Industry groups and lawmakers are urging greater scrutiny of trade barriers that hurt American communities and workers who benefit from the export of digital goods and services. This discussion coincides with the release of the 2024 National Trade Estimate (NTE) Report on Foreign Trade Barriers. Congress has an important role to play in ensuring that the US responds to foreign digital trade barriers and that the US continues to lead a coalition of like-minded democracies on cross-border data policy.
Identifying and Analyzing Foreign Trade Barriers to US Digital Exports Help Inform Congressional Policymaking
Protecting American export-dependent communities and workers from unfair foreign trade barriers and discrimination has been a longstanding bipartisan US congressional priority. For example, section 181 of the Trade Act of 1974 (Section 181) requires USTR to “identity and analyze” significant foreign trade barriers to US “exports of goods and services” and US “electronic commerce.”
Congress is right to prioritize the identification and monitoring of such barriers for several reasons.
First, when other governments erect barriers to US digitally enabled exports—such as aircraft, vehicles, semiconductors, creative content, and financial and other services— they hurt workers that design, produce, and deliver them. Allowing other governments to force US companies to localize operations abroad costs jobs at home and undermines the US tax base.
Second, such barriers interfere with core US government priorities – such as securing future US cross-border access to information necessary for the US to test artificial intelligence systems for safety and security and to maintain US leadership in AI innovation.
Third, identifying and monitoring such barriers are critical to Congress’ role in advising the Administration on how to structure US digital trade policy priorities in the interests the American people.
Quantifying the Impacts of Foreign Trade Barriers to US Digital Exports Helps Congress Understand the Harms to American Communities and Workers Who Depend On Digital Exports
Section 181 requires USTR to quantify the lost or foregone value of “additional [US] goods and services, foreign direct investment, and electronic commerce … if each of [the foreign] acts, policies, and practices of such country did not exist.”
Congress is right to prioritize this quantitative analysis because the Legislative Branch has Constitutional responsibility under the foreign commerce clause to regulate international trade, including protecting Americans who depend on cross-border access to knowledge and information as well as American communities and workers who depend on digital goods and services exports for their livelihoods. To fulfill that responsibility, Congress needs to have data on (among other things) the financial and economic impact of foreign digital trade barriers on US digital goods and services exports and those who design, deliver, and produce them.
As the World Bank has noted, “[r]estrictions on data flows have large negative consequences on the productivity of local companies using digital technologies and especially on trade in services.” According to the World Bank, WTO, OECD, and others that have studied the issue, restrictions on cross-border access to knowledge, information, and digital tools harm GDP (minus 0.7-1.7%); investment flows (minus 4%); productivity (4.5% loss); and small business (up to 80% higher trade costs).
Robust Public Consultation Is Important Given the Widespread Benefits to Americans of Cross-Border Access to Information – and the Widespread Costs of Foreign Digital Trade Barriers
Section 181 mandates that USTR “shall … consult periodically with, and take into account the views of, the [Senate Finance and House Ways & Means] committees … [on] foreign trade barriers.”
Public consultation is a hallmark of democratic process. Given the broad-based benefits to Americans of cross-border access to information and digital tools, it is particularly important that the public be notified of major policy shifts and afforded a meaningful opportunity to comment before major changes are effectuated that could impair that access and US digital exports.
Congress Should Ensure that the Administration Understands the Importance of Digital Trade and Cross-Border Access to Information for US Economic and Other Policy Priorities
It has been suggested that foreign trade restrictions may promote competition. This suggestion is incorrect.
First, data localization mandates have the most severe impact on smaller firms, which do not wield the resources to develop in-country data centers that larger firms do.
Second, allowing trading partners to arbitrarily mandate data localization and restrict data transfers will raise new barriers to entry and increase the power of incumbent firms and “foreign monopolies and firms that are state-owned [or] state sponsored”—contrary to the President’s Executive Order on Competition.
Third, allowing foreign governments to impose undue restrictions on US cross-border access to data from abroad will only amplify the market power of those that have developed massive data sets. Tacit support for data localization mandates will harm—not help—competition.
It is important that US trade policy be based on an accurate understanding of the harms to competition that result from cross-border barriers to knowledge and information exchange, as well as other digital trade barriers.
Congress Should Ensure That the Administration Understands the Importance of Digital Trade and Cross-Border Access to Information
Given its Constitutional responsibilities relating to US trade policy, Congress should make sure that the Executive Branch (including USTR) does not lose sight of the importance – for all Americans and US policy priorities – of maintaining cross-border access to information and digital tools.
In addition to supporting jobs, families, and communities across the country, cross-border access to information and digital trade are critical to many other policy objectives of the US and its allies, including policy objectives relating to the protection of cybersecurity, economic development, environmental sustainability, innovation, privacy, regulatory compliance, and small business promotion. The ability to transfer data across transnational digital networks is also critical to many governmental functions in the United States and abroad, including in relation to agriculture, clean energy, finance, healthcare research, and delivery. Finally, scientific progress requires the exchange of information and ideas across borders: As the WTO has stated, “for data to flourish as an input to innovation, it benefits from flowing as freely as possible, given necessary privacy protection policies.”
That’s one reason why it’s important that the US continue to follow the requirements of Section 181 to “identify and analyze,” and assess and quantify, barriers to cross-border data transfers, data localization mandates, and other barriers to US services and goods exports and to US e-commerce.
Congressional Representatives From Both Parties Should Continue to Support Digital Trade Policy
Over many years, Congress has maintained bipartisan support for international trade and economic engagement with other countries. One recent example can be seen in the overwhelming bipartisan, bicameral approval of the US-Mexico-Canada Agreement, including its digital trade provisions.
Congress continues to support a confident, outward-looking US digital trade agenda that supports US strategic and economic priorities, as reflected in the views expressed by nearly 100 Senators and House representatives and those of congressional committees focused on small business and competition. Bipartisan support for digital trade is also echoed across the political and economic spectrum outside of Congress, as reflected in the views of academics; civil society; think-tanks; human rights and civil rights groups; strategic, cybersecurity and national security experts; small businesses; individual enterprises; economy-wide and sectoral associations; CEOs; and some 50 business groups that represent thousands of companies and millions of workers across the country. This reaction is hardly surprising given that 40 million American jobs are supported by international trade.
We urge all lawmakers to make a concerted effort to maintain longstanding bipartisan support for cross-border access to information and digital trade for the benefit of the American people.
