An American digital trade agreement?

Enthusiasm can be traced to several points.  First, the US continues to show no offensive or forward-looking trade plans.  The Biden Administration has been in office for more than six months.  Thus far, the only commitments have been to think more carefully about how trade deals can better benefit American workers and to promise greater enforcement of existing arrangements to help support the cause of worker-centric trade policies.

But restating objectives is not the same thing as actually delivering plans or activities.  Since politics abhors a vacuum, the longer the US sits on the sidelines, the greater the difficulties of achieving outcomes that match US objectives. 

Having the US pursuing a digital deal creates forward momentum and puts the US back into a position to deliver results.

A second reason for embracing a digital-only deal is that it may be able to be crafted in such a way that it does not need Congressional approval.  Given that Trade Promotion Authority (TPA) expired in the US in early July, working on a full-scale or comprehensive trade agreement will be especially challenging.  But delivering results via a different mechanism may be a work around.

Third, the US is missing opportunities in the digital space as a result of its limited existing network of trade arrangements.  Nearly every recent agreement in Asia, as an example, signed in the past decade includes rules and commitments and a cooperation structure to manage digital trade.  Past agreements, like the ASEAN-Australia-New Zealand FTA (AANZFTA) or the Australia-Japan EPA (JAEPA), are preparing to upgrade existing e-commerce chapters.

Many of the provisions and cooperation elements added to these latest trade arrangements fit broadly with US objectives.  But it certainly possible to imagine that they will unfold in ways that are less suitable for the Americans. 

Finally, crafting a digital-trade deal also gives something for people to do.  This may sound like an irrelevant objective, but it matters.  Trade agencies and ministries that cannot deliver results can suffer budget and staff cuts or watch as good talent walks out the door. 

In short, there are some sensible reasons for pushing the US to pick up and lead a new digital agreement.

However, the Americans are not—to use a sporting metaphor—stepping onto a clean pitch.  The game has already been underway for some time, particularly with important American trading partners and likely participants in any new digital arrangements. 

The US will have to operate within an increasingly crowded landscape.  More than 80 WTO members have been working on e-commerce through a Joint Statement Initiative (JSI) for some time. 

Other ongoing digital activities include the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), the Regional Comprehensive Economic Partnership (RCEP) and, as noted, upgraded commitments in AANZFTA or Japan’s various trade deals, as well as ASEAN’s E-Commerce Agreement which is entering into force this year.

There are also two types of digital-only trade deals already in place.  The Digital Economy Partnership Agreement (DEPA) is a stand-alone deal.  It builds on the CPTPP commitments and included three original members of the agreement: Chile, New Zealand and Singapore.  It is currently in force for the latter two countries and is likely to undergo expansion with the addition of new members shortly. 

There are also growing a number of Digital Economy Agreements (DEAs) in place for Singapore.  One is already in force with Australia with two more nearing the finish line: with South Korea and the UK.  The DEAs are designed to build on existing bilateral free trade agreements.  This means that they need not replicate all the features of a comprehensive agreement, including dispute settlement or the agreement management infrastructure, but compliment existing policies and procedures.

If the US shows up and is prepared to work on a digital economy agreement, the first question will be what is to be included in such an arrangement that is not already covered under the JSI, CPTPP, RCEP, AANZFTA, DEPA, DEAs or other e-commerce and digital trade chapters in bilateral trade agreements? 

It will be critical, of course, to ensure alignment as most of the members in these existing trade arrangements are overlapping. 

The US will, presumably, push for higher ambition than found in existing trade arrangements.  While the details will need fleshing out, ideas for inclusion may be more work on electronic payments, artificial intelligence, Internet of Things (IoT) rules, big data, open data for government use, cybersecurity, encryption, or digital identities.  Most of these topics are included already in Asian trade deals, although many remain at the cooperation level as officials have been uncertain whether such topics are “ripe” for creating binding legal rules at this point in time.

Members may rightly ask why they ought to be bound to even higher commitments while many of these existing provisions are still quite new and evolving. 

Given the clear preference of the Biden Administration to promote continuous enforcement in any trade arrangements, it is likely that any digital-only deal must contain robust dispute settlement.  Although many of the existing trade deals have dispute settlement for some—but not all—of the provisions, no disputes have yet been managed through these newer trade arrangements.  It is not clear how much enforcement potential members to an American digital agreement might be willing to accept.

If the US digital deal gets framed as being “against China,” this is likely to be even more problematic for potential American partners.  Even if they agree that alignment with larger groups of countries is important and even if they agree that some Chinese digital practices can be increasingly difficult to manage, it may still prove impossible for most to agree to sign up to a “containment” policy for digital trade.

Hence, although there are incentives for moving ahead with a digital agreement for the Americans, convincing others to join another arrangement may prove more challenging than seems to be appreciated at the moment.  The US will need to have a clear and convincing rationale for starting over with yet another trade arrangement and it will need to provide value-add for potential members.  Otherwise, it could be the case that the US offers to lead the party and discovers few takers.