Why AI and data might not belong in trade deals

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Welcome to Trade Secrets. There’s an interesting event coming up this week, as Australian prime minister Anthony Albanese meets China’s Xi Jinping. Diplomatic relations between the two countries are rapidly improving, with China lifting its coercive restrictions on Australian exports. But let’s remember what underpins that. Australia’s bargaining position was hugely strengthened by its exporters finding other markets in response to Beijing’s bullying rather than Canberra having to escalate a trade war. In today’s main pieces I look at the Biden administration’s break with the previous US trade policy consensus on data flows and digital trade, and ask what those issues are doing in trade deals anyway. Charted waters is on the Bank of Japan and the weak yen.

Biden’s break with the digital consensus

A longstanding constant of US trade policy (and one that survived the Trump presidency) was rocked a couple of weeks ago. The US withdrew from its previous position in negotiations on digital trade at the World Trade Organization, saying that the right to regulate was more important than pushing for the free cross-border movement of data.

The Biden administration has always been keener on reining in Big Tech than was either Obama’s or Trump’s. Its new stance is closer to the position the EU has long taken — that privacy is a fundamental right, and the ability to regulate it is not to be bargained away in trade deals. 

In theory, together with a general move towards tighter rules on the use of personal data, at least at state level, it looks as if the different US and EU regulatory philosophies — laissez faire versus tough privacy protection — are converging somewhat. (This trend has already been identified by the guru in this area, Columbia University’s Anu Bradford.)

Now, as noted by Simon Lester, who founded the WorldTradeLaw.net website, in practice the US shift might not make a dramatic difference to how data is actually treated in trade deals, which are often shot through with exceptions.

I’d add that no strong and binding rules guaranteeing the free flow of data would ever have made it out of the WTO ecommerce negotiations alive in any case. Along with the EU’s reservations, China wants to preserve its incredibly pervasive system of controls, with companies wanting to take data out of the country facing multiple barriers.

But that just raises a bigger question: what are the likes of data flows (and AI, policymakers’ latest obsession) doing in trade agreements in the first place?

Trade in data needs trust

To answer this we turn to Susan Aaronson of George Washington University, who’s often to be found pushing out the boundaries of creative thinking on digital trade and the like. Here’s her latest paper on the subject — an earlier piece from Trade Secrets favourite Dan Ciuriak is also worth a read.

Aaronson’s take is that the case for including data flow and digital trade in trade agreements is strongly conflicted. There’s a good argument from the practical and institutional point of view. Trade deals are legally binding and have provisions to arbitrate disputes, unlike the softer guidelines that emerge from discussions in places such as the OECD.

But data isn’t really like a normal traded service. As Aaronson says, data flow isn’t always accompanied by an actual commercial transaction, and although data can be a commercial asset, it’s also a public good and a national security issue. 

Countries have a whole variety of different data protection laws that they somehow have to make compatible with their obligations in trade deals, and so far there hasn’t been much progress towards developing international norms of behaviour. For example, governments have shut down parts of the internet in the past (including democracies such as India and Brazil, which have banned particular apps) but no other government has managed to challenge this as an illegal restraint of trade. 

There’s a lot of public suspicion of the big internet platforms and the way in which personal data is used and transferred. Trade deals, which are typically negotiated in secret and subject to intense lobbying from affected companies, are unlikely to be the best way to address that. If governments are going to maintain public support for making data flows work, they’re going to have to do a lot of work building trust in their own regulations first. The US, for example, badly needs a comprehensive federal data protection regime rather than a state-by-state and sector-by-sector patchwork, but there isn’t much sign it’s going to get one soon.

This all seems a pretty plausible argument. Putting digital issues into a trade deal sounds like a good idea, but it has to be a complement to building public confidence in the way personal information is handled, not a substitute for it.

Charted waters

The Bank of Japan last week ended its long experiment of keeping monetary policy loose by preventing long-term bond yields rising higher than 1 per cent. This might help arrest the fall in the yen, which has slid pretty much throughout the year, without having to resort to currency intervention.

Trade links

The EU is launching a drive to improve economic growth and competitiveness. It is concerned about the strength of the single market and Europe’s lagging performance in high-technology sectors.

The shipping giant Maersk has cut 10,000 jobs as the post-Covid rebound in global container trade has eased off and the freight industry returns to something more like normal.

The challenges the EU will have in admitting Ukraine as a member, as very well described in today’s Europe Express newsletter, have been underlined by Polish hauliers threatening to block Ukrainian trucks from entering Poland, saying they are being undercut by low-paid drivers.

Following its constraints on selling germanium, gallium and graphite abroad, China is imposing export controls on its hitherto flourishing giant panda export trade. I’m saying nothing.

The UK continues to repair the damage Brexit has done with painful slowness, this time boosting its tourist industry by cutting the bureaucracy required for school trips from France to enter the UK.

Trade Secrets is edited by Jonathan Moules