Though details are not public, close observers in the know say that at the recent Indo-Pacific Economic Framework (IPEF) meeting in Bali, the US presented plans for digital provisions that are described as “USMCA minus” compared to the more advanced rules in the US-Mexico-Canada Agreement (USMCA). Should this retreat prove real, it will represent a huge missed opportunity for the US to foster deeper e-commerce liberalization in the world’s fastest growing economic region—and more particularly the region with the fastest growth in internet connectivity and access.

For a quick background, digital trade provisions now appear in a number of Indo-Pacific trade arrangements, including the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and smaller agreements negotiated by Australia, Korea, New Zealand, and Singapore.

The Obama and Trump administrations understood the vital importance of crafting US-led regional and global rules of the road for e-commerce. Though President Donald Trump foolishly pulled the US out of the original Trans-Pacific Partnership, his administration did support more comprehensive digital trade rules in the USMCA and a bilateral agreement with Japan.

As noted in previous commentaries, the Biden administration has eschewed formal, legally binding free trade agreements—offering greater market access as an inducement. A major administration initiative in the Indo-Pacific, the 14-member IPEF will take the form of an executive agreement and consist of four so-called pillars, one of which is the trade pillar that will comprise commitments on various trade issues, including a digital rules component.

Here, succinctly, are the major digital rules inherited from the USMCA:

• Prohibition of restriction on cross-border data flows, with narrow exceptions;
• Prohibition on forced data localization rules as a condition of conducting business, again with narrow exceptions;
• Prohibition of forced transfer of source codes and algorithms; and
• An acknowledged need for a privacy law, though nondiscriminatory rules apply.

Labor unions and progressive groups such as Public Citizen have launched an all-out assault on the digital terms of previous US agreements—and extension of these provisions to the IPEF. The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) argues that existing agreements have allowed “unfettered cross-border data flows” to facilitate “offshoring” and hinder legitimate government regulation. As to specifics, the progressive labor coalition wants wide-latitude public intervention and regulation in determining data flow regulation, data localization, and source code and algorithm management. It should be noted that the USMCA data flows section does contain an exception for “measures necessary to achieve a legitimate public policy objective.”

US Trade Representative Katherine Tai has shown herself to be highly responsive to the Democratic Party’s labor and left-leaning elements. Last Friday, in testimony before the US House Ways and Means Committee, she repeated her mantra that traditional trade liberalization policies have often led to “deindustrialization and erosion of our capabilities.” This tracks the AFL-CIO’s warning regarding USMCA digital provisions. So, we shall see where the US stands when its position on the IPEF digital section is made public in the coming weeks.

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