability Act would return to Congress some control over the president’s tariff authority.

As expected, Sen. Sean Duffy (R-WI) introduced on January 24 the US Reciprocal Trade Act, a bill written by the White House. It would give the president enhanced, almost unlimited, authority to impose import barriers against specific products and countries if he considers the foreign treatment of a US product not to be reciprocal. It would also give him authority to negotiate new trade agreements without seeking new authority from Congress. Duffy had only 18 co-sponsors, all Republican, and the bill is not expected to move in Congress. Senate Finance Committee Chairman Chuck Grassley (R-IA) already came out against it and House Ways & Means ranking Republican Kevin Brady (R-TX) is reportedly urging Republicans to oppose it. The private sector would be up in arms if it gained momentum.

A contrary bill, the Global Trade Accountability Act, was introduced on January 23 by Congressman Warren Davidson (R-OH). It would “provide for congressional review of the imposition of duties and other trade measures by the executive branch.” The bill has 10 co-sponsors.

Davidson is a member of the conservative House Freedom Caucus and often supports the President’s policies, but broke with him last year when he first introduced this bill. It is the same as a bill introduced in early 2017 by Senator Mike Lee (R-UT). After introducing the bill last year, Davidson said in a published op-ed, “Congress must restore its integral, constitutional role on trade…. This bill keeps the president’s essential role in negotiating trade; however, it requires congressional approval within 90 days of implementation for changes to tariffs to become effective.” In other words, it provides for a congressional veto of any unilateral move by the president to change tariffs.

There is no evidence that hiking tariffs to punitive levels is an effective strategy for getting good trade agreements. The US is trying this, using the threat of automotive tariffs, to force deals with Japan, the EU, and others, but there are no successes to date. On the other hand, working for free trade agreements within the WTO framework has been spectacularly effective. Witness the proliferation of free trade agreements that have gotten the US and others greatly increased access to foreign markets, inexpensive imports, and stability in the trade environment that is key for encouraging investment. A historically unprecedented decline in world poverty has taken place since this process got under way.